Strategic Management of Motorola in the Chinese Market - Case Study Example

Strategic Management of Motorola in the Chinese market Course: Code: Student: Lecturer: Date: Table of Contents 1 Introduction 3 1.1 Company description 3 1.2 Motorola’s mission and vision statements 3 1.3 Brief history of Motorola 3 1.4 Brief insight into issues affecting Motorola presently 4 2 Detailed Analysis of the Business Issues 5 2.1 Strategic management process 5 2.2 Motorola’s current strategy 5 Four-point development strategy in the Chinese market 5 Investment and technology transfer 6 Management localization 6 Local sourcing 7 Joint ventures and cooperation projects 8 2-3-3 strategy 9 2.3 Success of Motorola’s strategy in meeting stakeholders’ needs 9 2.4 Why Motorola’s strategies failed to meet Stakeholders needs 11 External stakeholders’ needs 11 Internal stakeholders’ needs 14 Connected stakeholders 16 2.5 Leadership style at Motorola 17 2.5.1 Relationship between strategic management process and Strategic Human Resource Management 17 2.5.2 Impact of an adverse SHRM policy on the informal group 18 2.6 Conclusion 18 3 Recommendations 19 Bibliography 21 1 Introduction 1.1 Company description The company being analysed in this report is Motorola Inc. Motorola was founded in 1928 by Paul Galvin to commercialize innovations in communication technology solutions and related gadgets [1]. Motorola is a multinational company that produces and markets products in five key sectors. The sectors are; integrated electronic systems, personal communications, networks, global customer solutions and semiconductor 1.2 Motorola’s mission and vision statements Motorola’s mission is to be a global communications leader powered by passion to invent and advance the way next for the world. Motorola’s vision is to have a dynamic future and a rich history driven by invention. 1.3 Brief history of Motorola Motorola made the first mass-market car radio and cell phone. Since its founding, Motorola gained considerable growth and profitability from selling technology solutions and devices to enterprises, Government agencies and final consumers. Motorola is a pioneer in mobile telephony, having successfully developed the Dyna TAC 8000X device in 1983. Motorola also invented the Six-Sigma quality improvement process. This process achieved high quality standards in Motorola’s production processes leading to its adoption by various companies including General Electric [2]. Motorola has consistently pursued a culture of innovation and internal competitiveness to survive. Between 1960 and 1990, Motorola pursued aggressive global expansion under the leadership of Bob Galvin, son of Paul Galvin. By 1994, Motorola had grossed $22 billion in sales of mobile phones and wireless technology solutions [3]. 1.4 Brief insight into issues affecting Motorola presently Motorola entered the Chinese market in 1987 to produce and sell its gadgets and solutions in China. Motorola had to rely on local suppliers and labour to operate successfully in China. This required Motorola to invest substantially in setting up factories and to transfer technical expertise to the locals. By the year 2010, Motorola had 15 research centres, 5 joint ventures and 22 branches in mainland China [4]. Towards the end of the twentieth century, Motorola was recorded slumping sales due to competition from rivals such as Nokia who took timely advantage of digital technology in wireless communication. Additionally, Apple, Samsung and a host of other Smartphone companies depreciated Motorola’s global market dominance substantially [4] Motorola suffered from slow decision-making and poor strategy formulation that led to loss of its market share, depreciation in share value and low profitability. Between the years 2000 and 2012, Motorola had reduced its workforce by 84% from 150,000 to 24,000. Clearly, Motorola is not meeting the needs of its stakeholders due to poor growth and low profitability [4]. Today Motorola exists in two business units, Motorola solutions (public safety and enterprise solutions) and Motorola mobility (Mobile phone division). Motorola mobility has since been owned by Google Inc and now by Lenovo Group [5]. Motorola mobility is now restarting it mobile business in China with the introduction of Moto X Smartphone line after a strategic exit in 2009 [6][7][8]. 2 Detailed Analysis of the Business Issues 2.1 Strategic management process The strategic management process involves four main stages. The first stage is analysis of current situation facing the business. This requires internal and external evaluation of factors affecting the business. The second stage is strategy formulation which is influenced by the results of the situational analysis. The strategy formulation is at both corporate and business levels. The main intention of strategy formulation is to make the business more competitive. The third stage if strategy implementation which is largely dependent of managerial execution. The final stage is evaluation and control which is facilitated by organizational structures. 2.2 Motorola’s current strategy Four-point development strategy in the Chinese market Motorola opened its first operations in Tianjin, China by incorporating Motorola China Electronics Ltd in 1992. By 1993 Motorola was producing pagers, cellular phones, two-way radios, communication equipments, semiconductors and automobile electronics. Between 1995 and 2005, Motorola generated $40 billion in revenue from the Chinese market, making it the most profitable market for the company. Motorola’s investment in China in the 1990s was guided by a four-point planned strategy that sought to satisfy all its stakeholders in the market. The strategy was slightly modified in 2001 into the 2-3-3 strategy explained in detail in this paper [9]. The four strategy points are; Investment and technology transfer Management localization Local sourcing Joint ventures and cooperation projects Investment and technology transfer Motorola invested $1.5 billion in China to start its manufacturing activities in the country. Apart from this investment, Motorola has also been investing a huge percentage of its revenue in the Chinese market in developing its operations in China. Throughout the 1990s, Motorola opened branch offices in Shanghai, Guangzhou, Tianjin, Nanjing and other provinces in China to complement manufacturing activities of the company in the country. Motorola’s semiconductors were targeted for makers of computers, digital and communication equipments, automobile and other related industries. These activities made Motorola the biggest foreign-owned export company in China [10]. Motorola had to establish research and development centres in China to support the manufacturing activities in the country. This was to comply with government’s conditions that Motorola facilitates technological transfer to the locals. By the year 2003, Motorola had 20 research centres in China with more than 900 Chinese researchers. This ensured the local population gained valuable technical expertise in production of high-quality electronic and communication devices and technology. This was a win-win situation for Motorola and the Chinese economy. Motorola ensured it sustains a culture of continuous innovation and at the same time the economy benefited through having a population of highly trained engineers [11]. Management localization Motorola realised from the onset that growth in the Chinese market could only be achieved through localization of the human resource function. This allowed the company to tap into readily available labour for the company. The major hindrance for Motorola was the inadequacy of skills in individuals available for work. In solving this problem, Motorola again sought a win-win situation by setting up the Motorola University in Beijing. This helped the company train its own employees on the core activities of the company. By the year 2002, Motorola had 72% of Chinese nationals managing its business. 90% of all employees are Chinese nationals [12]. Motorola strategy in China sought to rigorously develop the local workforce to its benefit through training and development. All new employees at Motorola China had to pass through training programs at Motorola University. Motorola also designed training programmes for its partners and suppliers in order to guarantee production of high quality products and organisational efficiency. Motorola engaged in selecting bright students in Chinese universities and sponsor their training in US in engineering, marketing and management. This pool of talent ensured the company’s continued growth in the 1990s and in the 21st century as well [4] [13]. Local sourcing For Motorola to operate efficiently and profitably in China, it had to source for raw materials locally. This created an opportunity for local suppliers to learn of global best practices in contributing to technological solutions and devices value chain. In 1998, Motorola spent $750 million in purchasing components, materials and services from local Chinese suppliers. In 2001 Motorola purchases in the local Chinese supply chain had surged to $1.6 billion [14] Motorola had to engage in extensive capacity building in order to ensure the local suppliers served its best interests in establishing and growing a business in China. Motorola partnered with Chinese suppliers and helped them improve their management, efficiency and quality control systems. In so doing, Motorola was engaging in technology and managerial expertise transfer. This would eventually help the suppliers in the future as they grow to serve more industry players apart from Motorola. By the year 1998, suppliers under the training of Motorola were able to export $247 million worth of products to businesses in other global markets. [15]. Motorola’s strategy of sourcing locally was beneficial to both the company and the Chinese economy in the long-run. Joint ventures and cooperation projects Motorola expansion in the Chinese market has been largely facilitated by joint ventures and cooperation projects. Motorola played a very significant role in developing China’s communication network. This was done jointly with the government of China through state-owned companies and agencies. Motorola entered into several joint ventures for the purposes of growing its business and training staff. These ventures ensured Motorola could produce its high-quality technology devices and solutions at a relatively low cost [16] Between 1995 and 2003, Motorola had entered into nine joint ventures with Chinese firms investing over $400 million. These ventures ensured Motorola accessed and developed new markets in China without establishing new manufacturing concerns. Apart from investing in the manufacture of semiconductors and mobile handsets, Motorola had considerable interest in wireless mobile technology such as It GSM, which it successfully introduced in China. Motorola also partnered with China mobile to roll out GSM network all over the country [16] [17] One consistent feature of all the aspects of the four-point strategy by Motorola is the focus on making Motorola a truly Chinese company that invests heavily in manufacturing capacity and research and development. Motorola also wanted to localise the running of the company by training and absorbing local employees. Motorola ensured local suppliers were trained on global best practices and standards in order to serve its value chain. The company also tapped into locally available capital through joint ventures that also served to transfer knowledge and expertise in communication technology [18]. At the start of the 21st century, Motorola developed a five-year 2-3-3 strategy from the four-point strategy [19]. 2-3-3 strategy This strategy was an evolution of the four-point strategy. 2 represented Motorola’s focus into making China a world-wide manufacturing and R&D base. The first 3 refers to Motorola’s new growth areas in China including semiconductors, broadband and digital trunking systems. The second 3 refers to three $10 billion goals: annual production value in China to reach $10 billion by 2006; accumulated inputs in China to reach $10 billion by 2006; Local purchases in China to reach $10 billion within five years. In order for the strategy to be successful, the company committed to investing $1 billion in R&D and hiring 4000 engineers. The 2-3-3 strategy achieved mild success in the first five years due to poor implementation and harsh external environment [19] 2.3 Success of Motorola’s strategy in meeting stakeholders’ needs It is important to note that financially successful businesses have to find an equilibrium point at which the interests of all stakeholders can be met [20]. The equilibrium point is usually arrived at through a planned or emergent strategy that is suitable to the company’s interests [21]. The slow growth of Motorola and eventual loss of market share in the Chinese and in extension the global market indicates poor choice of strategy in meeting stakeholders’ needs. Also, as a result of poor growth due to increased competition and low innovation, Motorola’s share price and profitability declined leading to massive job cuts. Motorola solutions share price since 1978 Source: Google Finance Source: www.chicagomagazine.com 2.4 Why Motorola’s strategies failed to meet Stakeholders needs External stakeholders’ needs Motorola’s strategy in the Chinese market was largely influenced by the external environment that would face the business in that particular market. The Chinese market for Motorola can be highlighted using a PEST analysis. Politically, the Chinese economy was state-controlled and therefore Motorola had to work closely with the state to establish and sustain its activities. Economically, the Chinese market had a huge growth potential due to its large population. However, the buying power was quite low for Motorola products. Motorola had to produce cheaply using local labour to satisfy the target market. Socially, Motorola was a foreign company from US. Motorola was required to localise its operations and marketing significantly to appeal to the local market. Technologically, the Chinese industry was still very young and Motorola had to do a lot of capacity building to establish an entire value chain for its production and consumption system. The Chinese market required cheaper, quality products from Motorola. For Motorola to create value for its Chinese customers, it had to realign its value chain to meet China’s requirements. Using porter’s value chain model, it is clear that Motorola had to source raw materials and parts locally. Motorola also required cheap managerial and production labour in china. Such measures would result in high value addition at relatively less cost. To achieve this, Motorola had to train suppliers, management and production staff through programs and institutions including the Motorola University. Porter’s Value Chain model Motorola set up its activities in the Chinese market on condition that it transfers technology and invests substantially to grow the local economy. This is the only way the Chinese government could allow the company to enter the attractive Chinese market for labour, materials and a ready market. The Chinese government hoped to create jobs for its population and create a pool of professionals with global knowledge in telecommunication technology [22]. Using the stakeholders’ power/dynamism matrix, it is evident, that Motorola was not able to maintain an effective balance on stakeholders’ interest and its strategy. Shareholders’ power/dynamism matrix Shareholders and partners [keep satisfied] Chinese Government [Manage closely] Management and staff [Monitor] US Government [Keep informed] In order to manage the Chinese government closely, Motorola had to hire Chinese workers and training them on how to produce high-quality communication equipments. Motorola was also engaged in training local suppliers on efficiency, management and quality control. Motorola played an active role in setting up training centres and programmes in universities in China. In doing so, Motorola did not have to worry about the US government as it did not have much influence on the centrally controlled Chinese economy. The shareholders would not object to Motorola’s strategy provided the company was making a profit. This strategic focus had an impact on the profitability of the company in the long-run since the company focused more on processes and system improvement rather than product development. Internal stakeholders’ needs Motorola’s decision to localise management meant that the company had to invest significantly in training and development to ensure Chinese nationals were ready to manage its local operations. Motorola established the Motorola University and Motorola research centres in China. In addition, Motorola partnered with local universities and authorities to develop and run training programmes for employees. Motorola was able to meet employee needs by training them on global best practices in management and most importantly on technical aspects of communication technology. However, when Motorola sales started dipping in early 2000s, the company started reducing its workforce thereby exposing them to stress and financial difficulties. The remaining employees remained in a state of uncertainty about their future in Motorola due to the massive job cuts. This in effect lowered workers morale to perform or commit their future to the company. Essentially, Motorola was now not meeting a primary need of its internal stakeholders. Using the Ansof matrix, it is clear that Motorola pursued a diversification strategy in the Chinese market. Motorola was developing a product and at the same time developing a market for the product. This is a very risky strategy for Motorola considering the fact that the Chinese government was very unpredictable in terms of controlling the economy. Motorola could not control the dynamics of the market to suit its strategy. Ansof Matrix When the Chinese economy was liberalised, Motorola had to grapple with increased competition that impacted negatively on its blue ocean strategy. Motorola was slow to transition into digital technology in mobile telephony and also into Smartphone market [18]. This gave room for rivals such as Samsung, Nokia and Apple to acquire Motorola’s customers [23]. Customers decided to choose rivals products since Motorola was not meeting their needs. Low profitability and falling share prices as a result of slumping sales meant Motorola was not meeting shareholders and financiers needs in terms of expected return on investment. Connected stakeholders Porter’s five forces model Motorola in partnership with the Chinese government established the telecommunications industry in china [4]. However, from the porter’s five-force model, it is evident that Motorola played a big role in exposing its business to industry rivalry. Motorola trained suppliers in order to feed its production line in china. With time, the suppliers had started exporting to international markets making them more powerful and less reliant on Motorola. Motorola trained specialist and engineers in information technology and communication. These professionals would go on to found their own companies to sell products similar to those of Motorola in Chinese markets. This increased buyer power due to availability of many choices. Today, the Chinese market has many Smartphone manufacturers than any other country in the world. With a fully developed industry and trained workforce, the Chinese communication technology industry had minimal entry barriers thus creating more substitute products to those offered by Motorola. Eventually, industry rivalry made it impossible for Motorola to grow its market share anymore, leading to dwindling profits and falling share prices. 2.5 Leadership style at Motorola 2.5.1 Relationship between strategic management process and Strategic Human Resource Management In the year 2001, Motorola made a loss of $4 billion from its slumping sales [24]. This necessitated an urgent turnaround to save the company from incurring more losses and shedding share price. However, the leadership style at the company during this crisis pursued a coaching style where processes were more important than results. Employees were thus judged on how effective they were on processes instead of how innovative they could be in solving Motorola’s problems. Apple a new rival to Motorola’s business in mobile telephony was using relying on Steve Jobs, a charismatic leader to set pace for growth and innovation into Smartphone market [25]. 2.5.2 Impact of an adverse SHRM policy on the informal group Employees at Apple and other rivals were motivated to achieve results. Motorola suppressed employees’ collaboration efforts to take advantage of converging technologies in digital application and mobile telephony. Motorola’s cellular phones division and mobile networks division were very much divided due to competition and corporate structures. This lowered the company’s ability to take advantage of emerging opportunities in cellular digital application and Smartphone technology [3]. Clearly, the strategic human resource policy applied by Motorola during this period had adverse effects on the interests of shareholders, employees and customers of the company. 2.6 Conclusion From the analysis of Motorola’s development and growth strategy in the Chinese market, it is clear that the company was not able too achieve a strategic equilibrium at which it could meet the needs of all stakeholders involved. Motorola was able to satisfy the needs of external stakeholders including the government and suppliers by providing jobs and investing substantially in capacity development and training. However, the company was not able to adapt fast to changing technology due to slow adoption of emerging technology and extensive engagement in developing joint ventures in network development. This resulted in the company losing its dominance in cellular phones market. Consumers opted for devices that meet their needs including faster internet access and Smartphone technology. Motorola also shed its share price due to poor performance thus not meeting the needs of its shareholders and financiers. 3 Recommendations Motorola’s internal stakeholders include the management and its employees. These stakeholders need an environment where they will be able to acquire new knowledge and put it into practice through innovative new ideas. Motorola should favour a leadership style that promotes innovation and product differentiation in order to revamp its cell phone business. Motorola is still a reputable brand as a pioneer in mobile telephony; it can reclaim its market share in the Smartphone market. Motorola’s connected stakeholders include its shareholders, distributors, customers and suppliers. Motorola can integrate vertically to have more control of its supply and distribution chains. By doing so, Motorola will not increase the power of buyers and suppliers in the industry. Enhanced control of the chain will result in higher margins and business predictability for Motorola. Motorola will be able to sustain a high price of its shares and at the same time sustain research and development to innovate and improve products offered to its customers. Motorola should pursue a private sector player approach in meeting the needs of external stakeholders including governments and society. This will reduce Motorola’s reliance on government protection to be competitive. Reliance on the Chinese government protection proved to be a suicidal strategy for Motorola. Motorola can meet societal needs through fair sourcing, job provision, sustainability and corporate social responsibility. It is evident, therefore, that a Motorola has to find an appropriate balance between the interests of all its shareholders in order to safeguard its future growth and development. 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