The Entry Strategy of Motorola in China - Case Study Example

International Business Case Study Motorola China Table of Contents Section Title Page Number Question I 4 PEST Analysis 4 Political 4 Economic 5 Social 6 Technological 6 Porter’s Five Forces Model 7 Competition in the Industry 7 Potential of New Entrants in the Industry 7 Power of Suppliers 8 Power of Customers 8 Threat of Substitute Products 9 Question II 9 Question III 12 Conclusions 15 References 16 Bibliography 17 Executive Summary Motorola decided to enter China because of several factors—political, economic, social, and technological. Being an early mover to China, the company enjoyed a strong corporate image for years. This competitive advantage was further boosted by its four-point strategy: investment/technology transfer, management localisation, local sourcing, and joint ventures/co-operative projects. However, Motorola’s future in China is currently being questioned due to growing competition from both foreign and local firms. This paper thus examines the strategic and environmental factors that motivated Motorola to enter China; the effectiveness of Motorola’s entry strategy in achieving its corporate strategy in China; and the appropriateness of Motorola’s staffing approach for senior management in China in relation to their strategic objectives. I. Using suitable business tools analyse the strategic and environmental factors that motivated Motorola to enter China (1200 words) PEST Analysis Since the 1990s, due to the continuous expansion of economic globalisation, multinational companies (MNCs) have become an entity that cannot be ignored. MNCs have a major influence on the social, political, and economic life of the world. The success of Motorola in China was truly unbelievable, given the fact that the political and social environment of the country is complex. In order to gain knowledge of the political, economic, sociocultural, and technological environment that Motorola is dealing with in China PEST analysis is conducted. This business tool will help in understanding the strategic and environmental factors that motivated Motorola to enter China. Political After the 1978 economic reform, China’s economy progressed dramatically. The reform includes promoting foreign direct investment, foreign trade liberalisation, private businesses, and employment opportunities. In relation to labour law, China reforms job structures and loosens regulations making it easier for Motorola to advance its localisation strategy, which includes recruiting local employees (Guthrie, 2012). In terms of consumer rights protection, after China opened its door to the world and reformed its economy, consumer gained greater awareness of their rights. The improvement of consumer protection is beneficial for Motorola since the market for middle-class consumers is growing (Sun et al., 2013). However, China’s telecom industry is one of the most restricted in Asia and is somewhat barred to foreign competition. One of the key objectives of the Chinese government is to build and offer the telecom-market not to be awash or overstocked, which has a massive impact on Motorola (Guthrie, 2012). The Chinese government obliges MNCs in the country to source some components from domestic companies, and this is what Motorola has been doing. In order to maintain growth of private sector investment and boost consumer demand, the loosening of regulations and implementation of a definite regulatory structure is thus ever more necessary. Economic The economy of China has been opened and transformed since the 1970s. A more practical attitude towards numerous economic, social, and political issues has been accepted by Chinese politicians and thus the influence of ideology in economic programmes has been somewhat lessened. China has changed its economy into a market-driven sector that favourably affects not just China but also other parts of the globe (Kan, 2015). Such economic restructurings China has carried out over the recent decades have significantly influenced both entrepreneurship and individual enterprise. China’s rapid economic progress alongside faster growth in national revenue could increase demand for Motorola’s products and/or services (Rowley & Cooke, 2014). Indeed, as stated by Motorola informants, China was a highly important market for the firm because of its massive population. The head of Motorola, Mike Zafirovski, confirmed that “China is a very, very significant partner and the market here is very important for Motorola worldwide as well as a manufacturing base and research centre for the company” (quote taken from the Case Study document). Social China has a massive population that is a major source of labour and a highly favourable opportunity for Motorola to further develop its operations in China. Another important aspect that requires mentioning is the level of unemployment. The present rate of unemployment in China is roughly 4 per cent which proves that Motorola would contribute to the creation of more employment opportunities for the local people (Shi et al., 2010, p. 193). In return, this would boost Motorola’s strategic goal, which is to strengthen its image in China as a socially responsible company or a “good corporate citizen” (quote taken from the Case Study document). In fact, Motorola took part in ‘Project Hope’ which seeks to raise access to primary education and provide full scholarship for out-of-school youth in rural communities. Motorola has clearly realised that China’s main social problems—unemployment and poor access to education in rural areas—are favourable to their strategic objectives. Technological According to the Business Week, “And since Motorola isn’t blind to Beijing’s desire to boost China’s science and technology prowess, it recently announced a $100 million expansion of an R&D centre in the capital” (quote taken from the Case Study document). From this statement, it is apparent that Motorola took advantage of China’s goal to become highly developed in terms of technology. Chinese experts know that the biggest opportunities for China are in the fields of biotechnology and computers. Thus Motorola successfully exploited this fact by investing in research and development centres in China. These research centres are responsible for technological innovation and progress (Fishman, 2014). The R&D institute of the company carried out studies in the field of semiconductors, software, and communication. The company also built an equipment labs, software facilities, analytical labs, and production procedure labs for creating and improving new technologies that would boost China’s efforts to drastically advance its technological and scientific capability (Wang et al., 2010). These attempts by Motorola were highly appreciated by Chinese experts and officials. Porter’s Five Forces Model Often used to examine and determine the structure of an industry in order to formulate corporate strategy, Porter’s Five Forces model is used to analyse the strategic and environmental factors that motivated Motorola to do business in China. This model is applied to determine the attractiveness and profitability of China for Motorola. Competition in the Industry Due to the continuously growing economy and expanding labour force of China, as well as its attention to its technological industry, numerous multinationals across the globe are already investing in the country. Therefore, competition for Motorola in China is intense. Still, despite of aggressive competition, Motorola was successful in China due to its understanding of the people and the market and due to the strategies it used. However, in the early 2000s, Motorola suffered losses in its market share due to growing competition from both foreign and local companies. Hence, in 2002, the company introduced a new strategy. Potential of New Entrants in the Industry Threat of new entrants is low because entry barriers are high due to massive capital conditions, restricted access to distribution channels, and rigid regulations established by the Chinese government. The government has declared that it will prohibit new entrants into the industry of telecommunications and has therefore protected Motorola and other companies from such threat (Guthrie, 2012). Furthermore, the telecommunications industry’s product life cycles have shrunk; older technologies become out-dated faster because of intense innovation (Chen, 2007). As such, companies have to develop highly efficient research and development capability and rapid technological adaptation. Power of Suppliers Bargaining power of suppliers in China is high since Motorola is mandated by the Chinese government to source some of its components from local companies. Motorola has wisely taken advantage of this policy to enhance its brand image in China. The company provided managerial and technological training and support to their local suppliers, making them competitive in the global market in the long run and, consequently, expanding the presence and reputation of Motorola in China. Power of Customers Bargaining power of customers in China over Motorola is due to intense competition from both foreign and local companies. This is demonstrated, for instance, by the establishment of Motorola Towns where consumers are granted the upper hand in the development of various features in Motorola’s products. The company creatively seeks the feedback and opinions of their consumers in order to surpass aggressive competition. Threat of Substitute Products The threat of substitute products for Motorola in China is high because the products offered by the company satisfy basic needs—communications and access to information. In order to moderate such threat Motorola greatly invested in technological growth and added greater features to its products. The advantage of Motorola in this aspect is experience and strong image. II. Identify and assess how effective Motorola’s entry strategy was in achieving their corporate strategy in China (800 words). Owing to its first mover position, Motorola is presently the industry leader in China. The company entered China at a crucial moment when mobile handsets were still a new or unknown prospect and nobody was marketing it. Consequently, Motorola benefitted from a decade of high profitability as millions of Chinese bought its pagers to gain social prestige and convenience (Avishai, nd). Taking advantage of that impetus and a heightened focus on marketing and design, the company’s mobile handsets own the biggest market share in China and its trademark is largely linked to excellent features and designs and premium quality. China is perhaps the most significant market for Motorola, as the company has been less positive and visionary about its future in other parts of the globe. Because of these factors, Motorola has launched its 2+3+3 strategy to protect its lead position in China. Thus far, Motorola’s entry strategy is effective in achieving their corporate strategy in China, which focuses on localisation of technology transfer, management, sourcing, and joint ventures. Besides being the first mover and leading investor in China, Motorola has established and stable relations with the Chinese government. Yet, when Motorola sought approval for its plan to establish a wholly foreign- owned enterprise (WFOE) in 1989, the government hesitated to give approval and demanded a joint venture (Sun et al., 2013). The main factor that persuaded the Chinese government to finally approve the request was Motorola’s continuous presence in the country and its contribution to China throughout the latter part of the 1980s. Motorola was the single provider of cell phone analogue devices and network technology when wireless service was launched in 1987 (Tian, 2007). As a result, Motorola has achieved competitive advantage in terms of brand reputation and recognition in the telecommunications market. Realising that China is an emergent market with huge possibilities, Motorola decided to adopt ‘green field investment’—a parent company builds a new enterprise in a foreign country—as its entry strategy (Rowley & Cooke, 2014). This entry strategy proves to be beneficial to the corporate strategy of Motorola in China in the long run. Motorola’s decision to pursue a global strategy led to a high-control entry strategy. Because the mobile handset market is vastly concentrated with few companies that compete with one another in numerous markets across the globe, a wholly foreign-owned subsidiary facilitates the global strategic organisation of Motorola (Kan, 2015). Even though the demand for mobile handsets in China was negligible initially, market possibilities were huge in terms of a massive population base and improving purchasing power of Chinese consumers particularly in urban areas. Due to the fact that during that period mobile communication was freshly launched into Chinese market and the fast-paced economic growth did not begin until several years afterwards, Motorola had more than enough time at their disposal to create a wholly foreign-owned subsidiary (Wang et al., 2010). Since its establishment in 1992, the manufacturing facility in Tianjin, which is Motorola’s WFOE, has become a highly important production sites for consumer electronics, including mobile handsets. The preliminary capital, effort, and time devoted by Motorola to the building of the Tianjin plant have been exceedingly beneficial to its overall corporate strategy in China (Sun et al., 2013). The Tianjin plant not merely supplies goods to the Chinese market and other Asian markets, but also strengthens and units Motorola’s relations with the Chinese municipal and central governments, as the manufacturing plant has been producing the biggest sales and exports since 1994 (Wang et al., 2010). Realising that the preferences of Chinese consumers are largely different from the preferences of American consumers, Motorola began product localisation after the early failure of a wholly global strategy (Rowley & Cooke, 2014). Motorola entering the Chinese market and adopting localisation strategy has valid justifications. Primarily, Motorola’s entry strategy was motivated by its goal to build a strong brand name or corporate reputation. Marketing localisation, corporate culture, and employment of local people can build corporate reputation. Another motivation for Motorola’s entry strategy is to quickly dominate the local market. At present, Motorola adjusts its strategies to satisfy particular demands of the Chinese market instead of merely selling its products without localising it first. The localisation strategy of Motorola also involved local sourcing. The company invests a great deal of time and effort in building good relations with its local suppliers. More than half of the components needed by Motorola are supplied locally at present. Local sourcing produces three key advantages for Motorola (Low et al., 2008): (1) good relationship with the Chinese government; (2) lowers risks from currency instability; and (3) reducing costs of manufacturing. If any company desires to dominate an intensely competed market, the sure-fire strategy to achieve it is through innovation. One of the major explanations of the success of Motorola’s entry strategy is that it carries sophisticated technologies to China, and afterwards vigorously puts into practice the localisation of technological R&D and reinforces the collaboration in R&D with China. Because of its entry strategy of collaborative expansion in Chinese ventures, the presence of Motorola transitioned from trading to manufacturing to research and development over time. III. Evaluate the appropriateness of Motorola’s staffing approach for senior management in China was in relation to their strategic objectives (800 words). Tim Chen said that, “Based on the new strategy, Motorola will continue to be as good corporate citizen in China, to deeply root itself in China and to be integrated into the China society” (quote taken from the Case Study document). Motorola realised that in order to achieve its strategic objectives it has to localise not only its products but also all its business operations, including its staffing approach for senior management in China. When Motorola entered China in the 1980s, every senior management position was occupied by nationals from the parent country. Yet, by 2003, 84% of all management jobs in Motorola China were occupied by local Chinese (Tian, 2007, p. 208). The other 16% of senior management positions were occupied either by foreign Chinese or by parent-country expatriates. For instance, two of the vice-presidents of Motorola China were foreign Chinese—Malaysian Chinese Bingron Lai and Taiwan Chinese Timothy Chen (Tian, 2007, pp. 208-9). Motorola believes that “the best staff is from the local” (Wang et al., 2010, p. 56) hence localisation runs from rank-and-file positions to senior management. Human resources is the most important asset of Motorola, and the key to the actualisation of a localised staffing approach for senior management is through an inclusive and productive training and education programme for local talents. Currently, roughly 90% of Motorola China’s personnel are local Chinese, and 72% of senior management positions are occupied by local Chinese (Wang et al., 2010, p. 57). The staffing strategy of Motorola China in the 1990s was an important leap forward, hiring more than 13,000 individuals (Kiger, 2003, para 6). With regard to senior managers of Motorola China, they were sufficiently knowledgeable of Chinese culture and because of shortage in middle and senior management talents the company had to provide training to its personnel to prevent damage in its market share in China (Wang & Wang, 2006). The most important strategies employed by Motorola China to attract and retain senior managers were through recognised R&D centres and employee training and development programmes. The company also dedicated much of its resources in education where grants were given to local talents who were most likely to become effective senior managers in the future. Motorola localised its senior management staffing model; it sought to attract and retain Chinese employees through collaboration with local universities and, eventually, establishment of the Motorola University to provide training to their personnel who were prospective senior managers. The China Accelerated Management Program-- a component of Motorola University’s prospectus—involves coaching by expatriate mentors, job rotations, classroom activities, and a chance to observe a senior manager at work. Nevertheless, besides training its personnel, Motorola has contributed to the improvement of a bigger pool of prospective senior managers by financially supporting another programme (Sun et al., 2013). Motorola China, with its 12,000 employees, has been particularly successful with its attempts to localise staffing. 11 per cent of all senior management positions in Motorola were occupied by local Chinese in 1994 (Kiger, 2003, para 6-7). At present, the percentage has skyrocketed to 84 per cent (Wang & Wang, 2006, p. 182). However, the human resources director of Motorola China, Cindy Xing, admitted that Motorola’s adaptation was not essentially easy. At first, expatriate managers were reluctant to transfer knowledge to the local employees because they feared that they would lose their jobs (Kiger, 2003). Later on, the company started specifying in the contracts of expatriate managers that they are required to mentor a local Chinese replacement. To encourage the expatriates to provide training to their successors, Motorola decided to offer better positions for them or greater retirement packages in the U.S. if they contribute to the company’s localisation attempts in China. These efforts were successful, according to Xing (Guthrie, 2012). Still, there are observations that some of the outcomes of localisation are adverse. Geoffrey Lieberthal, an observer of Chinese businesses, reported that “The downside is that [local Chinese] may not have the same grasp of the multinational’s strategy and how to be effective within the company” (Kiger, 2003, para 23). For instance, English was the major language used for written communication in the company but majority of the conversations among personnel were spoken in Chinese. Although this adaptation may cultivate communicate within Motorola’s affiliates in China, it can also cause problems for senior managers from the U.S. head office that have to be regularly updated of the company’s status in China (Chen, 2007). And without expatriates to maintain order, conflicts could arise between American or European educated personnel and local Chinese employees. But according to Xing, Motorola does not face such an issue because the knowledge and skill gap between local and foreign employees is shrinking, which consequently pulls down the wage differential—foreign employees receive higher compensation than local employees (Guthrie, 2012). Motorola China, which refuses to publicise its level of retention, goes for a distinctive strategy. It places emphasis on career development programmes rather than salaries or compensation packages. Xing advertises the Individual Development Program of the company, wherein HR managers conduct dialogues with employees to talk about their career objectives and assist in identifying programmes that the company can offer to furnish them with prospects for growth, from mentoring and training to specific job transfers (Kiger, 2003). Conclusions The PEST analysis and Porter’s Five Forces Model show that Motorola was motivated to enter China due to a number of reasons, such as the country’s growing technological sector, high unemployment rate, availability of local talents, high entry barriers thus low threat from new entrants, and willingness of the Chinese government to enter into joint ventures. The entry strategy of Motorola-- which is largely characterised by early movement, early adaptation, and green field investment or establishment of a wholly foreign-owned subsidiary—was mostly favourable to its localisation strategy. And one of the localisation strategies that work best for Motorola China was the staffing approach for senior management. References Avishai, B (nd) Motorola in China, 1986-1996, [Online], Available: http://www.bernardavishai.info/Motorola%20in%20China.pdf [4 Feb 2015]. Chen, Y (2007) “The Upgrading of Multinational Regional Innovation Networks in China”, Asia Pacific Business Review, 13(3), 373-403. Fishman, T (2014) What Happened to Motorola, [Online], Available: http://www.chicagomag.com/Chicago-Magazine/September-2014/What-Happened-to-Motorola/ [4 Feb 2015]. Guthrie, D (2012) China and Globalisation: The Social, Economic, and Political Transformation of Chinese Society. UK: Routledge. Kan, M (2015) Motorola returns to the Chinese market with a focus on smartphone design, [Online], Available: http://www.pcworld.com/article/2875335/motorola-returns-to-china-touts-phone-customization.html [5 Feb 2015]. 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Wang, J & Wang, G (2006) “Exploring National Human Resource Development: A Case of China Management Development in a Transitioning Context”, Human Resource Development Review, 5(2), 176-201. Bibliography Avishai, B (nd) Motorola in China, 1986-1996, [Online], Available: http://www.bernardavishai.info/Motorola%20in%20China.pdf [4 Feb 2015]. Chen, Y (2006) “Changing the Shanghai Innovation Systems: The Role of Multinational Corporations’ R&D Centres”, Science Technology & Society, 11(1), 67-107. Chen, Y (2007) “The Upgrading of Multinational Regional Innovation Networks in China”, Asia Pacific Business Review, 13(3), 373-403. Fishman, T (2014) What Happened to Motorola, [Online], Available: http://www.chicagomag.com/Chicago-Magazine/September-2014/What-Happened-to-Motorola/ [4 Feb 2015]. Guthrie, D (2012) China and Globalisation: The Social, Economic, and Political Transformation of Chinese Society. UK: Routledge. 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Wang, W et al (2010) “A Case Study on the Motorola China’s Localisation Strategy”, The Journal of International Management Studies, 5(1), 54-61. Wang, J & Wang, G (2006) “Exploring National Human Resource Development: A Case of China Management Development in a Transitioning Context”, Human Resource Development Review, 5(2), 176-201. Wright, P et al (1998) “HRM in Multinationals’ Operations in China: Building Human Capital and Organisational Capability”, Asia Pacific Journal of Human Resources, 36(2), 3-14. Read More