Bentleys Internationalization Trajectory - Essay Example

?Bentley’s Internationalization Strategy and Activities Introduction Internationalization in the business context refers to the strategies and activities that aim to foster transactions across national borders, especially to service foreign markets thereby enhancing firm performance (Elitsa and Ravi 2011, p.627); internationalization of business transactions is a response to globalization that has resulted to greater integration of goods, labour and capital markets, in addition to production and supply. International businesses are subject to different macro factors present in the varied national contexts because countries differ in terms of political, economic, and legal systems, besides geography, level of economic development and national culture; therefore, the ability to internationalize is crucial to firm sustainability and productivity (Elam and Terjesen, 2009). This report will outline the internationalization strategy and activities of Bentley in its efforts to enter and establish itself in China’s emerging economy, the market situation analysis, in addition to the firm’s expansion motives, strategic direction. Bentley’s internationalization trajectory Lately, Bentley has been engaged in a number of internationalization strategies including exportation, establishment of wholly owned subsidiaries, Greenfield ventures, and vertical integration across national frontiers; these global brand strategy aim to strengthen its position in the highly competitive automobile industry (Peng 2009, p.33). In formulating a most effective course of action, Bentley has evaluated several advanced technology options and decided to focus on improved efficiency and the use of alternative powertrain technology to reduce CO2 emissions while improving fuel economy. In this regard, Bentley’s environmental strategy addresses both the global issues of fuel security and global warming (Bentley 2008, p.7), thus cutting a niche for the socially responsible consumes who are keen in making environmentally sound investments. Bentley is also keen on improving efficiency by utilizing a range of technologies including engine revisions, improved transmission systems, drive train alterations, in addition to enhanced vehicle characteristics. Bentley has also explored the market of hybrid cars due to the advancement of hybrid technology thereby contributing greatly to the energy and CO2 emission savings when driving these cars especially in an urban environment. Besides the hybrid cars, Bentley also has explored the use of Hydrogen and Electricity, as an alternative automobile propulsion system; hydrogen and electric cars have a zero tailpipe CO2 emissions because Hydrogen burns cleanly and combustion is not necessary for electricity-powered cars. Largely, Bentley’s internationalization trajectory is based on economically viable, ethical, and environmentally sound solutions in response to the global potential crisis over energy shortages and climate change. Bentley’s introduction of car models that are powered by renewable and sustainable energy sources is motivated by the firm’s commitment to reduce the environmental impact of its vehicles with the improvement of efficiency. Situation Analysis China is undoubtedly the second leading automobile producer and market by 2009 with annual sales that are slightly shy of 14 million cars, yet the market continues to expand at a rate of about 36.1% increase in annual sales by 2010 (APCO Worldwide 2010, p.3). The rapid growth of the Chinese automobile industry market is attributable to the rising domestic demand for vehicles because of the rising incomes, an emerging middle class, and supportive government policies in the industry (Xavier Richet and Joel 2008, p.450). The Chinese government has implemented special tax adjustments and subsidies for the purchase of cars, which are aimed to motivate buyers to go for hybrid electric vehicles or the purely electricity powered vehicles, in addition to normal models with a reduced engine displacement. Places such as Beijing in China have gradually implemented higher automobile emission standards for new vehicles, and started on a broader, environmentally friendly strategy to develop hybrid and electric cars. The Chinese automobile industry is highly competitive due to intense market share and brand battles by major firms (Evans, 2003) and, despite the large gaps between local manufacturers and multinational car manufacturers, the Chinese automakers learning ability, marketing capability, flexibility, and determination to enter international competition is unmatched (Ribera et al 2012, p.3). Opportunities exist in the Chinese automobile industry in areas of innovative capabilities including vehicle design or engineering, hybrid and electric engines, in addition to areas such as increased efficiency through upgraded engines, transmissions, and electronic control systems. Additionally, opportunities exist in the Chinese automobile market in the area of mergers and acquisitions, clean transportation and manufacturing technologies, and supply of essential automotive components. Generally, the Chinese automotive market can be roughly described by three categories namely high-end, medium, and low-end; from 1995-2001, the high-end category consisted of imports and luxuries (like the Audi and Buick) while the low end consisted of small domestic manufacturers of small cars such as the Alto (Deng and Ma 2010, p.821). The medium category was comprised of sub-compact and compact cars from the Big Three Motivation for Bentley’s Expansion Bentley, as other multi-billion global firms operating in international markets are, is faced with considerable competitive forces in the form of global pressures for cost reduction and local responsiveness. Local responsiveness naturally calls for product differentiation and unique marketing strategies, whereas cost reduction calls for substantial global standardization of firms’ goods and products; however, choice of firms’ response strategy is largely determined by strength of the pressures for cost reduction versus local responsiveness in the national contexts where firms are based. Given the large market opportunity available in China, Bentley has been motivated to take advantage of the rising demand for vehicles because of the rising incomes, to achieve competitive advantages that will strengthen the firms response to global pressures outlined before. Emerging economies such as China are less likely to offer equal competition to Bentley because they are yet to develop their own popular luxury cars that can compete favourably against luxury car industry giants like itself. Besides, emerging economies such as China present opportunities for Bentley to explore the innovative technologies such as electricity and hydrogen powered propulsion systems in response to increasing global concerns over climate change and energy shortages. In this respect, Bentley’s exploration of electric and hybrid or pure hybrid innovation technologies are its marketing strategies for the emerging economies, in response to both local and global pressures for efficiency and cost effectiveness. Feasible Alternative Strategies The Chinese market has gradually become one of the largest markets for several car companies in the recent years due to the massive rise of China’s super rich middle class, thus boosting annual sales for European luxury carmakers; for instance, China is Bentley’s second largest market currently with recent reporting of about 2253 sales (Xinhua, 2013). This is indeed a positive indication of the effectiveness of the firm’s internationalization strategies namely exportation, wholly owned subsidiaries, Greenfield ventures and vertical integration in selling of its luxury cars to the Chinese automobile market. The auto firm is currently focusing on combining both luxury and performance that is unrivalled through the finest design and automotive engineering characteristic of the firm; Bentley’s luxury cars are meant for the ultra-rich Chinese consumers who have a taste for high-level styling, cutting-edge technology, and performance that is unrivalled locally. Overall, Bentley’s main strategy for the China automobile market, exportation, wholly-owned subsidiaries, Greenfield ventures and vertical integration is justified by the mere fact that the Chinese consumers value imported luxuries more than home-made ones (Cauchi, 2013); nevertheless, Bentley can explore other strategies such as direct foreign investments, joint ventures, in addition to acquisitions (of Chinese automobile firms). Undeniably, Chinese automobile manufactures will be willing to open their doors for joint ventures with Bentley especially because of the firm’s innovative technologies such as hybrid and electric car models that are greatly desired in the emerging economies. Bentley’s Strategic Direction In the near future, Bentley is more likely to exploit other international trade strategies such as foreign direct investments, acquisitions, and joint ventures to increase its market power and market share in the China automobile industry. These projections are consistent with theoretical bases such as the Market power theory which posits that multi-national enterprises can exploit their competitive advantages in foreign markets to enhance their market power’. Similarly, the market power theory also argues that firms can remove foreign competitors through either acquisitions or joint ventures thereby increasing their market power (Chatterjee 1991, p.436), and this automatically results to increased profits for the firms in return. In this regard, Bentley can increase its market power in the Chinese automobile industry considerably through adoption of alternative strategies such as joint ventures and acquisitions. According to the Product lifecycle theory, foreign direct investment is an attractive strategy for firms to overcome competitive pressures due to lower production costs in other advanced countries, threat of import barriers in foreign markets and the threat of rivals based in rival lower-cost countries. On the other hand, the internationalization theory posits that since operating overseas is often more costly than operating at home because of unfamiliarity with the host country, multi-national enterprises are better off licensing local firms in the host country who can operate more efficiently than foreign investors. Nonetheless, Bentley is still more likely to gain more profits through foreign direct investment as it can through licensing of other local automobile makers in China because it has firm specific competitive advantages that can help it overcome challenges of the Chinese automobile industry. Ultimately, firms are increasingly becoming multinational enterprises in response to globalization that has transformed the whole universe into a global village thereby increasing cross-national transactions, a process that has come to be termed as internationalization. Bentley, like all other multinational enterprises has a clear internationalization trajectory that depicts the firms move towards participating in international business across national frontiers. Currently, Bentley’s internationalization strategy for the Chinese automobile industry is comprised of exportations, wholly owned subsidiaries, Greenfield ventures, and vertical integration; however, the firm’s strategic direction indicates that it is more likely to exploit other internationalization strategies such as foreign direct investments, acquisitions, and joint ventures. References APCO Worldwide. 2010. Market Analysis Report: China’s Automotive Industry. [Online]Available at: http://www.export.gov.il/uploadfiles/03_2012/chinasautomotiveindustry.pdf [Accessed 3July 2013] Bentley. 2008. Bentley and CO2. [Online] Available at: www.bentleymotors.com/bentleyandco2 [Accessed 3 July 2013] Cauchi, M. 2013. Bentley's SUV Is a Long Time in Arriving. The Wall Street Journal. Online. Available at: http://online.wsj.com/article/SB10001424127887323296504578398363403878262.html [Accessed 3 July 2013] Chatterjee, S., 1991, 'Gains in vertical acquisitions and market power: Theory and evidence', Academy Of Management Journal, 34, 2, pp. 436-448. Deng H., and Ma A.C., 2010. Market structure and pricing strategy of China’s automobile industry. The journal of industrial economics Volume 58, Issue 4, pp. 818 – 845. Elam A., and Terjesen S., 2009. Transnational entrepreneurs' venture internationalization strategies: A practice theory approach. Entrepreneurship Theory and Practice. 33. 5 p.1093. Elitsa R.B and Ravi Sarathy. 2011. A Contingency Theory of Internationalization Performance for Emerging Market Multinational Enterprises. Management International Review 51:593–634. Evans, D., 2003, 'China automobile market goes into overdrive', Media: Asia's Media & Marketing Newspaper, p. 30. Peng, M.W., 2009. Global Strategy 2nd ed. Connecticut: Cengage Learning. Ribera J., et.al. 2012. The Chinese Automotive Industry in 2012. Available at: http://www.ceibs.edu/images/knowledge/research/books/2013/02/19/996EB0FF62813907EE0DFE71FC337521.pdf [Accessed 3 July 2013] Xavier, R. and Joel, R. 2008. The Chinese and Indian Automobile Industry in Perspective: Technology Appropriation, Catching-up and Development. Transition Studies Review 15:447–465. Xinhua. 2013. One in four Bentleys sold in China last year. Peopledaily.com. Online. Available at: http://english.peopledaily.com.cn/90778/8177041.html [Accessed 3 July 2013] Read More