Strategic Decision to Go Globally - Case Study Example

Strategic Decision to Go Globally Beijing Tianyu Communication equipment Company (Tianyu/K-Touch) is today among the most fast growing smart phone manufacturers in China. This company was founded in the year 2002 by a cell phone distributor Rong Xiuli. After being registered in the year 2006, Tianyu has over the years grown to become the largest local smart phone manufacturer and distributor in China with sales of approximately twenty four million handsets per year (Chiang, 2008). Beijing Tianyu Communication equipment Company operates its own RD centers with top modern Smartphone R&D labs. Presently, Tianyu has more than 600 employees working in the R&D department where more than half of these employees specifically focus on the software development (Wang, 2010a). Tianyu has largely excelled in both manufactures of mobile handsets and smart phones which have been perceived as less expensive and possessing quirky features something that has made these products become highly appealing to the respective customers in Chinese market (Tsai et.al, 2013). According to Chao (2008b), Tianyu smart phone gadgets adequately possess special features of dual simcard option, large font writing screens that are appealing to the elderly people, in built business card scanners, ‘read aloud’ text option, multiple call receive option and touch screens. Analysis of the market Tianyu operates in The Chinese smart phone market is regarded as one of the fastest growing markets in the world (Chen et.al, 2013). Chiang (2008) argued that the Chinese Smartphone market is comparable to the fashion industry where the different players in the market have to keep on coming up with new styles and themes to continue meeting the demands of the different customers. According to Yayi (2012), quality and level of innovativeness are factors that define this market. The Chinese Smartphone market can adequately be characterized as a competitive and technology-oriented market (Chen et.al, 2013). Smartphone manufacturers both local and international have to therefore remain conscious of technology to maintain their share of the market (Brandt and Thun, 2010). In the year 2007, the K-Touch Smart phones were ranked as second most popular in the Chinese market (Chiang, 2008). According to Wang (2010c), the rise of the Chinese local Smartphone manufacturers such as Tianyu in the Smartphone industry has always been a big threat to the international companies that have for long dominated the world mobile phone industry. Slowly by slowly, the mobile local manufacturers have been able to get rid of the popular brands from the Chinese market (China Academy of Telecommunication Research, 2013). Initially, there were very few local brands in the Chinese market, but today the Smartphone brands are inclusive of local and international brands. Presently, the Chinese market is largely dominated by the domestic products (Madrigal, 2011). According to Chao (2010a), the big foreign brands in the past had occupied more than 90 percent of the Chinese market unlike today where they occupy less than 65 percent. According to Madrigal (2011) the big names; Samsung, Apple, RIM, HTC, LG, Nokia now only controls a 64 percent of the Chinese market while the rest of the market is controlled by the emerging Smartphone manufacturers. However, Nokia and Samsung still dominate the Chinese market with Nokia owning a 33.2 percent of the market and Samsung taking 24.9 of the market (Madrigal, 2011). Image 1. The market percentage occupied by both foreign and domestic Smartphone firms in China. (Chao, 2010a). Strategic and Financial analysis It is believed that for any business organization to keep its profits rolling and for it to adequately survive in a competitive market, the integrated business model plays a big role (Hu et.al, 2011; Kotler and Keller. 2012). It is therefore required that a firm deploys an adequate, explanatory and viable business model that adequately expands its sales and further expands on its share of the market (Betz, 2002). This way, the business is able to identify its target customer in the market and significantly define their product value (Magretta, 2002). This follows that, the business stands a position to offer quality to the customer while at the same time charging the customers a minimal cost (Hammond, 2008). In the last five years or so, price of the Smartphone gadgets has been a major factor that has adequately defined the different players in the Chinese market (Hu et.al, 2011). With the international companies such as Samsung and Nokia maintaining relatively high prices on the Smartphone devices in the Chinese market, the local manufacturers have strategized on developing similar products and selling them at relatively low prices (Hu et.al, 2011). In the year 2008, K-Touch C800 was released by the Tianyu Company and adequately become the first of its kind to have an 8-megapixel camera phone that had an optical zoom (Zhu, 2012). According to Wang (2010b), this was the first China-made mobile phone device that was priced beyond 2,000 renminbi what was previously perceived as impossible for the locally manufactured devices. In the year 2007, the sale of mobile handsets by Tianyu were recorded as 17 million what expanded to 24 million mobile handset I the year 2008 and further to 29 million mobile handsets in the year 2009 (Hu et.al, 2011). Today, the mobile handset sales by Tianyu have been observed to grow by approximately one million every month (Chao, 2010a). According to Madrigal (2011), the number of mobile phone devices sold by the small players in the Chinese market in the recent past has risen to relatively high margins with such firms making sales of over a million mobile handsets in a single city in China (Ministry of industry and information technology of the People’s Republic of China, 2012). The reasons and the need to grow globally To effectively establish the reason and the need for Tianyu to grow globally, it is vital to conduct a competitive landscape analysis. In this regard, it is important to review the presence of the competitors in the market by adequately analyzing how they have undertaken their market segmentation in the different parts of the world and assess their value chain model. It is also vital to analyze their strategies on the basis of product and services and their strengths, weaknesses, opportunities and threats in the market. A value chain analysis comparing the domestic manufacturers to the foreign manufacturers The value chain of the Chinese local Smartphone manufacturers can be constructed as a cluster of supply chains in accordance to the characteristics of the domestic manufacturers. The domestic manufacturers even though perceived a group of ‘Robin Hood figures’ have strong features of an established industry including internal cooperation between the different local firms, geographical gathering and linkage with the different nodes in the industrial network (Porter, 1985). Compared to manufacturing processes of the foreign Smartphone manufacturers; Nokia and Samsung, the domestic firm’s value chain can only be described as constructed by “no brand small-scale factories which specializes in different activities” (Zhu and Shi, 2010). In this case, a company that has specialized production knowledge may adequately integrate the expertise of another company to effectively specialize in research and development or even certain designs in creating new products (Hu et.al, 2011). In such an environment, every player focuses on a specific and unique product development aspect such as mechanical or industrial designs, final assembly, IC design, distribution or component support (Zhu and Shi, 2010). In this regard, with a cluster of the domestic mobile manufacturers, a new product can be released to the market within two months as compared to the foreign companies; Samsung and Nokia who take 6-12 months to develop a new product as this is the normal period of international brand development (Zhu and Shi, 2010). Market segmentation of the competitors In this regard, Nokia and Samsung are perceived as the major foreign threats to growth and expansion of Tianyu beyond the borders while Gionee is perceived as the most prominent domestic competitor. The market segmentation is in this case defined as a market strategy where a company divides its market into subset markets of consumers with similar needs, priorities and interests (Reid and Bojanic, 2009; Abratt, 1993). The company then designs and implements appropriate strategies targeting the needs and desires of the respective customers and uses the most adequate media channels to reach out to the customers (Hunt, 2002b; Wedel &Kamakura, 2002). However, the market segmentation must meet the following criteria: must earn enough profit for the company, must make it possible for the company to reach out to as many consumers as possible, it must be measurable and must respond consistently to the changes of product demand and supply (Victoria et.al, 2010). The market segmentation is done on the basis of demographics, psychographic, behavioristic and geographic (Weinstein, 1994; Smith, 1995). Nokia Company Nokia Company has for years remained a world leader in mobile business. The company has always been associated with products that are easy-to-use and innovative ones (Virki, 2012). In the recent past, Nokia has been observed to provide products with functionality and features that adequately cater for the demands of certain segments of the market (Steinbock, 2001). Also, the company offers varied products for groups of consumers searching for mix of benefits and who are willing to pay a substantial price for the product (Steinbock, 2001). Examples of such products by Nokia are: Nokia Lumia 920 and Lumia 925. Further, Nokia caters for all the segments of the societies of the world; upper, medium and lower. For the upper segments that have a higher purchasing power, Nokia has offered products such as Lumia 720, Lumia 625, Lumia 920 and even Asha501 (Weber, 2011). For the medium earners, available products include Asha 205 and Asha 206. For the low-income earners, there are a variety of products ranging from Nokia 11, Nokia 103, Nokia 112, Nokia 101 and even Nokia 100 (Virki, 2012). For the lifestyle lovers looking for style and design, the Nokia products available include the Nokia Lumia 520 which comes with multimedia devices an 8 GB memory chip and allows one to browse over the internet, record and even share phone content via the internet (Weber, 2011). There exists another class of consumers who rank the functionality of a phone and price above its features. For such segments, Asha 210 and Asha 305 are available. Also, the company does launch new products on social occasions such as Christmas and other regional festivals to cater for the behavioral consumers. Samsung In the past few years, Samsung has grown to become a great market leader in the Smartphone industry by owning approximately 35 percent of the world smart phone market (Desmarais, 2013). Just like Nokia, Samsung is dedicated towards providing products that have adequate features and functionality. Samsung mobile phones are widely known for running the Google operating system system-Android that has been perceived as the greatest of its kind following its high performance (Desmarais, 2013). In this Regard Samsung offers a range of products in the market to target all its segments of the market. For the music lover for example, Galaxy music has adequately been designed to serve this purpose. Also, for the consumers who greatly appreciate the technological innovation, Galaxy S3, S4 and even S5 and their mini versions of the S-series are available in the market (Desmarais, 2013). The prices of the Samsung commodities also vary with the targeted segment of the market to ensure that the different customer’s needs are met. Gionee Company According to Sándor (2013), in a recent survey in Chinese Smart phone market, Gionee was ranked number eight shortly after K-Touch or Tianyu that came in at number seven. Gionee has in the recent past has showed high abilities of growing into the global market. It has adequately targeted a differentiated set of customers in the Chinese market. For the high-end customers, Elife E7 smart phone is present with the best Android camera and remarkable features. It also comes with an android operating system and an 800 Qualcomm snapdragon processor. For the middle income earners, Elife E6, E3 and Dream D1 are present in the market. Nevertheless, Sándor (2013) noted that in the domestic market, Gionee uses a similar model as Tianyu to target the low income earners. In this case, there exists a very tough competition between these two companies locally. Tianyu Competitors’ strengths and weaknesses SWOT Analysis Kotler and Keller (2009) defined SWOT analysis as method used by the company in monitoring its internal and external environments through a thorough evaluation of the company’s weaknesses, strengths, threats and opportunities. It is believed that when a company utilizes its strengths in developing adequate strategies, it earns a competitive advantage over its rivals. Consequently, when a company adequately considers it competitor’s strengths and weaknesses when developing its strategies, it adequately earns a competitive advantage. SWOT Analysis has been used by the different organizations in the market to adequately determine the competitor’s strengths and weaknesses so as to continue growing its market share. Nokia Company Strengths One of the major strengths of the Nokia Company is the brand. Before other popular brands came into being, Nokia was the only brand that was popularly known and respected in the mobile phone market (Wang, 2010b). Over the years the Nokia products have been associated with sturdiness, accountability and distinctive designs (Wang, 2010c). Until the year 2012 when Samsung overtook Nokia as the global Smart phone market leader, Nokia had always topped the mobile market since the year 1998. Although Nokia Company is facing challenges of catching up with the Smartphone market, recent researches show that their strong brand and customer loyalty are the major driving forces the company has in regaining its original global market share (Wang, 2010b). The company further has great and experienced workforce following the fact that Nokia Company has been in the mobile phone market for quite a long time. Weaknesses In the year 2012, Nokia was overtaken by Samsung Company as the leader in the world mobile phone market. According to Virki (2012), this loss was attributed to the fact that Nokia had difficulties in adjusting to the changing customer’s demands. The major evidence to these allegations is the inability of Nokia Company to release a product to match the highly trending Samsung and Apple brands in the year 2012 and the failure of its Symbian platform (Virki, 2012). From this argument, it is evident that software is a core source of weakness in Nokia Company. Nevertheless, Nokia has today partnered with Microsoft Company to eliminate this weakness (Weber, 2011). Opportunities Through the established partnership with the Microsoft Company, Nokia became the first mobile company to release a Windows phone to the market (Weber, 2011). This is an adequate competitive advantage that Nokia Company is considering utilizing to develop new and more innovative smart phone devices in the Smartphone industry. However, both Samsung and HTC have also released windows phone after Nokia Launched its first Lumia phone in Europe (O’Brien, 2013). Today, Samsung has only one windows phone but Nokia has eight (Nissen, 2013). Threat The main threat to Nokia today is the huge competition from smart phone manufacturers; Samsung, Apple, Motorola and HTC. In the past, Nokia has always been the market leader but lost along the way and it had to shift from the Symbian OS they previously used to Windows OS (O’Brien, 2013). In this regard, it is significantly hard for this company to restore its lost glory and further build on the brand awareness in today’s Smartphone market (Nissen, 2013). . Samsung Company Strengths Over the past years, Samsung has greatly specialized in manufacturing Smartphone device that support the Android OS. This gives the company quite a competitive edge over its rivals. Samsung Galaxy S4 and S5 have in the recent past outlined as the sources of the company’s source of strength following their superiority in technology that cannot be supported by any other Smartphone devices hence very hard to imitate (Nissen, 2013). Currently, Samsung holds 35.8 percent of the market share (Eadicicco, 2013). Innovation is therefore perceived as one of its great strengths that make its products stand out in the market. Further, Samsung phone production facilities are located in the low cost countries making it possible for the company to sell at low costs and still earn a high profit margin (Eadicicco, 2013). Weaknesses Samsung does offer a bigger variety of Smart phones as compared to its rivals in the market. However, these products have in the recent past been criticized for being evolutionary rather than revolutionary and for containing a lot of features that are found in many other Smartphone devices (Eadicicco, 2013). Also, recently, Samsung has been accused of infringing the patent rights of its competitors mainly the Apple Company (Eadicicco, 2013). This has made the company destroy its reputation and image and face excessive charges for damages caused (O’Brien, 2013). As a result of Samsung selling very many products in the market, it has been observed that these products have a low profit gain to the company. Further, Samsung does not own its own OS and software since its Smart phone devices are run by the Google Android OS (Nissen, 2013). Opportunities Samsung does have a variety of Smartphone devices that are attractive to varied groups of customers in the market. Having used the Android OS to manufacture its smart phone devices, Samsung is today the leading Android manufacturer. With its many products, it is able to serves a bigger market. Samsung has in the recent past excelled in the mobile advertising industry something that has had a positive impact on its sales in the different parts of the world (Nissen, 2013). Recently, it has been said that Samsung holds the best application processors hence it is the only Smartphone Company currently in a position to sustain the increasing demand of the smart phone devices in the world mobile market today (Eadicicco, 2013). Further, Samsung has also been considered as having a great portfolio patent what has made the company greatly earn it a competitive advantage over its rivals (Nissen, 2013). Threats Just like Nokia, Samsung faces the challenge of a huge competition emanating from other prominent Smartphone device manufacturers as well as the emerging manufacturers (Osman, 2012). Also, availability of substitute products in the market from the major Smartphone manufacturers such as Apple Company constrains the prices of Samsung products in the market. In the recent past, rapid changes in technology have kept the different mobile manufacturers of the world at toes since they have to keep on producing the required devices to satisfy the needs and desires of the different customers (Osman, 2012). In this case, mobile manufacturers are forced to release new high quality products within the shortest time possible. Gionee Company. Strengths Gionee Company as a Chinese local manufacturer has currently embarked in production of mobile phones that are supported by the Android OS. Being among the fast growing mobile phone manufacturers in China, the company has earned the company a competitive advantage over its rivals (Sándor, 2013). Gionee also does its own manufacturing and owns a number of R&D facilities with modern-tech phone labs (Sándor, 2013). Gionee rapid growth of sales in China has been attributed to its strategy of targeting the low income earners as well as its exclusivity in distribution (Sándor, 2013). Further, Gionee Company has shown its ability to effectively work with varied partners. Weaknesses Gionee Company does not own an OS and therefore depends on Android OS or Windows OS. Nevertheless, the company management has articulated that so as to push the Gionee products to the global market, plans are already underway to develop an exclusive OS (Sándor, 2013). The company is currently working on the customization of its newly developed OS-Amigo (Sándor, 2013). Further, the company is yet to exit the ODM sales and solely establish its brands in the market. Opportunities Being a local manufacturer, the company is already testing its own OS, something that has not even been achieved by the world mobile phone producers; Samsung and Nokia. This makes this particular company have the potential to adequately grow in the current smart phone market. Further, the low pricing strategies used by Gionee Company have been observed to work in China (Sándor, 2013). This indicates that these strategies will still work once the company expands into the global market. Threats Gionee Company faces stiff competition from other prominent local Smartphone manufacturers in China; Tianyu, Huwawei, Coolpad and ZTE (Sándor, 2013). Also, the company faces huge competition from the international Smartphone manufacturers; Samsung, Apple and Nokia. Therefore, chances of this company excelling in the global market are minimal. Further, the company has not been in the mobile industry for long therefore lacking both experience and expertise (Sándor, 2013). Current trends and characteristics in the industry In order to effectively map the current trends and characteristics of the Smartphone industry today, the Porter’s five force model was integrated. Porters Five Force Model According to Porter (2008), this model is adequately used to bring out the underlying structure of a certain industry by effectively mapping the key forces, revealing the roots of the industry’s current state of profitability and further outlining the frameworks those companies can use to get ahead of the current competition. Porter (2008) did recognize five key forces that define an industry as threat of new entrants, buyer and supplier power, threat of substitutes as well as the rivalry amongst the existing firms in the industry. Threat of new entrants Currently the threat of new entrants in the Smartphone industry is relatively low since the Smartphone manufacture requires huge capital for it involves very high sunk costs. This has over the years discourages new entrants in this industry. Also, with the current state of competition amongst the already established popular brands in the market has highly contributed to discouragement of the new entrants in this particular industry. Further, the existing players in the market possess adequate patents and technologies what is significantly costly for new entrants to possess. Strong distribution networks owned by the existing firms are also a core discouragement to the new entrants (Desmarais, 2013). Buyer and supplier power Both the buyer and supplier power is adequately low in this industry (Desmarais, 2013). This is so because high competition amongst the different supplier is imminent in the industry and also following the presence of a huge number of substitute inputs to the industry (Desmarais, 2013). On the other hand, the power of the buyer is low following the fact that there exist a large number of buyers (O’Brien, 2013). Threat of substitute The threat of substitute in this industry is significantly low following the fact that there is only one product in the industry- Smartphone and if there existed a substitute, the cost of developing the substitute would have been very high (Desmarais, 2013). Rivalry among the existing firms The smart phone industry in the recent past has been described as an oligopolistic market following the fact that the big smart phone manufacturers; Samsung, Nokia and Apple adequately define this industry (Desmarais, 2013). They not only make it impossible for the new entrants to enter the market as a result of the endless competition amongst themselves on the quest of determining who to become the industry leader but also as a result of their high influence in determining the prices of the Smartphone products in the market (O’Brien, 2013). Samsung is currently perceived to own the largest share of the smart phone industry (Desmarais, 2013). For it to continue being where it is, it has to largely commit its resources in R&D and technology to outshine its main rivals (O’Brien, 2013). Technology is today considered as the major driving force in the smart phone industry (Osman, 2012). Hurdles and obstacles facing the target firm Today, as China grows towards becoming one of the greatest economies of the world, its leading companies have moved towards becoming the global champions (Gupta and Wang, 2009). However, expansion of the China based firms to other market of the world has been faced by a number of key obstacles (Gupta and Wang, 2009). In this regard, hurdles and obstacles refer to any kind of organizational, legal, political, economic, cultural or even technological factor that limit the ability of the China based Tianyu Company in expanding its operations to the global market. First, being a Chinese based Company, Tianyu lacks the needed skills to not only create but also manage the horizontal organizations that may result in other parts of the world once the company expands it operations beyond China. Gupta and Wang (2009) noted that many of the Chinese firms face the challenge of horizontal management due to language barrier, geographic barriers as well as the cultural differences. The Chinese market has been perceived as a homogenous market in terms of language and culture as compared to the global market that is heterogeneous with varied cultures and languages (Gupta and Wang, 2009). Management of local and foreign based branches is in this case a major challenge. Secondly, Tianyu adequately competes with other domestic firms in the Chinese market on the basis of cost efficiency. As we speak, , firms in the Smartphone industry are competing in terms product differentiation in the global market (Gupta and Wang, 2009). In the recent past, Lenovo has embarked on branding and product design as a major strategy to differentiate itself from other Smartphone manufacturers (Gupta and Wang, 2009). Thirdly, political barriers and sensitivity is a major challenge impeding growth of Tianyu in overseas markets. According to Gupta and Wang (2009), most of the Chinese based companies have in the recent past been observed to fear entering into strategic partnership, mergers or takeovers with the foreign companies for fear of the political consequences. This has been perceived as major impediment in building the organizational capabilities that would make these companies influential in the world markets (Gupta and Wang, 2009). Lastly, Chinese based firms such as Tianyu still dwell on the perception that ‘information is power in competition’ (Gupta and Wang, 2009). In this regard, these firms have concealed most of their information for fear that such information may be used by their rivals to pin them down unlike the western based organizations that strongly operate with a relatively high degree of transparency and tend to focus more on differentiation strategies as sources of competitive advantage rather than the traditional information-based strategies (Gupta and Wang, 2009). Strategy recommendation for the target firm For Tianyu to expand its operations in global markets such as Europe, Africa, Asia and even Middle East, adequate strategies must be developed and implemented by the company’s management to realize this goal. These strategies will affect both its external and internal environments. In this regard I would recommend the following for Tianyu Company; First, Tianyu needs to go public. This means that it has to be listed in Hong Kong stock exchange. This would mean that the company will begin operating with high levels transparency something that has been impossible for most Chinese based firms (Holstein, 2014). This will also make the company integrate product differentiation strategies to earn itself a competitive edge in the foreign markets. Secondly, to be able to adequately perform in foreign markets such as Europe, Tianyu will need to merge or adequately acquire companies or part of companies that have dominated such foreign markets. This would save the company the struggle of wanting to become popular in the foreign markets (Holstein, 2014). In Merging with or acquisition of the foreign firms, Tianyu will further ensure that it has a number of the international representatives who will steer the company towards operating under global management principles (Holstein, 2014). The international representatives brings with them varied extensive international experience on issues of marketing, product development and even management and leadership (Holstein, 2014). Such factors are vital in developing company’s human resource practices that are seamless regardless of the market or geographic location and further standardizing the pay scale such that there will be no difference of working Tianyu in China or Tianyu in Europe or even Tianyu in Africa. Further, upon merging with or acquiring a foreign firm, Tianyu will have to undertake regular training of its staff members across the established regional branches to further streamline the new supply chain. This would enhance communication and adequately reduce delivery delays (Holstein, 2014). Thirdly, Tianyu’s decision making process needs to be re-evaluated. This means that the decision making will not anymore be based on seniority and titles. Currently, most people of the world perceive the Chinese companies as being autocratic in management such that when the CEO or the chairman of the company makes a decision, no one questions it (Holstein, 2014). In this regard, the management style is only top-down. To be able to survive in the global market, Tianyu will have to integrate a management style that is both top-down and down-top. This will also ensure that the employees to the company work together as a team and that every one’s opinion becomes important in the decision making process (Holstein, 2014). Fourthly, if Tianyu wants to go global, it will have to come up with a more exclusive brand name that would adequately be more recognizable in the different markets of the world. Its current K-Touch brand name may work to its advantage but I would recommend an evaluation of the brand name. The brand name somehow influences the loyalty of the customers (Holstein, 2014). 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