Expanding an MNC - Case Study Example

Running Head: EXPANDING A MNC Expanding a MNC [The of the will appear here] [The of the id will appear here] [The of thecourse will appear here] [The name of the course number will appear here] Introduction Nestfree Limited is a multinational company dealing with innovative household electronic appliances including washing machines, microwaves etc. The company has a strong presence in its local market and faces competition from leading suppliers in the country. It has 200 manufacturing facilities worldwide with 150,000 employees. The company is now seeking to expand its operations in China, an emerging economy. In this paper, China would be analyzed in terms of its suitability for the company and an implementation strategy would be developed with respect to the analysis conducted. Organizational Culture The Organizational Culture for NestFree Limited would be developing keeping in mind the Hofstede Cultural Dimension Theory. Thus the cultural would be developed keeping the following five dimensions in perspective: Individualism-Collectivism China is a collective society as its score a 20 on this scale. In this country, people act keeping in mind the interest of the group rather than an individual. They keep in mind their families, their elders etc. The people here look towards giving more preference to the people they associate with; this would be family, friends, community etc. The Chinese are more comfortable in working in groups that they identify with. Therefore the culture for the company would have to be strongly non-diverse in nature. Uncertainty Avoidance This refers to the society’s tolerance towards uncertain conditions. Since the Chinese believe in karma strongly, they have a low uncertainty avoidance scores. The Chinese are not were strongly opposed to uncertainty; rather they expect it. Power Distance This refers to the society acceptance of power roles. The Chinese have a very high power distance score. This means that the society accepts that certain people are more powerful than others because of their position within the organization. As employees become more powerful, they expect their subordinates to comply to their dictates without questioning them or even discussing with them. The subordinates also understand that people in high position should be listened to. There is a formal chain of command in organization and it is adhered to quite strictly. The company, therefore, would fare well with a vertical organizational structure as opposed to a horizontal one. Masculinity-Feminity The Chines society is a masculine society. This means that the society is strongly competitive and driven by achieving success. For an organization to develop an effective culture, they need to work out on building a competitive environment where worker are often placed in competition with each other to draw out the best of their abilities. Long Term Orientation This refers to the long term values of a given society. China ranks high in terms of long term orientation as family is more important than any other group. Also elders and men of authority yield more power in the society. They respect traditions and are down to earth people. A strong work ethic is prevalent in the society where loyalty, hard work and commitment are duly rewarded. Keeping the above in view, the organization should develop a vertical organizational structure where the information flows from top to bottom. Also the environment should be competitive so as to allow employees to remain motivated. Furthermore, hardworking employees have to be duly rewarded. Environmental Scanning Analysis- PEST Analysis Political Politically, China enjoys a relatively strong position when compared with other emerging markets. The country has a one party system where opposition is quite low. The Political makeup of the country is therefore quite stable in the form of the Chinese Communist Party or CCP. Also the government is open to foreign direct investment. The communist party along with other political institutions has worked to develop fiscal, monetary and labor policies that improve trade and investment within the country and they reduce the economic, political and financial risks (Library of House of Commons, 2006). However, the country faces one disadvantage and that is the overbearing rule of the CCP which maintains a very strong hold over policies in the country. The bureaucratic regime of the country suppresses new thoughts and ideas from being appreciated. Another issue is the lower transparency in legal and regulatory policies. Economic In the recent years, due to increase in FDI within the country, China has enjoyed a persistent increase in GDP. The average GDP of China between 2001and 2011, increased by 10.5 percent and is expected to increase in the coming years (Walker, 2011). This is attributed to the positioning of China as a manufacturing base for many multinational companies including Apple Inc. and Nike. The government initiatives in the form of attractive policies and good infrastructure attract such companies to develop their economic base in the country. Cheap and hardworking labor is another plus point for the country. Due to this, China has been ranked as the highest receiver of FDI. The growth in GDP reflects an increase in the consumer spending power meaning that they are able to afford more products and luxuries that they were able do so before. Social The Chinese society is a collectivist society with a strong focus as well as belief on ethical values and systems. Three main ethical systems followed in China include Confucianism, legalism and Daoism. The nature of most Chinese people is structured by the teachings of these ethical systems. A research done on cultural dimensions by Geertz Hofstede includes five major dimensions of culture as the influence values and practices in companies. The first dimension is power distance for which 80th rank is given to China showing that there are vast differences in power between superiors and subordinates. Chinese culture is highly collectivist one and high importance is given to work. The Chinese workers focus on a long term orientation with more focus on high term goals. In the Chinese society, young people between the ages of 15 to 25 constitute the bulk of the population. These people are now at the peak income earning age and are ready to spend money on consumer items. Technological China is one of the most technologically advanced countries. The government of the country has invested heavily in developing the technological infrastructure of the company in order to attract FDIs (Knight and Ding, 2012). Almost all technological products sold in the world are either made in China or a part made in China which reflects on the technological advancement of the country Entry Strategy The entry strategy for the company would be developing a joint venture with another existing company in the country. This will allow NestFree to enjoy several benefits. These include: 1. Advantage of enjoying an existing manufacturing facilities which decreases startup costs for the company; 2. The company already has a brand presence among the consumers and Chinese consumers prefer to buy from companies that they are aware of. They are dissuaded from new foreign companies as they come and go all the time in China; 3. A well developing supply chain and distribution channels. 4. Low cultural barriers. Since China’s culture is quite different from the Western culture, the company will fare well when it has a Chinese culture in the company. This means that the organizational structure would be vertical with the chain of command moving from the top to the bottom; Despite these advantages, the company has to look out for loopholes in this strategy. The company has to ensure that the partnering company is responsible and that it has a good image within the minds of the Chinese consumers (Orbiso, 2007). Political Risk Assessment In terms of political risk, the country enjoys a unique position. It enjoys a stable government in the form of CCP. The CCP has drafted policies to improve the position of foreign countries in the country. In comparison with other emerging countries, China is the most stable country. Strikes and riots in the country are minimal and there is little business interference from the government. The people of China are also satisfied with the government despite the wide disparity between the rich and the poor. This makes the threat of civil unrest low in the country. Since the government is open to FDI in the country, they support foreign companies. Despite this the risk comes in the form of lack of transparency. Bribery and corruption is quite common in the country and is the main reason behind increasing intellectual property crimes (Collins, 2013). Implementation Strategy Considering the above analysis, Nest Free Limited would have to develop a differentiation strategy. The country is already saturated with technological products and for Nest Free to break into the market, they need to have unique selling point to offer. Nest Free Limited can market its appliance to career oriented people by advertising that the appliances are smarter than the ordinary appliances. These appliances would be marketed as helpers of these people who already do not have time in their busy lives to tend to household work. The appliances would claim to do most of the work. This would mean improved products that are more technologically advanced. The company would target the young people who form the biggest portion of the Chinese consumers and these consumers have entered in the workforce in large numbers in the last few years, therefore they have the money to afford these appliances. Also by making a position with this generation, the company can develop a future strong position as consumption of products by this generation would grow in the coming years and they would probably influence subsequent generations. The company would also have to follow the Chinese rules of conducting business by appearing to the extremely competitive. They would have to sell their products at extremely competitive prices in the beginning. Once they develop a strong position in the market, they can increase their prices. Since the entry strategy is to develop an alliance with an existing competitor, the company would have already developed economies of scale, thus allowing it to offer its products at low cost without incurring losses. References Congress of the United States Joint Economic Committee. (1997). Chinas Economic Future: Challenges to U.S. Policy (Studies on Contemporary China) . New York: M E Sharpe Inc. Collins, S. (2013) Political Stability in China comes with little transperancy, Business Insurance, Retrieved from http://www.businessinsurance.com/article/99999999/NEWS040103/120309887 Knight, J. and Ding, S. (2012) Chinas Remarkable Economic Growth, UK: Oxford University Press Orbirso, (2007), Strategies and Paths for China Entry, Retrieved from http://cccb.org.uk/China_UK_Business_Association_Resources/files/Strategies%20and%20Paths%20of%20China%20Entry.pdf Walker, A. (2011) Might China’s Economy Stumble, Retreived from http://www.bbc.co.uk/news/business-13802453 Read More