The Elecdyne Company - Case Study Example

Table of contents i. The Elecdyne Company ii. Current and future business environment iii. Elecdyne STEEP Analysis iv. Expansion candi s a. USA b. Russia c. France v. Internal and External Analysis: SWOT Analysis a. SWOT analysis of Elecdyne b. External analysis: PEST analysis c. Location decision based on PEST analysis vi. Choice of methods for internationalisation a. Justification for the choice of the method vii. Conclusion List of references The Elecdyne Company Elecdyne, a Japanese Company known of producing electronic products such as television, VCRs, and DVD players was started in 1990. For the past years the company has been struggling to overcome the overwhelming competition in Japan. The extensive competition has been as a result of general threats that arise from the rise of globalized business environment such as innovation of new products in addition to increase in the technology. In relation to these challenges, the company is aiming at coming up with new strategies in order not only to remain viable, but also to make profit (Ireland, Hoskisson & Hitt 2008). One of the strategies that the company considers to be viable is its expansion internationally through venturing in the EU countries. The countries of choice include Russia, USA, and France. In addressing this, the report will expound on the current and future environmental factors that will impact the affect Elecdyne through the aid of STEEP analytical framework. I chose STEEP analysis because of its simplicity in addition to being general and permitting one to analyse the diverse factors that impact an organization. Apart from STEEP, PEST and SWOT analysis will be used in analysing the selected countries extensively in order to determine the best option for expanding internationally. Current and Future Business Environment Griffin argues that competitiveness is the most crucial characteristic of a global market. This assertion is in relation to the globalization expansion. This claim aids a company to formulate ways of overcoming environmental challenges. The use of strategic tools as the ones will be expounded in this report will probably aid in achieving this objective. The global industry is estimated to be 5.4% (Nummela 2010) with continuous growth in the coming years. However, the influence of the recent recession has been very significant in electronic industries as well as other industries. Still it is apparent this industry is likely to face more challenges in the future. In relation to this, Elecdyne needs to make some necessary adjustments. According to Martin and Rogers (148), A STEEP analysis is a very significant tool for organising complex information associated with brings change in a given organization. The word STEEP stands for sociological, technological, economic, environmental, and political. In tandem with Martin and Roger’s assertion, Craig, Parker and Parker (49) claim that STEEP analysis is a crucial management tool as well as process that can be utilized in identifying diverse influencing issues. In relation to these definitions, one can affirm that STEEP analysis is the method employed in evaluating business opportunities in countries in the world. The analysis aid Elecdyne in choosing the best country to expand its business internationally. Elecdyne STEEP Analysis Sociological The market demands for electronic products vary in different countries. The age group plays a very significant role in determining on which products to produce in the business world. In regard to this assertion, the Elecdyne products which constitute mainly of television, DVDs, and other CD players will mainly attract the youth population. The social factors in Russia, France, and USA are very different because these countries have different cultures that influence their demand for the products the company wants to introduce to them. Internet is the most preferred mode of communication today. Companies use it to share as well as collect information about their clients and competitors. Social media sites such as Facebook and Twitter are some of the tools Elecdyne need to use in advertising so that it reduce its production costs. Technological The technological aspects of Russia, France, and USA are different, and as a result, the company’s management will be forced to understand the technological affairs in the selected countries (Chin-Chun 2006). The company may be forced to import some technology from its home country making production expensive. Shift in demand as a result of extensive advancement in technology may also affect the success of the company’s production in the suggested countries. Political Business laws in Japan differ from those in other countries. The business policies in Japan may not work in Russia, USA as well as France because of the existence of their local policies that govern their business (Patrick 2011). As a result of this, the company will be forced to rethink starting their business in the proposed countries. Ecological Most global leaders have gathered for the past many years to address their issue of pollution as a result of industrial products. This may pose challenge to the advancement of the company in the selected countries (Richard 2000). Elecdyne like many other companies have the responsibility of promoting not only the green energy, but also eco-friendly products. Emphasis on this may increase the company’s cost of production. Economic Technological advancement has led to the price of electronic products to drop. Based on the global economic condition, the economic status of the proposed countries is likely to change. As a result of this, the company is obliged to analyse the external environmental that have the potential to affect the business. In regard to the information provided in the table above, it is apparent most factors presented interrelate. The presented factors are also the ones that challenge Elecdyne today and will likely to impose more challenges in the future. Thus, Elecdyne is obliged to come up with strategies that will enable it to overcome the current challenges as well as the future challenges in order to successfully manage to advance its business internationally. Expansion candidates Brief justification for the choice for the 3 countries to be compared with Japan Three countries have been picked as the target markets. The choice of these three countries is based on not only their market characteristics, but also on their respective geographical positioning (Jane 2007). USA USA has been regarded an economically viable state for the past many years. It has a large market because of its high number of youth population. Majority of the people in the USA also love technological devices for entertainment. Establishing of Elecdyne’s business in this country will benefit from the high number of customers. However, this will only happen if the company will manage to compete effectively in addition to producing quality products. USA being a developed country, it has many related industries that can support the company in terms of inputs. The USA has also plenty human resources that can be utilized by the company in producing its products (Warren 2001). Apart from this, the country has friendly foreign policies that benefit the investors as long as they observe the policies of the country. Additionally, USA is technologically advanced, and as a result of this, the company can use the most recent technology in producing as well as marketing its products in the country. Russia Russia is one of the countries in the world with an improving economic freedom. Its economic freedom score is 52.1, an improvement by 0.2 since 2014 as a result of gains in business freedom as freedom from corruption. Approximately a half of the population in Russia use the web in their daily activities. Russia’s joining of the World Trade Organization (WTO) and the formation of the Common Economic Space with two countries. Belarus and Kazakhstan makes it a potential country for investment (The Heriatage Foundation 2010). In relation to this assertion, Elecdyne is likely to succeed in starting its business in Russia. Despite this, the company is likely to face some challenges in Russia because of the declines in monetary freedom as well as property rights. In addition to this, the government of Russia is likely to affect the progress of the company’s business because of its habit of screening foreign investment in addition to subsidizing state owned businesses that result to limitation of competition and market opportunities (2015 Index of Economic Freedom 2015). The suffocating bureaucracy in addition to rigid labour market is likely to affect the success of the business. France France is the second largest populous country in the EU. Its economy is also the second largest in EU and the fifth largest economy in the world (Wellings 2013). In addition to this, majority of the companies in France privatised. The French people also prefer life pleasures to work. In other words, the French regard both pleasure and work as essential things in life. All these factors prove that Elecdyne will succeed in starting its business. However, the company is likely to make less profit because of the high level of unemployment in France. Internal and External Analysis: SWOT Analysis The choice of use of SWOT analysis in evaluating the prospects of Elecdyne is in relation to the fact that it is regarded as one of the best tools for evaluating the prospects of any organization (Afuah 2009). The SWOT analysis focuses on four main things; strengths, weaknesses, opportunities, as well as threats. The SWOT analysis of Elecdyne is provided in the table below. SWOT analysis of Elecdyne Strengths It successively operates in a competitive industry in the world. It has been a success industry in the Japanese market for over 20 years. Electronic industry has a bright future in the world market. Staff familiar with English language Weaknesses Lack of funds making the wages to be very low; no attraction of new employees. Invention very much underrated enhancing its exclusion from the market. Increasing internal costs for production. Licencing costs in new market. Opportunities Electronic industry has many prospects in the world market. Entry into the new market will increase its sells as a result increase in profits. Threats High competition from other industries. Change in demand as a result of production of new technological products. No guaranteed success of suggested plan. Increase in risks because of lack of knowledge in entering new market. Language barrier. External analysis: PEST analysis Before expounding on PEST analysis it is crucial to introduce what it constitutes. PEST analysis is made up of four things; political, economic, social, and technological. The reason for using this analytical tool is in relation to the fact that macro-environment factors can affect important variables which in turn can influence a company’s supply and demand levels as well as its costs (Kotter & Schlesinger 1991, and Johnson & Scholes 1993). According to Kotler (1998), PEST analysis enables one to understand market growth or decline. It also enables a person to determine business position, potential as well as direction for operations. Factor category Risk factors Japan USA Russia France Political War risk 2 1 3 2 Political risk 1 1 3 1 Corruption perception index 17 19 133 19 Transfer risk 1 1 2 1 Economic GDP growth rate (Eurostat 2015) 1.3 2.4 0.5 0.4 GDP per capital (The World Bank 2015) 37,390 54,800 14,611 40,347 GDP purchasing power (The World Bank 2015) 4,497 15,290 2,414 2,246 Unemployment rate (Eurostat 2015) 4.0 5.5 5.8 10.6 Sociological Literacy rate (C.I.A 2010) 99% 99% 99.6% 99% Life expectancy 83.1 78.74 70.46 82.6 Population (Nation Master 2015) 127,993 thousand 325,723 thousand 136,696 thousand 62,339 thousand Average death rate (C.I.A 2011) 9.15/1000 8.4/1000 14.1/1000 9/1000 Technology R & D expenditure (Science and Engineering Indicators 2014) 147 492 32.8 52 Internet users 109,252,912 279,834,232 84,437,793 55,429,382 Cost Inflation rate (Inflation. Eu 2015) 2.28 -0.07 16.93 0.09 Interest rate 3.7 1.1 -1.1 0.05 Location decision based on PEST analysis Based on the information provided in the table above, USA will be the most appropriate market for the company at least for the start for its expansion internationally and later advance to other countries. The reasons for the choice of USA over the other two countries are the following: political challenges will least be experienced in USA compared to the other two countries. The economic situation of USA is also very appealing; it has low rate of unemployment, highest GDP growth rate, GDP per capital as well as GDP purchasing power. The sociological factors in the USA are also very promising; the level of illiteracy is very high with the highest population compared to France and Russia. In terms of technology USA is also most advanced of the three countries. The company will utilize the available technology in meeting its objectives. Additionally, the inflation rate of the USA is the least. This together with its appealing interest rate will enhance the success of Ecdyne Company. Choice of methods for internationalisation Three methods of internationalization were considered effective in realization of Elecdyne’s project. These methods include joint venture which is introduced to as a strategic cooperation that functions in the host market (Campbell 2009), greenfield ventures which is associated with a company leasing an area and then establishing its unit (Ireland, Hoskisson & Hitt 2008), and Mergers which involves acquiring a firm and using it to make profit (Ray 2010). The table below summarizes the advantages and disadvantages of these three methods of internationalisation. Method Advantages Disadvantages Joint ventures Rapid growth, high chances of immediate profits, possibility for transferring technologies, possibility for allocating funds for further growth of the organization (Partrick 2011). Conflicts can be detrimental, most processes are often overestimated, and communication barriers are common. Greenfield ventures Independency in running the business in a new country, ability to interact with new customers in the new market, and profits are not distributed. Peaking delays because of new environment, the cost of installing and progressing is very high. Mergers Development of synergies is possible; the debt capacity can also rise. Improves the company’s image globally. Control of main organizational factors may be lost, a specific guideline required for the organization to implement its strategic policies, the firm can lose its independency leading to termination of its operations, conflicts are prone to occur that can affect the whole project, and the success of the business is not guaranteed. Justification for the choice of the method In regard to the information provided above, Elecdyne will employ joint ventures in starting its business in USA. This is in relation to the fact that it will manage to grow very fast in addition to making immediate profits from its business. The company will also minimise its operation costs by transferring its workforce as well as technology from home country. Additionally, the method will allow the company to allocate funds for future expansion in the world market. Moreover, this method will be very effective because USA will provide significant support to the company since it is more advanced technologically than Japan. Conclusion Elecdyne will expound its market internationally in order to overcome completion as well as to make more profit. The country of choice for its expansion internationally is the US because of the good environment for electronic business. However, the company is likely to face some challenges such as competition and miss-communication because of difference in their cultures. Reference List 2015 Index of Economic Freedom. (2015). Russia. 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Available at: http://www.heritage.org/index/Country/CzechRepublic. {Accessed 22 May 2015}. The World Bank. (2015). GDP per Capita (current US$). Available at: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD {Accessed 22 May 2015}. Read More