Challenges of Internationalisation - Guanxi Culture - Case Study Example

Issues/Challenges of Internationalisation Name: Issues/Challenges of Internationalisation Course: Tutor: Institution: Date: Executive Summary The objective o this report is to evaluate the challenges encountered in internationalization. In particular, the study focus on establishing the supply chain management challenges evident in the global market. In order to evaluate this theoretical concept, the report reviews a case study of the expansion of an established Australian wine Company based at Barossa. The organizational, a multinational wine Company seeks to venture in the Chinese and the Asian wine industry through the establishment of a plant at Yantai, Shandong. A review of the potential internationalization supply chain challenges includes the Guanxi culture, consumer base, performance evaluation, labour challenges and market regulations. The report establishes that the existence of a Guanxi culture that relies on relationships establishment evidences the presence of a challenge due to the required high costs on establishing supply chain networks and relationships. In addition, variances n consumer behaviour as well as variances in performance perception poses challenges in product marketing as well as performance evaluation strategies. In addition, the presence of a large technology ignorant population as well as increased Chine market regulations poses additional threats to the overall organizational performances. In order to remedy these challenges, the report recommends a range of strategic alternatives. Among the developed alternatives include use of local labor to enhance reduced costs on Guanxi relationships development, increased marketing and partners’ appraisals to develop the required capacity and performance levels, as well as the adoption of diverse performance evaluation measures that are unique to the Chinese market. Finally, the report recommends use of expatriates as mentors and trainers on technology adoption in SCM, as well as strategic alliances development to mitigate regulation challenges. Table of Contents Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Challenges/Issues 4 2.1 Guanxi Culture 4 2.2 Consumer Base 6 2.3 Performance Evaluation Challenge 7 2.4 Labour Challenges 8 2.5 Market Regulations 9 Conclusion 10 References 12 1.0 Introduction An organisational supply chain management system implicates on the overall organisational market performance and eventual success. In this case, organisations face increased need to effectively manage the respective organisational systems. Traditionally, supply chain management (SCM) was perceived as an additional organisational component whose functions were considered subsidiary in the efficient functioning of the respective organisations. As such, SCM was treated as an expense and little significance was pegged on its direct contribution to the overall organisational performance and industry success. However, recent changes in the market have altered this perception. Increased market competition as well as increasing production costs necessitated the need to increase and adopt alternative competitiveness approaches, one of them is a supply chain management strategies. Consequently, the concept has grown in its description and definition. De Vries and Huijsman (2011, p.160) described SCM as the process through which organisations manage their supply and distribution channels including materials acquisition, storage and logistics both inbound and outbound. Expanding in the Yantai, Shandong for the Chinese market, though a positive strategy towards maximising the organisational profitability levels, will expose the organisation to a number of challenges. This report reviews the organisational challenges and the remedies for each. 2.0 Challenges/Issues 2.1 Guanxi Culture The entire Chinese market has a shared business culture commonly referred to as the Guanxi culture. A review by Wong and Wong (2013, p.42) evaluated the features and distinguishing traits of this culture. The analysis established that the market faced increased need for relationships and partnerships building in a bid to enhance market success. It further stated that the Guaxi business culture in the Chinese market based on the overall functioning and establishment of relationships and partnerships. A business success in the market was based on the nature and number of relationship networks established n the long run. A review of this culture evidences that the proposed venture will face an operationalisation challenge. In the Australian market, the organisational supply chain management is based on the principles of competitiveness and mutual gains between the partners. However, under the Chinese market, the organisational SCM model will require adjustments. The organisation will be forced with the challenge of developing the appropriate network framework. An analysis developed Gao, Knight and Ballantyne (2012, p.458) evaluated the avenues and cost implications of developing successful Guanxi relationships. In this regard, the study established that the relationships were developed through increased social events hosting. However, the social events are an expensive organisational venture in the short run. Therefore, upon venturing into the Chinese market, the proposed venture will lead to increased cost of production due to the high supply chain relationships development costs. This would implicate on the overall entry costs making the venture unviable and at risk failure. In order to overcome this challenge, the organisation should develop strategic, proactive strategies through the concept of strategic management planning. This report recommends that the organisation should conduct a feasibility study on the market niche targeted. The market focus should be based on the concepts of available supply chain partners and their referred relationships types. Through such an approach, the organisation will allocate enough funds towards the establishment of successful supply chain Guanxi relationships. In addition, this report recommends the adoption of corporate social responsibility management approach. Through such an approach, the organisation will involve the society and the supply chain management in the proposed venture operational and strategic decision making processes. Such involvement will enable the organisation increase its overall relationships with the society enhancing the development of Guanxi relationships at relatively reduced costs. Finally, it is imperative for the organisation to employ ad utilise and organisational workforce that is conversant with the Guaxi culture operations (Dong-Jin, Pae and Wong, 2001, p.53). As such, the proposed plan management should be dominated by a Chinese workforce especially in the marketing and supply management functions. The utilisation of such an experienced workforce will enable the organisation forge Guaxi relationships at ease with reduced constraints, time wastage and costs. 2.2 Consumer Base The organisation as established has an increased market influence in the Wine industry. Evidently, the organisation is among the leading market players in the Australian wine market. However, there exists a consumer behaviour variance between the Australian and Chinese markets. On one hand, the Australian market is comprised of a large wine consuming society. It is a tradition and cultural practice in the society. Thus, stakeholders feel a moral obligation and duty deliver the organisational wine products onto the market. As such, it is relatively essay to contract willing partners both in the acquisition and the distribution avenues. This contrasts the situation on the Chinese market (Bamberry and Wickramasekara, 2012). On its part, the Chinese market is predominantly non wine drinkers. Despite Hong Kong tat registers the largest number of wine drinkers in the Asian market, the majority of the rest areas remain at very low consumption levels. Therefore, the industry has over the years attracted few organisations in the distribution and logistics and warehousing levels. Therefore, the industry faces a deficiency on the market players’ availability. Consequently, this report concludes that the market faces a shortage of qualified and competent partners. Thus, the proposed organisational venture faces a risk of few and incompetent partners. This exposes the proposed plant venture onto increased relationships acquisition costs as well as reduced supply and distribution shortcomings in the market. In the long run, this increases supply chain management costs as well as reducing the organisational ability to venture and explore in the expansive Chinese market. In order to overcome these challenges, the organisation should develop strategic alternatives in the market. Such alternatives incorporate the development of alternative market venturing approaches. Traditionally, the organisation relied on the indirect distribution and warehousing approaches. As such, it relied on the development of established relationships and the partners’ business models in the Australian market to enhance ad facilitate its market penetration. With the changed Chinese market changes, the organisation should develop direct market distribution strategies (Havaldar and Cavale, 2007, p.80). On one hand, it should consider either investing in the development of a new organisational storage warehouse or the leasing of an existing warehouse from private use. The adoption of such an approach would enhance increased storage opportunities that would enhance organisational plant production opportunities. In addition, the organisation should consider investing in direct distribution approach. This incorporates the development of a fully functioning logistics department as well as retail outlets to market and sell t products. The development f such infrastructure, though an expensive venture in the short run, would serve as a profit enhancement strategy in the long run. 2.3 Performance Evaluation Challenge In the recent past, organisations on the global platform have acknowledged the implications of increased relevance for performance evaluation measures. This argument is evidenced by a study developed by Gallivan, Eynon and Rai (2003, p.327). The study evaluated the role of performance evaluation measures in facilitating eventual organisational management success. In its analyses, the study argued that the adoption of key performance indices in the market enabled the adoption of continuous improvement strategy. Continuous improvement management is a new systems efficiency enhancement approach that applies the concept of benchmarking. Through this benchmarking approach, the organisation evaluates these internal systems against the estimated and forecasted performance levels. However, culture implicates on the perception of success and failure of respective organisational strategies. On one hand, the organisational Australian markets characterised by the evaluation of profit margins and eventual direct costs to establish the overall performance levels. On the contrary, the Chinese market perceives organisational market performance differently. On its part, the culture perceives the economy based on the respective numbers of relationships established and the subsequently established organisational market goodwill and reputation. Therefore, venturing onto the Chinese market will face an evaluation approach challenge to the organisation. In this case, the organisational venture will face double evaluation standards, one that fits the strategic organisational approach while the second conforms to the market requirements. In order to strategically overcome this challenge, it is imperative for the organisational management to evaluate the nature and merits for the application of each f the proposed organisational performance evaluation approaches. As such, the management should consider the merits and negative implications of applying each of these approaches. Based on performance evaluation techniques analysis, this report recommends the development and establishment of performance evaluation diversity. To this effect, the organisational management should develop strategic changes to incorporate market specific performance evaluation approach. Such a strategy would enable the organisation develop appropriate evaluation measures in the Chinese market. Such an approach is an imperative approach to facilitate and enhance increased organisational success through continues improvement approach. A review conducted by Tziner, Kopelman and Joanis (1997, p.398) on the merits of performance evaluation established that the adoption of this strategy facilitates increased organisational strategies synergy with the respective market needs. Therefore, upon the diversification of performance evaluation measures, the proposed organisational plant establishment venture will face an increased success rate. 2.4 Labour Challenges The organizational investment in Australia and the eventual success in its supply chain management emanates from the presence of a strong and well established market base. To this effect, the organization has acquired and developed a workforce that is not only qualified, but also competent. As such, the organization has over the years developed a strong workforce. The Australian economy is advanced and categorized among the developed economies. Consequently, knowledge levels and the application of technology is advanced and well developed in the economy. Therefore, the wine industry in the Australian market greatly employs and adopts modern technology approaches and strategies in the execution of their supply chain management activities such as warehousing. Warehouse systems on receipt and dispatch as well as the storage facilities in the Australian wine industry are automated. On the contrary, the entire Chinese economy is an emerging market. This implies that the labour market knowledge level is substantially low. On one hand, the market comprises of majorly semi skilled stakeholders and employees. Therefore, the organization will face challenges in developing and acquiring a workforce that can implement its automated supply chain management activities. Therefore, this exposes the organization to the challenge of applying its automated supply chain processes. Technology adoption is an imperative component in the management and success of an organizational supply chain management. Jaffar, ElKhatib, Hesson and Radaideh (2007, p.252) conducted a study to evaluate the role of technology in facilitating successful supply chain management systems. The study evaluated a comparison of organizations that applied technology in their supply chain process with those that did not apply. Consequently, the study revealed that through the application of technology, organizations enhanced and facilitated increased supply chain management efficiency. Therefore, based on this analysis, it is apparent that the lack of technological expertise and knowhow by the Chinese market will expose the proposed plant venture supply chain management to the risk of increased performance inefficiencies. Thus, this report recommends that that in order to facilitate successful SCM in the proposed venture, it is imperative for the management to develop strategic alternatives to overcome this challenge. In overcoming this challenge, the management has a range of strategic alternatives in the market that would enable the proposed venture acquire increased market competence. One key alternative is the use of expatriates in the marketing and supply chain functions. Through this approach, the organization will benefit from the existing qualified and experienced workforce in the Australian market. Moreover, the expatriates will serve as trainers, mentors and educators to the rest of the local functional employees in order to develop a large pool of qualified workforce in the long run. 2.5 Market Regulations International trade is affected by a range of factors emanating both internally and externally forms the stakeholder organizations. While as organizations can control and regulate the internal factors, they have no control over the external factors. Ward (2006, p.60) suggested that for any organizational venture into new markets to yield success, it is imperative for such organizations to evaluate the external environment in order to develop appropriate external market entry strategy as well as develop a synergy between the organizational operations and the external environment. One of the key issues of concern is the political environment in the proposed market. The existing political environment determines the entry mode as well as the organizational operations. On one hand, a good political environment depicts an existing environmental goodwill that results into the encouragement and support for direct investments and the adoption of direct channels by the respective organizations. On the other hand, an unfavourable political climate depicts the presence of stringent policies and regulates that advocate for indirect entry modes as well as the adoption of indirect channels. A review of the Australian political environment establishes that there is minimal political interference and the market is run on the forces of demand and supply. However, the Chinese market is a contrast. The Chinese government invests heavily in managing and controlling the economy in order to facilitate growth as expand its gross domestic product levels. Therefore, the political environment has resulted to the establishment of a range of policies such as on taxes and investment local shareholding requirements. The implementation of these policies requires additional investments. In addition, the regulations deny the proposed venture the opportunity to enjoy qualified expatriate labour force at the expense of meeting the established minimum local workforce representation. As such, this risks lowering the organizational quality. In order to remedy this challenge, the report recommends the development of strategic alliances in the market to facilitate mutual profitability and benefits in the wine industry. Conclusion In summary, this report reviews the potential challenges to the expansion of the organizational operations to the Yantai, Shandong in China through the establishment of a new plant in the region. In this regard, the report identifies five key issues and challenges that face this proposed venture. Among them the report lists the Guanxi culture, consumer base, performance evaluation challenge, and labour deficiency and market regulations. To this effect, the report develops recommendations as the best strategic alternatives to overcome the challenges. Among the offered recommendations include use of a local workforce to enhance Guanxi culture adoption, use of customer reviews as well as the adoption of diverse performance management approaches to overcome customer and performance evaluation challenges. In addition, the report recommends the use of expatriates and strategic alliances to overcome labour and market regulation challenges. Conclusively, this report argues that the proposed venture is a viable alternative whose implementation would earn the organization increased profitability if the proposed issues are addressed proactively. Word Count: 2430 words References Bamberry, G. & Wickramasekara, R. (2012), "Domestic and international strategies in the Queensland wine industry", International Journal of Wine Business Research, vol. 24, no. 4, pp. 302-318. de Vries, J. & Huijsman, R. (2011), "Supply chain management in health services: an overview", Supply Chain Management, vol. 16, no. 3, pp. 159-165. 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