Competing in the Global Marketplace - Research Paper Example

ID 19714 Academia Research Order No. 240115 07 September 2008 Word Count: 1950 Competing in the Global Marketplace Table of Contents: Introduction: It is believed that innovations and path to success start from home. Organizations which are successful in the global markets for their products and services, and have excelled in governing a multi-country, multi-cultural, multi-lingual, multi-political, and multi-regulatory organization system, definitely have a strong business foundation in their respective native countries. Michael Porter presented a model (popularly known as Porter's Diamond) on influencing factors that make an Industry in a Country more competitive at a Global scale. This model presents a very practical perspective of the positioning and competence of an Organization in a Country that enables a Global Recognition of the Organization (Porter, 1990; Recklies Management Project GmbH, 2001). This paper presents a practical example of applicability of this model. The example presented is the world famous (and stunning!) acquisition of IBM's Personal Computer and Laptop business by Lenovo, China. The paper puts emphasis on the weaknesses of IBM & strengths of Lenovo that resulted in this acquisition, the challenges that Lenovo faced after this acquisition and the strategies that Lenovo planned to mitigate the risks posed by the challenges. Computer Electronics Manufacturing in China - the case of Lenovo: A brief on Michael Porter's model is essential at this stage before the mapping is attempted. Following figure presents the model (http://www.valuebasedmanagement.net/methods_porter_diamond_model.html). Figure 1 The model presents a strong correlation of four major influencing factors governing the success of an Industry at a National & International level, and the control of the local Government on these influencing factors. Firm Strategy and Rivalry: This corresponds to an imposed urgency on the firm to boost Productivity and Innovation due to direct competition in the Local Market. This influencing factor is governed by the system in the country (enforced and controlled by the Local Government), in which companies are established, organized and managed (Recklies Management Project GmbH, 2001). Demand Conditions: This corresponds to the domestic demand conditions imposed on the firm by end customers, scope of products, and demand-supply ratio. These demand conditions can get internationalized if the Government Machinery supports a structured mechanism to achieve this as not all domestic strengths get recognized in the International Markets (Recklies Management Project GmbH, 2001). Related and Supporting Industries: A domestic Industry grows substantially if the local government is successful in creating and administering a sound business framework. In this framework, a strong network of competitors, suppliers, service providers, brand managers, marketing agents, etc is created which collectively influence a healthy growth of this business as well as increase demands & boost supplies. Factor Conditions: This corresponds to a sound business support framework to the business that includes (but not limited to) skilled manpower, infrastructure, supply channels (like liberal import policies), funds (availability of loans from banks and venture capitalists), etc. China serves as the manufacturing powerhouse of the world because of Government policies & Capital investments in this direction, huge lands available, excellent Infrastructure, hands-on skill based education system, very low cost labor, a number of low cost suppliers and ambitions to match the strong influence of Taiwanese counterparts in the Global markets (see references). Given all these strength parameters of China and a killing recession in the Western IT Industry in the beginning of this millennium, Global majors like IBM decided to outsource a major part of their expensive manufacturing operations to manufacturing giants (Like Lenovo) in China. As a matter of fact, Lenovo, China has been manufacturing for IBM for a number of years but largely known (as a brand) in the domestic market only. IBM's own Domestic and International standing in PCs and Laptops got further weakened due to their weakness in support & spares availability in competition with Global Majors like Dell and Hewlett Packard who in turn had exploited the huge serviceability potential of India. This ran IBM into losses and hence they decided to sell their PC and Laptop business to the most obvious contender, Lenovo (see references). If compared with the Model, the facts that benefited Lenovo are very clearly obvious - inability of IBM to manage demand-supply ratio in the US markets, competence of Lenovo to proceed with the IBM PC & Laptop business due to strengths in China markets and a perceived ability of Lenovo to exploit the strong IBM brand in the global markets to meet the demands. This decision suddenly elevated Lenovo as a Global brand in no time. The acceptance of products was not a challenge because of brand positioning of IBM PCs and Laptops. Consumers were told that IBM will continue to drive the business in the backend and hence they took it as a mere renaming of the product lines. Computer Electronics Manufacturing Outsourcing from China to Taiwan: The acquisition of IBM's PC & Laptop business elevated Lenovo as a global brand recognized as the third largest manufacturer globally in this business. This status however was not easy for Lenovo to manage in the long run. Traditionally, China didn't have an effective western education system. The emphasis in education has always been given to enhancing hands-on skills rather than global management practices (Li, 2006). As a result, Chinese companies are not so effective in global marketing and branding. As a matter of fact, some of the best quality products of China have been available through informal channels only (like auction sites or unstructured import channels). Lenovo realized this limitation very early after this acquisition and hence decided to open their corporate office in US and include some IBM marketing veterans in the top management (see references). This strategy hasn't worked however because the acquisition happened in bad days of IBM. The tag of poor services kept on haunting Lenovo and the reluctance to "Made in China" branding in Western countries didn't create a good launch-pad for Lenovo. As a result, the sales of Lenovo brand desktops and laptops started declining in spite of the best efforts by IBM marketing veterans. Lenovo, however, continued to do well in the domestic markets (in fact expanded in entire Asia after the acquisition). This has compelled Lenovo to consider a strategy to invite Taiwanese companies to work as manufacturers for Lenovo (see references). Taiwanese companies traditionally have played a role of "manufacturing integrators" in Asia having strengths in collaboration of Brand Management, Marketing, R&D in USA, supply channels via Hong-Kong and manufacturing by companies in mainland of China (Hsu, 2003). Figure 2 (Hsu, 2003) Taiwan has seldom operated as a local (controlled) vendor in Chinese markets. Taiwan manufacturing Electronics products for China is to some extent a reverse engineering of the traditional business model. Taiwan traditionally has served as a powerhouse in Architectural Knowledge, R&D, and Systems Integration with strong Entrepreneurship in Global markets. They have, however, contributed a lot (informally using Hong-Kong as a supply channel; without much help from Chinese Government) to the development of Chinese Manufacturing Market (Hsu, 2003) with the help of their know-how and strong global connections with Western Electronic Manufacturing Majors. The offer to Taiwan to manufacture for China is like reversing the tradition (Taiwan used to outsource and control manufacturing in China) but the opportunity for them is huge. In the recent past, China has gained tremendous knowledge from the Global Technology companies (like IBM). This know-how is being reinforced with a major shift in educational system by the Local Government of China to align towards western style (Li, 2006). The volumes that China can offer to Taiwan are huge and in-turn gain from their Branding, R&D, Systems Integration and Global marketing capabilities in addition to improve quality of their manufacturing by virtue of outputs from Taiwan controlled manufacturing facilities in China. Lenovo is currently working with some big time electronics manufacturers of Taiwan to manufacture Laptops. The news is not officially announced by Lenovo rather has appeared in local news portals at Taiwan (see references). In this process, it is assumed that Lenovo wants to introduce a tag of "Made in Taiwan" for western countries (which is already acceptable to them) and maintain the "Made in China" branding for Asian countries. Potential of Taiwan as a supplier in Chinese Market (Bridwell and Kuo, 2007): Taiwan in 2001 sold $43 billion worth of Information Technology hardware. Taiwan is the world leader in Liquid Crystal Displays which is a major component in manufacturing of Laptops. Overall, Taiwan has many strength areas in technology innovation and flexibility in adapting to Global Markets. They have a superb framework of pushing their products to the Global end users in Computer Electronics possessing a strong parts/components sector, a finished products sector, a global supply chain sector, a strong global sales sector and global after sales support sector. An example of a Taiwanese major is Acer who has been successful in positioning themselves in competition with Global majors like IBM, Hewlett Packard and Dell in many large Asian markets (like India) and to some extent in Western markets. Largely, Taiwan has been working for Global large IT manufacturing majors like Dell and Hewlett Packard. Dell has a very sophisticated customer support system whereby they could excel in their model only because of the strong components/spares supplies from Taiwan at a global level. Using this global competitive advantage of Taiwan, Dell and Hewlett Packard could actually cause hard times for even the primary inventor and the most respectable brand of personal computers, IBM, who in turn had to mitigate their losses by selling their PC & Laptops business to Lenovo. But in a global marketing and support framework, Lenovo possesses the same weaknesses as IBM because they had to rely on IBM's already failed marketing & support channels. Hence, due to this acquisition only the ownership changed but the problem remains unsolved. This is where; Lenovo has taken a right step to involve Taiwan to mitigate this weakness at a global level. Traditionally, Taiwanese have been speaking Chinese very well and have a strong understanding of cultural aspects in China. It is just that the two Governments have not implemented a strong correlation to synergize the mutual strengths and emerge as an unbeatable Global Powerhouse of Computer Electronics manufacturing. Largely, the Chinese domestic computer markets have been inaccessible to Taiwan. The Chinese Government has a huge opportunity here to keep the domestic demands of Chinese computer products sustained by systematically developing Industrial Cluster of Chinese & Taiwanese organizations. China has been traditionally focusing on quantitative computer electronics manufacturing perceived as "use & throw" to a large extent in global as well as local markets. This has happened due to lack of branding and marketing skills. With the emerging of Lenovo as a global brand, Chinese Government has an excellent opportunity to kill this myth where the capabilities of Taiwanese companies will be very handy. Chinese companies in collaboration with Taiwanese companies will be able to sustain the demands for domestic brands in China computer markets thus posing a strong competition to Western and other Asian giants who have already started establishing their base in the local markets of China. Taiwan is the best choice for China due to cultural integration and already established informal channels. Other Asian majors like India and Japan are culturally far different for such collaborations (Bridwell and Kuo, 2007). Conclusions: Michael Porter's Diamond Model of national competitive advantage to achieve Global acceptance can be applied to arrive at strategies that can potentially create collaborative Industry clusters to emerge more powerfully in the global markets. Ideal examples are the Silicon Valley cluster of Intel, SUN and Hewlett Packard and the Bangalore (India) cluster of US and Indian majors. China has a tremendous potential to apply the Porter's Diamond to establish an Industrial Cluster of Chinese and Taiwanese computer electronics manufacturers to emerge as a superpower in this area not only in domestic China computer markets but also Globally (Bridwell and Kuo, 2007). References: Harvard - A Guide to referencing, Victoria University 2002, A new school of thought, Australia Recklies, Dagmar, Porter's Diamond - Determining Factors of National Advantage. Recklies Management Project GmbH, 2001 Mullings, Cheryl and Tom. Why China Matters in Global Electronics. 2003 Hsu, Paul S.P. Taiwan Advantages and Opportunities. 2003 Lenovo Acquires IBM's PC Business. 2004. . 6 September 2008. IBM and Lenovo - Q&A for Customers. . 6 September 2008 Farrel, Nick. Lenovo Losing out in western Markets. 2006. . 7 September 2008. Barboza, David. Chinese buyer of PC unit is moving to I.B.M.'s hometown. 2004. Business -> World Business -> Chinese Buyer of PC Unit Is Moving to I.B.M.'s Hometown>. 7 September 2008. Lenovo to entrust Taiwanese suppliers to produce laptops. 2008. . 7 September 2008. Lenovo Outsourcing Notebook Production. 2008. . 7 September 2008. Li, Xiaohong. The Higher Education Reform and Development Trend in China. Chongquing University. . 7 September 2008. Bridwell, Larry and Kuo, Chun-Jui. An analysis of the Computer Industry in China and Taiwan using Michael Porter's determinants of National Competitive Advantage. Pace University 2007. . 7 September 2008. Michael Porter's determinants of National Competitive Advantage. 2008. . 7 September 2008 In addition to the cited references, I would like to extend my special thanks to all those who extended to me knowledge and information that helped me to put together this paper. On their request, their names have not been published herewith. Bibliography: Porter, Michael E. Competitive Advantage - Creating and Sustaining Superior Performance. Free Press, 1998. Porter, Michael E. The Competitive of Nations. Free Press, 1998. Sledge, Sally. Does Porter's Diamond hold in the Global Automobile Industry. Thomson Gale, 2005 Redmill, Felix and Anderson Tom. Development in Risk based approaches to safety. Springer Publisher, 2006 George, Zhibin Gu. China's Global Reach: Markets, Multinationals and Globalization. Fultus Corporation, 2006. Bates, Gill and Lardy, Nichlas et al. China the Balance Sheet: What The World Needs To Know Now About The Emerging Super Power. Public affairs, 2006. End of Document Read More