The following report is providing a overview of the furniture manufacturing company Adorn expanding its sales operations into a foreign country and the consequences of such a decision. The assignment covers: The decision to go global and how to Adorn should choose which country to expand its operations into. Discussed are such aspects as G. D. P. and demographic trends The U. S. A. is the proposed country to expand into. With this, data was gathered from many different sources to analyse the country and trends of the U. S. economy.
Analytical tools such as P. E. S. T. , S. W. O. T. nd Porters Diamond Model are used to better understand the environment with in the U. S. and how Adorn needs to adapt to those markets. Also the ease of doing business with in the U. S. with regards to the relative ease of setting up and doing business within the U. S. , compared to other countries. The furniture industry and its future is discussed in depth with regards to local manufacturing industry, imports and consumer changing perceptions within the United States.
Adorn is a furniture manufacturer that is producers to clients specifications. It utilises highly automated processes development and production of its products, Adorn’s core competencies and competitive advantage include high automation of manufacturing processes, producing specialised and well designed furniture for the user in practicality and style.
With the current global economic recession it would be advisable to enter foreign markets with the intention of sustaining or increasing the organisations profits through increasing the company’s market base and sales. Taking a more proactive stance to the slowdown in demand would be following in Nissan South Africa’s successful approach of increasing sales through globalisation. As reported by Ndundu Sithole (2009); “”Nissan South Africa will boost production and expects to increase its local market share despite a domestic and global economic slowdown, managing director Mike Whitfield said. Local car sales have been in negative territory in the past 18 months, falling by 30. 1 percent in March, and the global slump has slashed vehicle exports. Nissan S. A. expects new product lines to boost output to about 40,000 units from 28,000 in 2008.
He said the company was exploring further production opportunities in countries such as Angola and Nigeria. “Our market share came up to around 7. 5 percent last year on the back of some lack of products in certain key segments. This year we expect to be just over 8 percent… which means we are in a growth phase. ” Thousands of jobs are on the line in the automotive industry and vehicle manufacturers and car parts producers have approached the government for loans. Whitfield said Nissan S. A. had escaped the worst, but was not unscathed and has shed 180 jobs.
Globalisation could be attained through the company’s comparative advantage of low cost and high automation combined with a well planned and implemented strategy. Analysis of Globalisation There would be negative aspects to globalisation, so a detailed analysis of the proposal needs to be undertaken. First, a country needs to be identified as best suited for our expansion plans. For this we would look at potential geographical regions that have our target market within and the amount of potential clientele within these regions which logically would give the greatest potential of return for ever resource invested.
These locations which would be identified as having:
- Highly developed education and infrastructure allowing growth of business in the country.
- High manufacturing input costs, with high labour costs and/or limited raw materials which would assist in local competition in the region being easily competed against.
- Also a country that has with low import costs and barriers. Trade treaties with our domestic market, South Africa which would assist in dropping costs of doing business with the country while improving opportunities with in the new country. High Gross Domestic Product and high capita individuals which would relate to potential clients that could afford buying our products.
- Fairly stable currency, that is stronger than the South African Rand so to offer more leverage to assist in keeping the costs of to market low.
Culture Language: Being a more westernised business culture with limited globalisation experience, a national economy with English as a domestic language would be more advantageous to Adorn. So an English speaking/understanding market with western influence would be the easiest market to penetrate with regards to culture. However it is important to note that this may not offer the bests returns on investment but is the least risky option due to our lack of expertise in globalisation dealing with different international cultures.
Proposed Country. So taking the above into consideration, a strategy to expand into a first world/developed country that would have a stable political environment and the market to offer the company substantial growth with limited risk, would be best suited for our organisation. Considering that many developed countries have experienced large economic slow downs in current recession, it would be advantageous to develop strategies to capitalise on their economic upswing so to maximise the organisations profits. From this general overview it would be beneficial to focus on large markets where Adorns products have the largest potential for profits, such as the United States. T
As reflected above in table 2, the United States (U. S. ) is one of the wealthiest countries, with poverty at 12% of population. With debt to GDP is 60% in and one could assume that with the national bail outs by the United States government to Corporate America in an attempt to limit the effects of the recession that this percentage is going to increase this percentage while taxes are going to increase in the population. With all this said the global recession will affect the world not just the U. S. alone. But there are in recent months a increasing vocalised concern regarding the future value of the American dollar and the U. S. overnments ability to stop spending in regards to economy bail outs.
P. E. S. T. P. E. S. T. is an external environment analysis of risks and opportunities that are present which may have an effect on the organisation. It stands for political, environment, social and technological, and every one of these aspects is analysis separately. 1 Political – legal environment 1 Form of government Democracy: The U. S. has a de facto two-party system; the Democratic Party generally represents liberal ideals, while the Republican Party commonly represents conservative ideals. According to a 2007 poll by Associate Press, 35% of Americans identified as moderate, 36% as “conservative” and 25% as “liberal. Political ideology
- American Liberalism Ideals stand for the preservation and extension of human, social and civil rights as well as the government
- American Conservatism They aim to protect traditional values (especially on social issues) while promoting the concept of small government.
- Moderates
N. D. Schwartz (2009) stated in the New York Times on 15 February 2009, with the economic down swing, there are large threats of social unrest around the world with the increased unemployment levels and that United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism. Chossudovsky (nd) notes a number of ways the U. S. government is using its national resources to improve security national in preparation for any threats of terrorism and social unrest with in the country. The outgoing administration (Bush prudency) has laid the groundwork. Various pieces of “anti-terrorist” legislation (including the Patriot Acts) and presidential directives have been put in place since 2001, largely using the pretext of the “Global War on Terrorism. ”
Government attitude towards foreign firms Ott (nd) mentions the following; at the end of 1990, about 16 percent of foreign assets in the United States were owned by foreign governments, while 84 percent were privately owned. (Similarly, 14 percent of foreign assets owned by the United States were official, and 86 percent were private. ) 5 Legal tradition and the effectiveness of legal system Current population supporting the government shows that there is a healthy democracy at work with a strong constitution.
Burnham (2006) states the following, “The law of the United States was originally largely derived from the common law system of English law, which was in force at the time of the Revolutionary War. However, the supreme law of the land, under the Constitution’s Supremacy Clause, is the United States Constitution, as well as laws enacted by Congress, and treaties to which the U. S. is a party. The Constitution forms the basis for federal laws under the federal constitution in the United States; it circumscribes the boundaries of the jurisdiction of federal law along with the laws in the fifty U. S. states and in the territories. ” This reflects a developed legal system and infrastructure that has not been threatened since the American Revolution in the late 1700’s. Labour law
United states rates at 22 out of 100 in the Employment Laws Index of the World Bank (2004), which takes the regulation of hiring, regulation in firing and the regulation in employment conditions, and results in the higher the score the more the nation regulates employment Laws affecting business firms Is not detached from any other first countries law on how a company needs to operate within its society.
One consideration that needs to be mentioned is the current recession and causes there of, that have pushed for reform in most financial industries regarding regulation and responsible accounting. These changes will affect organisations within the whole economy both directly and indirectly. One such effect would be an increased in administration costs of doing business but this will also improve the economic stability in the long term. This coupled with stability of the government supports the following conclusion that the county has a stable democratic system and there would be little chance of this stable democratic system changing in the near future.
Discussing (in more detail) the political composition (including parties and there specific effects on the political stand of the U. S) goes beyond the limitations of this report. The U. S. Diplomatic Mission to Germany (2008) Stated That United States government also manages the overall pace of economic activity, seeking to maintain high levels of employment and stable prices.
It has two main tools for achieving these objectives: fiscal policy, through which it determines the appropriate level of taxes and spending; and monetary policy, through which it manages the supply of money. The Federal Reserve, the independent U. S. central bank, manages the money supply and use of credit (monetary policy), while the president and Congress adjust federal spending and taxes (fiscal policy). 4 Nature of competition Majority of the competition in the U. S. is privatised. The U. S. has a large open market with many buyers and sellers that have large number of firms with even larger number products (Homogeneous) to choose from (Monopolistic Competition). 5 Currency convertibility
Schuler & Lawser (2007) stated that like many mass-produced consumer goods, household furniture has become more of a commodity and is sold on price. Customers are now becoming more interested in furniture that looks good and appears to be a good value. Customers have moved away from the perception of furniture as a long-term investment, as something to pass on to their children or to keep as an antique. 2 Economic changes within the furniture industry Schuler & Lawser (2007) goes on to say many U. S. furniture manufacturers are choosing to have their furniture made in China and other low-cost countries rather than produce their own products. This has allowed offshore furniture competitors to increase their penetration into U. S. and world markets.
The (American) furniture industry, excluding the kitchen cabinet sector, lost 108,000 jobs or 21 percent of its workforce between 1997 and 2005. 3 Imports Schuler & Lawser (2007) also mentions that between 1992 and 2005, imports of all furniture products (including household, institutional and office furniture, but excluding kitchen cabinets) increased from $4. 1 billion to $23. 65 billion in 2005, an increase of almost $20 billion or 477 percent. During this period, imports from China increased from $208 million to $10. 8 billion, an increase of almost $11 billion — a fifty-fold increase in 13 years.
Schuler & Lawser (2007) noted the following trends taking place with in the furniture industry with in the United States, the consumer is spending less and less on furniture as it is viewed more and more as a commodity and now there is increasing competition for the consumer’s dollar from electronics, home entertainment, travel, leisure products etc. Because of the current emphasis on price, profit margins for United States’ furniture manufacturers are very low, while the costs of manufacturing inputs continue to rise. This has led to a significant decline in plant and equipment investments. Many United States furniture manufacturers are choosing outsource their production to other low-cost countries.
This has allowed offshore furniture competitors to increase their penetration into the United States market, resulting in the United State manufactures focusing on becoming wholesalers and/or retailers. Schuler & Lawser (2007) continues to suggest that as offshore manufacturers gain more experience from supplying the United States furniture manufacturers, they will learn enough to go direct to retailers, or through their own retail distribution outlets. This trend has already started as most of the larger Chinese furniture manufacturers sell direct to retailers and some have started offering retail franchises with in the United States. This trend will become more entrenched as the population will start saving more while restraining their spending habits following the current economic slow down and future uncertainty.
Another imported point to be mentioned is that the Chinese are moving their products closer to the end user and cutting out the middle man, undoubtedly this would increase their profits substantially, even posing a threat of further price reductions to the end user. This coupled with the impact of China having distribution channels that will allow access to markets with regards to any product, could pose a substantial risk to any company in the U. S. market.
Increased usage of e commerce which in turn increases opportunities and efficiencies within industries even allowing new industries to evolve and take over older outdated industries. This is assisting in reducing costs and improving speed of certain processes for companies. An example of this is video conferencing in reducing air fairs and travelling time for company employees. E commerce also allows for efficient market penetration through more adaptive, modes of communication and commerce with a wider market base.
With the aid of tools which include everything from electronic presentations to electronic mail that can be sent anywhere reducing geographical boundaries. This is also affecting the traditional concepts product and service marketing such as packaging and location of company offerings. With this new technology come more informed customers, which understand the product offerings within the market more, keeping companies on their toes with regards to product and services that the promote. All of which can be specially manipulated to assist the company in achieving its strategic goals, sometimes even assisting in reducing the cost of globalisation. An example of this would be Amazon where it has a presence in ever country and can distribute anywhere in the world utilising the courier services.
