International Dimension of Business - Essay Example

International Dimension of Business Introduction Today’s global business environment has a fundamental requirement whereby understanding the international business is a necessity. Studying the developments involved in understanding other societies and cultures help enrich the lives of students and enhance their career opportunities. The theory of the evolution of the internet has shown there are no borders; many companies have taken the opportunity to expand and venture into other environments with the view of garnering effectively and cultivating an international clientele. The success of international business requires additional acumen compared to managing a local enterprise (Miroslawski, 2008:7). Given this perspective, in international business, you need to deal with not just traditional business values and functions, but must understand and work from a worldwide point of view that incorporates culture, politics, monetary variables, and time among other factors as well. This paper will seek to address why international business is becoming more important and which world regions have been opening for international business as well as its impacts. This paper will analyze all these details using Haier group of companies as illustration mechanism. The Haier Group Company Formerly, people knew this group of companies as Qingdao Refrigerator Plant. According to reliable sources, it battled its way out from the verge of bankruptcy in the beginning of 1980s to gain its rebirth as a global renowned brand where it stands today. As of now, it is the fourth largest manufacturer of white goods otherwise known as appliances that traditionally bore the cover of white enamel. They comprise of washing machines, dryers, televisions, cell phones, air conditioners, computers, and dishwashers among other products. Currently, it makes the largest number of appliances in China ranking it number one. The development of this company relies heavily on three key categories. To begin with, it has a developed local quality reputation. Secondly, after its incorporation in 1984, it started diversifying its business and expanding its products. After ensuring developed market for its refrigerators in China, it searched for other products where it could transfer this brand name. Thirdly, this company sought to expand globally where it began grabbing opportunities for transferring its quality reputation and brand name to both developing and developed nations (Cullen and Parboteeah, 2005:280). As witnessed in the three categorical stages that this company based on while soaring to global margins, it is agreeable that it had to consider and formulate a number of strategies. Fact-findings reveal that this company had to use a Total Quality Management system that helped it put in place a rigorous standard of strong brand name in its home country. After implementing these new quality standards, the company was in a position to turn earnings only a year upon encountering a possible state of bankruptcy (Ding, 2002:4). While diversifying its products, it noted that other appliances such as microwaves and dishwashers as well as freezers were to expand since they go hand in hand with refrigerators. This company understood that, in order to maintain market grip and continue operating in the business, the company had to operate internationally. The company’s financial background Being the fourth largest manufacturer of white goods, this company is part of the China’s Top 100 Information Technology Companies that contributes to part of largest revenue turnover annually. Due to expansion, it has a record of 240 subsidiary companies as well as 30 design centers. Additionally, it has trade and plant companies and accords over 50,000 employees to its name who operate in different support companies in various parts of globe. This company majors in technological research, financial services, trading activities, and in manufacturing industry (Liu and Li, 2002:5). With respect to these business activities that it takes part in, this company bagged global revenue of RMB 107.5 -billion in 2006. Globally, people recognize this company through its nine leading products in terms of local market share. They also regard it as the third player in three products in the global market and excellent firm in the areas of network appliances, home integration, large-scale integrated circuits, digital, and new materials. For a long time, this company continued maintaining a significant attachment to innovation in meeting the needs of its clients. Currently, it possesses over 7,000 patented technology certificates and more than 589 software intellectual rights to property (Ragman and Collinson, 2006:77). This company has underwent series of experiences in international business whereby some learning institutions such as the Harvard University and the European Business College adopted and introduced them in case studies of financial management and business mergers. Analysis of the main characteristics of the business environment in the host country those are likely to have influenced the organization’s decision to operate there Furthermore, the US market was of high interest since the government of the host country subsidizes Haier’s environmentally friendly products. According to a report derived from World Economic Forum Global Competitiveness, US consumers received rebates that ranged from $40 to $100 when they purchased Haier Double Drive machines for washing. Following these sought of incentives that the US government offered to consumers of this company’s products, it felt encourage and benefiting to venture in big margins into this economy. Back in the home country, it had a competitive stratagem in exporting its products. The strategy was as a contender, which differed from its outward investment (Morrison, 2009:174). To be more specific, the company did not follow any previous models of internationalization routines but launched a very creative internationalization strategy that ensured quick and easy market grip in the US. The use of contender principle was highly successful as it managed to initiate a progress evolving management system, which led to development and possession of prestige and establishment of pious company brand. The principle was desirable as it facilitated the company’s entry into the Middle East and Africa markets where it started exporting its products such as cell phones, televisions sets, integrated kitchen appliances, computers, and water heaters. It exported these products to countries in Africa such as Kenya, Nigeria, Ghana, South Africa, and Tanzania while in the Middle East; it chose Yemen, Oman, Qatar, Saudi Arabia, and United Arab Emirates among others (Ragman and Collinson, 2006:136). With reference to cultural analysis of these markets, this company developed interest since it designed high capacity washing machines together with refrigerators and air conditioners that were suitable for handling tropical conditions experienced in these markets. International expansion It is understandable that, while every company is venturing into international business, it must undergo some challenges. With reference to this company, there were significant external barriers that it had to outshine while in the process of developing an electronic business strategy. According to Chinese econometrics, the strategies of expansion employed by this company are very different from those used by a majority of Chinese firms. This is because, a large number of Chinese firms buy resources from other countries and sell their products using foreign firm’s labels. Generally, the goal of this firm was not to sell its products oversees only (Cullen and Parboteeah, 2005:281). It also wants to create a genuine global brand. With reference to this company’s Chief Executive Officer, Zhang Ruimin, this firm’s main objective in exporting is to put in place a brand with a reputation oversees. This is in opposition with the majority of Chinese companies whose rampant purpose is to just sell their products internationally and earn foreign exchange. Given the fact that it has a developed domestic brand name, the CEO believes that this company needs to transfer its brand name to other expanding markets in different regions of the globe. PESTEL analysis The analysis of macro environmental description brought forward by PESTEL framework show that, initially, when this firm was venturing into the American market, it formulated a policy aimed at making the Americans feel and understand that this firm is a localized brand and its products are domestic appealing. Due to its cautiousness, this company chooses which new markets to explore. The largest number of Chinese firms resolves to venture into Asian markets prior penetrating into European or United States markets. However, the strategy used by this company is exactly the vice versa (Liu and Li, 2002:9). Documented evidence asserts that, it chose to venture into the American market mainly because of competition. This is so since its biggest competitors are already established firms in that market. Having seen what its competing firms were faring in the foreign markets, this company chose to venture into these markets since it believed it can succeed in challenging markets and could generate an easier platform for venturing into easier ones. When a firm extends its business activities across borders, it attains international business philosophies where it does not only have to consider changing mechanisms in the domestic market, but also in that of the host country. With international markets, a company gets a wide variety of opportunities that are not available in the domestic market. Nevertheless, it is agreeable that global business has more risks than domestic business. According to the philosophical business guru Zhang Ruimin, the company chose to venture into international business following the fact that the firm preferred to go global since it perceived more benefits internationally than the anticipated risks. With international market, the company expanded its market share, increased its profits, and expanded its sales revenue (Ragman and Collinson, 2006:104). When a company resolves to venture into international business, it fist selects a country where it places it as the primary target. After selecting the host country, it goes ahead to analyze the alternative market of that nation and evaluate the respective costs involved in carrying out business in the country. In addition, it also evaluates other factors such as risks and benefits and choose one that possesses the most beneficial and potential aspect for entry. The analysis of the foreign company takes into consideration factors, which include the size of the country’s population, per capita, the Gross Domestic Product, the purchasing power of the potential customers, and legal as well as political environment of the host country (Naughton, 2007:45). Apart from the factors listed above, when a country is venturing into international business, it must also put into consideration other factors like social cultural environment. The following step that happens to be congruent in venturing into international business is costs, risks, and benefits assessment. There are strategic factors that a company must consider when expanding its business activities into another country. It must weigh profits obtained form a particular volume of sales, level of acquisition, and the costs incurred during manufacturing process. Furthermore, it must put into consideration costs in which they might be direct or opportunistic in order to determine the country’s competitive advantage (Morrison, 2009:69). Other factors that are crucial and deserve a clear outlook include access to new technology, availability of cheap labor, market foreclosing to competitors, and opportunity to achieve synergy among others. With reference to Haier group of companies, the dimensions of international business that interested it while expanding into the US associated with trade. The company saw presence of exporting and importing opportunities in the host country that outweighed its domestic market. Moreover, the host country was a valuable choice due to its manufacturing and marketing strategies where the company perceived greater benefits compared to home country. In the host country, this company assessed and established strong global sourcing and production (Morrison, 2009:95). The system of manufacturing globally favored business activities of this company since the aspects of production in the host country allowed for requisite development and growth. Given the infrastructural development that the United States enjoys, this company saw potential in the host country’s services. The host country has well developed banking, telecommunication, transportation, and tourism services, which are very essential in ensuring maximum business performance. Additionally, this company internationalization need was because of market over flooding. Surprisingly, due to increased demand and supply, companies that manufactured appliances became competitive and saturated the market with these products. As for this firm, such was an opportunity to venture into other international markets. Therefore, the company exported over 20, 000 refrigerators to Germany, marking its entry into European market. China was no longer the company’s strategic market anymore as foreign firms had started flocking into the country making it less profitable and more competitive. According to many analysts, global competition was the key driver that dragged Haier into international business especially those in the European and Middle East markets. Having used its internationalization strategy to survive economic bubbles, it employed the same survival theory strategy to compete both locally and internationally with profound giants such as Samsung and Sony (Miroslawski, 2008:10-11). As of today, the company continues to demonstrate a high level of competence as it recently introduced a new series of hi-tech environmentally friendly machines for doing laundry. This shows that the company is ahead of the market trend and is demonstrating a high level of technological innovation and capability. Currently, it produces 1.8 million freezer units per annum. This has not come that easy. According to the information handed down by the CEO, this company established its first Industrial Park in South Carolina on the 30th day of April in 1999 marking its entry into the US market (Morrison, 2009:152). Reliable sources depict that, this company found the US market being favorable because of the fact that this country has joint ventures where a company can sell most of its products under one roof. Availability of such centers such as Wal-Mart and Best Buy were suitable for moving its products in bulk, which include freezers, home air conditioners, microwave ovens, and refrigerators among other appliances. Evaluation of international entry models When evaluating models and routines used by firms to venture into international business, the common considerable factors include licensing, Foreign Domestic Investment, and franchising among others. This section of the paper will evaluate the factors that this company took in place while choosing its mode of international entry making use of appropriate theories of internationalization. Expansion of this company’s business activities took place in developed national markets such as the US and Europe. This factor allowed the company to design and produce high quality products that met high safety and consumer standards (Lin, Jiang, and Bruce, 2007:2). According to many analysts, this had a mission destined to shake the US market following its agreement with Wal-Mart. This retail outlet agreed to stock the company’s products in plenty making it easier for the firm to access the market with much zeal. Franchising Since the US consumers received rebates that ranged from $40 to $100 upon purchasing the company Double Drive washing machines, the company used this opportunity to make the host country’s market its world’s largest competitor in the consumer appliances. As a result, this company opted to compete with the US giants on the bases of quality plank as opposed to price. With that respect, it incorporated factors such as franchising in its way into American consumers’ tastes and preferences (Jovanovich, 2007:187). Given their previous encounters with the American consumers, the company was aware that this would not be a ride in the park since many US consumers associated Chinese products with low quality. However, due to set strategies, the company was able to venture into the US market and produce quality products thus proving the host country’s consumers otherwise. Given the franchise principle, the company believed it could only maintain market grip by the host country consumers’ tastes and preferences through quality alone. Evaluation f such scenario reveal that, the company could also initiate a program with an ability to make its products sound local and qualified. As such, adopting a localization strategy would serve the company best given the fact that the target clientele believe only local companies manufacture quality products (Jovanovich, 2007:210). Winning over these consumers’ choice and preference required more than just convincing. This follows that the company could initiate focus on niche products whereby it could offer a variety of versions for various segments of the US market. However, it is still understandable that this company’s strategy towards entering the US market was strategic and favored its entry and survival as its success depicts today. Foreign Domestic Investment In the wake of 1992, this company started exporting its products, mainly refrigerators to Indonesia where these products received a warm welcome by distributors and consumers. Three years later, Sapporo Limited of Indonesia toured the company’s enterprises in order to investigate its quality of products and management system. Since this firm had big interests in the Indonesian big and potential market, it commenced its first stage towards FDI in Indonesia in 1996. Up to date, this company has established and grown subsidiaries in 13 nations, 10 information centers, and 8 centers for design as well as other branches overseas. Detailed evaluation asserts that, this company realized a congruent strategy based on localization through its triangular network in design, marketing, and production. This is because, when it started FDI in Indonesia, the company proceeded with the internationalization process and progressed to build a plant in the Philippines (Lin, Jiang, and Bruce, 2007:4-6). When this company came into being in 1984, it started importing production technology from Germany as a joint venture following a licensing agreement between the two countries. Analyses show that, the pressure of globalization was weak in the years between 1984 and 1991. Company assessment show that, this firm was at its defending stage during this period. When it first imported advanced refrigeration technology from Germany, this company spent an average of seven years building a massive and strong company brand name in the world of refrigeration via a well- organized quality control system (Naughton, 2007:123). When the company’s 76 smashed refrigerators went on air, the company resolved to use agents in finding its way into international business. As such, the company had to implement the Japanese TQC’s system in order to charge a positive method of progress towards initiating its own management system. With this respect, it is sensible and agreeable that this firm chose the Germany market since it had complex and quality methods of refrigerator production technology. Summary In summary, reliable evidence from different sources reveals that, when the company built a plant in the Philippines, it used the opportunity to train managers, which it would later send them to the US upon opening the Greenfield site. Acquisition of the Italian plant was a further achievement in FDI as it helped the company build three very important windows of opportunities and extra opportunities of expansion (Lin, Jiang, and Bruce, 2007:7). The three windows of opportunities as described by the Company CEO comprise of information, technology, and purchasing. The two or extra expansions are growing geographically from Italy to markets in European countries and product wise, from manufacturing refrigerators to incorporate other electrical appliances. International business is broad spectrum that touches many parts of business studies, which include globalization, the growth of the internet, and its subsequent impacts on business activities. Cognitively, this paper has shown international business opens up many opportunities that when utilized appropriately, they can see the subjective firm soar to greater heights. Bibliography Cullen, J. and Parboteeah, K. 2005. Strategic Content and Formulation for Multinational Companies. Multinational Management: A Strategic Approach, 4, pp280-281 Ding, F. 2002. Haier Group. Available from: http://iir.uwaterloo.ca/case%20studies/small%20firm%20int%202002/Haier%20Group.pdf [Accessed May 2, 2012] Jovanovich, M. 2007. The Economics of International Integration. Cheltenham: Edward Elgar.Miroslawski, G. 2008. International Expansion & Market Entry of Mainland Chinese Business in Germany within the Context of Culture. China Media Research, 4(2). Available from: http://www.chinamediaresearch.net/vol4no2/6.pdf [Accessed May 2, 2012]. Lin, C., Jiang, F. and Bruce, W. 2007. Choice of FDI Entry Mode by Chinese MNCs: An Integrated Framework and Empirical Evidence. Working Paper Series, 1(2). Available from: http://dspaceprod1.anu.edu.au/bitstream/1885/46050/1/MMIB%20Working%20Paper%20Series%20Volume%202_Numer%201.pdf [Accessed May 2, 2012]. Liu, H. and Li, K. 2002. Strategic Implications of Emerging Chinese Multinationals: The Haier Case Study. European Management Journal, 20(6). 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