Manufacturing in China, Parrot Flower System - Case Study Example

Name Course Lecturer Mode of entry When marketing overseas the mode of entry chosen by any producer is critical for the success of a commercialization venture in the new market. Considerations of a firm’s own weaknesses and strengths and the characteristic of a market are very important in selecting a suitable market entry mode. The most logical entry mode of Parrot Flower Power in the UK market is through direct exporting via distributors and stockists. Direct exporting refers to a situation where the manufacturer of Parrot Flower Power will be exporting the gadget and selling it to distributors and stockist who will then sell them to the final consumers. The choice of direct exporting through distributors will make sure that other companies that may be marketing similar products do not have access to the distribution network. According to Kuivalainen et al, one of the major advantages of using distributors is that they take ownership of the goods and thus they have an extra incentive in ensuring the products are sold (1). In contrast, to using agents, distributors’ benefit for handling a company’s distribution is profit while that of agents is commission. Introducing the Parrot Flower Power in the UK through a distribution network ensures that the producer retains a measure of control over the pricing and the branding of the products to be sold in the UK. Using distributors means the producer is able to leverage their knowledge of the market to make more sales the Garden sensor. Zahra, Duane and Hitt (932), notes that distributors possess extensive knowledge of local market environment, preferences and customer needs which a company would not access if they choose to enter the UK market through a wholly owned subsidiary. Manufacturing in China On the other hand the Parrot Flower systems manufacturers also need to establish a manufacturing base in China; China is an attractive location for manufacturing, as most manufacturing cost a low. China has a labour force of millions. This highly skilled labour force will assist Parrot Flower Systems manufacture their products easily. According to Shen, Wu and Ng the strict commercial law in China compels companies to partner with Chinese companies to establish businesses there (78). In some instances the use of Foreign Direct investment is not permitted, and where allowed the bureaucratic procedure make it very difficult. Therefore, the most preferable entry mode for Parrot Flower systems manufacturing is the joint venture strategy where the Parrot Flower System establish a new company with an existing Chinese company which is in charge of manufacturing. Using the joint venture entry strategy is very risky but it also gives the company applying this strategy various advantages. A Chinese partner in a joint venture will help the manufacturer of Parrot Flower System deal with foreign exchange issues, the complexity in taxation and accounting rules that are characteristic of the Chinese business environment (Yan, 53). Joint ventures also assist the avoidance of red tape and bureaucratic complexities. The greatest advantage of using joint ventures in China for foreign investors is that they provide a ready workforce and handle the human resource management aspects of the venture (Yan, 76). Taking into consideration that Chinese culture is significantly different from western culture, the Chinese partner is crucial in handling human resource management issues. Risks of Entering Chinese Joint Ventures The manufacturers of Parrot Flower System should be careful while partnering with Chinese companies as they could be potential competitors in the future. According to Anderson and Jap, several foreign investors have lost their products to former Chinese joint Venture partners. Therefore, the manufacturers of Parrot Flower Systems should be careful when entering in a joint venture contract with Chinese companies that might have ulterior motives of taking over the business. Chinese companies rarely enter in partnership with foreign partners for profits alone (Yan, 186). The contract should aim to obtain a commitment from the Chinese Partner that they will not continues producing the Parrot Flower System once the joint venture has come to an end (Ekeledo and Sivakumar, 90). It is also important to have the Chinese partner agree not to engage in competing business during the lifetime of the competing business. According to Yan the Chinese partner will be aiming to gain the knowhow and technology for manufacturing the Parrot Flower System (174). It is therefore important for the manufacturers of Parrot Flower System to rein the amount of technology transferred to their Chinese partner. Inevitably some of the technology used to manufacture the parrot flower System will pass on to the Chinese joint Venture partner. As seen earlier it is possible to protect the technology through Contractual safeguards, but practical steps also need to be taken to protect the technology. Segmenting and distinguishing the parrot Flower System technology will go a long way in ensuring the core technology is not exposed (Zahra, Duane and Hitt, 9480. If possible, Parrot Flower System should manufacture the core components of the technology elsewhere and then supply them to the joint Venture. It is also important to protect the Parrot Flower System by registering it as trademark in China. Caution must be taken as trademark is lost one to the person who registers it first as China is a strict first-to-file jurisdiction (Yan, 157). Unscrupulous joint Venture partners may register the Parrot Flower System Trademark and offer it for sale to the trademark owner, a common practice in China referred to as “Trademark Squatting” (Yan, 163). According to businesses must take the earliest opportunities in registering trademarks in both Chinese and English. Another risk of engaging in joint Venture means the owners of parrot flower System have to share executive decision about the development of the gardening devices with their Chinese partners (Solberg, 58). The owners of Parrot Flower System should make sure they appoint the General and a company legal representative to maintain actual control of the management. In China the termination of joint ventures cannot occur on the unilateral decision of one party. It is therefore necessary to agree on the grounds that may lead to the termination of the partnership at initiation. Works Cited Anderson, Erin, and S. Jap. "The dark side of close relationships." Sloan Management (2012) Brouthers, Keith D. "Institutional, cultural and transaction cost influences on entry mode choice and performance." Journal of International Business Studies 33.2 (2002): 203-221 Ekeledo, Ikechi, and K. Sivakumar. "International market entry mode strategies of manufacturing firms and service firms: A resource-based perspective." International Marketing Review 21.1 (2004): 68-101. Khemakhem, Romdhane. "Explaining the entry mode choice among Tunisian exporting firms: Development and test of an integrated model." European Journal of Marketing 44.1/2 (2010): 223-244. Shen, L. Y., George WC Wu, and Catherine SK Ng. "Risk assessment for construction joint ventures in China." Journal of Construction Engineering and Management 127.1 (2001): 76-81 Solberg, Carl Arthur. "The born global dilemma: trade-off between rapid growth and control." published in Gabrielsson, M., Kirpalani, VHM (2012), Handbook of Research on Born Globals (2012), Edward Elgar Publishing Limited (2012): 57-70. Yan, Yanni. International joint ventures in China: Ownership, control and performance. Palgrave MacMillan, 2000. Zahra, Shaker A., R. Duane Ireland, and Michael A. Hitt. "International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance." Academy of Management journal 43.5 (2000): 925-950. Read More