Global business (report)

Global Business

Assessment 1: Elecdyne

Student Number: 12018708 Module Code: ER3S72 Tutor: Gabor Horvath Word Count: 2672 Submit Date: 9-January-2013

Content 1.0 Introduction .......................................................................................................... 3 2.0 Findings ................................................................................................................ 4 2.1 STEEP Table .................................................................................................................4 2.2 Internal Analysis ..........................................................................................................5 2.3 External Analysis .........................................................................................................6

3.0 Choices for Company ........................................................................................ 12 3.1 Elecdyne’s Decision making ......................................................................................12 3.2 Elecdyne’s Strategy ....................................................................................................13

4.0 Choice of Methods ............................................................................................. 15 5.0 Recommendations .............................................................................................. 17 6.0 Brief Conclusion ................................................................................................. 18 7.0 References ........................................................................................................... 19

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1.0 Introduction Elecdyne is a SME which was founded in Tokyo, Japan. The company started in 1990.

It has grown from five workers initially to 100 staff recently. The company is mainly to produce a range of electronic products by using technology licensed from a number of multinationals.

At present, it just operates in the Japanese market, and only purchases from local suppliers in and around Tokyo. Elecdyne had initial success in competitive price.

Therefore, it is in a situation, its profits have been steadily decreased, it now faces a prospects losses in next fiscal year.

Most of their leadership team are multilingual, some have learnt English, and several of them have studied abroad. The management team are now contemplating the possibility of internationalisation. Being a company has never had corporation with overseas markets the conditions of satisfactions among those suitable countries will be shown below: the access to cheap labour comes to the first and followed by the innovations and technologies, and last but not the least is the better markets in which to compete.

This report is mainly to analyse the current environment that may have influence on Elecdyne and compare three potential countries and examine for those factors mentioned above and make a decision of which one is the best for Elecdyne to enter in. The three countries compared with Japan are the United Kingdom, China and Spain.

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2.0 Findings 2.1

STEEP Table

As the best tool for analysis the situation of Elecdyne, the STEEP table may contain more information than the map and it are clearer in each section. That may be easier for the Elecdyne to make an analysis to their risk and make an improvement in each part. The STEEP table can also assist Elecdyne to perceive the external environment trends and have influence on the competitive environment.

•

For their old rivals who are already known the strategy of Elecdyne may have some influence on their future plan. There are another pressure of this new-growth enterprise and also have some competition to Elecdyne. That because the increasing sense in greenness of consumers may be a big challenge. (Pınar Başgöze 2012, p. 479)

•

The increasing of variety demands may lead the company adjust their principle of management. In order to ensure customers are satisfactory on their services, retain their old customers and explore more potential consumers. (Laura Lake, 2011)

•

Nowadays, mass media are playing an important role in every field. Either positive news or negative news can have a big effect on the confidence of customers. (Hasnain Malik, 2010)

Technological •

Whether the internal department of company can have enough new technical to improve the old products. (Diego A. Comin , 2008)

•

The crash from high technology to the old products so that the old products will be weeded out. (Bart Hobijn, 2008)

•

There are more and more copy products appear on the market, the company should try their best to maintain their patent right.

(Molly Fisher, 2009)

•

There is a steady recession of economic lead the cost of product is increasing. That may cause the staffs of the company are unemployed. The company should also make sure the capital chain could be normal operation. (Tavia Grant, 2012)

•

Use the lowest cost of the product such as cheap labour from Asia countries so that can make the profit as much as possible.

Social

Economic

4

(Michelle Chen, 2010)

Ecological

•

Be certain on the recovery time of economic in order to grasp the opportunity to lead the enterprise to the peak. (Ben S. Bernanke, 2012)

•

Protecting the ecological can establish a good company image.

(Lisa P. Jackson, 2009) Nowadays more and more people pay attention to the environmentally friendly society and green products. (Bill Stone, 2010)

•

Political

•

There are stricter and stricter to the regulation of institutions.

(Daniel Castro, 2010)

•

Renewable energies and new raw materials are becoming more and more popular among the companies that may means more ecological they are, more profit they can earn. (Kali Taylor, 2013)

•

Whether the government will support the company and the tax of the company will increase or reduce. (Dan Galai, 2003)

•

The tread barrier can be influence whether the company can have a global business with the world companies. (Brent Radcliffe, 2011)

•

Whether the nationality of the company is the member of some trade organizations. That may also be a key factor to affect the trade of the company. (Robert Half, 2011)

(Group Work)

2.2

Internal Analysis

The SWOT analysis will be used for a better indicating the company’s internal strengths and weaknesses. Here is the table below: Elecdyne

Strengths •

Multilingual ability of leader management

•

Strong business culture

Weaknesses • •

Lack of innovation Have no experiences to operating company in 5

• •

overseas.

Variety of their products Low costs with high technology

Financial problems

•

The opportunities and threats will be shown in the PEST analysis of external analysis.

2.3

External analysis

It can be occurred and monitored the weakness of Elecdyne by using the PEST analysis. Hence, they can recognise any dominant factor for change in the competitive environment. The factors in the PEST have been weighted from 1 to 10, which means from low to high. For the factor Economy, it will be classify into two parts, which are market issue and cost resource issues. The information collected for each factor is scored based on Japan. Japan has a score of 0 and the three countries are score from -10 to +10. In the other words, if the country is worse than Japan, it will become negative number while if it is better than Japan, it will be positive number. The total number will be calculated in a summary table which will assist Elecdyne to make the decision of which country would be the best for them to internationalise into.

There is a small table of the outline weights.

Market

Cheap

labour

and Technology

resources 10*

7*

6*

Opportunities / Threats: Using scale -10 to +10

Political Corporation Tax1 (4*)

Japan

China

UK

Spain

40.69%

25%

24%

28%

(0)

(4)=16

(5)=20

(3)=12 6

Dute Rate1 (for electrical)

0%

20%-30%

13%

14%

(4*)

(0)

(-3)=-12

(-2)=-8

(-2)=-8

1

2

1

1

(0)

(-2)=-10

(0)=0

(0)=0

78.7

43.6

93.2

62.2

(0)

(-4)=-12

(2)=6

(-2)=-6

0

-18

18

-2

Political Risk2 (5*)

Corporate legal Corruptio n Index Component1 (3*)

Total

Economy<Market Japan

China

UK

Spain

issues> GDP

Growth3

-0.7% (2011)

7.4% (Q3, 2012)

1.0% (Q3, 2012)

(7)=49

(4)=28

15.7%

13.1% (2008)

(0)

(-2)=-18

14% with household income below

(0)

(CIA)(7*) Population Below Poverty Line1 (9*)

+0.7% (2011) (3)=21

2.8% (2011) (-9)=-81

(-1)=-9 Inflation (8*) GDP1 (8*)

Total

Rate3 -0.28% (2011) (0)

2011:5.53%

2011:5.2%

2011:3.20%

(7)=56

(6)=36

(3)=24

$5.866 trillion (2011 est.)

2011: $ 7.3 trillion

2011: $ 2.43 trillion

2011: $ 1.49 trillion

(0)

(1.5)=12

(-2)=-16

(-5)=-40

0

99

39

-76

7

Economy<Cost

Japan

China

UK

Spain

resource issues> Unemployment3 rate (9*)

4.6% (2011 est.)

4.2% (July 2010)

7.8%(2.51 million)

(0)

(2)=18

(-2)=-18

25.02% (October 2012) (-6)=-54

Expenses4 (6*)

$1.157trillion (2011 est.)

$1.729 trillion (2011 est.)

(0)

(1.5)=9

£682 billion (2012-2013 FY)

$648.6 billion (2010 est.)

(-2)=-12

(-2)=-12 Imports4 (6*)

$808.4 billion (2011 est.)

$1.743 trillion (2011 est.)

$639 billion (2011 est.)

(0)

(2)=12

(-2)=-12

($371.1 billion) (October 2009) (-3)=-18

Revenues4 (10*)

$1.1trillion (2011 est.)

$1.646 trillion (2011 est.)

(0)

(1.5)=15

£592 billion (2012-2013 FY)

$515.8 billion (2010 est.)

(-5)=-50

(-2)=-20 Total

Social

0

Japan

54

China

-62

UK

-134

Spain

-0.077%

0.481%

0.553％

0.654%

(0)

(3) =3

(4) =4

(5) =5

migration

0 migrant(s)/1,00 0 population

-0.33 migrant(s)/1,00 0 population

2.59 migrant(s)/1,00 0 population

5.02 migrant(s)/1,00 0 population

rate3 (1*)

(0)

(-1) =-1

(4) =3

(8) =8

Population Growth Rate3 (1*) Net

8

Education

3.5% of GDP

1.8% of GDP

5.5% of GDP

4.3% of GDP

(0)

(-2)=-2

(2) =2

(1) =1

99%

92.2%

99%

(0)

(-3)=-3

(0)=0

97.7% (-1)=-1

0

-3

9

13

expenditures 3

(1*)

Literacy3 (1*) Total

Technology

Japan

R&D Expenditure

in

China

UK

Spain

3.4

1.5

1.8

1.4

(0)

(-6)=-42

(-5)=-35

(-7)=-49

the Percentage of GDP1 (7*) 30,117,679

Fixed

(0)

Broadband

82,879,000 (3)=9

17,274,023 (-2)=-6

9,054,204 (-3)=-9

Internet Subscribers5 (3*) 119,448

Trademark

(0)*

Applications

669,088 (4)=16

35,705 (-3)=-12

55,586 (-2)=-8

Total5 (4*) 17.3

High-technology (0)

exports5

5.3 (-6)=-36

18.5 (1)=6

5.3 (-6)=-36

(%manufactured exports)(6*) ICT imports5

9.3

goods (%

(0)

21.2 (-5)=-25

9.3 (0)=0

7.9 (-2)=-10 9

total

goods

imports)(5*) Researcher R&D1

5,189.3

in (pre

1,198.9 (-3)=-9

(0)

4,11.8

2,901.4

(-2)=-6

(-2)=-6

-53

-118

million people)(3*) Total

0

-87

(Group Work) 1 http://data.worldbank.org/indicator/

2 http://www.ondd.be/webondd/Website.nsf/HomePageEn (Visitor)?OpenForm

3 https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

4 http://www.tradingeconomics.com

5 http://www.nationmaster.com/index.php

PEST

Japan

China

UK

Spain

Political

0

-18/4=-4.5

18/4=4.5

-2/4=-0.5

Economic

0

99/4=24.75

39/4=9.75

-76/4=-19

0

54/4=13.5

-62/4=-15.5

-134/4=-33.5

0

-3/4=-0.75

9/4=2.25

13/4=3.25

<Market issue> Economic <Cost resource issues> Social

10

Technological

0

-87/4=-21.75

-53/4=-13.25

-118/4=-29.5

Total

0

11.25

-16.75

-78.25

From the summary table above, the weightings have been calculated and they have shown that China has the best score over all. Hence, China is the best country to internationalize to.

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3.0 Choices for Company 3.1

Elecdyne’s Decision making

From the weighting analysis, China has shown to be the best country for Elecdyne to internationalise into because of its highest score overall in the analysis.

China has the largest population while its labour cost is quite cheaper than any other countries in the world. The salary is so low that many other foreign companies are trying to build their branch offices in China. The BBC news said that the low salary maybe a serious problem exists in China (BBC News, 2001). China also has a very large demand of marketing because it’s large population. However, the technology is not so advanced.

Although Chinese economic market has some disadvantages. For instance, the primary problem is high tariff, and the innovation ability in China is limited. Withal Elecdyne need use themselves technology and research. Despite of those adverse factors, China is the most populous country which is also owns the largest population in the world, it contains a large consumer market prospects. Elecdyne can save their cost of production throughout the lower wages and more suppliers’ choice. For another, encourages from Chinese government also help the overseas companies’ to invest their trade in China. Thus, Elecdyne can take full advantages of some preferential policies. It is said that one of the major task of Chinese government is to support foreign investment for a better environment and further facilitate trade (China Daily, 2010).

In recent years, Chinese economies was growing fast and even exceed many developed countries in the world. Opening up Chinese market can improve the company’s economic strength so that can help them overcome the crisis. What’s more, China is one of Japan’s neighbouring countries which means that the cost of transportation is low and there won’t have too much culture differences. All of those will become the unique vantage to help Elecdyne blend in Chinese market faster and safer.

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3.2

Elecdyne’s Strategy

In order for Elecdyne to get a better internationalise into China, it needs to identify factors that Elecdyne should collect information on as a strategy. For instance, cost, consumer, the local government and related policy, tax and exchange rate and technology. Furthermore, the Dunning’s Eclectic theory will be used to show the forward factors. For this we decided to use three-mark system to compare (1 being best, 2 medium and 3 being the worst in particular area).

Area

Country

CHINA

SPAIN

UK

JAPAN

WAGE COSTS

1

3

2

2

DEVELOPMENT IN

2

3

2

1

MARKET DEMAND

1

3

2

2

MARKET LOCATION

2

1

3

2

TECHNOLOGIES

In Japan, the high level of modern technology and excellent service is of every kind. By the comparison of the three countries with Japan, China has been proved once again to be the best country for Elecdyne to enter in.

China has the world largest population and the size of China’s electronics market is quite big under the huge population base. China is a country which is famous for its vast territory and abundant resources. It has a low cost production, labour costs and expertise. For the trade barriers, China has a high interest rates, taxes and duties for both imported and exported products that may become the Limitations on trade.

However, the government has published some policy to stimulate the development of trade such as support and assistance to new investors, free markets. Entering to Chinese market which may also means facing with more competitors and challenges.

Before access to the new market, Elecdyne has some current advantages. The first is their international managerial experience. And then, they have more than 20 years 13

experience in the electronics industry and they owned amount of skilled labour force.

Moreover, they have a low cost production and strategy.

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4.0 Choice of Method Due to this is the first time for Elecdyne to exploit its overseas market and various opportunities and threats they have to face, the company must find a suitable method when exploiting Chinese market. There are 3 options for Elecdyne to evaluate and choose: the first is entering into a joint venture. Second, is developing an organization via Green Field development. Last but not the least is Cross-border mergers and acquisitions. There is a chart below in order to make a further comparison between those three methods and help Elecdyne make a better decision.

Strategy

Advantages

Joint ventures

•

Quickly to enter the market

(Norris,Jr. (2011))

•

Gathering information of local knowledge from partner

Disadvantages •

Never corporate with foreign company, hard to find partners

• •

Trust with partners Shared profits with partners Loss of proprietary knowledge

•

Lower price to pay for rates

•

•

Leveraging of underutilized resources

•

Potential conflicts in unknown market

•

Less concern about culture differences

•

Share risks and resources with partner

•

Strong competitiveness with other local company

Greenfield sites

•

Seize the immediate market opportunities

•

Slower start-up and more preparation

(Norris,Jr. (2011))

•

Avoid problems of integration

•

•

New employment policies

Requires skills of foreign management while the company have no experience 15

• •

before

Fully controlled with their own business

•

Gain resources e.g. skilled labour and material

High investment capital cost

• •

High risk of failure Need to build a brand new connection and relationships with other local company

Mergers /Acquisitions

•

Get greater shareholder value

•

High cost of take-over

(Norris,Jr. (2011))

•

Stronger competitiveness

•

Potential devaluation of equity

•

Get knowledge from the acquired company

•

Overpay for acquisition

•

Quick and easy to execute business

•

Poor performance of acquired company

•

Lower costs and increased revenue

•

Cultural conflict with acquired company

All in all, joint venture is the best way for the company to internationalize the Chinese market. First of all, for Elecdyne itself is a company with less proprietary technology, decreasing sales and profit. What’s more they want to access to a new market with high technology and cheap labour. However, both Greenfield Sites and Mergers and Acquisitions are all need to upfront a lot of money which is not match with the company’s current situation.

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5.0 Recommendations 1.

2.

3.

Elecdyne should take a full advantage of the social media and networking sites to create a strong brand image within Chian so that influence a strong percentage of the Internet users Elecdyne should make use of the government incentives and grants on offer when entering the Chinese local market.

Elecdyne should back-up a plan to tackle the market and the change of market environment, because nobody can accurately predict the future development trend under such a converse economic environment.

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6.0 Brief Conclusion From this case study, Elecdyne had made a wise decision to contemplate an internationalisation strategy to foreign countries. It is clear that Elecdyne needs to find a country with cheaper labour, better innovation and bigger market to share. From the external and internal environmental analysis for not only Elecdyne and its location country Japan but also of other three countries, those are China, the United Kingdom and Spain. A conclusion has been made that Elecdyne should look to expand in to China by using the form of joint venture. For all that Elecdyne are now required to do is to implement these plans through utilizing the internal and external factors, and evaluate the risks and take control of their new operations in subsidiary in time.

Word countďź&#x161;2672

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