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Crappy Shades Sunglasses Company is a small business established in the year 2000. And is located at Treforest Industrial Estate, Southern Wales. The company deals in manufacturing high volume of sunglasses at low price. Since its establishment, its main focus is to provide a range of low-cost sunglasses to two operating segments; the United Kingdom (UK) retail sector including the low-cost retailers, some supermarkets and convenience stores such as Poundland, Shop-til-you-Drop, Kwik-Save, etc and some large reputable multi-national enterprises (MNE's) such as Coca Cola, MacDonald's, etc which is used as sales promotional products or 'give-aways' to support their fast-moving consumer goods.
Over the years Crappy Sunglasses has recorded some momentous growth in its operations. Its workforce has increased from 150 to 550 people presently. In order to be more competitive and keep abreast to modern business practices, Crappy Sunglasses has also invested in SAP (a German system) to aid in areas of Manufacturing Resource Planning (MRP II) / Enterprise Resource Planning (ERP). This has improved the erratic orders that led to the supply chain issues. However, the growth in its workforce has become cost burden coupled with the company's unionism causing labour unrest which has led to lost in its revenue and threats of losing key customers as well.
The company reckon itself to be a Corporate and Socially Responsible (CSR) organisation and as such sources its raw materials locally. Even though Crappy Sunglasses has 'brand strength' as UK sunglasses supplier, the influx of companies manufacturing sunglasses at competitive prices has made the UK market very intense. Some companies have adopted strategic means of competing by capitalising on globalisation due to changes in the business environment such as global financial crises. Crappy Sunglasses is currently positioned in the low end of the market and the factory's 'footprint' is saturated.
The company's management team are thinking of "going global" to explore some opportunities elsewhere around the world in the quest to continually operate as a business entity aiming at reducing its costs of operations. Therefore the aim of the paper is to critically evaluate the feasibility of a "Total Global Strategy" for Crappy Sunglasses.
Crappy Sunglasses begun as a small business with initial employees of 150. Having attained growth to the extent of employing 550 employees' serves as a good indicator for Crappy Sunglasses to review it operational strategy for future development. According to Lukacs (2007) the European Union viewed small and medium sized enterprise (SMEs) as enterprises with staff headcount of 50-250 and turnover not exceeding £33,523,316.82. This definition provides an analytical framework to help SME's undertake effective measures to support their development and success especially when the organisation is employing more people (BiP Solutions, 2005).
To begin with, it is significant for the management team to recognise the six key rational planning questions upon which Crappy Sunglasses will take the necessary measures in going global. The questions includes where the company is positioned now in the market and how did it get there, where is the company heading and where would the company like to be and is the company on course.
So the management team can determine the current position of Crappy Sunglasses based on the market share and growth as identified by the Boston Consulting Group Matrix so as to balance the business risk with the financial risk of the company (Dyson, 1990). Currently Crappy Sunglasses is positioned in the "question mark" portfolio which indicates that the company is in a growing market but with low market share. As indicated in the appendix (internal analysis) as part of the company's weaknesses, the major factors driving Crappy Sunglasses to go global is the increasing cost burden of the labour force, unionism and high inventory cost eating into its profit. Although Crappy Sunglasses has low financial risk, the aforementioned problems make it vulnerable to a high business risk (Johnson et al., 2005) because the company spends £32.2 million as its operational cost out of £35 million generated net revenue.
Nevertheless Crappy Sunglasses has survived over the years based on its strong brand image as UK sunglasses supplier. This has been the keystone of competing in the market for 9 years. The company attained its 'brand strength' as a result of delivering of a range of low cost or priced sunglasses to its key customers in UK retail sector and as sales promotional products for some large MNE's, operating 50%; 50% 'make-to-stock' and 'order' strategy, good marketing strategy and have built strong customer relationships through an advanced technology operations (as shown in appendix as strategies) to boost the company's e-business. Porter (1985) pioneered the three generic strategies (overall cost leadership, differentiation and focus) through which an organisation could attain competitive advantage in its market. According to Porter a company that pursues cost leadership aims at cost control and organisational leanness which enables the firm to offer products at the lowest cost and still earn profits. In this case, the customers are deemed to benefit from the product only when the low cost leads to lower prices.
On the other hand, Bowman provided the competitive strategic option (strategic clock) as a combination of price (low to high) and the perceived product/service benefits that a customer would prefer. These options are 'no frills', low price, hybrid, differentiation and focus differentiation. Bowman argued that potential customers will choose a product/service based on their perception on the value-for-money (Faulkner and Bowman, 1995). Hence Bowman's concept signals to the organisational leaders to comprehend to the changing conditions of the market and adopting a means to position its company to gain competitive advantage (Rugman and Collinson, 2006). So based on Porters hypothesis, Crappy Sunglasses is operating cost leadership strategy that offers low price sunglasses to the market. Equally using Bowman's model, Crappy Sunglasses is offering only 'no frill' and low priced sunglasses to the UK market.
Furthermore, as indicated in the appendix (external analysis for Crappy Sunglasses) there are other elements of the business environment driving Crappy Sunglasses to go global such as the outsourcing activities of its competitors, low entry barriers into the market segments leading to influx of competitive companies, impact of global financial crisis, concentration on the UK market threatening the company's market share, saturated "footprint" making future expansion of the company impossible at its location, etc. Therefore the management team have decided to relocate elsewhere. As a result, the workers who will be affected by company's decision of relocation will be compensated.
Total Global Strategy
Phillips et al. (1994) stipulated that companies must consider the country, customers and competitors as the three key areas in search of market opportunities. It's obvious to recognise the situation analysis of the host country, generally known as the PESTEL analysis (political, economical, social, technological, Environmental and Legal) before going global. It's equally significant to do business with countries that have a convertible currency as well. Lewis and Housden (1998) re-emphasized that organisations will be exposed to less risk and yield greater profit when they are able to conduct a feasibility survey and plan their entry into international market. According to Yib, to develop a total worldwide strategy, the organisation must develop its core strategy in home country before internationalizing the core strategy. Thus to achieve the basis of sustainable competitive advantage before integrating the expansion of activities across countries (Mintzberg, et al., 2003). After a thorough analysis of a number of market opportunities overseas having developed its core strategy in the UK market, the management team have chosen to relocate to operate in China and export to the UK. But Crappy Sunglasses will maintain its headquarters in Treforest, UK. The PESTEL analysis made on China is shown in the appendix.
China over the years has attained macroeconomic stability with recent inflation rates of 5.9%; -0.8% and with real gross domestic growth rate of 9%; 8.4% (2008/09) estimates respectively. China has tropical weather in the southern part which can sustain the company's establishment (CIA, 2010). According to Morrison and Labonte (2009) China's policy is favourable in promoting Foreign Direct Investment (FDI) inflow for both SME's and MNE's and this evidence by nearly half of its export commodities being produced by the foreign investment firms. Besides, the low-cost labour in China is the main factor driving Crappy Sunglasses to relocate to China. In support of these, Schwab and Porter (2008) conducted a global survey on doing businesses in every country and identified the strengths and weaknesses of China's economy (as shown below) signalling China as a good place for doing business.
Predictable business friendly environment ( low risk)
Lack managerial expertise and experience
Infrastructure (rails, ports and adequate supplies)
Inefficient government bureaucracy
Intellectual property right violation
Favourable pay structure
Productivity (mass production)
Large domestic market size
Foreign market size
Proximity to raw materials
High quality raw materials supplies
Value chain breadth
Availability of latest technologies
Capacity of innovation
Low corporate tax
Table 1: the strengths and weaknesses of China's economy (Adapted from: Schwab and Porter, 2008).
Therefore the management's decision of relocating to China will help Crappy Sunglasses to reduce its operational costs and improve its cost leadership strategy. This is in agreement to Porter's diamond (1990) which stated that companies often gain lower-cost input when their related and supporting industries (suppliers) are situated closer to the producer than their distant competitors. Also the supplier collaborates with its producer in order to recognise present situation and predict any changes to enable the producer maintain its market position. According to Gross (2007) the continues complaints in regards to unfair labour practices led to the formation of the state-run All-China Federation of Trade Unions (ACFTU) in China. And though unionism in China is not powerful, it is now gaining momentum and it's important for foreign investors to be monitoring this development. Furthermore in terms of sustainability, China has implemented different complementary actions for businesses to reduce their carbon emission by using renewable energy even though the government has not yet constituted strict policy regarding the amount to be released by any factory (Naudin, 2010).
Ansoff (1988) designed the product and market matrix to provide a detail understanding for an organisation to pursue its development strategy either by entering into a new/existing market with an existing/new product. The strategic choices at the business level include internal development, acquisition and or mergers, joint development and venture/strategic alliance. Therefore the management team have decided to opt for acquisition of a manufacturing sunglasses company in China called Perfect Vision Sunglasses Company. This is a small business firm with good brand image, fairly good marketing and selling strategy.
Alexander and Doherty (2009) viewed acquisition as a form of internationalisation that enhances a company to enter into a non-domestic market. Since Perfect Vision is already in the existing market with existing product, it will be an advantage for Crappy Sunglasses to maintain its brand name in UK and that of Perfect Vision in China as a marketing strategy (Jagersma and Van Gorp, 2003). This will enable Crappy Sunglasses to generate more sales and develop new market segments especially in China. In terms of raising capital, Crappy Sunglasses has decided to sell some of its shares to the public to generate enough cash for the acquisition when the need arises.
In order to provide flexibility in marketing execution, the management team will adopt the hybrid strategic approach known as "glocalization" so that Crappy Sunglasses will maintain a balance localized and standard approach to product or brand itself in the home and host countries (Roberts et al., 2006). The management team will succeed in maximising the power of both brands by establishing a market orientation approach (Alexander and Doherty, 2009). However, Crappy Sunglasses still aims at offering the lowest sunglasses price through its cost leadership strategy in UK market as it develops new market in China and if possible beyond. Also Crappy Sunglasses can take advantage of the trade fairs organised in China to showcase its products globally since various business tycoons around the globe attend such exhibitions.
Crappy Sunglasses is going global by means of relocating its production to China. Wild et al. (2008) defined globalisation of production as "the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service". For companies to attain the benefits of globalisation, the utmost importance is for the management to recognise the globalisation drivers offering the opportunity to use the global strategy levers. The strategy levers includes adapting a standardised core product considering the place of value added activities with uniform marketing approach (Mintzberg et al., 2003). According to Yib (2003) increasing homogeneity of consumer taste causes MNE's to explore for global supplier operators. Also organisations search to go global to obtain cost advantages in standardised production, countries costs and skills, sourcing efficiencies, favourable logistics and product development costs. Hill (2000) claim that host governments adopt policies that promote MNE's to base and invest in their countries. Moreover globalisation is driven by changes in the macro-environment which increases global competition (Rugman and Hodgetts, 2003).
Therefore the perceived benefits of globalisation include cost reductions, improved quality of products and programs, increased competitive leverage and enhanced customer preference (Mintzberg et al., 2003). So cost and market drivers are forcing the company to go global and this centred on factor cost such as low-cost labour and raw material (Rugman and Hodgetts, 2003). Meanwhile Crappy Sunglasses will reduce its costs of production and become competitive in host and home markets. In support of this, Wild et al. (2008) claim that access to low-cost labour countries for global production enables companies to reduce their overall production cost and also to have access to the raw materials which could be unavailable or expensive at home. Moreover producing in China will create better value chain activities for the company (Rugman and Collinson, 2006). And it's not because China has all the necessary resources to produce the sunglasses but has very wide supplies network in Asia (Porter and Schwab, 2008).
On the other hand, authors such as (Rangan, 2000; Coskun and Altunisk, 2002; Mintzberg et al., 2003) emphasized that there are certain myth and drawbacks associated to globalisation. According to Rangan (2000) people have the perception that any company with money can go global since it's perceived that globalisation has broken national borders and made distances between countries to disappear. Coskun and Altunisk (2002) argued that there is a perception that globalisation generally kills local SMEs because their small and weak and sometimes causes national heritage to disappear. Furthermore Rangan (2000) continue to argue that, there is another perception that foreign investors are only investing in developing countries with the general notion of manufacturing where there is low-cost labour. However globalisation faces drawbacks such as product standardisation does not necessarily satisfy any customer and sometimes it's difficult for local customer to adapt to uniform marketing. (Mintzberg et al., 2003). Moreover, over-commitment to a particular market might negatively affect a firm's operation in event of high inflation or macroeconomic instability (Johnson et al, 2005).
Managing new employees when undertaking global activities
Identifying the cultural differences including languages, religions, attitude towards work, shared values, behaviours among individuals, perception on colours, etc (Dowling et al., 1994) among countries of operations determines the investors' level of success. Understanding the culture of the host country will enable Crappy Sunglasses to adopt strategies in order to develop suitable business structures involving all aspect of the business function (Rugman and Collinson, 2006); as shown as figure 2 in the appendix. Crappy Sunglasses will be able to position the product to their advantage when they are able to understand the cultural norms of China as much as avoid causing any offence (Lewis and Housden, 1998).
The Chinese have cultural work attitude of being punctual and committed on their job throughout the workday, contrary to other people who prefer to be allowed to go home when they complete their job early (Dillion, 1990). The motivational tools consisting of both intrinsic and extrinsic reward system should be given cautious consideration and flexibility because this reward system motivates Chinese workers to accomplish their objectives (Sanyal and Guvenli, 2001). Also unlike joint venture or merging, Crappy Sunglasses will not be burdened with cultural misunderstandings and conflicts in managing the company between the parties involved (Rugman and Collinson, 2006) since its completely acquiring Perfect Vision Sunglasses Company. Even though acquisition may be an attractive method of development strategy for an organisation to gain swift penetration of a non-domestic market, it is vulnerable to certain problems and challenges (Alexander and Doherty, 2009). Besides, the implementation of introducing new operating culture also takes longer time.
Crappy Sunglasses' major challenge will be staffing of managerial positions in short to medium term because the company will be producing in China whose working language is mainly Chinese. Though it's less costly to employ manager from China, the person may have little or no loyalty to the parent company (Lenartowicz and Johnson, 2007). On the other hand, appointing a manager from parent company may also lack the cross-cultural competence of managing the local workforce (Johnson et al., 2006). According to Jagersma and Van Gorp, (2003) few Chinese workers have business education and are much more interested in the quantity of product manufactured than engaging in strategy, marketing and management information systems. So Crappy Sunglasses will have to employ a more qualified and experienced Chinese marketing experts to perform satisfactorily in order to succeed in the Chinese market. By law, every employee must be furnished with written employment contracts, preferably in Chinese by the company and must keep abreast to the Chinese labour laws (Harries & Moure, 2008).
However, Lenartowicz and Johnson (2007) suggested the use of a combination of staffing strategies to develop a cadre of culturally competent international managers to manage the workforce and operate effectively within the host environment. Finally in the UK, management team will maintain few workers at the headquarters and outsource for human capacity when required. In terms of export, there will be continues effective communication between the new management of the home and host country by electronic means so that lead-times in transporting the goods from China will be shortened.
SWOT ANALYSIS OF CRAPPY SUNGLASSES (GROUP WORK)
Low marketing and selling expenses
Good road network infrastructure
92nd fastest growing SME in the UK with 1 manufacturing plant
Increased workforce from 150-550
Crappy shades believes in its brand strength as a UK supplier
They offer flexible /reliable service
High operational cost
Growth in the workforce added to increase in operation cost
High inventory eating into their profit
Low sales, low profit
Liabilities in acquiring assets (technology)
Expansion problem/constraint due to location
Accessibility to the factory only by road
Un-seasonal wet weather leading to 15% drop in sales
Diverse range of industrial relations issues
Unionism leading to strike over a pay dispute in 2007 which cost the company loss of revenue
Threat of lost orders from its customers
Low morale and lack of motivation of employees
Crappy shades has been in the low end of the market after existing for 9years
the company is not limited liability company, therefore they can consider selling shares to the public to generate capital (for future expansion in the UK) [OPPORTUNITY]
Concentration on the UK market which will make any change in demand to affect the company's market share [THREATS]
The company has never considered outsourcing its manufacturing or any other part of its value chain to overseas manufacturers, and neither had it considered moving manufacturing unit and the organisation completely away from Wales [OPPORTUNITY]
In 2007, recognising that the company needed to be more cutting-edge of technological advances such as e-business, EPOS, EDI, RFID, SAP, MRPII/ERP. [OPPORTUNITY]
Location: has good links to the M4 and M5 motorways [OPPORTUNITY], no rail link [THREATS]
Foot print is saturated (THREATS)
Opportunities for expanding the premises impossible as it is located between a newly built office block and the River Taff [THREATS]
Climate changes: un-seasonal wet weather during the summer of 2007, which resulted in a 15% drop in sales [THREATS]
Increasingly complex and costly pressures, global competitive pressures from business and market environment [THREATS]
Barriers to entry into both market are low [THREATS]
Impact of global financial crisis [THREATS]
outsourcing activities by its competitors which aided them in producing and selling at a cheaper price than Crappy Shades [THREATS]
STRATEGIES IMPLEMENTED BY CRAPPY SUNGLASSES TO ACHIEVE ITS BRAND STRENGTH (GROUP WORK)
Focus on two operating segments including the UK retail sector and as sale promotional products for MNE's.
Targets limited number of key customers. Low cost retailers such as Poundland, Shop-til-you-Drop, Kwik-Save, Sommerfield , 8 'till Late, etc.
MNEs - MacDonalds, Coca-Cola, etc.
50% 'make-to-stock' and 50% 'make-to-order is used as operational strategy.
Advertising via selling, promotions, direct marketing tool and technique such as trade magazines and journals, internet marketing (www)
Good customer relationship management by providing quality service.
The use of advanced technologies such as SAP (a German system) , Electronic Point of Sale (EPOS), Electronic Data Interchange (EDI), Radio Frequency Identification (RFID), etc to reduce the Bullwhip effect.
CAUSE AND EFFECT DIAGRAM (FISHBONE DIAGRAM) FOR CRAPY SHADES SUNGLASSES COMPANY
Figure 1: the cause and effect for Crappy Shades Sunglasses Company (Source: Adopted from Render and Heizer, 2009).
PESTEL ANALYSIS FOR CHINA
Less political risk and stable governance.
Suitable policies that encourage and promote foreign direct investment (FDI)
Inflation rate is low
China is an industrious economy
China has large domestic market size
China has strong currency due to high exportation
China has good transport network systems and infrastructure such seaports
China has large population with high labour force
China has good technology to support domestic and foreign direct investment
High emission of chemical and solid waste from industries
China has enacted legislation against intellectual property right violation
Figure 2: cross-cultural business contexts (Source: Rugman and Collinson, 2006).