The Suitability of the Haier Washing Machine in India - Case Study Example

Name of the Students] [Name of the institution [Course Description] [Date] International Business Executive summary It is undisputedly true that the fundamental organ of the world economy is business; global, international, domestic or regional businesses. This explains why individuals in this important sector are extremely on high alert for arising challenges. The challenges that can be overcome by introducing efficient products that maintains the pace of every business undertaking. A product like washing machine is one of the products from the Haier Australia to boost efficiency in the product industry. Washing machine offers variety of laundry services in an efficient manner thereby reducing the time people allocate for their laundry services. The most important aspect of this machine is that it is efficient, affordable, and environmental friendly. In this case, its demand is an increasing function of its quality, since it has the advantage of economies of scale in laundry services. Large volumes of clothes can be washed at the same time. Washing machine is one of the products of the Haier Australia with high efficiency level. Haier washing machines have relatively better prices with high quality standards. Their simplicity in usage is an added advantage which many users of this product confess about. This project will be based on the value advantages that Haier washing machine can take in a new market, in this case, India, owing to its suitability. Homemade and commercial washing machines have been improvised due to advancements in technology, and we believe that this product will be highly demanded in our targeted market in India. The excellent reputation of Haier Australia ltd has been based on the quality of its electronic products. We therefore confirm that this product is cost effective and efficient for usage in India. Table of content Page Executive Summary………………………………………………………1 Introduction………………………………………………………………3 PESTEL analysis………………………………………………………….3 Strategy…………………………………………………………………..6 Entry modes: ……………………………………………………………..7 Exporting………………………………………………………….7 Licensing………………………………………………………….8 Wholly owned…………………………………………………….10 Recommendations………………………………………………………….12 Conclusion…………………………………………………………………12 Reference……………………………………………………………………13 Introduction The purpose of this paper is to determine the suitability of the Haier washing machine in India. Haier washing machine is conveniently modified machine by modern technology that enhances its high efficiency. Modified into different modern models, the washing machine has different holding capacities, which makes it perfect for usage. Most models have technical features such as water levels and wash cycles which are technically connected to the sink adapters that make it convenient in clipping the machine to a tap. There is signal at the end of any wash cycle that indicates that washing is complete. In addition, the Haier washing machines are in most cases designed to wash gently without more twisting on the clothes with more efficiency in terms of speed, thereby improving the functionality of the whole machine. The paper was prompted by the above characteristics in determining the feasibility of the Haier washing machine in the Indian market. It also seeks to address some of the trends in terms of expansion modes of acquiring a new market zone in the international market. More importantly, the paper will discuss the critical environmental factors that an international business, in this case, Haier Australia, must consider before doing business. It will finally come up with a reliable conclusion and recommendations of adoption to any of the strategies and modes. PESTEL Analysis A pilot survey was conducted to determine environmental factors that are very important in doing business in India. According to World Bank Report (2013), doing business in India is considered profitable with a record annual growth in international business of 7%. The study majorly concentrated on the external business environmental factors using the PESTEL (political, economic, social, technological, environmental and legal factors) analysis to determine the suitability of doing business in this country. This was done to come up with reliable information to consider before starting doing business. The main focus was the suitability of the machine in terms of its tradability in India. Therefore, in order to come up with reliable market information of the machine, the factors discussed below were very necessary. India has diversified cultural foundations making the country to be divided into diverging characteristics. There are businesses oriented, technological, political and education oriented characteristics in India. This makes any international business in his country to deeply consider strategies of doing business. Political factors The ease of doing any business in any country is a dependent factor on the political environment in that country. Political goodwill may make business flourish positively and the reverse is true. These are in terms of the extent to which the government intervenes in the economy, through tax policies, trade restrictions, environmental laws, labor laws and political stability. In addition, they may include the wanted and the unwanted goods and services by the government, i.e. the merit and the demerit products (Daniel and Radebaugh, 1998) . In this case, the study examines the political situation of India which lies in the Asian Pacific Rim to determine the suitability of doing business there. Indian government, in conjunction with other bodies including chambers of commerce, work favorably to create good environment for international business (Budhwaar, 2001 p 549-568). In the context of the washing machine, the country has a favored market politically since there are no political influences in related product. The market is mostly controlled by the forces of demand and supply. Economic factors Microeconomic factors such as interest rates, inflation, economic growth and exchange rates affect business operations in various ways. This study considers the effects of exchange rates on exportation costs and prices of imported goods. It also considered the effects of interest rates on the costs of capital which eventually determine the expansion of the business. More importantly, inflation rates and the economic growth of India was the core issue of discussion before this study was adopted. The Indian macroeconomic policies favor international business (World Bank Report 2013). Doing business in India will favor Haier Australia, especially introducing technological machine into their market. In this case, the exchange rates particularly are favorable to the company, and the costs associated with importations are averagely fair due to the policies in the country. Social factors The societal orientations such as culture, population growth rates, age distribution, and health consciousness among others are some of the social factors that this study considered. Trends of these factors may affect the business in terms of demand for the product and operations of the enterprise. More importantly, strategic management policies can be recommended in order to adapt to the trends of these factors incase they prove to be threats to the business. With the increasing growth in India so does the demand for any product like Haier washing machine is expected to be higher. This machine has little and controlled effects on health. This would make it a more viable product in Indian market. Technological factors Research and development activity in the target country is one of the technological factors which have been considered in this study. Automations and rate of technological changes determine the efficiency in production, but more importantly determine the barriers of entry which ultimately affects decisions made by the firm (Daniel and Radebaugh, 1998). However, this study concentrates on the production changes, like costs, which can be benefited from as a result of technological advancements. In addition, quality and more innovations are some of the technological factors which this study considered. The Haier washing machine is a ‘welcome product’ in terms of technological advancement due to its efficiencies which are advantageous to a technologically growing country like India. Environmental factors Climatic changes may affect the operations of the enterprise or affect the customers in areas prone to unfavorable climatic changes. Products on offer must therefore be those which are not easily affected by these changes. This study focused on the product, washing machine which is not prone to climatic threats thus suiting the environmental conditions of the target country, India. More than that, the machine is technically designed to be environmental friendly, without any harmful emissions, thereby meeting all the necessary environmental standards. Legal factors The first requirement of any business enterprise is to observe the law of the land. In this case, the existing laws; consumer laws, employment laws, safety laws, health laws and other business related laws, affect the operations of the enterprise (Daniel and Radebaugh, 1998). The study took consideration to review all the existing laws relating to businesses, which might affect the operations, costs and the demand of the washing machine product in India. Upon the review of all the factors discussed above, the study concluded that with respect to the product, the washing machine; its quality, marketability, cost and durability, it was considered suitable for trade in India. Strategy The global competitiveness in business of every international company depends on the nature of strategy the company employs (Czinkota and Rivoli, 1989). The determining factors are the market share the company demands, volume of sales and the ability to make higher profit margins compared to its competitors. Therefore, an international strategy employed should determine the company’s decisions on getting and using the limited resources in its operations for the sake of maximizing its profits and achieving goals and objectives (Hill, 2005). Different firms employ different international strategies matching their objectives. This study adopted a global strategy in achieving its objectives in the same way. Cost minimization and profit maximization is one of the core aims of the company. The product can perform favorably in the Indian market using this strategy because of the need to locate areas globally where the firm can beneficially do business (Kalpagam & Karimullah, 2007 p 237-250). This strategy is suitable also in the sense that India is a developing country and still has infrastructural problems, like high transportation costs. The firm needs to adjust to that. Moreover, this product offer will be standardized and the decisions will be made from the parent firm. Entry modes The entry modes (also known as international business expansion modes) are the decisions that a business make on how to enter a market which is supposedly foreign. The choice of the mode of entry therefore has an important role and impacts as far as the performance result of the business firm is concerned. The most important managerial concern between these modes of entry to a market is the trade off between risks and control (Root, 1987). There are a number of entry modes in international market. However, this study is limited to only the following expansion (entry) modes: 1. Exporting 2. Licensing arrangements 3. Wholly owned Exporting Exporting is the process of selling different products and services from a home country to foreign countries. It involves selling and marketing locally produced goods directly in another country. Generally considered the common way of establishing firms in foreign countries, this mode does not necessarily require that products be produced in the target country. In this case, it does not require investment production facilities in foreign countries (Czinkota and Rivoli, 1989). This mode is therefore considered the easiest way to enter into an international market, therefore becomes fundamentally the starting mode of most firms to enter in the market. It is considered advantageous in the sense that through this mode, firms escapes the establishment costs as starters. The firm will only consider marketing and distribution expenses since any firm using this mode in a new country must first have means of marketing and distributing their products. In this case, a well tailored ways of labeling, packaging, and pricing the product must be well considered as far as his mode is concerned. In addition to that, distributions can appropriately be done through contractual agreements with other local companies or distributors. Advertisements, trade shows, local sales force among other means of product marketing and promotions will be the main means of notifying the potential customers about the product (Root, 1987). This mode has the following pros and cons: Advantages of exporting mode i. Entry in the foreign market is very fast and easy ii. There is little adaptation expenses required in the foreign country, thus risks and investments on many expenses are minimized. iii. It maximizes scale by using the existing production facilities. Disadvantages i. Low control ii. Since the firm is viewed as an outsider, it limited access to the local information or local knowledge. iii. This mode suffers the entry costs such as the trade barriers and tariffs which add to the total costs. iv. The costs involved in transportation are very high, which in most cases considered to impact negatively on the environment. Licensing Licensing creates a legal vehicle for delivering products and services produced in one country to another foreign country. In this case, it is the grant in terms of permission by licensing authority, also known as the licensor, to the firm seeking business in foreign country, the licensee, to do business within specified conditions. Within these conditions, the multinational firm grants rights to a company in the target country on the use of properties, usually intangible, such as trademarks, patents and production techniques. The exchange of these rights involves fee for the usage of such intellectual properties and for technical assistance (Root, 1987). This mode has the following advantages and disadvantages: Advantages i. It has high return on investment because there is little investment required by the licensor, thereby making this mode to highly potential. ii. Entry in the foreign market is very fast and easy. iii. There is little or no adaptation expenses required in the foreign country, thus risks and investments on many expenses are minimized by the licensor. iv. This mode avoids trade barriers, hence costs associated by the barriers and tariffs are escaped. Disadvantages i. This mode, in terms of the nature of its operations, makes the licensor to lack absolute control of the use of the assets. ii. In the long run, the licensee may become a competitor of the licensing firm, thereby reducing volumes of sales and other returns. iii. The license period is limited within a specific period after which it expires. This may limit the firm in doing the business as required by its original objectives. iv. There is knowledge exposure to the licensee. This knowledge spillover may lead to the licensee transferring the knowledge to its own advantage. Wholly owned This mode involves the process of establishing a new subsidiary venture in a foreign country which can be completely controlled by the parent firm in the home country. It involves direct investment in the target country by way of building production facilities in the host country. This mode involves transfer of resources like capital, technology and personnel to target country for establishment of the enterprise which will be wholly owned by the parent firm (Root, 1987). This mode however, has associated complexities and cost highly since it necessitates complete investments for the new subsidiary firm. Despite all these, the parent firm has a maximum control and it has above average returns on investment which is worth the risk. The firm actually hires the local firms or consultants, which are highly costly, to acquire knowledge and potential proficiency of the existing market. It has the following advantages and disadvantages: Advantages i. Since the parent firm bears all operational and establishment costs, it retains the control of all operations of the subsidiary firm. ii. The firm gains from the local market knowledge and takes them to its advantage for value additions and knowing the market even better. iii. Establishment of the firm in the target market makes the firm be one of the potential employers in the local. Eventually, the firm gains the trust and loyalty form the local because it creates employment for them iv. Can better apply specialized skills v. The parent firm takes control of operations and management skills. In this case, knowledge spillover is minimized. Disadvantages i. The firm will suffer high cost. Costs are high because the firm meets all the operational, establishments and legal costs for starting a new subsidiary firm in the target country. ii. In most cases, starting business in a foreign country have associated risks which often not seen or underestimated in the near circumstances. Therefore this mode is highly risky relative to other modes of entry to a foreign market due to the unknown. iii. Slow entry because of the necessary requirements for setting establishment iv. It may be difficult to manage the local resources due to lack of prior knowledge of the market and the pattern of doing businesses in that country. v. This mode of entering a foreign market requires more resources and commitments when compare to other modes and might not be recommended for costs-sensitive firms. Different modes of entering a foreign market may be very suitable in different situations depending on the objectives of the firm at that particular period. It is also important to note that the mode of entry plays the greatest role in ensuring the success of the project at hand. Firms should make considerate decisions as far as these modes are concern in relation to their goals and objectives. Conclusion Increase in number of International business in a country increases the foreign direct investment (FDI) that contributes heavily to economic growth. Indian economy depends on trade and therefore makes policies that encourage business. International firms like Haier Australia is are an example of such business. The diversification of the Indian societal background, with majority the literate, businessmen, and embracing technology, Haier washing machine can be highly demanded based on what are available in the market. Recommendation Considering the pressures of cost effectiveness and other objectives of the firm, this paper recommends exporting as the best mode to enter into the Indian market. The Indian trade policies, especially on imports and exports are relatively friendly and this mode gives Haier Australia the total control of operations. More importantly, this mode has fewer risks as there are little expenses and investments. Reference: Budhwar, P. (2001). Doing Business In India. Thunderbird International Business Review, 43(4), 549-568. Contractor, F. J., & Lorange, P. (1988). Cooperative strategies in international business. Lexington, Mass.: Lexington Books. Czinkota, M.R., Rivoli, P., and Ronkainen, I.A (1989). International business. Chicago: Dryden Press. Daniels, J.D., and Radebaugh, L.H. (1998). International business: environment and operations (8th ed.). Reading, Mass.: Addison-Wesley. Hill, C.W. (2005). International business: competing in the global marketplace ( 5th ed.) Boston: McGraw-Hill/ Irwin. Kalpagam, U., & Karimullah. (2007). India's Business Prospects In The Global Emissions Market. Global Business Review, 8(2), 237-250. Professor, A. K. (1970). International Business Negotiation: A Study In India. The International Executive, 12(3), 2-5. Root, F.R. (1987). Entry strategies for international markets. Lexington, Mass.: Lexington Books. World Bank Report. (2013).India: Foreign Trade policy. International Economics &Trade in South Asia. http/go.worldbank.org/RJEB2JTCO. Wilson, B. A., & Keim, G. (2006). India And The Global Economy. Business Economics, 41(1), 28-36. Top of Form Bottom of Form Read More