International Business Globalization - Essay Example

Contents Contents Executive Summary 3 Business Concept 4 Mission 5 Vision 5 Product Analysis 5 Value proposition 6 Environmental Assessment 6 Socio-cultural forces 6 Legal forces 9 Political forces 9 Labor forces 10 Marketing Strategy 11 Marketing Analysis 11 Product Strategies 12 Place 12 Pricing Strategy 12 Promotional Strategy 13 Competitive Strategy 13 Market Entry Strategy 13 Human Resources Strategy 14 Conclusion 15 Executive Summary In the new era of Globalization, the key mantra to increase profits is integrating the business with other countries and tapping the potential of the markets abroad. This paper deals with the UAE based company, Kids R Us, as they have chosen the Chinese market for their business expansion. The key reason for choosing China is its growing market. China as a country has been the largest manufacturer of toys. This is precisely the reason why UAE has chosen China as its new market. The company is the leading company in its home sector. This paper provides a basic company profile which clearly provides the vision and the mission of the company. In the next section, the Chinese market environment has been studied in details including the social, political and economic factors that can affect business. After studying the market of China in details, it has been seen that the joint venture mode of entry can prove to be beneficial for the company. An analysis of the marketing strategy of Kids R Us has shown that strategically placing its product in high-end malls can boost up the sales as the Chinese population spends a considerable leisure time in these malls. The distribution channel and a low price strategy are the two pillars on which the company can establish its foothold. Introduction Globalization in the recent times has made the world a very small place. The positive impact of globalization has helped countries to attract more foreign investment into them to boost the overall growth. The eagerness of UAE to attract further foreign investments is evident from its policies since 2002. Owing to the easing polices taken since 2002 by the federal government, these restrictions are now relaxed to make the foreign firms invest in UAE. Free zones have been set up in the UAE which are completely tax-free to attract investment (Zaman, 2011). The toy sales in UAE have been burgeoning recently with the rise in sales reaching the mark of 17% when the global sale has shrunk by 0.08% (Ligaya, 2009), as per the research of NSD, a US based Research firm. This has particularly raised the interest of Kids R Us to explore into the market of China. Kids R Us, a leading toy company, headquartered in Dubai is one of the largest in its category. The company has been largely successful in its line of products for children under the age of three, which has hugely contributed in the recent revenue earnings as per the company’s annual report. The company has recently been trying to enter the Chinese market with its new product called the “The Singing Piano” as a starter and wishes to expand with its other products after gaining a foothold in the Chinese toy market. Business Concept Kids R Us is an UAE toy company with its headquarters at Dubai. The company was small at its onset, but over the years, it has established itself as one of the largest in the toy making business. The company mainly specializes in the production of toys for children of all ages. However, it had started out with producing toys for infants and till date, the largest portion of the company’s revenue stems from the toys designed for infants. Mission The company pays huge attention to the corporate responsibilities. The mission of the company can be summarized as: Playing with integrity. Promoting the team spirit among the employees to increase the efficiency of the organizational structure. Promoting sustainability in its growth and reduce any toxic impacts on the environment. Playing for all, where it acts in a philanthropic manner, to help the toys reach the segments that lack affordability. Vision The company aims to establish itself as the most sustainable one in the business with the ambition of manufacturing in the most eco-friendly way. The slogan of the company aptly captures its vision statement which reads “Toys which makes the earth smile”. Product Analysis Kids R Us aims to introduce its newest toy, “The Singing Piano” in the Chinese market. The toy was first launched in Dubai and met with stellar reviews. It has been observed that the sales of indoor games along with outdoor games have been on a rise. The new product is targeted for children under the age of one year. Toddlers who can sit and slightly walk can play with this toy. The toy will be operated through dry cells. The basic structure is that of a mini keyboard with a stand attached to it. There are keys of vibrant colours to attract the interest of the children. The management has decided to introduce three primary colours at its launch. The main function of the toy is to produce harmonious sound on striking the keys on the surface. Children can play at it while both sitting and standing. Value proposition Targeting the correct customer group becomes extremely important in the value proposition of the company, which clearly mentions the specific advantages, to be enjoyed as a result of using the product, to both the producers and the consumers (Saylor, n.d.). The unique advantages that are to be enjoyed by the customer are summarized as: A fun toy with unique characteristics to keep the child engaged for hours. The toy can help children to develop basic sense of music while playing. Absolutely safe for children under one year of age. Environmental Assessment Socio-cultural forces The cultural practices of China are largely different from the middle-eastern country and overcoming the cross cultural differences becomes an important issue for countries expanding in China (Boontanapibul, n.d.). Hofstede’s model on the cultural difference between these two countries is important to understand the primary differences between the two of them. Figure 1: Hofstede's Model of Comparison Source: (The Hofstede Centre, n.d.).) The figure above shows the differences between UAE and China in five major parameters, which are the power distance, individualism, masculinity, uncertainty avoidance and long-term orientation (The Hofstede Centre, n.d.). The power distance mainly stems from the inequality that is persistent in the society. It is the permissible limit that the relatively weaker section of the people in any organization accepts about the inequality in the power. The score in this regard shows that both the countries accept the power differences inherent in the society without question. Individualism refers to the extent to which the people of a country are dependent on one another. The score of China and UAE are closely associated which shows that both the countries are family-oriented and give large importance to togetherness. The third dimension reflects the level of competitiveness in the society which describes the people as either competitive or benevolent. Competitiveness is equated with masculinity and caring is equated with feminism. The score in this aspect shows that China is more of a masculine society compared to UAE. The fourth aspect is uncertainty avoidance which shows how rigid or flexible the society is in its codified conduct. This score shows wide disparity between China and UAE which implies that the Chinese are flexible in altering their laws, if the situation is too dynamic to control with the existing set. About a half of China’s population lives in the villages and the majority of them is non-English speaking. If Kids R Us uses nursery rhymes in a foreign language in its new product, it might face challenges in the overall expansion as popularity would be a major issue. Thus, it will be beneficial for the company to produce toys in the local languages as it will be easy to relate. Economic and socio-economic forces China’s impressive economic growth, averaging around 8%, has been quite successful in raising the standards of living of a large proportion of the Chinese population (Elizabeth, 2003). This can be extremely encouraging for the foreign investors to enter the Chinese market. However, with increased openness to the foreign trade, the economy has also become more complex regarding the multinational companies and their investment strategies in China. There still remain wide regulatory differences between the investor’s country and in China. MNCs that wish to enter China have to first set up the structure for making the entry. The available options are branches of a foreign enterprise, cooperative joint ventures, equity joint ventures, foreign enterprises, joint stock companies and wholly owned foreign enterprise. Kids R Us has chosen the structure of joint venture. The opportunities and challenges of the same will be discussed in details in the marketing strategy (Deloitte Touche Tohmatsu CPA Ltd., 2013). Legal forces The toy industry in China imposes zero tariff and trade restrictions on the import of toys from countries featuring in the list of most favoured nations. Foreign enterprises venturing in China has to deal with four main standards established by the legal authority. According to the hierarchy, these standards are the national standards, industry standards, local standards and enterprise standards. These laws have become effective with the passage of Standardization law and have been so since April, 1989. Local standards are mandatory in their respective jurisdiction and enterprise standards are enterprise specific. When Kids R Us ventures into the Chinese market, it needs to consider the above mentioned standards for expansion of its business. Political forces The political scenario in China has undergone vast changes in the previous decades. Presently, the political structure of China is a Socialist one with the Communist party being the dominant one, which has maintained its reign since the last 63 years (Lawrence & Martin, 2013). Recently, there have been changes in the outlook of the party, with the shift from protectionist to liberal and market-oriented. The overall political institution can be aptly presented through the following diagram. Figure 2: Political Institution in China - Source: (Lawrence & Martin, 2013) Labor forces China’s approximate population is 1.34 billion and out of that, around 980 million people are actively working (KPMG International Cooperative, 2013). With the Chinese market opening up to reforms, the labor structure has undergone a sea of change. There has been increasing mobility of the labor from agricultural sectors to industry and service-oriented sectors, and also, from the rural to the urban areas. The share of people in agriculture fell from 71% to 45% and the proportion of people working in the urban areas rose from 24% to 36%. The number of people working for the government sector fell from 78% to 24% (Cai, Park & Zhao, n.d.). These figures clearly indicate that when the company will enter the market it can hire from a large pool of labourers. However, after the labor reforms, the real wages have increased and with the local competition intensifying, hiring qualified labourer from the Chinese market has become almost as costly as that from the home country. Also, a research conducted has shown that the MNCs find it difficult to employ the appropriate candidates, even though the supply is abundant (Shanghai Daily, 2012). Marketing Strategy Marketing Analysis Any company which seeks to enter the Chinese toy industry must be well aware of the fact that the Chinese toy industry is highly competitive. Owing to two of its major advantages, its huge pool of labourers and cheap supply of raw materials, China has become one of the largest exporters of toys in the global market. Kids R Us has to consider this fact while entering China. The cost of production has to be highly minimized while conducting business in China. This can be achieved only through acquiring raw materials required for production at a cheaper cost. The market segment for toy industry can be further sub-divided into four different segments. They are the non-electronic toys, electronic toys and games, non-electronic games and puzzles and vehicle for children. Kids R Us is introducing its product as an electronic toy for infants. The environmental analysis has revealed that China is the highest populated country of the world. However, the bigger picture is grimmer. Based on its strict one-child policy, the number of babies born per year has reduced drastically and the rate of growth of population has been around 0.57% in the present decade, compared to the previous rate of 1.04% in the decade earlier (Banister, Bloom, & Rosenberg, 2010). This implies that the target group of customers for the company is fast shrinking, which can become a challenge for high sales as the toy targets children less than one year. Product Strategies As the toy is targeted at infants, the product has to be sold in the retail stores. This means that the young parents must be the ones intrigued by the product. To achieve this, Kids R Us can use innovative and attractive packaging techniques which will attract the parents to take the products off the shelves. The main advantage that Kids R Us can use is that their products are produced in the least toxic ways which are safe for children. Also, the product comes with multi-language options, which can provide additional advantage over the local brands. Place The other multinational companies have strategically positioned themselves in large shopping malls, thereby improving their sales drastically (Yanrong, 2012). Taking queue from this, Kids R Us must place their products in large malls and use free demonstration of their products, which can easily trigger the interest of the parents and engage the babies. Also, incorporating the Chinese popular culture and popular songs can do the trick. Pricing Strategy The most daunting task faced by the company is pricing its product for gaining a competitive advantage. It has been found in research work that the average spending of Chinese citizens is less than $ 4.80 per child, irrespective of urban or rural area (Yanrong, 2012). So, the pricing needs to be strategically set to provide the product with a competitive edge. Promotional Strategy The basic promotional strategy in selling children toys can be achieved from advertisement through printed pamphlets and colourful images, thereby highlighting the unique feature of the latest product and should be distributed at the stores. The other audio-visual mediums like, television and radio can also be used. Advertisements through internet must be used as well. Competitive Strategy Since 2007, the Chinese toy industry has fallen under the radar of safety measure (Lipton & Barboza, 2007). A large number of Chinese toys had been banned since then. Since Kids R Us prides itself for using safe technology in production, this strategy must be highlighted in their promotional techniques. The substitutes from other international rivals can pose a huge threat to the company. In order to deal with the pressure, Kids R Us can price the products lower than the American product substitutes. Market Entry Strategy Kids R Us has chosen the joint venture mode to enter the Chinese market. This mode of entry will surely benefit the company as the local partner can provide the company with a complete knowledge of the Chinese market. The partnership will be particularly beneficial, as the safe production techniques by Kids R Us and the cheap raw materials of the Chinese companies can mutually benefit them both. This kind of a business strategy will also win political favour for the company which can be advantageous (Anonymous, n.d.). Using the expertise of both the companies is the primary reason for this strategy. Human Resources Strategy The concerns of IHRM can be represented in the following diagram: Figure 3: HRM Strategic Diagram Source: (Merlot, Fenwick & Cieri, 2005) The Human resource strategy will be of great importance for Kids R Us. The cultural and regional characteristics widely differ between the two countries. The top management level recruitment should consider the qualified locals with full grasp of the market and the less-skilled labourers required for production can be obtained in abundance in China. The key issue would be to include the cultural differences in the organizational structure and act accordingly. The knowledge of the local labour resource pool must be tapped in order to involve the best practices in production. The company must maintain a decision-making flexibility at all levels to prove the competitiveness of the organization. Conclusion The paper has analyzed in details the market structure in China which can be beneficial for the UAE based company, Kids R Us, to enter the market. The findings have revealed that the Chinese market reforms have widely altered the Chinese markets in the last decade. This implies that new companies venturing in China can tap the potential of the market to reap the benefits. In doing so, Kids R Us should have a marketing strategy that incorporates the culture of China, thereby helping the company to increase its sales. References Anonymous. (No Date). Entry Methods. Retrieved from Banister, J., Bloom, D.E., & Rosenberg, L. (2010). Population Aging and Economic Growth in China. Program On The Global Demography of Aging, 53. Retrieved from Boontanapibul, C. (No Date). Doing Business in China: Cultural Factors, Start-up Concerns, and Professional Development. Executive Journal, 170. Retrieved from Cai, F., Park, A. & Zhao Y. (No Date). The Chinese Labor Market in the Reform Era . China’s Great Economic Transformation. Retrieved from Deloitte Touche Tohmatsu CPA Ltd. (2013). The China Factor: Doing Business in China. Retrieved from Elizabeth, C. (2003). China's Environmental Challenge: Political, Social and Economic Implications. Council on Foreign Relations. Retrieved from KPMG International Cooperative. (2013). 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