Executive Summary
Red Star China is a major player in the shipping brokerage services. However, there are other market rivals that have proven to be a threat to the business. As a result, Howard is trying to make every attempt to develop deeper, emotional and long lasting relationship with NCC. As Howard was progressing well with his guanxi strategy, Pan was transferred to another subsidiary. If Red Star manages to ship chemical products on behalf of NCC, it will be a remarkable business success. From the case study, it is apparent that the Red Star China needs to develop more robust business contacts that have a high supply power. In order to analyze the case, both the Porter’s Five Forces theory and Diamond E-framework have been used.
Identification of the problem
Red Star China wants to be a business partner with NCC because it has the desire to expand its business operations. According to Howard, Red Star office may hardly succeed in the absence of the NCC business partnership because the latter is a major player in the market. If competitors like SSK capture a working relationship with NCC, Red Star China might significantly miss out a major business opportunity because it will be compelled to rely on its current customers. Red Star strategies might also be jeopardized if the NCC business does not form a working relationship with the company. As it stands now, Howard is unable to make the right decision in regards to whether to make a guanxi relationship with Hans. Another alternative is to foster a new relationship with a Chinese official who is higher in rank than Hans. Worse still, Howard is not comfortable to just abandon his earlier guanxi relationship with Pan.
Industry Analysis- Porter’s Five Forces
According to Porter’s Five Forces, barrier to entry is one of the most vital factors that impede the expansion of business operations in marketplace. Absolute cost advantages may also propel a business enterprise to reconsider its decision to expand into new locations. Although Red Star China has a wider access to inputs required to run its business portfolio, the inability of Howard to make a formidable guanxi contact with NCC. This appears to be a major barrier to entry for the Red Star China company. After Pan was transferred to another location, it became cumbersome for Howard to continue the relationship. If he waits until Pan is brought back to the old station, a number of drastic changes such as government policies and market dynamics might take place. In addition, a market rival such as SSK may engage in retaliatory practices in order to win a larger share of the market.
Second, supplier power is evident in the case study bearing in mind that NCC is a major target for businesses such as SSK and Red Star are eying the company for supplies. The ability of the Red Star to offer high quality shipping brokerage services will enable it to enhance its supplier power. Rivalry may also emanate from threat of substitute services provided by SSK. In addition, the buyer power for the Red Star company demands a lot of bargaining leverage on the part of Howard. On the overall, the shipping industry is quite dynamic due to factors such as rice sensitivity, brand identity, buyer information and buyer volume. It is also crucial to assess the degree of rivalry so that the available barriers can be exited swiftly.
Internal Analysis-Diamond E-Framework
Howard heavily relies on the development of a guanxi relationship as his major business preference. The cultural background of the Chinese population cherishes the concept of quanxi. The organization of the available resources also affects the overall strategy to be adopted by the Red Star China. The main reason why Howard has to use guanxi is the operational environment of the business. The Red Star Group is a dominant player in ship brokerage in Asia. The china’s booming economy is the main target of the Red Star because the company needs to reap the most out of it.
Howard performed exceptionally well when he used to deal with ship chattering at Sunway Chemical Company. He was recruited by Red Star in 1994 due to his experience and performance. He joined the brokerage department of the Red Star China after undergoing some training. Some of the responsibilities of Howard as a manager included organizing water-based transport for shippers, arranging contracts of affreightment by issuing draft letters, bills of lading and so on. Top-notch brokerage services were provided by Red Star due to the strategies that were put in place by Howard:
- He had great potential to build quanxi
- Howard had a large network of officials drawn from the government, port managers and other stakeholders.
- He also developed a close and cordial working relationship with several stakeholders
- He had versatile knowledge on ships
- The local ship owners also worked closely with Howard
The above strengths as depicted in the management preference of Howard have made it possible for him to foster the best strategies for the Red Star Company.
Alternative strategies discussion and Implementation plan (30%)
Guanxi means personal connections. In other words, benefits and transactions should flow between two persons. Howard managed to reconstruct guanxi up to a successful level. The main purpose of guanxi was to promote reliability, trust and honesty among business partners in the course of doing business. Nonetheless, there is need for Howard to create and build long term relationship with new business partners instead of relying on the prospects of NCC business.
It is also necessary to redefine guanxi differently in order to fit the business parameters at hand. Nanjing ZP China is an excellent role model for Red Star China because it is well endowed with market prowess. Red Star China should emulate the business model of NCC. For instance, the Red Star company can consider a merger with other like-minded shipping firms in order to boost performance.
Decision
Stiff competition from SSK should compel Red Star China to develop strategic management measures. Hence, blocking SSK out of Jiangsu region is necessary. Red Star should retain its current clients if it fails to capture the NCC business deal even though the expansion rate will be minimal. The expectations from colleagues and business partners toward Howard are very high. Therefore, Howard should not work under very high pressure. Failure to execute such strategies might spell doom for the business. On a final note, Howard and the overall top management at the Red Star China are supposed to diversify the business so that the company can offer products with added value.