Asia Pacific Multinationals in Europe - Case Study Example

ASIA PACIFIC MULTINATIONALS IN EUROPE Table of Contents Table of Contents 2 Introduction 3 Multi-nationalization: The operational Perspective 3 Management of Global Supply Chain 6 9 The Dominance Creation: A Korean Electronic perspective 12 Reference List 15 Introduction The business migration from one economy to another for new market development, efficiency increments and resource accumulation is not a new tendency. The efficiency in such a case is liable on various market factors that have effects on micro and macro environment of business. The businesses of Asia Pacific region, more specifically China, Japan and Korea has been diversifying into foreign markets outside their nation of origin. The advent of open market economy with Foreign Direct Investment and oligopolistic market structures of major economies has fuelled this transformation. This paper would consider Chinese, Korean and Japanese business models to examine their reasons and factors those promotes the diversification of the business from the aforesaid economies to prosper in the European and other new markets. Multi-nationalization: The operational Perspective Availability of cheap skilled manpower, ease of entry, infrastructures, market potential, raw materials etc forms the most important consideration in the shift to a region where the labour is cheap and qualified while the non-manufacturing nations (Service Industries) tends to prefer the market to be in a diversified region with higher disposable incomes. The internal production surplus for the economies like Japan and Korea has made them the largest investors in foreign markets. Slowly and steadily this trends changes from the end years of 1960’s when the Oriental innovations and products started to have a substantial interest building up among European and US consumers traditionally ‘western markets’.. Process development, a strong tem game, hard work and political-social will each of these elements of these Oriental nations possessed (Swenson and Chen, 2012). Furthermore, (Basu, 2015) identifies 3 very distinct character when compared among each other as 3 distinct nations, with a common Web.bryant.edu, (2014) notes, form a Korean perspective, it cannot match the Japanese quality or superiority of technological excellence in quality perspective nor can they compete with Chinese cost efficiency and large scale manufacturing, thus strategically choosing innovation and design as their ace in differential strategy, in global perspective of business development in Western markets, is the strategic national outlook. The evidence lies in the investment towards R&D boost by tax rebates schemes aid government in economical and policy is so evident (Refer to Thumbnail 1). It shows the Korean investment in Research and development shows the highest portions of GDP allocation over US, Japan, UK like economies. Thumbnail 1: The Research and Development Investments (Globally Perspective) (Source Economywatch.com, 2015) The 2006 year end saw Japanese investments reaching nearly a hundred billion Euros. Moreover, the surplus of products makes the exports very vibrant gaining foreign exchange to the economy. The Orientals have had this edge, generating foreign exchange to further fund their foreign venture. It’s not surprising to know that Japan invests in Europe and stays one of the global leaders in foreign ventures; South Korea is closing in volume perspective. Investments like acquisition of Pilkingson Plc in UK to Nippon Sheet Glass of Japan is one while the strategic alliance of joint turnkey projects like the one of PSA Peugeot Citroen and Toyota Motors is another joint activity example to suggest the growing collaboration and strategic alliances (Barbour, 1996). The Asia Subcontinent is a huge place with a huge growing population, suitable for the businesses coming to Europe to sustain and achieve revenue objectives. Flynn (2010) suggests that the competence of a business to succeed in the foreign market is dependent upon its internal market’s characteristics. The more the consumers are keen to get the best value for money the more is the competition among the brands to achieve the cost effective excellence in product and services with innovation and technology adoption. The essay would name the businesses of China, Korea and Japan as Oriental businesses while the conditions of European Union would be referred as EU (Gereffi and Lee, 2012). The distance between Oriental and nearly all major nations of Europe, US are more or less similar. Therefore development of investment friendly strategies had the elements of liking that attracted the Oriental investors. Furthermore, the European Union is totality is a conglomerate of various nations with common trade and investment laws to let each economy take advantage of trade and industry growth at any part of Europe. The similar trends of invest laws and facilities is another market entry ease for Oriental Businesses venture in these markets. Management of Global Supply Chain . The location advantage of the nations like China, Japan and Korea are all sharing a huge boundary along the Pacific region making the logistics via water routes a viable part of logistic planning (Mentzer et al. 2007, Lee et al. 2008). However, the peril of loss due to natural cause has also seen the loss of major volume. Nevertheless, the venture of New lands like Latin America, North American Nations across pacific and along the adjoining Indian ocean has given the economies establish trade routes with rest of Asia, Africa and Europe. This route is bipartite and had been a traditional route for hundreds of years of Multinational business history. The change in trade and tariff regimes with global partnership of various economies had a distinct role in opening the domestic markets for foreign direct Investments (FDI), giving the oriental businesses to enter and venture in European markets. The aspect of Cold war and its complex politico-economic nature had been the reason which shaped the policy of growth and diversification attain a new meaning. Japan after the World War II while Korea after the 1962 Korean War where American backed NATO intervention for the regional peace had its positive aspects those shaped the regional industrialization. Lee (2008) observed that the oriental structures of business model have unique identifiable characteristics where the cultural values had been used effectively for productivity, within their strategic outlook and processes. However, the efficiency and personalized touch to industrial products appreciated knowledge and skills unlike in Oriental process, mostly where the unskilled person can use technology to perform complex tasks. With improvement in robotics and Software precession additions the cost effective Oriental Business culture have the edge it seems (Lim, 2012). Thumbnail: Chinese Global Exports Volume Comparative Analysis: China ranking global export index has hekoed Interestingly in the year 2005 these Nations of East Asia contributed for 37% of global economy and for last decade have shown a phenomenal growth over other economies. Cook (2014) comments, the supply chain at Eastern Asian markets makes the distribution of product most difficult compared to other economies. The reasons can be derived considering the Chinese, Korean and Japanese geographical cultural, linguistic and historical perspectives. The Chinese policy of ensuring the lowest cost product to be competent in the international arena has lead to its supply chain both from raw material sourcing to finished goods distribution controlled and subsidized by the State itself. A Case of the Chinese Ply wood industry is a good example which has flooded the European and US markets plywood product. The Yeay 2008-09 saw US and European markets getting Plywood in their markets manufactured by the Chinese to be occupying nearly 44% of all Plywood in the markets said. Cost effective and distribution along with mass volume makes the Chinese plywood industry dominate US and European markets. The reason of such cheap exports is idea by the Chinese government polity to produce in bulk at cost effective way to build the volume of highest exports globally. The sheer size and volume of any industry is bigger than Japanese or Korean Counterparts. May it be automobile or Plywood across all industrial sector. The government aid with lesser trade taxes on exports and export oriented production to get direct influence and sharing from the Government policy based auto its national political effec. The Korean giant of Samsung opted for the European market to establish the value chain increment with its high end technology inputs for Electronic products, build and distributed from the European location itself. This makes the product more location preference centric while adding the cost advantage out of its supply chain operations. The Japanese Automobile has set examples of new innovative supply chain models of cost effective production with least spillage in its international operations. Thumbnail 2: Japan’s Global Automobile Value Addition Index Position (Source: Nationmaster.com, 2014) The innovative inputs in the business are aimed at creating advantages in a market over its competitors. The automobile industry can be sighted out of many industries that have established it in European markets. The growing importance of innovation in economic growth has encouraged the development of innovation capabilities in East Asia, within which China, Japan, and Korea are most important in terms of technological capabilities (Lim, 2012). A survey by Bloomberg found that Korea ranks top in Research and Innovation expenses while China stands 22nd and Japan’s is in 9th Place globally. However, (Fisher, 2015) suggests that the innovation alone do not ensure the future stability and growth of a certain economy. There are other market factors too that adds to the innovation and development values in the market to achieve the objective of business. An idea of Samsung’s R&D spending for an example has grown from 9 Billion USD of 2011 to 14 Billion USD in 2014, giving an idea of the South Korean businesses approach towards new innovations. The entire economy and its approach has improved the economy altogether with such initiatives. The approach of the government is very much a factor that adds to the impetus for innovation centric culture development. Innovation, both in product quality, offerings, cost effectiveness, process modifications are done to achieve business advantages over the existing market challenges. However, the use of technology is not a phenomenon in China which is one the biggest producer of Automobile for exports. Rodrigue (2012) suggests that the Chinese Automobile volume is compensated by the cheap labour availability. The Japanese Car manufacturer like Nissan, Honda, Toyota, Mitsubishi etc has developed a technological edge over its international competitors in other economies. The Korean car manufacturer like Daewoo has followed the same structure for Japanese technology use to have the best utilization of its resources for cost effective production. The Toyota from Japan developed a “Just In time Model” of production also known as The Toyota Process. This process aims to reduce wastage, handling time, reducing transportation costs, reuse of materials, reduction of unnecessary processes burdens from the system and reduction of product defects in the process of operations. The basic philosophy behind the model was to achieve the cost effective delivery condition and production facility building with the Just in Time model that ensures exact quantity of raw material, with high end technology use to have low skilled workers achieve quality outputs with advanced technology use. The Toyota’s systems can be effectively elaborated as like a customer in a supermarket takes the desired amount of goods off the shelf and purchases them. The retailer restocks the shelf with enough new products to fill up the shelf space, emptied after the purchase. Similarly, at Toyota a work-centre that needed parts would go to a store shelf (the inventory storage point) for the particular part and buy the quantity it needs. Thereafter and the shelf would be restocked by the work-centre that produced the part, making only enough to replace the inventory that had been withdrawn. This lean production keeps the supply chain very effective where the business uses only the required amount of product avoiding spillage or over stocking of products. Thumbnail 1: Export Statistics for Global Auto-Manufacturers (Source: Web.bryant.edu, 2014) The research and developments are continuous process and have the involvement of the highest levels in the business as the culture of innovation and change is a continuous process that fosters in right political climate. The innovation’s role in value addition of product and process is achieved by the East Asian market players. Japan ranks 2nd while Korea is fifth in Car manufacturing globally and China is today the top most producer of Automobile in the globe (Fisher, 2015). The European markets had its own bulk of automobile manufacturer with great repute but the East Asian manufacturer used a price and mileage efficiency difference along with cost gaps to take the competitive automobile sector venture into a new offering domain (Domac and Ferri, 1999). Particular changes and modifications in public policies that are being implemented based on varying degrees of cooperation with industrial actors both at home and European markets aimed at encouraging such changes and encouraged the new offering adapting. These steps were more or less explicitly developed in search for a sustainable mode of development for this industry and economic mobility in general. It is Comparative in nature as well as cover the localisation and/or re-allocation choices which affect carmakers or suppliers’ production and design activities made the Automobile industry players have a better chance in new market development (Evanoff et al. 2009). The Dominance Creation: A Korean Electronic perspective The market perspective of Europe is socially and culturally different to that of the Oriental businesses. South Korea has always shown its willingness to invest in Research and Development activities, where the Government has played a major strategic role. With efficient mechanical innovations, a strong service sector has added to its growth. Interestingly when the global economy was in constrain South Korea bounced back in three quarters between 2008-09 periods keeping the unemployment levels better than any other developing economy across the globe. However, the geographical location of Korea between Japan and China is been used for its own geographical advantage by this nation. Samsung an electronic goods manufacturing company out of several others is one excellent example (Suehiro and Gill, 2008). When the Smartphone sales in 2007 were 22% of entire global sales that rose to 33% in 2009, even during the period when the global crisis was on. The Korean LCD TV product, which had a 27% share globally jumped to 37% by 2009 end, while 50% of the entire US Smartphone sales is manufactured in South Korea as on date. The TFT-LED technology of light is one example that was developed by Korea that is taking the next big leap in global stage (Cook, 2014). However, the cost advantage of china and Competence of Japanese quality that Korean goods had is steadily diminishing due to right policies at right time with a productive capacity building investment strategy that Koreans took. Bandt and Davis, (1999) observed that the technological, innovative processes, talent pool and investment capabilities had been the catalyst for the venture. The most developed economies of Europe faced an economic slowdown which caused them to lose the competitive advantage that it had in their respective markets. Further the decision of tax rebate for research and development is another boost that the government policy wishes to provide for futuristic business competence development. Therefore the actual crux of development lies in design and technological superiority where Koreans have taken the advantage of fast changing Global business scopes. Nevertheless, the Korean Automobile industry faces serious challenge vis a vis Japanese Automobile sector due to its higher cost of production. They are now trying to come in agreement with Chinese counterparts to establish the loosing foothold in the sector with Chinese Intervention, for a bipartite advantage of value chain development bilaterally. Casarini (2013) observes that this step would revamp the technology oriented Korean auto industry the needed impetus to achieve its lost grounds in international markets. The European joint venture for production and distribution stays one of the major players in Automobile sector (Kotabe and Mol, 2006). For its part, Japan has been able to secure advanced technology through cross-licensing of its own technology, while responding to changes in the marketplace with the development of proprietary technology and standards. Nevertheless, Korea has struggled to maintain its comparative advantage versus Japan and China (Zhao et al. 2013). This is because Japans strategy of promoting high-end products and especially Chinas efforts to upgrade its capability in terms of medium-grade products are now encroaching upon the production sectors in which Korea has traditionally shown considerable strength. As such, Korea has adopted a selection and concentration approach that is designed to achieve a breakthrough in the global market and Europe as its survival strategy (Young, 2015). Honda, Toyota are developing non-fossil fuel technology for future line of business while the power or mileage per gallon of fuel is effectively more than that of European cars along with added technology in production line for faster delivery, making it an obvious choice for European businesses to either close down or move out of completion (Palepu and Khanna, 2006). Reference List Bandt, O. and Davis, E., 1999. A cross-country comparison of market structures in European banking. Frankfurt Main: Europe Central Bank. Barbour, P., 1996. The European Union handbook. Chicago: Fitzroy Dearborn. Basu, S., 2015. Export structure and economic performance in developing countries: evidence from nonparametric methodology. [online] Available at: [Accessed 19 Mar. 2015]. Casarini, N., 2013. 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