The International Management of the Armco Holding Corporation - Research Paper Example

The International Management of the Armco Holding Corporation Introduction The twenty first century is termed as the age of globalization. Organizations and firms are moving beyond company borders so as to enhance their footsteps beyond their national boundaries. Firms are also moving to newer locations in search for cheaper labor options. Terms like global outsourcing and offshore destinations have become the order of the day. In order to tap the strategic advantages of going global the firm has decided to follow the strategy of establishing its operations to foreign destinations. The company believes that by going global it can add to its existing brand value and generate more values for the stakeholders which happen to be the company main aim. The company also aims to generate greater sources of revenue, enhance its market share and to reduce the dependence on its traditional markets. The company also plans to leverage the expertise of the other country to add value to its products. It also plans to reduce its risk of being limited to one particular market. The company believes that by opening up its plant in Japan it would be able to cater to the US and Canada markets better as it would reduce its shipping costs. A plant in a highly technologically advanced nation like Japan would give the firm an access to the high end technology that the country possesses. Company Armco Holding Corporation deals in the steel manufacturing industry which is a highly capital and manpower intensive industry. It is a US based company. As of 2008 there are over 6000 employees in the company. It is involved in manufacturing of electrical and stainless steel, carbon. Company is renowned for producing crash barriers which is used in racing cars. Company’s major plants are located in Ohio, Kentucky, Indiana and Penssylvania. It is a successful company in the domestic market where it is operating from 1900. It is a privately held company led by a professional team of top executives. There is proper hierarchy in the organization. Over the last decade company has been hugely successful in the domestic market and it has now decided to expand internationally. Japan is the third largest economy in the world. As a result it is an automatic choice for any organization who wants to expand its operation and become a globally renowned company. Like any other organization this organization also wants to take advantage of wealthy Japanese market. Establishing a manufacturing plant in Japan would certainly provide lot of benefits to the organization. Most importantly it would get a global recognition as Japan is the heart of all economic activities that are taking place in not only in Asia but in the world. It was necessary step that would help the organization in achieving success in the long run. Planned strategy of going international Any organization, wants to expand its operation outside its home country, need to do proper planning. Decisions regarding global expansion are actually strategic decision. In this case a manufacturing organization with the employee strength of 5000 is trying to set up its first manufacturing facility in Japan, the second largest economy in the world. It is actually a huge strategic decision which involves extensive analysis of various factors. But before making any analysis a separate team of top executives need to be formed by the organization in order to undertake this analysis. Once this team is formed various analysis of firm’s external and internal environment need to be done. Organization’s internal analysis would identify its own strengths and weaknesses. External analysis would include analysis of the environment of the host country (Japan). Since the organization is going to open its manufacturing plant in Japan, the political, social, demographic, technological, legal and business environment of the country would be responsible for the success or failure of the organization. As a result analysis of these environments is necessary in order to make any strategic decision. Analysis of political environment is necessary because manufacturing industry is highly manpower intensive. As a result trade unions which would involve political leaders would play an important role. Again in order to know the details of labor situation of the country it is essential to analyze the demographic environment the country. Organization also needs to make an extensive analysis of the business environment of Japan. Business environment analysis would involve analysis of various parameters such as ease of doing business, availability of credit, ease of starting a new business etc. Business environment analysis would also involve analysis of organization’s competitors who are present in the host country that is Japan. Once these analyses are completed, the place of the country where the manufacturing set up would be established based on these analyses. The total cost that would be associated with this huge project should be analyzed then. Government of the host country (Japan) is an important factor and has major role to play in the entire process. Organization need to maintain a good relationship with the government. Analysis of different environment Business Environment Japan is the second largest economy in the world. As a result large number of organizations is operating in the country leading to intense competition. Despite of this intense competition, when compared with some of the developing economies in the world Japan comes at number twelve position as far as doing business is concerned. According to World Bank’s report it is not a very difficult job to start a business in the country as it ranks high in the list of all nations. Japan’s rank is 64 in terms of starting a business. As far as exit is concerned the country has topped in the list which is made by World Bank. So it is clear that both entry and exit is quite easy in the Japanese business environment. As far as starting a business is concerned the first hurdle that entrepreneurs face in Japan is associated with the procedures which are needed to register and incorporate the new organization. Some of the processes are affordable and straightforward but in some cases entrepreneurs might have to bribe some of the government officials in order to fasten the process. Once these processes are over construction permits are required form the government. As far as labor force is concerned there are 66.5 million employable people in Japan. As a result finding appropriate candidate should not be problem, because these people are well educated. Actually it has been found that 99% of Japan’s total population is officially literate. But the country has unemployment problem as the rate of unemployment has reached to almost 4%. In Japan property registration is a lengthy process. It involves 6 procedures and 5.04% of the total value of the property. According to World Bank Japan’s global rank is 51 as far as registering a property is concerned. Organizations can easily get credit as the country’s financial regulations do not pose any significant barriers in the process. Analysis of Legal Environment Japan’s legal system is heavily influenced by the civil law system of Germany, although some part of it is also influenced by the English and American system. Supreme Court is the highest legal body. Chief justice of Supreme Court is selected by the monarch. Apart from chief justice there are fourteen other justices who are appointed by the Cabinet. In Japan Supreme court and other lower courts have all the judicial power. There are various lower courts like high courts, family courts, district courts and summery courts under the Supreme Court. Analysis of Demography As of July, 2009 Japan’s total population is 127,078,679. Japan is the 10th largest country in the world in terms of population but the growth rate of population is disappointing. This year Japan’s population growth rate is actually negative (-0.191%) which means Japan’s population is decreasing. Population density is moderate as the number of inhabitants living per square kilometers is 341, although this figure is quite high for the capital of the country that is Tokyo where almost 1100 people live in one square kilometers. Most of people in Japan live in urban areas. It has been found that almost 66% of population lives in urban areas. Average life expectancy in Japan is 82.12 years and this is one of highest in the world. In 2005 almost 25.6 million Japanese were above the age of 65 (Allon, Aging Society). As a result there might be shortage of labor in future. Apart from Japanese there are different other ethnic groups such as Koreans, Chinese are present in Japan. But the country is dominated by the Japanese (98.5%). As far as religions are concerned most of the people in Japan follow Shintoism (83.9%) and Buddhism (71.4%). Japanese is the main language in the country. In Japan 99% people are officially literate. As a result there is no shortage of educated worker in the country. Analysis of Geography Geography of the country is very important in the context of setting up a manufacturing plant. As far as area is concerned Japan is not a big country. Total area of the country is 377,915 sq km and there are no land boundaries in the country. But length of Japan’s coast line is 29,751 km. As far as natural resources are concerned there are hardly any energy natural resources. The country is one of the largest importers of oil, natural gas and coal in the world. This might increase the cost of operation for any manufacturing plant. In 2003 there was 25,920 sq km irrigated land in the country. PEST Analysis Political Factors Japan has a parliamentary form of government. It has a constitutional monarchy which runs the administration of the country. In Japan, emperor is considered as the chief o the state. Since January 7, 1989 Japan’s emperor is Akihito. But emperor is not the head of the government. In Japan prime minister is the head of the government. Currently Yukio Hatoyama is the prime minister of the country; he is also responsible for appointing the cabinet. The legal system of the country is based on the Civil Law system in Germany. It is also influenced by the American civil law system. The country also accepts the jurisdictions of the International Court of Justice. The administration is divided into legislature, judiciary and executive branches. There are various political parties in Japan. Some of them are Democratic Party of Japan or DPJ, Komeito, Japan Communist Party or JCP, Social Democratic Party or SDP and Liberal Democratic Party or LDP. Japan’s Prime Minister Yukio Hatoyama is the leader of Democratic Party of Japan or DPJ. Apart from different political parties there are other political pressure groups such as trade unions, business groups etc (Central Intelligence Agency, Japan). Economic Factors Japan is one of the strongest economies of the world. It is the world’s third largest economy in the world and is just behind USA and China in the global League of Nations. Japan does not possess abundant natural resources and is dependent on the outside world for its energy and other needs. The GDP of the country in terms of purchasing power parity lies at about US $4.34 trillion as of 2008. The real growth rate of GDP is pegged at -0.7%. The reason for this negative figure can be attributed to the global economic recession. In Japan, agriculture contributes about 1.5% towards the country’s GDP and industry and services contributes about 26.3% and 72.3% respectively. Japan has a labor force of 66.5 million as of 2008 which are composed of highly skilled professionals. The central bank discount rate is about 0.3% as of 2008. The major industries of this country are automobiles, machines and electronic equipments. The country exports motor vehicles, semiconductors. Social Factors Japan is the 10th largest populated country in the world. According to the CIA its population is approximately 127, 078, 679 as of 2009. Most of its population falls within the age group of 15-64 year old people. The median age is approximately 44.2 years. Approximately, 66% of the total population is urbanized. The country has a high literacy rate with over ninety nine percent of the total population being literate. Technological Factors Japan is one of the most technologically powerful nations of the world. Japan is known worldwide for its expertise in the electronics and automobile industry. The country was also the pioneer of the “Bullet Train” which is considered to be a technological marvel. The country houses companies like Honda who are considered as trendsetters in their respective industry segments. Cultural Values in Japan Japanese people are known all over the world for their excellent task taking abilities. The Japanese people are considered as amongst the most hardworking people of the world. One of the most unique cultural values found among Japanese people is ‘equality’. There is always an atmosphere of equality work in Japanese societies and communities. Nobody feel superior or inferior to others. Everybody is equal in various Japanese groups, communities or even in a company. The most important thing is that everybody has something to add or bring to the company or group. In Japanese culture everybody is interchangeable and replaceable as all are equal in a particular group or company. Japanese society is always in the search of ‘wa’. In Japanese culture the term ‘wa’ refers to harmony. It also means peace. It is the essence of the process of living Japanese life (How To, A Kind of Equality). People in Japan are group oriented when they are working in any organization. This means Japanese are very comfortable while working in a group. They treat their group as a family and they are the part of this family. Japanese are historically very much responsible towards their work and their organization. They know very well that even a tiny mistake can harm their group and in turn the organization. Japanese are also known for their inclination to arts and culture. Japanese people are experts in doll making, gold leafing, and works of bamboo, cloth weaving and ceramics. The Japanese people are also known for their excellence in performing arts like Noh, Kumiodori and martial arts. The UNESCO has proclaimed the Kabuki and Bunraku as ‘Masterpiece of intangible and heritage of humanity’ (Satoru, H). Japanese people are known for their politeness and welcoming guests. Japanese people are extremely cordial and friendly in their mannerisms that they display towards their guests and other people. Overall Japanese workers are hard working, responsible towards the group and polite in nature. The work culture in Japan has been one of its USP’s with regards to its positioning as an ideal investment destination. A study shows that the rigidity of employment Index, a term used to show the ease of employing a worker in Japan is about 17 (2009). The Firing costs rank which is determined in terms of the number of weeks of the total salary is 4. The country is ranked 17 amongst all the nations with regards to employing workers. Staffing Policy Staffing policy generally refers to the assigning process of the right candidate to the right position by the firm. There are three different types of staffing policies, ethnocentric, polycentric and geocentric. In case of ethnocentric staffing policy all the crucial management positions are filled with the people who are from home country. On the other hand polycentric staffing policy involves selecting host-country nationals for managing local subsidiaries. In polycentric policy effectiveness of business operations in the host country are considered equivalent to the effectiveness of business operations in the home country. In polycentric policy it is believed that the managers from host country would better understand the local demand, cultures and other things that are associated with the local people. As a result local managers are expected to pursue the multi domestic strategy. It is also believed that local managers are the best people in order to improve local morale and motivation and most importantly local image of the firm. But in this approach there could be gap between global and local business operations because of various issues like allegiance, mobility and accountability. The third approach is geocentric, where best people are assigned in the key positions in the entire organization irrespective of their nationality. Organizations can pursue transnational or global strategy which involves building teams of cosmopolitan executives who would be able to move around various countries and cultures in order to promote global learning. But geocentric policies are difficult to develop and expensive to maintain because there are various legal contingencies, economic factors and decision-making routines (Long Beach City College, Human Resource Management). In case of Armco which is intending to start new manufacturing plant in Japan as a process of becoming international, polycentric approach would be the best approach to apply. Manufacturing industry is highly manpower and capital intensive in nature. Any organization dealing in manufacturing industry has to focus on economies of scale in order to be successful in the long run. In manufacturing industry organization’s operation’s strategy need to focus on cost effectiveness which is possible only by optimum utilization of human resources. Organization need to have proper staffing policy i.e. whether right people are assigned on the right job or not. In this case organization should follow polycentric approach because in manufacturing industry large number people are required in the plant. These people’s morale and motivation should be at the high level and local managers are the best suited for doing so. The advantage of opening manufacturing plant in Japan is that Japanese are historically work well as team. But this team needs to be managed by local managers who know how to motivate this team and how keep the morale of the team high. Generally huge amount of cost remain associated with a manufacturing plant and minimization of cost without hampering the quality is one of the biggest challenges that organizations generally face. As a result following geocentric approach where people from outside country are employed in the host country would not be a cost effective strategy and without cost effective operations organization would not be able to gain competitive advantage. So it is quite clear that polycentric approach would be appropriate for the staffing policy regarding top level and middle level managers and other workers. Leadership and motivational system in the host country There are various leadership styles such as participative, directive, empowering and charismatic. These styles reflect the dealing process of executives with their subordinates in the organization. In case of participative leadership styles teamwork is more important and visible. In directive style executive give proper directions to subordinates in the organization. Here leader is in total control over the subordinates. Empowering leadership focuses on the ability by which leaders can energize others (Mills, Q. D. Asian and American Leadership Styles: How Are They Unique?). In case of organization starting its operation in Japan should follow participative leadership styles because this style is all about team building. In Japanese culture leader is responsible for making the final decision but before finalizing anything opinions are taken from every other person who is involved in it. Decisions are based on the consensus building in the team. In Japan group decision making process is initiated by the manager. After the initiation manager seeks consensus and finally recommends. Top management generally involves in the approval and coordination process. So it is quite clear that in any decision making process in Japanese business environment involve participation of both leaders and their subordinates. So for any organization which is new in the Japanese environment participatory leadership style would be appropriate. Handling communication problem Communication might be a big challenge for an organization which is entering into Japan for the first time. In Japan there are different ways of verbal and non verbal communication which might create gap between employees from home country and employees from host country. In Japan people generally bow down to greet anybody. But now a day they are quite familiar with the western culture of greeting that is shaking hands. Japanese generally try to avoid kissing and hugging as a way of greeting. Organization that would be entering into the Japanese market should be aware of these facts and try to learn some of them. If foreign management can apply some of these ways while greeting any Japanese employees then it would definitely enhance employees’ motivation. In Japanese culture staring or even direct eye contact for a long time is considered rude and impolite. Pointing somebody with extended finger is also considered insulting. In Japanese culture keeping hands in pockets at the time of greeting somebody, is considered rude manners. It is considered rude even when addressing a group of individuals. Japanese society is not touch oriented. As a result touching is strictly avoided in the public places. But in places like subway stations or train stations where queues are formed, large number of people results to pushing and touching. Graciousness is highly respected. As a result shouting or raising voices are considered rude manners. Even open mouth displaying is considered as impolite nature. Silence is highly preferred especially at the time of any conversations. Interrupting is not at all acceptable. Men in Japan do not prefer saying no. In order to express or signal anything which is difficult to do Japanese men audibly take air through the teeth. All these factors are needed to be kept in mind at the time of communicating with any Japanese employee. As far as business communication is concerned cards are very significant. In Japan business cards are considered as the identity as well as the station of one’s life. Moreover these cards need to be printed in both Japanese and the respective person’s own language. So, it is quite clear that in order to operate in Japan organization need to adopt these gestures as early as possible. Managers who are from some other country need to remember these gestures when interacting with any employee from home country. Managers can even conduct some training sessions with the purpose of learning Japanese cultures in details. These sessions should involve those employees who are from the host country. The communication gap that is likely to occur cannot be reduced without proper support from the Japanese employees. They should also need to understand the problem and actively participate in the solution process. Control Issues There could be various control issues while managing operations in foreign countries. In order to manage these issues effectively top management of the organization has to maintain good relationship with the employees, government of the host country, business partners and other entities who are associated with the business operation. There should not be any lack of communication between different departments in the organization. Conclusion It is very important to get into the international market for the long term success of the organization. Japan being the third largest economy in the world, has always remained at the top of the list of investors. But before making such a big decision organization always need to study various factors that would be influencing the operation in the country. Major factors that are needed to be analyzed are business, political, social and legal environment of the country. Any strategic decision need to be taken on the basis of these analyses. When a firm enters into a completely new market it might face various problems in the form of communication, management and leadership. These problems need to be taken care of cautiously. Success in a foreign country depends not only on the management and leadership but also on the relationship between the organization and the government of the host country. References Allon, Aging Society. No Date. Demography of Japan. November 18, 2009 < http://www.allon.info/japan-demography.html > Central Intelligence Agency, Japan. No Date. World Fact Book. November 18, 2009 < https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html> How To, A Kind of Equality. No Date. The Cultural Values of Japan. November 18, 2009 < http://www.howto.co.uk/abroad/japanese-people/the_cultural_values_of_japan/ > Mills, Q. D. Asian and American Leadership Styles: How Are They Unique?. June 27, 2005. Harvard Business School < http://hbswk.hbs.edu/item/4869.html > Satoru, H. No Date. Safeguarding Intangible Cultural Heritage in Japan :Systems, Schemes and Activities < http://www.unesco.org/culture/ich/doc/src/00177-EN.pdf > Long Beach City College, Human Resource Management. No Date. International Business < http://business.lbcc.edu/Docs/Faculty/KF/DanielsChapters/daniels_ib11_ch20.pdf > Read More