Duncan Cowie’s view that China is an “ideal market” for NuComm
In today’s world, it has been noted that the internal market in any given single country has been shrinking by the day, hence forcing the firms to search for markets outside their country. Consequently, globalization has come in handy to help these firms with the much-needed demand for their goods and services, therefore, decreasing their operating costs and increasing the profit margins through economies of scale.
Contrary to many people’s views, going outside one’s country of origin is not an easy task, and it requires strategic planning together with good timing not forgetting enough and extensive research to be sure that the investment is worthy, since the initial costs are high. NuComm management is faced by the dilemma of determining whether investing in China is a feasible option, and if it is to choose the location and mode of entry.
Duncan Cowie the financial manager of the company who worked in China for around two years, and has some experience in the Chinese business atmosphere, proposed that China is the ideal market for Nucomm.
NuComm needs to diversify from the American and the Canadian markets where it has based its operations for years due to the volatility of the currencies there hence affecting its profit margins. The idea of investing in China was the best at the time given the prevailing conditions.
- The Chinese workers in North American represent a significant number yet they are not covered by any call center firm, and that would make a good opportunity as they will be more ready to associate themselves with a company which would serve them even when they are back in China.
- China is still an upcoming industrial country where a service industry is just but gaining foot, and that would be advantageous, if NuComm becomes one of the first firms to start offering the communication service.
- There are a lot of opportunities that are available in China and highlights the meager number of call centers available compelling one call center seat to serve 100, 000 people compared to America’s 700 people.
- The government of the people’s Republic of China has recently promised to support foreign firms that have the intention of investing in the telecommunication sector, since they want to develop this sector.
The government has indicated the possibility of relaxing laws that regulate foreign investment, including the requirement that a foreign firm must have some percentage of local ownership in order to operate in China, to attract foreign firms.
This is an idea that NuComm should take advantage of because though it is only directed to a specific city, Dalian, the Chinese government has a reputation of implementing all its promises and putting all necessary machineries in place whenever it wants something done. - The idea of not going where the market is but where the market is expected to be helped NuComm to succeed in the Philippines. In China, Cowie notes also that the call center service businesses are not so much pronounced, which means that there is a lot of potential, when people there would come to know the usefulness of the services offered.
- NuComm needs to expand very fast in order to save itself from the financial problems that are imminent. The possibility of growth in China is projected to be just what NuComm needs to be able to set pace for financial sustenance.
Industrial analysts have projected that the call center seats will increase at a rate of 40 per cent per year, which is higher than even in America, where the market is fast becoming saturated. - Besides, the cost of operations in China would be far much lower than those of America because wages in China are comparably lower than in the US, and wages make the bulk of NuComm’s recurring expenses. The most expensive town in China is Shanghai, where the wages are $282 compared to America’s $2500.
- NuComm’s efforts in India failed and going back would be more of gambling given that there is nobody who is experienced as to how business is run there. On the other hand, Cowie has been working in China albeit with another company and therefore, knows how to go about with business in that country.
The timing could not be more perfect than now because the government has just pledged support, infrastructure is good and the upcoming Olympic Games will increase business opportunities.
The Olympic Games will bring a lot of people from various parts of China as well as other parts of the world, and it would be just perfect opportunity to create contacts with various firms which would become the customers. The government is also encouraging the development of the telecommunication sector and has even promised support to foreign firms that are willing to locate in specific places.
Cowie’s five-step entry strategy for China
Duncan Cowie suggests a five-step entry strategy which if applied by NuComm will be of great help, according to him. It is important to focus on the Chinese people working in America as the main target, because they are bound to be more willing to have service, since they have been in the American market and have probably used the service at one point in time, therefore, they know how important it is.
The workers also, being Chinese, have information about Chinese’s firms and individuals who may be interested in the service and therefore, will help a lot in giving referrals and enabling NuComm to take opportunities a head of time.
It is also important to have clients that will enable the firm to break even in the early stages of entry. On that note, the Chinese workers in America stand to be the most dependable at the moment given that they have embraced the advancement in technology.
The Chinese workers will also be delighted to be associated with a company that operates in China and which is ready to offer them services that they have not been receiving.
On top of that, more and more American firms are entering the Chinese market, while others have already established there, and they will all require call center services. These firms will be looking for a more credible company available to contract for the services.
Given the popularity that NuComm has in the US and Canadian markets, it will stand a greater chance of securing deals for most American firms, which based in China. As it is in America, many firms prefer out sourcing call center services and will therefore, definitely need the services even when in the foreign market, more so when it is another American firm that is offering the service.
It should be noted, however, that dependency on American firms only can be catastrophic given that the number of American firms entering Chinese market might not enough to support NuComm’s business.
A large number of the inhabitants of Chinese cities are the natives of China, who also happen to own a substantial number of businesses, which mostly serve the Chinese people, and to some extent, foreigners. China is also densely populated, if population is an indicator of the market that is available. Therefore, tailoring some of the products for the Chinese businesses will be of great importance to NuComn, if they want to earn from the investment.
It should be noted that in China, English or French is not used, and people there use Chinese language for communication. It will be therefore, a limiting factor, if NuComm does not improvise a way that they will provide services in Chinese language and in fact, this should be done as early as possible.
China is the center for Asian development, and it has put in place a conducive business environment for economic development other than the fact that it is centrally located in the Asian continent. It is, therefore, possible to use it as a center to serve other Asian countries as Cowie is suggesting.
Hong Kong which is one of the cities of China is identified as the epitome of business with various parts of the world leave alone Asia, hence it would not be difficult for NuComm to serve other countries, especially from Asia using China as their point of operation.
Though the five-point strategies make sense, the order is not very convincing to people. I agree that using the Chinese who work in America as the first strategy in entry is quite good given that they present the easiest people of Chinese origin to convince on the importance of call centers.
It is also important to aim at American firms as the second strategy since they have the ideas of the advantages of the services offered by NuComm, and the two strategies have taken into consideration the language barrier that is bound to affect the operations of NuComm.
But at the same time, the Chinese people who are the natives and who are the majorities should not be sidelined for long because Chinese people have a higher tendency of copying, and they might adopt NuComm’s idea to start their own businesses, which will compete with NuComm.
Therefore, the strategy of China for China should come in the third, or second, if possible, to reduce the chances of competition from the Chinese people, and also to prepare for the strategy of supporting American firms to invest in China through Chinese voice services.
The risks facing NuComm in entering China
Though the Chinese venture seems to be profitable, there are a lot of risks that may face NuComm on entry.
1. Chinese people are known to have a culture of copying, if they respect somebody’s idea, which NuComm is not used to and which increases competition.
Intellectual rights are protected in Canada and US, where NuComm is based, but that is not the case in China. The probability of several companies springing up a few years or months after NuComm has set up is high.
2. The Chinese people after realizing that their people have come up with companies that offer the same services as NuComm may choose to deal with their people therefore, decreasing the market for NuComm.
3. The Chinese might customize the services into Chinese language before NuComm does that which will further shrink the chances of NuComm getting hold of the market.
It is, therefore, upon Nucomm to move with speed after entry to ensure they increase their scale as fast as possible so that they get to enjoy economies of scale before competition stiffens.
4. Moreover, the Chinese system of government has proven to be very corrupt and to get assistance one needs to know somebody in a position of influence as opposed to either America or Canada, where corruption is minimal, if not absent.
This is made clear by Duncan Cowie, when he says that he had to party the whole night with Chinese families to get things done his way. The ruling party officials had ties with the so called private firms and offered them favorable business conditions hence an upper hand amongst competitors.
Therefore, it might be difficult for the NuComm firm to operate without having a god father to help in pushing things given that America and Canada are places where protocols are observed.
It is also not clear if there might be someone who is very influential and who might want to copy the NuComm idea and therefore, manipulate the authorities to push regulations against NuComm. But on the same note, Cowie had been in China and knows who is who and how they are approached and what is required for one to succeed in that country therefore, he will be able to help.
5. On top of that, most firms, which had entered China early on have not broken even in the market and hence, they were yet to even recover the initial cost of investment.
NuComm’s case as it is has financial problems and could not afford to tie down any amount of money for a long period of time without realizing any returns from it. It therefore, has to strategize on how to make returns from the very first moment they enter the Chinese market.
6. For service delivery to be efficient and thus, reduce operating costs staff must deliver to their best and this can be through employing well educated and highly qualified people. In China, the call center services are relatively new to some places, where labor is cheap therefore, finding a well trained employee may be difficult.
NuComm should, therefore, choose a method of training employees, so as to get maximum output from them, while maintaining the quality of their services and at the same time keeping operating costs at a minimum. Though wage rate might be lower in China compared to Canada or America, getting the right employee might be an uphill task leading to decreased rate of delivery.
7. It is China’s regulation that a foreign firm cannot operate, if it is fully owned by foreigners which means that any international firm setting up in China must collaborate with the natives. This means NuComm has to look for another firm in China to enter into joint venture with, in order to be allowed to set up in China.
The problem of finding the right company or securing favorable terms of operation sets in and NuComm has to strive to get a company, which is ready to enter into the call center business and give the best terms and conditions.
Entering China can be done through any of the four cities that Cowie suggests but the most convenient city should be chosen for this is a risky process. The situation should be one where the costs are low while income is high and given the financial position of NuComm the returns should be realized as early as possible.
Possible Chinese locations and the mode of entry
Beijing is the capital city and expects to host Olympic Games besides having reduced costs compared to Shanghai and probability of getting highly educated staff is high. There will be many people coming during the Olympic Games, but this is periodical and after the games business will go back to normal, hence the viability of income after the Olympic Games is not very clear.
Coupled with that is the fact that so far there has not been a firm that NuComm will partner with, in order to start its operations in Beijing. It is also evident that Beijing is the capital of the communist part, whose leaders are known to be very corrupt therefore, increasing the possibility of corrupt deals against NuComm should it be seen that NuComm will succeed.
On the other hand, Shanghai is directly under the control of the central government; hence most of its activities are overseen by government officials. The possibility of the government interfering with the operations of a firm located in shanghai is therefore, very high.
Being a commercial town and a hub of industries in China, it has many businesses, which increase competition and therefore, people are striving to improve their performance hence they will be more receptive to any idea that will help in boosting productivity.
Dalian has come into question due to the outright efforts by the government to boost development in the region thus, offering relaxation in regulations. Many foreign firms have been located there due to the policy that allows foreign investment and more are yet to come given that most policies limiting foreign investment can be relaxed.
Most of the firm there are those, which are likely to offer support to NuComm and the government can be willing to facilitate the registration process. Furthermore, infrastructure is developed and it has the capability of meeting NuComm’s demands.
Hong Kong is the best city to enter china because:
- Hong Kong has had ties with the west for a long time now and has the entire infrastructure and other needs for full operation of NuComm.
- English is the official language of business therefore, language barrier will not be a problem.
- There are many companies, which are ready to assist NuComm in starting up given that collaborating with a local firm is a requirement in China.
- Returns to capital are realized at a faster rate in Hong Kong than any other city and this is what NuComm highly needs.
The entry mode will be a joint venture because:
- China has a requirement that foreign firms must not be owned 100 per cent by foreigners, thus, leaving collaboration with local firms as the only viable option.
- A joint venture will help in minimizing the risks that faces NuComm, if it enters on its own in the new market.
- Due to corruption, relationship with top government officials is important in operation in China, therefore, a local firm will help in dealing with issues of relationships.
- The cost of entering as a joint venture is also minimal compared to the costs of entering in other means and NuComm is facing financial problems.