Abstract
Exploring new territories for business outside known boundaries has become a preferred growth Strategy for business firms intending expansion of business operations. However, transferring business operations to new countries is not an easy proposition as it involves investigation of several factors affecting global business and establishing growth objectives in qualitative and quantitative terms. Business goals and environmental factors act as decisive elements in finalizing the country as well as formulation of strategy for expansion. The expansion goals of PPQ parts have been quantified within a period of 4 years and have been a basis for developing the strategic plans for establishing operations in the automobile sector for manufacturing SUVs outside the US. Considering the international business policies in South East Asia and the market prospects in the automobile sector, India has been finalized as the chosen country for expanding PPQ parts operations. Strategic plans to achieve the stated goals have been proposed and the benefits and limitations discussed for the intended location.
Keywords: business expansion, strategic plans, goals, relocation
Strategic Growth plans for PPQ Parts
Exploring new territories for business outside known boundaries has become a preferred growth Strategy for business firms intending expansion of operations. Increasing competition and relaxation of entry policies of developing countries have induced business firms to consider relocation of business set up as a profitable growth strategy. In addition to these considerations are several factors, including cheaper availability of resources, a growing market and liberal taxation policies that make relocation of business activities a tempting proposition. However success of the expansion plan in new territories depends on numerous factors which have to be addressed effectively. Relocation of operations needs careful planning which must consist of fixing organizational goals, selecting a country whose economic environment is consistent with realization of the goals and short term and long term plans to achieve the goals.
PPQ parts which is an automobile manufacturing company and has intentions of setting up its operations outside US for manufacturing SUVs has established its functional goals both quantitatively and quantitatively. In order to reach the desired projections for profits, market share, employee turnover and share capital, it must formulate short term and long term plans. The strategic growth plans should begin with selecting a country whose conditions support the growth plans. In this paper, the factors determining the selection criteria of the country and the strategic plans are discussed.
Factors influencing the Choice of a Country for Expanding Business Operations
A variety of factors influence the choice of a country which may be related to the general atmosphere as well as to factors specific to industry and product. The general factors which influence the selection of a country are
Economic Factors. The growth of market for specific products supported by the economic policies of the Government constitutes the economic environment of the country. The Government may encourage foreign Direct Investment in a country as a part of its economic policy to give an impetus to industrial or technological growth by relaxing taxes and duties. This may provide the necessary perk to organizations contemplating expansion.
Political Factors. The political stability plays a major role in deciding the country’s feasibility as an expansion destination. A country disturbed by political uprisings may disrupt the operations of a business. Also political affiliations of the Government whether it is democratic or communistic may also affect the decision for choosing a country. A communistic orientation may be pro labor unionism and may not be preferred by business firms.
Competition. Firms prefer countries whose markets for specific products have adequate scope for growth. If a country’s market has already reached a saturation stage it may not offer an incentive to new firms in the same industry. Therefore developing countries like India, Malaysia China etc. in South East Asia are preferable destinations because of its unexplored and growing markets for several products.
Availability of resources and Knowledge acquisition. Some organizations deliberately select countries to access their cheaper material and manpower resources to attain cost efficiency in their operations. Countries that enable acquisition of skilled work force at a cheaper cost than those of developed countries are the preferred destinations for expansion of operations.
Culture. Cultural environment of business destinations is another issue that has to be understood to get a business foothold in an alien country. Too wide a disparity in the cultural environment of the parent and host countries may make it difficult for adaptation .
All these factors were significant determinants of PPQ Parts’ choice of India as the country for establishing a new set up. (Dhobale, 2015) has listed several merits of FDI in India. These factors were evaluated in conjunction with the organizational goals to decide on the destination. The organizational goals of PPQ parts are described below
Strategic Goals of PPQ Parts affecting its decision to select India for Expansion
PPQ Parts intended to expand its operations within a span of 4 years. The expansion planned necessitated development of new facilities, resources and operations mostly outside the United States. Specific goals and their role in determining the destination are grouped under different heads below
Expansion in facilities. PPQ Parts plans to build new facilities for expanding its activities, 80% of which are planned outside the United States. This requires analyzing the factors which support establishment of new set up at economic rates. India liberalized its policies for facilitating FDI by providing multinationals with Special Economic Zones for building their facilities where there was an exemption in excise duties and other taxes for a period of 5 to 10 years (Dhobale, 2015). This acted as an incentive for industries that would achieve economies of scales and break even faster. This influenced PPQ’s decision to select India for building the new business set up.
Human resource goals. The present employee strength of PPQ parts is 5000 which is expected to grow to 10000 within 4 years after the materialization of its expansion plans. It also wants to lower its annual employee turnover from 28% to 17% by retaining more employees. India has shown a lot of promise in human resource availability in form of its skilled manpower and a cheaper labor. Employment of local workers as well as executives will enable PPQ to realize its HR goals. Also specialized knowledge in automobile industry in India is comparatively cheaper to the US which also tipped the scales in its favor.
The local automobile industry workers perform under poor physical conditions. Working in modern plants and receiving better compensation will certainly act as motivating factors and help in retaining them. At present the employee turnover is 28% which reflects a weakness in Human Resource Management and employee dissatisfaction with the processes. The firm needs to address this issue to realize its turnover rate of 17%. The cultural and political environment of India is friendly towards corporate sector. A well planned training and development program and a supportive and transparent organizational culture must be implemented as a HR strategy to gain employee loyalty and cooperation. However, recruitment of employees will be done in stages which is consistent with the short term expansion plans.
Profitability and market share. The present profit margin of the SUV industry is 6%. Although PPQ parts shares the same margin, it plans to increase its profit margin by 7% to gross a margin of 13% annually. It also plans to increase its international market share from 5% to 9% and its stock prices to $22 from $10 by the end of 4 years from now.
The Indian market for SUVs shows a great potential for growth at present. The two automobile firms that have successfully launched small SUVs in the Indian market are the Japanese firm Toyota and a local firm Mahindra & Mahindra. Other ventures have not been very successful. With growing per capita Income and a tendency to spend more has given a better spending power to Indians. This holds a great promise for PPQ for increasing its market share as well as its profitability. This is one of the strengths of PPQ’s expansion plans.
A greater profit margin means greater dividends on share and consequently a rise in share prices.
Corporate Social Responsibility. PPQ Parts plans to raise its CSR contributions to 5% from 0.5% in 4 years. India shelters a significant part of people living in below poverty line conditions and provides PPQ an opportunity to realize its CSR plans.
All the plans discussed above are long term plans. To realize them, short term annual growth plans have to be formulated which sets a specific period and schedule for making the new plant operational. Long term plans must be used as bench marks to design, implement and evaluate short term plans and serve as the basis to compute the HR requirement, annual turnover scales and promotional initiatives for marketing.
Conclusions
The decision of PPQ Parts to set up its new facilities in India is backed up by a supportive environment for its long term growth strategies. India has almost all the incentives that a business location that have been discussed earlier in the report. However no location can be considered a perfect destination and India is no exception. Few of the limitations are discussed below
Limitations. Dhobale (2015) has also discussed some limitations to FDI by multinationals in India. Geographically, India is located in South East Asia which is far from the parent company situated in USA. The Climatic conditions of India borders on the extreme which may be difficult for expatriates for adaptation.
Indian markets are susceptible to economic fluctuations in response to world and local economic reforms. However, markets recover quickly.
India has been a target for terrorist activities now and then.
There may be resistance from local manufacturers to the establishment of multinationals.
References
Dhobale, R. S. (2015).Advantages & disadvantages of FDI in India. INCON X- 2015, 428 - 436
