How to Make Local Company International - Research Paper Example

0 Introduction Established under the directives of the Government of Saudi Arabia in 1988 the Advance Electronic Company (AEC) is an offset program company. In the field of repair and maintenance services, system integration, and modern electronics manufacturing the Advance Electronic Company is a recognized leader. It is a private sector company. The company serves local, regional, national and international clients. The Advance Electronic Company serves clients within the manufacturing, defense, and telecom industries. The designing, development, manufacturing and provisions for upgrading and logistical support of electronic products and systems are included in the charter of the Advance Electronic Company. In Saudization the Advance Electronic Company is a leader. In all areas of business and the community the highest integrity has been maintained consistently by the Advance Electronic Company. The Advance Electronic Company is considered as a strategic asset by the Saudi Arabian Government. The recognition as the leading technology solutions provider in the region is the vision of the Advance Electronic Company. The continuous improvement and diversification of the companies’ offerings by alignment of its business strategies with the end customers’ priorities, creation of long-term partnership, harness the opportunities, acquirement of new capabilities, investment I the people and community at large is the mission of the Advance Electronic Company. The Advance Electronic Company aims to be the leader across all the business of the company and to act in the most professional way in an ethical manner. The Advance Electronic Company has access to the   world class and local manufacturing, repair, engineering and maintenance. It also has the access at its facilities to the complete solution deployment capabilities. The access of the Advance Electronic Company to other distribution networks, customers and markets are rapid and easy. As a result, to the highly specialized services, offers and opportunities, the Advance Electronic Company acts as a gateway. An in-depth understanding of the Dynamics and structure of the Saudi and international electronics market is possessed by the Advance Electronic Company. The superior engineering and technical capabilities of the company has helped it to forge close working relationships with many renowned international OEMs. The end-to-end customer support of the Advance Electronic Company, its reliability and its ability to deliver on time and to budget are excellent. the Advance Electronic Company successfully operates in the Industrial business, Military, & Telecom sectors and has shown leadership in it. The service package provided to the customers by the Advance Electronic Company is aimed at standard as complete satisfaction and quality. More than 2000 people are encompassed in the Advance Electronic Company team with a variety of skills, qualifications and experience. The first company to receive the AS 9100-A2001 certificate in the Middle East and Africa was the Advance Electronic Company.   (Advanced Electronic Company, n.d.) 2.0 Market Penetrated Political system, economical system and the legal system of the host country- The Advance Electronic Company plans to enter Romania as its host country. Romania is an ideal country to expand the business as the country adheres to maintain its openness to the global commerce and business regulation efficiency. Romania is a member of the European Union. By filtering the economies active on the market, Romania has further scope of the attractively /improvement of the Romanian business environment - The political System- Rule of Law The major political effects on a business are the political policies of a nation, its stability and the taxes imposed by it on the business. A flat 16 percent tax rate is implemented in both the income and corporate sectors in Romania. An environmental tax and a value added tax are included in other taxes. 26.5 % of the total domestic business equals to the overall tax burden. 35.5 percent of the total domestic output is equal to the government’s spending. About 30 percent of the gross domestic product is the public debt and the deficit of the country has been narrowing. The austerity measures have caused a political backlash in the country. - The economical stem- Open Markets In Romania the trade-weighted tariff is lower than other members of the European Union by 1.6 percent. But the cost of trade is increased by other non-tariff barriers. Officially the foreign investment is encouraged. But inconsistent, unpredictable and non- transparent regulation discourage the foreign investments in practice. The banking sector is dominated by the foreign-owned banks and the financial sectors are evolving and open to competition. The exports and imports of services and goods are affecting by the composite measure of the absence of non-tariff and tariff barriers. This is called trade freedom. Freedom of trade is an important feature of Romania. The non- tariff barriers (NTBs) which include restrictions on quantity, price, regulations, investments, customs and direct government intervention; and the trade weighted average tariff rate are the basis of trade freedom. - The legal System- Regulatory Efficiencies The efficiency of government regulation of business is indicated by the business freedom of the country. Business formation and operation process have been streamline in Romania. The process of a business launch involves six procedures and 10 days time. But the completion of licensing requirements is time consuming. Full implementation of efficient procedures and rules for bankruptcy system has not been implemented. For the improvement of flexibility in the labor code several amendments have been made but the labor system still remains rigid. Potential products and Reasons for its potential- The products of the Advance Electronic Company having the potential to compete in Romanian market are ADDAD (Digital Electronic Energy Meter) and MADAR (Fleet management system). ADDAD (Digital Electronic Energy Meter)- Digital Electronic Energy Meter of the Advance Electronic Company is manufactured and designed locally. The need for a system for public utilities which has automatic management and control of electricity consumption is ADDAD. The harsh weather conditions are easily beaten by the design of ADDAD which has several built-in utility features. The major features of ADDAD are its operating temperature range, accuracy, temperature extension, tariff register in 8 multiple, compliance, VAC lines, tampers proof, detection capacity, optical communication port, ability to store information for more than twenty years. The major potentials of ADDAD are its accuracy, multi tariff and remote reading. MADAR (Fleet management system)- An advanced fleet management and tracking system designed by the Advance Electronic Company is MADAR. In order to provide efficient vehicle location and information to the users, MADAR combines the communication technology with GIS and GPS. The interactive management of vehicles by the users while they are on duty is provided by the powerful tool set of MADAR. A detailed analysis is provided by the fleet performance. The major features of MADDAR include tracking of live vehicles, playback trip, detailed and summarized reports, full information and statistics about the usage of vehicle, integrated geographical information, remote configuration, and Automatic time based reports, Vehicle grouping, Web Based Client, Multi user and security. (Advanced Electronic Company, n.d.) Target market- The target market of the Advance Electronic Company is the Europe. The Advance Electronic Company chooses Romania as a host country because it is a member of European Union and NATO. The products of the Advance Electronic Company - ADDAD (Digital Electronic Energy Meter) and MADAR (Fleet management system) are compliant to the Europol standard and can easily compete in the European markets. In order to match foreign competition, Romania needs to advance in the field of high technology. High value added industries, soft industries and high-technology industries have grown rapidly since 2000. This provides the Advance Electronic Company with broad chances of success for their high- technology oriented products in Romania. Being a part of European Union, Romania in general has experienced manufacturing in electronics. The labour cost in Romania is low, which gives an advantage to the company. The products of the Advance Electronic Company -ADDAD and MADAR have the potential to compete in Romanian market as they are compatible with the Europol standard. 3.0 Reasons of Going Abroad The pushing and pulling factors for the company to expand into foreign market- The undertaking and expansion of the commercial activities of a firm across the national border is referred to as overseas business. Outsourcing for production and marketing, along with trading and manufacturing are some of the activities involved in overseas business. To explore the opportunities of business abroad and to take advantages from them is the primary reason for overseas investment made by a firm. Enormous growth opportunities are provided by foreign markets of Romania and European countries for the Advanced Electronic Company. Investing abroad is influence by various other reasons too. Behind internationalism the main driving force is Competition. Increase in competition is ushered by globalization internationally. Internationalism is also motivated by Government policies and regulations. For entering overseas markets an important factor is limitation of domestic country the business expansion scope by Restrictive domestic Government policies is. The market for the products tends are saturated as the domestic market potential of Saudi Arabia is fully tapped by the Advance Electronic Company. It is a Provoking factor for the Advance Electronic Company to explore foreign markets. Due to the differences in business environment, the overseas investment related business strategy from that of domestic investment. A Considerable difference of the political environment factors between different nations is observed. In overseas investment strategy a very important role is played by the differences in the legal framework. International investments are mostly influenced by the Cultural differences. Variation in Economic environment is also observed from country to country. The Advance Electronic Company needs to make a series of strategic decisions for investing abroad. The whether to expand its business abroad or not is the first decision a company has to make. Factors like the objective of the company, the company’s resources which include its financial support, marketing and production capabilities, experience and skills, etc. and the market opportunities in the present and future. Once the company decides to invest abroad, it needs to select the most appropriate market. After the thorough analysis the Advance Electronic Company selected the Romanian market for its foreign investments. The decision of a firm to go international is motivated or provoked by two factors called the push factors and the pull factor. Pull factors- Factors attracting the foreign firms to do business in foreign markets are the pull factors for the company’s foreign expansion. The relative growth prospects and the relative profitability are the major types of pull factors. Pull factors are also known as proactive reasons. The important pull factors are the following: Profit advantage- The investment in foreign market must earn profit. The international business should be more profitable than the domestic business. Growth opportunities- the international business must provide the company growth opportunities. The internationalization of business must provide growth opportunities to increase market share of the firms and also to increase its sales. The interest of the common population of Romania is high technology electronic products helps to forecast the future of the electronic markets growth. Push factors- The compulsions of the domestic market include the market saturation, which motivates the companies to expand in the foreign countries. These are called the push factors of internationalization. Domestic market constraints, competition and political condition are factors affecting the internationalization. The important push factors the following: Competition- The main consequence of globalization is the increased competition in the domestic market. The Advance Electronic Company is already a recognized leader in the domestics market in the Industrial business, Military, & Telecom sectors. The internationalization of the company will increase its completion in the foreign markets. Domestic market constraint- The domestic market of the Advance Electronic Company has already been tapped by it. The company is capable of surplus production and by mass production can take the advantage of the benefits of scale. These factors make the Advance Electronic Company more motivated to expand in international market. Political conditions- The political conditions and regulation of laws in the domestic country are highly favourable for the company to invest in foreign countries. SWOT Analysis of the Advance Electronic Company (AEC) SWOT Analysis Strength 1. The company has a strong focus on technology and quality. 2. It also has a wide range of products. 3. A sound rational appeal is provided by the brand which is a good value for money and good product features. 4. The good after sales service and wide distribution network of the company is an added strength. 5. It has more than 2,000 employees. 6. It is a recognized leader in the field of repair and maintenance services, system integration, and modern electronics manufacturing. Weakness 1. A lack of influence of the company is observed in the early adopters. Opportunity 1. The company has efficient and innovative research and development. 2. Convert awareness and improved brand image in to market share 3. Develop the already existing technology and product designs. Threats 1. In price sensitive markets growth can be disrupted by price war 2. High competition in industry dynamics 3. Financial crisis in the world is a major threat. 4.0 Entry Strategies A single entry mode for a country is rarely used by companies. For the local production of a product the company can either import or produce locally. By exporting to different foreign subsidiaries by the same company the local manufacturing, importing and exporting can be combined in one unit. By bundling different entry forms into one, some companies can have several options of entering a foreign market. In a given country by using multiple strategies one legal unit can be established. By setting up a single company in one country the company uses it for all its legal activities as a legal umbrella. To determine the appropriate mode of entering in foreign markets is one of the major decisions for internationalization. The substantial and long-term interest of the Advance Electronic Company in the European market makes the establishment of the wholly owned manufacturing facilities in Romania the best market entering strategy. Fully Owned Manufacturing Facilities Local manufacturing of a company’s products is a form of market entry which is widely practiced. To manufacture in the host market is more advantageous than supplying the market with products which are made elsewhere for the Advance Electronic Company. A greater commitment to a market is represented by local presentation. The main factors affecting the choice to manufacture locally are labour laws, political consideration, market size, local costs and tariff. The actual local production type may be fully integrated production, assembly or contract manufacturing. Building a local plant can help the company to gain business and plant. A strong commitment is represented by local production and is an effective way of convince client for switching the suppliers. Contract manufacturing- The Company on a contractual basis arranges an independent local company to manufacture its products. In this is entry mode a foreign firm is contracted for manufacturing of the finished products or the parts or for the assembling of parts into finished products. The responsibility of the manufacturer has its restriction to production. The products are afterwards turned over to company assuming the marketing responsibilities for distribution, promotion and sales. Assembly operation- a portion of the manufacturing process is located in the foreign country by the international firm by moving to an assembly operation. Only the last stages of manufacturing are constitutes of assembly. To be shipped ready supply of manufactured parts or components in from another country determines their assembling. Heavy use of labor is more usually involved in assembly than capital outlays or equipment which requires extensive investment. Fully integrated local production- The greatest commitment for a foreign market by a company is made by the establishment of a local production unit which is fully integrated. Companies build local plants only when there is an assured demand as a substantial outlay in capital is required in building a plant. There are a number of reasons to the international companies for establishment of factories in foreign countries. The lower costs advantage of a country is one of the primary reasons of fully integrated local production. Thus a better basis for competition is provided with local firms or other foreign. Imported goods may become uncompetitive due to high transportation tariffs and costs. To gain new customers and business plant is built by some companies. A strong commitment is represented by the local production helps in switching suppliers in an aggressive strategy. In industrial markets Local production is important as in the choice of product or supplier the main factors are service and reliability of supply. Production in abroad is established by a company to protect the market gained through exporting and not for entering new markets. Such a move is made necessary by the changing political or economical factors. The financial crisis has made product in different countries a complicated process. To defend the existing international market portion a longer-term strategy of production in the host country must be implemented. Another reason for setting up a manufacturing plant in the host country is movement with the established customer. In order to maintain an establishing relationship with the customer, the company sometimes established a plant in the customer location. Cost saving is another important reason for setting up a plant in the host country. Although, most of the manufacturers shift from developed countries to developing countries, the Advance Electronic Company is moving from Saudi Arabia to Romania to set up its plants there. The Advance Electronic Company will require a substantial capital outlay for setting up a manufacturing plant in Romania. Establishment of a plant will help the company to gain the market share and hence expand itself to the other European countries. Thought the product costs are higher in Romania, production in Saudi Arabia would result in longer delivery times to the Romanian markets. By renegotiation of contracts with the workforce the Advance Electronic Company can decrease the wages. These are the primary reasons for setting up the manufacturing unit in Romania by the Advance Electronic Company. (Gillespie and et. Al., 2011) 5.0 Global Marketing The strategy globalizing all the activities of the marketing segment is called global marketing. A single marketing activity cannot produce the desired results globally. Some of the global marketing strategies expose a smaller marketing aspect and are less complicated. With experience marketers developed different marketing strategies globally. Localization of distribution and marketing and Globalization of the product is a much common approach. Integrated Global Marketing Strategy- Globalization of most of the marketing strategy takes place with the pursuance of an integrated global marketing strategy by the company. The pricing, distribution, and communication strategy along with positioning and segmentation of the product takes place with globalization. Companies facing the complete globalization of customers use integrated global marketing strategy. The basic assumption of the integrated global marketing strategy is that the working of a company is similar in the same industry even in different nations. The company thus gets a chance of unfolding its strategy in different nations. All elements of the marketing program of a company are covered by a consistent, coherent and integrated marketing strategy. Global Product Strategy- A company can gain leverage by competing in the same product in different countries. Different segments in each category of the product can be targeted by varying products while staying within that category. This is implied by the global product category’s form. Frequent application of the global category strategy is done by Companies competing globally and hence without pursuing standardization these companies are gaining knowledge across markets. The Advanced Electronic Company selects ADDAD and MADAR to be its global products. Global Segment Strategy- A global segmenting strategy is followed by a country targeting the same segment in different countries. The understanding of the customer base is developed by the company and the leverage is experienced globally. By gaining an in-depth understanding of a segment, the company accumulates significant industrial knowledge. Different product with some standardization is allowed by a purely global segment strategy. A particular technical application of an industrial segment or a given consumer market may compete in the middle or upper segment. Presence of few segments in the market and significantly different markets increases the efficiency of the global segmenting strategy. Global Pricing Strategy- Global pricing strategy is a strategic approach to pricing. The positioning of a product is established via the price of the products in target market. The prices of the products highly depend on the Membership of tariff union such as the European Union. The operating prices of the home country must be considered before setting prices for the product. Both actual and potential currency exchange rates with other countries and costs of tariff and other barriers are a major factor in setting price of a product in foreign country. Trade discounts, transfer pricing, Taxes, similar product’s pricing, Distributor markup, web-based selling distributors and structures availability are some of the major factors affecting the price of a product in foreign market. Global Advertising and Branding Strategy- The use of common brand name is associated with global advertising. When a firm markets products to customers demanding similar benefits worldwide global advertising themes are most suitable. A common theme may be created to address the purchasing reason. The same logo or brand name is used in Global branding strategies. The travelling of the target customers across country borders increases their expose to products elsewhere. The most advisable strategy for such a scenario is global branding strategy. Even if the target customers are exposed to advertising worldwide Global branding strategies also become important. Industrial marketing customers reading industry and trade journals are a common case. Advertising through international TV channels has become common, increasing the importance of global branding. The advantage of existing goodwill can be taken by the Advanced Electric Company by Global branding. (Akkaya, n.d.) Reference Advanced Electronic Company (n.d.).Welcome to AEC. Retrieved from http://www.aecl.com/Home.aspx Gillespie, Kate and et. Al. (2011). Global Marketing Third edition. USA. South Western Cangage Learning. Akkaya, M. Fatih (n.d.). “GLOBAL MARKETING STRATEGIES”. Retrieved from http://www.ekonomi.gov.tr/upload/bf09ae98-d8d3-8566-4520b0d124e5614d/fatih_akkaya.pdf Read More