Monowears Design Entry Strategy into China - Case Study Example

Name Institution Tutor Date Executive Summary Monowear Design has decided to enter the Chinese market, has already registered a subsidiary company and therefore intends to enter the country as a wholly foreign owned enterprise. This report identifies its mode of entry into China as that of an exporter, with the recipient being the local subsidiary. The corporate objective will be to establish systems for ensuring efficient delivery and promotion of the MonoCharge in China, and the organizational design will adopt a global area structure. Expansion will begin from the two initial target areas to others with notable high potential before extending to the rest of the country. The operational strategy will be region-based, with research and support services being provided. A polycentric approach to staffing will also be implemented and capital requirements related to setting up of operations and payment of staff will be sourced from the headquarters. Introduction In the current globalization era, businesses seek to explore market opportunities beyond national borders as a way of maximizing their profitability (Tiwari, 2013). In this respect, Monowear Design, the manufacturer of the MonoCharge an innovative wireless charger for Apple devices is set to move into the Chinese market due to the massive potential which the country presents (Monowear Design, 2015). There has particularly been an upsurge in the use of the iPhone and other Apple Watches, a feature which Monowear is set to exploit as the manufacturer of a complementary product (Evans, 2015). Having decided to establish its subsidiary in China, this report provides an outline of the various components of the entry strategy to be adopted by Monowear as it sets up its business. Nature of Monowear’s ChineseVenture The nature of Monowear’s business in China will be a Wholly Foreign Owned Enterprise. This is informed by the advantage of being able to enjoy more flexibility in its operations in addition to greater managerial control, an easier process of employing workers without restriction and profits being able to be converted to US dollars for easier financial management by the home office. It will essentially be a Green Field investment which according to Colakoglu et al. (2009), refers to a situation where the parent company starts its new operations from the beginning rather than initially entering into a joint venture with a Chinese firm as many businesses tend to do. For Monowear, this is intended to help maximize the degree of control that the headquarters in San Francisco will have on the China subsidiary. Mode of Entry into China Monowear will be a direct exporter of the MonoCharge into China. The direct export approach is the most effective when the business involves unique products which are relatively less in quantity, do not already have a well-developed distribution network, and is mostly applicable for technological exports (EU SME Centre, 2013). Most importantly, when the approach is taken, the business will have more gains because of the elimination of middlemen who are a common feature in other modes of entry. Approach to Export Monowear will use direct channels for entering China, where it will simply supply its product to the local representatives of the company, as there will be a locally registered subsidiary (Tang et al., 2011). This is a viable arrangement because according to EU SME Centre (2013), reforms and decentralization in the country have ensured that international firms are currently allowed to sell directly to distribution companies in China or even to end users and third party companies that are independent. The two main anticipated benefits of using the entry approach are; i. It will be a relatively low cost venture because of minimal overheads involved ii. It will be generally easier and faster to set up Corporate Objective The corporate objective of Monowear in China will be to ensure the creation of systems that will ensure optimal promotion, delivery and sale of the product within the Chinese market. Timely stocking, distribution and appropriate pricing of the MonoCharge is hoped to ensure that the brand becomes an item of choice for all Apple customers. Organisational Design China is large and diverse, with its different provinces having unique characteristics, just like different countries (Sovereign China, 2015). Monowear’s organizational design will try to ensure the implementation of strategies that are geographically specific, hence a global area structure (Peng, 2013). The decision-making patterns in each of the regions will seek to handle the needs of local distributors and retailers. The regional divisions will each have a regional manager who will be in charge of a considerably autonomous business unit, which will in turn be supported by its own local functions. The regional organization will function as a free-standing business that will be having a lot of local authority, and also responsibility for its own profits and losses. The regional manager will be answerable to the headquarters in the United States. There are a number of reasons why the global area structure is best. These include; a. Better understanding of the local settings. Because it will be based in the exact geographic settings, such an office will be able to develop effective strategies that will deal with particular unique conditions while satisfying the needs of its stakeholders b. Quicker responses to change in local conditions. A regional firm will tailor its own managerial approaches to ensure that expectations and needs of the company will be optimized, hence each unit can change faster in response to environmental challenges c. Leadership development will be increased. Managers will end up being pressured to provide stronger leadership at a high level, as a result of which they will gain maximum experience considering the extensive exposure to top management when leading d. Development of greater local responsiveness. The design will ensure a locally responsive approach to the use of distribution, marketing or other kinds of strategies e. Increased brand growth. MonoCharge will be able to benefit from its global branding, considering that it already has a great brand equity f. Effectiveness of functions. Monowear will be able to minimize the possibility of any functional personnel’s duplication of effort, which is usually possible when the other designs are applied g. Increased productivity. The fact that workers will be grouped together depending on their location means that they will be more focused on their branch objectives hence performance will be increased Scope of Expansion Even though China is a geo-politically unified country, it is very fragmented economically and socially, depending on where one is based so that according to Yisheng (2011), it is more of a collection of submarkets that are different in population density, income levels, GDP, lifestyles, education levels and spending habits. Considering this, MonoWear will target four main provinces as points of entry into the greater Chinese market. First will be Jiangsu and Guangdong, then Zhejiang and Shanghai as the business expands (Taulamo & Tulikoura, 2011). These are coastal provinces that generally have higher income and population levels than the others (Sovereign China, 2015). Monowear’s expansion will therefore involve starting from the initial two cities and penetrating down to the smallest units, with the aim of ensuring that anyone who needs MonoCharge supplies can get it within their city. As its distribution grows, it will extend to the two other major coastal cities and later basing on market studies, to the lesser potential provinces and across the country. Operational Strategy Operational Structure China’s market will be divided along provincial lines, and under them specific cities. Each of the provinces will be referred to as a Monowear region and led by a regional manager. The regions will be subdivided further as follows: a. Areas. These will comprise of cities within the regions and each will be under an area manager who will be answerable to the regional manager b. Sectors. These will be subunits of the areas, and each will be led by a sector sales manager, who will be answerable to the area manager. The sector sales manager will be responsible for actual sales and sales teams Apart from supervising the sector managers, the area manager will facilitate all the human resource, customer service and promotional activities. The regional manager will on his part be in charge of strategy formulation for MonoCharge sales throughout the province, with input from the area managers, who will be responsible for gathering of necessary market data. Each regional office will develop itself into a competitive entity in its particular province, and because of this it is expected that in the largest cities, the company will be able to grow its sales to the level of the American headquarters. Because culture is a significant component according to Treven (2001), Monowear will incorporate elements of Chinese culture in all operational functions, and top management will especially be encouraged to develop a learning culture so as to adapt. Supply and Distribution The products will be imported from the United States. This is preferable than for instance manufacturing locally because it will enable Monowear to avoid expenses related to establishing its operations afresh in China. The company will however work hard to ensure efficient distribution and marketing of the MonoCharge in China, and this will be done through establishing contracts with local distributors or even retailers. Pricing, packaging and labeling will however be effectively done so as to suit the market. Advertising and trade shows will be used in maximizing awareness about the brand. Market Information Monowear will use Chinese consultants in understanding the market as much as possible, and also observing trends and making changes in strategy whenever required. None of the branches in China will have a greater position than the other. The company will ensure that it conducts its own market research and establishes every administrative requirement for instance meeting relevant certification and standard, licensing and labeling requirements. It will also handle its own relations with banks, freight forwarders and customs authorities. Staffing Policy The company will adopt a poly-centric approach in staffing. In this, Chinese managers and supervisors will be in charge of day to day operations and will also comprise the entire workforces of the different business locations (Drachal, 2014). However, the regional headquarters for each province will be run by American nationals, who will be reporting to the home office in San Francisco. Employing expatriates to senior management will enable more operational control. There are a few expected challenges from the approach according to Tian (2007), compensation costs and lack of knowledge about Chinese business and cultural practices. The limitations will however be compensated for by Chinese middle-level managers and employees, therefore providing better understanding and knowledge of the Chinese markets and business in general while ensuring lesser labour costs. It is expected that: a. Chinese employees will have valuable contacts with authorities in the local government, and many potential customers b. Filling the majority of key positions in the country with Chinese employees will help to save the expenditure associated with the training, recruitment and transfer of expatriates c. The polycentric approach will ultimately enhance organizational learning relating to local markets, and this will contribute to growth of the business d. The strategy will offer better chances for Chinese employees to build their careers because promotions will be given The company will ensure maximum levels of autonomy for employees and managers, and senior management will have to rely on the middle-level managers as much as possible. Promotions for the local managers will however be only provided when it will be possible to admit them into higher positions but within local operations, while the top corporate and central positions will remain reserved for American citizens. Internal Strengths and Weaknesses There are a number of internal features of the company that will affect the success of entry. Strengths A solution-oriented Chinese workforce. The possibility of cultivating critical thinking and problem-solving orientation in line with their culture is likely to make it easy to identify potential problems which could arise, hence dealing with unexpected challenges An innovative culture. The company’s home employees are young, tech-savvy and innovative people who commit themselves to the development of new approaches to any arising technological issues whenever they might arise (Monowear Design, 2016). Access to financing. Monowear is likely to be able to access credit financing due to its reputation and previous successes in the American market Motivated and well managed employees. The Monowear workplace is characterized by a high level of motivation, with management focusing mainly on the intrinsic aspect of motivation, and according to Raza et al. (2015), this is important in ensuring productivity and competitiveness Anticipated demand for the product. The market demand for Apple products is generally on the rise, as a result of which MonoCharge is going to be exposed to the largest and second largest markets globally hence higher revenues Positive interpersonal relationships. The strategy will ensure that employees are motivated to always seek quality and productivity, with an employee-centred approach in management that will empower and engage them fully Weaknesses There are four main identifiable weaknesses of Monowear Design as it enters China; a. Small size of the firm. Monowear is still a small business, yet the Chinese market presents the potential of huge demand for its product, and this raises the question of whether it will be able to adjust quickly to the demands of the internationalization process b. High operating costs in USA. The production process for MonoCharge will be based in the United States, where costs are notably higher, for instance in relation to labour when compared to a place such as China c. Non-universality of the product. The MonoCharge is entirely meant for Apple products yet other smart phone and other mobile device brands are quickly growing, therefore the company is missing out on an untapped market d. Adoption of a poly-centric staffing approach. The use of several American managers will be a financial burden because of the expenses in adaptation, relocation and compensation Key Strength and Weakness The key strength arising is the innovative culture in the American firm. Considering that the MonoCharge is a technological gadget, this is important as it will enable the company to leverage technology in ensuring a constantly updated and therefore competitive or attractive The key weakness on the other hand is the high operational costs in the United States. Price competitiveness is a crucial aspect of business, so that if costs are not controlled or minimized it is likely to pose a threat to the business, especially if a competitor arises and decides to have a manufacturing plant in China where labour costs are relatively suppressed. Capital Requirements The home office will incur some expenditure upon entry. It includes expenses on; a. Premises. The company will need to lease office and warehouse spaces in the four cities, as distributors will be picking the product from these points b. Legal compliance. Funds will be needed for the various fees, permits and licenses that will be required by local authorities in the various locations c. Logistics. Considering that the product will be imported by sea, its delivery to the warehouses and further inland will require the use of rail and transportation trucks d. Promotion. There will be the use of television and billboards to advertise the products, with other forms of branding being done in trade fairs and mobile retail outlets e. Consultancy. The company will require consultancy services from time to time, especially relating to staff recruitment, training and marketing f. Employee pay and benefits. There will be payment of salaries, wages and other benefits for both local and expatriate staff employed in the operations Conclusion Monowear Design’s entry into China will be as a wholly owned foreign enterprise, mainly so as to secure headquarter control over its operations. The mode of entry will be export, with the parent company manufacturing and exporting the MonoCharge to its subsidiary registered in China. The company has various strengths and weaknesses, but the main ones are the manufacturer’s innovative culture and the higher production costs respectively. The corporate objective will be to create structures and processes to ensure efficient delivery and sale of the MonoCharge, so as to make it the most preferable brand. The entry will adopt a global area structure so as to cater for the geographical variations in the country, and will expand from two coastal cities to others then the rest of China. The operational strategy will have decentralized activities within regions, and management will ensure the provision support functions to sales, which will be the main activity. A polycentric staffing policy will be applied and capital for establishing operations drawn from the headquarters. References Colakoglu, S, Tarique, Ibraiz and Caligiuri, P. (2009). Towards a Conceptual Framework for the Relationship between Subsidiary Staffing Strategy and Subsidiary Performance. The International Journal of Human Resource Management. Vol. 20 (6): 1291–1308 Drachal, K. (2014). What Do We Know From EPRG Model? Ecoforum. Vol. 3 (2): 85-92 EU SME Centre. (2013). Ways to Enter the Chinese Market. Beijing: EU SME Centre Evans, J. (2015). Apple Sold over a Million Units of Apple Watch in China. Retrieved on 11 August 2016 from Monowear Design (2016). MonoCharge: Wireless Charging Reimagined. Retrieved on 11 August 2016 from Peng, M. (2013). Global Business. 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Poverty Reduction and Sustainable Development in Rural China. Leiden: Brill Publishers Read More