The Business Opportunity of XYZ in the UK and Chinese Automobile Sectors - Essay Example

International Business Environment Executive Summary The increasing pace of international business activities significantly provides ample opportunities for the global organisations to perform business operations in different nations. From the perspective of automobile industry, the multinational organisations are seeking to expand their business units in more sophisticated business environments in order to achieve competitive and sustainable advantage within the global market. Therefore, the main aim of the report will be based to identify the business opportunity of XYZ in the UK and Chinese automobile sectors. With this concern, the report will be focused on highlighting the national and institutional systems along with possible cultural differences within the UK and China automobile markets. In order to effectively identify the cultural dissimilarities of both the countries, Hofstede’s cultural dimension approach will be evaluated to recognise the main cultural differences both in the UK and China societies. Moreover, the report will further portray the trends of trade and investment influencing XYZ in the UK and China automobile sectors. In addition, the discussion of the report will also incorporate governing exchange regimes and investment portfolios of both the countries and the prevailing risks concerning political issues in China will also be discussed within the report. Table of Contents Introduction 3 Analysis of National and Institutional Systems and Culture Conditions 4 National and Institutional Systems 4 Analysis on Cultural Conditions 7 Cultural Conditions of the UK and China 8 Hofstede’s Model of Cultural Dimension 8 Trend of Trade and Investment Influencing XYZ in UK and China 11 Type and Level of Protection Measures against Imports and Foreign Investment in China 14 Exchange Regimes that Govern the UK and China 15 Political Risks in the Chinese Market and Possible Solutions 16 Conclusion 17 References 19 Bibliography 24 Introduction In relation to the present rapid growth of the United Kingdom and Chinese automobile industries, XYZ is considerably recognised as one of the major companies in terms of producing middle and upper class vehicles. The organisation is considerably playing a crucial role in the UK and China automobile markets in terms of serving vehicles for middle class and upper class consumers. The customers in both the UK and Chinese markets desire for quality based world class stylish vehicles. The developed economy of the UK along with increasing population and demand of vehicles can increase the probability of success for the business by a considerable extent. In the similar context, the economic condition of the China is further considered to be more stable among the developing nations of the world. Moreover, the business environments of both the markets are considerably feasible and appropriate for XYZ to practice its business operations. Therefore, the report intends to significantly analyse the UK and China markets for XYZ automotive company through evaluating the relevant theories and evidences in the market. Moreover, the discussion will also focus on enclosing the automobile market scenario of the UK and China along with different issues concerning national institutional systems and cultural conditions of the nations. In addition, the assessment will further consider trends of trade and investment and considerable measures to efficiently deal with possible issues during the investment portfolio that are required to effectively conduct XYZ’s operations in the UK and Chinese automobile markets. Analysis of National and Institutional Systems and Culture Conditions The international business approach encompasses conducting trading activities beyond the national boundaries. The term international business can be defined as the process practiced by an organisation while functioning in more than one nation from a single country. In contrast, international business further considers expanding business operating units in different regions in order to smoothly conduct business practices (Scribd Inc., 2012). From the perspective of modern international business, it can be recognised that the global organisations are significantly facing different challenges and opportunities with regard to their successful expansion. With this concern, the national and institutional systems regarding trade policies is one of the major prohibitory aspects which can be recognised in the global countries. Therefore, an effective and adequate analysis of the countries can facilitate to obtain suitable solutions for the organisations in terms of conducting business practices in a foreign market (Peng & et. al., 2008). National and Institutional Systems In order to successfully organize the resources within a new country, an international organisation must need to understand and contend with abundant dissimilarities between the host country market and the previously operated market. The institutional dissimilarities between countries augment difficulties for the organisation in collecting, understanding as well as organising appropriate information in order to effectively enter to any foreign market. Moreover, the national and institutional systems can also further magnify difficulties concerning market which can relate to political structure of the host country, market structure factors and cultural dissimilarities, lower cost of entry as well as lower amount of difficulties regarding returns on investment among others. Therefore, the investors of the global countries are more likely to prefer those countries where the future market policy system can be predicted (Henisz, n.d.). From the perspective of national and institutional systems of the UK and China, it can be recognised that both the countries significantly focus to augment business environment through ensuring more flexibilities within the countries governmental policies concerning international business. It has been witnessed in relation to the institutional systems of both the countries that XYZ possesses greater opportunities to effectively perform its business activities. In the context of economic structure of the UK, the country possesses a liberal economic condition which endorses business markets to derive significant opportunities to achieve substantial growth. The automobile market in the UK plays a dominant part in the country’s harmonizing economic performance and the nation further provides arm’s length imposer of relevant contracts regarding international business activities. According to the present day context, the automobile industry of the UK is one of the major contributors of the country in terms of developing economic condition. The automobile industry of the country has achieved a significant position which has witnessed around £14 billion earnings through its retail motor divisions (House of Commons Business and Enterprise Committee, 2009). The nation can further be considered as one of the largest premium car manufacturing countries. The automobile industry of the UK benefits from the performance of various global companies which have their major assembling plants of producing hi-tech and luxury cars within the nation. Moreover, the country also ensures to provide effective supply chain system which extensively performs to facilitate automobile companies to achieve substantial growth. Therefore, it can be stated that the UK automobile market is significantly feasible for XYZ to target the middle and upper level income group of customers. Moreover, the institutional regime as well as various business policies of the country significantly provides more opportunities for XYZ to widely produce and deliver middle and upper-class vehicles for the customers (Jackson & Deeg, 2008). In the similar context, the institutional system of China also can be considered to be feasible for XYZ in terms of offering its middle and upper class vehicles. The rapid development of economic conditions as well as moderate business regulations of China is significantly providing ample opportunities for the organisation to conduct its business activities. The automobile industry of China remains reasonably unaffected by single division turbulences in automotive sector. Hence, there is enough probability of survival for automobile businesses in China. With the rapid economic growth as well as increasing amount of Foreign Direct Investment (FDI), the Chinese automobile industry has been designated as one of the major supportive sectors of the country’s financial development. In the year 2001, the automobile sector of China contributed around USD 12 billion which entailed 5% of total value-added of automobile product manufacturing China (Gallagher, n.d.). The emerging growth of FDI in the Chinese automobile industry is performing a major role for the economic development of the country. As per the business system as well as guidelines provided by the Chinese government, it can be viewed that there is considerable flexibility in the business environment along with sovereign structure present in the country which are significantly found to be more efficient for the country to develop its economic performances. Therefore, it significantly ensures to provide XYZ sustainable prospects in order to achieve long-run benefits through delivering middle and upper-class vehicles within the Chinese automobile market (Grainger & Chatterjee, n.d.). Analysis on Cultural Conditions The cultural differences among the countries can be regarded as one of the major influencing aspects for any multinational organisation in terms of expanding its business operations to a foreign country. For instance, sufficient evidence of cross-national variations can be frequently observed in different factors such as organisation’s administrative practices and the expectation level of the employees within the organisation. The practice of international business is significantly centred upon the culture which can also affect an organisation in terms of performing business activities in the host country. In this regard, it can be observed that a close relationship exists between practicing international business activities and cultural perspectives. An effective culture significantly involves various aspects with respect to the behaviour and course of work performed by any individual (Ghemawat & Reiche, 2011). Therefore, in order to effectively determine the cultural differences between the UK and China, the analysis of Hofstede’s cultural dimension would be more beneficial to identify the cultural differences within the business performances of a global organisation. Cultural Conditions of the UK and China The business practices of the organisations in the UK are essentially focused on complying with various cultural norms within the organisation. Moreover, the employees of the organisations in the UK are highly focused to follow individualism and self-determined approach with regard to performing for the organisation. With this concern, the discussion of Hofstede’s model for cultural dimension in the UK is an effective tool to identify the cultural traits of the workforce of the UK. Hofstede’s Model of Cultural Dimension Power Distance Index (PDI) Power Distance Index (PDI) can be determined as a preliminary model in the approach of Hofstede’s cultural dimension. In this context, the index represents the value of hierarchical relationship along with admiration for the authorised person or group. The model refers to the measure of inequality that exists within the culture or country. With this concern, the UK scores low in this index and it incorporates innovative and creative strategies within the organisations rather than following the traditional business norms (Hofstede, n.d.). However, the PDI in China is considerably higher than UK which indicates that the organisations significantly follow traditional forms of business practices rather focusing on creativity and innovativeness. Individualism (IDV) The dimension of individualism within the workforce enables to leverage higher productivity along with providing strengths to each individual in a community. However, the individualism model refers to possessing a poor connectivity or deficiency in interpersonal communication with people outside family members or close friends or groups. The culture within the UK involves high individualism which refers to higher valuation on individual time along with their measure of liberty. With this concern, the employees of XYZ should focus on individual ideas and expressions in terms of their individual views in the UK market (Hofstede, n.d.). From the perspective of Chinese culture, it can be observed that there is a lack of individualism and a concentrated focus on collectivism which indicates to perform tasks as per the interests of the group. The culture also signifies to comply with the group effort rather than to think of individual interests (Hofstede, n.d.). Masculinity (MAS) The masculinity dimension dominated society refers to the measure of male dominating culture within the organisation. Masculinity signifies to aspect of providing greater value to the male employees as compared to the female workers within the company. The value of masculinity both in the UK and China can be observed to be moderately higher which signifies male preference in terms of making decisions as well as distinct working roles (Hofstede, n.d.). Uncertainty Avoidance Index (UAI) The uncertainty avoidance index in the Hofstede’s model signifies the degree of reactions of the people in terms of handling the unfamiliar or uncertain situations. A higher score in the uncertainty avoidance dimension refers to higher measures in terms of avoiding ambiguous conditions or situations within the workplace. In this regard, the UAI of the UK and China are considerably lower which signifies the requirement to be more flexible with the plan according to possible risks or uncertain situations (Hofstede, n.d.). Long Term Orientation (LTO) The fifth dimension of Hofstede’s model refers to the measures regarding long standing of the social values and norms. In this context, the long-term orientation represents the amount of traditional beliefs and values in order to accomplish any job role. The low amount of LTO in the UK signifies the higher opportunities for innovativeness and creativity and low LTO also refers high individualism among the employees of the organisation. However, the LTO in Chinese culture is quite higher than the UK. The higher value in the LTO indicates that the Chinese culture significantly consists of long-term societal values in which the opportunity for innovation is moderately lower than the UK culture. Moreover, it also specifies low amount of individuality in the Chinese culture which also specifies low amount of individualism in which the scope of creativity and independence are constrained (Hofstede, n.d.). As per the Hofstede’s cultural dimension analysis, it can be viewed that the higher level of PDI, LTO and lower level of IDV are the major cultural barriers for XYZ to achieve sustainable advantages in the Chinese automobile market. The cultural phenomenon of China significantly involves the working environment where the employees are significantly focused to comply with the orders made by the senior level executives. Moreover, the employees in the Chinese culture are directly focused to meet the expectations of the groups rather to providing individual ideas or information which could also affect the overall business performances of XYZ in the Chinese automobile market. Trend of Trade and Investment Influencing XYZ in UK and China From the perspective of economic scenario of the UK, it can be recognized that the country has significantly achieved an increasing growth of financial performances in different aspects of the nation. The automobile industry of the country is one of the major contributors in the UK to attain substantial economic development (European Commission, 2008). The automotive sector of the country considerably contributes more than 10% of total revenue which is accomplished by the country. The steady growth of trade and investment activities is significantly found to be more effective for the country to achieve substantial economic growth. The trade and investment portfolio of the UK can be recognized to be encompassing evidence based factors that provide substantial benefits to the country’s economic prosperity. The benefits of trade and investment come from different channels including productivity generated effects through both direct and indirect investments on UK firms, competition effects as well as innovation effects (Department of Trade and Industry, 2006). Moreover, an effective and crucial support of FDI in the economic structure has substantially facilitated steady economic growth of the UK. The automobile sector of the UK is highly facilitated by the government and close collaboration within the industry players also ensures sharing of strategic goals along with apparent Research and Development (R&D) initiatives. The nation offers an exceptional base for the inward investors in order to establish manufacturing process within the energetic economic structure. In addition, the government guidelines and corporate taxation policies can further be considered as a major aspect of steady growth in the UK economy. In this regard, the FDI plays a key role for the nation to augment the financial position of the country (The Automotive Council, 2010). In relation to the economic structure of China, it can be recognised that a rapid development has been taking place due to the sustained progression in the industrial sector and other contributory aspects of the country. According to the present day context, China is one of the major leading countries within the Asia Pacific region in terms of experiencing continuous growth both in the technology and industrial evolution. With the significance and influence of technological advancements, the automobile sector of China can be recognised as a productive market since past few years. The policy makers of the nation are significantly focused to develop the policies and related guidelines in order to encourage the growth of automobile sector through acquiring effective investment portfolios (Oehler-Şincai, 2011). According to the present economic scenario of the country, it can be observed that the government decision of enforcing certain beneficial policies in the automobile sector has enormously contributed towards the overall economic performance of the nation. An increasing amount of FDI in the automotive sector has played a crucial role for the country to steadily develop the economic performance of the nation (Gallagher, n.d.). Type and Level of Protection Measures against Imports and Foreign Investment in China In keeping with the present import regulation of China, it can be observed that the country possesses considerably complex guidelines for the foreign marketers in terms of delivering products in the Chinese market. The foreign marketers tend to follow different regulations and policies in terms of conducting export activities to the Chinese market. In the context of automobile sector, the country focuses to ensure flexible guidelines for the foreign automotive companies in terms of offering their vehicles for the Chinese consumers (Dullien, n. d.). According to the present import guidelines of the country, it can be observed that the foreign marketers significantly acquire substantial benefits to effectively deal with their automotive products within the Chinese market. The government incorporates more effective strategies including minimum amount of tariff and taxation policies for the foreign marketers in order to improve the Chinese automobile sector. Moreover, the decision makers of the country also ensure to enforce possible flexibility with the rules regarding import trade activities and foreign investment portfolios within China. In relation to rapid economic development of China, it can be recognized that the inbound FDI is one of the key aspects and it also encourages development in the export activities of the country. According to the report of United Nations Conference on Trade and Development (UNCTAD), China can further be considered as one of the 15 major locations within the World Investment Perception lists, which significantly recognises the benefit of investment within the country’s import and export trade activities (The World Bank Group, 2012). Exchange Regimes that Govern the UK and China The economic structure of the UK has been able to leverage higher growth in recent decades. The country also possesses an effective strategy of monetary policy in order to mitigate inflation within the consumer prices. As per the policy concerning inflation and exchange rate of the country, the economic condition of the UK has experienced different conditions through its altered monetary regimes. With respect to the various circumstances of monetary regimes, it can be observed that the country’s industrial sector maintains a close association with the exchange rates scenario and their various products’ prices including domestic and imported goods. This determines a major component of the country’s monetary regime policy ‘pricing-to-market’ or ‘exchange rate disconnect’ model. However, the relationship between Consumer Price Index (CPI) and exchange rates within the monetary regime of the UK can affect the overall performance of the foreign company to practice its business performance within the country (Kara & Nelson, 2002). Therefore, it can be stated that the import activities of XYZ can be affected in the UK market due to price variations in the intermediate goods of the firm. Nevertheless, the UK market is considerably feasible and effective for XYZ to achieve sustainable growth in terms of delivering middle and upper-level vehicles. In the context of China, the exchange rate policy plays a major role in terms of augmenting the overall economic condition of the country. According to the past exchange regimes of China, it can be observed that the economic structure of the country had made several adjustments in order to develop the country’s exchange and inflation rates. The country has developed its previously failed policies regarding exchange rate and monetary performances in order to strengthen export and import activities within a more convenient tariff and taxation rates for the global organisations. With this concern, it can be stated that the exchange rate policies of China is more favourable for XYZ to effectively perform its business operations. The rapid growth of monetary performance as well as flexibility in the inflation and exchange rate of the country are among the major competitive advantages for XYZ to achieve sustainable advantage within the Chinese automobile sector. In order to reduce the risk concerning exchange rate, the prices of the products of XYZ should be maintained in a flexible manner. It will facilitate to either increase or decrease the products’ prices according to the fluctuations in the country’s exchange rate (Lardy, 2005). Political Risks in the Chinese Market and Possible Solutions The political risk in the Chinese automobile sector can be recognised as a major constraint for the global organisations in terms of producing and/or selling vehicles in the Chinese market. Although the country has long been an effective destination for the global marketers however the political regime of China has been observed to be restrictive towards various global brands into their automobile market. According to the present business scenario, investing in China can frequently bear political risks for the companies from different nations. The political issue can impact on the business operations of the foreign company which is operating in Chinese market in terms of any political disputes with that country. For instance, the political dispute among China and Japan caused the restriction of conducting business operations of Toyota and Nissan within the Chinese automobile market (Lindorff, 2012). Therefore, the political risk affecting the Chinese automobile sector can be recognised as a major factor for XYZ which can impact on the organisation’s performance in terms of any political hindrance that might take place between the two countries. Conclusion International business activity can be considered as one of the major global business aspects for multinational organisations, which significantly plays a central role for business entities. In recent decades, international business activities have gained wide recognition due to ample development in the multinational enterprises. It has been observed that during the last few decades the modern global business entities are tremendously performing major initiatives towards continuous development of global business activities which has become a major contributor for the countries to stabilise their economic condition. The improvement in automobile industry in the global market is amplified by several competitor brands of Asian and Eastern European regions. Presently, megatrends such as modularisation, specialisation, diversity, subcontracting and globalization govern the development of the automobile industry by a significant extent. The discussion of this paper has incorporated various institutional aspects and cultural differences that are possessed by both the UK and China within the automobile market. The discussion further ascertained the role of FDI in both the countries in terms of investment which influences the global organisations to conduct business operations. The global automobile industry is one of the competitive and challenging sectors, which deals with high-tech and luxury products and services. Majority of global automobile organisations tend to work-out strategies and provide considerable concentration on research and development activities along with manufacturing services. The UK and China automobile markets have positioned themselves as “technology leaders” which necessitates significant investment in research and development activities. Therefore, according to the above discussion of institutional system, cultural differences as well as investment and exchange rate policies of both the UK and China, it can be observed that the business performance of XYZ could be affected in the Chinese market due to various aspects including cultural differences and political risks within the Chinese market. 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