The Japanese company Elecdyne prides itself in the production of electronic products, struggling in the past and now needs a strategy to overcome the overwhelming crises. The management chose to set up a subsidiary in the EU in other to boost production at the same time reduce cost, with the advantage of gaining access to technology and expertise. This will help finalise the information and the details that will be needed to strategise the ambition of Elecdyne in going global. This report will evaluate which locations in the EU that will be the best choice for Elecdyne in the future, bearing in mind the business environmental factors, examine what kind of government policies and business collaboration in such environments that might be more reasonable or have great effect to determine the future of Elecdyne and also the choice of products the company should focus in the future.
EVALUATION OF THE CHOSEN LOCATION IN CONSIDERATION TO ECONOMIC FACTORS
In order to effectively spot the right location a wider view needs to be considered within the economic regions in the context so that a choice of location would help Elecdyne gain more competitive advantage. As such the need to narrow the choice to one area is paramount since the business environment of Elecdyne is getting more competitive by the day; therefore concentrating on one area will help maximize its competitive advantage. The following step will aid the evaluation of locations within the chosen region.
Comparison of regions within the Triad markets.
The regions will be compared by using SWOT analyses. The final choice will be made by evaluating via a weighted table. The areas compared are: the North America, which comprises of Mexico; Asia (China and Indian) Europe, which comprises of UK, Germany and Poland. Each of these zones have its opportunities and strengths but the choice of Elecdyne to move production to the UK as a choice most have been driven by one of the major strengths and opportunities, for example the South East England has the best links to vital locations like London and enormous infrastructures which has made the location a hub for Euro zone markets. (UK Trade & Investment 2008a) Northern Ireland has the lowest labour costs which will help reduced cost as proposed. (UK Trade & Investment 2008c), Wales on the other hand as the advantage of having low commercial property costs which could reduce cost also; similarly there have been existing negotiations and future merger that might subsist between Elecdyne and other Welsh organisations. Finally, Scotland as part of the UK region contributes as the region with highest concentration of Universities (SDI 2006).
These opportunities seem to be a driving force Elecdyne could use to further market expansion. In other to attain this it has been vital for the company to exploits several investments avenues within the region to ensure the company maximizes profit.
Figure 2.1 North America. (Mexico)
Strengths
cheap labour/ low cost
easy Access to USA
collectivism
High power of distance
Weaknesses
High level of economic and political uncertainty
Drug dealers disenchantment within the region
Opportunities
it seems to be a good opportunity in terms of dimensions of culture (according to Hofstede' s model)
opening on a new and huge market, close to USA
Threats
differences to Japan: in terms of language, culture, religion latino culture (emotional)
Electronic firms in other countries offer higher wages
-May have trouble getting licenses due to legislation -Problems of corruption (policies,)
Information cited from bbc (2010), USA department of state official site (2009) Economic Policy Institute, (2003)
The economic trends in brief
Mexico's economy is highly dependent on exporting to the U.S., which represents more than a quarter of the country's GDP. The result is that the Mexican economy is strongly linked to the U.S. business cycle, and has suffered from the economic slowdown in the United States. Similar minimum wage is low in Mexico partly to help keep inflation under control. In 2010 the average of Mexico's three region-based minimum wages is around U.S. $4.50 per day. If this happens Elecdyne could face more challenges as most impressive graduate could be eyeing the USA to work for SONY electronics in the USA and Elecdyne could suffer in terms of innovation, cheap labour equals unskilled workforce. The level of economic risk that this region poses could increase cost for Elecdyne. Although there is a skilled workforce available (USA expertise coming into Mexico to work) but the huge economic threat such as high unemployment could mean that the level of low wages and income per household will not bring considerable revenue to the business, and most business owners attribute such factor as a restrictive factor on business growth (SEEDA 2006).
Alternatively, Mexico's trade regime is among the most open in the world, with free trade agreements with the U.S., Canada, the EU, and many other countries.
In spite of its macro stability, Mexico is experiencing an increase in income inequality, and job creation continues to lag dramatically behind demand, According to the National Council for the Evaluation of Social Development Policy (CONEVAL 2009).
Figure 2.2 Asia (India and China)
Strengths
Closer to Japan (similar workforce)
Established centre of excellence in electronic technology
Low operating cost
Part of emerging economics
Weaknesses
Diverse culture
Linguistic diversity
Religious diversity
Cheap labour = many unskilled workers
People perception
Diverse culture
Opportunities
Large middle class
India becoming increasingly technologically advanced
Moving country : from communism to capitalism
Threats
High level of economic and political uncertainty
Fragmented market, heterogeneous consumers
List of desired investment
Human rights
Information sourced from North American Free Trade & Investment Report (2010) CNN Business news (2009
China and India are larger in terms of low labour and size also with high level of unskilled labour which means that it has limited capabilities in terms of higher education graduates with vibrant competence, undermining the level of its technology advancement the level restriction electronics products from this region are subjected to could mean that it will be in the best interest of Elecdyne deciding to own its subsidiary in the EU and do away with some of the government restrictions and would benefit huge free trade agreement within the EU, since Free trade is a market model in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. These restrictions that may increase costs to goods and services, producers, businesses, and customers, and may include taxes and tariffs, as well as other non-tariff barriers, such as regulatory legislation and quotas. Trade liberalization entails reductions to these trade barriers in an effort for relatively unimpeded transactions (UK Trade and Invest 2008d).
Figure 2.3 EU Regions (Poland)
Strengths
Cheap labour and land.
European countries generally work longer hours & access to European market. Has proved successful for Japanese companies before e.g. Toshiba.
Weaknesses
Completely different culture to Japan.
Not an educated workforce - few skilled workers. Language barriers - none of the Elecdyne team speak Polish
Opportunities
Member of the EU - few trade barriers.
Reputation as an investor-friendly country - government support
Threats
Language and culture fragments the EU market.
Lack of tolerance for other cultures.
Poland has its own currency (zloty) - does not use Euro
Information sourced from UK Trade and invest (2009), Innovation centre, BBC (2007)
In 2009 Poland was the best performing economy in the EU with 1.8% growth- the only EU member state to see positive GDP growth.
Located at the heart of Europe, Poland is the largest of the new EU member states, with a population of 38m and a land mass roughly the size of Spain. Elecdyne could benefit from this if the choice of its future is narrowed to the EU region, also Poland serves as a great springboard for UK companies planning to expand to other Central & Eastern European countries, as well as emerging markets further east. (UK Trade and invest 2009)
Figure 2.4 (The UK)
Strength
educated workforce
Financial assistance (e.g. Welsh Development Agency)
Varied culture with extended tolerance to international influence
Access to large prosperous EU market
English language is important in Business
Transport links, several airports
Highest concentration of universities in EU
Flexible employment laws
Weaknesses
EU markets are affected due to language and culture differences
High costs in terms of production
-Differs from Japanese working regime/schedule
Opportunities
Government encourages entrepreneurial efforts
Expansion and progression through financial and technical knowledge enhancement
Tax credits
R &D assistance
Financial incentives/ grants
Affluent nation and consumer base
Threats
Pressure to perform
Fast moving market conditions
New coalition government/change of government
Great competition, over 700 electronics companies, growing region for foreign investment.
Source of information; SDI (2008a), UK trade and invest (2008), Welsh Assembly Govt (2008) SDI (2007a)
EU regions prove to be the ideal location for Elecdyne especially the UK if decides to forge ahead with the going global procedures, the region prides in excellence high concentration of universities, availability of financial support which a critical issue in this period of recovering from the recent economic upheaval. Although the region has attracted in the past huge foreign investment and therefore competition is high. Practically and economical standing the area offers great incentives and resources but that alone do not guarantee the future ambition of Elecdyne to top the chat of market players but the very opportunities the region presents will go a long way to help turn its business environment around.
Figure 2.5 weighted table
North America
Asia
EU
Access to technological expertise
2
4
1
Cost of labour regards to innovation
4
1
2
infrastructure
1
4
3
Availability of skilled workforce
4
4
2
competition
4
2
1
45
50
27
Explanation of the table
5 categories ranked in order of importance: '1' most important, '5; least important
Regions ranked: '1' best, '4' worst
Ranked of location is multiplied by rank of category
Result for each category is added up
Region with the lowest score is the best choice
The table emphatically shows that EU region is like the best area for Elecdyne to invest paying attention to UK to be precise, UK offer best access to technological expertise, in comparison to Japan the UK market is a hub for the European market and it is the major link to access other EU areas, however, some part of the UK offer R&D opportunity which Elecdyne stand to gain in the long term and an open opportunity to expand its business network and the high level of unemployment rates in the UK means that there is much workforce available (SEEDA 2009 p.36 and NSO 2009) and the government strategy not to stop multinationals from bringing experts into the UK will still help Elecdyne sustain the competent workforce within the business that actually knows the in and out of the company. BBC (2010)
3.1. Comparison of the regions culture related factors
Analyzing the environment where investment would be established is as important as the business itself. This is because the impression of a particular country might not support the profit-maximization goal of the company and it could set up ways of hindering it. Evaluating these three regions different trends or issues are applicable to different locations that is why after narrowing down the possible locations to UK and before the exact site will can be chose Elecdyne needs to consider the both parent company country culture and that of the subsidiary if it suits the business wellbeing, the essential issue to consider such as country political, cultural, economical and financial systems and the effect this would have on the Elecdyne UK.
The political risk analysis would consist of a macro-political assessment which involves the country as a whole, the factor raised would affect every business within the country e.g. market, industries, firms etc, so that not all the business will have the same vulnerability. For Elecdyne UK it means that even though the business will need to find a suitable location within the UK (UK Trade and invest 2008b) as time goes on its should bear in mind that whatever issues affect any part of the country could also affects its operations. The general climate of the Eurozone, import restriction laws, the economic and financial environment also needs to be considered as their past and present state can assist the company analyze the region better.
Government actions
To stay within a business environment and increased production might seems like the more or the same but there are risks involved in doing this as different laws and policies are being adopted by the government. The first is the high level of bureaucracy in the UK which slows up processes of application and registrations as a result of this the general manager of Nissan design department Europe noted that this is the cause of exits in FDI in the UK. The second is the persistent increasing tax burden on businesses, in excess of this for the next five years this is set to increase as the 2009 budget reveals increases in SME tax since this would occur during the life of the project it would mean reduction in profit and shareholders satisfaction; this is also exacerbated by the regime change that took place in the country which would pose a risk in terms of adverse changes in policies [an example of this was the stop of FDI grants in Wales]. This would affect Elecdyne because the firm might not be flexible or fast enough to respond to competition, especially those from imported goods and export market of Europe. Also due to the country's foreign policy there has been an increased threat of terrorism which exposes the firm to risks of death, loss of assets and reduced profits. An example of this was the slumps experienced in the stock market after the July bombings. In order therefore to expand, the company would need to improve its risk management systems which would mean more costs, BBC (2008).
These issues would impact on the business if later consider to form a joint alliance and exporting to the Eurozone because the company would be exposed to risks from the two different regions. In addition to those discussed above, the Eurozone WEEE [Waste Electrical and Electronic Equipment] directive which states that consumer electronics firms dispose of customers' waste would have to be adhered to. This would mean extra logistics, staff and training costs for the firm.
Since investment there is a Greenfield investment, the issues in the Eurozone that would impact on it would include the treat of ownership and control. Although this region has a non-existent reputation for expropriating assets, article 14 of the MIGA [Multilateral Investments guarantee agency] states that "investment in 23 industrial countries (of which UK is one) cannot be insured against non-commercial risks such as expropriation, losses due to war, or transfer risks". This is very important as it could lead to losses of capital, assets, increased debt and bankruptcy on the Elecdyne subsidiary which would eventually affect every other branch. This would mean that Elecdyne should not risk of considering the other regions in place of UK as the North American region like Mexico due to disenchantment within the region have a high history of nationalization and seizure of assets. In general however all three regions have a positive attitude towards FDI movement with different countries offering incentives to compensate for their location discrepancies.
Conclusion
To summary the analysis and the strategise that Elecdyne made to internationalise its operation by creating a subsidiary in the UK region shows that the company is heading towards its goals of achieving acceptable solution for the loss the company have suffered so far, the use of the above analytical tools shows the result that the UK area offers the best resources, great avenues and opportunities for the investment (firm). The company has potential to grow and expands its business shores within the European regions, while the business is growing the need to focus on the very innovative electronics devices that are invoke or fashionable which meets the needs of the future development innovative world should be adopted, such as the production innovative portable audio players that are in demand for the chosen market. Therefore making plans to network its business into investing in a wider market of making mobile phones and devices that will sooner or later replace the very traditional products of Elecdyne, R &D should be encouraged.
