Blueberry Incorporated is a Seattle, Washington-based telecommunications company considering introducing its cellular telephones to the Chinese market. Aware of the fact that there is strong competition in the market, Blueberry understands that the high demand for cellular telephones in China outweighs the existing threat of competition and makes conducting business in the country an attractive business opportunity for the Seattle-based company. However, before moving forward with the idea of entering the Chinese market, Blueberry must take a close look at the risks associated with doing business in China and find a way to manage such risks. Hill (2009) stated “The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country” (p. 488). By conducting a regional and a country analysis, Blueberry will have a picture of the challenges associated with conducting business in China and the necessary data to give life to objectives and goals that will help the company tailor a plan. Once the risks associated with doing business in China have been identified, Blueberry will conduct a SWOT analysis that will help identify the pros and cons of moving forward with the company’ plan.
Once a regional and a country analysis have taken place, Blueberry Incorporated must identify a strategy that will help launch and sell the cellular telephones in the Chinese market, and an optimal entry mode that will support the company’s objectives and goals. Each entry mode has advantages and disadvantages. Hill (2009) stated “Managers need to consider these carefully when deciding which to use” (p. 493). Blueberry Incorporated will present and analyze data regarding conducting operations in China; based on the results of the analysis, Blueberry will have to decide if moving forward with the idea of entering the Chinese market would be a feasible idea.
The Conceptualized Organization and Product
The Chinese market is in the midst of a rampant shift in consumerism. As China is shifting from “developing country” status to a major center of trade, foreign corporations are looking upon this consumer giant as a growth area. With merging markets and increases in consumerism, corporations must hit this emerging economy running.
Blueberry Inc. is a Seattle-based telecommunications company founded as a result of the information technology bubble burst in the 1990s. The company has divisions all over the U.S. with recent success in the Canadian market. Blueberry Inc. has a diverse employee base employing 18,000 people globally. Blueberry Inc. has developed a smart phone that has revolutionized the North American market by bringing the desktop computer to the palm of the hand. Currently Blueberry Inc. outsources the manufacturing of the handheld devices to their plants in China, capitalizing on the lower costs of labor and proximately to parts vendors. The company has found success in their streamlined supply chain and logistic coordination processes that has resulted in efficiency increases and cost reductions. Blueberry Inc. has developed a reputation for quality and innovation.
With immense success in North American, Blueberry stakeholders are looking at China as a new growth market. By the year 2015 China is positioned to be the second largest economy next the U.S. in terms of GDP by billions of dollars (Hill, 2009). When trending economic growth and population increases, China’s growth is exponential. The slope in trend curve is greater than that of the United States, whom currently the largest global economy. Blueberry Inc. current manufacturing footprint aligns the company with their growth objectives. The strategy opens new markets and decreases the distance to market that both equate to increased profitability.
For Blueberry Inc. to successfully setup operations abroad in China, the organization will need regional alliances along the Far East and Australasia region. One portion of the alliance can be found in China and is already in place because of the outsourcing that takes place in the manufacturing plants. This takes care of the manufacturing side of the business; however the American company will need to establish alliances on the marketing side. Huawei is a telecommunications company in China that specializes in Broadband, cell phones, core network, data communication, and value-added services (Huawei, 2010). “Every day, 120,000 new Chinese customers subscribe to a cell phone service” (Gifford, 2005, p.1). Such a statistic clearly shows that a market exists for cell phone customers in the country.
Huawei competes with ZTE, another large Chinese-based telecom company. Blueberry Inc. could consider developing an alliance with Huawei for sales and distribution. Such a move would be beneficial for Blueberry Inc. expanding their international ventures and assisting Huawei to remain competitive with ZTE. Coordinating with organizations like the Chinese Market Research group will give Blueberry Inc. better insight regarding competition and market analysis.
The Far East and Australasia region has faced many security challenges with threats of terrorism but such threats were reduced by the pause in al-Qa’ida activity (Tan, 2010). In addition to terrorist threats, the Southeast Asian waterways were threatened by piracy (Tan, 2010). Though China is considered politically stable, there have been questions and issues of corruption, social unrest, and energy shortages within the entire region. Threats and concerns exist in China, but it is not known as a current flashpoint for terrorist activity. It is known that the region has seen hardships concerning social conditions. The region has also been plagued with rioting and domestic instability followed by health scares such as Severe Acute Respiratory Syndrome and fears of the avian influenza pandemic (Tan, 2010).
“In 2009 the region was deeply affected by the global economic downturn precipitated by the financial crisis in the USA. The nature of the global interlinked economy resulted in a contagion effect, which had a serious impact on the region. However, although Japan’s economy was in rapid decline in early 2009, China withstood the crisis relatively well, owing to its vast foreign-exchange reserves and dynamic economy. As a result, China emerged in 2009 to take its place as a global power, while the USA experienced serious economic difficulties” (Tan, 2010). The National People’s Congress in China has focused more attention on growing social instability matters like industrial and production safety, pollution, health care, education, taxation, land-seizures and population relocation (Chan, 2006). The Far East and Australasia region also has environmental issues such as pollution, increased landslides, untreated sewage affecting waterways, and dust storms. Logistically the physical environment does not negatively affect trade as China has many harbors for imports and exports and has spent millions of dollars upgrading infrastructure.
Country Analysis – Political Stability
China’s unitary state status calls for a structured way of government composed of different levels of control and feedback. According to ROUTLEDGE TAYLOR AND FRANCIS GROUP (2010), “China is a unitary state. Directly under the Central Government there are 22 provinces, five autonomous regions, including Xizang (Tibet), and four municipalities (Beijing, Chongqing, Shanghai and Tianjin)” (Government, para. 1). The different levels in this type of government structure serve as check points in making decisions that could affect the country’s political stability. This process helps screen decisions that could negatively impact the country and affect an economic venture.
China’s economic conditions inspire moving forward with conducting business in the country. According, to Bloomberg (2010) “China’s economy is the third largest in the world, after the U.S. and Japan, and as the second largest trading nation, its influence on the world economy continues to grow” (China’s Economy, Para. 1).
Finance Options Availables
Business loans from commercial banks can help a company generate the funds necessary to cross borders and do business at a global level. Seeking investors who will help fund the cost of doing business can also help a company reach its business goals. With China’s economy continuing to grow, finding interested investors should not be very challenging. According to ROUTLEDGE TAYLOR AND FRANCIS GROUP (2010), “In 2007, according to estimates by the World Bank, China’s gross national income (GNI), measured at average 2005–07 prices, was US $3,120,891m., equivalent to some $2,360 per head (or $5,370 on an international purchasing-power parity basis)” (Economic Affairs, Para. 1) .
Physical Environment and its Effect on Trade
The selection of a location in China that will make doing business at a global level possible is an important factor to consider. The size of the country offers many locations for a business to be established however, selecting an area close to shipping avenues will facilitate reaching other countries. According to ROUTLEDGE TAYLOR AND FRANCIS GROUP (2010), “The People’s Republic of China covers a vast area of eastern Asia, with Mongolia and Russia to the north, Tajikistan, Kyrgyzstan and Kazakhstan to the north-west, Afghanistan and Pakistan to the west, and India, Nepal, Bhutan, Myanmar (formerly Burma), Laos and Viet Nam to the south” (Location, Climate, Language, Religion, Flag, Capital, Para. 1).
Social, Health, and Environmental Conditions
China has thousands of institutes of higher learning with more than 20 students attending. The country’s level of education reflects in its social development. China’s health system is mostly based on government operated expensive and corrupt hospitals. Some environmental conditions in China are air pollution, diminishing biodiversity, and water pollution (ROUTLEDGE TAYLOR AND FRANCIS GROUP, 2010).
Ignoring cultural differences and not taking China’s culture into consideration during the planning and execution phases of doing business in the country could lead to failure. The different views on Chinese and American values must be clearly understood and not allowed to interfere with the business’ success.
“The Chinese may contribute land, factory, labor, and some machinery, but expect foreign investors to contribute technology, capital, equipment, management expertise, and working capital. They rely on nepotism; as a result many firms are poorly managed, with excess staff and weak work ethic” (Wong & Maher, 1997, p. 11).
Legal, Regulatory, and Political Risks
As their nation’s economy has grown, Chinese officials have worked to improve global business conditions. International business presents tremendous opportunities but also a significant amount of risks are involved. Though the government has implemented certain strategies to mitigate risks, the regulatory risk in China still remains.
Conducting business in China can be costly, as the visiting company must confer with various Chinese authorities, which often incurs extra costs (Hoening, 2007). Many of China’s policies are design to protect their home organizations from foreign competition.
Companies looking to invest or open businesses in China must be aware of local laws and also that risk increases when dealing with the Chinese judicial system. Because of the communist government, the political risk of doing business in China is heightened. The authoritarian government possesses absolute power and the country has strong military and intelligence agency presence. Political variables strongly affect the way business is performed in China.
Repatriation and Foreign Exchange
In 2008, China exempted an American venture firm from paying 10 % withholding tax for repatriating profits (Marshall, 2008). China has had strict rules on foreign exchange but has made efforts to reconsider to attract more international business. In April 2010, China publicly stated they “will make its own decisions on how to manage its exchange rate and rejected accusations that the Yuan is undervalued, amid growing international calls for a stronger currency. The commerce ministry defends the exchange rate policy as necessary to protect Chinese exporters hit by the global financial crisis and ensure jobs growth in the vast manufacturing sector” (AFP, 2010).
Formally declared in 2007 and put into effect in August of 2008, China enacted the PRC anti-monopoly law, the first of its kind. This law was designed to “prevent and halt monopolistic acts, ensure fair market competition, improve economic efficiency, safeguard the interests of consumers and the public interest and promote the healthy development of the socialist market economy” (China Law and Practice, 2010). This law offers protection and intervention against international companies attempting to exploit or disrupt domestic businesses inside China. The competitive risk remains high and the visiting company such as Blueberry Inc. must be aware of the anti-monopoly laws that could threaten the organization’s assets.
China has its own taxation laws. The Ministry of Finance is the national agency that oversees economic regulations, government expenditure as well as fiscal and macroeconomic policies under the Central Government. Though minimal risk exists, it is a claim the nation’s governing authorities echo to this day. “The previous system of corporate taxation, whereby foreign-invested enterprises or FIEs enjoyed low rates of tax compared with domestic companies, began to be phased out in January 2008, and full unification of the taxation systems for domestic companies and FIEs is likely to be achieved by the end of the forecast period” (Economist Intelligence Unit, 2010). By the end of 2008, China had instituted Double Taxation Agreements that prevent double taxation, with 94 countries (Worldwide Tax, 2009).
Risk and Challenges Market Risks (Four P’s)
The four P’s refers to product, price, place and promotion; these are the composition of the marketing mix. These parameters can be controlled my marketing managers in different environments. The four P’s are vital for product implementation and the success of the product.
Blue Berry inc. must be mindful of the marketing risk associated with the conducting business in China (Hill, 2010) p.592 describes the marking mix as “the set of choices the firm offers to its target market.” Therefore, Blue Berry inc. must be aware that the marking mix which, worked in the United States would need to be adjusted for the Chinese market. The company will have to vary the marketing mix in China because of culture, economic development, product standard and the distribution channels, therefore the product design, distribution strategy, pricing, and promotion strategy must match with the Chinese market, if, Blue Berry Inc. is to strive in the this environment (Hill, 2007).
For example, Blue Berry Inc. must ensure the price is feasible because China have a population of 865 million which is 15-64 years of age; these ages comprise the working class of the country and; tend to be price sensitive because of a generation gap. Blue Berry Inc. will have to adjust the smart phone, since there is a generational gap. Therefore, the firm may need to have a few different models to satisfy local responsiveness.
Distribution and Supply Chain Risks
A critical portion of the marketing mix is the distribution strategy, in contrast not having a strategy is asking for trouble. The way Blue Berry Inc. distribute the supply of high-tech phones is a large portion of how the company decides to enter the Chinese market. The risk associated with the distribution and supply chain is vital for Blue Berry Inc. entry into the Chinese market.
The differences in the distribution chain within countries are retail concentration, channel length, channel exclusivity, and channel quality; choosing the right channel is of up most importance. Therefore, Blue Berry Inc. must access which; channel will best serve the need of the company. Since, China is heavily populated; a fragmented retail system would best serve the company because the mass of the populace will travel by walking. In addition, the company would benefit if the phones are sold through a short channel system, Blue Berry Inc. would use a wholesaler and then the phones is distributed through fragment retail markets, thus reducing the financial burden.
As mention prior; there is a risk of a supply chain as well. The risks are supply disruption, cost barriers, breakdown in global dispersed supply chain as the case with attaches of September 11, 2001. As well as having control of the supply chain. Blue Berry Inc. have minimized the risk by outsourcing the production of phone in the host country of China ; therefore having the supply chain there is cost effective and give the company more control. However, there is risk from the government as well because China will have an upcoming election in 2012 if there is any significant policy failure by the current leadership within it could reopen the terms of the deal. If the government were, for example, to mishandle its response to the current global economic crisis, this could lead to a further upsurge in social instability (EIU, 2010).
Physical and Environmental Challenges to Entering and Operating in China
The physical and environmental risk associated with entering and operating in China is that 27 % of region is plagued with desertification and floods. The areas is either too dry or receive too much water. This could pose a problem because if the region floods frequently, this could damage Blue Berry Inc’s operations and supply chain. Furthermore, the results from droughts could cause unrest in the region and workers to be unruly because of the lack of adequate driving water (Freeberne, 2010).
Social and Cultural Risks
The risk with Social and cultural in china is , China is a country with social class divisions which was strengthen in communist rule that divides rural peasantry and urban dwellers; could be a risk because this restricts most Chinese to their birth place. This keeps many Chinese from urban privileges such as compulsory education, quality schools, health care, public housing, varieties of foodstuffs (Hill, 2007). However, these walls have crumbled over the years; they are being resurrected in today’s urban china. The risk here is that social stratification will cause tension between management and labor; this could cause tension with operations for Blue Berry Inc. Furthermore, human capital is limited in terms of skilled labors.
A perfect case in point is that Chinese companies are experiencing a labor shortage, so much that they have to raise wages. In 2006 salaries was increased by 40% in an attempt to lure in skilled labors in China (Business week, 2006). The Guangdong Province have 2.5 million jobs that still remain unfilled because of skilled labor force; in attempt to curve this current problem, U.S. companies in China believe better education and training is a way to change the game. Nonetheless, according to consultant McKinsey & Co, “China today has fewer than 5,000 managers with the skills needed by multinationals, 75,000 jobs for such managers are expected to be created over the next five years.” (Business week, 2006).
Cyber or Technology
Since, productions is based from china, there needs to be constant communication from the United States and from the distribution point to local venders through Internet capability and advance technology for tracking orders and inventory. Therefore, there is a risk that not having the correct human capital in place; because of social stratification will be a huge factor. Blue Berry Inc. must be mindful of where operations will be established. For example “Motorola regularly hires graduates straight from school and then trains them at its “Motorola University” in Beijing. Intel Corp., have invested $1.3 billion in chip assembly, testing, and research and development in China, has backed initiatives that have trained 600,000 teachers there” (Business week, 2006).
Managing Risks – Political, Legal, and Regulatory
The political, legal, and regulatory risks previously covered call for Blueberry Incorporated to stay abreast of changes that could affect the company. Hill (2009) stated “Many firms devote considerable attention to political risk analysis and to quantifying political risk” (p. 679). Since many of China’s policies protect their home organizations, as previously mentioned, partnering with one of their strongest telecommunications companies, Huawei or ZTE will extend their protection to Blueberry Incorporated.
Exchange and Repatriation of Funds
As a company that will engage in production and shipping, Blueberry needs to protect itself from possible exchange rate changes by engaging in forward exchange. Hill (2009) stated “A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. Exchange rates governing such future transactions are referred to as forward exchange rates” (p. 327). Transactions in amounts exceeding $200,000 U.S. require SAFE’s approval. Blueberry would seek expert advice from the South Asian Federation Exchanges (SAFE) and consider working with transactions below the $200, 000 U.S. limit.
By introducing a new phone, Blueberry will get the attention of other companies and trigger an interest on launching a better product. Maintaining a low cost production and a marketing that will generate a strong customer base will minimize the effects of competition. Hill (2009) stated “Once a firm has established a low-cost position, it can act as a barrier to new competition” (p. 431). Partnering with Huawei or ZTE would eliminate a strong competitor in China’s telecommunications market and minimize the risks associated with competition.
Taxation and Double Taxation
The fact that China follows existing agreements that avoid double taxation is a benefit for Blueberry; however, the company must stay informed of political changes that could impact the existing laws and if needed take immediate action to avoid a negative financial impact. Blueberry can stay informed of political changes and changes in taxation laws by monitoring announced or projected changes on taxation announced by The Ministry of Finance.
As a new company competing in the Chinese market, Blueberry Incorporated must focus on the necessary research that will produce a good picture of effective marketing, pricing, and details that will make its new telephone attractive to the people of China. Once a clear picture is obtained, Blueberry will have a blueprint to follow. Besides designing a cellular telephone with all applications in the Chinese language, Blueberry Incorporated will take advantage of the money saved by producing the cellular telephones in China and offer telephones loaded with attractive applications.
Distribution and Supply Chain
To eliminate the possibility of losing control of the supply chain and ensure a clear distribution channel, Blueberry will select a short channel system. As previously mentioned, Blueberry Incorporated would use a wholesaler and then the telephones would be distributed through fragmented retail markets.
Physical and Environmental Challenges
Understanding the environmental challenges in China and how they can affect the operations and supply chain, Blueberry Incorporated must ensure that a location that will allow its objectives and goals to be reached is selected. Establishing operations in a drought or flood risk zone could affect Blueberry’s intentions of succeeding in China. To mange this risk, the company must ensure that facilities and channel system selected are clear of these threats.
Social and Cultural
To succeed in the Chinese market, Blueberry must have a clear picture of what is attractive to the Chinese people. Hill (2009) stated “Because different segments exhibit different patterns of purchasing behavior, firms often adjust their marketing mix from segment to segment” (p. 593). Blueberry must also focus on creating an organizational culture where the local management and labor set aside differences and separation caused by living in a communist country. A clear mission statement and training sessions focused on inspiring team work would help manage this risk.
Cyber or Technology
To stay ahead of the competition and to minimize possible risks, Blueberry must take full advantage of the latest cyber and technological advances. Hill (2009) stated “These developments make it possible for a firm to create and then manage a globally dispersed production system, further facilitating the globalization of production” (p. 12). When considering a location based on physical and environmental threats, the location must also meet the communications access required to manage a business overseas. To mange possible risks, Blueberry must hire the right number of people and provide them with the equipment required for the tracking and distribution of its product.
Mission and Objectives
Blueberry’s mission is to succeed at launching a new American designed cellular telephone in China and becoming a successful telecommunications organization in the Chinese market. By creating an organizational culture with strong ethical beliefs and promoting a team work mentality, Blueberry Incorporated’s goal is to become the most accepted American company operating in China. The objectives that will serve as stepping stones to reach Blueberry Incorporated’s goal focus on managing the risks associated with doing business in a foreign country; specifically, China, partnering with a strong local telecommunications company, and operating in an ethical manner. These objectives will be followed by operating as an individual telecommunications company in China.
Strengths: launching of a new product, awareness of and management of risks associated
with conducting business in China, and the opportunity of becoming the partner of a strong
already established Telecommunications Company in China.
Weaknesses: the need for strong financial resources needed, production capability, lack of experience in the Chinese market, identifying a location free of physical and environmental threats, communism related separation in the country, social and cultural differences.
Opportunities: not having double taxation, introducing a new telephone, high number of shipping channels available, possible success from exploring the Chinese market, attractiveness, and acceptance of a high technology telephone, opportunity to partner up with a strong telecommunications company, and demand for cellular telephones.
Threats: operating in a communist country, understanding and adjusting to cultural differences, risks involved in doing business in a foreign country, local laws and regulations, the existing competition in China, controls affecting the exporting of products, avoiding environmental challenges, social and cultural differences, SAFE regulations, unable to become partners with one of the strong telecommunications companies in China, and unexpected changes in a communist country
Strategy Selection and Mode of Entry
Blueberry Inc will employ a localization strategy for the Blueberry handheld mobile device’s entry into China. The Chinese product launch will be customized to meet the censorship and filters laws that exist within China. As Chinese government holds stringent laws restricting sexual content and anti-communistic material, Blueberry Inc must customize their cell-phone launch prior to entering the market. “By customizing the product offering to local demands, the firm increases the value of the product in local markets” (Hill, 2009, p. 437). Blueberry will leverage their existing manufacturing facilities in China as part of their entry strategy. With the size of the Chinese market, Blueberry’s management believes they can capture the costs of customization (Hill, 2009).
Blueberry’s Inc entrance strategy will include the wholly owned subsidiary approach. The subsidiary approach will enable the company to introduce a localization strategy meeting the specific demands of the market while maintaining control over the product (Hill, 2009). This will increase profitability through product customization enabling higher profit margins. The offset in costs resulting from localization will be realized through higher price points and existing manufacturing infrastructure (Hill, 2009). With the potential size of the Chinese market, scales of economy will exist within the country. Neighboring markets allow for future expansion possibility, leverage the pre-existing manufacturing and operations presence in China.
Further, Blueberry Inc’s strategy will include an alliance with the state owned China Mobile, the world’s largest telecommunications company with more than 500 million customers (China Mobile, 2010). With Blueberry Inc’s current existing infrastructure and lower labor costs, the capital costs associated with the wholly owned subsidiary approach will be minimal. The alignment with China Mobile will offer a vehicle for instant market access without the cultural learning curve required starting anew (Hill, 2009). The wholly owned subsidiary will allow Blueberry Inc to customize their product while protecting their intellectual proprietary technology. China mobile will benefit from the flexibility of Blueberry’s Inc manufacturing and product turnaround in exchange for access to a vast customer base, while showcasing Blueberry Inc’s product as part of the client contract offering. The wholly owned subsidiary will allow Blueberry Inc to capture one hundred percent of the profits, and maintain an economy of scale with access to China Mobile’s customer base (Hill, 2009). Additionally, as China Mobile is looking to enter the U.S. market, China Mobile can leverage the Blueberry Inc relationship as part of their entrance strategy into North America. Blueberry Inc’s alignment with China Mobile will enable immediate access to the Chinese market but will also increase U.S. sales with China Mobiles expansion.
The contingent plan in the event the China Mobile Alliance fails fruition, will involve a financing campaign to secure funds to increase marketing and distribution networks. Blueberry Inc will also seek alternative telecommunication providers to leverage their current market and access to instant customers and brand. Blueberry China believes the alliance with a recognized Chinese brand will result in instant credibility and transition the U.S based company into the Chinese market.
The Marketing Mix
The marking mix is the most important aspect for the Seattle- based Blue Berry Inc. as stated prior; when the discussion of the marking risk arose. The firm understands that for Blue Berry Inc.; to thrive in the Chinese market the marketing mix must be varied to that environment. Blue Berry Inc is producing the smart phones in China to save on production cost, which will benefit the company because the firm can offer a competitive price to the Chinese market. The phones are sold through a short channel system and will be distributed through a wholesaler; then the phones are distributed through fragment retail markets. In addition, Blue Berry Inc, would have managers in place at the point of production to oversee the phones are up to the standard and quality of the company.
Since, the Chinese market is much more diverse from that of the United States; the smart phones must be customized to gain local consumer responsiveness. China has more than100 million users of the Internet according to (Hill, 2009) and the rate is growing fast, therefore the firm needs to make the smart phone; a small computer in the palm of the user’s hand, so users can have Internet capability on the go. This is different in comparison to the phones distributed in the Canadian and U.S. Markets because the users in these markets will have to pay for additional services.
As mentioned previously, the consumers of the Canadian and U.S. market will endure a different type of the marketing mix; this will not be the same for consumers in the Chinese market. The smart phones sold in the Chinese market will adhere to a very different marketing mix because the smart phone distributed in China will have a built-in camera and will be sold with a blue tooth ear piece already paired with the phone in addition, will have many applications preinstalled on the phone, but not limited to Google maps, music store, free Internet access, and English teaching capabilities. Blue Berry Inc. can offer these services at no extra charge to the Chinese market because of the cost savings of production in the China.
The pricing in the Chinese market will be competitive. Since, the market for cell phones has become a norm in the urban areas of China due the bustling economy and large population; the price of phones in the region has decreased. The cheapest Camera phone is about $72 US (Gia, 2009). What Blue Berry Inc. would like to do is price the smart phones with all the features for far less than this price; because of the cost saving the firm achieved in local production.
Market Indicators and Trends
China is a developing country and so are the trends of the society. The impacts of mobile phones in china have created a twenty –first century techno- culture; in China, mobile phones are both metaphor and practice which is transforming the Chinese society because of new classes and mobility (Gai, 2009). The attention is mainly focused on migrant worker and the elderly, but most notably the mobile phone in china is maintaining social relationships (Gai, 2009). Research has suggested that the growing use of cell phones in the urban areas of China have taken an important role for the mobile market.
Although the firm will have a short channel distribution system to be sold at local venders, Blue Berry Inc. managers understands that reaching outside the urban areas of China will be profitable, therefore the firm will have a website with business partner Huawei the telecommunications company based in China; to tap into the suburban market. The website would present users with weekly promotions of sale of the smart phone and offer discounts from the service contracts with Huawei. In addition, offer a bill pay feature.
Blueberry Inc. is a Sources of Financing
Financing is a very important part of setting up the global business venture and there are many available options for financing. Blueberry Inc can choose from both international and domestic lenders. The People’s Republic of China is a member of the Asian Development Bank or ADB, a financial instituion based in Manila. The ADB “provides direct assistance to private enterprises of developing countries through equity investments, guarantees, and loans” (ADB, 2010). The U.S. Commercial Service’s Liaison Office to the ADB or CS ADB oversees the process of firms based in the United States that are interested in pursuing business opportunities in the ADB member nations (CS ADB, 2010). The ADB is a commercial bank that provides financing for foreign investors and borrowers. In addition to highly desirable interest rates, Blueberry Inc. can utilize the services of CS ADB for counseling and market research as well as introductions and appointments with key ADP officers (CS ADB, 2010).
U.S. Bancorp is the parent company of the fifth largest commercial bank in the United States, U.S. Bank. U.S. Bank is an institution well known for helping both established businesses expanding into new emerging markets as well as small businesses entering into global markets (U.S. Bank, 2010). In addition to loans, U.S. Bank offers a variety of services including risk management and trade negotiation assistance. Borrowing from this domestic bank lowers the chances of Blueberry Inc. losing money from profits. U.S. Bank offers assistance with currency risk management to help organizations like Blueberry Inc. manage foreign currency risks and other circumstances in undesirable foreign exchange rate environments.
When choosing the best financial source option, Blueberry Inc. must look at more than interest rates and financing. U.S. Bank offers extensive risk management tools. The company helps with translation, transaction, sovereign, exchange, and economic risk. Translation risk deals with accounting risks due to translated statements from currency to currency. Transaction risk is linked with possible losses and gains on transactions vulnerable to foreign exchange rate movements. Sovereign risk is associated with political risks while availability, government exchange controls and the transfer of hard currency out of the country influence exchange risk (U.S. Bank, 2010).
Organizational Business Structure
There exists much competition as Blueberry Inc. introduces the cell phone into the Chinese market. As a result, Blueberry Inc. global subsidiary promotes greater local responsiveness with incorporation of Blueberry China (Hill, 2009). Blueberry Inc decisions pertaining to “overall firm strategy, major financial expenditures, financial objectives, and legal issues” will remain centralized through their headquarters in Seattle, Washington (Hill, 2009, p. 453). The “production, marketing, R&D, and human resources” decisions will be de-centralized and overseen through the operations of the Chinese subsidiary (Hill, 2009, p.453). The de-centralization component enables for localization of the product while creating cost economies with immediate access to market, while the centralization component permits the company to maintain control of the overall corporate vision as it aligns with international strategy (Hill, 2009). Furthermore, the de-centralization structure within China offers product flexibility resulting from market dynamics. This approach will yield better decision making and product control as the management will be closer to influences of the market (Hill, 2009).
Blueberry Inc will utilize a Worldwide Product Divisional Structure. This structure aligns with the de-centralized decision making components and “facilitates local responsiveness” particular to the conditions of the Chinese market (Hill, 2009, p.457). The centralized decision making components are overseen and controlled at the Seattle headquarter level. Figure 1 illustrates Blueberry Inc’s World Wide Product Divisional Structure.
Figure 1- Blueberry Inc’s World Wide Product Divisional Structure
SHAPE \* MERGEFORMAT
When change to strategy or tactics change; reporting through the functional unit support consists of front line supervisors and field personnel who report to their functional managers. Functional managers report to Regional Vice President, who report to Blueberry Incorporated headquarters. Figure 1 illustrates the chain of command when there is need for change to strategy or tactics. This structure enables headquarters to maintain overall strategic development and financial control over each world-wide product group (Hill, 2009).
Smart phone technology is rampantly changing. The obsolete technology timeframe is getting shorter. To accommodate a growing Chinese economy and the need for increasingly innovative smart phone technologies, the need for capital will increase. Manufacturing capacity and for manufacturing refit will become costly. As Chinese competition is heavily funded, Blueberry Inc’s market intelligence will be imperative as the company diversifies their technology portfolio. Blueberry Inc will have to seek additional capital from both domestic and international markets to maintain competitiveness. As revenues are generated in China, Blueberry Inc’s will explore business opportunities in the eastern hemisphere, leveraging their manufacturing and operations presence in China. Blueberry Inc believes in the sustainability of the Chinese market and recognizes the potential through technology diversification. With current infrastructure in place, Blueberry will diversify their technology offering, branding the Blueberry China brand as a staple of innovation.
Aligning with their entrance strategy, China was seen as a market to leverage into future markets. The alliance of a major telecommunications presents a model for future diversification. The founders or equity stake holders exit strategy will be through an Initial Purchase Offering (IPO). Taking the company public will allow for investors to exit the company and divest their equity holding through stock sale. In the event Blueberry Inc encounters unmanageable obstacles, the company could consider being acquired or setting themselves up for a sale.
To better understand the challenges faced when operating in the Chinese market and the risks associated with conducting business in a foreign country, Blueberry Incorporated conducted research in the form of a region and a country analysis. With the intention of balancing out the pros and cons associated with launching its cellular telephone in China, the company also conducted a SWOT Analysis. Cultural differences, threats of terrorism, poor medical services, and government corruption were some of the challenges identified as a result of conducting a country analysis. If Blueberry Incorporated decides to move forward with operating in China, the company would have to keep a close eye on the many threats associated with doing business in the Chinese market and focus on how to manage these risks.
Operating outside of the United States is not a new venture for Blueberry Incorporated, the company’s has been very successful operating in Canada; however, operating in a communist country presents new challenges. There are other challenges that must also be considered; entering a market in which two very strong telecommunications companies have established themselves can also be very challenging.
Entering the Chinese market would bring many challenges to Blueberry Incorporated; however, even though there would be challenges to manage, the market offers an attractive business opportunity for the Seattle-based telecommunications company. It is recommended that Blueberry Incorporated moves forward with entering the Chinese market. As previously highlighted, every day 120,000 people in China subscribe to a cellular telephone service; it was also mentioned that China’s economy is strong and continues to grow. Blueberry Incorporated has a foot in the door; the fact that Blueberry products are already being produced in China places the company a step closer to achieving its goal of achieving success in the market. If Blueberry Incorporated manages to create an alliance with one of the two largest telecommunications companies in China, it will be on its way to becoming a successful telecommunications company in the Chinese market.
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