References
Hannan, M., Pólos, L. and Carroll, G. (2007). Logics of organization theory. 1st ed. Princeton, N.J.: Princeton University Press.
Schegloff, E. (2007). Sequence organization in interaction. 1st ed. Cambridge, UK: Cambridge University Press.
Introduction
International Expansion is an important focus point associated with an organization, as it is referred as one of the most important strategies from which an organization can deliver the services to their consumers. Usually, big companies opted to enhance their expansion in the international market, as they have the right amount of funds available that requires accomplishing this innovation (Hannan, Pólos and Carroll, 2007).
Apart from increasing the turnover of the company, international expansion also used to expand the operations of the companies, and enables them to present their products and services in a better manner. For example, Proctor & Gamble (P&G) which have a number of international expansions on their head, and the company still manages to operate every single subsidiary in the best possible manner. On the other hand, the customers are also satisfied with their efforts and appreciating them by buying their products in regular intervals.
This is not the fact that when P&G obliged to expand their network internationally than they were not entitled to face any problem or challenge, but these organizations are effective enough to tackle with these challenges accordingly, and bring effective change in their operations to increase their financial and strategic well being. The exact instruction is required to follow in this assignment, as there is a company namely Medtronic has initiated a merger with a Chinese based orthopedics company merely to make its international expansion in the region, and to make a fully integrated business unit outside the United States. Medtronic Inc, that has its headquartering location in Minneapolis, United States is known as the fourth largest medical device company of the world. The company has its active operations in more than 135 countries of the world, with revenue of US$ 17.005 billion reported in the year 2014.
Objective
The main objective of this assignment is to make a report and analyze the situation of the company as far as initiating an international expansion is concerned. The company that needed to be a place in the analysis coat is Medtronic that acquired a Chinese orthopedic company to have its business unit in the region. It is required to analyze the current issues and challenges related to the company while expanding their business in the region by utilizing the theories and models. Apart from that appropriate recommendations are also required to mention here accordingly to assist Omar Ishrak regarding the current bold move.
Analysis
There are certain theories associated specifically with the stance of international expansion, and adhering with these strategies and theories would certainly make an organization eminent and effective in terms of achieving their effectiveness in the international market as well (Hannan, Pólos and Carroll, 2007). There are some prerequisites that needed to be followed by the companies before accomplishing their objective of international expansion. There is a theory known as Three Stage International Expansion theory is an important that perfectly suits with this condition.
According to the theory, organizations have to notify that U-Shaped formation is necessary for them to expand positively and effectively in almost every market. The meaning of U-Shape is very simple which is that organizations have to start from the scratch to make their growth prosperity and effective at the same time. In the current example Medtronic, which recently acquired Chinese based orthopedic company should think about the U-Shaped turn to become effective and fruitful in the Chinese market. An analysis of the Chinese market would be done on the basis of some important models that read in the class like CSA/FSA, Hofstede Model, PESTLE and Marketing Strategies.
CSA/FSA Matrix Analysis
CSA/FSA Matrix is one of the most important matrixes used by the companies before their international expansion (Schegloff, 2007). It is known as the core relationship among the Firm Specific Advantage and Country’s Specific Advantage. The matrix associated with the fact that when both of the advantages related together then they can form an effective international expansion.
According to the chart, there are two conditions associated with it which are Strong Condition and Weak Condition. It is mean that the internal strength and market position of Medtronic is effective, and they are ready to go in the Chinese market. Apart from the internal strength of the company, it is also effective to analyze the specific advantage of the country in which the company is expecting to expand its network. Chinese region has now emerged as one of the most important regions of the world due to its current strategic and economic power, and it is referred as an economically sound country of the world wherein organizations from all over the world are trying to expand their networks. As per the CSA/FSA matrix, it can be said that the financial and strategic position of Medtronic is effective and strong, and the company has the ability to effectively enter into the Chinese market, and flourishes their growth accordingly.
Hofstede Model Analysis
Hofstede Cultural Dimension theory is a strategy cum framework used specifically for the cross communication. The model was developed by Greet Hofstede. It is used to describe the core effects of the culture of a society on the values of its members (Schegloff, 2007). It is like the inner thinking of the individuals or the society in having the information on a certain aspect. It is mostly used in the cross-border communication and international expansion, and that is why it is used here as well.
Medtronic which is one of the largest organizations of the United States has a remarkable goodwill in the market of the United States (US), and has everything from which a company can be regarded as a powerful and effective company. By implementing the Hofstede model, Medtronic can analyze the fact that what the society and other players in the Chinese market are thinking of them. It will certainly help the company to become more effective in this region. Hofstede model is all about analyzing the requirements of the consumers in a given market, and it would be essential for the organizations that are expanding their network. It will certainly benefits Medtronic as well to get an idea about the consumers of the Medtronic in China.
PESTLE Analysis
PESTLE is an acronym of Political, Economical, Social, Technological, Legal and Environmental. These elements are essential for the economy while entering in a new business (Schegloff, 2007)
Political
China, with an official name of the People Republic of China (PRC), is a Sovereign country of the world, which has been governed by a Single Democratic Party. It is a politically safe country, but high population makes it very difficult for the government to bring good governance in their operations. Due to this particular problem the rate of crime is high in almost every city of the country that may deem ineffective for the companies that are trying to expand their networks in a given region.
Economical Situation
In terms of economics, China is a well defined and effective country of the world, comprises on large reserves and high amount of foreign exchange reserves as well. In terms of area, China is known as the second largest country of the world. During the current economic crisis, China emerged as the strongest economy of the world, and recently the country surpassed the United States to become the largest economy in the world according to the Gross Domestic Product (GDP). The reported GDP of the country in the year 2013 were US$ 16.149 trillion with per capita income of US$ 11,868. Medtronic can take effective, economical advantage by entering in this region.
Social Situation
Social facts and situations are very important for the sake of the organization, and it is equally beneficial for Medtronic as well. Chinese region is a multi ethnic region in which people lives with different profiles. Hence, Medtronic has to play their part to comply with the same aspect.
Technological Situation
In terms of technology, China is a well-versed country, and Medtronic will certainly get the competitive advantage of the same as far as their international expansion is concerned.
Legal Aspects
The legal regulations in terms of doing business in China are strict, and there are certain legal aspects associated with those companies which are strategizing to enter in this region, Therefore Medtronic has to become vigilant in order to comply with the legal aspects of China comprehensively.
Environmental Aspects
Environmentally, China is a mixed country, as there are some cities of the country which are extremely polluted and dirty, while others are neat and clean. Medtronic has to find the perfect place for them which are hygienic and clean.
Marketing Mix Implementation
There are four different things that specifically stride under the stance of the marketing mix which are product, price, place and promotion. Medtronic, that is intended to expand their operations in the Chinese region has to aware with the fact that all of these elements of the marketing mix would have been applied considerably and comprehensively. The product and pricing strategies of the company should be molded in a perfect way that it can be easily affordable for the people of China. The company should spend high amount of investment on their Research & Development (R&D) stance to get an idea about the effectiveness of the Chinese market.
Discussion of Issues
Cross Border communication, as well as expansion, is not easy as it requires extensive thinking and utilization of ideas to accomplish the same. Organizations that try to enhance their network in international countries are usually known as Multinational Corporations (MNCs), and their main perspective is to capture the market share of that country as well. There are hundreds of examples are there wherein an MNC is entered in a new region, and gets the highest market share. Some of the major examples are Nestle and Unilever.
However, there are certain issues from which the organizations have to encounter while expanding their network in an international country. The same amount of issues would be faced by Medtronic as well while entering into the region of China. The company already acquired a Chinese based orthopedic company that may assist them up to some extent, but some of the issues have to tackle by the company itself while during their physical appearance. Some of the major issues are
Low Purchasing Power Parity of Chinese People
Though China has emerged as the largest economy of the world, but still the purchasing power of the people of the country is not very effective and powerful, because of the large population. Chinese people, usually, prefer those products which they can afford easily, and which gives them the highest satisfaction. Purchasing Power Parity (PPP) is an economic term related to the amount of a certain product selling at a place in a certain price and then selling in another price with different price. There is a huge difference among the exchange rate of USD/Chinese Yuan. Hence, the pricing of the product of Medtronic has to be made according to the economic situation of the country. This could be a great challenge for Medtronic because the cost related to manufacturing is in US Dollars, and the company is incurring this cost in the United States (US), and it will require some time to bring cost-benefit analysis in their operations. However, proper appropriate strategies can work like wonders for them, which will be furnished in the recommendation section.
Low Brand Recognition in the Chinese Market
Whenever a company is entering in a new region, it has a low brand recognition because of the people of the other country will be unfamiliar with the products and services of a company. This will also be a great challenge for Medtronic because the company has no recognition in the Chinese region, but they intend to build the net strategic unit in the country. It will be a challenging task for them; however upper management can take up the challenge in their hands to flourish the Chinese market accordingly and effectively at the same time.
Human resources activities
Employees are the backbone of an organization, and no organization can have the effect in their functions and operations without effective Human Resources Functions and activities. The Human Resources department is the most important department from the viewpoint of the organization, and it is equally beneficial for Medtronic as well, while expanding their network in the Chinese region. According to the legislation, it is more than essential for the companies to have new domestic human power in their company, after the international expansion.
Medtronic will also face this challenge because they have to comply with the regulations of the Chinese government as far as labor laws are concerned. Medtronic has to empower their organization to enhance their Human Resources functions and activities in the region of China to flourish their growth within the market.
Recommendation and Implementation
Recommendation for Low Purchasing Power Parity
Every country has a different economic viewpoint which totally depends upon the economic consequences of the country itself. Organizations that are working in the country have to mold them according to the economic viewpoint and purchasing power parity of the country. Obviously, no company can change the PPP of a country; however, they can make and implement such strategies from which they can tackle with the issues of PPP accordingly.
Medtronic has the chance to bring and innovate new and advanced products in the Chinese region in low prices. This implementation will be for the initial purpose only, because there are other players as well that are operating in the market, and thus is will not be an ease for Medtronic to enter with the Competitive Pricing Strategy. It is recommended that Medtronic has to use the Penetration marketing strategy in the commencement of their expansion, as it will be the only strategy from which people can have the products of the company by leaving their domestic products.
Recommendation for Low Brand Recognition
Whenever a company is trying to enter into a new market, and then the recognition of its brand would be quite low and ineffective at the start, but gradually it will strengthen the roots. Medtronic also has the same problem while entering in the Chinese region. Fortunately, the company has acquired a Chinese based orthopedic company that may be effective for the company in terms of gaining the competitive advantage of the Chinese market. It is also recommended to the company to increase the level of strategic alliances further to operate in a better position. Chinese companies that are there from a long time in the market should have been taken into consideration for the strategic alliance, as it will be the best strategy for them.
Recommendation for Human Resources Activities
China is a big country and finding people with relevant experience and education in this region would not be a problem for the companies. However, there will be a serious communication gap is there. It is recommended to Medtronic to hire those people who are educated, ethical and should know English Language. The company then has to retain their employees for a long period by providing benefits and perks to them that associated with their effectiveness. It will certainly help the company to maintain their effectiveness in the Chinese region.
Conclusion
There are two important sides associated with an organization. One is strategy making or mapping, while the other is strategy implementation. Every organization in the world plans to reach the zenith with their efforts, but there are only few that can actually attain this objective. It doesn’t mean that they have super powers, but they are intelligent and competitive enough to utilize their funds and capabilities in such a manner from which they reach on their core target. International expansion is one of those strategies in the world that specifically use for the same purpose, and organizations usually MNCs used this strategy for their betterment and attained the objectives.
According to the given scenario of the case study, Medtronic is also trying to enter in the Chinese region by acquiring a Chinese Orthopedic company. From the entire discussion, utilization of theories and models, it is evaluated the idea of expansion of Medtronic in the Chinese region is perfect, as the country is dominating in the entire world and recently emerged as the largest economy of the world. Medtronic would certainly get an added advantage while entering in this region because of the high potential of earning and growth in the country. However, there are some recommendations that highlighted in the section needed to verify and implement accordingly to get the desired result.
