Japanese Electronics Industry - Term Paper Example

School: Topic: Case study: extra advice for Elecdyne Lecturer: Contents Introduction 2 Current/Future Business Environment 3 Choices for company 5 Strategic Decision 9 Conclusion 14 References 15 Introduction Elecdyne operates in the Japanese electronics industry as a company of small and medium scale enterprise (SME) size. Over the past 5 years, the company has faced stagnation of growth largely due to the fact that the Japanese electronics industry is considered choked (Quynh, Nguyen and Bui, 2002). As the hub of global electronics industry, Japan has several multinational companies operating in this sector and seriously overshadowing SMEs and other start-ups with high intensity competitive rivalry (Jenkins, 2006). Meanwhile, as a major contributor to the Japanese economy, the electronics industry has been projected to grow to over 40% in the next five years (Eaton and Tamura, 2014). What this implies is that until something strategic and drastic is put in place, Elecdyne will not benefit from the forecasted growth. But as several countries continue to need the products and services of the electronics industry (Outlook, 2007), this report is prepared to find the most suitable international destination for foreign investment. The selection is expected to be based on the outcome of various analytical frameworks including SWOT, PEST and STEEP models. Current/Future Business Environment The analysis for potential countries will be performed largely based on the use of the STEEP model. This is a model that looks at the sociological, technological, economical, environmental and political factors that affect the business environment of the company, especially based on the future projected growths and forecasts (Earmjitmetta, 2009). The STEEP model is used in this report to specifically help Elecdyne understand how conducive the overall business environment is for international growth of an international SME in the electronics industry. Sociological There is a fast changing global social environment where cultures are fast penetrating international borders (Goldberg and Kolstad, 2005). This means that in the case of an internationalization, the issue of cultural differences may not affect Elecdyne’s business operations very much. Meanwhile the service offered by Elecdyne is closely related to cultural dynamism, where people purchase electronic products with the main aim of building an entertainment platform, which includes playing of music, which is a component of culture. Technological Technology has been described as the fastest growing phenomenon in the 21st century (Encamation, 1998). This growth affects Elecdyne in two major ways. First, the company is offered the technological platform based on which to engage in manufacturing. Second, the company has been offered the means by which it can engage in electronic commerce (e-commerce) as a result of high internet penetration rate (Hill, 2002). Meanwhile, e-commerce has been described as a very important avenue by which companies can reach as many global customers as possible. This is so because with the use of e-commerce, all that customers need to have is an access to the internet, a convenient mode of making payment, and a means by which they can have their purchased items delivered to them. Economical Economically, current declining prices of most global commodities particularly oil has been used as an indication of forecasted global economic growth (Kiyota and Urata, 2004). Should this happen, it means the purchasing power of buyers across the globe will be improved in buying the electronic products of Elecdyne. It would however be agreed that the extent to which customers have higher purchasing power determines how well they will be able afford products and services from Elecdyne. Environmental There have been massive global environmental concerns especially when it comes to the issue of electronic waste (e-waste). As Elecdyne is in the electronics industry, the company should be concerned with environmental sustainability programmes that ensure that it operates above the reproof of global discourse on e-waste pollution. Political Politically, more and more countries across the globe are becoming mutually related by eliminating most forms of cross-border regulations that made it difficult to do business internationally. What is more, there are more investor attractive initiatives that are used by several countries, especially emerging economies in attracting foreign investment (Liu and Lin, 2004). Choices for company To know the areas within the company’s current to put much emphasis when undertaking the external weightings, it is important to first have a vivid idea of the company’s current internal position. To get this done, the SWOT analysis is used to internally analyze Elecdyne. Strength Opportunity Elecdyne’s existence since 1990 helps create a brand equity for the company There are sufficient suppliers for the company, minimising the extent of bargaining power of suppliers Japanese electronic brands are considered to be of high quality, helping to create a differentiation Elecdyne offers a wide range of assorted electronic products Availability of several emerging markets with attractive investment packages for international companies Expansion in new technologies which makes production relatively easier and cheaper Projected growth in the electronics industry Weakness Threat There has been declines in revenues for the past 5 years, putting the company at a competitive disadvantage Elecdyne is only an SME, facing stiff competitive from existing multinational corporations The company has not embarked on new product development (NPD) in several years There is minimal research and development (R&D) that has taken place in the company in the past years Possible future merger and acquisition among already well-established competitors A market share that keeps closing up on Elecdyne due to its minimal market capital Increasing skill of employees meaning the need to pay more for human capital There are several international and external factors that ought to be included when the actual weighted analysis is being performed to select the best country for Elecdyne. These factors as they may be used with a PEST analysis framework include those listed in the categories given above. To make the decision of selecting the best internationalisation approach for Elecdyne easier, a decision matrix will be employed. The justification for using a decision matrix is that it brings the company very close up with how each of options presents either an advantage or a disadvantage to Elecdyne based on the factors that have been noted earlier. The decision matrix will also ensure that both internal and external positions of the company are factored into the selection process. For example when it comes to internal factors, questions of how much the company has now by way of capital and the employee strength of the company may all be considered in the decision process (Moosa, 2002). Externally, questions of the impact of available internationalisation approaches on competitors, suppliers and customers can also be addressed (Graham, 2009). With this said a decision matrix for selecting the best internationalisation destination for Elecdyne while choosing a country among the three potential countries is presented below. (The world bank, 2014) Based on the decision matrix presented above, it can be identified that in comparison with Japan, France is the most preferred destination based on the total weighted score gained, which was -30. Mexico can be said to be the least preferred destination with score of -110, followed by India with -62. As the weightings and the overall scorings were based on the areas of analysis identified in previous sections, it will be important for Elecdyne to select France so that it will be able to take advantage of most of the political, economic, social and technological factors that have already been discussed. Strategic Decision There are several internationalisation approaches that may be used by Elecdyne, including merger and acquisition (M&A), franchising, Greenfield site, and joint venture. But even before selecting which of these will be most ideal for the company, it is important to consider some key factors that come to play with the selection of any of the internationalisation approaches. These factors include cost, regulations, logistics, and labour. As far as cost is concerned, it is important to appreciate that each of the internationalisation approaches offers a different scope of cost. For example whereas Greenfield site requires a lot of capital for starting up a new business in the international market, joint venture and M&A may not require such much capital investment (Hennart, 2012). When it comes to regulations also, each of the options has different regulations that come to play when they are selected. When entering France which is the most preferred country, it is important for Elecdyne to be aware of any regulations that may either hinder or promote its entry based on internationalisation regulations. Again, the issue of logistics must be considered as the distance from Japan to France is very far and thus the need to ensure that an internationalisation approach that maximises logistics is selected (Saggi and Glass, 2009). Finally, the issue of how each of the options impacts on labour issues must be thoroughly considered. Based on Elecdyne’s current internal position for the four preferred internationalisation approaches available, it would be said that joint venture will be the most appropriate option for the company. When joint venture is selected, areas of major advantage for Elecdyne will include the cost of set up, cost of production, pricing of its products, logistics, and regulations. It will however take longer for the company to break even and make profits. But given the fact that there is limited capital for the company, it is preferable to select joint venture and wait gradually to break even (Pfaffermayr, 2014). Even before settling with which international market to select, it is important that Elecdyne gains sufficient information about key factors for consideration when choosing and international market. Three such factors are culture, regulations and economy. Each of these factors can influence the internationalization strategy of the company (Julian, 2008). Elahee and Pagan (1999) found that there are two types of cultures which affect the internationalization strategy of a company. These are organizational culture and traditional culture. With the use of the Hofstede’s cultural dimensions however, these two forms of culture may be combined into one common framework (Choong, Yusop and Soo, 2004). Based on Hofstede’s cultural dimension, considerations have to be made about five key areas of culture which are power/distance, individualism, masculinity, uncertainty/avoidance index, and long term orientation (Blalock, 2001). On the whole, the company will find that any country at all it targets would either score high or low for each of the five dimensions. Cheng and Kwan (2000) however advised that it is always better to select an international market based on cultural similarities with the country of origin that the company is coming from. With this said, the graph is presented below to give a broad overview of Japan’s cultural positioning based on which the internationalization strategy must be created. Figure 1: Cultural profile of Japan Source: The Hofstede Centre (2011) The figure shows dimensions in which Japan scores high. These are power/distance, masculinity and pragmatism. Areas where Japan is low are individualism, uncertainty avoidance and indulgence. The international strategy must be created around countries with similar scorings. Different countries have different regulations that they apply to countries investing with them. Most of these regulations and policies are influenced by the foreign policy being operated by the target country and the target country’s relationship with the country seeking to invest (Kindleberger, 2009). With this noted, it is important that as part of the creation of an international strategy, Elecdyne will have a vivid consideration for targeted countries based on their foreign policies and international relations with Japan. Some specific areas for regulations that must be looked at should include regulations with the importation and exportation of electronics, regulations on starting new businesses, regulations on labour relations, and regulations on the legal positions of foreign companies. When Elecdyne collects information on all these regulations either through primary data collection approach or secondary data collection approach, it will be possible to gain in-depth understanding on how politically compatible Elecdyne could be with the target country (Saggi and Glass, 2009). Apart from compatibility, the information collected on regulations will help the company take decisions on how well it stands to detach itself from any legal issues related to breaching the regulations (Dicken, 1998). Information on economy is also a very important line of information that must not be overlooked when creating international strategies. This is because information on economy helps the company to design its international strategy in such a way that it allocates the right financial resources to the country and makes the most accurate forecasting of how much it stands to benefit by investing in the international market (Kokko, 2012). To get such details as part of the international strategy, it is important that information will be collected in economic areas such as taxes, gross domestic product, employment rates, income levels, poverty index, balance of payment, exchange rate, population growth, distribution of national development, inflation, interest rate, and cost of doing business (Elliott, Rothenberg and Stock, 2006). With such information known, Elecdyne will become well positioned to develop an internationalisation budget for the different possible destinations it might be considering to go and do business. Blomström and Kokko (2008) also stated that information collected about the economy of a country makes it possible to select the right strategic option when creating the international strategy. This is because the economic information gives a fair view of the purchasing power of customers. Conclusion From the internal and external analysis performed for Elecdyne based on the use of PEST, SWOT, STEEP and decision matrix, it would be said that France is the best international destination for Elecdyne. Whiles entering France, it is important to make use of the joint venture internationalisation approach. This is because joint venture will require lesser cost of establishment and cost of production. There are also chances that the local company of which Elecdyne will go into the joint venture with will have its own suppliers and so the issue of logistics will be well catered for. References Blalock G., 2001. Technology from Foreign Direct Investment: Strategic Transfer through Supply Chains. University of California, Berkeley, Haas School of Business Blomström M and Kokko A., 2008. Multinational Corporations and Spillovers. Stockholm School of Economics, Blackwell Publisher Ltd Cheng, L.K. and Kwan, Y.K. (2000). 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