The Analysis of the Strategies of Going Global for Children Wear from China to the UK - Report Example

Executive Summary Going global is one of the most important decisions which an organization has to make because it not only requires substantial level of resources and technical expertise but a complete shift in the mindset of the people working in the organization. Considering the opportunities which globalization has provided with improvements in technology and deregulated environment have allowed companies to go global with more ease and effectiveness. Thus spotting the opportunity, our company intends to export its products i.e. children wear to UK. Based on our assessment of the situation of our existing markets as well as our potential new market, we recommend that we can enter the market through the exporting by using piggybacking as main method of entry into the market. Introduction Every new company aspiring to succeed in any particular industry and economy needs to first address various important elements before making a formal entry into that sector or economy. The analysis of the strategies for making a successful entry into the market varies from industry to industry and economy to economy. It is very important that an entrepreneur must complete his home work before making a successful move. Based on above important prerequisites, we have decided to form a company which will be working in Textile industry. We intend to tap the business potential in the UK region. Our company will be a mid-sized player in these new markets with emphasis on quality of our products. As Textile industry especially in UK have very stringent requirements regarding the quality of the stuff, therefore, we will be concentrating on producing quality products which can serve the market well. Our existing markets are very well our under control in terms of the satisfaction of our customers and their level of trust and confidence in our products. We intend to carry that image into the new markets of UK also overall due to the very rapidly changing economic conditions and constant influx of visitors; we believe that the UK market will provide a very important opportunity for our company to fare well into that market. Though there are a lot of traditional elements involved in doing business in UK however, due to business friendly environment and we hope to capture a very lucrative market. Overall, our aim is to export children wear from China to UK and this report would undertake to analyze the risks and benefits of going international and how it could be achieved. It may also be noted that the overall aim of this report to analyze the economy of China and potential benefits of going international in UK. Analysis of our existing Markets China is one of the fastest growing countries in the world. The economic direction of the world is now really changing mainly due to pressures put up on it due to economic growth which China has witnessed in the recent past. However China’s economic growth is not a new phenomenon. Being a country with Communist Orientation, China began its flight to reach the top of economic growth during 1970s which resulted into strong economic performance of Chinese Economy. Traditionally, the competitive advantage which China has enjoyed was its low cost. Due to very cheap labor, many industrial giants have shifted their production facilities to China in order to remain competitive by enjoying low cost production. It was due to this factor that Foreign Direct Investment began to flow into China. It is being considered that the rise of China is partly because of the freedom it allowed to the flow of FDI in the country and after economic reforms in the China, it has now been considered as one of the most preferred destinations for the international investors. The greater increase in the FDI into the China has resulted due to the liberalization of Chinese Economic Policies since 1978 and it reached as high as USD 40 Billion during the year 1999. It picked up from merely USD 1.5Billion per year to that much figure of direct foreign investment into the country. Estimates suggest that the China attracted almost ¼ to 1/3 of the total FDI made into the developing countries.(Berslin,2007). There are various reasons behind this phenomenal growth of FDI in China. Asian markets more or less remained untapped despite their huge market base. It is because of this factor that many economist argue that the development of China resulted due to the free flow of foreign capital to the country and FDI has not only filled the gap of the capital shortages and lack of capital formation in China but also been one of the main reasons behind the economic success of the country. The difference between the FDI made in China and FDI made in other countries especially USA is the fact that FDI made in China has largely been made in Greenfield investments- the investments made onto the unused land and resources rather modeling the existing constructions to start production or service facilities, i.e. establishment of new factories, power plants etc from scratch, whereas in US, it remained largely in the domain of takeovers in the existing projects rather than making new enterprises and fresh businesses. Apart from that, the Chinese government has largely demanded from the Multinational companies working in the country to export their product rather than selling their produce into the Chinese domestic market.Error: Reference source not found thus forcing them not only to increase the Chinese made exports on one hand whereas on the other hand increasing the trade flows to the country. Further, it has also been argued and empirically proved that those firms which invested into China in its earlier phase of reforms have not established themselves and their profits are much higher than the late comers thus indirectly fuelling its economic growth through increased production and higher profitability.Error: Reference source not found It is also being witnessed that the Policy environment is not that responsive for the enterprises to make foreign direct investment in China despite such phenomenal growth in the economy as well as FDI. However, considering the political ambitions of China, many foreign investors are finding it difficult to establish themselves in longer run as the mounting diplomatic and political pressures on China are certainly going to hamper its economic growth. Chinese Policies may turn negative especially in favor of the Western companies. This fact is further substantiated by the fact the rise of new enterprises in China are purely local enterprises. The mushrooming of the local enterprises finally will gain the competitive advantage over the period of time and as the economic conditions improve and China transforms itself into a developed country, the conditions may not remain the same as they are conducive now in Chinese Economy. Analysis of our potential new market Our company would be working in UK which has relatively stable political environment. Considered as a secular country with strong market orientation, UK is currently experiencing slight slow down into its economic activity mainly due to subprime crisis and there is a possibility that housing markets, on overall, may cool down thus reducing the demand for hire industry however, market for the hire equipments were growing as the growth in the market during 2006 has been 6.6% whereas 2007 estimates are 121.5 GBP. The growing inflow of the immigrants into the country has increased the requirements for the housing sector in the country and the reduced cyclicality has allowed companies to anticipate the market trends more effectively. Companies within this sector is continuously relying on the information technology therefore there will be increased dependence on technology in the future also. Legal environment in the country is favorable. Environmental concerns for companies are increasingly becoming a burning issue for the hire industry and it is believed that companies successfully addressing environmental issues will competitive advantage in the future. The continuous inflow of immigrants into the country provides a very strong and lucrative market for the construction activities in the country.. One very important trend that has been witnessed into the hire market within UK is the fact that it is moving towards a consolidation phase. Traditionally, equipment hire and tool hire were considered as two separate business lines however, this distinction is blurring as more and more companies are offering both type of products. The increasing emphasis on environmental concerns is increasing the buying power of the buyers thus this force can be considered as more powerful and possess the capability to alter the competitive landscape of the industry. Since switching cost in this industry is low as the increasing consolidation and blurring of industry lines have given the buyers’ opportunity to prefer hire rather than purchase and due to the low cost of switching, there is a strong probability of threat from the substitutes. Since the industry is undifferentiated therefore there is a very lesser degree of suppliers’ power in the industry. Overall, the competitive rivalry in the market is high as changing buying patterns and the anticipated growth only to fuel the rivalry between the players in the market. As discussed above that the barriers to entry are low in the market therefore there is a strong possibility of new entrants making into the market however considering the cost of doing business, this force may not be as powerful as perceived. Further, the increased level of consolidation in the market can also help our company to successfully withstand this force. The increasing emphasis on environmental concerns is increasing the buying power of the buyers thus this force can be considered as more powerful and possess the capability to alter the competitive landscape of the industry. The above analysis of the market suggests that it has enough room to enter into. Considering our unutilized capacity of almost 40% and the reduced cost, we believe that due to increase in population of the country, there is going to be a need for low cost children wear in the country. Risks in doing business internationally It is important that before discussing the risks of doing business internationally, we must analyze the role played by Globalization and information technology in integrating the markets. Globalization has been made possible mainly due to the advancements in technology. Technology has made possible the reach of organizations to various markets and thus effectively providing them necessary tools and techniques to innovate and bring in products and services. However this does not seem to be all successful as still there are differences between doing businesses in various countries which effectively not allow globalization to fully integrate into the whole fabrics of the societies of the world. The integration of technologies resulted into the globalization of the markets and production however without the advances in technology; this may not have been possible to the extent which it is now. The industrial revolution especially the inventions of airplanes, trains, ships and other road vehicles provided organizations access to the different markets but the extent was limited. The rudimentary advances in these technologies continued however at very low pace. It was because of this purpose that it is extensively argued that the globalization of markets and productions would not have been possible especially without the technology. The post industrial era which witnesses a shift from being production oriented to more of service oriented demanded a different approach and unique support from the technology because services always demand spontenousness. Organizations without the ability to respond to the changes in quickest possible way would have clearly lost their traditional competitive advantage to their competitors having better and more integrated approach to show a response to the changes. The most important risks involved in going international are many and are diverse in nature however, political risk is considered as most important risk. The changing shift in businesses towards the emerging markets have made this risk more magnifying in the sense that it projects the costs which organizations can bear if political risk exceeds the cost a business is ready to pay. However, further risks in this regard include economic risks, legal risks, and as well other risks which are specific to the business. Further, it also must be noted that culture plays a very critical role in overall working of an organization in global context. Not fitting well with the cultural dimensions of the country within which firms intends to make an entry can certainly create strong strategic difficulties for the firm to sustain in the market. It is also because of this fact that most of the firms fail to realize how much culture influence the buying behavior of the consumers. One of the most important thing to remember is the fact that EU, overall, has the strict requirements for import of textiles in the region including UK therefore one also need to consider the costs involved in meeting those regulations. Suitable Entry mode into the market There are various methods through which our company can enter into UK markets. A mode of entry into the international market is a channel which a firm uses to enter into any market. However, it must be noted that it cannot sufficiently be said that which mode of entry is appropriate under generic conditions thus it largely depends upon the relationship between the buyers and sellers in the market, the general attitude of the overall economic policies of the host government to the exporting countries etc. Exporting is one such method however “There are direct and indirect approaches to exporting to other nations. Direct exporting is straightforward. Essentially the organization makes a commitment to market overseas on its own behalf. This gives it greater control over its brand and operations overseas, over and above indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly” (www.marketingteacher.com, 2008). Apart from exporting there are also other methods with bigger scope and advantages however the costs of exercising those options may be greater. Licensing is another way of getting into the market. Through licensing firms intend to issue licenses to the existing firms to utilize their expertise and skill level to produce and sell your products in the market. Further to that, forming strategic alliances through joint ventures is another method of entry into the market however the same may require more resources and time to form. Recommendations Forming strategic alliances through joint ventures can be a very risky and high cost option for company like ours as it not requires resources but also ability to create synergies within both the organizations. Considering our limited capabilities, we believe that exporting is the best available option to enter into the market where we may intend to use piggybacking as the appropriate method of making exports into the country. By tapping the existing resource in the country, we believe we can make a successful entry into the market with minimum of risk. Recommendations Breslin, Shaun. "The Changing Face of China: From Mao to Market." Journal of Contemporary Asia 37.1 (2007): 127+. Pan, Yigang and Peter S. K. "Financial Performance and Survival of Multinational Corporations in China." Strategic Management Journal 20.4 (1999): 359-374. http://marketingteacher.com. (2008). Modes of Entry into International Markets (Place). Available: http://marketingteacher.com/Lessons/lesson_international_modes_of_entry.htm. Last accessed 25 July 2008. Read More