Introduction
Internationalization has become the main avenue organizations can expand and spread their activities with intention of growth, sustainability and increased profits (Tjosvold and Leung 2003). Elecdyne Company has specialized in electronic manufacture and supply, where the company has largely concentrated on Japan’s market (Anonymous N.d). However, for sometime now, the company has stagnated in terms of growth.
Therefore, to deal with the issue and realize faster growth, the company has to internationalize where it will access new markets, technology, and benefits from low labor costs. However, before it undertakes the process, the company needs to carry out thorough global business environment. This will enable the company to know its environment better.
Analysis of general global environment facing business
Stonehouse and Campbell (2004) observe that organizations like Elecdyne Company that has intentions of internationalizing need to conduct external business analysis to conceptualize and acquaint with factors likely to influence the business.
External business environment has been found to comprise economic forces, politico-legal forces, cultural-social, and technological forces (Murphy 2005). At the same time, the ecological environment has become key component of external business. Analysis of these factors enables any firm with intentions of expanding internationally to acquaint itself with the external or country conditions in which it operates.
Moreover, global business environment can be conceptualized and understood by using the Porter’s Model of Competitive Advantage of Nations developed in 1990 (Kazmi, 2008). According to Porter, competitive advantage of nations can be found in four major and critical national characteristics that in most cases create an environment that is conducive to creating globally competitive advantage (Kazmi, 2008).
The four national characteristics (diamond determinants) are also seen to be interrelated hence are likely to influence each other. The four diamond determinants are: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure and rivalry (Kazmi, 2008).
Factor conditions constitute special factors that also include inputs needed for production. Some of these special factors constitute aspects like natural resources a country has, presence of raw materials, infrastructure, technology, research and development opportunities, and labor which a particular country has and support business activities. As a result, internationalization process is likely to take place in a country that exhibit more factor conditions.
Demand conditions on the other hand have to do with characteristics, size and nature of consumer needs in the domestic market. It is always perceived that when domestic consumer market is demanding, firms are forced to produce more and also adhere to quality standards, and this may be the conditions for domestic firms to exert their presence in international market (Kazmi, 2008). The related and supporting industries are another diamond determinants analyzed by Porter.
According to Porter, the presence of related and supporting industries constitute aspects such as networks of suppliers and distributors that cooperate with the industry to support it in international competition (Kazmi, 2008). Lastly, the firm strategy, structure and rivalry have to do with the robustness of domestic competition (Kazmi, 2008). When the domestic industry is robust in terms of competitiveness, it is seen to have the capacity to influence the increase in productivity that is needed to compete internationally (Kazmi, 2008).
Specific business environments facing the business
Internationalization is a process that is achieved after a period, hence in most cases is long-term planning process. As a result, the organization has to establish its resource capacity and capability in order to know whether internationalization is possible or not (Murphy, 2005).
Further, the organization should ensure its vision and mission are ingrained in the larger strategy to internationalize. In other words, achieving objectives and goals of internationalization should be in line with vision and mission of the organization. In order to internationalize, Elecdyne Company needs to carry out analysis of three countries selected that offer potential for the company.
These three countries provide potential and opportunity for Elecdyne Company to internationalize. The company has to analyze all these PEST factors as they affect its broader goals in the country. Moreover, the company has to consider these factors within the limits of its vision, mission, and available resources.
China
Political
China is ruled by the Communist Party. What this has translated is that, China as whole experience less democracy in the part and as citizens of China. Business laws in the country are framed under the Foreign Trade Law of the People’s Republic of China (Haberer 2011).
The Communist party influences to large extent the business and market policies. This has further resulted into China having special economic zones, chaotic pension scheme, problems with copyright or intellectual property rights (Haberer 2011), and corruption high (Haberer 2011).
On the other hand, Japan mode of government is bureaucratic in nature controlled by bureaucratic elites and government ministries. Laws are formulated out of these bureaucratic and unlike China, transparency is relative more visible given strong establishment of punishment and corruption institutions.
Economic
Economic aspects that characterize China include the fact that, GDP growth has reduced but it remains above 7% (Haberer, 2011). There is increase in the rate of urbanization, which acts to drive economic growth. There is strong foreign investment, which is catalyst for growth (Haberer 2011).
Lastly, the country has lower labor and property costs. Japan is almost on the same par with China and the country boost technological economic power. On lighter note, economic regulations in Japan tend to be more favorable and less stringent than those of China (Haberer 2011).
Socio-cultural
Has the largest population in the world, estimated to be about 1,330 million (Haberer 2011).Has large number of urban ‘socialites’. The society is growing as population increase, earning is increasing among households, and largely guided by the Quanxi culture. Japan has less population compared to China hence consumption demand is likely to be higher in China than Japan.
Technological
Compared to majority of western countries, China seems to lag behind in technology. However, what is evident is that, technology in the country is growing and much of technologies come from Western societies (Haberer 2011). Japan on the other hand is way above China in terms of technology.
Sweden
Political
Sweden as society is ruled by monarchy. Political conditions are stable. Country’s regulatory regime encourages both local and domestic investors. Some regulations are ineffective that lead to slow in GDP of the country, slow creation of innovation solutions, and slow development of research programmes (Capdevielle, Li, and Nogal 2007).
Policy of transparency wide in the country and this has eliminated aspects of tricks, corruption, cheating, and fraud. The country rated as one of the highest with efficient account ant standards in the world. Compared to Japan system of governance, Sweden scores highly than Japan where public institutions in the country are transparent and efficient. In fact Sweden has been ranked at position two (2) worldwide as the best competitive place to conduct business ().
Economic
The country has national economic strategy split into four categories that it pursues its economic goals with (Capdevielle, Li and Nogal 2007). Issues of trade unions rights persist in the country and these issues sometimes may make it difficult to start business in the country.
These issues make it difficult for companies to start business activities. International trade policy remains flexible and easy for foreign investors to establish. Inflation has been contained below 3%. Employment rate high hence people have more money to spend. More so, tax ration still remain highest in the company as compared to other world countries (Capdevielle, Li and Nogal 2007). Again, economic performance of Sweden is growing as compared to Japan.
Socio-cultural
Sweden has a society that is largely tolerant, embracing, and accommodating and appreciates cultural diverse (Capdevielle, Li, and Nogal 2007).Freedom of expression and association characterizes the country. Equity in the society is upheld between genders (Capdevielle, Li, and Nogal 2007). Human rights are highly observed. Consumerism remains again characteristic of this society. Socio-cultural aspects of Sweden tend to be slightly well performing as compared to Japan although the two countries relatively perform well.
Technology
Sweden has superior technology in transport, communication, IT, research and development and innovations (Capdevielle, Li, and Nogal 2007). Furthermore, society favors and has embraced sustainable information technology society. Sweden just like Japan has accelerated efforts in innovation and investment in high technology power.
Brazil
Political
Brazil is ruled by Workers Party and its allies. Democracy is vibrant and political stability is effective. In addition, the country has dysfunctional and corrupt judicial systems (Haberer 2011). Moreover, the country has large informal economy due to burdensome tax bills.
Brazil faces the problems of violence, drugs (Haberer 2011). Furthermore, the country, exercise orthodox macroeconomics policies: floating exchange rate, inflation, and fiscal restraints (Haberer, 2011). Political stability and performance of governance institutions as compared to Japan are still below, hence Japanese are likely to experience some high levels of institutional corruption in the country.
Economic
Brazil had an improved GDP in 2008 as compared to 2007 (Haberer 2011). The economy of the country depend on traditional markets-USA and EU. Moreover, the country’s economy appears to be less vulnerable to external economic shocks. There is unequal income distribution in the country (Haberer 2011).
In addition, Brazil has great public debt problem though it is improving. Lastly, the country boosts abundance of major commodities (Haberer, 2011). Brazil economy constitutes of developing societies hence still lags behind Japan. But the country is promising in terms of economic growth.
Social
Brazil has demographic composition that is young; hence, the aspect of consumerism is high. Population is growing and this may be viable for market in future (Communicaid Group, 2009). Urban migration is increasing. Income disparities in the country remain relatively high. However, as trends indicate, income per household has been increasing thus consumption needs are likely to increase (Haberer, 2011). Consumerism among Brazilian is high especially among the youth population and this may auger well for Japanese companies.
Technology
Technological advancement in the country is gradually progressing although consumers still prefer western products since they demonstrate high level of technology. Research and development continues to expand although still largely ineffective. Technology in the country still lacks from innovation initiatives and research and development remain poorly established.
Factors that Elecdyne should collect information on
Elecdyne Company after selecting the appropriate country it will set its base and establish market, need to carry out another analysis concerning two critical aspects. The two critical aspects include culture-related factors and risk factors that Elecdyne should collect information. Having this information, the company will be able to conduct its internationalization strategy more successfully.
Culture-related factors Elecdyne should gather information on
Cultural aspects have been found to affect the way a business operate and functions in the wider environment (Hofstede, 2001). Therefore, to identify culture related factors as far as international marketing is concerned, the following aspects need to be investigated by Elecdyne Company. First, Elecdyne Company needs to investigate and analyze the dominant beliefs, norms and values exhibited by the society it is likely to set business in.
Hofstede cultural dimensions model can be used to analyze national cultural differences between Japan and the countries it is likely to internationalize to. For example, Hofstede developed five dimensions which are: power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation (Hofstede, 2001). The essence of these dimensions has been to analyze and differentiate national cultures of different countries.
For instance, countries in East and South Asia, and South America, where Japan, Brazil and China are included have been found to exhibit higher power distance as compared to European countries (Sweden) (Suwannapirom and Burapha University, 2005). Higher power distance indicates that the society is largely inclined to values and beliefs that accept inequality and leaders are important in decision-making process (Aswathappa, 2010).
Moreover, organizational hierarchies are more defined and explained. On the other hand, individualism as compared to collectivism is seen to be predominant in European countries (Sweden) as compared to Asian and South American countries that embrace collectivism (Suwannapirom and Burapha University, 2005).
According to high individualistic countries, people have personal responsibilities, individual achievement is ideal, and people should not be emotionally attached to organization or group (Aswathappa, 2010). On the other hand, collectivism societies embrace group work, decision-making should be based on consensus, and group loyalty is strong (Aswathappa, 2010).
Masculinity is another dimension investigated by Hofstede, where the author observed that Japan as compared to Sweden exhibit higher level of masculinity tendency (Aswathappa, 2010). Higher masculine societies emphasize outline and differentiation of gender roles and men are seen to be more assertive and dominant (Aswathappa, 2010).
Other countries in this category may include China and Brazil which are part of Asia and South America continents respectively. Other aspects of high masculine society has to do with vesting men with decision-making power, work is more valued and prioritized than family and advancement, success and money are important (Suwannapirom and Burapha University, 2005).
Uncertainty avoidance is seen to be higher in China, Japan, Brazil, and other related Asian and South American societies as compared to Northern America and European countries (Aswathappa, 2010).
Societies that have high levels of uncertainty avoidance are likely to be characterized by belies and norms such as; conflict should be avoided, people perceived to be deviant should be tolerated, laws are necessary and should be adhered to, authorities decisions should be respected, and consensus is important and necessary in reaching agreement (Suwannapirom and Burapha University, 2005).
The essence of this is that, a country like Sweden as compared to Japan or China is likely to experience less structuring of activities, fewer written rules dominate, managers are risk-takers, higher labor turnover and many employees are ambitious (Aswathappa, 2010).
Risk factors that Elecdyne should collect information on
Apart from collecting information on cultural aspects on the country it wants to establish operations in, Elecdyne Company should look for factors of role of chance and the role of government in new locations or societies it perceives to be appropriate for business. These two aspects are part of Porter’s diamonds (Barragan, 2005).
The role of chance has to do with factors present in the external environment which may affect international business. Such factors include: war, political conflicts, both man-made and natural disasters (Barragan, 2005). These events which may be actually out of control are likely to impact the business environment in a particular country or region.
At the same time, the role of government has been found to affect and influence international business. Government role may be largely manifested in aspects like the policies and regulations it set and formulate in the country which can benefit or adversely affect the competency of a country and industry in international business (Barragan, 2005).
Apart from analyzing the aspects identified above, the company should also investigate and analyze internal risk factors that may affect its plan to internationalize. The internal aspects may include resource capacity of the company to ensure the process is not suffocated by lack of resources (Hoskisson, Hitt, and Ireland 2008).
In addition, organizational cultural change should be evaluated to see how risk it pose to the plans of the company. Employee resistance and readiness to the programme should also be evaluated as a risk that can stall the process. Lastly, the company’s vision and mission should be evaluated to see it is in line with global goals to internationalize.
Conclusion
Internationalization is a process that should be undertaken after a thorough global environmental scanning. Various aspects have to be investigated and analyzed before arriving to conclusions that will benefit the company. Elecdyne Company can no longer confine itself to Japan’s market but requires movement to other markets.
As it has been established, global business environment include the four famous PEST (political, economic, socio-cultural and technology and Porter’s Diamond Analysis. Given the situation Elecdyne Company faces: competition, high salary costs and lack of technology, the company will need to invest in international market.
To successfully chart this opportunity the company needs to carry out cultural analysis and risk analysis of key aspects. This will enable the company to have a strategic international plan which has ability to succeed and enable the company realize growth.
References
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