A Critical Analysis of Elecdyne International Market Expansion Opportunities
1. Introduction
Elecdyne is a Tokyo-based manufacturer of consumer electronics products that has been operating in local market in Japan for over three decades. Currently employing 100 members of workforce, Elecdyne strategic level management is keen to explore the potentials of revenue maximisation through internationalisation.
This article represents a critical analysis of Elecdyne international market expansion opportunities. The article starts with a brief analysis of Elecdyne current situation and an overview of business environment for the company with the application of STEEP framework. This is followed by analysis of country profiles of UK, Russia and Turkey as a potential new market for Elecdyne using a weighted scaling system. The article is completed by specifying strategic direction for Elecdyne and providing rationale for the choice of direction being offered.
2. Current/Future Business Environment
It has been noted that “an organisation does not exist in isolation but is part of a broader business environment, making it an open system” (Amos et al., 2008, p.3). Accordingly, Elecdyne is faced with a set of challenges caused by external factors that need to be addressed in timely and effective ways.
Challenges imposed to Elecdyne by external environment can be effectively illustrated through STEEP table where the abbreviation stands for social, technological, economic, ecological and political factors affecting the business.
| Social | Ø Intensifying level of cultural globalisation
Ø Ageing of population in developed countries (Blakemore and Warwick-Booth, 2013) Ø Changing patterns of families (single parents, same sex parents etc.) |
| Technological | Ø Declining duration of life cycle for consumer electronics products
Ø Increasing frequency of technological innovations Ø Technological breakthroughs in the area of electronics products recycling |
| Economic | Ø Declining profit margins for consumer electronics products due to intensifying competition
Ø Likelihood of economic crises such as global recession of 2007 – 2009 Ø Rising costs of operations in Japan |
| Ecological | Ø Pressure to increase the corporate social responsibility (CSR) spending
Ø Negative media publicity caused by activities of non-government environmental groups |
| Political | Ø Escalation of political problems in Noda’s administration in Japan fuelled by multiple territorial problems (Xiaokun and Yunbi, 2012, online)
Ø Difficulties in government-level relationships between Elecdyne home country Japan and governments of perspective markets Ø Certain political rules and regulations that might have negative implications on consumer electronics industry |
3. Country Analysis
3.1 Use of Strategic Analytical Tools and Scaling
UK, Russia and Turkey have been selected as potential new markets for Elecdyne for reasons explained further below. Analyses of these markets as a preferred destination for Elecdyne can be facilitated using SWOT strategic analytical tool which stands for strengths, weaknesses, opportunities and threats of perspective new markets. Reasons behind the choice of SWOT framework relate to its ability to assess both, internal and external factors impacting organisations and countries. Specifically, strengths and weaknesses relate to internal factors, whereas opportunities and threats can be specified as external factors. Moreover, application of PESTEL analytical tool that stands for political, economical, social, technological, environmental and legal factors is another method that is used to assess the levels of suitability of new markets for Elecdyne.
This report applies SWOT and PESTEL frameworks to assess the extent of impact of relevant factors in UK, Russia and Turkey using a scaling system that ranges from – 10 to 10, where the score of – 10 denotes the least attractive factor with the highest level of risk compared to Japan; a score equal to 0 denotes a risk factor in another country which is equal to the same risk factor in Japan in terms of attractiveness for Elecdyne business, and a score of 10 is a maximum mark for attractiveness of specific factors with minimum risks compared to same factor in Japan.
3.1 Country Profiles
UK
United Kingdom of Great Britain and Northern Ireland (UK) comprises the area of 93, 638 sq miles and has a population of about 62.8 million (United Kingdom Profile, 2013, online). UK has a gross national income (GNI) per capita of USD 37, 780, and is considered to be one of the most developed countries in the world.
Arguably, UK has been hit by recent global financial and economic crisis of 2007 – 2009 to a greater extent compared to many other countries including Japan, partially due to higher levels of dependency of UK on its national banks (Nevin, 2013).
Ethnical diversity of UK population is considerably greater compared to Japan, with certain implications on consumer spending patterns in the UK. Moreover, there are vast cross-cultural differences between Elecdyne’s home country Japan and UK.
Russia
Russian Federation is a largest country in the world with a population of 142.8 million and GNI per capita amounting to USD 9,900 (Russian Country Profile, 2013, online).
Having emerged as a separate country after the dissolution of communistic USSR in 1990, Russia is relatively new to liberal market economy compared to Japan, and this fact might have certain implications
Life expectancy of population marks one of the main differences between Russia and Japan. Specifically, life expectancy in Russia is 63 years and 75 years for men and woman respectively, whereas life expectancy in Japan is considerable longer with 80 years for men and 87 years for women.
Long-lasting Russia – Japan territorial dispute over Kunashiri Island further intensified by Russian President’s visit to the island in 2012 is another issue that has to be taken into account in this report.
Turkey
Republic of Turkey covers territory of 300,948 sq miles with the population of about 73.6 million and GNI per capita of US 9,890. Main exports of Turkey include clothing and textile products, vegetables and fruits, machinery and motor vehicles, oils and fuels etc. (Turkey Country Profile, 2013, online).
There are multiple differences between Turkey and Japan that include but not limited to the type of government, size of legislature, driving side on the road, the levels of merchandise imports etc.
The level of Japan’s GDP of USD 4, 44 trillion is considerably higher compared to GDP of Turkey of USD 1, 08 trillion. However, the levels of annual GDP growth rate in Turkey which is 9 per cent is almost five times higher than Japan’s GDP growth rate of 2 per cent (Country Facts, 2013, online)
3.2 Internal and External Analysis
3.2.1 Internal Analysis
Generally in organisational level internal environment can be explained as “the conditions and forces within an organisation” (Griffin, 2012, p.33). However, this part of the report is devoted to analysis of internal factors of three perspective new markets for Elecdyne – UK, Russia and Turkey.
Table 2 illustrates strengths and weaknesses i.e. internal factors part of SWOT framework. Analyses of external factors part of SWOT framework – opportunities and threats associated with operating in perspective new markets for Elecdyne are integrated with the analysis of PEST framework further below.
| Strengths | Weaknesses | |
|
Operations |
Extensive experience in manufacturing consumer electronics products | Absence of experience in global markets |
| Sophisticated cost control processes | Low levels of flexibility for change | |
| Effective work discipline | Rising costs of operations in Japan | |
|
Resources |
Strong brand image in home market in Japan | Lack of cross-cultural skills and competencies |
| Possession of a set of licenses and patents | Financial constraints to enter more than one international market at the same time | |
| Motivational corporate culture | Low research and development capacities | |
|
Competitiveness |
Cost effectiveness | Limited scope for differentiation |
| Knowledge of English language by management team members | Market saturation in Japan | |
| Advantage from economies of scale | High level of vulnerability of cost-based competitive advantage |
Table 2 Table 2 Strengths and weaknesses of Elecdyne
3.2.2 External Analysis
Table 3 represents analysis of external factors impacting businesses in three perspective markets for Elecdyne using PEST framework and opportunities and threats part of SWOT framework in an integrated manner:
| Category of factors | Factors | Japan | UK | Russia | Turkey |
|
Political |
Territorial disputes with Japan | 0 | 0 | -7 | 0 |
| Threats to political stability | 0 | -3 | -4 | – 5 | |
| Home market lobbying and pressure groups | 0 | -5 | -4 | 7 | |
| Consumer protection laws | 0 | 4 | 3 | 1 | |
| Numbers of procedures to register business | 8 stages (0) | 6 stages (2) | 8 stages (0) | 10 stages (-2) | |
| Levels of bureaucracy in running business | 0 | 2 | -6 | -7 | |
|
Economical |
Inflation rate | 0% – (0) | 2.8%
(-2) |
5.1%
(-5) |
8.9%
(-8) |
| Unemployment rate | 5% (0) | 8% – (-3) | 6.6%
(-2) |
9.2%
(-4) |
|
| Risk of financial crisis | 0 | -2 | -1 | 4 | |
| GDP growth rate | 2% (0) | 0.8%
(-1) |
4.3%
(2) |
9% – (7) | |
| Levels of industrial production growth | 2% (0) | -2,5%
(-2) |
3.1% – (3) | 1.7%
(-1) |
|
| Cost of Business Startup Procedures (% GNI) | 8% (0)
|
1% – (7) | 2% – (6) | 10%
(-2) |
|
|
Social |
Life expectancy in years | 82.7 (0) | 81.1-(0) | 69.8 -(-2) | 74.6
(-1) |
| Rate of literacy | 99% -(0) | 99% -(0) | 99.6%
(0) |
87% -(0) | |
| Extent of cultural differences with Japan | 0 | -8 | -9 | -5 | |
| Demographic problems | 0 | -3 | -5 | 7 | |
| Job security | 10.5%-(0) | 6.8%
(-1) |
10.5%
(0) |
25.8%
(7) |
|
| People living with HIV/AIDS | 8,100- (0) | 85,000
(-2) |
980,000
(-10) |
4,600
(1) |
|
| Health index | 1.003-(0) | 0.951
(-1) |
0.774
(-3) |
0.855
(-2) |
|
|
Technological |
Internet percentage | 77.87%
(0) |
81.6%
(1) |
28.67%
(-5) |
34.15%
(-4) |
| Secure internet servers (per 1 million people) | 774
(0) |
206-(-5) | 38- (-9) | 13 (-10) | |
| Overall level of development of technological infrastructure | 0 | -1 | -5 | -5 |
Table 3 External analysis of perspective markets for Elecdyne
Data taken from Country Facts (2013, online) and World Fact Book (2010)
Table 4 below contains the summary of weighted scores assigned to each individual factor associated with perspective expansion markets for Elecdyne. Due to financial constrains and a range of other factors only one country has to be selected as a new market destination for Elecdyne.
| Category of factors | Japan | UK | Russia | Turkey |
| Political | 0 | 0 | -18 | -6 |
| Economical | 0 | -3 | 3 | -4 |
| Social | 0 | -15 | -29 | 7 |
| Technological | 0 | -5 | -19 | -19 |
| Total | 0 | -23 | -63 | -22 |
Table 4 Summary of assessments of external factors
Overall assessment of external factor affecting businesses in UK, Russia, and Turkey generated total scores of -23, -63 and -22 respectively. As it has been explained above, the weighted scales have been developed in a way that negative numbers (-10 maximum) denote negative impact of a specific factor to businesses compared to the impact of the same factor in Japan, whereas positive scores (10 maximum) indicate positive impact of factors compared to the impact of the same analogue factor in Japan. According to this system of weighting the score of 0 would indicate no difference on impact of relevant factors in Japan and other country in question.
Accordingly, Turkey can has emerged as the most preferable new market for Elecdyne as this specific market attracted the highest score amongst other perspective markets. Moreover, annual GDP growth rate of 9 per cent in Turkey (Country Facts, 2013, online) can be specified as one of the most significant factors amongst others supporting the case of entering this market.
4. Strategic Direction
Assessment of external factors impacting businesses in a set of perspective new markets for Elecdyne through the application of weighted scales as provided above has identified Turkey as the most suitable new market for Elecdyne. Elecdyne senior level management is faced with the choice of a new market entry strategy to enter Turkey amongst a set of alternatives such as importing, licensing, Greenfield investments, fully-owned subsidiaries, forming joint-ventures or acquiring local firms in Turkey. The following table illustrates the main advantages and disadvantages associated with the most popular new market entry strategies.
| Advantages | Disadvantages | |
| Importing | Reduced level of risk
Reduced level of financial investments Higher speed of implementation Lesser adaptation needs to local markets |
Payment of tariffs
Increased level of transportation expenses Being disadvantaged by host government protectionism policies |
| Licensing | Higher levels of profitability
Possibility of revenue generation for extended period of time No or little financial investments |
Complexity of arrangement
Misunderstandings and conflicts between licensor and licensee Brand image vulnerability to licensee incompetence |
| Greenfield investments &
fully-owned susidiaries |
Support from host governments for certain greenfield investment programs
Total control of business Low transportation costs Overcoming tariffs and other trade barriers |
High level of investment risks
Being disadvantaged due to the lack of knowledge of the new market Lack of knowledge about specifications of local market |
| Joint ventures | Elimination of cross-cultural barrier in new market
Sharing of investment risks between partners Benefiting from synergy of competencies |
Misunderstandings and conflicts between partners
Finding suitable partners can be time-consuming process Possible of lack of goal alignment between partners |
| Acquisitions | Possibility to obtain needed skills and competencies in new markets in short period of time
Overcoming new market entry barriers Benefiting from economies of scale in the future |
Highly costly strategy
Integration problems between operations of two companies High failure rate of acquisitions |
Table 5 Advantages and disadvantages of different new market entry strategies
Taking into account advantages and disadvantages of various new market entry methods illustrated in Table 5, Elecdyne management is recommended to engage in formation of a joint-venture in Turkey.
The choice of entering Turkish market through forming a joint-venture offers Elecdyne the following advantages:
Firstly, through forming a joint-venture Elecdyne will be able to eliminate cultural barriers. Culture can be defined as “the shared knowledge, beliefs, values, behaviours and ways of thinking among members of a society” (Samson and Daft, 2012, p.107) and cross-cultural differences can prove to be a substantial barrier when operating in a foreign market (Amason, 2011). Accordingly, acquiring a local partner is going to benefit Elecdyne in terms of obtaining knowledge, skills and competencies to be successful in Turkey.
Secondly, Elecdyne will be able to share business risk through forming a joint-venture. Elecdyne present success in its home market Japan is not guaranteed in Turkey, and its business model may fail to be successful in Turkey for a wide range of reasons and business risks. From this perspective sharing these risks with a local firm in host market can be specified as a strategically appropriate move.
Thirdly, Elecdyne can benefit from economies of scale to a greater extent via forming a joint venture. Moreover, due to its large size, joint-venture can get better deals from suppliers and achieve cost reductions in relation to many business processes.
5. Conclusions
This article has presented analysis of Elecdyne market expansion strategy opportunities focusing on three perspective new markets – UK, Russia and Turkey. Relevant strategic analytical tools STEEP, SWOT and PEST have been applied in order to achieve this objective with an increased level of effectiveness.
This article finds Turkey as the most suitable new market for Elecdyne according to the results of weighted scale calculations. The article recommends formation of a joint-venture with a local company in Turkey due to the advantages of this specific new market entry method such as elimination of cultural barriers, sharing business risks, and benefiting from economies of scale.
It is critically important to acknowledge that weightings and calculations of specific factors provided above are associated with a set of limitations. Specifically, limitations relate to high levels of generalisations when assigning scores to each individual factor and neglecting differences amongst categories of factors such as political, economical, social and technological factors when developing and applying weighted scales. Nevertheless, application of weighted scaling system has played an instrumental role in ensuring objectivity of analyses of three perspective markets to a certain extent.
References
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