Introduction
In the recent past doing business beyond the borders has been the wish and struggle of most organizations in the world not only for profitability but also to caution the business against the domestic uncertainties. This has driven the motive of multinational enterprises (MNE). Recently the urge of going global has made many businesses to venture into new overseas markets leading to foreign direct investments (FDI). Presented in this research is an able overseas market for the Dutch stroopwafels manufacturers in Yangling. As a way of satisfying the growing demand for their product, they are presented with a virgin opportunity which they are urged to seize.
Executive summary
In the recent past china has grown economically and due to this burgeoning economy the per capita consumption of its populace has increased greatly not mentioning the demands beyond its borders. Yangling, one of the regions in China, is not an exception to the whole growth of China. The need to create stroopwafels that are cheap targets Yangling as it has low labor costs, low capital, high technology and raw materials among other factors which make it one of the leading manufacturing zones in China.
In order to cut costs of production in Netherlands, the Dutch investors should consider Yangling bearing in mind the availability of raw materials and skilled personnel furthermore it has no such restrictions set by the Chinese government for foreign investors and firms.
According to (Dunning & Lundan 18) as a way of expanding and attaining the status of a multinational enterprise, Netherlands should take the advantage of this foreign direct investment to increase its profit margins as well as scaling up their production. In the long run they shall avail cheap and affordable stroopwafels to satisfy the market. However some key elements such as host government economic policies, demand among others should be considered while entering new markets.
For the purposes of this study Yangling region is analyzed using tools such as SWOT, PESTEL and Porters 5 Forces. Further the study cross- checks the cost of making waffles in china and in the Netherlands. Finally the Yangling proposal was presented to fifteen Dutch waffles manufacturers and asked about their concern prior to making an investment decision. The responses were varied. Others observed that they had no intention of doing their business abroad, others were satisfied with the market provided by their local populations, others were skeptical of Yangling and others worried on the quality of waffles when done abroad.
The mode of entry in to the China’s market is by way of foreign direct investment products. The government of China prioritizes ventures of advanced technology involving research and development (R&D) and ventures that earn them revenues from foreign exchange.
One important factor worth considering during entry into China market is the policy agenda and people responsible for formulating it, this is very critical for continued survival in the Chinese economy because it either cautions your business or makes it vulnerable to domestic exploitation.
According to (Neuhaus 46) the range of FDI through which entry is made possible include: Equity joint ventures, joint exploitation, development and production enterprises, wholly foreign-owned enterprises, foreign-funded shareholding companies and cooperative businesses.
Foreign direct investment (FDI)
FDI is an investment made on a joint, contractual or independently in a foreign state
China as a newly industrialized state, has attracted FDI and has also invested huge amounts of its capital in the foreign markets. The emerging markets in Africa have seen a surge of Chinese investment to satisfy the energy and other technological requirements. The Chinese government discovered and has continued to improve Research and Development (R&D) sector (Weingel 20). Many investors have shifted from the triad to China as a result of advanced science and technology; this coupled with the cheap manufacturing activities makes China and specifically Yangling the preferred destination for production of cheap and affordable stroopwafels.
Some of the challenges that are expected when you make an investment in China are as follows: Rapidly changing taxation levels and market access rights that vary by the type of investment, Complex tax laws and other regulations, Contracts are based on guanxi rather than formal, legal documents, Skilled managers are difficult to find and keep especially in marketing, Keeping face and being respectful is vital and Learning the Chinese language.
The PESTEL Analysis
The PESTEL analysis is done by multinational enterprise managers to assess the market shocks that could be presented by the host market. The analysis acts as an induction for the SWOT analysis that seeks to establish Strengths, Weaknesses, Opportunities and Threats in the new market. The PESTEL analysis is used by marketers in this case the Dutch investors, to monitor the macro-environmental factors that have an impact on the producing firm. The analysis will involve:
Political factors
This determines the degree to which the government intervenes in the economy i.e. government policy, foreign trade policy, tax policy, political stability/instability, labor laws, environmental laws, trade restrictions among others. These factors have a direct impact on the prospective business and thus the investors need to insert within their systems flexible mechanisms that would easily and cheaply adapt to the dynamic political atmosphere within the foreign market.
Economical factors
This encompasses macro-economic factors which constitutes the firm’s management and control of demand in any given economy. Micro-economic factors on the other hand focuses on the way people spend their incomes which, in turn determines the trends of spending on the firm’s products. These factors form the trajectory which the profits would follow. Economic growth, interest rates, exchange rates, inflation rates are just but among the so many factors that that play central roles in constituting an economy.
Social factors
Are areas that involve the shared belief and attitudes of the population i.e. population growth, age distribution, health consequences, and career attitudes and so on. They are important in defining the customer’s taste and what drives them.
Technological factors
They affect marketing and the management in three ways: New ways of producing goods and services, New ways of distributing goods and services and New ways of communicating with target markets. The technological aspects have great dynamism and this should be assessed as well to accommodate the emerging technologies.
Environmental factors
This emerged in 1960s to push for sustainable kind of businesses that don’t just take from the environment but also gives back to the environment to ensure sustainability of the processes. These factors become increasingly important due to scarcity of raw materials, pollution targets, and carbon footprint targets set by governments among others. More and more consumers are also demanding the products that are sourced ethically and from sustainable sources.
Legal factors
Legal factors include- health and safety, equal opportunities, advertising standards, consumer rights and laws, product labeling and product safety. Thus to trade in a foreign market investors need to know the legal framework for their businesses to thrive. This becomes even trickier when trading globally since different countries have different legal requirements.
All the above factors need to be assessed by the Dutch investors to ensure that once they make a move to Yangling, they can absorb the shocks posed by economical, political, social, technological, legal and environmental factors.
Foreign direct investment (FDI)
This is done through three different ways namely: Wholly-owned foreign investment: is where the investing firm shoulders every cost from the scratch, Joint venture: this is where the foreign firm in conjunction with the local firms form an alliance to carry on business and mutually benefiting from the process (Wei & Balasubramanyan 55). Contractual investment: is where the foreign firm does business in the host state in the capacity of a contract and once it is done the business is terminated.
Why should Netherlands do business in Yangling
Yangling is located in china. China forms a business hub for most investors due to its low productivity costs. Yangling for instance has raw materials that would be used for the production of waffles. Netherlands as a country also has a long business relationship with China which can be traced back to 16th century this forms the ground for better engagements and softer landing at Yangling for the production of waffles.
Worth noting are the government incentives of the peoples’ Republic of China that encourages foreign investment from all angles. China has invested heavily in the science and technology and recently in Research and Development. This has earned it a place in the world market which ensures that businesses done in china have market both locally and abroad.
More specifically Yangling as an agricultural high tech demonstration zone is endowed with much raw materials that are just needed by the stroopwafels Dutch manufacturers to conduct their business. Also the infrastructure of the area is up to date and one can be linked to any part of china even though the area is still upgrading. Every indicator shows that investing in Yangling is profitable, so why not venture into it?
General overview of agriculture in china
The extent to which companies are likely to benefit from Yangling food industry
Talking of benefits that would accrue to Dutch waffles companies when they choose to invest in China is a lot! Immediate achievement will be going global and being able to compete for the market worldwide rather than confining its consumption base only in Netherlands. This is further made possible by the good business relations that the Chinese government has created with other countries all over the world.
Yangling possesses a well developed plot that has been developing rapidly through adoption of modern technology. Yangling also offers a low employment cost, which ensures that the profits are uncompromised. It also offers a favorable business atmosphere. Worth mentioning is availability of well trained labor that ensures right work is done with maximum efficiency.
The availability of raw materials within Yangling cannot be undermined and thus a company wishing to trade there especially in stroopwafels will definitely spend less in acquiring raw materials.
Confrontational matrix in SWOT analysis
Internal analysis
According to (Pahl & Richter 27) The internal analysis is a research into the internal strengths and weaknesses in relation to the major competitors. This research enables an organization to gain insight for the current and future perspectives in supply and development potentials with in-house resources.
Important aspects are the knowledge on technical and commercial aspects on the availability of ingredients, machines, logistic possibilities, investment portfolios and the trustworthy name among the customers. The aim of the internal analysis is the acquiring of understanding of distinguishing competences which would give competitive advantages in the said market.
In this case the strengths in investing in Yangling is that there is political stability, well established support from the Chinese government, good guanxi could bring you great advantages, Yangling is eager to attract foreign companies, strong infrastructure system and good weather. On the other hand the weaknesses are City not well established, differences in taste and preferences, settling in Xi’an first and need to work on good guanxi.
External Analysis
The external analysis is a research of the developments in the external business
environment to gain know-how in the current and future success factors and the position of
the supply chain within this environment. These external aspects are activities which are
This analysis goes further to look at the macro factors of the business which involves marketing environment of the prospective venture and micro factors that involves current market situation, current market share and current supply and demand chain. The major qualification of the Yangling region is the economic development of the area and Academic schooled employees available from A&F University. On the other hand the threats include different approaches in doing business and the wider environment.
Financing foreign trade in Yangling
For the Dutch investors to venture into Yangling they need to cross check the costs of the ingredients in both Netherlands and China. The ingredients include- flour, butter, sugar, yeast, milk, eggs. Syrup and cinnamon powder (Boyle 20). Comparing the costs in the two states, it emerges that it is cheaper to buy ingredients in China than in Netherlands. Thus with the cheap labor that is skilled and high technology in the region when other production costs are added, it emerges that operating from Yangling will be effective and efficient than importing the ingredients in Netherlands.
‘Made in china to design in china’
In my own opinion, due to the highly encouraged and favored influx of foreign direct investments most of the products in the future will be labeled ‘design in china’ this facilitated by the fact that china is at the fore front to making itself the destination of Research and Development. Furthermore it has heavily invested in technological innovation that would enable investors to only move in with their capital because the technical skills would be readily available. By china joining the other grown economies in the World Trade Organization makes it attain a global status to equally compete for its share in the world market thus enabling the investors to brand their products as Designed in China with a guarantee of a share of market in the world.
Since china has invested more in Research and Development, the world is slowly turning to china for technological consultations and partnerships. This field will give technocrats that are much needed in the world to solve technological problems. This has recently been witnessed in other emerging economies which have embraced the china way of approaching development and thus china has set a precedent never imagined before which may are ready to copy or learn. Thus the brand Design in China will attain more value attachment.
Recommendation
This research has turned the unseen potential in Yangling. Yangling is such a region with renewed capabilities in terms of production. Just as other developing nations are working round the clock to redefine their economies and attract foreign direct investment, China has got it right and therefore there are a million and one reasons that would indicate viability of Dutch companies to invest in Yangling and thus I recommend that they move with maximum speed and minimum delay to harness the presented opportunities in Yangling.
With increasing demand of waffles in Eastern Europe, America and Morocco the Dutch companies involved in the manufacture of stroopwafels should cease just appreciating the popularity of their traditional waffles abroad and instead rise to the occasion to rightfully serve their deserved share of the market in the world. Yangling with its cheap productivity costs presents an unprecedented lee way for a leap into the market for the Dutch stroopwafels manufacturers.
The political stability in China offers just the required ingredient by Dutch companies to invest there. With the place of China in world economy, it is very possible that the Dutch brand will be marketed both locally and internationally with much ease and thus such a rare chance should not be left to waste.
It is firmly recommended that the Dutch manufacturers take advantage of the Chinese government incentives which will provide a softer landing since the invitation is loaded with less strict legalities and thus lee way to enter Yangling.
Lastly, it is recommended that The Dutch companies should seize the opportunity of acquiring the local raw materials that are of high quality and easily accessed. They should also be able to tap the rich and well trained labor force in Yangling that is readily available from Agriculture & Forestry University. This would not go down fully without mentioning the rich infrastructure network in the region that would link anyone to the rest of china. Dutch companies should move with speed to secure their place in Yangling to produce the much needed stroopwafels in some segments of the world market.
Conclusion
All well said, Yangling is a habitable environment for the stroopwafels production. The Dutch manufacturers need not to shy away from this opportunity which all indicators show that their product is favored most. The growing population of china needs food and stroopwafels is not an exception .they should seize this presented opportunity bearing in mind the available incentives and resources. The worries as to whether the quality of the stroopwafels will be jeopardized should not bar this conceivable venture since the world is moving on technologically and thus stroopwafels need to conform to new preferences as well as maintaining the originality.
Work Cited
Boyle. “The Good Cookie: Over 250 delicious recipes from simple to sublime” Netherlands:: Houghton Mifflin Harcourt, 2007.
Dunning & Lundan. “Multinational enterprises and the global economy” UK: Edward Elgar Publishing. 2008.
Neuhaus. “The impact of FDI on economic growth: an analysis for the transition of Central and Eastern Europe” U.K: Springer, 2006
Pahl & Richter “Swot Analysis”, Germany: GRIN Verlag, 2009
Wei & Balasubramanyan, “Foreign Direct Investment: Sis country case studies”, U.K: Edward Elgar Publishing, 2004
Weingel “Foreign Direct Investment: World Bank Publications”, USA. 1997.
