Elecdyne: Japanese Electronics Company - Case Study Example

Elecdyne: Japanese Electronics company-A case study on SWOT, PEST and STEEP Introduction: For any organization across the globe in any country, profitability is the ultimate goal to survive. As the time moves on, with the development in the field of technology every organization is looking to expand their business outside the home country to increase its profitability and also to ensure a global presence. Focusing on the home nation at the initial phase is a good option but to be successful in the market companies need to go global. Presence in the international market makes the brand more profitable. At the same time, setting up new manufacturing unit in various countries can sometime leads to lower manufacturing cost, lower salary expenses for the workers and at the same time gives anew opportunity to the organization to use the bright minds of that particular nation to develop new and advanced model. Factors to consider before expanding business into foreign countries: Before analyzing the factors that any organization need to consider while choosing the country here are the reason which clarifies why an organization needs to be global in its operation. Organizations needs to go global to ensure Faster growth opportunities for the company; Get more access cheaper raw materials and labor to reduce the operative cost and increase the profitability; generate new customer base and new market to expand their business; introduce diversification in the business operation, looking to cash on new opportunities with the help of leading technology. (Conner, 2012) In this report the main focus is on the analysis of the strategy that the company can adopt while expanding their business in one of the following nations namely: South Korea, USA, or Brazil. To find outwhich nation is more suitable to start new operation STEEP, SWOT, PEST analysis have been used to compare the risks and opportunities. Based on the report of this three model the decision has been taken and the same is being supported by some facts and figures from that particular country related to financial, technical, social condition, the labor laws and HRM system and most importantly possible market opportunity for Elecdyne to capitalize on. 2. Strategy analysis: The key trend effects within next five years for Elecdyne: STEEP Analysis (External Factors) For any organization, to ensure success they must analyze the external factors properly. One must consider the fact that these external factors are beyond the control of the management of any company and therefore they cannot have a direct control over these. The only thing that they can do is by predicting the changes by analyzing the old trends and can specific measures to combat the same. “External environment is the world in which the business operates and is an ever-changing place made up of other organizations, employees, suppliers, customers, stakeholders and shareholders.” (Turton,2012). STEEP analysis refers to the detailed discussion about Social, Technological, Economic, Ecological and Political factors which controls or affect the operation of any organization directly in any nation. Following are the few recommendations based on the analysis of the external environment of the Japan’s electronic industry. At the same time one must also consider the fact that these factors are beyond the control of the organization itself. The Social factors: Working hours: In Japan, there is a strong belief that working overtime can cause health problem. From 1970 onwards this thought process is started to gain momentum and now it is a major issue in every industry. In order to get maximum out of the employees companies cannot forced them to work overtime as this can reduce the safety, and at the same time can hamper the balance between personal-professional life and therefore can reduce productivity. (Aker et.al; 2014; abstract).The Labor Standards Law clarifies that an employee will work 8 hours per day making it 40 working hours per week. Working over that will now incurred overtime compensation for the employees in japan. (The Japan times, 2014) The use of Social network: In modern world, various social networking sites like Facebook, MySpace, and twitter can act as a key behind promoting new products among the mass public. It one way can reduce the expenses that company need to incur if they opt for promoting by using digital or print media, sponsoring new events etc. (Boyd, 2013) But in Japan, only 58%of internet user use social media on a regular basis. It is very low as only China is below Japan (53%) where the use of Facebook and other social media is ban. In rest of the world the social media penetration is above 85%. (Delo, 2012) Target market: Elecdyne should have a complete investigation and research of the target market, understand the competitiveness of the market and customer needs, customer consumption level and consumption habits, as a result, it help a more effective market entry. (Andreasen;1994) Technological Factors: While choosing the new country for operation the company needs to focus on deciding how technically advance the nation is and how much tech shay are the people of the country. As per Harney (1998) the main problem for various Japanese companies in the electronic sector is that they are still making products for the existing technology without making something new and innovative one. In his view “Japanese companies focus too much on building market share and not enough on raising competitiveness by inventing, and patenting, new technology” (Harney, 1998, p. 6). It is a main reason behind Japan losing its edge in the electronics especially in the field of information and communication strategy. Following is the diagrammatic representation of how japan loses its market share in the IT and electronics market across the globe. (Vogel, 2013; Borrus, 1988, Cole & Whittaker, 2006, pp. 8-14) Economic factors: The Japanese electronics industry is suffering badly from the effects of the financial crisis in Asia as well as in the western countries. At the same time the industry is facing a big challenge in terms of domestic slump. Profits were taken a large hit during 1997-1998, and companies are competing for holding onto its own position in the fast changing digital consumer electronics market. (Harney; 1998, p.6) Furthermore, economic crisis causes a huge number of unemployment; meanwhile the increasing of unemployment will bring some opportunities of employment with lower labor cost. (Bell, Blundell & Reenen, 1999, p.339). Also, it may lead to lower GDP and lower customer consumption. (Katz, 1998, p.29) Environmental: Sustainable development means in environmental conditions to meet the needs of the present without compromising the needs of future generations of development models. For example, reduce pollution in industrial processes, use of recyclable resources. Elecdyne should pay more attention on resources, conservation and recycling, it brings more benefits to company long-term development. (Aker, et.al. 2014). Political Factors: In recent years the political condition of Japan is not favoring the electronics industry as well. Japanese Minister of Economy Seiji Maehara in his speech on 2012 clearly mentioned that no electronic goods manufacturing companies must not expect any kind of bailout packages from government as the Japan government is not interested to bailout the struggling companies in taxpayers money. Some of the larger companies like Sharp and Panasonic have recorded a combined loss of $15 billion in 2012, but as per the minister’s opinion in a capitalist society the companies must find out a way out of the trouble themselves. The main competition for companies likeElecdyne is that the competitors from other countries are able to produce more advanced gadgets in lower price , can attract more customers which in turn hurting the export as well as hampering the internal market as well. (Westlake, 2012, Kushida, 2011) 3: Strategy: Before choosing the right alternate nation the company has to focus on the SWOT analysis of own and at the same time has to do a PEST analysis of alternate option available for them considering the home nation or the present operating nation as a benchmark. 3.1. SWOT Analysis: The Internal analysis of the Company SWOT is a strategy analysis method, it is analysis combined with advantage, disadvantage, opportunities and threat then achieved an integrated assessment. It is through the combination of internal resources and external environment to clearly determine the objects resources are being analyzed strengths and weaknesses, understanding the opportunities and challenges they may face in the future time. Here is the SWOT analysis for the company: Strengths Weaknesses The company have very diverse experience in electronic products Have wide range of own product to market in new country as never go beyond Japan Presence of highly experience staff in both management and R & D. Company can adopt new technologies faster. Booked profit every year since inspection in 1991. No experience of doing business in international market. Products are designed keeping in mind the Japan market Reluctant to pay high salary so the attrition rate is high as the global market is looking for bright minds. Can use advanced technology to improve existing product lines but lesser focus is on innovation of new alternative designs for new generations Opportunities Threats Joint venture will enable the staffs of the company to learn new things from the strategic alliance and at the same time can share their own technology. Opportunity for the company to start exploring the new market and new customer base in foreign countries. Can increase profitability by reducing the production cost by using high technology, low cost labor and advanced process like batch process etc. The existing players in the market are well establishes and in the market with well diverse product line. The competitors are more knowledgeable about the choice of the customer, the change in their expense pattern or other factors that may affect the sales volume. Local players of that country do not have the currency issue to fight with. Change in the valuation of the currency can affect the company. To hire or recruit best people of the industry the company needs to pay then higher salary as they are already working with leading companies with handsome salary. It can increase the operating cost and pull down the operating profit initially. Government restriction 3.2. South Korea, Brazil and USA-Which one is the better option to start new venture? PEST Analysis Table Factors Sub Factors Japan USA South Korea Brazil Political Political Stability of the government (2*) 1 0 1 (0) = 0 1 (0)= 0 1 (0)= 0 War risk[1] (6*) 2 0 1 (4)= 24 1 (2) = 12 3 (-2) = -12 Risk of expropriation/government action(6*) 1 0 1 (0)= 0 1 (0) = 0 4 (-5) = -30 Transfer Risk (4*) 1 0 1 (0)= 0 1 (0) = 0 3 (-4)= -16 Time required to start a business (6*) 22days 0 6.5days (6)=36 5.5days (8)=48 15days (3)= 18 Total Average 0 0 60 12 60 12 -40 -8 Economical Economical Interest Rate% (4*) 1.4 0 3.3 (-2) = - 8 4.4 (-3) = -12 36.6 (-6)= 24 Unemployment Rate% (7*) 4 0 6.50 (-6)= - 42 2.9 (4)= 28 5.5 (-4)= -28 Inflation Rate% (5*) -0.4 0 1.5 (-4)= -20 1.3 (-3) =-15 6.2 (-7)= -35 GDP growth rate % (9*) 2.0 0 2.8 (3)= 27 2.3 (0)=0 0.9 (-7)= - 63 GDP Per Capita us$ in thousand (6*) $46 0 $51 (6)= 36 $22 (-6)= -36 $11 (-9)= -54 Tax Rates (4*) 30.4 0 35.6 (-5)= - 20 29.9 (5)= 20 31.6 (-3)= -12 Average wages (3*) 2522 0 3263 (-8)= -24 2903 (-4)= -12 778 (5)= 15 Price of Petrol per litre in USD $ (5*) 1.61 0 1.05 (4)=20 1.63 (-2)= - 10 1.02 (6)=30 Total Average 0 0 -31 -3.875 -37 -4.624 -171 -21.375 Social Sub Factors Japan USA South Korea Brazil Employment to Population (3*) 56 0 58 (2)= 6 75 (9)= 27 65 (4)= 12 GDP Per Person Employed (3*) $44, 851 0 $ 68, 374 (5)= 15 $45, 478 (3)= 9 $ 13, 557 (-6)= - 18 Total labour Force (4*) 65,281,090 (0) 15, 86,86,472 (8)= 32 25,380,170 (-5)= -20 10,47,45, 358 (-8)= - 32 Population growth rate% (6*) -0.2 0 0.7 (7)= 42 0.5 (6)= 36 0.9 (8)= 48 Total Average 0 0 95 23.75 52 13 10 2.5 Technological Sub Factors Japan USA South Korea Brazil Research and development expenditure (% of GDP) (5*) 3.26 0 2.77 (-5)= -25 3.74 (6)= 30 1.16 (-7)= -35 High technology export%(5*) 17 0 18 (1)= 5 26 (6)= 30 10 (-3)= - 15 Availability of Technicians in R &D (per million) (9*) 588 0 971 (6)=54 981 (8) =72 656 (3) = 27 World innovation ranking (6*) 5 0 3 (6)= 36 1 (10)= 60 45 (-9)= -54 Total Average 0 70 17.50 192 48 -77 -19.25 Japan USA South Korea Brazil Total 0 1.875 68.125 -46.125 Numbers of indicators 4 4 4 4 Overall Total 0 .46875 17.03 -11.53 [Data Source: World Bank; Quinn (2013); MacWilliams (2012);Business Week (2014); Chen D. & Mintz (2012); Schuman, 2010; McGlade, 2014; Vogel &Zysman(2002); p. 252; Nation Online, (2014), BBC News, (2014); BBC News, 2012] It is very clear from the above PEST analysis that South Korea is the right alternative for them to expand their business globally. 3.4. Investment Strategy: The advantage and disadvantage of 3 alternate options The company can choose one of the three factors discussed below to start their venture in the new countries. These are joint ventures, mergers/Acquisition and Greenfield Sites. (Strategic Acquisition; 2013; Wiley; 2013, Docstoc Articles, 2014) Joint ventures Greenfield sites Mergers /Acquisitions Advantages Companies can Share risks with venture partners equally get a strong presence. At the same time they can enter related businesses markets can start to use more advanced technologies. (Tyler, 2013) If the company thinks that the unit is not profitable then they can easily sale the part to the partner organization after separating the unit from its core operation. Maximum design flexibility to meet Elecdyne requirements Can be designed to meet current and future needs Provide opportunity to improve Elecdyne image Can help the company to reproduce its brand in a better way in front of the world with the help of this innovative strategy. Acquisition is not limited to buying direct competitors but sometimes it’s associated with merging the company with a larger one to get a strong presence or more capital. The process of merger or acquisition reduce overhead expenses, thus the additional money can be used in R & D, branding and also can increase the profitability Cost efficiency and increase market share Generate tax gains. Disadvantages There is some kind of difficulties in the early stages of management process. Success of the association is always depends on the performance and understanding of both the units. May need to weight comparatively longer amount of time for council approval. Difficulties in industrial sites to set standard which is different from the home nation There is strict rule and regulation that the company need to follow, breaching that can lead to heavy penalty Increased risk of investment if there is acquisition. If the result is not in favor then there is a possibility of heavy loss. Unnecessary duplication can be present in the process which is hard to manage in the early stage. Time needed to adjust to the new process for the employees. 4. Conclusion: From the above analysis it is very clear that South Korea is the best possible option available for them to expand their business and also to boost their profitability. After the government has declared the fact that there will be no government bailout plan for the electronics companies it is largely dependent on the companies that how they want to tackle this situation. As a small company the Elecdyne is needed to take the help of innovation and advanced R &D to capture large market share. 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