Global Environment of Business: A of AT&Ts China Strategy - Case Study Example

 AT&T’s China Strategy Telecommunications (TC) market Market Factors One of the main factors that had occurred once the entire Bell and AT&T system was dismantled was the formation of “mini Bell” companies which would have AT&T retain control of the former company’s long distance service. With the cost-per-minute rate continually declining by as much as 40 percent in the face of competition and growth was in the single digit in the US. This meant that the international markets would show a …much more positive, with annual growth rates in many cases of 30 to 80%. There had been a worldwide trend to deregulate telecommunications, and privatization of the industry was expected to happen in more than 100 countries through the year 2000 (Li, Li and Roberts, 1998; p. 3) Non-Market Factors Due to the strong competition that AT&T faced with respect to both the deregulation of long distance services and the competition in the central office equipment division found that their U.S. telecommunications hold was losing ground. Telecommunications (TC) industry Market Factors AT&T faced strong competition within the US and had practically no opportunity for significant growth at home; international markets were wide open and none more than China where the telecommunications infrastructure was practically nonexistent outside major cities. This situation was of particular importance to AT&T since their overall goal was to increase international revenues from 35% of the total to 50% by 2000. In fact, they expected that long-term China would represent 25% of the total revenues for AT&T. Non-Market Factors The Chinese government had labeled the capitalist experiment of the 1980s as a success and was ready to open much of the rest of the country to capitalist pursuits. Many of those areas lacked even electricity and would need complete infrastructure installations if they were to support any kind of business activity. China’s economy Market Factors Through China becoming the third largest economy along with being the world’s most populous country over the past two decades, the focus by many of the world’s multinational organizations were instrumental in playing an important role in the shift of labor in many of the developed nations. This growth also means that China plays an extremely crucial part in its demand of the world’s energy supplies as it continues to grow and continues to develop the infrastructure that only a few years previously was non-existent in many remote regions. The effect on AT&T was that it was facing a saturated market in its home country but it had the means and ability to supply the emerging telecommunications industry in China. Non-Market Factors One of the world's oldest cultures, China has been undergoing immense social and economic changes over the past generation. It still rigidly adheres to communist ideology, while yet adopting measures to facilitate freer economic principles. The people are benefiting, but only by default. In addition to its capitalist experiment, the government made households and villages responsible "in agriculture in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing" (China, 2006), with the result that GDP has quadrupled since 1978. "Measured on a purchasing power parity (PPP) basis, China in 2003 stood as the second-largest economy in the world after the US, although in per capita terms the country is still poor" (China, 2006). Impact on AT&T Market Factors One of the larger problems that AT&T face since their trying to get back into the Chinese marketplace is in trying to entice the Chinese government into buying into a “one enterprise” concept as well as balance a company-wide decentralized product business unit structure with a market-focused regional structure found in China. As the government controls much of what is viewed by the citizens on such mediums as the Internet, AT&T could look to bundling many services together to form a more niche market availability. Non-Market Factors The issues surrounding how much of an impact the introduction of new methodologies in making new market introductions in China would improve relations with the Chinese people in enabling them to become more diversified in their international trade abilities. AT&T’s Organizational Issues in China Supply & Demand Market Factors China's government embraces capitalism as the only sustainable method of supporting China's people, but still retains its communist ideology which results in a hybrid system that often provides only the worst of both systems: the bureaucracy and lassitude of socialism, along with the "growing income disparities and rising unemployment" (China, 2006) of capitalism. "China thus has periodically backtracked, retightening central controls at intervals" (China, 2006). Non-Market Factors Multinational organizations from all over the world have flocked to China over the past two decades, eager to take advantage of cheap labor and so reduce operating and production costs. Many were “driven there” by similar market saturation problems in their homelands with the need to expand internationally in order to sustain growth and driven by the potential resource of cheap labor. Buyers Market Factors From AT&T's perspective, the potential industry earnings (PIE) in China were immense. In the US, development was such that regional Bell operating companies (RBOCs) were replacing much of their central office telephone equipment, particularly as they upgraded to the newly-available digital telephone switches available from Northern Telecom, Alcatel and others. Figure 1 illustrates competitors' positions in the US market several years after AT&T entered the China market. Figure 1. Digital Switching Market Share 1993 Source: (Li, Li and Roberts, 1998; p. 20) Non-Market Factors Demand and supply characteristics were greatly different in China than in the US, where demand was driven by the need for the local, individual telephone operating company (Telco). Many larger telcos had upgraded from analog to digital switches; by the mid- and late-1980s smaller telcos were following suit. Digital switches were more reliable than the old analog types and though they were more costly to buy, they also were more economical to maintain and operate. Suppliers Market Factors Almost any direct investment in China requires, since 1993, a joint-venture arrangement which include: Equity joint venture – A Chinese company and a foreign partner both participate in day-to-day management Contractual joint venture – risk is divided by contract rather than by capital contribution (about 15 percent of joint ventures are contractual) Wholly foreign-owned enterprise – this structure provides both the greatest control and the greatest risk for foreign firms; the Chinese government promotes this structure for technologically advanced and export-oriented industries. Non-Market Factors The important characteristics of the Chinese socialist system that plays a role in the non-market environment include the government playing gatekeeper across industries, government policies with respect to meeting market demand, human rights violations and lack of legal expertise on the part of the government in setting disputes. AT&T’s competitors Market Factors Some of AT&T's US competitors were present in China as well, but only AT&T could offer a history of and experience with both providing and operating telephone services. Although AT&T's history of operating telephone services was not as important in the US it was found to be an asset in China was in buying the hardware and not so much in the software that AT&T was offering along with the telephone hardware. Non-Market Factors A significant non-market environmental issue facing multinational corporations in 1993 was tying renewal of most favored nation status to human rights concerns, which was insisted on by the administration of former President Bill Clinton. Impact to AT&T Market Factors Technology transfer and physical infrastructure development were key enablers for continued economic growth in China. Industries offering the prospects of technology transfer and/or providing help in developing the country’s infrastructure were targeted as priorities. Multinational corporations in those industries received special treatment in the approval of investments by the Chinese government. Non-Market Factors As China has implemented its market reforms, power has shifted to provincial and local governments. Increasingly, provincial and local governments act independently of the central government, adding complexity for multinational corporations attempting to gain a foothold in China. Read More