Doing Business Globally and Internationally - Kellogg - Case Study Example

Doing Business Globally and Internationally Affiliation Table of Contents Table of Contents 2 Environmental factors and trends 4 Social 4 Income Distribution 4 Labor 4 Living Conditions 4 Technology 5 Energy Cost 5 Changes in the use of internet 5 Mobile Technology 6 Economic factors 6 Growth in Economy 6 Taxation 6 Environment factors 7 Political and legal factors 7 Ethical factors 7 Foreign Direct Investments Motivators 8 Kellogg Entry into Chinese Market 8 National and Corporate Cultures 11 Hofstedes Cultural Dimensions Theory 11 Corporate Culture 12 Quality 12 Safety 12 National Cultures 12 Exchange rates Movements 13 Transaction Exposure Theory 14 Aspects of International Business 15 Environmental factors and trends Social Income Distribution The Chinese economy growth has prompted an increase in the number and upper class individuals in the society. In this context, most of the populace can afford the products being provided by Kellogg in the food industry (Yan &Luo, 29). Labor China one of the populous nation in the globe. The country also harbors the highest market for cheap labor in the world. In this case, the joint venture between Kellogg and Wilmer is driven by availability of trained and cheap labor. The companies can capitalize on the minimal cost of labor to enhance their profitability and overall income (Wu & Zhu, 32). Living Conditions Economic growth in China has enhanced the living conditions of the population. This factor enables the countrys populace to engage in modern activities such as dietary and eating criteria. The joint venture promotes the availability of processed breakfast to the population in order to keep up with the good conditions in the country (Wu, 29). Technology Energy Cost The growth in the country’s economy has triggered infrastructure development in the energy sector. This development in infrastructure in the energy has led to a decrease in the cost of energy in various parts of China. The venture was driven by the low energy cost because it contributes to a reduction in the operations costs. This reduction in the cost is essential in enabling Kellogg’s products to compete effectively in the Chinese market (Campbell &Netzer, 30). Changes in the use of internet The Chinese government has liberalized the criteria of using the internet that is crucial for marketing activities. Initially, the government controlled most of the online activities, which limited internet marketing (Yan &Luo, 22). The government has enacted various legislations that promote the use of social media among the population. This use of the internet enables the organizations in the venture to advertise their products to the online community. The companies can interact with the consumers through social media and their respective websites. In this context, Wilmer can inform the customers regarding the location of their stores in different parts of the country while Kellogg can provide information regarding various aspects of their products (Yan &Luo, 20). Mobile Technology Adoption of mobile technology for advertisement, purchasing and communication in the Chinese market is another driver of the joint venture. The companies intend to use the widespread mobile technology to advertising their products to different consumers across the country. The technology provides the company with advantage regarding the sale of the products through mobile platforms (Zhou & Jin, 44). Economic factors Growth in Economy The Economy growth is among the major contributors to the increased investment in China. The countrys economy has grown steadily which attract investors and organizations from different regions worldwide. The joint venture is geared towards attracting the increasing population in urban areas due to economic growth (Zhou & Jin, 36). Taxation The taxing system in China has been revised to accommodate direct foreign investments. The revised taxing criterion enables the companies to operate effectively in the Chinese market, which facilitates profitability and sales. Furthermore, the tax incurred on food products in the country has reduced which creates a good atmosphere for the operations of the Joint Venture (Zhou & Jin, 44). Environment factors The environment is among the leading factors that influence international businesses in a particular country. Initially, the country’s policies regarding the environment were limited to manufacturing industries outside the food industry. Multinationals had trouble to operate in an environmentally unfriendly environment that limited their activities. In addition, the Chinese population engaged in the consumption of traditional meals, which hindered the sales, and profits of multinationals in the food sector (Zhou & Jin, 37). Presently, the Chinese government has enacted various laws that government the environment hence creating a favorable environment for food processing organizations (Campbell &Netzer, 21). Political and legal factors The current political environment in China is favorable for international business. The government has reduced its control of the manufacturing industry in the country in order to promote foreign investments. Moreover, the Chinese economy is stable due to effective governance and political stability that reduces the occurrence of skirmishes (Devonshire-Ellis, Scott &Woollard, 31). Ethical factors Ethical factors contribute to the initiation of the joint venture of Kellogg and Wilmer companies. Wilmer has a good reputation in the processing and distribution of various food products in the country. On the other hand, Kellogg Company has a reputation for the manufacture of the breakfast snacks. In this context, Kellogg capitalizes on the reputation of Wilmer to avail their products to the consumers. Wilmer also relies on the reputation of Kellogg’s snacks to attract more consumers to their products (Campbell &Netzer, 41). Foreign Direct Investments Motivators Foreign Direct Investments create expansion and development opportunities that transform the economy of a particular country. There various motivations for foreign direct investments in China. Capital is one of the motivating factors for foreign direct investment in China. The availability of adequate capital in the country provides the companies with financial security, which is essential for their growth and profitability (Miller and Reuer 21). The stability of the country’s current also guarantees the investors of sustainable availability of capital to facilitate the operations of the business. The second motivator for direct foreign investment in China is the returns. Business owners and investors take risks when establishing foreign direct investments in a particular country. The availability of reliable market in the country promotes the returns of the investments. In this case, the business engages in foreign direct investments in China because of the adequate market for the products, which promote stability of the returns (Jeanneret 12). Kellogg Entry into Chinese Market Kelloggs entry into the Chinese market is based on joint ventures with the existing organizations in the country. The first attempt by Kellogg to enter the Chinese market encompassed a complete acquisition of the assets and personnel of navigable Foods Company. The acquisition was geared towards facilitating the company’s growth in the Chinese market. Kellogg Company would use the assets and infrastructure of Navigable Foods to manufacture and distribute their biscuits to various parts of the country (Devonshire-Ellis, Scott &Woollard, 39). Moreover, the company would also use the human personnel of Navigable foods in its operations in order to optimize the brand name in China. On the contrary, the joint venture between Kellogg and Wilmer benefits both companies at various levels of trade. Kellogg Company uses the distribution network and assets of Wilmer International Company to manufacture and distribute their products in China. The sales earnings of the products in China are shared equally between the companies (Dlabay& Scott 30). The drivers of the acquisition of the Navigable Foods Company include the need to expand operations to Chinese market and increase the profits, as well as market share. On the other hand, the drivers of the joint venture between Wilmar and Kellogg entail the elements of the external environment in the Chinese food industry. There are differences in the driving factors of Kelloggs entry into the Chinese market in the two cases (Dlabay& Scott 30). First, the entry criteria for acquiring the assets of Navigable Foods involved minimal research on various aspects of the market (Hladik 37). In this case, the analysts at Kellogg Company failed to evaluate the business environment of the food industry in China. Contrarily, the second entry attempt involved adequate research on different environmental factors in the Chinese market. Secondly, acquisition of the Navigable Foods Company aimed at expanding the operations of the company to the Chinese market in order to promote sales and profitability. The second entry attempt into the Chinese market aspires to enhance the market share and brand the products in the Chinese market (Taylor 12). In addition, a third party undertakes most of the distribution and marketing activities of the company’s products, which is a crucial initiative from branding (Dlabay& Scott 50). In the first entry scenario, Kellogg risked encountering an increase in the losses due to failure to evaluate China’s food industry effectively. Furthermore, the driving factors focused on the growth of the company in the Chinese food industry. On the other hand, the second market entry criterion has various risk factors (Kelloggs.com 2015). Competition in the food industry in China is currently high due to the increase in multinational companies in the market. The introduction of Kellogg’s products in the market might fail to compete effectively with the established firms in the country. The partnership with Wilmer would succeed because of various reasons (Kelloggs.com 2015). First, Wilmar International Company is an agribusiness organization with a large number of manufacturing plants worldwide. The distribution and manufacturing strength of Wilmar is an essential driver of the success of the joint venture. Additionally, the company’s strong network for distribution in three major cities in China provides an adequate and reliable avenue for the flow of Kellogg’s products to the consumers (Hladik 27). Secondly, the large command of Wilmar in the Chinese market is crucial for enabling Kellogg to serve more markets in the country. Wilmar has established various plants and distribution facilities in China for its agronomy and food processing business. In this case, the company’s brand is established among the population, which is an important factor in facilitating the growth of Kellogg in the market (Kelloggs.com 2015). Wilmar International can utilize its reputation in the world market to enhance the entry of Kellogg’s products in China. Thirdly, the economy of China as well as its population provides an adequate market for the success of Kellogg. China is home for the largest population in the world. In addition, the country accounts for the second largest economy in the world. The two aspects of China provide a reliable avenue for the consumption of Kellogg’s products (Kelloggs.com 2015). Wilmar and Kellogg cannot ignore the breakfast snacks in China because of the availability of adequate market and resources. In this case, the joint venture between Kellogg and Wilmar will be successful (Nguyen 31). National and Corporate Cultures Hofstedes Cultural Dimensions Theory The theory highlights on the concept that value depends on the various dimension of cultures such as inequality versus equality and individualism versus collectivism. In addition, uncertainty tolerance versus uncertainty avoidance, femininity versus masculinity, temporal orientation and restraint versus indulgence are other aspects of the theory (Pan and Zinkhan 21). According to the theory, Kellogg and Wilmar should have empathy and knowledge of the Chinese scene. In addition, the reaction of the China’s populace regarding the products offered by the partnership differs from that of the consumers in United States (Wu & Zhu 35). In this case, both companies should undertake adequate market research to establish the needs of the local population regarding the raw materials and production criteria of the food. Kellogg utilized the assets and distribution channel of Wilmar International, which was integrated adequately into the Chinese society. The Channels of Wilmar International enables Kellogg to establish an effective market for its food in the Chinese market (Pan and Zinkhan 10). Corporate Culture Quality Kellogg mainly operates in the American and European markets. The culture of the company is based on various aspects of the American culture. The culture of the organization encompasses the aspect of quality (Stahl &Björkman 32). Quality is among the most sensitive elements of various products in the food industry. Kellogg and Wilmar Companies promote the quality of their product adopting reliable production techniques. Moreover, Kellogg’s joint venture with Wilmar is driven by the need to produce quality products for the consumers (Pearson 44). Safety Safety refers to a concept of enhancing the ability of the food to sustain the health of the consumers without any complications. The products provided by the company promote various aspects of because of the safe production process. The company monitors different aspects of the product during the production process in order to facilitate its safety (Neelankavil 43). Moreover, the safety of the products is enhanced by ensuring that they comply with the specified government regulations. National Cultures The culture of the government of China regarding the food industry focuses on the safety and health of the citizens. The authorities monitor the products of the company to establish different aspects of safety and dietary (Stahl &Björkman 32). Furthermore, the Chinese society appreciates food products that reflect on their tradition. In this case, the companies targeting China’s market should embrace their culture in order to enhance sales and profitability (Pearson 31). Exchange rates Movements The partnership between Kellogg and Wilmar is market oriented in that the former sets up a subsidiary to manufacture and sell products for the Chinese market. In this case, Kellogg and Wilmar remit the profits of the partnership to United States and Singapore respectively. The raw materials are obtained from the United States and states where Wilmar operates (Rugman 33). The movement in the exchange rate affects the operations of the partnership in various ways. First, a decrease in the value of the U.S dollar compare to the Chinese Yuan tends to increase the cost of importing raw materials (Tihanyi, Devinney& Pedersen 33). Consequently, the cost of the breakfast snack in China increases which limits the competitiveness of the partnership (Shurtleff, Huang & Aoyagi 43). However, a rise in the United States dollar value and a reduction in the value of the Chinese Yuan reduce the cost of raw materials. Consequently, the production cost reduces leading a low market price for the products (Silkenat, Aresty&Klosek 57). The partnership between Kellogg and Wilmar International leads is affected positively by the movements in the exchange rates. Both companies are multinationals operating in a foreign country. In this case, the companies rely on the home currencies in most of their operations in order to enhance the standards and accuracy of their accounting processes (Riahi-Belkaoui 36). The organizations obtain their raw materials from their respective countries as well China. Various changes in the in the exchange rates in the Chinese market affects the companys operations in various ways. An increase Chinese Yuan value affects the profitability of the company. Increased value of the Yuan in comparison with the United States dollar influences the cost of the raw materials and the companys sales (Stahl &Björkman 39). The consumers of the breakfast snacks purchase their products in the local currency and the company converts the earnings to American dollars in order to evaluate their profits in a standard manner. The increase in the value of the Yuan in comparison to the dollar facilitates the companys profits in dollars. However, the company incurs high costs in purchasing the raw materials in the Chinese market (Riahi-Belkaoui 46). Consequently, a rise United States dollar value in comparison with the Yuan affects the profits and costs of raw materials negatively and positively respectively (Taylor 17). A more valuable U.S dollar enables the company to purchase raw materials locally at lower prices that minimizes the operations costs and consequently maximizing the profits (Riahi-Belkaoui 20). Furthermore, consumers purchase the products in Chinese Yuan, which increases the company’s profits and revenue after conversion into dollars. Transaction Exposure Theory The transaction exposure theory highlights the risks of a company operating in a foreign market on the changes in the exchange rates. Kellogg Company agreed to use the facilities of Wilmar International their distribution and production processes (Riahi-Belkaoui 40). In this case, Kellogg has a transaction exposure that the U.S. dollar will depreciate with respect to the Chinese Yuan. Consequently, Kellogg will be forced to spend additional dollars to purchase the same amount of Yuan to complete a particular transaction (Riahi-Belkaoui 32). Translation exposure theory Translation exposure occurs because of translation of accounts books into the currency of the firms’ original country (Miller and Reuer 7). Translation occurs when the accounts of the venture are translated into United States Dollars (Jeanneret 14). Economic Exposure Theory Economic exposure influences the firm’s value directly. In this case, the value of the partnerships in affected by the rate of foreign exchange (Jeanneret 10). Aspects of International Business Marketing International marketing entails appreciation of people that they have various needs. Companies like Coca-Cola, Gillette, BIC or Cadbury Schweppes they have brands, which are widely recognized worldwide. The audience at global scale targets the products of the companies. It is also worth to note the influence of the regional differences in order to recognize the importance of the global marketing. Companies should accept the differences of the customs, values, currencies and the languages (Vaidya 38). Thus, some products may only suit specific countries and fail to the others. For instance, when marketing the products like Razor of Gillette in countries like China or India the language is imperative to focus. To get the relevant information, it takes some time before getting to comprehend the new languages and familiarizing with the new locations (Wall, Minocha& Rees 42). When am planning my global business I would first research to get the probable response to my customers. Again when I understand the effectiveness of the marketing strategy I am going to use, it will help to counteract the competition that my products can come across in the market (Taylor 17). The tourism course that I will pursue will enable me understand different languages, which is essential in the global marketing. Finally, tourism course knowledge will help me to strategize properly when venturing into the global business in future since I will understand different cultures (Riahi-Belkaoui 25). Political environment The political atmosphere is very crucial in the international marketing. There are political factors that affect the legal and political differences. Legal and political differences influence the type of products, which are sold in a given country. There are various types of the government system with different political systems (Webb 38). These political systems govern different institutions, regulations, attitudes and rules. There are some rules, which are supported by different government systems, which hamper globalization. Other government policies limit the scope of the country’s business. It is always good to understand the country’s laws before marketing any product in the country. Some countries have political systems, which bars some goods (Webb 21). The knowledge of the political environment will help me to locate the conducive business environment, where my business can do well. Again, if I understand the political atmosphere of a place that will mean that in future I will be able to start my global business in an environment that suits my business growth. The tourism and marketing master’s course that I intend to pursue will facilitate understanding different movements of people across the word, which will be very essential in designing marketing strategy at global scale (Wall, Minocha& Rees 23). Technology Currently, there are many changes, which have occurred in the international marketing strategies. This policy influences the sale of products and the promotion of the same. The reason as why the changes have occurred is due the explosive and dramatic growth of technology (Wall, Minocha& Rees 31). The multinational companies would venture to the ways that would give rise to the rapid growth of the technology to aid the marketing of their goods. An advanced technology offers a different surrounding for international marketing (Wall, Minocha& Rees 28). Many companies and organizations have considerable freedom to establish a product or service to know where it can be best suited for the new technology. The face of the international marketing has been changed by the new technology (Webb 32). Advancement technology has turned the face of international marketing and made the marketing sector to be more effective. The aspect of technology can help me when am designing my global business in areas of marketing and promoting my products. When I use the new technology in global business, the marketing can be efficient and target a greater population, which is an important aspect of any business. Again, if in future I would wish to venture to a global business technology will help me to strategize correctly and understand the market trends and the commodities, which are in greater demand on the global scale (Wall, Minocha& Rees 58). Tourism and marketing knowledge that I will gain after schooling together with the technology awareness will greatly assist me in researching for the goods markets for my products at global scale. References Alon, I. (2013). Chinese economic transition and international marketing strategy (Revised ed.). Westport, Conn.: Praeger. Aswathappa, K. (2010). International business (4th ed.). New Delhi: Tata McGraw Hill Education. Baran, R., Pan, Y., &Kaynak, E. (2012).International joint ventures in East Asia (2nd ed.). New York: International Business Press. Campbell, D., &Netzer, A. 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Harlow, England: Pearson/ Financial Times Prentice Hall. Webb, J. (2008). Strategic information management. Oxford: Chandos. Wei, Y. (2012). Investing in China.Annadale, NSW: The Federation Press. Wilmar-international.com,.(2015). Wilmar International | Asias Leading Agribusiness Group. Retrieved 9 April 2015, from http://www.wilmar-international.com/ Wu, F. (2012).Implicit incentives in international joint ventures. Wiesbaden: Springer Fachmedien Wiesbaden. Wu, L., & Zhu, D. (2013).Food safety in China. Yan, A., &Luo, Y. (2009).International joint ventures. Armonk, N.Y.: M.E. Sharpe. Yan, Y. (2010). International joint ventures in China. Basingstoke: Macmillan Press. Zhou, J., & Jin, S. (2013). Food safety management in China (2nd ed.). Singapore: World Scientific Publishing Co. Appendix Fig 1: Steeple Analysis. Retrieved from www.marketingminefield.co.uk Fig 2: PESTEL Analysis. Read More