Global Business Challenges and Strategic Options: The of Elecdyne - Case Study Example

Global Business – the case of Elecdyne GM Introduction The ability of firms to secure their market position is considered as vital for their survival. In practice, it has been proved that firms that have faced severe challenges have managed to recover using appropriately customized strategic options. The potentials of small Japanese firm, Elecdyne a small size firm that operates in the electronics industry of Japan to stabilize its performance through internationalization is explored in this paper. Three countries have been reviewed as of their appropriateness to support the firm’s specific initiative: USA, China and Australia. At the same time, a SWOT analysis and a PEST analysis have been employed for revealing the potentials of the organization to improve its performance through internationalization. Three different methods for entering the market chosen are presented. It is concluded that the expansion of the firm in a foreign market could highly support the increase of its profitability but only if certain terms are met, as indicatively highlighted in the sections that follow. In any case, it seems that the continuous monitoring of the relevant process is necessary for avoiding unexpected failures. 2. Current and Future Business Environment One of the most important characteristics of the global market is its high competitiveness, a fact that has been related to the expansion of globalization (Griffin 2008). At this point, the following issue appears: how the potential of a firm to face the challenges of the global environment can be measured? The use of strategic tools, as those presented above, could possibly help towards this direction. Still, it is necessary to refer also to the global market trends in regard to the industrial sector involved (Nummela 2010). In the case under examination, emphasis should be given on the electronics industry. The global electronic industry is characterized by trends for growth. In fact for 2013 the growth of the industry has been estimated to 5.4% (QFinance 2012) with trends for further growth in the years that follow. Of course, the influence of the recent recession on the particular industry has been severe, as also in all industries worldwide. Still, it seems that the potentials of the particular industry to face market pressures are important, even if not all parts of this industry has presented signs of growth (QFinance 2012). The above facts are critical when having to evaluate the potential prospects of Elecdyne’s internationalization process. In case that the firm had tried to expand but in different environmental conditions, meaning the trends in the global market, then its efforts would be led to a failure. Under current market trends, that are characterized by the slow but continuous growth of the electronics industry around the world, the specific initiative of the organization can be characterized as fully justified. 3. Choices for Company 3.1 Brief Justification of 3 countries to compare with Japan Three countries of different characteristics have been chosen as target markets. The choice of these countries has been based on their market characteristics but also on their geographical position. China has been one of the most powerful markets in the context of the international community. The particular country has attracted firms by almost all countries, as a result of the prospects that the Chinese market offers in terms of long term growth. Moreover, China is located near to Japan, a fact that would be taken into consideration when deciding the internationalization of Elecdyne. On the other hand, USA represents the major western market. The specific country is considered as offering many prospects to firms operating in the electronics industry, as Elecdyne. It was on this basis that USA has been chosen as another potential location for the internationalization of Elecdyne. The last country chosen as a potential host country is Australia. The particular country has reached an important level of growth showing trends of continuous industrial and economic growth. Also, its geographic location, near to Japan has been considered as another advantage of Australia, compared to other markets internationally. 3.2 Presentation of available strategic choices using appropriate strategic tools 3.2.1 SWOT analysis The SWOT analysis is considered as one of the most important tools for evaluating the prospects of organizations in their industry (Afuah 2009). The simplicity of the specific framework has been often considered as a weakness, a view that it is not justified, if taking into consideration the highly competitiveness of industries in the global market. The SWOT analysis focuses on the presentation of the following aspects of the firm’s environment: Strengths, Weaknesses, Opportunities and Threats. The internal environment of Elecdyne has been analyzed using the specific tool so that the potentials of the firm to enter the international market are identified. The SWOT analysis for Elecdyne is presented in Table 1 below and it is discussed further using also the findings of Table 2, in the next section. SWOT Analysis for Elecdyne Strengths It operates in a highly competitive industry It had a successful presence in the Japanese market Electronics industry has many prospects globally Weaknesses Lack of funds No sign of quick recovery Opportunities The Electronic industry worldwide has many prospects The entrance in a new market will help the firm to increase its profits Threats High competition New entrants No guaranteed success of the plan Table 1 – SWOT analysis 3.2.2 PEST analysis PEST analysis reflects the trends in the following aspects of the firm’s external environment: Political, Economic, Social and Technological (Analoui and Karami 2003). It should be noted that the findings of the PEST analysis are not standardized in countries worldwide. Differences can be identified according to characteristics of the local economy, the demographics and the status of the economy (Analoui and Karami 2003). Of course, certain similarities may appear, but these are limited (Henry 2008). PEST analysis has been proved as quite valid tool for analyzing a firm’s external environment on the basis that through this tool the key aspects of organizations’ external environment are critically discussed (Griffin 2008). The PEST analysis in regard to the Elecdyne is presented in Table 2 below. Effort has been made so that the Political, Economic, Social and Technological characteristics of the environment in all target countries are presented. Elements of PEST Analysis Japan USA Australia China Political Stable political framework Politics are not standardized in terms of business practices Stable political framework Stable political framework Economic Delays in economic growth High national debt National currency allows for solutions Very good profile of the country’s economy Cost of life is high Chances for further growth Ranked first last year in terms of its economy Social No social conflicts Preference for electronic products No social conflicts No social conflicts Style of life supports the development of electronics industry Culture influences business performance Technological Technology available is of high quality Technology for business is of high quality Technology for business is of high quality Technology for business is of high quality Table 2 – PESTEL analysis 3.2.3 Location Decision After studying the issues discussed above, the following decision can be made in regard to the firm’s international project: China would be the most appropriate market for the firm, at least for a particular period of time, up to the standardization of the firm’s performance. After securing its market position, Elecdyne could possibly seek for further expansion so that it is able to achieve a long term growth. The reasons for which China has been chosen as the location market has been the following ones: a) China is an extensive market, in terms of size; the potentials of the firm to increase its profits are high, taking into consideration the fact that the performance of Chinese electronics industry is encouraging. Moreover, China is located near to Japan and the potential costs for transportation, i.e. visiting the target market and promoting the activities that are necessary for the internationalization of the organization, would be lower compared to the other two countries, i.e. USA and Australia. In addition, salaries and fees payable for commercial activities are rather low in China, at least as compared to the other two countries. For this reason, it would be preferable for the firm to choose China as the initial target country for the firm’s internationalization efforts. Moreover, as noted in the study of Groen et al. (2012), many firms operate in their market aiming to gather the funds required for their internationalization. It seems that for Elecdyne internationalization has become unavoidable. 4. Choice of method - Joint ventures, Greenfield sites, Mergers /Acquisitions) Three different methods of internationalization have been set under examination, so that their appropriateness for the internationalization project of Elecdyne is evaluated. These methods are: a) Joint ventures, a form of strategic cooperation with a business that already operates in the host market (Campbell 2009); because of their advantages and their low cost, joint ventures are preferred as a method for internationalization by most firms worldwide (Campbell 2009); b) Greenfield ventures; the specific method of business internationalization is based on the following process: the firm seeking for expansion ‘purchases or leases an area and then establishes there its own unit’ (Ireland, Hoskisson and Hitt 2008, p.159). The key challenge of the particular method of internationalization is the following one: the cost involved can be extremely high, taking into consideration the fact that the cost for purchasing the land, for developing the sites, for buying and installing the equipment, for marketing the firm in the new market and for covering the expenses, at least of the initial period of the firm’s operation in the new market, will be covered entirely by the organization that seeks for expansion in the global market. In the case under examination, the use of the specific method of internationalization would be quite risky, having in mind the fact that the firm has already to face the problem of the limitation of its profits. 4.1 Table with choices available Table 3, below, presents the advantages and disadvantages of the three methods of internationalization; these three methods have been reviewed as for their potential use in the specific case. These advantages and disadvantages are critical for identifying the appropriateness of one of these methods to be used in the internationalization project of Elecdyne. Joint Ventures A. Advantages (Campbell 2009 Rapid growth, potentials for immediate profits, even at high levels Potentials to transfer technological advances Funds can be allocated for the organization’s further growth B. Disadvantages (Campbell 2009) Conflicts can be severe A process that it is often overestimated Potential communication failures cannot be avoided Greenfield Ventures A. Advantages (Ireland, Hoskisson and Hitt 2008) Independency in managing business operations in the host country Ability to establish a direct communication with customers in new market Profits are not shared B. Disadvantages (Ireland, Hoskisson and Hitt 2008) Delays in organizing the new site The cost involved can be significantly high Mergers/ acquisitions A. Advantages (Ray 2010) Synergies can be developed Increase of debt capacity Improve of the firm’s image in the global market B. Disadvantages (Ray 2010) The control on key organizational operations may be lost The strategic plans of the firm need to follow specific guidelines; the firm loses its independency and it can be also led to a termination of its operations Success is not guaranteed; conflicts can appear that can destroy the whole project 4.2 Choice of method – justification As explained above, each of the methods of the internationalization that were suggested for the internalization plan of Elecdyne has certain advantages and disadvantages. The key problem is to identify that method that can be more feasible for Elecdyne having in mind the firm’s current status, not only in terms of finance but also in terms of strategic alliances. As already noted, Elecdyne is a small firm the financial status of which has been severely threatened by the limitation of profits for a long period of time. Under these terms it is made clear that the organization would not afford to invest on a highly costly project of internationalization and that low cost internationalization plans would be rather chosen, at least in the particular period of time. In this context, the joint venture scheme is considered as the most appropriate for the organization, offering two important advantages: a) low cost and b) prospects for quick, and high, profits; these benefits are critical for Elecdyne especially during this period when the survival of the firm has been threatened. 5. Conclusion The potential of Elecdyne to secure its market position is depended on its ability to choose an appropriate internationalization plan. This plan can help the firm’s profitability to be enhanced allowing the increase of the firm’s competitiveness. The firm operates in a highly competitive industry. Still its chances for success are many under the terms that the relevant project will be carefully designed and implemented. In any case, the use of similar plans is suggested in the literature as a strategy for enhancing organizational growth, especially when the pressures over the organization are quite powerful. Elecdyne has managed to face its market challenges successfully up today. Its performance in regard to the suggested plan will be also high, enhancing the growth of the organization. It should be noted that time would be allowed to pass before evaluating the success of the project so that credible assumptions are produced. References Afuah, A., 2009. Strategic Innovation: New Game Strategies for Competitive Advantage. Oxon: Taylor & Francis. Analoui, F. and Karami, A., 2003. Strategic Management: In Small and Medium Enterprises. Belmont: Cengage Learning EMEA. Campbell, D., 2009. International Joint Ventures: The Comparative Law Yearbook of International Business. Kluwer Law International, 2009 Griffin, R., 2008. Management. 9th ed. Belmont: Cengage Learning. Groen, A., Oakey, R., Der Sijde, P. and Cook, G., 2012. New Technology-Based Firms in the New Millennium: Strategic and Educational Options. Cheltenham: Emerald Group Publishing. Henry, A., 2008. Understanding Strategic Management. Oxford: Oxford University Press. Ireland, D., Hoskisson, R. and Hitt, M., 2008. Understanding Business Strategy: Concepts and Cases. 2nd ed. Belmont: Cengage Learning. Nummela, N., 2010. International Growth of Small and Medium Enterprises. Oxon: Taylor & Francis. QFinance, 2012. Electronics Industry. Available at http://www.qfinance.com/sector-profiles/electronics Ray, K., 2010. Mergers and Acquisitions. New Delhi: PHI Learning Pvt. Ltd. Waters, D., 2006. Operations Strategy. Belmont: Cengage Learning EMEA. Read More