International Business Strategy Information Requirements (Porters Diamond) - Case Study Example

Internationalisation of business INTERNATIONAL BUSINESS STRATEGY INFORMATION REQUIREMENTS (PORTER’S DIAMOND) 1. Undertake an analysis of the issues that would need to be considered within an internationalisation of business strategy, and identify the factors that you think Elecdyne should collect information on for creation of its internationalisation strategy. Before going abroad, a company needs to create an international business strategy. This includes the analysis of factors that affect the direct and indirect activities of the business in the foreign market (Chetty and Campbell-Hunt, 2003). Such factors include; -The business climate in the foreign market -Training and education strengths available in the foreign country - labour unionisation - Attitudes of state and local governments -Incentives available to the business firms and how such incentives are provided and by whom - Attitudes of communities towards the foreign firms particularly the consumption patterns of consumers towards the goods and services produced by foreign firms -Availability of transportation infrastructure such as rail, airline, sea and road transport infrastructures and how accessible such infrastructures are to the foreign firms - Costs of transportation -Productivity of labour and the attitude of labour towards productivity -Labour costs in terms of minimum wages and salaries offered to the labourers - Availability of unskilled and skilled labour-This helps the foreign firm to determine whether to move its skilled manpower into the foreign market. -Cost of land and availability of land for construction of new facilities or for business expansion purposes (Tallman and Fladmoe- Lindquist, 1994). - Access and proximity to the market-This gives the business an opportunity to determine the costs of transportation and the type of transportation to be used to deliver goods to the market (Dunning, 1993). - Road accessibility and proximity - Costs and availability of utilities such communication facilities, electrical power infrastructures to mention a few. - The cost of living- A high costs of living means that consumers have less disposable incomes directed to consumption. Hence, a country with high costs of living is not attractive to business. - Structures of rates and tax - Considerations of insurance policies available in the foreign market - Opportunities for financing such as the availability and accessibility of loan services from financial institutions such as banks - Cultural and social climate in the foreign market-this determines the relationship between the business firm and the local communities that determines the conflict level between the community and the business firm particularly in terms of environmental issues - Physical and local infrastructure - Proximity to resources and suppliers as a way of analysing the costs of transportation of raw materials from the suppliers to business firm. - Raw material accessibility-This helps the business firm to determine the amounts for raw materials to be purchased at one go and subsequent schedules of purchasing raw materials in order to ensure the continuity of the business processes or activities (Johanson and Vahlne, 2000). - Roles played by different laws that govern labour in the country-The analysis of this factor is important as it gives the foreign firm an upper hand upon the labourers - Understand the new market Analyse the foreign consumer; behaviour, taste, uses, customs… Competitors, a market leader in Japan would not automatically be a market leader in China (as the rugby example, a national welsh player wouldn’t be automatically selected in the French Team) Level of competitions Government facilities and labour market Business etiquette, culture, norms and ways of doing business in a foreign country Rules and regulations or legislations that govern the manner in which domestic and foreign companies conduct business 2. Identify an appropriate analytical framework to present these factors (and justify). Porter’s Diamond system analysis is one of the most used across the world. It’s not only used by companies, as an example, the legendary CIA use it to have a reference data in their Fact book (reference resource).  This analytical framework is useful as it present all data necessary for a company to go abroad, principal phenomenon of our globalized world. According to Porter, his diamond “Summarize the competitive advantages afforded by a particular location into four dimensions or factors”. That is the reason why it is the most effective analysis framework in our study case. It is easy to understand, emphasize the competitive advantages and not only the perspective of profit growth, and put countries in the same level (similarities/differences). Porter’s Diamond Model is important because it provides an explanation of the impact of the conditions that exist in a nation on global competiveness of that nation and its industries. By basing its analysis on the four dimensions contained in the Porter’s Diamond Model namely Demand conditions, Related and Supportive industries, factor conditions and structure and rivalry firms strategy, Elecdyne can be able to determine a number of elements; First, Elecdyne can determine how the various countries under consideration for internationalisation create their own important factors such as technological base and skilled resources. The company can also analyse how these resources are deployed or upgraded by the countries over time to meet the ever-increasing demand both in the domestic and international market. The firm can also investigate using the Porter’s Diamond Model how innovations are forced by local disadvantages in the given country and how comparative advantage is reached in the country. Second, using the Porte’s Diamond Model, Elecdyne can be able to analyze the demand conditions in the given countries. This includes the analysis of issues such as the extent of demand in the local market. This is based on the premise that national advantage is achieved through increased demand in the local market. Hence, local suppliers/firms must increase production capacity to meet the increasing demand in the local market. Third, using the Porter’s Diamond Model, Elecdyne can be able to analyse the structure, rivalry and strategy to be undertaken by the firm. This includes the analysis of elements such as how the strategy adopted by the firm can be affected by the local conditions such as price wars. Fourth, the Diamond Model provides explanation of the supportive and related industries in the anticipated markets for internationalisation. Using this model, Elecdyne can determine how the rivalry between different firms in the same industry or related industries forces the firms to move beyond the operational advantages. The role of the government is also taken into consideration in the Diamond framework. The government is viewed as a Challenger and Catalysts. In order to determine how governments in the chosen countries functions as catalysts, Elecdyne can use the Diamond Model to investigate the level of interference of the governments in market mechanism as well as the extent to which the governments in the chosen countries inspire innovation and create a competitive environment in which every player benefits (ÖZLEM, 2002). The roles of the government as stipulated in the Diamond model is to stimulating growth of businesses by providing the necessary and required infrastructures. The other role of the government is to encourage growth of industries by providing the required subsidies and tax holidays in order to attract foreign investors (Boter and Holmquist, 1998). Hence, the operating environment in which the business is to operate is taken into consideration in the Porter’s Diamond Model making it an effective approach, model/framework for the analysis of the conditions for internationalisation of the business. We chose France, Saudi Arabia and China; because we have knowledge about these countries and in the first view the potential of electronic market seems interesting. We chose France, Saudi Arabia and China; because we have knowledge about these countries and in the first view the potential of electronic market seems interesting. 3. Gather relevant information for 3 countries we should consider internationalising to and compare with Japan/>/>, using this suitable analytical framework Countries Japan France China Saudi Factor condition GDP (official exchange rate) $5.459 trillion $2.583 trillion $2.583 trillion $443.7 billion Current balance account $166.5 billion $54.4 billion $305.4 billion $70.1 billion Labor force 26,2% 29.32 million 815.3 million 7.337 million Industrial production growth rate 16.6% 5.1% 15.7% 3.1٪ Technology know-how Very high Medium High Very low Natural resources coal, lignite, natural gas, iron ore, copper, nickel, uranium, potash, salt, construction materials coal, iron ore, bauxite, zinc, uranium, antimony, arsenic, potash, feldspar, fluorspar, gypsum, timber, fish coal, iron ore, petroleum, natural gas, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, rare earth elements, uranium, Oil, Gas. Iron. Public transportation Buses, Taxies, Buses, Taxies, Buses, Taxies, boats. Buses, Taxies, boats. Cost of labor (per hour) www.destatis.de 30,36 US-$ 40.08$ $1.98 6$ Factor strategy, structure and rivalry Strikes 1 67 27 0 Force with tertiary education 1997-2003 30.9% 23.1% 64% 18% Regulations (1999-2002) 37 51 49 15 Working hours Per week (In hours) 40 35 70-80 48 Demand condition Global Population 127 078 600 65 027 000 1 333 000 000 28 686 630 Unemployment rates (% of active population) 4,9 9,9 9,0 13 Median household income (data in USA dollar) 19,432 19,615 10,220 7,450 Total fertility rates (explain the age of the population and long term demand population) 1,39 2,01 1,73 3,04 GDP growth per capita (%) 2.2 1,48 10,6 1.8 Import goods Machinery goods and equipment, fuels, foodstuffs, chemicals, textiles, raw materials Machinery, capital goods, automobile, petroleum, aircraft equipment, plastics product and chemical Raw material Manufactured product, agricultural products Consumer Very sophisticated Sophisticated Turn quickly to be sophisticated 2 different part: - Very sophisticated - Low Related and supporting industries Global Imports (millions USD - 2010) 692.621 605.849 1.395.099 102.000 Global Exports (millions USD - 2010) 769.839 520.524 1.577.820 254.000 Level of innovation Excellent Excellent Excellent Low The part in value of the production of electronic equipments in 2008 ( world Production) 15% Part included in the 22 % of Europe 26% Part included in the 3 % of the rest of the world Ex: Pole of Competitiveness JEITA Minalogic (Grenoble): The association includes almost 200 members: industrials, universities, research bodies… Cap Digital : 2007: 1th world place in number of projects and 3rd in term of financing Hangzhou Economic & Technological Developing Area References Boter, H. and Holmquist, C. (1998). Industry Characteristics and internationalization processes in small firms. In Haanti A. et al (eds) The Internationalisation of SMEs, pp 18-41, Rutledge, London. Chetty, S. and Campbell-Hunt, C. (2003). Explosive International Growth and Problems of Success amongst Small to Medium-sized Firms. International Small Business Journal, pp 5-27. Dunning, J. (1993). The Globalization of Business, Rutledge, London Johanson, J. and Vahlne, J. (2000). The mechanism of internationalisation International Marketing Review, pp 11-24. MALERBA, F. (2004). Sectoral systems of innovation. Cambridge, Cambridge University Press. Ozdenli, O. and Bennett, D. (2003). Motivations for the internationalisation of SME manufacturers: Findings from case study investigation The 8th Annual Cambridge International Manufacturing Symposium: Exploiting the Potential of International Supply Networks, pp 215-254. ÖZLEM, Ö. (2002). "Assessing Porter's framework for national advantage: the case of Turke." Journal of Business Research Porter, M. (1990). The competitive advantage of nations. New York, Free press. Stonebraker, P. and G.K. Leong (1994). Operations Strategy, Focusing Competitive Excellence, Allyn and Bacon Inc. Needham Heights, MA Tallman, S. and Fladmoe- Lindquist, K. (1994). A resource based model of the multinational firm. Paper presented at the 1994 Strategic Management Society Conference, Paris. Read More