Chinese Market Environment - Case Study Example

BU 502 - Applied Business Research and Communication Skills FINAL ASSIGNMENT Spring - ONLINE Dr. Peggy Bilbruck Nazim Tugrul Yegen Email: pbilbruck@ssu.edu Abstract The main objective of this document is offering a report of how the operations strategy covered by competitive priorities tends to be affected by the business environment. The case is based on the Chinese retail sector. The case study is of a multinational retailer. The case study offering examines a multinational retailer with the intentions of understanding how this company develops a suitable operations strategy so as to survive in the dynamic and competitive Chinese business environment. It is evident from the study that companies are intending to expand businesses in the emerging markets face many challenges in the contemporary business environment. It is also evident business environment’s dimensions such as competitive hostility; business cost and environmental dynamism affect the retail operation strategy’s development. For international companies’ survival to be achieved in an increased competitive and dynamic environment, flexibility has to be incorporated. It is very clear from the case study that for foreign retailers to adapt the Chinese market environment and succeed, they need to be agile and flexible (Towers, 2012. Executive Summary Every business is usually initiated with the intentions of making a profit. However, for a business to work out to the advantage of the entrepreneur, effective policies that will enable him to curb challenges such competition have to be developed and put into effective. The document below is a summary and an analysis of a case study analyzing the market internationalization in the Chinese economy. The document concentrates more on the retail market in this economy. Interviews were conducted so as to get the exact information on the retail market trends in China. The case analysis has revealed that new businesses are faced with numerous challenges when entering in a given market. These challenges include hostile competition and cultural difference among others. If a retail business can, however, perfect on their flexibility, offer quality products, cut cost and improve its service delivery, it will do well in the market (Francisco, Sarabia‐Sanchez, De Juan, & Monali, 2012). Introduction Retail companies’ and markets’ internationalization has become very significant in the current business environment. Large retail operations have become increasingly international both in their orientation and operations. The retailers with intentions of expanding their business to the global market usually face uncertainty and complexity inherent in market’s dynamic nature such as unfamiliar consumer preferences, new business environments, and effective global operations’ co-ordination. Studies have been previously carried out in the manufacturing environments. These studies have found evidence of the existence of a relationship between operations strategy and environmental factors. There are very few empirical studies on retail internationalization. This has led to a demand of researches examining international operations strategy development especially in a developing country (Harvinder & Vinita, 2012). The case study at hand represents operations in China, which is considered as one of the developing countries. The Chinese economy has been growing tremendously an aspect that has made raised a lot of interest in examining it. It also offers a perfect picture of the retail internationalization. The document analyzes retail internationalization in China and examines challenges faced by the new retail entrants in a global market. Recommendations are also offered in the document (Francisco et al., 2012). Discussion Several theories were employed so as to assist in analyzing how the environment affects organizational operations. The business environment can be well analyzed by the help of the traditional contingency theory. Hostility and dynamism have been used in characterizing the business environment. Hostile environments tend to intensify challenges to the businesses and usually complicate these challenges to some extent. The environmental hostility can be characterized by low-profit margins, rising business costs, labor and raw materials shortage, rising business costs, severe regulatory restrictions and intense price competition. The environmental dynamism entails the unpredictability of change within the business’ environment. The change can crop up from various sources including the innovation of the industry and the rate of change (Towers, 2012). All the businesses operating in a dynamic environment are required to contend with rapid changes in customer needs and preferences, competitive action as well as technology. International retailers should scan environment so as to understand the change of external forces so as to improve their capabilities in adapting to the outside environment. International retail operations have gained popularity in the world today (Francisco et al., 2012). Numerous companies are entering the global markets increasingly. This is because globalization confers access to cheap labor, high growth rates, and foreign markets among other advantages. The multinational companies, however, tend to face multiple economic, legal, political and cultural changes at varying rates in various nations. The success or failure of international businesses in this globalization era is dependent on whether the business will compete in the global markets effectively (Harvinder & Vinita, 2012). Retail businesses tend to perform well when they adopt retailing and marketing strategies, which can accommodate differences in markets and consequently respond effectively to changes in business environment. There were previous studies, which were analyzing the business environment and operation strategy. Environmental uncertainty, as well as its hostility and dynamism dimensions, has received extensive coverage in the literature of operations strategy. These studies have found that alignment between operations strategy and the environment is essential to the success of the business. In other words, the literature of operations strategy suggests that it is critical for companies’ operation strategies to be suited to external environments, which they operate (Towers, 2012). This case study has, therefore, built a conceptual framework from the previously conducted studies. This conceptual framework links the business environment and the retail operations strategy. The business environment can be characterized by three major factors, which are outside company management’s short-run control. These factors include the business cost, environmental dynamism, and competitive hostility. Numerous researchers stated that the operations’ strategy usually focus on the development of specific capabilities known as the competitive priorities. Operations strategy can be well expressed in four primary competitive priorities. These priorities include quality, low cost, flexibility and delivery performance (Francisco et al., 2012). The research method that was used in the case study was a qualitative interpretative methodology (Towers, 2012). It was used in examining the relationship between operations strategy and business environment. This method would help the case study in obtaining answers about why or how the phenomena or relationships between the variables observed in the operations management. The methodology was aimed at helping in the generation of deeper insights about the international retail operations problems and issues through the on-the-spot and direct observation data collection. This reason enabled the researchers of this case study to investigate how the retail managers in China initiate operations strategies so as to survive in a dynamic and competitive environment. The holistic, single case design was the adopted design in this case study. The case study intends to offer an understanding of how a multinational retailer can develop an effective operations strategy (Harvinder & Vinita, 2012). As far as data collection is concerned, in-depth interviews played a pivotal role. The purpose of the in-depth interviews was investigating the opinions of the interviewees on how they can develop competitive operations strategy so as to survive the current dynamic and complex market. In the attempts of minimizing the perceptual biases attributed to the specific roles of the managers, the researchers of this case study included the informants with diverse managerial and functional backgrounds from various levels. So as to achieve a worthy understanding of the company operations case, the researchers interviewed a stock person, a salesman and a cashier. Shop visits were also arranged immediately after interviews were conducted. Interviews were conducted, and tape recorded (Wantao and Ramakrishnan, 2012). The findings that were obtained from in-depth interviews are also presented in this case study. The main part of the findings examines the present business environment of the Chinese retail market within which A-retailer operates. It also included the cost of doing business in China, the environmental dynamism and competitive hostility (Francisco et al., 2012). The rising cost of business was cited widely in the interviews as the Chinese retail market’s characteristics. It was revealed that the cost of carrying out business in China was rising. China has been an anchor of global dichotomy and world’s factory between lower consumer prices and material prices. All interviewees indicated that rising transformational and rental costs, fluctuating exchange rates, and global financial recession are adding the cost of doing business in China. They also noted that labor costs’ advantage has been diminishing. This is because of labor contract law which was initiated in the year 2008. These laws increased costs of operating business in China (Towers, 2012). Competitive hostility also featured in the interview. The competition was arising from the local retailers as well as other foreign retailers. In China, retail sector has become increasingly competitive. The A-retailer faces stiff competition from both the local retailers and the international retailers. In the last few decades, some leading domestic giants have made a dominating sales record as well as a national brand name (Wantao & Ramakrishnan, 2012). The entry of China in WTO also opened up the retail market and consequently attracted more foreign investors. This has, therefore, created a hostile competition. Interviewees highlighted that the profit margin are relatively low. Especially in the retail food sector, some of the daily products have no profit margin at all (Francisco et al., 2012). Environmental dynamism is the last factor that featured out among the factors that were affecting the business operations. The interviewees noted that the lifestyles, as well as the shopping habits of the Chinese consumers, differ greatly with those of the western nations. One of the A-Retailer’s sales and marketing manager noted that for an entrepreneur to compete favorably in the Chinese retail market, he or she has to understand the basics of consumers unique shopping habits fully. In particular Chinese consumers emphasize on the economics of what they are purchasing and they are very cost-conscious. One of the interviewees noted that the Chinese consumers do not consider store brands and customers tend to shop at stores where they can acquire the required products at the cheapest price (Wantao & Ramakrishnan, 2012). The Chinese are, however, not just price sensitive, but they also value quality and convenience. It is also important to note that the standards of living in China have drastically risen. The interviewees, therefore, noted that the Chinese consumers have become more discerning and are demanding for high-quality products and services. Chinese consumers are hence pursuing a better quality life via better fashion clothing and quality products. This has, therefore, made it difficult for achieving and maintaining a strong customer loyalty in the Chinese retail market (Towers, 2012). The case study also offered a discussion, which entails the strategies, which can be employed by a business so that it can survive in the current dynamic and competitive environment. These strategies include quality, low cost, flexibility and delivery based strategies. Business environment and the low-cost strategy is the first strategy employable (Harvinder & Vinita, 2012). The case study’s data suggest that the retailers who are facing rising business cost tend to respond with great emphasis on low-cost strategy. It has been indicated previously that business costs have tremendously increased in China. Interviewees indicated that the A-retailers made enormous efforts so as to reduce its business costs, which include energy-saving store and the introduction of retail technologies. This help in improving retail productivity and efficiency. In general, innovation and technology are crucial during the retail internationalization process. Technology greatly helps the retail businesses to achieve a competitive advantage and consequently generate good profits (Wantao & Ramakrishnan, 2012). Business environment and flexibility strategy are the other ways that can be used by retailers so as to survive in the market. The case analysis implies that the foreign retailers require adapting the Chinese culture in various ways so as to succeed. Flexibility is very crucial in volatile business. It permits the company to exploit and respond the uncertainty over the future changes in areas like competitive moves, government policy and customer taste and preference. Understanding the Chinese culture is the major problem of doing business in China. This implies that for a retail market to survive in this market, they have to be conversant with the Chinese culture. Local market knowledge and flexibility are the keys to the success of a business in the market (Towers, 2012). The quality strategy is another strategy that can be employed. The interview revealed that the standards of living in China have increased drastically in China. This has in turn increased the demands for consumer goods (Francisco et al., 2012). The Chinese customers tend to go for quality products and services. This has triggered the Chinese government to establish an agency dealing with quality control and food safety. This implies that every retailer have to make sure that his or her products are of quality so that it can survive in the market. The delivery strategy is the last employable strategy that can help the business to survive in the market. The interview data reveals that standards of living in China have risen drastically over the last few decades (Harvinder & Vinita, 2012). This implies that consumers are demanding for higher dependability and speed. Time seems a crucial factor to the shopping experience of these customers. The interviewees indicated that providing a fast and a reliable delivery service to the customer is vital for the retail to succeed in China. This implies that delivery has to be part and parcel of the business if the entrepreneur expects to do well in business (Wantao & Ramakrishnan, 2012). Conclusion The study has analyzed the Chinese business environment in an effective manner. It has revealed that retailers with intentions of investing in a new market face numerous challenges. These challenges include cultural differences, rising operating costs, increasing consumer awareness and government regulation. It is evident from the case’s analysis that there are some factors, which impede the internationalization process. However, strategies, which can help the business to succeed in the available market, are available. They include low-cost, flexibility, quality and delivery based strategies. Flexibility, however, turns out to be an essential strategy of all (Harvinder & Vinita, 2012). References Francisco, J., Sarabia‐Sanchez, M. D., De Juan, V. & Monali, Hota, (2012). Using values and shopping styles to identify fashion apparel segments. International Journal of Retail & Distribution Management 40(3), 180 - 199 Harvinder, S. & Vinita, S. (2012). Determinants of shopping experience: Exploring the mall shoppers of national capital region (NCR) of India. International Journal of Retail & Distribution Management 40(3), 235 – 248 Towers, N. (2012). Editorial. International Journal of Retail & Distribution Management 40(3). Wantao, Y. & Ramakrishnan, R. (2012). Effects of business environment on international retail operations: case study evidence from China. International Journal of Retail & Distribution Management 40(3), 218 - 234 Read More