Elecdyne, an electronic company, which is located in Japan, is looking for an opportunity overseas as it is facing a fierce competition at home. This report analyses foreign nations with regards to labor costs, technology, market demand, culture and risks. The data that are collected from various sources analyzes the market potentiality for the products in other countries. The countries that are been chosen for expanding globally are USA, Russia and China – the reasons are the following:
USA – known for the largest economy.
Russia – known for one of the fastest growing economy.
China – known for the aggressive economic growth in the 21st century and for the cheap labor cost.
In order to analyze deeply into these countries, STEEP, PEST and FDI analysis are been chosen.
STEEP Analysis:
Socio – Culture: Target Market, Age Range, Income Brackets,
Technology: Technological infrastructure, R&D, Advancement of new technology and Innovation
Economic: Infrastructure, Labor cost, Exchange rates, inflation rates, interest rates, unemployment rates and wage level.
Ecological: Global warming, Recycling, green energy, CO2 Omission and waste handling.
Political: Unions, trade barriers, risk of war, laws and taxes and political stability.
STEEP analysis is the method to evaluate the business opportunities in other countries. This analysis helps them choose the best out of three compared countries for expanding the business overseas.
The socio-culture plays a vital role in segmenting the target market for their products. The market demands are different in different countries. The age groupings are considered very important in today’s business world. In terms of Elecdyne, which is an electronic company producing products from televisions to CD players, mostly attracts the youth population. So, considering the youth population is other countries are important.
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Technological factors differ in other countries. Japan, which is considered to be an advanced country, could find other developing countries lacking such as China or Russia, but the market may be lucrative in terms of business. They may need to import technology from back home or from other advanced nation such as USA. For an example, technological infrastructure in China may not be that advanced as compared to Japan, so Japan would need to use its own R&D infrastructure to target Chinese market, which in turn could raise the cost of production.
Most of the time, political factors of the country affect the business policies. Business laws in Japan are different from other countries. Elecdyne performed in Japan under Japanese laws have to perform different in China, Russia and USA due to the local policies that they have, as this could affect or may lead to rethink of opening up businesses in those countries.
Economic situation is the main factor that attracts foreign companies to look at the market, because of the raise in purchasing power among the citizens, but businesses look beyond purchasing power such as exchange rates, infrastructure, labor costs, inflation rates, unemployment rates and wage level. Elecdyne is attracted towards the labor costs and the local purchasing power.
Ecological is the new factor that plays in today’s world of being responsible towards an environment. We had seen world leaders gathering for the global warming situation and asking the entrepreneurs to take up the responsibility of promoting the green energy and eco-friendly products. These factors are forcing the companies to reinvent new strategy for their products, right from productions till the consumptions.
Internal and External Analysis:
Weakness
Strength
Wages are so low that they are fail to attract new employee
Elecdyne has more than 20 years experience is japan
Invention has been so under rated that they are no where near in the market
Staff have been familiar with english language
SWOT Analysis will be used to analyze internal factors and PEST Analysis for the external factors. SWOT stands for strengths, weaknesses, opportunities and threats. PEST stands for political, economic, social and technological.
External Analysis:
Political
USA
Russia
China
Japan
1
2=10
3
-2=-10
3
-2=-10
2
0
War Risk (5)
(ONDD, 2012)
1=good
7=bad
1
2=4
3
-6=-24
2
-2=-8
1
0
Political Risk(4)
(ONDD, 2012)
1=good
7=bad
19
35=7
133
50-=10-
80
-40=8-
17
0
Corruption perception Index (5)
(International, 2012) 10 (very high) to 0 (low)
1
4=12
2
-2=-6
3
-4=-12
1
0
Transfer Risk (3)
(ONDD, 2012)
1=good
7=bad
61
-90
-70
0
Total
Economic
Japan
China
Russia
USA
GDP Growth rate (The World Bank, 2011) 5
-0.7%
0
9.3%
10=50
4.3%
6=30
1.7%
1=5
GDP per capita
(The World Bank, 2011)4
$45,903
0
$5,445
-6=-24
$13,089
-8=-32
$48,112
2=8
GDP Purchasing Power (C.I.A, 2011) 5
$4.44 trillion
0
$11.3 trillion
8=40
$2.383 trillion
-2=-10
$15.08 trillion
10=50
Unemployment rate (C.I.A, 2011) 3
4.6%
0
6.5%
4=12
6.6%
4=12
9%
8=24
total
0
78
0
87
Sociological
Japan
China
Russia
USA
Literacy rate (C.I.A, 2011) 1
99%
0
92.2%
-3=-3
99.6%
-1=-1
99%
1=1
Life Expectancy (C.I.A, 2011)2
83.91 YEARS
0
74.84 YEARS
-2=-4
66.46 YEARS
-4=-8
78.49 YEARS
-1=-2
Population (C.I.A, 2011)2
127,368,088
0
1,343,239,923
6=12
142,517,670
1=2
313,847,465
3=6
Average Death rate (C.I.A, 2011)1
9.15/1000
0
7.17/1000
1=1
14.1/1000
-2=-2
8.4/1000
2=2
Total
0
6
-9
7
Technology
Japan
China
Russia
USA
R&D expenditure (The World Bank, 2008) 3
3.45%
0
1.47%
-3=-9
1.04%
-6=-18
2.79%
-1=-3
Internet Users (C.I.A, 2011)1
99,182,000
0
389,000,000
6=6
40,853,000
-5=-5
245,000,000
3=3
Mobile users (C.I.A, 2011)1
129,868,000
0
986,253,000
10=10
236,700,000
2=2
313,848,000
4=4
Total
0
7
-21
4
Cost
Inflation rate
(C.I.A, 2011)4
-0.3%
0
5.5%
-4=-16
8.4%
-6=-24
0.9%
-1=-4
Interest Rate (The World Bank, 2011 3
3.7%
0
-1.1%
4=12
-6.4%
6=18
1.0%
1=3
Total
0
-4
-6
-1
PEST WEIGHTED AVERAGE
Japan
China
Russia
USA
P
0
-70/4=-17.5
-90/4=-22.5
61/4=15.25
E(market)
0
78/4=19.5
0
87/4=21.75
E(cost)
0
-4/2=-2
-6/2=-3
-1/2=-0.5
S
0
6/4=1.5
-9/4=-2.25
-7/4=-1.75
T
0
7/3=2.3333
-21/3=-7
4/3=1.3333
Total
0
3.83333
-34.75
36.08
Summary of PEST Analysis:
From the analysis, USA market looks attractive according to the situation faced by Elecdyne. USA has the fast growing economy and it is a great chance for the Elecdyne to grab the share of the market. USA also has great number of youths in the Country to buy the products. With comparison to other three countries in the table, they find USA as the best alternative for expanding internationally. USA also has a low labor cost as compared to other three countries and geographically nearer to Japan as well. It is highly competitive market, but it is lucrative once succeeded.
Options of Internationalization:
There are three options for Elecdyne to go International or establish business in China. The following options are:
1. Joint Venture
2. Acquisition
3. Greenfield Site
Joint Venture with other existing firms in USA can help Elecdyne to merge into the market quickly. This venture is one of the most common strategies used by the foreign firms to enter into the country. The positive impact of this venture is that they can learn the consumers quickly and efficiently using the existing firms in USA. The negative side of the venture is that Elecdyne would lose its profit share to the local firm that is ventured with.
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Acquisition technic may look attractive, but have risk to it. It is always quite expensive to buy out the firm in USA and hope for profit out of it. It is risky, but once succeeded it is profitable. There are risk factors attached to it. It is always safer to look at the government policies for the foreign firms. FDI investment policies are different in different countries.
Greenfield Site project are mostly used by very large corporation of developing the underdeveloped land. Risk involved with this strategy is very high especially in a country like USA. Political risk involved with it is higher. The government could seize the land if needed or may not be willing to make an agreement for a longer period of time.
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