Investment Strategy and Key Trend Effects for Elecdyne - Example

Global Business Table of Contents Global Business Table of Contents 2 Introduction 3 Strategy Analysis 4 The Key Trend Effects within Next Five Years for Elecdyne: STEEP Analysis 4 Strategy: Choosing the Right Nation 7 SWOT Analysis: The Internal analysis of Elecdyne 9 External Analysis: PEST Analysis 11 14 Investment Strategy: The Advantages and Disadvantages of 3 Alternate Options 14 Conclusions 15 References 16 Introduction The prime aim of any company is to maximize its overall profit and establish a significant position in the market that would help it in the long term sustainability. Huddling towards this objective, competition among the business establishments is increasing rapidly that has created a significant challenge for the companies to survive profitably (Twarowska & Kakol, 2013). Technological advancements and internalization are the major factors that contribute to the increased competition among modern business establishments. Therefore, in order to survive in this competing environment, it has become crucial for the organizations and business firms to implement effective strategies in their regular activities (Ernst & Young Australia and the Institute of Chartered Accountants in Australia, 2010). Moreover, internationalisation and technological advancements has also provided enormous opportunities and scope for the business establishments to expand in other foreign countries that would help in attracting more customers and maximise their overall profitability (Forbes, 2013; KWR International, 2005). In this essay, comprehensive analysis will be conducted taking the example of a Japanese electronics company named Elecdyne. The company was established in the year 1990 in Tokyo, Japan and deals with the manufacturing of various electronic products including CD/DVD players, hi-fi equipments and televisions among others. Presently, the company has been serving the markets of Japan and there has been a reduction of sales since the past two years that has emerged as one of its major concerns. The company has been predicting a future financial loss if it continues with the present business policy that would hamper its sustainability. However, in order to overcome any chances to such an adverse situation, the management has been planning to expand its business to foreign countries where it can approach a larger base of new customers and thereby maximise its volume of profit. The company is planning to expand its business in any one among the US, Brazil and South Korea. In order to identify the most suitable country for establishing its business operations, STEEP analysis, PEST analysis and SWOT analysis will be conducted in the discussion henceforth that will help in understanding the opportunities and risks influential to the company’s performances. On the basis of the analysis of these three models, decisions will be made regarding the establishment of business in the particular country and the investment strategy that should be adopted by Elecdyne. Strategy Analysis The Key Trend Effects within Next Five Years for Elecdyne: STEEP Analysis STEEP analysis is considered as one of the most important tools that help in analysing the various external factors that may affect the business activities of an organisation. The analysis generally considers Social, Technological, Economic, Environmental and Political factors of any particular nation that directly or indirectly influences the organisational functions (Venousiou, 2003). In context to the case study, STEEP analysis would help the management of Elecdyne in evaluating the opportunities of business in the US, Brazil and South Korea and thereby, assist in selecting the best out of the three countries for expanding its operating activities. Social Social factors of a market commonly include demographics of consumers, behaviour, lifestyle, religion, values, choices and preferences of the consumers (Collins, 2015). For the successful implementation of any product, it is very essential to identify the target market for its products. The socio-culture therefore plays a crucial role in the proper segmentation of the target market for products (Aker & et. al., 2014). Every country has different market demands for products and it is thus very essential to understand market trends that will help in selecting the country in which the company would prefer to expand its business (Qasemi, 2006). Correspondingly, identifying the age groups is also very important in selecting the targeted customers. It is worth mentioning in this context that Elecdyne generally produces electronic products that include DVD players, mp3 players and hi-fi systems, usually preferred by the young generation people. Therefore, it would be beneficial for the company to target the young generation people of the countries where it is planning to expand its business (The Japan Times, 2015). Moreover, market competitiveness along with the consumption level and habits of the consumers is also required to be considered that would help in deciding the country in which, the company will expand its operating activities (Wong, 2009). Technological Technological aspects generally focus on various factors including communication, innovation, transport, energy, patent regulation, research and development among others (JETRO, 2006). While expanding the business operations to foreign countries, it is very essential for the company to consider technical advancement in its prospective market as well as the extent to which the people of the country are tech savvy (OECD, 2015). Japan is generally renowned for manufacturing technology intensive products along with innovative features and concepts that shall help the country to gain a significant position within the world economy. Moreover, the technological advancements in the country provide a greater scope to improve living standards and thereby adopt a modern outlook, increasing demand for technology products, such as that offered by Elecdyne (Ministry of Foreign Affairs of Japan, 2015). The solid technological infrastructure of Japan is an added advantage for Elecdyne to be established successfully in other countries. It is in this context that the advancement of technology has led the people to access various social networking sites and other online websites easily through mobile phones. This has further created an opportunity for the business organisation to promote their products through online websites, which is much cheaper and at the same time, permits access to a greater section of the targeted customers (JETRO, 2006). Economic The economic aspect is considered very important, as it helps in determining the successful expansion of the business. Japan has a well developed economy that facilitates business establishments to prosper in the country including the electronics manufacturers (Ohno, 2006). However, for Elecdyne, to expand in the international market, it is necessary to consider economic growth of the particular country, taking into account its interest rates, inflation rates and exchange rates that would influence the operations of the business in the country. In addition, lower production cost and cheap labours are also major factors of concern that should be considered for the successful establishment of the business in the foreign country and thereby maximise the amount of profit (Nakaso, 2014). Environmental People are becoming more environment conscious and thus, the business organisations are required to deliver products and services those are highly environment friendly (Aki, 2009). Majority of the organisations are hence implementing the objective of manufacturing environment friendly products that would contribute towards their sustainable development (Vinger, 2008). For the successful expansion of Elecdyne in foreign countries, it has to follow the same concept of producing environment friendly products. Moreover, the company should also ensure the reduction of pollution from the manufacturing process, use more recyclable materials and utilise the resources more efficiently. It is also very essential that the country in which, the company is planning to expand its business should follow the policy of sustainable development (Schreurs, 2002). Political Political factors also affect the successful operation of business establishments. Notably, there are pre-established laws and regulations in any particular country. Political turmoil in a country may result in change in its regulations that may adversely affect the operations of the business. Japan provides a favourable political environment that motivates electronic industries to operate successfully in the country. Similarly, in order to expand successfully in other foreign countries, it is very essential for Elecdyne to have a positive political environment that would support in conducting business activities without any hindrance. Political factors generally include various laws and regulations, financial markets and tax policies among others (Dollinger, 2008). Strategy: Choosing the Right Nation In order to survive in the current competitive environment and recover from the adverse situation, Elecdyne has been planning to expand its business operations in one of the three countries including the US, Brazil and South Korea. For the successful expansion of the business in any of the above mentioned countries, it is very essential that the political, economic and legal environmental forces of the country deliver a suitable market condition for the company to operate successfully in the country. An overview of the three countries with respect to starting a new venture of electronic products in the country is as follows. USA The US is one of the three alternatives where Elecdyne is planning to expand its business activities. The US has a well developed economy that highly encourages the local as well as the foreign investors to establish its business in the country (2United Nations, 2002). Majority of the large organisations have thus established its headquarters as well as manufacturing units in the country because of the favourable business environment being enjoyed in the country. The country has a stable economy with higher GDP that contributes to the economic growth of the country, which serves beneficial for the business establishments to operate successfully in the country (World View, 2015). Moreover, the HR rules and the approaches of the US government also encourage the business establishments to commence new venture in the country. According to some reports it was identified that the electronic products manufacturing industries in the US is suffering losses, as the people are shifting to various cheaper products being available from South Korea (The World Bank, 2014). However, the major advantages of starting a new venture in the US for Elecdyne, are the availability of skilled workforce, well developed economy and preservation of intellectual property (Europa, 2015). South Korea South Korea provides a well developed market for electronic products manufacturers that would serve beneficial for Elecdyne to expand its business operations in the country (Lloyds, 2015). The government rules and regulations of the country highly encourage new ventures in the country (1United Nations, 2002). Moreover, the norms, as established by the government, also encourage the electronic goods manufacturer to carry out their business activities smoothly. In addition, there are certain advantages that would help Elecdyne in successful expansion of business activities in the country that includes easy availability of raw materials at cheaper price, lower labour cost and innovative approaches to technology that would serve beneficial for the company to establish its operations successfully (Nationsonline, 2015; Kalinowsk & Croissant, 2011). Brazil The social and economic conditions of Brazil encourage the establishment of new ventures in the country (World Vision Australia, 2010). The country has a developing economy along with supportive government interventions for the establishment of new ventures. The manufacturing and electrical industries are the prime industries of the country that contribute to its economic development (IAEA, 2014). There is also an availability of cheap labour force in the country that would support Elecdyne in carrying out its business activities effectively along with maximising profit (International Labour Organization, 2009). SWOT Analysis: The Internal analysis of Elecdyne STRENGTHS WEAKNESSES Experienced in manufacturing electrical products Well-established brand image in the home country Diversified ranges of product Effective and experienced team of management Not yet expanded internationally Higher attrition rate because of lower salary being provided to the employees Electronic products are not manufactured according to the modern technology Suffering loss for consecutive years Poor technical support and poor R&D functioning OPPORTUNITIES THREATS Scope to expand internationally with new customer base Company may adopt joint ventures with big players Reducing the manufacturing cost and labour cost in the production process would maximise profitability for the company Company may adopt environment friendly process in its production system Cheap and specialised availability of labour in the foreign countries Increasing competition in the domestic and global market Various restrictions from the government Availability of required financial resources Problems in supply chains Licensing and currency issues in the foreign countries External Analysis: PEST Analysis Political The rate of corporate tax is higher in Japan in comparison to other countries According to the ease of doing business, Japan ranks fifteenth position among other countries The ‘value added tax’ in the country is much lower Economic There has been a gradual decline in the prices of products Competition among the companies in Japan are increasing with time The economy of Japan has been suffering from huge losses because of the 2012 earthquake Social People are highly tech savvy Income level of the people would allow business establishments to successfully sell their products Companies may involve them in various CSR activities that would help in attracting more customers Technological Japan is generally renowned for technology innovations The country is strong in Research and Development activities The rate of internet users in the country is also increasing rapidly Almost every equipment and machineries necessary for the production of electronic products are manufactured in the country Sources: (Collins, 2015; The Japan Times, 2015; Wong, 2009) FACTORS SUB-FACTORS & WEIGHING SCALES JAPAN SOUTH KOREA BRAZIL USA Political Corporate tax structure 2 3 1 2 Ease of doing business 4 5 3 3 Value Added Tax rate in the country 7 8 4 7 Stability of the government 6 8 5 7 Time required to start a business 7 7 6 8 Total 26 31 19 27 Average 6.5 7.75 4.75 6.75 Economic Stability of Prices of products in the country 8 9 6 7 Competition among the companies 5 8 6 7 Economic situation of the country 7 8 2 6 Tax Rate 6 8 6 5 Average wages 5 7 4 7 Total 31 40 24 32 Average 7.75 10 6 8 Social People are tech savvy 5 8 5 7 Income level of the people 6 7 4 5 Involvement of the companies in CSR activities 8 8 5 7 GDP per person employed 7 8 5 8 Total Labor Force 5 7 8 6 Total 31 38 27 33 Average 7.75 9.5 6.75 8.25 Technological Technological advancement of the country 6 7 6 8 Research and Development activities in the country 5 7 6 7 Higher number of internet users in the country 7 8 7 6 Research and Development Expenditure 6 7 4 8 High technology export 8 9 5 8 Total 32 38 28 37 Average 8 9.5 7 9.25 Investment Strategy: The Advantages and Disadvantages of 3 Alternate Options There are three alternative strategies discussed below, among which, Elecdyne may choose any one of them that would serve beneficial for the company to expand its business operations to the most suitable foreign market. These three investment strategies include Joint ventures, Greenfield sites and Mergers/Acquisitions. STRATEGIES ADVANTAGES DISADVANTAGES Joint Ventures Allows the companies to share investment risks with various partners Sharing of resources and technology is easy Cultural differences having influence on organisations is reduced Different for concepts and business objectives Difficulties arise in coordination of interpersonal relationships Sometimes become inconsistent for management methods and business decisions Greenfield Sites Provides better design and flexibility that would serve beneficial for the company Company can introduce its brand in a better manner Elecdyne can reduce transport and customs tax Strict rules and regulations is necessary to be followed by the company Creates difficulty for a company in setting standards Higher time required for approval by the council Merger/Acquisitions All the available resources of the enterprises can be utilised Reduction in the overhead expense of the company is possible Companies can adopt cost efficiency and enhance market share Risk of investment is higher Adopting the new change may create a challenge for the employees Higher investment involved in merger/acquisition of other company Conclusions From the overall analysis it can be stated that the market of South Korea would be the most favourable for expanding business operations of Elecdyne. The country has a well developed economy along with the favourable government interventions that would contribute to the successful expansion of its business activities in the country. Moreover, the social, political and legal environments of South Korea highly attract the establishment of electronic goods manufacturer in the country, which is highly advanced in technology along with an availability of cheap labour force and easy availability of raw materials that would help Elecdyne in maximising the volume of profit. Demand for the electronic products of South Korea is also increasing rapidly and people all over the world are shifting to Korean products because of their cheaper prices. Therefore, expanding its business operations in South Korea would serve beneficial for the company to operate successfully and thus overcome the present adverse situation. References Aker, C. J. & et. al., 2014. Borders, Ethnicity and Trade. Journal of Development Economics. 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