The Strategy of International Business - HTL Company - Case Study Example

The Strategy of International Business Company HTL Company Background information HTL is a mobile phone manufacturing company that came into existence 5years ago. The headquarters of the company is based in Beijing China. HTL mainly focuses on the manufacture of cheap mobile phones. These mobile phones targets users with low income and in need of a phone to enhance communication with family, friends or even business partners. The idea to focus on the manufacture of low-cost mobile phones was the brainchild of the firm’s founder Mr. Lee Chen. His idea has yielded fruits as evident in the company’s large sales volumes in the past 3years. Presently, the firm’s products are found in China that has a large customer base of low cost mobile phone users. Last year, the firm’s sales volume from six regions (Beijing, Shanghai, Tianjin, Guangzhou, Wuhan and Hangzhou) in China amounted to over $10billion. This figure is further expected to increase this year, indicating that the future prospect of HTL is bright. While the firm’s headquarters is based in Beijing, China, it also has branches spread across China that mainly focuses on sales. The philosophy of the firm is to maintain a focus on innovation and as such, the firm has established an R&D center in Beijing, China that is charged with ensuring that the products they produce meet the demand of customers in addition to developing quality products. Due to the reception that the HTL mobile phone is receiving from low income earners in the markets the product has penetrated, the CEO of the firm announced recently in the board meeting that there is need to look for new markets as a way of spreading risks in case the product lose market locally. The targeted market At present, the market targeted by the HTL Company is Africa since it is currently the largest market for mobile phone use. As such, it offers HTL a new opportunity to expand its business and take advantage of its economies of scale to counter competition from other large mobile phone companies venturing into the African market such as Samsung and Huawei. At the moment, the use of mobile phones in Africa is increasing at a rapid pace, and this provides market opportunities for mobile phone manufacturing firms globally. Most countries in Africa begun using mobile phones merely 9-10years ago thus making the continent the new market opportunity for mobile phone manufacturing firms. According to statistics released by ITU (International Telecommunication Union), Africa is considered as the rapid growing market for mobile phones. For instance, in the past five years, the use of mobile phone in the continent surged by averagely 65% thus surpassing the global average for mobile phone use (Aker & Mbiti, 2010). Consequently, these statistics presents good news for investors and manufacturers in the mobile phone sector. On another note, the reason Africa presents a great market potential for mobile phone firms is because, the continent still lags behind when it comes to the use of the land-line telephone. This is due to the persistent poverty in the African continent where most governments are unable to afford the cost of fixing landline telephone services (Aker & Mbiti, 2010). However, mobile phone networks provide Africans with a cheaper alternative to the landline telephone. The continent also faces other problems such as constant civil wars that have made it difficult to develop infrastructures such as the landline telephone. However, mobile phones are unique in the sense that they penetrate even regions affected by natural disasters, civil wars and regions without a legitimate government (Asongu, 2013). For instance, mobile phone firms have penetrated war-stricken countries such as Democratic Republic of Congo and Sierra Leone. As such, the market growth for mobile phone use is unique and firms looking for new markets to venture needs to consider exploring the African market. Prior to the introduction of mobile phones into Africa, the focus was on landline telephones. However, these were a few in the sense that one landline telephone could serve thousands of users. As such, communication over the telephone was almost impossible, and people separated geographicallyrelied on post mails to communicate with each other (Carmody, 2013). Currently, there are countries in Africa and, in particular, the Eastern Africa that expects double-digit growth in the use of mobile phones within the next two to three years. In the Eastern Africa alone, there are over 30million mobile phone subscribers. However, firms that intend to exploit the African market need to consider challenges that include, for example, high tax rate levied on mobile services and poor network coverage that can add unnecessary expenses for the prospective companies intending to venture into the African market (James, 2014). An economic downturn can also affect negatively on the mobile firms intending to invest in the African market. However, the mobile phone firms intending to enter the African market can overcome most of the challenges by being innovative in terms of developing other services to generate profits needed to offset additional costs for setting up business in the African market. With the growth of mobile phone use in Africa, the mobile network operators are also improving their services to meet the demands of a rapidly growing customer base. These operators have laid more emphasis on innovation to develop other services that attract customers to the use of mobile technology. Such innovative solutions include, for example, money transfer services. A service such money transfer has the potential for revolutionizing the use of mobile phones in Africa because it offers users a quick alternative for making transactions. Further, the growth in the use of mobile phone in Africa also plays a role in improving economic development (Aker & Mbiti, 2010). This is because; the more mobile phone firms venture into to the continent, the higher the chances for creating employment opportunities. As a result, more people will have money in their pocket and thus increasing consumer spending that include, for instance, purchasing a new mobile phone handset. In essence, as mobile services increase in Africa, the growth of supporting sectors also improves thus increasing the number of subscribers as a result of revenue growth. However, while most mobile phone firms are looking at the rapid growth of mobile phone use in Africa, HTL is looking at the African market from another perspective not similar to the competitors (Porter et al., 2012). HTL recognizes that the poverty level in Africa is still high due to challenges such as high unemployment rate, corruption, natural disasters and persistent civil wars. As a result, many people lack the income to afford the modern day smartphones, for instance. This necessarily does not mean that smartphones are not sold on the African continent. These phones are available but at a cost not affordable to most of the low-income population in the continent. In this regard, HTL has recognized the need to introduce to the African mobile phone market cheaper handset that is affordable to the population living below poverty level. The use of mobile phone in Africa has become necessary with the introduction of other services by mobile phone network operators such as money transfer, for instance (James, 2014). As a result, a low-income earner working in the informal sector in Nairobi city, for example, can send money to his family back in the rural area. Previously, this was not possible since the low-income earner in the informal sector could not afford a mobile phone handset. As a result, they used emissaries to send money to their families back in the rural area. On the other hand, money transfer service such as Mpesa has helped save lives, improved food security and enhanced economic development in Kenya (Aker & Mbiti, 2010). For example, when a person is sick back home, a family member in the city can send money home and the sick relative rushed to the hospital immediately. On the other hand, a person working in a town far from home can send money back home to be used for purchasing seeds and fertilizers during the plantation seasons. In essence, mobile phone technology has revolutionized communication in the African continent. However, all these services that the mobile phones allow users to access are only afforded by those who can purchase the mobile phone handset (James, 2014). Those with low income are still in a position where they cannot assist their loved ones back home because they do not have a mobile phone handset that they can use to send money home faster or communicate in real time with significant others in their lives. In this sense, the low-income earner is blocked from exploiting the opportunities that mobile technology has brought to families in the African continent. HTL Company believes that the introduction of a cheaper mobile phone handset will ensure the low-income earners in the African continent also enjoy the benefits of mobile phone communication. While most mobile phone firms venturing into the African market are eager to rush to the big cities, HTL’s intention is to target Africa’s rural areas before expanding to the big cities. The company recognizes the market potential in the rural areas that have been ignored since the advent of mobile phone use in Africa over a decade ago (James, 2014). This population also wants to enjoy the benefits brought by the use of mobile phone, but there is no mobile phone firm that is interested in venturing into the rural Africa. Most of the firms complain about poor infrastructure in the rural Africa and too many risks venturing into the rural area. However, HTL recognizes that by bringing the mobile phone to the rural people in Africa, they will open up other market opportunities and thus improving economic development in the rural areas. For instance, when the rural people access a mobile phone, they can exploit services such as money banking. Since most of the trading centers or towns are miles away from the rural people, they can use their mobile phones to save and transfer money to their bank accounts (Aker & Mbiti, 2010). In addition, transactions between traders in the rural areas in Africa can be done using a mobile phone rather than cash. In essence, mobile phone use in rural areas can open up many opportunities that include the growth of trading centers and improvement of infrastructure to open up routes for trade. The company looks at the future and how the production of affordable mobile phones can assist the disadvantaged in the society to improve their living standards. The use of mobile phones plays an important role in the society by improving the means of communication between two people or more. In the rural area, mobile phones can be used for many roles other than improving communication between two people or more. For example, mobile phones in the rural areas can be used for emergency purposes. Since the rural Africa is considered remote, contacting a loved one in times of emergency is a challenging task when there is no a quicker medium to pass the message. As a result, taking the mobile phone to the rural Africa can help families to contact their relatives in the cities in times of emergencies. Mobile phones in the rural Africa can also be used for security purposes such as alerting the authority in case of a security emergency (James, 2014). Most of security posts are located miles away from the rural people, and it takes time for any communication to reach the authorities without the use of the mobile phone. HTL has recognized all the challenges faced by the population in rural Africa and has decided to penetrate the rural market before expanding to the big cities and urban centers in Africa. The market opportunity for mobile phone in the rural area is vast because, this is a new market that has not been exploited by any other mobile phone firm. In Africa, 70% of the residents live in the rural areas. As such, taking a low-cost mobile phone to the rural market reflects on their spending power. The rural populations are not a working class, and most of them are peasant farmers and rely on the income that most time can only support their family members. However, a mobile phone that is pocket friendly can attract rural people to start buying mobile phone handsets. The company also intends to liaise with some of the largest mobile phone network operators to ensure that the areas that they set business have a mobile phone base station for purposes of improving the network connection (James, 2014). Market entry strategy While the mobile phone market in Africa is experiencing significant growth, Africa, in general, is volatile, and this can affect the market. Most countries in Africa are either in political turmoil or facing civil war and thus making it unstable for prospective firms intending to invest in the continent. In addition, poor governance that is rampant in most countries on the African continent can also impact on firms intending to set up business in the continent. This is because, where there is poor governance, corruption flourishes. Consequently, foreign firms are in a risk of exploitation by corrupt government officials who may want bribe to provide trade license thus compromising the rules of fair trade in a globalized market economy (Deutschamann, 2014). The politicians can also exploit the foreign companies by asking for political favors such as funding their political campaigns and this tends to reduce profits. The availability of skilled work force is also scarce in most parts of Africa and this force companies to spend more on training the semi-skilled locals to help in marketing their brands. In other occasions, foreign companies venturing into the African market may be forced to hire expatriates to speed up their establishment in the market (Deutschamann, 2014). On the other hand, since Africa provides a new market for the mobile phone handset, every firm involved in the manufacture of the mobile phone handset is rushing to get a share of the market. As a result, the market becomes congested, and many firms lose profits due to significant lowering of prices to attract more customers. Protectionist policies applied by some governments may also interfere with the plans of firms intending to venture into the African mobile phone market. Some governments, for instance, may demand that the foreign firms allow locals to be part of their company. However, this can interfere with the foreign firms exit plan. Due to these numerous challenges that may affect the firms planning to venture into the mobile phone market in Africa, it is important to adapt a market entry strategy that will not affect negatively on sales and profits. There are different market entry strategies that include, for instance, franchising, licensing, joint ventures, acquisition, and direct export (Ofek & Turut, 2008). HTL market entry strategy As a company that enjoys economies of scale, HTL has the resources to maintain a focus on direct export as its market entry strategy in Africa. The company has the required capabilities to export its products directly to the African market. However, it is important for the firm to establish its sales program on the ground as a way of reaching out to more customers in the market (Deutschamann, 2014). The company can also rely on agents and distributors to help in establishing their market base in Africa. In different regions in China, HTL has already established branches that are in charge of representing the firm’s interests in those regions. Similarly, HTL is also considering establishing branches in the Sub-Saharan Africa and, in particular, Democratic Republic of Congo, Tanzania, Kenya, and Rwanda respectively. The company has an interest in the aforementioned countries because; the rural population is more likely to welcome HTL’s idea of selling affordable mobile phones to low income earners (Ofek & Turut, 2008). In addition, a country like DRC is embedded with rich minerals that are found in the remote regions of the country and improved means of communication is necessary to ensure that mineral dealers both foreign and local can overcome communication barrier created by a difficult geographical terrain to navigate. For instance, foreign dealers prefer staying in the capital city, Kinshasa while the locals deliver the minerals to the city to be sold to foreign dealers. Communication is vital for this business because, minerals such as gold and diamond are transported from remote areas that are miles away from the city. In addition, there are many risks on the road before the minerals are delivered to the dealers. The country is also embroiled in decades of civil war and faster form of communication is necessary when dealing with emergency situations. The country is also one of the most populated in Africa, yet there are only 1million mobile phone users. As such, this is a market opportunity that HTL can exploit to improve its sales and profits. In Rwanda, the economy is mainly agricultural and most of the farmers are based in rural areas (Ofek & Turut, 2008). HTL intends to target the farmers who are in dire need to improve their means of communication with traders in the urban centers. On the other hand, while HTL has the necessary resources to focus its market entry strategy on direct exportation; it still needs to engage in a joint venture with a formidable mobile service network operator because they are the ones who make sure that communication takes place between mobile phone users who subscribe to their line or network. The joint venture between a mobile service network operator and HTL should focus on fast tracking the installation of mobile phone masts in regions that HTL intends to target for its products. When these regions are connected to mobile phone networks, then it will be easier for HTL to sell its mobile phone handsets to the targeted users who reside in the rural parts of Africa. Without any network connection, selling the mobile phones to rural users can pose a challenge for HTL (Deutschamann, 2014). PESTEL analysis of mobile phone market in Africa Political factors In Africa, politics is a key influencing factor in business and, in particular, control of the market. In most African countries, their domestic market is still under the monopoly of the government, and this tends to affect foreign direct investment. Most parts of Africa is also under political turmoil, and this can affect firms with intentions to set up their businesses on the continent. In other instances, politicians in some parts of Africa can use their influence to demand favors from foreign firms intending to invest in their constituency or locality. Prior to expanding into the African market, HTL Company needs to consider these political factors because they can affect the business. In addition, other factors that fall under political influence include, for example, entry mode regulations, tax policies, and trade regulations. As such, it is important for HTL to explore the opportunities and threats that exist in the African regions it intends to set up its business. However, while there are numerous political challenges that affect foreign direct investment in Africa, there are also a number of countries that have embraced democracy. In such countries, there is political stability and HTL should consider factors such as political stability of the regions it is expanding its business (Yuksel, 2012). Economic factors The African continent is still lagging behind in terms of economic development, and most countries rely on foreign aid. Further, the economic downturn experienced in Africa also impacts on the consumer spending. Conversely, the unemployment rates are high, and most people leave below the poverty level. However, HTL has noticed this challenge and taken an approach where they have developed a product that is pocket-friendly for the low-income earners in Africa (Yuksel, 2012). Social factors Since the introduction of mobile phone use over a decade ago, its popularity has surged, and more people are buying a mobile phone handset to ease communication with loved ones and friends. However, not everyone can afford to buy the mobile phone handset. HTL on its part has noticed this disparity and has decided to target low-income earners who want to own a mobile phone handset. The company also recognizes the rural population that has been left out in the era of mobile phone use and has made it a priority to expand its business in rural Africa before moving to the big cities (James & Versteeg, 2007). Technological factors With regard to technology, Africa still lags behind compared to the developed nations in the West and other parts of the world. However, as a result of globalization, technological development is increasingly becoming Africa’s priority in the 21st century and among such technological development is in the area of information, communication and technology. As a result, Africa is now considered the largest market for mobile phone use. This has led to foreign firms involved in the manufacture of mobile phone handset to compete for the share of the mobile phone market in Africa (Yuksel, 2012). Environmental factors There are a number of environmental issues that are often raised regarding the use of a mobile phone handset by environmental activists. Such advocacy often affects the sales of the mobile phone handset in the market. In addition, environmental activists also assert that the mobile phone masts installed within residential areas have some radiation effects. These are some of the environmental concerns that HTL may face while expanding its business in Africa (James & Versteeg, 2007). Legal factors Different regions have their own laws and regulations, and this may affect foreign firms intending to expand their business across borders. Setting a business in a new region means that the entity has to deal with new rules, and this can derail business activities. Further, these laws and regulations also influence the extent to which a market can be competitive. This may involve regulations allowing for the free market to thrive or those that restrict the movement of foreign firms in favor of the local firms. As such, HTL needs to consider the laws and regulations adopted by each country to ensure that it does not face unnecessary constraints when expanding its business to Africa (Yuksel, 2012). S.W.OT Analysis of HTL Company Strengths As a company that attracts millions of cheap mobile phone handset in China, HTL enjoys economies of scale that it can exploit to expand to new markets. Further, the company has a pool of skilled and experienced workforce that helps to improve HTL’s business prospects. HTL also maintains a focus on innovation, and this has contributed to the development of a new and cheap mobile phone handset that can be afforded by the low-income earner in the developing world, for instance (Aker & Mbiti, 2010). Weaknesses HTL has to deal with the high cost of labor at its manufacturing plant in Beijing, China. Further, the company sources for its materials outside the country and this increases the production cost. Conversely, because the firm is maintaining their focus on producing a handset that can be afforded by low-income earners, they have no option, but to shoulder the additional cost of production. At the moment, the firm is considering opening a new manufacturing plant in Vietnam because of nearness to the source of raw material and labor cost is cheaper compared to Beijing (James & Versteeg, 2007). Opportunities Currently, HTL is in a vantage position to expand its business to Africa. While competitors may lack the necessary resources to expand to a vast mobile phone market such as Africa, HTL has the capabilities to take a larger share of the African market on the market share in Africa. Further, the firm is in a unique position to improve sales and profits by targeting the rural mobile phone users who have been neglected for years by other mobile phone firms that have expanded their businesses to Africa (Stork, 2011). Threats Since Africa is the largest market for the mobile phone handset at the moment with over 65% of the global market share, every mobile phone company wants a share of the Africa market. As a result, there is stiff competition between mobile phone firms that are struggling for a share of the market. Other threats that can affect HTL’s expansion of its business in Africa include political instability, civil war, and stringent government policies such as high taxes levied on mobile phone companies (James & Versteeg, 2007). The international business strategy of HTL Company HTL’s international business strategy involves a focus on a multi- domestic strategy where the products they manufacture are customized to meet the needs to the targeted customers in different regions that it has set up its businesses. For example, the mobile phone handset from HTL that it intend to export to the African market are specifically developed for the low income earners and may lack features that are found, for example, in more expensive phones that target middle and high income earners (Peng, Wang & Jiang, 2008). Management and leadership at HTL Company The management and leadership at HTL are decentralized to improve efficiency since the company covers a wide geographical region in China and now Africa. In addition, the top management prefers a focus on teamwork and thus allowing employees of the company to work in groups. While the firm’s headquarters is based in Beijing, China, other branches also have managers who are given autonomy to manage the affairs of HTL in their regions. On the other hand, the firm focuses on a democratic leadership style where employees are part of the company’s decision-making process (Indermun, 2013). Competitive strategy HTL maintains a focus on developing unique products, and this provides the company with a competitive edge. For example, while its competitors are targeting mobile users in the cities in Africa, HTL has decided to target the low-income earners both in the rural and urban centers of Africa. Further, it has developed a low-cost mobile phone handset that is pocket friendly to low-income earners. This provides the company with a differentiation strategy (Weerawardena, 2003). Corporate strategy HTL focuses on building its internal competencies through sharing of knowledge and skills between its branches in China, to come up with a unique global brand (Hong-Wei, 2008). Present and future strategic plan At present, the firm’s attention is to expand to the mobile phone market in Africa where it can use its economies of scale to improve sales and profits. However, for future plans, the firm is anticipating venturing into other technology platforms such as the manufacture of electronics that include Smart TVs, for example, that are becoming more popular with the millennials. On the other hand, the firm is also contemplating engaging in corporate social responsibility to give back to the communities that have made the company what it is today. In this regard, various projects are in the initial phases in China that is meant to provide an educational scholarship to the youth (Bellenfant & Nelson, 2002). Conclusion HTL Company brings services to a group of customers that have been ignored from time to time because of their low income. The low-income earners also have a large customer base and can be a target market for both small and big firms who intend to sell their products for profits. Having noticed this gap, HTL has established an empire by mainly focusing on the low-income earners to sell its products. Currently, the company has also identified an opportunity in Africa and is exploiting the same strategy. However, in this new market, the company is not only targeting low-income earners, but also the people in the rural area who have been cut out from this era of advancement in communications technology. The company believes that the potential to improve its sales and profits depends on reaching out to the African population in the rural areas. 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