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Internal and External Analyses for Elecdyne Report


Introduction

Elecdyne is a Japanese Electronic SME, which was founded in 1990. The company uses technology licensed from various multinationals to produce a range of electronic products including TV sets and CD/DVD/MP3 players. Initially, the company had five workers but now, it has about 100 employees. However, despite its growth, the company is struggling for its place in the Japanese electronics market. Therefore, as a way of expanding its sales, the company considers internationalizing its business.

This report gives an outline what world market the company should enter (part 1), how it should attain such an aim (part 2), and the products it should produce (part 3) once it decides to do so. The report will use both the SWOT and PEST analyses in finding a country which Elecdyne should consider as its new market.

However, as the company decides to internationalize its business, it must consider a number of factors before doing so. The most important factor that the company should take into account is cost minimization. Here, the company will determine whether its decision on internationalizing to a particular country will reduce its costs or not.

The next factor that the company should consider is access to technology and technological expertise as this will help it to avoid relying on large multinationals. The company also needs to consider access to a new market as well as mind the size of the market at which it targets.

In addition, Elecdyne should also consider economic and political risk factors because being a small company, it is not in a position to take high risks. Lastly, the company should also mind socio-cultural factors as they define what conflict is generated in the organization due to the differences between the Japanese culture and that of the host country. Besides the factors mentioned above, the strength and weaknesses of the SWOT analysis under internal one also give the factors involved in choosing a country to extend its market.

Analysis of Framework

This report uses a framework that encompasses both the SWOT and PEST analyses’ tools. The SWOT analysis outlines the strengths, weaknesses, opportunities, and threats that Elecdyne has or is likely to face in its way to internationalization. The PEST analysis tool, on the other hand, evaluates the following factors, such as political/legal, economic, social-cultural and technological.

The internationalization factors mentioned earlier in this report will be divided amongst these issues and assigned various weightings based on their significance and relevance to the needs of the Elecdyne Company. In order to decide which country the company should consider as a new market, the analysis will be combined with the opportunities and the threats of the SWOT analysis tool in this report.

Therefore, within an internationalization factor, any research data that is better than that the one from the Japanese market will get from one to three plus (+) symbols and that is worse than the Japanese market’s one will be assigned from one to three minus (-) symbols. However, if the data is the same, it will not be given any symbol. The plus (+) symbol represents an opportunity, and the minus (-) symbol shows a threat.

All these factors should be taken into account and combined all together to create the whole picture to determine what country will provide the greatest opportunity for Elecdyne Company. In addition, the scores will be averaged within each internationalization factor to account for discrepancies in the quantity of data collected for each factor. Therefore, this method does not only consider the factors against Japan but also compares them with the ones of the other countries as well.

Internal Analysis

Strengths of Elecdyne

  • The company has good experience in efficient cost management;
  • The management team of the company knows English; therefore, it can easily get access to new large markets as English is the major international language for business (Hurn, 2009);
  • The company is resilient; it has experience in large and competitive markets;
  • It is aggressive in achieving its aims;
  • The company uses technology licensed from various multinationals; therefore, it has good relationship with other companies.

Weaknesses

  • The company is unable to employ R and D graduates, thus it has difficulty in accessing technology;
  • Its expenses in renewing technological licenses are increasing;
  • The company has had minimal growth for the last three years;
  • It only supplies the Japanese market;
  • Due to lack of qualified expertise, the company lacks innovation;
  • Its cost-based competitive advantage cannot not allow it to differentiate and build its brand (Ormanidhi and Stringa, 2008).

Internationalization factors (weighted)

Factor Weight
Economic and Political Risks 2
Cost Minimization 10
Market Access/Size 4
Access to Technology 5
Culture-Fit 1

External Analysis

Political/ Legal

Japan Kenya Denmark India
Political Risk (2x) + = Low Risk – = High Risk
Government Type Parliamentary government Republic
_
Constitutional monarchy
+
Federal republic
_
Political instability Index-higher number equals high risk (Viewswire, 2011). 3.8 7.5
_
2.2
+
4.5
_
War Risk-higher number equals high risk (ONDD, 2011) 2 4

_

1

+

3
_
Labor freedom Index –higher number equals more freedom(The Heritage Foundation, 2011) 81.1 62.9
_ _ _
92.1
_
67.2
_ _
Average 0 -6 1.0 -2.5
Market Access/Size (4x)
ISO standard prevalence 62746 257
+++
1574
++
37958
+
Size of main trade union (Bailes, Gooneratne, Inayat, Khan, & Singh, 2007) ASEAN 10 members COMESA 20 countries
EU 27 countries
+
SAARC 8 members
_ _
Average 0 4.0 1.5 0.5

Economic

Japan Kenya Denmark India
Economic risk (2X) + = Low Risk – = High Risk
Public debt (CIA World Factbook, 2011) 8.607 trillion 31.50 billion
++
88.14 billion
+++
2.054 trillion
_
External Debt per
Capita U.S Dollars (Nationmaster, 2011)
$11,708.07 $181.86
+++
$90,085.81
+
$146.39
+++
Inflows of FDI
(show the trend of
FDI and economic growth)(OECD, 2010)
46 565.34 31 253.7
+
10 707.98
41 168.6
+
Inflation rate 2010
(higher inflation =
more unstable economy)(CIA World Factbook, 2011)
-0.7% in 4%
2.3%
12%
GDP (Purchasing
Power Parity (CIA World Factbook, 2011)
$4.31 trillion $66.03 billion
$201.7 billion
$4.06 trillion
Unemployment Rate- the higher the rate = more leverage for FDI incentives (CIA World Factbook, 2011) 5.0% 40%
+++
6%
+
10%
++
Average 0 1.33 0 0.33
Cost
Minimization (10x)
Hourly Average Compensation Costs in the Manufacturing Industry (U.S. Dollars) (Bureau of Labor Statistics, 2008) 30.36 3.5
+
49.56
$0.91
++
Collective
Bargaining Coverage higher workplaceregulations =higher costs(International Labour Office Geneva, 2008)
15-50% < 20%
+
51-70%
15-50%
Corporate Tax (NSW Government, 2011) 40.7% 30%
+
25%
+++
33.2%
+
Average 0 10.0 3.33 10.0
Market Access (4x)
Consumer Electronic Market Growth (2009) – 0.5% 5.6%
++
2.4%
+
7.10%
+++
Collective Revenue of Top Competitors in Electronics Industry (U.S Dollars in Millions) The stronger the competitors in the market are, the tougher the market entry will be. $214,848.2 239,759.8

$197,489.4
+
242,520.7
Population in Major Trading Area (Millions) ASEAN – 580 COMESA 432
EU – 498
SAARC – 1, 473
+
GDP per capita in Major Trading Union (Purchasing Power Parity in U.S. Dollars) amount of buyingpower the marketshave ASEAN –
$4,501
$1,600
EU – $36,600
+
SAARC – $2,733
Average -2.0 2.0 1.0

Social/Cultural

Japan Kenya Denmark India
Culture-Fit (1x)
+ = Similar
= Less similar
Power Distance 54 83
58
+
77
Individualism 46 35
59
48
+
Masculinity 95 71
+
58
56
Uncertainty Avoidance 92 85
+
75
40
Long Term Orientation 80 N/A
14
61
+
Social Expenditure
as % of GDP (Higher percentage indicates higher
employee morale)(OECD, 2010)
18.7% 6.9%
18.9%
+
0.2%
Average -0.833 -0.66 -0.833

Technology

Japan Kenya Denmark India
Access to Technology(5x)
Gross Domestic Expenditure on R+D (OECD, 2010) 3.44 0.3
2.7
+
0.88
Highest Ranked
University in the World ranking = quality of human capital to draw from(QS Top Universities, 2011)
25 – University of Tokyo 3190 – University of Nairobi

52 – University of Copenhagen

218 –India Institute of Technology Delhi
Growth Competitiveness Index (GCI) for Technology
The GCI for technology represents the economic strength and growth of the technology sector in a country(Mcarthur and Sachs, 2001)
5.28 3.59
5.54
+
3.54
Average 0 -11.66 1.67 -10

Summary Table

Factor Japan Kenya Denmark India
Cost Minimization 0 10.0 3.33 10.0
Access to Technology 0 -11.66 1.67 -10
Market Access/Size 0 2.0 3.5 1.5
Economic and Political Risks 0 -4.67 1.0 -2.17
Culture-Fit 0 -0.833 -0.66 -0.833
Total 0 -5.163 8.84 -1.503

From the data given above, it is clear that Elecdyne should try to enter Danish market. In spite of not being the best in terms of cost minimization, Denmark ranks higher than Japan due to its corporate tax rate, which is at 25%. In addition, although it ranks lower than Japan in terms of technology, it is better than the other choices.

Denmark also has a better market access than the other countries have because of the relative weakness of competitors and its access to the EU. It also has the lowest political and economical risks as well as the best type of government that can fit the Japanese culture.

Choice of method to Internationalize

Elecdyne has three options that it can choose from to internationalize in Denmark. These three options are licensing, foreign direct investment (FDI) and exporting. However, the company cannot venture in international licensing because its technological licenses are currently held by the other multinationals and can never be licensed again. It cannot also risk in exporting because this will make it impossible for it to satisfy its needs.

Moreover, exporting does not decrease costs as well as provide access to technology. Therefore, FDI is the only chance that the company is left with to internationalize in Denmark. However, under FDI, the company has several options to choose from including mergers/acquisitions, Greenfield site and joint ventures. These options have their strengths and weaknesses and thus should be evaluated critically.

Evaluation of FDI Options

Joint venture Merger Greenfield site
Cost minimization (10x) There is cost reduction as the costs are equally shared among the partners (Maitah, 2009).
+
High costs of integration as the company requires a lot of money to adapt to their MNE partners (Hennart and Slagen, 2008). – High liability of newness costs as the company will require more money to adapt to the host country’s environment.
Access to technology (5x) Business partners may steal or withhold technological improvements from each other (Maitah, 2009).
This offers access to new technology (AIAA, N.d).
+
It hardly allows to access to other firms’ technology.
Market access (4x) There is an opportunity of accessing new markets.
+
It provides an opportunity of accessing new markets
+
This option gives an opportunity of accessing new markets
+
Economical and political risks (2x) Political and economical threats are minimal (Maitah, 2009).
+
Political and political threats are higher than in joint ventures (Maitah, 2009).
Political and economical threats are very high (Maitah, 2009).
Culture­-fit (1x) There are high chances of culture related disputes (Maitah, 2009).
Likelihood of culture conflicts to occur is high (Maitah, 2009).
There are low culture risks (Maitah, 2009)
+
Total 10 -3 -15

Although all the FDI options provide access to new markets (EU), the best one is the joint venture. Furthermore, in spite of not being the best in terms of culture-fit and access to technology, joint venture is still the best as Denmark has a good type of government and higher GCI than Japan.

The option is also the least risky and the best in terms of cost minimization. The cost of new legal entity will be further reduced by the low tax rate, which is at 25%. Consequently, Elecdyne should form a joint venture with the University of Copenhagen to access technology as it is the highest ranked university in Denmark and has research teams with international experience. The company should also form a joint venture with an electronic firm in Denmark to reduce its costs and have better access to the market.

Product Development Strategy

As Elecdyne considers internationalizing to Denmark, it should also mind the new products to produce and develop when doing so. There are three main industry trends in the consumer electronics market in Denmark.

The three main trends are connected (mobile broadband), In-home entertainment (satellites, televisions among others), and media and data convergence. The table below gives analysis of a variety of electronic products, which fall into one of these three main trends. The analysis determines the risk versus reward of each product visa-a-vies market issues, cost reduction, and technology factors.

Risk Reward
In-home entertainment
Video Game Console
The world game console market is worth 22.2 billion and postulated to grow to 24.9 billion by 2015
There is high risk because of the advanced stage of low competition in the market There is a high reward. Video game console market is about $9.3 billion in Europe.
Budget OLED TV
It is a growing trend in the market.
It is indicated as a high risk because the costs of manufacturing are much higher than for the other TV sets. It is defined as medium reward
Staying Connected
Wi-Fi Internet Radio Player
There is a hidden trend in the consumer’s market pioneered by few companies.
There exists low risk due to health concerns that surround wireless technology The reward is low since the market is small.
Data Convergence
Portable Projector
Trend of using portable projectors is growing, especially for business use.
It is considered to be as a low risk as it is preferred by most customers due to its small size, energy efficiency, and compactness. There is a medium reward since large companies and small middle size companies are the major purchasers.

Since the company can perform research and development for all the products analyzed in the table, all of the new products can as well be integrated into the product development strategy. However, incase the company is to choose only one product, then the portable projector is the most sound choice since it has the lowest risk to reward ratio. The highly lucrative video game console is the worst because it has the highest risk.

Conclusion

Denmark offers the best opportunity for Elecdyne Company to internationalize. It has the best culture-fit and access to a better market size as compared to Japan’s one. However, when entering another country’s market, it should form a joint venture with the University of Copenhagen and an electronics company to save on costs and reduce risks involved. Finally, the company should develop a portable projector, but may as well bring some of its present product portfolios to Denmark.

Reference List

AIAA. Mergers and Acquisitions: Reasons for M&A. Web.

Bailes, A., Gooneratne, J., Inayat, M., Khan, J., & Singh, S., 2007. Regionalism in South Asian Diplomacy. Web.

Bureau of Labor Statistics. 2008. . Web.

CIA World Factbook. 2011. . Web.

Hennart, J., & Slagen, A., 2008. Do Foreign Greenfields Outperform Foreign Acquisitions or Vice Versa? Journal of Management Studies, 45 (7); 1301-1328.

Hurn, B., 2009. Will International Business Always Speak? Industrial and Commercial Training, 41(6); 299-304.

International Labour Office Geneva. 2008. . Web.

Maitah, M., 2009. Foreign Trade Operations. Web.

Mcarthur, J., & Sachs, F., 2001. The Growth Competitiveness Index: Measuring Technological Advancement and the Stages of Development. Web.

Nationmaster. (2011). . Web.

NSW Government. (2011). Corporate Tax Rates. Web.

OECD. (2010). Country Statistical Profiles 2010 – Edition. Web.

ONDD. (2011). Country Risks Summary Table. Web.

Ormanidhi, O., & Stringa, O., 2008. Porter’s Model of Generic Competitive Strategies. Business Economics, 43(3); 55-64.

QS Top Universities. (2011). QS World University Rankings Results 2011. Web.

The Heritage Foundation. 2011. Explore the Data. Web.

Viewswire. 2011. Political Instability Index. Web.

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