China is one of the low-cost countries in the world. The reasons of enter to China market which is the labor cost is cheaper and easily to hire worker due to large population. According to the nationwide census undertaken in 2011, shown population of China figures were 1344.13 million. The analyzers predicted that in 2012 the population of China will increase from 1344.13 million to 1354.60 million. Besides that, the unemployment rate of China population is 4.1% in 2012 which mean YTY Industry Holdings Sdn Bhd can easily to hire worker compare to Malaysia unemployment rate only 3.3% in year 2012. In additional, in China was easily to get cheaper cost of components and raw-materials due to there are a lot different factories. Moreover, the local factories of China are good in benchmarking to satisfy their customer needs. For example, the entrepreneur in China was benchmark the private sector of the United State such as fake IKEA stores, fake Apple stores and fake Subway restaurants. Therefore, we are suggests that our chosen company, YTY Industry Sdn. Bhd. moving business into China country.
2.0 Analysis
2.1 Gains of Entering into China Country
China is a rapidly rising global economic power and the fastest growing emerging market. Overall growth has averaged a robust 7% to 8% for more than a decade. Gains that entering into China country is increasing of profits.
In China country, there are many efficiency ports such as Shanghai Port, Hong Kong Port, Shenzhen Port and Ningbo Port. In 2011, Shanghai Port which been ranking in the first place of world's busiest container ports with 31,740 thousand TEUs, Hong Kong Port in the third rank with 24,380 thousand TEUs, Shenzhen Port in the fourth rank with 22,570 thousand TEUs, and Ningbo Port in sixth rank with 14,720 thousand TEUs. Port efficiency can be measure in term port productivity. Productivity usually comes from the investment in new cargo-handling equipment, for example using robotics systems and parallel berths which for the continuous of loading. Besides that, using computers, information system and electronic data interchange (EDI) leading the port operation flow in smooth.
YTY Industry which is a manufacturing company. In general, manufacturing company's aim is produce products and distribute to customers. Mostly, YTY Industry produces general products (glove), which distribute to customer via sea-transport. Since seaport in China show efficiency, there is a good opportunity to using seaport in China to distribute products. The efficiency of port able distributes products to customers in a short period. When customer receiving products in a short period, satisfaction happened on customer, through this, sales will eventually growth at the time. Customer will drop more demands to YTY because of satisfaction. In generally, when sales increase, profit will eventually increase.
Moreover, increasing in profit also because advantage of the lower labor cost in China. From ChinaDaily reporter say that, because combining of rapid depletion in rural surplus labor, until now still provided an ultimate source of cheap labor. In also can be shown in the bar graph that after world economic recession in 2009 (Source: Ministry of Human Resources and Social Security, Ernst & Young analysis), the growth rate is rarely increase from 2009 to 2011. With the cheap labor cost, YTY Industry can hire more labor to operate the factory. This can prevent the lack of employees go to work and shutdown of factory in the future. When a manufacturing is being shutdown, it will suffer a higher loss which will increase the burden of the company.
2.2 Shortcoming of Entering into China Country- Political Impact
Enter into a foreign country; it does bring a lot of benefits for the company. However, there are also brings some drawback which is barrier of enter the China market. For example, high capital for invest, culture of host country will be different with home country, and government policy.
In China, labor costs are very low. However, the capital for enter to the China not only depend on labor costs; it's also included a lot of other cost such as facility cost, infrastructure cost, insurance and property taxes and safety and environmental costs.
Next, the culture of host country will be different with home country such as the attitude of the resident in China. In China, all of the Chinese is very unity and they boycott a product or service with reason. For example, In September 2012, the Diaoyu Island issues between China and Japan. Three of the biggest autos makers in Japan which are Toyota Motor Corporation, Nissan Motor Corporation and Honda Motor Corporation are suffer losses in China. As a result of those political tensions, three biggest Japanese car makers was closed their factories in China few month.
However, the mass boycott of Japanese brands has turned into a boon in disguise for Germany's Volkswagen AG and South Korea's Hyundai Motor Co. to pick up market share in Honda, the world's largest auto market. According analysts warn that the China-Japan dispute of the islands is likely to affect the current and the next quarters, resulting in a pessimistic scenario for the next six months.
Since the launch of the Environmental Protection Agency (EPA) in China, China's Ministry of Environment Protection and EPA work together on practical policy tools for strengthening supervision of pollution and protection of the environment. They are encourage all the business especially in factories should proper treatment those disposal materials.
3.0 Recommendation
3.1 Reducing Lead Time
In business world, a company want to improve competitive edge, reducing lead time is vital. It offers a significantly shorter and reliable delivery times to customer and besides that products and services which will improve gradually.
In manufacturing company, the area that will look at is when an order will received and when the finished goods are distribute to the customer. A detailed of process flow diagram which need to draw out and investigate and identify which are the part that need to reducing the lead time. China which is IKEA's main purchasing market and around 20 per cent of all home furniture which sold by IKEA. IKEA using the concept of reducing lead time which they emphasis on the ordering and distributing methods. They shorten lead time from call off basis, which able a supplier to achieve possibilities of cutting the distribution link.
Shorten lead time which will increase goodwill of the company, this is because, when lead time is short, distribute to customer time also eventually will short and customers received their goods on time. But the important things that need to look in some few area, for example, order processing: an order intake that will cause a delay which some time where special materials have to ordered from outside supplier. Moreover, we need to improve supplier performance in order to reduce lead time. This is because sometime suppliers will late delivery of material and components to us. With shorter lead time and the reduction of stock level, dependent to suppliers is important. In facts, it is proven that reduce lead time is effect to higher selling rate, higher selling volume which will increase the profit of a company (Marc J.F. Wouters).
3.2 Strategic Alliance
Besides, strategic alliance is also one of the strategic that need, in this paper, we will concern about joint venture. In general, joint venture which is a strategic alliance in which two or more firms create a legally independent company purpose is to share some their resources and capabilities to develop a competitive advantage.
To focus on long term competition in China, joint venture is playing very important roles. Joint venture between international partners can grant one company access to a new market. Moreover, the participants may agree to lease or otherwise gain access to some facility where production for the item at the core of partnership can begin.
For example, recent news from The Wall Street Journal, say that Atrium Innovations which joint venture in China with Fosun Pharma. Atrium Innovation Inc. is a globally recognized leader in development, manufacturing, science-based dietary and so on. It joint venture contract with Fosun Pharma in Hong Kong for the purpose of distributing Atrium brands in China. Fosun Pharma is one of the top five domestic pharmaceutical companies in the People's Republic of China. With the initial investment of $1million, in the joint venture, participation of Atrium is 49%. It can see that, with the joint venture, it is seem have win-win situation, with the help of Fosun Pharma, Atrium brands can distribute in China faster, with the investment of Atrium, Fosun Pharma investment rate is getting higher.
Joint venture can be see is a good and strategically. From the above of example, YTY industry Sdn Bhd can use joint venture as a strategy to merging with an existing Glove manufacturing in China for enter into China with the least barrier and expand market in steady environment. Therefore, YTY industry Sdn Bhd does not need to invest huge capital for enters the China market. Besides that, the partner can guide YTY industry Sdn Bhd in term of rules and regulation problem. Moreover, through joint venture it can strengthen the relationship between China and Malaysia. It's an opportunity to access to new technology as well. Expanding business via advanced technology and with the use of technology can be pretty pricey.
4.0 Conclusion
In conclusion, entering a low cost foreign country is not easy nowadays; we have to plan before entering. Planning which look like a complex route, but it is to guiding us to a new era of business. Along this assignment, we can conclude that, although entering to a low cost country is such a difficulty, at last it still have many solution to solve it. For example, from the analysis part, the gaining is company which can increase profit. In business world, increase a little bit profit is not enough to survive, to improve it, a recommend which is to reduce the lead time. Lead time is always important not only in manufacturing company but in many areas too.
Besides that, from the shortcoming that can see is political impact. Some time because of political impact, many companies cannot easily enter into foreign country. With the implement of strategic alliance, joint venture is the best ways to overcome the situation. Joint venture can overcome the problem such as minimize the barrier of entering to foreign country and help in investment.
