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In order to suggest a long term growth strategy for Metricum, we will review the existing strengths, weakness, key drivers, potential markets, business structure, growth barriers, etc closely & systematically. The management of Metricum has already concluded that the Eastern Europe market is where there is growth potential for the industry & they have strong inclination, to optimize the capacity utilization of Romania manufacturing plant. It is understood, that the above has been concluded on the basis of market intelligence accumulated through various channels.
The client-side outlook of market research is examined by market intelligence which also enumerates the pitfalls and problems when appointing, contracting, authorizing, briefing and using market research. (Callingham, 2004) Pg. 228.
Strategy of Metricum
In order to have a full insight & comprehension of international strategy, in this section we will describe strategy at each level of the organization -
Corporate Strategy is best explained as strategy shaped by managers understanding the relationship between the organization & the environment.
-Provide manufacture of materials handling equipment and intelligent handling solutions
-Collaborate with or acquire international partner, to ensure continuous growth
-Explore New Markets
-Optimize in underutilise capacity of the organization
Business strategy, which is presently being implemented, is-
-Collaboration with competitors, to minimize competition
-Globalization & evolve new market entry strategies, to tap unexplored markets
-Minimize overheads by increasing production at competitive locations & downsizing at expensive manufacturing locations
-Transfer of technology throughout the organization
-Safeguard supplies & increase profit margin, when right opportunity arises & correct evaluation
Functional Strategy, which is important to implement business strategy, is -
-25% of company turnaround from each manufacturing unit
-Building linkages between old & new part of the organization
Organization Structure of Metricum
Organization structure of the company consists of independent business units, mostly working basis collaboration with each other & negligible cross-functional integration. This is a very weak structure & will not appeal to customer, looking at integrated & uniform worldwide services, for intelligent handling solutions.
The commercialization of new technology requires "linking creativity and technological expertise, with capabilities in production, marketing, finance, distribution, and customer support." (Grant, 2005), Pg. 149
Collaborations of Metricum
Company has so far concluded to successful overseas collaboration, that is one with a Swedish company & other with an aggressive Chinese ex-competitor. Its note worthy & must be mentioned that both the collaborations, have an equal manufacturing share as the Metricum based at East England. It should also be highlighted that the Swedish manufacturing unit is capable of innovation as well, where as the Chinese manufacturing unit is solely involved in the production of standard products. Varying opportunities and challenges offer collaborations.
Some advantages of strategic collaborations are -
-Agreement on objectives
-Comparable contribution & rewards
-No surrender of core assets
However, there are significant disadvantages of international collaborations such as -
-Conflicts of interest arising due to difference in strategic objectives
-Issues on sourcing & pricing policies
-Cultural differences easily creating mistrust & misunderstanding
-Pilferage of competencies & copyright issues
(John & Gillies, 1996) Page 257
Acquisitions of Metricum
Metricum has coordinated a successful international acquisition of Romanian firm, when the state was in the process of re-privatising it. This has helped the company to integrate & secure the supply side, along with prospects of increasing profit margin.
Although this manufacturing unit is only performing at 20% of its capacity, but this acquisition has created a foundation for the company to enter the East European Markets & has immense potential for innovation of products.
Summarizing the reasons for international acquisition -
-Reinforcement of competitive advantage
-Achieve enhanced profits
-Rapid method of corporate growth
-Enhance brand image
(Grant, 2005) Pg. 261
Key Value Drivers
Enhanced Corporate Image for Metricum & access to EU market segment
Easy access to Engineering Talent
Easier to acquire managers, who can easily accept re-locations & work as expatriates at other international manufacturing units e.g. Romania
Better access to North European & Russian Markets
Easy access to Engineering Talent
Easier to acquire managers, who can easily accept re-locations & work as expatriates at other international manufacturing units e.g. Romania
Access to the Far East high growth markets
Efficient production chain
Gateway to East European markets
High Potential for innovation
Skilled & educated work force for factory work
Strategic Challenges for Metricum
In this section we will do analysis & review of the company's strategy, in light of future expansion. Simultaneously, suggestions will be made where the company may be able enhance its strategy & international business management.
The starting point in formulating a strategy is typically SWOT analysis. "SWOT is an acronym that stands for strength, weakness, opportunities and threats. SWOT analysis is a careful evaluation of an organizations internal strengths & weakness as well its environmental opportunities & threats." (Griffin, 2007)
-Market presence in 40 countries, across the globe. Hence, company's past performance highlights overcoming cultural diversity on road to expansion
-Successful in international collaborations
-Successful in international acquisitions
-Market experience of about three decades
-High engineering skills, providing innovative & customized solutions
-Successful in restructuring & reducing overheads by downsizing operations, in expensive locations
-Bridging links between various parts of organizations, to enhance technological skills
-Weak organizational structure with negligible cross functional integration
- Lack of dedicated marketing talent, at respective manufacturing units
-No prior experience of talent relocation, which enhance integration
-Underutilization of capacity of some units, hence loss of revenue
-East European markets serve great growth opportunities, in proximity to Romania
-Higher profits, if better management of underutilized capacity
-Dedicating market team or relocating talent in proximity of growing markets, presents ample scope of growth for the company
-More Collaborations to increase market presence, benefit of successful strategic alliances basis using past experience & strategies
-Capitalize on smart international acquisitions, which are in the process of being re-privatised by state
-Political instability & loss of foreign investment
-Terrorist attacks on foregoing investment
-Competitors try to grab strategic collaborating partners
- Misunderstanding due to cultural gap, subsequent loss of investment
-Government intervention due to unionization
A well-established type of analysis to identify significant factors in the remote business environment is PEST analysis. PEST itself is an acronym for political, economic, social & technological factors. PEST is a well-known framework often used when conducting a market analysis to support business planning & strategy development. (Smith & Raspin, 2008) Page 63
-Political stability is still an issue in East European Markets, hence constant changes may be witnessed in trade regulations
-Presently EU nations trade freely with East Europe markets, but this may be affected if there are any radical policy changes
-Constant changes in foreign policy of China, could endanger the strategic alliance
-In Romania, the state is known to regulate & control private companies. This may adversely affect the expansion plans
-Exchange rate losses within the Organization, as different partners have different currencies
-Difference in per captain income benchmark in different countries, could be an issue for global integration
-Profit generation & profit sharing issues, may surface in collaborations
-Liquidation issues of organization asset, if misunderstanding in strategic alliance may not occur at market value
-Amendment in taxation laws
-New excise duties being created
-Culture diversity could generate misunderstandings in strategic alliances
-Different living standards & differentiation in remunerations, hence creating complexities
-Misunderstandings due to language barrier
-E Commerce dependence among customer instead of direct dealing
-Inadequate web site information of the company, hence creating hesitation in mind of the customer
-Change in ownership policies for international acquisitions
-Work Permits for expatriate employees
-New environmental policies not compatible with company's existing production line
-High new environmental standards defined, existing machinery unable to meet compliance
Strategic & Competitive Actions
STRATEGIC AND TACTICAL COMPETITIVE ACTIONS
Reducing of Overheads & costs
Decrease Dependence on strategic collaboration partners, more reliance on acquisition
Innovation outsource to Romania, once skill gap is bridged
Reduce Supply Costs
Increase production in proximity of growing markets
Relocate proficient & dynamic managers, to Romania
Internal Skills, Knowledge & cultural Values
Internal skills & knowledge up gradation are constant challenges for companies, with organization structure such as Metricum. However, the management needs to focus on enhancing internal skills, in synchronisation with long-term growth strategy. Some benefits-
-Increase in productivity & profit margins
-Enhance customer impact, hence increases market share
-Promotes learning culture in the organization
-Motivates employees & gain confidence in the process
-Encourages safe work environment & healthy culture
Ideas to develop internal skills & knowledge -
Relocating talented managers - relocating is a very complex & an expensive process. However, in long term there is a lot a value enhancement is the candidate with right attitude has been shifted. This will not only encourage information sharing, but also motivate the employees to complete. This process also assists in cultural gaps between the organization & provides better coordinating, between various parts of the organization located worldwide.
Global videoconference - With the aid of technology, global videoconferences should be coordinated periodically. This provides a suitable platform for managers & team members, to share critical issues. Prior such conferences, there should be pre-decided agenda & there should be added session on experience sharing. Exercises such as these, not only assist in information sharing & increase the involvement, of all employees in the organization.
Global R & D projects - management should initiate the research & development, across international boundaries. This helps in cohesiveness & integration of engineering talent, in the organization. Not only will it enhance research skills, but also create a solution, which would be practical for global markets, rather than domestic markets.
Seminars, workshops & conferences - Such industry events should be used an opportunity for international employees, to casually associate with their global colleagues. Research shows impromptu environment is best occasion to increase social integration, in an organization.
Information Technology - With development in recent years, in field economical information technological aids such as net meeting, voice messenger, mobile applications, turrets, etc., easier & faster ways of networking within the organization have evolved. This has helped in brain picking within the organization & simultaneous solutions or corrective actions, required to accomplish projects. A company should be invested in such tools & along with create ideal support, for continuous development of such resources.
External Training - Worldwide uniforms standards of training by an external consultant, is also yet another way to encourage the process of enhancing internal skills & knowledge sharing.
In any international organization the importance of cultural value is a core issue, which should be carefully evaluated using "Hofstede's value dimensions"
Hofstede's work was one of the earliest attempts to use extensive statistical data to examine cultural values. (Samovar, Porter, & McDaniel, 2009) Page 198
Hofstede's Value Dimensions is a good tool to evaluate compatibility of managers & workers, when relocated in international offices or when different cultures are interfacing in the organization.
Culture differences are said to be easiest source of conflict & may erode synergies rapidly, created over time, especially for a company such as Metricum, consisting of collaborations it is all the more important for management to formulate ways to handle the cultural diversity.
A globalization strategy usually involves streamlining and the subsequent expansion of strategic alliances. Managers must choose the manufacturing location, which offers an unsurpassed combination of quality, cost, and technology in order to achieve rationalization. This means different parts and components are often produced in different countries and that product design and marketing are essentially the same in all markets. As such, differentiation and specialization in local markets is minimized.
Decision Making Process
The organization structure should be such to expedite the decisions making process.
How to create fast decision-making process -
-Real time information sharing, through technology
-Empowering the right managers
-Continuous training program
-Adequate investment, to obtain market intelligence
The benefits of faster & smoother decision-making process -
-Gain entrepreneurial opportunities, become first movers
-Achieve competitive advantage
-Ahead of market in inventing new strategies, to ensure long term competitiveness
(Hitt, 2002) Page 10
It is advisable for Metricum to advocate & implement a staffing policy encouraging trans parities. Firms with a strictly global staffing orientation no longer subscribe to the policy of an ethnocentric impression of a native or host country. The recruitment of the finest Managers takes place from within or outside of the company, and ethnicity or nationality is of no consequence. This policy provides a greater pool of applicants to choose from. Third country nationals bring cultural flexibility. To initiate a change, Metricum can implement first egocentric approach & finally transform into trans parities model.
(Adler & Gundersen, 2008) Page 274
Options in International Markets
In the rapidly growing markets there are immense opportunities materials handling equipment and intelligent handling solutions. The key drivers for such business & services are economies focussed on infrastructure development & mining. East Europe countries belt is known to be rich in resources & technology in this area barely used. Companies such as Metricum view this as major growth opportunities.
Understanding Unfamiliar Markets
Cultural and linguistic differences- a understanding of the local business ethos is indispensable in achieving success since these disparities effect relationships and communications inside the company, and outside with customers and also the government.
Quality and training of local contacts and employees - evaluating the skill sets and determining if the local staff is qualified is a key factor for success.
Political and economic issues-companies need to determine the degree of exposure they can withstand, if policies undergo frequent change.
Experience of local partner- assessing the experience of local partner in the market, with the product and distribution, is essential.
Market Intelligence-it must be verified that sources are authentic & experienced. Market intelligence gathering process in continuous.
Additionally, the company needs to do a systematic risk assessment which will include the following key issues -
Political and cultural differences
Social responsibilities, their images, and their competitive strategies
Market Entry Strategy
This section examines the various entry and ownership strategies available to firms, including service-sector outsourcing, exporting, offshoring, ready to use operations, licensing, management agreements, contract building, joint ventures, franchising, and wholly owned subsidiaries set up by the organization and e-business. These alternatives are not mutually exclusive; several may be employed at the same time.
International expansion can be started or tested out an overseas market by adopting exporting as a low risk method. Employing or engaging a manager or launching an export department can initiate it.
Licensing: International licensing agreements provide the authorization to a corporation in the host country to manufacture or sell a product, or alternatively do both. In mature phases of the product life cycle, Licensing is also extremely desirable.
Franchising: The franchiser licenses products, trademark, operating principles, and services for a preliminary fee and ongoing royalties, thereby engaging relatively little risk.
Contract Manufacturing: is the process of employing cheaper labour overseas to contract for production of comprehensive goods or component parts.
Offshoring: when a company moves one or all of its factories from the "home" country to another country to avoid trade barriers or take advantage of lower costs of production.
Management Contracts: is outsourcing the rights to a foreign company to manage the daily operations of a business. This right is not extended to making decisions regarding ownership, strategic, financial and policy changes.
International Joint Ventures (IJVs): are contracts by two or more companies to create a product or service cooperatively. Metricum and a local partner share ownership, typically. This strategy enables swift entry into new markets since one partner is already recognized and has local contacts in addition to being familiar with local operations. IJVs are a frequent approaches for corporate growth world wide; they also offer a means to affect trade impediments, to obtain managerial and technological skills, to achieve considerable economics of scale for development of a durable competitive position, to acquire additional raw materials, and to put out the risk accompanying functioning in a foreign environment. The risks of expropriation and persecution in the host country are also condensed by IJV.
E-Business: E-business is an entry strategy at the local level.
(Buckley & Ghauri, 1994) Page 330
Barriers for New Markets
In this section we will discuss a few barriers, which a company can expect to face, when entering new markets -
Informational Barriers - gaps created due to skewed market intelligence, unreliable data, poor market research methodology.
Functional Barriers - cash flow issues due to poor banking structure, lack of managerial supervision, lack of skilled labour & work force, infrastructure issues.
Marketing Barrier - products & services not compatible to the market due to lack of market experience, host country not compliant to international standards hence creating cheaper alternatives in domestic market, issues on credit facility due to lack of credit rating report of buyers hence loosing to local competitor, complexities of foreign distribution channels, unable to create the right quality of after sales service due to negligible market experience, excessive overheads such as transportation, insurance, warehousing due to negligible market experience.
Competition in New Markets - Porter Analysis
This section helps in analyzing the competition in new international markets basis Porter analysis (Porter, 1981)
The basis of competition and its intensity derive largely from the interplay of five competitive forces: potential competitors, present competitors, the bargaining power of suppliers, substitute products, and the bargaining power of buyers or customers. Collectively, on an interactive basis they determine the industry's long-term attractiveness. By evaluating the competitive environment Porter's model, which consists of the following five factors, is used (Porter, 1981):
Â· Industry competitors. Low
New market, hence limited competition
Limited depth & understanding of Metricum's business services, presently in East European Markets
Â· Potential entrants. High
Keen interest from other European union based manufacturers to penetrate this market
Proximity to well developed markets
Â· Substitutes. High
Customers who are not seeking unique material handling solutions, may easily shift to other standard products
Chinese manufacturers, are good in imitating solutions & may create inferior alternative solution at a lesser price
Â· Suppliers. Low
Supplier side integrated after the acquisition of Romania unit
Â· Buyers. Low
Limited substitutes available in the market on a short term basis
Prior Entering International market, Metricum should -
a. Research the market scientifically and diagnostically, inclusive of the human aspect taking the time therefore to learn about the country and its culture.
b. Understand the characteristically idiosyncratic business and governing relationships that impact the industry
c. Once a company has decided to enter the international market, it needs to fit into the local business psyche and culture and learn how to operate within it.
2. There are three primary considerations in strategic choice, which Metricum must valuate prior entering new markets -
(1) Evaluation of the advantages and disadvantages of each entry strategy with the focus being the firm's capabilities
(2) The crucial environmental considerations
(3) The influence that each choice would have over the all-embracing mission and aims of the company.
3. Many variables need to be successfully transposed into a system that cohesively complements that desired strategy.
Form exemplar and arresting arrangements with suppliers.
Operating like a local by doing the homework of knowing a country's culture.
Tweak regular board only slightly from place to place.
Build market share by keeping prices low.
1. Metricum must explore Global e-business, which is an important aspect of the changing technological environment. E-business is the incorporation of systems, value chains, businesses, procedures, with all-inclusive markets using Internet-based and related technologies and notions. The e-business and Internet provide a number of advantages in global business such as:
a. Convenience in conducting business worldwide
b. Access to an electronic meeting and trading place
c. Ability to communicate quickly and cheaply
d. Consumer power by providing access to more choices and information
e. Efficiency in distribution for many products and services
Advise Metricum to set standards in there employee handbooks in international markets, pertaining to -
Do no calculated harm; respect the integrity of the ecosystem; and take due steps for continued consumer safety.
Produce more good for the host country.
The host country's development, should be a factor and contributions should be made to it by whatever means are at the disposal.
Respect the human rights of their employees.
Respect the local culture and work with it as long as your ethical norms are not violated, and not against it.
Pay their fare share of taxes.
Expand and enforcing just contextual institutions, by working in conjunction with the local government.
3. It is imperative that Metricum alters and transforms it's Organizational structures to accommodate the firm's changing internationalization to keep up with worldwide competition. Additionally, it is necessary for the structure of the firm to be complimentary to the application of its strategy. Hence, the structure must "fit" the approach, for it to be productive.
Mitigation & Alternative Strategies
Basis above research, we will review some favourable means of adaption
Devel Taoka and Beeman suggested these means of adaptation:
a. To lower the risks based on political situations joint ventures with nationals should be initiated. These would come under the scope of Equity sharing.
b. The management needs to be participative. To manage the subsidiary, nationals including those in the government or labour organizations must be actively sought out and employed.
c. Local styles should be taken into account during the process of localization of the operation by adapting the name of the subsidiary, it's management style, and so forth, to fit the local palette. Localization aims at transmuting the subsidiary from a foreign firm to a native one.
d. The firm needs to be actively involved in infrastructure development such as (local sourcing of materials or parts, securing external debt, technology transfer, management training, foreign-exchange generation, and so forth). This is also termed as Developmental assistance.
2. Metricum when entering new markets, must exercise appropriate caution basis -
A. Expropriation without quick and appropriate remuneration.
b. Involuntary sale of equity at or below the devalued price, to the nationals of the host country.
c. Prejudiced treatment of foreign firms in the application of host country laws and regulations.
d. Impediments to sending home of funds be it profits or equity.
e. Loss of technology or intellectual property rights
f. Intrusion into and restrictions in managerial decision-making.
g. Fraudulence by government administrators.
Appendix 1 - Contemporary Organizational Structure for a Global SME
UK MANUFACTURING UNIT
-R & D MANAGER
ROMANIA MANUFACTURING UNIT
-R & D MANAGER
MANAGEMENT TEAM CONSISTING OF 8 SENIOR MANAGERS WITH DUAL ROLE I.E. BUSINESS DEVELOPMENT & OVERALL UNIT INCHARGE. ALL MANAGERS TO RELOCATE ON ROTATIONAL BASIS, TO ENHANCE INTEGRATION
CHINA MANUFACTURING UNIT
-R & D MANAGER
SWEDEN MANUFACTURING UNIT
-R & D MANAGER
Appendix 2 - Sample Market Data for Key Locations
Kd - pls insert, if cant fin pls elete
Appendix 3 - Market Intelligence Report; Ukraine