Orklis International Strategy - Assignment Example

CASE STUDY By Name Course Instructor Institution City/State Date Orkli – Case Study Question One While most companies pursue internationalization path for purposes of growth, the main drive of Orkli’s foreign expansion is its socio-economic mission. Wealth creation is one of the main missions pursued by Orkli, and for that reason, the company has opened foreign sales and production assets that offer positive spill-over effect. The company internationalised its operations in order to compete effectively in the global market, but not to have foreign units. Furthermore, the company believes in multi-location than off-shoring, and the foreign production activities were intended for boosting the foreign markets’ sales rather than distributing products to the European market, which Ordizia plant can serve efficiently. When Orkli’s Europe’s market position in Europe started becoming rigid, the company had to focus on other markets across the globe with the objective of pursuing its growth path. Although the South America, Asian, and European continents offered Orkli some captive markets, the one in North American had fewer opportunities because heating, as well as cooking efficiency, were not considered important as in other markets. The need for Orkli to go global grew when new locations for production as well as consumption, such as China started emerging. Such emerging markets provided Orkli with additional profit-making possibilities through the exploitation of its products’ competitive strengths. Therefore, Orkli international strategy was offensive expansion; that is, developing and growing the business by expanding to every market that offers an opportunity. Besides that, a number of Orkli’s industrial clients had moved their production activities to the emerging economies and invited companies like Orkli to join them in what is described as follow-the-client style. Another internationalization driver is attributed to the fact that the rest of the world was gradually adopting the standards as done before by the European Committee for Standardization; therefore, was motivated to market its products globally. With the view to Orkli global expansion, it is clear that firms are offered different business opportunities by the international markets, which range from cost reductions to market expansion. As mentioned by Dachs et al. (2014, p.16) internationalisation, is a strategic choice that is very challenging to pursue because of the uncertainty related to the new markets and its resource-intensive nature. For this reason, it is imperative for policy makers to come up with policies that would reduce barriers associated with cross-country trade and offer support in terms of physical and financial resources, managerial knowledge, as well as the development of international network development. Business expansion to foreign markets is attributed to a number of factors such as growth, knowledge-related, and resource factors. The main driver of Orkli expansion was to identify growth opportunities that would facilitate the growth of business, increase market size, and profits, and reduce overreliance one market. Besides that, some companies internationalise its operation for Knowledge-related reasons; for instance, looking for knowledge assets, normally related to research and development investment, language skills, innovation capabilities, technologies, or unique products. Most of Orkli’s industrial clients have moved their facilities to the emerging economies in what can be termed as resource-seeking efforts, seeking low-cost labor. As pointed out by Hansson and Hedin (2007, p.10), the presence of market demand as well as market opportunities in the foreign countries is also a primary driver to internationalisation. Question Two The main selection criteria for Orkli to enter international markets/foreign countries is geographical and product diversification. As mentioned in the case study, Orkli seeks to increase its revenues and exploit the global expansion opportunities within the market segments through diversification. As emphasized by Mr. Patxi Lopez Urkiola, Orkli’s General Director, the company seeks to expand globally by intensifying its sales’ geographical diversification through internationalization strategies that are more offensive. This is made possible by the multi-annual agreement between Orkli and Chinese electrical appliance components’ manufacturers. Orkli’s products in Northern American market are supplied from the European base through agents in America and South Korea. According to Hashai and Delios (2012, p.1053), product diversification and geographic diversification are two crucial growth strategies utilised by companies to expand globally. Without a doubt, introducing different products to different countries could enable Orkli to reduce its operation costs and increase sales as long as the company does not over expand. The diversification has enabled Orkli to exploit synergy and achieve economies of scale, which result in improved returns. However, these expansion criteria can result in increased coordination as well as transaction costs after reaching a certain diversification level (Hashai & Delios, 2012, p.1053). Furthermore, product and geographic diversification could reduce the managerial ability to handle increased complication associated with over diversification. Still, diversifying on the product lines could enable Orkli to enter into new service operations as well as business models. Monitoring products’ deployment operations by end users would allow Orkli to gain insights regarding consumers’ habits and purchasing patterns, which consequently would enable the company to meet their needs. Orkli plans to amplify its market coverage in different market segments; for instance, by explicitly targeting low to middle-end customers. The new customer segments are addressed by means of inorganic growth through acquiring companies with large number of customers having less purchasing power. Take-overs in segments where the company perform poorly, would enable Orkli to develop capacity and widen is product lines. Orkli’s motive to go international as mentioned above is mainly to expand its operations and also improve its sales. As opined by Twarowska and Kąkol (2013, p.1007), when a firm is looking for new markets overseas, adoption of global strategy could facilitate diversification and business expansion. Clearly, overseas operations became attractive to Orkli because it enables the company not only to increase profit but also reduce operation costs. For instance, most of the emerging economies like China and India offer cheap labor cost and other countries with deflated currencies have allowed the company to cut business overhead costs. Employing people in emerging economies is exceedingly cheaper since the cost of living is much lower as compared at the developed countries. Given that Orkli is experiencing consumer demand downturns at its European market, the company was forced to go global to look for business opportunities and improve its sales. Orkli uses offensive internationalization strategy; therefore the company has been expanding to under-exploited regions with the objective to gain market dominance as well as improve its product sales. Question Three In my view, I think should focus on the Asian and Latin American continents because they offer the company an opportunity to mitigate its losses in Europe. However, such companies will face challenges to this strategy at home and abroad. Although most of these countries’ regulatory frameworks have been changed and their legal frameworks are unstable, they provide Orkli with vast business opportunities attributed mainly to the changing lifestyles. The Latin American countries offer Orkli a growth opportunity because of their friendly business climates as well as robust domestic markets. Therefore, Mexico as well as Brazil should be the main destination for Orkli, but still the company should consider other smaller emerging markets, like Chile, Colombia, Peru, and Uruguay which have a favorable business climate. Another suitable destination is Vietnam, where the majority of customers are ready to spend more on the domestic appliances, especially the premium power-saving models since they consider it has a long-term investment. For this reason, Orkli should focus on creating energy-saving appliances that could bolster sales as well as attract more customers. Considering that the Vietnamese are nowadays working for longer hours, they have very little time to do their house chores; therefore, the majority of them are using their increased incomes to buy electric appliances that could enable them to save time. As observed by Persistence Market Research (2016), there is high demand for safe and energy efficient domestic heating appliance in the Asian market, particularly in the high-tier cities. The need for luxurious and comfortable life is the main factor that has made many Asians to invest in heating appliances and other domestic appliances. Therefore, this could enable Orkli improve its domestic heating appliances’ sales. More importantly, investing heavily on R&D on various heating appliances would facilitate the production of innovative and new appliances that could help boost Orkli’s’ market growth. Clearly, upgrading its products would enable Orkli to grow healthy in the global market. In their survey, Persistence Market Research (2016) observed that Asia pacific is a promising market for companies like Orkli that manufacture domestic heating appliances. Basically, the increasing income level has resulted in more consumption of domestic appliances, which includes the heating appliance. Persistence Market Research (2016) project that the domestic heating appliances market in the Asia Pacific region will experience the fastest growth rate between 2014 and 2020. Countries like India, Japan, as well as China provide the biggest market for Orkli’s products, especially the heating appliance. More importantly, the Asia Pacific has an enormous population base, which offers Orkli a huge market growth opportunity. Aside from Asia pacific region, other developing economies like Jordan, Philippines, and Bolivia offer some potential thanks to their domestic heating appliances market that is growing at a striking rate. While diversifying its operations globally, Orkli should diversify its products lines to include other products such as microwaves and washing machines, which currently have high demands. References Dachs, B., Stehrer, R. & Zahradnik, G., 2014. The Internationalisation of Business R&D. Massachusetts: Edward Elgar Publishing. Hansson, A. & Hedin, K., 2007. Motives for internationalization:Small companies in Swedish incubators and science parks. Master Thesis. Uppsala, Sweden. Hashai, N. & Delios, A., 2012. Balancing Growth Across Geographic Diversification and Product diversification: A contingency approach. International Business Review, vol. 21, no. 6, pp.1052–64. Persistence Market Research, 2016. Domestic Heating Appliances Market: Global Industry Analysis and Forecast to 2015 to 2021. [Online] Available at: www.persistencemarketresearch.com/market-research/domestic-heating-appliances-market.asp [Accessed 7 November 2016]. Twarowska, K. & Kąkol, M., 2013. International Business Srategy - Reasons And Forms Of Expansion Into Foreign Markets. In Proceedings of the Management, Knowledge and Learning International Conference. Zadar, Croatia , 2013. Read More