Advantages and Challenges of Crappy Shades Sunglasses Company - Case Study Example

Crappy Shades Sunglasses Company Table of Contents Crappy Shades Sunglasses Company Table of Contents 2 Introduction: Crappy Shades 3 The company would like to move with expansion: A thought behind 3 The place is China: Why so 4 The entry mode 5 Advantages and Challenges 6 A difference in activities: Before and after globalization 8 Conclusion 8 Reference 10 Introduction: Crappy Shades The company, Crappy Shades Sunglasses, came to an existence in the year of 2000. That time it was a small business unit with 150 employees working for that. The company produces low priced sunglasses for their customers. Currently this company serves the low end customers. Their key customers include the low cost retailers as well as the high profile companies like Coca Cola and MacDonald’s. These companies mainly use these products for their promotional offers. By the end of 2006, this company has increased its employee base to 450. This has also put an additional cost burden on the company as well as now they have to manage a number of complex issues in industrial relationship. There have been certain unfortunate incidents like strikes on some of the issues, which put a bad impact on the overall operation of the company. Company happened to lose its key customers as well as few new orders. The company has been able to attain a profit of around £ 2.3 million in the year, 2006. As the competition is getting intense, more of its competitors are going global. There is a low entry barrier in this market; which has led to a number of new entrants in this market. The products and prices of all of these companies are quite similar, so day by day, the market is getting divided into more segments. To survive this competition Crappy Shades now would like to go for expansion in some new regions to tap the global market. Zeroing down on a singe opportunity is the main decision to take on. The company would like to move with expansion: A thought behind Globalization has allowed ease in free trades among the countries. It has introduced greater speed and lesser difficulty in transportation of goods as well as that of the people. Most of the companies, in developing countries, are now interested in using their cash inflows to invest in developing nations. Even the company is now in a situation, where they can take the advantage of globalization by expanding their business to other regions. The destination should be cautiously picked as the company would like to keep their cost effectiveness up in that country. In such a way they can carry their brand names out of UK. With every brand name, an image gets attached to it. So this ‘low cost’ company should keep that image alive, even out of UK. Moving to another country means they would get access to the technology and resources of that nation. At the same time it would have a large customer base with access to a large talent pool of that nation. So using the resources worldwide, technical and cultural, the company would be able to move further and make its position across nations, globally. The place is China: Why so Crappy Shades make low priced sunglasses for their customers. China is known for their cheap products. The labour cost is quite low in that country (Shoenberger, 2002). Even the business environment in this country is quite inviting. China economy is the third largest economy on the globe with a GDP of 7.992 trillion, as précised on the basis on purchasing power parity (PPP). China had been among the major fastest growing nations for the past many years with a real GDP growth rate of 9% (Central Intelligence Agency, 2009). The per capita income in China has increased drastically over these many years, erasing poverty in a swift speed. China is considered by a number of investors to be one of the best investment opportunities as it puts forward a prospective customer base of 1.3 billion. This country is among the major countries in production as well as in consumption covering almost all industries and commodities. The eye-catching business atmosphere in China is more promoted by a fact that the government over there is doing all the possible activities to continue to enhance the investment environment for the foreign companies. For an example the Chinese government is spending a large amount of money towards the improvement of the infrastructure over there. Apart from that it has all the processes in place to lessen the cost of productivity. So it will not be wrong to say that the China has all in it to encourage foreign investments. Being in China, Crappy Shades would be able to keep its cost effectiveness and capable enough to compete with its customers on the basis of cost and technology. The entry mode For entering into China market, Crappy Shades have three choices; either by setting up altogether a new company or by merger and acquisition. There are advantages and disadvantages for each of these entry modes. Setting up a new company on its own does not seem a good idea for Crappy Shades. As the company mainly operates in UK, it is less or not possible to be known to the Chinese market. A new company means that it would not have any customer base, any reputation in the respective market of China. Moreover Chinese have a very different business customs than those in western countries; their culture is quite different from that in UK. Being new in a different nation would mean that the company would not have access to the right resources, be that technical or human. So establishing a new business and at the same time surviving in a competitive market while getting familiarized with its people, culture and processes seems to be an superfluous and costly affair to carry on. If the company would like to go for either merger or acquisition, it should keep in mind that the target company must be in the same processes. There are a number of companies which produce cheap sunglasses. Some of them are small enough to go for acquisition. For merger the suggestive companies would be those companies which are either larger than the Crappy Shades Company or at least equal to the same in size and operation. Being in a merger with such a company would surely fetch them the talented human pool, the most preferable resources and the correctly placed operational processes. At the same time, the company would get access to the customer base as well as the reputation of the Chinese company in the respective market. So Crappy Shades would have a customer base, on which it can build its own market. In case of merger Crappy Shades may have to forego the ownership of the company as the ownership would be evenly divided between the two, Crappy shades and the target company for merger. Right now the world economy has just been through the financial downturn. China economy has also been affected by this turmoil. During the recession time the market value for many companies has seen a sudden drop down. These businesses may take several years to go back at their normal value i.e. their pre-recession value. Some of these companies prefer to sell off those for good money. Even some of the big companies would like to cut off their less profitable business units to save on costs for their core business units. So it seems that Crappy Shades have a good opportunity to buy out any of these companies and forwards its leaps into China market. Advantages and Challenges In case of merger or acquisition, there could be a change in management. Even there could be a cut in employee base. Mismatch in managerial operations can be a bigger disadvantage in this case. Crappy Shades has noticed a number of strikes in its units in UK. They must be aware of the fact that these kinds of strikes can only bring loss in the book of company. In China it would be very much difficult to lead the employees with a foreign management team from UK. The society has been built up in a shape that they are quite concentrated between themselves culturally. So, local people are very much required to do the business over there. So Crappy Shades would have to face challenges in terms to maintain their control over the employees and work processes over there. It is preferable to keep the same management team to attain the trust of the Chinese employees over there. As mentioned above Chinese have a very different work culture. They are quite dedicated towards their work. If Crappy Shades is planning to put some of their key persons or some employees in China, it can be a problem for them to get accustomed to the Chinese social and cultural life. It is very much difficult in a Chinese market to compete on a product differentiation or on cost effectiveness for a long term. The non existence of Intellectual property Right laws has enabled Chinese companies to copy other products quickly and easily (Rediff News, 2005). In simple words it would be difficult to hold on the sustainability over one single core competence for a long time. China is known for its swift reverse engineering processes. Chinese are very speedy to imitate technology, that too in a cost effective manner. That is one of the reasons why most of the Chinese products are cheap in market compared to the products of other countries. So sustainability is great challenge in Chinese market. Crappy shades need to invest in research and development and seek for new competitive advantages to differentiate in Chinese market. This, even, can be an advantage for Crappy shades; they can save on the cost through reverse engineering and imitation of high quality products over there. At the same time the labour cost is quite low compared to that in UK. If the target company has been in the same business, that would mean that the processes must be in place; which means a greater savings in terms of cost, thus Crappy Shades would be able to offer its products in lesser prices. A difference in activities: Before and after globalization Being global definitely would have many advantages starting from greater access to resources, technologies up to a greater customer base; but at the same time it would mean a lot of financial and operational co-ordination between its business units across world. As there is a cultural difference in eastern and western countries, Crappy Shades may have to adjust their marketing campaigns as per the customer needs in these two regions. This means an added cost to the marketing expenses. The management would have more responsibility to carry on the global business. They need to be more capable to sustain in global competition; as no need to say that the competition would be much more as they have to compete with the UK competitors as well as the global ones. Cultural difference can make it difficult to zero down on a global strategy to device. A Chinese may like to have a traditional touch on its sunglasses while a UK customer may like to have a modern look to it. Another conflict can arise in terms of rules and regulations. Crappy Shades have aligned its company policies as per the UK laws. The regulations in China can be conflicting with the company policies. Definitely Crappy Shades would have to align its policies as per rules and regulations in China (Stanford Encyclopedia of Philosophy, 2006). Conclusion The core competence of Crappy Shades is in its cost effectiveness. Economies of scale is a main factor for this business; but now as the competition is increasing, researcher have anticipated that in near future the companies have to compete on the basis of product differentiation. Being in China, the company would be able to cut on more cost and it could use the same to research and development to create differentiation in products from that of its competitors. Globalization has eased the transportation of products across nations. Crappy Shades can export its cheap sunglasses, made in China, in other countries, mainly in the eastern countries. Besides these the company may have to face a number of challenges to get its place globally. The main thing, it would need, is a global strategy in place. The management should be capable enough to carry on that strategy world wide. With the help of its people, Crappy shades would be able to make a difference in the market of cheap sunglasses. Reference Central Intelligence Agency. December 23, 2009. East & Southeast Asia:: China. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed on January 25, 2010]. Rediff News. October 20, 2005. Why Chinese goods are so cheap. [Online]. Available at: http://www.rediff.com/money/2005/oct/20bspec.htm [Accessed on January 25, 2010]. Shoenberger, K. November 24, 2002. Cheap products human cost. [Online]. Available at: http://www.mindfully.org/WTO/China-PC-Success24nov02.htm [Accessed on January 25, 2010]. Stanford Encyclopedia of Philosophy. June 16, 2006. Globalization. [Online]. Available at: http://plato.stanford.edu/entries/globalization/ [Accessed on January 25, 2010]. Read More