From Local to Global: Strategies for International Development - Case Study Example

? Case Study From Local to Global: Strategies for International Development MARKET ENTRY PROPOSAL Paper Reference: ID No. Paper: DD/MM/YYYY Title of Paper: Market Proposal for Chrysler-Fiat Auto Alliance entry in France For End of Module Assessment ****************************************************************************** Brief Synopsis of the Issue Globalization has made many industries and countries to enter into huge competition. Merger and acquisition has become a popular facet in the automobile industry that has created huge opportunities for the automobile companies via creation of new technology and innovative models. Chrysler-Fiat Auto Alliance is seen to have huge potential in this respect. This study deals in framing market entry strategy for Chrysler-Fiat Auto Alliance who are looking for entering into new market. Recommendation The company should properly survey the market of France and find the potential company with whom the joint venture can be done. The company should also remember the key issues like technology exchange and product development while writing the agreement. The company should design proper strategy to attract the youth market towards their products because they are appearing to lose interest in cars. The government of France on the other hand can frame some policies that can encourage such joint venture and boost the sales. Background In the year 1925, Walter P. Chrysler founded Chrysler. A variety of new models were introduced by the company and they used to boast of the technological improvement that they started in North America. On the other hand Fiat is the company based in Italy and carries a long recognition in the global business regarding the growth, restructuring and corporate initiatives. To reach at this level of recognition the company have survived through many technological shifts, corporate disruption and labour crisis. In the year 2009, Fiat and Chrysler announced their new ownership structure and strategic alliance. Fiat announced that through this they will be acquiring 20% of Chrysler in exchange of technology sharing and distribution network in North America and Europe. In the year 2012 the company Chrysler was seen to recover and expand beyond North America due to its alliance with Fiat (Deresky, 2012). Both the companies are seen to derive huge benefits from this alliance. Top managers of both the companies designed and implemented major synergies that aimed towards restructuring, forming common platform for research and development (R&D), image building and streamlining the global operations. Both the companies enhanced their level of quality and expanded their dealer base in United States and Europe. Apart from all this the alliance also leads to major savings for both the companies in the areas of supplier network, product development and dealer network. But the process was not smooth all through. After the alliance Fiat experienced a decline in their sales in the European market in the year 2011 due to the economic downturn. The corporate effectiveness in the alliance was hampered while dealing with the work ethics related issues and labour union of Italy. However the operations of Chrysler performed well because of its stable sales and financial resources. Both the companies are seen to have huge potential that may help them in expansion. They are seen to be in a good position to capitalize from this alliance. The technology platform of Fiat is huge, which can be used in bringing more innovative products. Moreover the alliance also brought saving of cost, global integration, sharing of technology and common R&D platform. The companies can use all these potentialities to enter into other countries or target the hybrid and small car segment. France can be one of the potential target countries. Today France can be included among the modern countries present all over the world and leading among the European nation. In this regards the study analyses the market of France as a target market in which Fiat and Chrysler can enter. Analysis of Market Opportunities in France France is the permanent member of the United Nation Security Council and other multilateral organizations and plays a significant role as an influential global nation. French government has created a “hybrid presidential-parliamentary governing system” (CIA, 2013) that can resist the instabilities that the country has faced earlier. In recent times France has entered into cooperation and reconciliation with Germany, which has been central to the economic amalgamation of Europe. In order to prop up the automobile industry of France the government has started to promote the green technology. The measure announced by the government has been taken very positively by the players of the automobile industry. This step of government has exaggerated the creation of vehicles that leads to very low carbon emission. This initiative has been perceived to create competition in the entire automobile sector (Euronews, 2012). The economy of France is diversified among various sectors. The government of France has fully or partially privatized several large companies like Thales, France Telecom, Renault and Air France. However the government has significant presence in many sectors like defense industry, power and public transport. The current GDP of France is $35,500 as on 2012 (CIA, 2013). In recent times France is anticipating to move towards the triple dip recession along with generating major concerns regarding dragging euro zone to crisis due to the political deadlock in Italy. The industrial production of France in January 2012 has experienced a drop by 1.2%; though some of the analysts have seen the rebound of import in Germany to be positive indicator for rescuing some of the neighbors. This fear of recession has been further exaggerated by the falls in sales of the motor industry (Inman, 2013; Pitchard, 2013). Many of the major players in the automotive industry of France have reported lot of unsold cars being stacked up in the factory. The executives of many companies have claimed that the factories have the capacity to produce 20% more cars than what they sell but this potential has been downgrading due to fall in sales. The main reason for such a fall has been due to the consumer behavior, which is now seen to be more inclined towards the other cars and least interested in French cars. Many consumers are more interested to opt for vehicles of BMW, Mercedes or Volkswagen rather than any French company. Moreover the consumers also have other options like metro and bike. The flagging appetite of the consumers have created problem for the employees of Renault and PSA Peugeot Citroen whose employees now fear the loss of job (Jolly, 2013). Technologically France is very strong in the automobile sector. The recent decline in the sales of the automobile has given rise to more technological innovation that may make the industry to rebound. This initiative has been started by the Ministry for industrial Recovery as a strategy to boost the French automobile sector. In this plan the French government has also announced to increase the rebate that the consumers enjoys while buying a hybrid or electric car. Moreover the government has also announced to provide the suppliers and the organizations who are investing in green technology and generating employment, an incentive of lump sum amount. Hence it can be concluded that France is not only technologically advancing itself but also government has taking generous steps to re-boost the sales of the French automobile industry (Di and Corbet, 2012). Company Situation Analysis Many of the industries and countries are affected by globalization. The global automobile industry is not an exception in this case, which prolong to be highly competitive and dynamic with respect to sales and market share (Ahlstrom and Bruton, 2009). The above analysis shows that the automobile industry of France does not seem to be in a stable condition. The French automobile companies like Renault and PSA Peugeot Citroen are facing major decline in their sales which has caused piling up of car in their warehouses. This has further exaggerated the situation of getting the country into the arms of triple dipped recession. The government has taken many measures to boost the sales of the local companies starting from higher rebates that the customers get on buying cars to creating technological innovation. Fiat and Chrysler has an upper hand in this context. The alliance has provided both the companies an excellent technological platform. Moreover the sharing of technology is one of the major clauses in the agreement between the two companies. At the same time the Fiat is well known in the European market as the small car manufacturer, which will help them in penetrating the market of France. The behavior of the consumers in France is also seen to be changing. They are now more interested towards the cars of companies of other nations like BMW or Mercedes. The change is the consumer behavior is seen to be more prevalent for the upcoming generations. Thus the main challenge for the existing players in the automobile industry is to attract the customers. Such a situation provides a huge opportunity to both the companies to tap the market. The company’s image of providing low priced, technologically backed small cars can help them to penetrate the market. The alliance between the two companies has also enhanced the supplier’s and dealer’s network of the two companies. Moreover the unstable condition of the French automobile sectors has lowered the bargaining power of the suppliers. They are now in search of more profitable venture. The entrance of the alliance company can be a huge potential for the dealer over there; since the customers are more inclined towards the car of the non-French company so they may be interested in Chrysler-Fiat Auto Alliance, which in turn will attract more and more dealers to deal with the cars of this duo. However threat from new entrant and substitute is not uncommon in this industry. After the announcement of green technology which includes the cars that emit lower level of carbon. Many new players may be interested to joining this race. Moreover the lagging appetite of the customers towards the French cars may also call for new international companies entering the market of France. So threat of new entrant is high. The threat of substitute is also high, since people of France are more interested towards the public transport or other means. The cost of getting license for driving is very high in France as compared to other countries. Moreover the percentage of people passing the driving exam is also significantly low, about 57% (Jolly, 2013). This can be a disadvantage for the companies entering in the alliance. Market Entry Strategy The companies Chrysler-Fiat has planned to enter into France. Previously Fiat entered into alliance with Chrysler and entered in to the market of North America. Previously Fiat was operating in the market of North America but left that market in the eighties because of mismanagement, quality problems and losing market share. Fiat was in search of a well established car manufacturer who has significant knowledge about the technology available and the market as well. Fiat was desperately looking for ways to come back to the market of North America and expand their future business. On the other hand Chrysler had brand name in North America but lacked dealer network in Europe so this alliance created a benefit for Chrysler too. There are four possible ways through which the company can enter into the market of France; they are through Exporting, Joint Venture, Licensing and Direct Investment (Schorsch, 2009; Tielmann, 2010). Exporting signifies marketing or direct selling of domestically manufactured products in another country. Exporting is one of the well established and traditional ways of reaching the consumers in the foreign market. The main advantage of exporting is that the company which is going to enter the market will be doing low investment since it does not require production of goods in the target country. Most of the costs that have been incurred in exporting can be now utilized in marketing and promotional activities. Exporting requires coordination among the players like the government, exporter, importer and transport provider. For the case of Chrysler-Fiat Auto Alliance export is not a good option because government may impose high import duty on automobile goods; since the automobile firms in France are not in a very good state and this exporting from outside can further worsen the situation. Thus if the import duties are high then the company may have to lose a significant amount. On the other hand heavy cost will be incurred in exporting the vehicles. Licensing is the second option. Licensing allows the company to use the property of the licensor in the target country. This property can be intangible in the form of production techniques, patents and trademarks. In return the licensee pays a certain amount of fees to the licensor. It generates benefit on the part of the licensor because the investment is low on the part of the licensor but the return on investment is quite high. This strategy is also not suitable in case of Chrysler-Fiat Auto Alliance because in respect to intangible aspects the company is strong with updated and modern production techniques, innovative models and idea and technology. Hence this will not be an attractive deal for the company. Foreign Direct Investment (FDI) is another way to enter into the new market in other countries. FDI signifies development of direct ownership of the facilities in the foreign country. It involves passing the resources that includes personnel, technology and capital. FDI can be made in two ways firstly by acquiring any new entity or by establishing an entirely new enterprise. It provides high degree of control over the operations by the company and also enhances the ability to understand the competitive environment and consumers of the foreign country. This technique requires higher degree of commitment and resources. This can be one of the potential ways in which Fiat and Chrysler can enter into the market of France. But if the government provides too many restrictions on the entrance of FDI then this is not an effective way. Since the government is already in a position of promoting the local companies and is searching various ways to do this so FDI is not an effective way to enter France. Lastly Joint venture is another way to enter into another market, which is most suitable for Chrysler-Fiat Auto Alliance. Joint Venture stands on the pillars of five objectives like reward and risk sharing, market entry, complying with the government regulation, jointly developing the product and technology sharing (Prescott and Swartz, 2010). The company will also benefit in terms of distribution channel and political connections. In this context if Chrysler-Fiat Auto Alliance enters into joint venture with any French company they will know the market of France in a better way and devise the market entry strategy. In their current state the French automobile companies will really welcome such type of joint venture because Chrysler-Fiat Auto Alliance is very strong in technological aspects. Moreover the green initiative that has been started by the government will get exaggerated by the joint venture. The high price of gasoline and oil has created a high demand for the small vehicles and both these companies are well in this regards. This decision will also be welcomed by the government because they may take it as a positive indication that is boosting the French company, which have been experiencing decline in sales for past few months. However the company must consider some key issues like capability of the local firm, resources, government intentions, technology transfer, pricing, control, technology transfer and agreement length. Implementation of Market Entry Strategy Scan the market of France. Try to understand the consumer behavior and find a potential partner. Few rounds of meeting with the partner and decide on the strengths and weaknesses of each other. Decide on what benefits will each get Developing the business plan jointly and contribution of each partner towards the business plan. Checking the credentials of each other Enter into agreement after seriously considering the entire set of clause mentioned in it. Signature and Date: Your full name and date of board paper (DD/MM/YYYY) References ABA, 2006. Joint Ventures: Antitrust Analysis of Collaborations Among Competitors. Chicago: American Bar Association. Ahlstrom, D. and Bruton, G.D., 2009. International Management: Strategy and Culture in the Emerging World: Strategy and Culture in the Emerging World. Connecticut: Cengage Learning. CIA, 2013. The World Factbook [online] Available at < https://www.cia.gov/library/publications/the-world-factbook/geos/fr.html> [Accessed 13 June 2013]. Deresky, H., 2012. International Management: Managing Across Boarders and Cultures: TEXTS AND CASES. Global Ed. New Jersey: Pearson. Di, S. and Corbet, L., 2012. France plans to save car industry by going green. BloombergBusinessWeek News [online] Available at < http://www.businessweek.com/ap/2012-07-25/france-plans-to-save-car-industry-by-going-green> [Accessed 13 June 2013]. Euronews, 2012. Green dream to save French car industry [online] Available at < http://www.euronews.com/2012/07/25/green-dream-to-save-french-car-industry/> [Accessed 13 June 2013]. Evans-Pitchard, A., 2013. French economy buckles as car sales collapse. The Telegraph [online] Available at < http://www.telegraph.co.uk/finance/financialcrisis/9720053/French-economy-buckles-as-car-sales-collapse.html> [Accessed 13 June 2013]. Inman, P., 2013. Fears of triple-dip recession in France as motor industry sales slump. The Guardian [online] Available at < http://www.guardian.co.uk/business/2013/mar/11/france-triple-dip-recession-motor-sales-slump> [Accessed 13 June 2013]. Jolly, D., 2013. French Automakers’ Biggest Problem? French Consumers. The New York Times [online] Available at < http://www.nytimes.com/2013/01/30/business/global/french-automakers-biggest-problem-french-consumers.html?pagewanted=all&_r=0> [Accessed 13 June 2013]. Prescott, D. and Swartz, S.A., 2010. Joint Ventures in the International Arena. Chicago: American Bar Association. Schorsch, M., 2009. Market Entry Strategies for Russia: A Comprehensive Survey Based on Expert Interviews. Hamburg: Diplomica Verlag. Tielmann, V., 2010. Market Entry Strategies. 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