Benefits and Challenges of International Business Expansion in China
Globalization has transformed the entire world into a small village wherein the business enterprises of the diverse nations can indulge into business negotiations with each other (Lasserre 2017). Hill et al. (2017) are of the viewpoint that the process of globalization has opened new windows of opportunities for the various business enterprises like the chance to expand their customer base, the opportunity to not only produce surplus products or services and offer them to the customers, higher profitability and others. However, the benefits associated with the process of globalization notwithstanding, there are several factors which the organizations need to take into effective consideration before actually taking following the path of internationalization (Peng 2016). For example, a detailed analysis of the business environment of the host nation would help the organizations to understand the opportunities as well as the threats presented by the host nation’s business market (Meschi, Ricard and Moore 2017). This in turn would help the organization to formulate strategies for the mitigation of the threats or the risks that they are likely to face in the host nation’s business markets and also to make the most of the business opportunities presented by the business market (Hilmersson et al. 2017).
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The market entry strategy used by an organization also becomes important and Nishant et al. (2018) are of the viewpoint that the success or the failure of the entire expansion depends to a great extent on the kind of market entry strategy used by an organization during the process of expansion. Al-Najjar et al. (2017) have shown that the effective utilization of the various theories of internationalization is likely to help the organizations during the time of their entry into the business markets of the host nation. This report will discuss about the process of international business expansion in the particular light of Boeing’s expansion into China.
The Boeing Company, founded by William Boeing in 1916, is an American multinational company which not only designs but also manufactures and sells “airplanes, rotorcraft, rockets, satellites, and missiles worldwide” (Boeing.com 2018). The company besides being one of the largest manufacturers of airplanes is the 2nd largest defense contractor of the world (Boeing.com 2018). Furthermore, the company is the largest exporter in the United States of America by dollar value (Boeing.com 2018). The net production of the company in 2016 was “748 commercial aircrafts, 80 military aircraft and 5 satellites” (Boeing.com 2018). The company besides the manufacture and the sale of the airplanes also provides various kinds of support services to the designing of the airplanes and their maintenance to the other organizations (Meschi, Ricard and Moore 2017). The company is currently operational in more than 100 different nations of the world and had more than 141,322 employees from these nations (Boeing.com 2018). As a matter of fact, the company is the 25th largest business enterprise of the world and the net annual revenue of the company for the year 2017 was an impressive US$93.392 billion (Boeing.com 2018). The company is known for the high quality airplanes that it offers and also the advanced technology that is being used for the manufacture of the same (Meschi, Ricard and Moore 2017).
Market Entry Strategies for Expansion into China
China is one of the most emerging economies of the world and is one of the most sought after host business markets (Gov.cn 2018). In this regard, the “one billion” population of the nation are generally being seen as potential customers by the various business enterprises (Lawrence and Thornton 2017). The airline industry is a relatively nascent one in the nation of China with the first organization being established in the year 2003 (Gov.cn 2018). However, since then the nation have not taken any significant strides in the airline industry and it is the net result of this that less than 400 jets fly in the nation (Lawrence and Thornton 2017). The lack of the initiative of the nation to develop this industry becomes apparent when the population of the nation and the fact that China has the 2nd highest number of billionaires is taken into consideration (Lawrence and Thornton 2017). The lack of effective development of the airlines industry is perhaps one of the major reasons for the slow economic growth of the nation despite having the requisite labor force and the means for the attainment of the same. However, in the recent times, with the latest Five-Year Plan and the increasing focus of the various airlines companies like Boeing, Embraer, Airbus, Gulfstream and others the future looks promising for the airlines industry in the nation of China (Gov.cn 2018).
He, Hipel and Kilgour (2017) are of the viewpoint that the Cross-Border Strategic Alliance tries to overcome of the limitations of the other market entry strategies like Merger and Acquisition, Sole Proprietorship and others. This strategic alliance proposes a framework wherein two or more organizations can merge or integrate their resources as well as capabilities to not only maintain but at the same time strengthen their position within the business market of the host nation (Prajogo 2016). Another major benefit of this strategic framework is the fact that the organizations involved in the process get the opportunity to not only share the profit but at the same time bear the loss in equal manner (Pritchard 2016). The magnitude of the business loss does not falls on one organization and this ensures the steady growth of the business of the organizations which are involved in the alliance (Teece 2017). Furthermore, the organizations involved in the alliance, also get the opportunity to effectively utilize the resources, strategies and other entities of the organizations with which it has formed the alliance (Rosar 2017). Thus, it can be said that the effective utilization of this strategic framework is perhaps of the most feasible options which is available to the company Boeing currently for the expansion of their business activities in the nation of China.
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Importance of Cross-Border Strategic Alliances
SWOT analysis is a framework which is used to analyze the key competencies of an organization and also the business opportunities as well as the threats that the company is likely to face on the score on its business operations in the business market of a particular nation (Mocenco 2015). An analysis of the company Boeing on this framework would reveal the following-
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Strength
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· The company Boeing has been in business for more than a century and enjoys a positive brand image in the international business market (Boeing.com 2018).
· The commercial as well as the defense products and the services that the company offers are much appreciated by the end users (Hilmersson et al. 2017).
· The usage of disruptive technologies not only for the manufacturing process but also for the other aspects of their business has given a competitive edge to the company over its competitors (Hilmersson et al. 2017).
· Effective use of Supply Chain Innovation (Boeing.com 2018).
· The airplanes manufactured by the company make less noise during take offs and landings in comparison to the others (Boeing.com 2018).
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Weakness
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· The major business operations of the company are centered in USA and the other developed nations of the world with practically no presence in the emerging economies like China and others.
· Over-dependence of the company on Technology for the purpose of Communication (Gulanowski, Papadopoulos and Plante 2018).
· It is seen that the company has not been able to effectively manage the different employees. Thus, the production of the company is being affected by repeated strikes like the one in 2008 wherein more than 25,000 employees of the company went on strike because of excessively long work hours that they needed to complete (Gulanowski, Papadopoulos and Plante 2018).
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Opportunity
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· The full scale use of the supply chain innovation system wherein the company outsources the manufacture of the components of the airplanes and finally after the manufacture of the parts just assembles them and ships them out (Meschi, Ricard and Moore 2017). The use of this process is likely to reduce the manufacture or the production cost of the company in a significant manner.
· Effective use of the recent technology for the manufacture of planes which will consume less fuel and at the same time will cause less pollution (Meschi, Ricard and Moore 2017). This will not only make a meaningful contribution towards the cause of the environment but would also enhance the brand or the market image of the company as well.
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Threat
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· The company faces a significant amount of threat from its competitors like Airbus, Gulfstream and others which offer the same kind of products and services that the company Boeing offers to the customers (Hill et al. 2017).
· The diminishing demand for the private jets after the 9/11 attack and others are another threat which the company is facing currently (Hill et al. 2017).
· Economic recession
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This is a management framework which requires an organization to take into effective consideration the cultural, administrative, geographical and economic differences between the host and the parent business markets and thereby formulate business strategies on the basis of this (Lasserre 2017). Furthermore, this framework also helps the organizations to “understand patterns of trade, capital, information, and people flows” and other aspects of the business market of the host nation in which it is planning to expand (Lasserre 2017).
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Cultural Distance
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Administrative Distance
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Geographical Distance
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Economic Distance
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USA (Parent nation of Boeing)
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USA has a very liberal culture wherein people from different cultural backgrounds co-exist in harmony (Usa.gov 2018). Furthermore, English is the main language of communication (Usa.gov 2018). The people of the nation believe in the concept of working hard and at the same time to enjoy their life after work. Work-life balance is an important concept in the life of the people.
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USA is a liberal democratic nation wherein the power of the nation lies in the hands of the common people (Usa.gov 2018). The national government takes active initiatives for the promotion of trade and commerce and the policy of fair trade is being followed in an ardent manner in the nation. The currency of the nation is Dollar (Usa.gov 2018).
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The nation shares its borders with the nations like Canada, Mexico and others (Usa.gov 2018). There are five time zones in the nation (Usa.gov 2018). The climate of the nation generally varies from place for example in Alaska people face extreme cold whereas in New York the climate is very warm (Usa.gov 2018).
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USA is the largest economic block of the world and its currency Dollar is the currency which is used by almost all the nations of the world for the purpose of international trade (Usa.gov 2018). The per capita income of the nation is more than 57,466.79 USD (2016) which is way higher than the other nations of the world (Usa.gov 2018). The unemployment rate of the nation is only 3.9% and there are no major critical labor issues in the nation (Usa.gov 2018).
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China (Host nation for its business operations)
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The culture of China is a very conservative one wherein the people still hold on the dictums of the past. Chinese is the main language spoken in the nation (Gov.cn 2018). The people of the nation are forced to work hard as per the dictums of the Communist Party of China and the concept of work-life balance is an obsolete one in the nation.
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China is a communist nation wherein the power of the nation lies in the hands of the Communist Party of China which governs the nation (Gov.cn 2018). The Communist Party of China takes initiatives for the growth of the state owner industries and not the private one (Prajogo 2016). The concept of fair trade is not being followed in an ardent manner (Prajogo 2016).
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The nation shares its borders with India, Nepal and others (Gov.cn 2018). Just like USA, there are five time zones in the nation (Gov.cn 2018). Furthermore, the climate of the nation also varies just like the nation of USA wherein some parts are subjected to extreme cold whereas some are subjected to extreme heat (Gov.cn 2018).
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China is one of the most important emerging economies of the world. The currency of the nation is Renminbi whereas the per capita income of the nation is 15,500 PPP dollars as of 2016 (Gov.cn 2018). Moreover, the unemployment rate of the nation is 3.97% and because of the large population of the nation there are no critical labor issues (Gov.cn 2018).
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This framework is often used to analyze the factors which has helped an organization or can help it to gain competitive advantage in the competitive business market. An analysis of the company Boeing on the basis of this framework would reveal the following facts-
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Valuable
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Rare
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Imperfectly Imitable
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Organization Specific
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· The effective utilization of disruptive technologies and others for the manufacture of the airplanes (Hilmersson et al. 2017).
· The use of supply chain innovation has reduced the production cost incurred by the company while maximizing profitability (Meschi, Ricard and Moore 2017).
· The effort of the company to make the plane eco-friendly by reducing the consumption of fuels and also emitting less pollutants and noise (Peng 2016).
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· The high quality of products and services offered by the company since the year of its foundations (Meschi, Ricard and Moore 2017).
· The products and the services offered by the company are not only affordable in prices in comparison to the ones offered by the other companies but technologically superior as well (Hilmersson et al. 2017).
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· The effective utilization of the supply chain innovation is a technique which is being used by Boeing that the organizations had not been able to master (Peng 2016).
· The company constantly upgrades not only the design of the airplanes but also the technology that is being used for the manufacture of them (Meschi, Ricard and Moore 2017).
· This in turn not only helps them to create the kind of airplanes which are not only technologically superior but also in terms of quality and appearance as well (Peng 2016).
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· The organization specific factors like HRM, firm infrastructure, marketing and other aspects of the firm have also contributed in a substantial manner towards the competitive advantage the organization currently holds in the business market (Hilmersson et al. 2017).
· The procurement policy and the supply chain innovation used by the company have also contributed towards the company’s competitive advantage (Meschi, Ricard and Moore 2017).
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Threat from new entrants
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The company has been in business for more than 100 years and is reputed for the high quality of products and the services which it offers to the customers (Boeing.com 2018). In addition to this, the company also enjoys a positive brand image and thus it faces a very low level of threat from the entry of new companies in the airlines industry.
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Threat from substitutes
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Taking the help of various kinds of disruptive technologies the company offers the kind of airplanes which are not only technologically superior but also better from the perspective of the environment as well (Eriksson et al. 2015). These have been much appreciated by the customers and thus it is unlikely that the customers will switch over to the substitutes.
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Bargaining power of the suppliers
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The company in order to reduce the power of the suppliers and also to reduce the manufacturing cost is taking the help of supply chain innovation strategy (Meschi, Ricard and Moore 2017). Thus, it can be said that the bargaining power of the suppliers who are associated with the company is very low.
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Bargaining power of the buyers
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The bargaining power of the customers because of the high amount of capital that they need to spend over to the other suppliers and also because of the high quality of the products offered by them.
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Industry Rivalry
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In the international business market Boeing holds a major market share as well as competitive advantage (Meschi, Ricard and Moore 2017). However, in the business market of China, the business market is being dominated by Gulfstream. Thus, it can be said that the company is likely to face a substantial amount of competition in China.
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In the contemporary business world it is seen during the time of expansion into the business market of the other host nations, the organizations often take the help of various kinds of internationalization models as well as strategies like franchising, exporting, licensing, Foreign direct investment (FDI) and others (Prajogo 2016). The internationalization strategies that can be used by Boeing for the process of its business operations in the nation are listed below-
- Exporting is a strategy which will enable the company Boeing to export the basic parts of the airplane that they would manufacture in China to the nation of USA wherein the company can assemble the entire plane. This will help the company to reduce the production cost that they are incurring currently for the manufacturing of the planes substantially (Teece 2017).
- Licensing is another option which the company has at its disposal for the process of their business operations in China. Al-Najjar et al. (2017) are of the viewpoint that the effective utilization of this strategy enables the companies entering into the agreement to utilize the resources, technologies and other entities of the companies involved in the process or agreement. This strategy will help the company to open more business centers in China which will not only enhance its productivity but also its profitability.
- As per “Bartlett & Ghoshal Model of International Strategy” it would be much beneficial for the company Boeing to follow the Global strategy for the process of expansion. This strategy offers companies the opportunity to have low local responsiveness while aspiring for global integration (Francis 2016). The essential features of this strategy are high level of centralization, focus on efficiency, standardized products and others (Al-Najjar et al. 2017). Thus, it can be said that Boeing can benefit in a significant manner through the effective utilization of this strategy.
The above discussion clearly indicates the company Boeing is likely to face various kinds of problems for the process of their business in the nation of China. Some of the most important problems which are likely to affect the business of the company in a substantial manner are listed below-
- The airline industry of China has already been monopolized by Gulfstream and it is likely that the company Boeing will find it very difficult to make the kind of impact that it had made on the global airlines industry in China. The Porter’s Five Forces analysis clearly reveals this fact.
- The cultural as well as the other differences which exists between the nations of China and USA that the CAGE Framework reveals is also likely to affect the business of the company in China in a substantial manner.
The two major problems which the company Boeing is likely to face are high competition and the national differences between the two nations. It is pertinent to note that when an analysis of the two companies of Gulfstream and Boeing are taken it is revealed that the products offered by Boeing are much better and also the price charged by Boeing is very reasonable in comparison to Gulfstream (Pritchard 2016). However, the major reason which has enabled the company Gulfstream to gain success in China is the fact that the company not only has an understanding of the people and the traditions of China but at the same time the promotional strategies used by the company are very effective (Francis 2016). Thus, it can be said that the company Boeing can also take the help of various kinds of promotional and marketing strategies and also develop effective understanding regarding the nation of China for ensuring the success of its venture in China.
Utilization of Management Frameworks
Conclusion
To conclude, the process of international expansion is a very complex one and there are various factors which the companies undertaking international expansion need to take into effective consideration, like the business environment, market competition and others. A thorough knowledge about these is important since it helps the companies to formulate the strategies that are likely to help them to mitigate the threats or the risks presented by the business environment. In addition to these, the various frameworks like SWOT, CAGE, VRIO and others also offers important information to the companies regarding the kind of business model and strategies that they need to follow in the host nation.
References
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