International Business Environment - Assignment Example

Executive Summary Companies can clearly balance the goals of the customer (in relation to customer loyalty, satisfaction, profitability and sales) compared to other company performance targets if it knows the customer’s behaviour keenly. For example, a company’s balanced performance evaluations. A significant consideration at this juncture is an overall altitude of organizational commitment to customer objectives, without taking this commitment customer information systems will have a very limited impact. Marketing managers should embrace the concept of all inclusive decision making process in order to formulate viable and marketing strategies that will boost the competitive edge of the company over its rival firms in China. The company can only cope with such changing business environment if it constantly carries out research in the market. It should be noted that no matter how attractive an opportunity can be in China BAT Company cannot fully utilize it if it does not have the distinct competencies to handle it. One of the main rationales of segmenting a market is to allow your sales agenda or marketing stratagem to centre on a specific division of scenarios that can purchase the products. When market segmentation is done properly, it is likely that the highest returns on marketing expenditures will be achieved. What determines the success of market segmentation strategy is whether it is focused on an individual customer or business that defines the definite accomplishment. International Business The issue of going global by various multi-national firms in this modern world has become a common scenario because host companies are often faced with the saturation of home markets for their products. Therefore in an attempt to increase there market share in the market place they practice diversification with the hope of achieving considerable returns and at the same time attain the desired profitability margins. As a researcher, i will focus on British American Tobacco based in the U.K and has its headquarters in London in its attempt to market its tobacco products in Asian continent and particularly in China. From the research I carried out the U.K is considered a developed country and over the past few years its economic conditions have been rated to be among the best in the world. However, given that now BAT Company has successfully opened subsidiaries in the U.K in nearly all regions it is now considering to go global and the management has identified China as the best target market for its products. Reports suggests that China on the other hand is a developing country with recent reports suggesting that soon it will supersede the likes of The U.K and the U.S in terms of economic growth. (Lee and Carter, 2005) Research indicates that China in the early history was considered to be a socialist country but over the years it has embraced the concept of capitalism which allows the factors of production that is labor, capital and entrepreneurship to flow from and outside China. With such a system it has now presented an opportunity to BAT Company to invest in China because of the growing demand for tobacco products. However, China is still considered conservative in terms of marketing practices and BAT Company may face problems like; China has been traditionally reported to be protecting the host companies from unfair competition from large companies and therefore this will not be favorable to BAT Company because they will be some other practices that will hinder the attainment of objectives of the company. This is unlike in the U.K where globalization concept is left to freely control the market operations that are in the U.K the market forces are left to determine a particular industry and no such protection of host companies from competition of outside. (Kotler, 1996) Therefore, in order to be competitive in tobacco industry in China, BAT Company has to embark on some strategies that will result to achieving status of becoming a market leader. Such strategies will include that of becoming a low cost producer in the tobacco industry which will present an opportunity of selling the tobacco products to the customers at cheap prices as compared to its competitors that had already invested in China (Lee and Carter, 2005). However, the company will have to be keen when setting the prices in order to avoid losses and unwanted conflicts that may arise from such unfair practices e.g. China still protects her local companies from unfair practices like selling products at prices to be considered to be very low or selling to customers at high prices. Through out the tobacco market in China that BAT Company has selected, the company should select the best distributing channels that will ensure efficiency in terms of availing the products to the customers. (Hilltop, and Sparrow, 1994) Method of entry to China The best methods of BAT Company to invest in China is to use either foreign direct investment or direct exporting methods. Foreign directing investments encompass setting up of manufacturing facilities although it requires heavy capital and management dedication by the company involved. Such a method can also be done through acquisition and this involves purchasing of already existing foreign investments that will comprise existing experience labor force, management structures, local knowledge and the existing acquaintances in the market place and the host government. (Murray, 1989) Although foreign direct investment method is costly and hard to commence should it do well BAT Company will take pleasure in good proceeds and will institute strong market foundation in China. This will be a feasible undertaking because the company will gain a significant market share which will be long-term in nature and thus will be sure of carrying outs activities. BAT Company will be comfortable to concentrate in such a method because it has a well financial base and thus can set up new plants of tobacco production or can purchase from the existing firms their plants if they wish to wound up in China. (Hilltop, and Sparrow, 1994) From my research too, another good approach is that of direct exporting and it will BAT Company selling directly to a buyer in the overseas nation although it is frequently regarded as the tricky method of entry. Under direct exporting BAT Company can prefer to use approaches such as agents and distributors, host sales representatives and foreign sales agency or subsidiary among other methods (Lee and Carter, 2005). Such approaches have an assortment of rewards that will aid BAT Company to fully make the most of the host markets. Under this a good example is where the BAT Company can appoint agents and distributors who are well-known to the China market, have existing dealing contacts and sales persons who are committed to the customers which consequently aid in enhancing business actions in China. (Mark, 2001) From my research I therefore deduced that BAT can choose the above methods to enter to China tobacco industry because it has a well financial base. However the better of the two approaches can be that of direct exporting since the company can terminate contract easily entered with the agents appointed if the business will not perform. Unlike foreign direct investment which will require the company either to sell or destroy its plants and relocate back to the U.K or elsewhere where there is new market for tobacco products. (Mark, 2001) Corporate Social Responsibility According to its history the BAT Company has observed the issue of social responsibility keenly for example it has been able to recruit more than 200,000 employees in every subsidiary who are normally skilled in the implementation of its tobacco products (Blythe, 2001). It has a number of stores through which it practices the economies of scale with an experienced staff in the application of the customer service in the company therefore meeting the needs of the surrounding society effectively and efficiently. (Hilltop, and Sparrow, 1994) Therefore BAT Company will have to observe the following areas of social responsibility when investing in China; the first one is that of protection of the environment which implies that the production activities of the company should not contribute immensely to degradation of the environment which may cause diseases and sickness to the community members and therefore the company will have to produce the tobacco products as well as protecting the environment. From the research that I conducted, the other aspect of social responsibility that BAT Company should consider is that of enhancing industry and business activities such as conducting its tobacco business ethically and avoiding being immoral in terms of producing quality products and avoiding manufacturing of counterfeit tobacco products. The other area of great of concern that the company will have to concentrate on is that of enlightening the society particularly on the society about their products that is tobacco products like cigarette. (Daniels and Caroline, 1993) Trade Patterns The realism and continuation of globalization can be witnessed when patterns of trade are well thought-out, for example the general intensity of imports and exports in numerous states have brilliantly augmented in the last few years. Also globalization have led to significant increase in production of business services for example firms dealing with Just-in-Time (JIT), business process re-engineering and Total Quality Management (TQM) ideas which in turn has led to customers getting information .e.g. of accounting and auditing conveniently. From my research I found out that BAT Company has utilized such concepts in its day to day operations. (Blythe, 2001) Over the recent past the relationship between China and the U.K has improved and research indicates that there has been a lot of trading activities between the two nations. Despite the fact that China has some stringent trade regulations as compared to the U.K BAT Company can still prosper given the fact that the government of China may not interrupt its business activities so long as it carries its business well. (Cullen and Parboteeah, 2005) Situational Analysis For any contemporary company like BAT Company to sustain itself in the rising competition and to efficiently make use of its opportunities, a situational analysis commonly referred to as PESTLE analysis is very critical and all firms including BAT Company should utilize this kind of market analysis. The aim of BAT Corporation has always been to become a market leader in tobacco production globally by diversifying and reaching to many new markets and an analysis of political risks, economic, social, technological and legal factors is of benefit to its operations. Research indicates that through such analysis, the company has done well in many countries and thus in the process gained a large significant market share over time. Through this situational analysis, the company therefore should consider the following concerns before investing in China. (Lee and Carter, 2005) Political Factors The first aspect is that of political issues or factors which involve analyzing the political systems of China where BAT Company intends to invest at. It is noted that the company has constantly opted to invest in countries that adopt capitalism system of government rather than those countries that are communists in nature. For example it has invested in both Australia and North America where capitalism has been embraced by the respective governments. China too of late has relaxed its communism style of political system to that of capitalism (Blythe, 2001). Capitalism system of governance allows the factors of production to freely and frequently move that is raw material, labor and capital without much prohibition. Political instabilities too should be considered when considering where to invest at and BAT Company management has to consider such an issue when marketing tobacco products in various target markets in China and in the process will avoid the issue of suffering losses through such events. (Chekitan and Schultz, 2005) The political system in China is such that it does allow for foreign direct investments from other countries and that have shown interest in the country. The government of China has also been able to limit business advertisement to outdoor media advertisements and internet to reduce print media influence. When compared to the UK, China still has more to do on the policy frame work development for the tobacco industry but it has been able to do well in other sectors. Economic Factors Economic factors that BAT Company must be put in to consideration include inflation which affects the business of the firm for example in cases when it is high, there will be increased rise of prices because of increased money supply and thus the customers might not afford to buy. Another factor is that of different rates of foreign exchange systems such as fixed, pegged, clean float and dirt float systems practiced by China and the U.K which may hinder the running of the BAT Company operations. Other economic factors include balance of payments, counter trade, fiscal and monetary policies among other factors practiced in China that BAT Company should research on. (Lee and Carter, 2005) Social factors Another factor is that of social factor which should be used by BAT Company to constantly evaluate or assess issues like income sources of potential customers, social systems and structures, educational, religion and family backgrounds which may impact negatively or positively the conduct of business and in this case marketing the tobacco products in China. Since social factors influence beliefs, interests and attitudes of the customers it will be prudent for BAT Company to evaluate the above factors especially in China. The record of the company is not bad but however, it should do more on such issues of attitude of the customers in order to attract and retain many customers of tobacco products in China. (Blythe, 2001) Technological factors Through globalization, superior and new technologies have been invented and have boosted the marketing activities of businesses of BAT Company in the market arena. The utilization of e-commerce for example will enable BAT Company to market its products and invent new markets in many countries globally and in this case particularly in China. Such technologies saves costs and time that could have eaten the company’s profits and research reveals that the BAT Company can use such saved funds to further other investments and activities in other areas of interest. Also through electronic financing procedures BAT Company will be able to carry out its business smoothly in China without cash flow interruptions. The use of emails and chatting will also contribute immensely to the success of the organization employees of the company communicating instantly without many communication barriers e.g. workers in the main office and those that are in China. (Murray, 1989) Legal factors Another situational factor that necessitates analysis is that of legal factors that might affect a BAT Company investing in China. BAT Company has invested in many countries and legal issue exists, however, it has done well through careful analysis by the management before conducting these transactions and also should carry out such analysis in China too to avoid interruptions of its business. Such factors like legality of the business must be considered and BAT Corporation will do well in its China because tobacco manufacturing and sales are not illegal business activities and can be carried out anywhere in the world including China. However, at some instances, the government has imposed restrictions on tobacco products for example China government may impose high taxes to tobacco products. (Brassington and Pettitt, 2000) It is possible that employees of a company can violate the cultural norms of the Chinese people without knowing hence the people in China becomes uncomfortable with the behavior. In china for example, there are many festivities that are strictly observed in addition to other religious believes such as the Xian Hum day. Chinese culture is the most elaborate and diverse in terms of religion, food, clothing and lifestyle. The company must therefore be able to adjust skillfully to the culture here depending on the marketing strategies to be applied by the company. (Blythe, 2001) The main language of the Chinese people is the Mandarin language. Mandarin is the overall language adopted nationally among the Chinese population. However, there are also other foreign languages that have been adopted such as English, Japanese and French. China’s literacy levels according to the latest government estimates are estimated ton 89 % for adults which are a good indication of how the Chinese market can be able to understand, critic and accept the products from BAT Company. With an average of 89 % and 0.626 development index, BAT is able to obtain proper and well trained personnel to enable it meet its targets in China (Blythe, 2001) Chinese market segment (Bagley and Savage, 2006) Country – China Economic indicators- GNP: US$630.2 billion Growth Rate 1980-1993: 9.6%, Annual Growth Rate GNP/Capita: 8.2% GDP/Capita: $435 GDP/Capita PPP: $2604 Climatic conditions- hot and humid but depends on the season of the year Population density- 1.23 Billion people according to current estimates Age of the customers- all ages including school children, students, employees, etc Gender- both males and females can buy the products Family sizes-2-6 People per household Literacy levels- 79% Income- an average of $ 1,000 Religion- mainly Buddhism, Hinduism, Islam and Christianity Readiness to buy- 60% Attitudes- The public and government attitude towards British and American products is ‘mixed’ at the moment. But generally it is good The Chinese market is one of the largest in the world today. The main factor that contributes to the high ready market is provided by the developing economy and the high population (currently stands at over a ¼ of the world’s total population). Due to this fact, more and more companies in this business are heading for the country and the larger Middle East region at large. This will be the main challenge for the BAT Company and depending with the marketing strategies and approaches, it is possible to get some of its market share (Bagley and Savage, 2006) Exchange rate trends The following is a diagrammatic representation of how the exchange rate trends for the country has been exchanging with the US Dollar for the first five months of this year-2007. Source: Chinese exchange rates; retrieved from http://www.x-rates.com/d/USD/CNY/graph120.html accessed on 5/12/2007. Inflation Chinese inflation rates have been stable for the last five years and that the Chinese government has been making sure it has maintained this trend. With a growing economy inflation rates tend to fluctuate. BAT can therefore utilize this stable trend to meet its financial portfolio. Source; Walsh, C. E. (2007): Inflation. Retrieved from http://research.stlouisfed.org/fred2/series/DTP30A28 ; accessed On 5/12/2007 World Trade Organization BAT Company is a multinational company and will be affected by the various activities of world trade organization. WTO provides guidelines on how to conduct activities particularly when going international. Therefore, BAT Company will have to comply with such guidelines that are set by WTO in order to avoid unnecessary conflicts when investing in china (Bagley and Savage, 2006). BAT Company has been reported over the past to be concentrating on recruiting those individuals who are Britons and Americans on senior level thus leaving the locals to perform the low keyed jobs in the company’s operations and therefore from my research it will be prudent for BAT Company to recruit the Chinese in order to avoid punishments by WTO. Also some times WTO has set some regulations on import and export duties which may impact negatively the production of BAT Company particularly selling its tobacco products produced in China to other potential markets all over the world. (Barlon, 2006) Initially, there used to be treaties between nations concerning trade. Today, BAT has the opportunity to engage the Chinese market without many barriers that existed in the past. After all, many nations that are economically powerful support the idea of free trade. Protectionism is usually carried out (Murray, 1989). For example the United States has got protective tariffs imposed on its agriculture and textiles industries but not the manufacturing sector hence BAT can actually utilize such chances and meet its targets. Nations like India, Russia and China are of late advocating more free trade because they are increasingly becoming economically dominant. The Chinese government just like the U.S has had its fair share of trade issues. Although it has been able to attract huge investments from foreign companies, it has failed to promote an elaborate policy for reducing its import restrictions. The import restrictions are that, they are either implemented in form of taxes, import regulations or trade tariffs between the U.S and the Chinese government. (Murray, 1989) Conclusion From my research I can therefore deduce that BAT Company has the duty to critically analyze any existing strengths, weaknesses, opportunities and threats that might affect the company’s production and profitability in long term. Marketing managers should embrace the concept of all inclusive decision making process in order to formulate viable and marketing strategies that will boost the competitive edge of the company over its rival firms in China. The company can only cope with such changing business environment if it constantly carries out research in the market. It should be noted that no matter how attractive an opportunity can be in China BAT Company cannot fully utilize it if it does not have the distinct competencies to handle it. From this study, it can be deduced that BAT Company is a customer-focused business i.e. its foremost business are customers of tobacco products in the tobacco industry. Therefore the available knowledge of customers and markets in China should facilitate BAT Company to construct and develop an extensive range of tobacco products that are considered relevant to its target customers. (Bagley and Savage, 2006) Read More