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)
External Analysis
Political/ Legal
Economic
Social/Cultural
Technology
Summary Table
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
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.
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.
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