With the economic globalization, More and more multinational enterprises expanded their business abroad by using deferent market entry strategy. As Lecher and Boll (2012) claimed that the world-economic trends and cycles of the past two decades have made It Increasingly apparent that the production and distribution of goods take place In complex global networks that tie together groups, organizations, and regions.
In this paper, we focus on the IT Industry which is more and more popular in China, and then analyzed four giant IT guys: Apple, IBM, Dell and Samsung. They entered Chinese market during the different period. Even though some of their businesses are similar, their growth path and the strategies they used are totally different. 1. 1 Trends in the China Information Technology (IT) Industry The reason why we choose this specific industry in China because as we all know China has the most largest population In the world, it’s consider to be the biggest market size.
Throughout China’s reform era, the IT industry has often been a forerunner of broader trends In the Industrial economy, and this continues to be true today. The IT industry has stepped Into the starring role In a long-running drama, that of China’s transformation Into an Industrial economy. Both Chinese domestic factors and international economic trends have contributed to the rapid restructuring of the Chinese IT industry into a highly dynamic, flexible, and open structure (Ernst ; Naught, 2008). 1. Research Question Therefore, based on the reasons we listed before, Our research will focus on two main topics: Firstly What’ s the strength, weakness, opportunity and Threat of the giant IT companies when they entered into Chinese market? Secondly, What kinds of market entry modes did they use? 2. Literature Review Globalization Is no longer an abstraction but a stark reality that virtually all firms, argue and a small, face. Firms that want to survive In the 21st century must confront this all-encompassing force that pervades every aspect of business (Craig & Douglas, 1996).
In general, if a company wants to expand their business, they will analyze the target market and find out in what way that they can successfully entering that market. And there are many different ways to enter foreign market like Non-equity-Based Modes of Entry, which include: Export, Indirect, Direct, Subcontracting, Countermand, Licensing, Franchising, Contract manufacturing, Management contract, Contract manufacturing. And also Equity-Based Modes of Entry, which include: Wholly owned subsidiary, Joint venture, Strategic alliance, Merger and acquisition. Ball, Grinner, Minor & Magnet, 2010). From the perspective of the IT sector, we see a fairly successful transition toward a capitalist market economy for China. In the overall Industrial economy state ownership Is still significant, but It Is now concentrated primarily In natural resource sectors and utilities. State-owned firms, while present, play a secondary role In the IT sector, where technical innovation is critical. In fact, China has muddled through too highly reward and software. Ernst & Naught, 2008). We argue that the IT industry has played a crucial role both in transforming China’s industrial economy and in forging a peculiar Chinese model of developing a vibrant high-tech industry. A hybrid mixture of ownership and corporate governance patterns has been combined with aggressive policies to foster alliances with global leaders in industry and research. This has enabled Chinese IT firms to accelerate the development of management and innovation capabilities. (Ernst ; Naught, 2008).
Consideration of market entry arrears (MEds) is especially significant in entering foreign markets since MEds often present unusual constraints to management. Yet, entry into the Chinese market remains a perplexing phenomenon for most outsiders. Many Western firms find entering China difficult for a variety of reasons, including the entry barriers perceived or experienced by foreign firm managers. Among these are competitive strategy, political and social ideology, institutional, and cultural barriers that are difficult for Western firms to overcome. Yap, 2012). In sum, the key to effective entry into merging markets appears to lie in overcoming both the soft entry barriers through advancing managerial understanding of the institutional contexts of these markets, and surmounting the hard entry barriers, both structural, such as cost, capital, and product differentiation advantages established by the incumbents, and strategic, such as those that are purposefully erected by the incumbents. (Yap, 2012). 3. Case study Case analysis #2: Apple in China Background Apple Inc. S an American multinational corporation, which designs, manufactures and sells personal computers, consumer electronics and software, and provides elated services. The company has experienced a tremendous growth from 2001 when it has introduced its pod MPH player Revulsion, 2013). Apple Inc. Is considered to be the most successful electronics company in the world. Internal environment analysis – SOOT analysis Strength (S) – Customer loyalty combined with expanding closed ecosystem. Apple has a full range of APS, software and products that are linked and support with each other.
And Apple has relatively high customer loyalty, which increases due to Apple’s closed ecosystem. These factors could increases firm’s competitive advantage. – Apple has en regarded as one of the most innovative companies in technology. Apple has been chosen as the most innovative business in the world for the 3rd time in 2012. They can always come up with new products that lead the new concept of this whole industry, and bring the highly innovative, well designed, and well-functioning products to the market. Strong financial performance Apple does indeed have a huge amount of cash: $137 billion, and growing rapidly because it is an insanely profitable company. (Gross, 2013) – Brand reputation Apple brand was the most valuable brand in the world in 2012 which valued at $87. Billion. (Forbes, 2012) – Apple Retail stores Apple’s retail stores ensure high quality customer experience; provide direct contact with knowledgeable staff and increases brand awareness. Besides, Apple’s stores are teams Marketing is one of the strongest functional areas Apple has.
It can sell pricier products, build superior stores (they are more or less built to achieve marketing goals) and advertise their products in a compelling manner. Weakness (W) – High price. Apple’s product cost much more than its competitors devices. Consumers can easily opt for similar quality but lower price products. Patent infringements The firm is often accused of infringing other companies’ patents and has even lost some trials. This damages Apple brand and its financial situation. – Further changes in management Apple has lost Steve Jobs in 2012 and Tim Cook became the new CEO.
Scott Forestall and John Browbeat (chief of retail) left the company too and this will have an impact on company’s management, which, as many think, will be negative. – Defects of new products Some of Apple’s pod and phone releases had clear faults and thus disturbed sales of the products and firm’s reputation of superior product performance. Opportunity Potential for increasing phone and pad sales Growth of tablet and smartened markets is a good opportunity to expand firm’s share in these market. Emergence of the new provider of application processors Samsung, the main Apple’s competitor, is also the only provider of application processors for Apple’s products. Apple has to find a new source for the component but could not find a suitable one yet. Nonetheless, new manufacturers with superior engineering capabilities are arising and it’s Just a matter of time, when Apple will seize upon the opportunity of being less dependent on its direct competitors. Obtaining patents through acquisitions Apple lacks of some patents to sustain its growth and the best way to acquire those patents is to acquire the firms holding them.
Threaten (T) – Android operating system. Google’s Android SO is the main competitor for ISO in mobile device market. The domination of Android decreases ISO power over influencing consumers to Join Apple. – Damages from patent infringements Apple patents are often infringed by its competitors. The companies that breach Apple patents might not be discovered soon and may benefit from it, while weakening Apple at the same time. Rapid technological change One of the most severe threats Apple and the other tech companies are facing is rapid technological change. Companies are under the pressure to release new products faster and faster.
The one that cannot keep up with the competition soon fails. This is especially hard when a business wants to introduce something new, innovative and successful. – Competitors moves in online music market tunes is also one of the Apple’s main revenue come from. Some online music and movies may thereat Apple’s sales. Strategies capital city of China Beijing in 2008. That was also the year of Olympic Games held n Beijing, it makes Chinese people and tourists from other cities getting familiar with Apple’s products. Until 2013, there are 8 Apple Retail Stores in Mainland China.
Apple Chief Executive Tim Cook told analysts Tuesday that the company would double the 11 Apple stores in Greater China within the next two years. (Mozart, 2013) After the first Apple Store, in 2009, Apple signed a deal with China Unisom to bring the phone 36 to mainland China in October 2009. This is huge news for Apple, which is now to enter a market with around 700 million mobile phone users, the biggest in the world Toto, 2009). Advertising also helps a lot to Apple getting closer to Chinese consumers. Apple’s ads are always makes people feel fancy, and make people think apple’s products are different from other electronic devices.
It was found in 1912 in New York and re-established its business relations with China in 1979. In the last IBM ‘s software, hardware and service businesses to more than 320 cities. They aimed to build much of the business and IT infrastructure for many organizations in China (Chine, 2011). IBM ‘s business strategy of building a Smarter Planet in China supports the country ‘s long-term economic development. Its main business includes consulting, systems integration, application service, maintenance, testing, solution management, business transformation outsourcing services and IT infrastructure services.
The IBM ‘s mission is helping clients to become more innovative, efficient and competitive through the application of business insight and IT solutions; and providing long-term value to shareholders (MOM, 2012). Vim’s strategy of delivering high value solutions to enterprise clients has yielded consistent business results. Working with enterprise clients across the full spectrum of their business and chemical opportunities, IBM delivers leadership innovation in technology, high value solutions and insights that improve client and industry outcomes (Chine, 2011). Company ‘s analysis 1 .
Company’s external environments analysis As part of the government’s 12th Five-Year Plan, China has embarked on an unprecedented economic transformation in an effort to advance the country’s agenda of building a harmonious society (Chine, 2011). This policy acted as a very important opportunity for IBM to provide relevant solutions that will improve the way the government and business work. IBM is one of the most trusted partner brand to elf China achieve its “China dream”. IBM spends approximately $35 billion annually through its supply chain, procuring materials and services globally.
In addition, in 2012, the company managed approximately $20 billion in procurement spending for its clients through the Global Process Services organization (MOM, 2012). 2. Internal environment analysis – SOOT analysis Firstly, IBM leads the world in IT solutions success with patents in the United States for 17 straight years. Secondly, IBM is the first tier companies what entered in Chinese market after Den’s reform and opening up policy, therefore, IBM developed heir Chinese business accompanied by the Chinese economic reform. So they established a good relation with Chinese government.
For example, in 2008, IBM has supported Gudgeon Hospital of Traditional Chinese Medicine to build a Clinical and Health Records Analytics and Sharing system, which integrates health records that combine Eastern and Western medicine into one standardized system (Chine, 2011). Thirdly, IBM developed a strong research and development institution in China. Vim’s R;D operations differentiate the company from its competitors. IBM annually invests over $6 billion for R;D, focusing on high- growth, high- alee opportunities. Global Financing facilitates clients’ acquisition of IBM systems, software and services.
The last but not the least, global Financing invests in financing assets, leverage with debt and manages the associated risks with the objective of generating consistently strong returns on equity (Chine, 2011). Weakness (W) When the IBM entered into China, they also have a lot of weakness. IBM ‘s size is the first weakness. Enormous operating costs drive down its total profits. It is the main reason why IBM sold his so-called ex. server business to Leno in 2004. Secondly ammunitions across these different countries can be very challenging.
The last but not the least, the recession of 2009 hurt everyone and IBM was also not exempted. The financial service, which accounts for 30% of IBM revenue, has declined. Opportunity (O) Now the IT business increases globalization rapidly. IBM Global Procurement Center was moved into China in 2006. It is one of IBM ‘s first global function headquarters located outside the U. S. It could help IBM save supplying costs. In addition innovation is the key and working with IT- related companies to create new products in the ever- hanging market (Chine, 2011).
China is one of the biggest emerging market in the world with large outsourcing demand. Threaten (T) Expected for the opportunities, there are also some threats IBM is facing now. Firstly, there are more and more competitors developing their business in China, like Accentuate, SAP and Oracle etc. As being one of the oldest players of its field, Chinese customers now is looking for change. Today as market is so flexible, IBM may also face threat from some domestic small companies. In addition, IBM high spending than it’s earning on research and development can be a loophole for MOM.
Conclusion – Market entry strategy Since asses, IBM started its business in China; it has used a lot of entry modes in China market. At first it was only able to open representative office and involve itself in projects with the local government. At that time it was barred from further involvement by government restrictions, but it could test the market and gain experience and knowledge from local firms (Lou, 2000). By the mid-asses, IBM had built up connections and Guiana with many local companies (Lou, 2000). So it then changed modes and entered into many Joint ventures.
These Joint ventures make tragic contributions to all parties involved by providing economies of scale, technological synergies, fulfillment of local content requirements etc. Lou (2000) introduced that although all the IBM Joint venture companies are independently together they form a complete network of coverage to assist IBM in serving its customers in China. Then with the developing of its business in China, IBM opened almost 30 branch offices in China. Now it has started a few wholly owned companies and research center in China.
Launched in 1999, IBM China Development Lab focuses on developing Vim’s core middleware and industry solutions. Established in 2004, IBM China System and Technology Lab develop leading edge system technology and is distinguished by its excellent development and test capabilities, ongoing innovation and outstanding customer service. In 2009, IBM China Analytics Solution Center was opened. The IBM Internet of Things (TOT) Technology Center was opened in 2010 and it is Vim’s first TOT technology center worldwide.
IBM China Institute of E- Government was started in 2010 to advance the national agenda of building a pool of resources and a collaborative platform to share and discuss innovative thoughts and lotions for the government to solve problems and challenges in public administration (Chine, 2011). Case Analysis # 3: Dell in China Company’s background: Dell computer was found by Michael Dell in 1984. The funded was nineteen at that time. Dell Computer Corporation experienced strong growth in the mid sass’s. The few days was not otherwise offered by the industry. Dell’s toll-free line and on-site technical support were also unique at the time.
International operations began in 1987 and expanded over the next four years to twelve locations. Dell became the 25th largest company on the Fortune 500 list and built a new manufacturing plant in North Carolina to meet demand. Dell entered into China’s market in beginning of 1995 through exports and in 1998 Dell installed its manufacturing plants too in China due to favorable production environment in China at low cost. “Dell’s mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve.
In doing so, Dell will meet customer expectations of: Highest quality, leading technology, competitive pricing, individual and company accountability, best-in-class service and support, flexible customization capability, period corporate citizenship, financial stability” (Dell) Dell’s own corporate website defines is its global strategy, as “our global strategy is to be the premier provider of products and services, including those that customers require to build their information technology and internet infrastructures. (Dell) Company’s analysis: External Environment –(PEST analysis) Economics and Political: Entering the Chinese market, with a population exceeding 1. 3 billion, continued economic growth, and a large supply of inexpensive and productive labor, China lures businesses from around the world. Despite criticisms of its unwieldy reassurance and complex business practices, most global companies agree that you can’t be successful if you ignore this huge emerging market. (Roar & Vandalism, 2011). Companies have to consider a number of financial, operational and resource factors.
Since China Join the World Trade Organization, China has been drawn even more into the global economy. China’s political system controls unions and financial institution. Companies continue to vie for access to its 1. 3 billion consumers and its low-cost and productive labor pool. More than ever, China is a powerhouse of growth and opportunity. Roar & Vandalism, 2011). Demographic and Global: Chinese population is 23% of world total and the main opportunities will be in the larger cities where incomes are higher. The percentage of Dell in Asia/Pacific currently Just 10%, in terms of Dell has large sales opportunity in China.
Moreover, China has attractive low-cost manufacturing capabilities. Social and Technological: Chinese attitudes and culture are becoming more similar in purchasing patterns and work ethic to U. S. 5% of urban Chinese own a computer with still a low number, however, the access and use of the internet is increasing up to 6% each year. Internal Environment (SOOT analysis) Strengths: Dell’s direct Model approaches of enables the company to offer direct relationships with customers such as corporate and institutional customers.
Their strategic method also provides other forms of products and services such as internet and telephone purchasing, customized computer systems; phone and online technical support and next-day, on-site product service. (Dell, 1988). Dell is able to introduce channels. Dell turns over inventory for an average of every six days, keeping inventory costs low. (Valley, 2010). Dell’s direct customer allows it to provide top- etch customer service before and after the sale. Each Dell system is built to order to meet each customer’s specifications. (Lieu, C. , ; Mackey, B. 2008).
Dell computer’s award-winning customer service, industry-leading growth and consistently strong financial performance differentiate the company from competitors. Weaknesses: The biggest weakness is attracting the college student segment of the market. The revenue of Dell from educational institutions such as college only accounts for a measly 5% of the total accounting BBC news. The focus of Dell is on the corporate and government institutional customers. Somehow it affected Dell’s ability to form relationships with educational institutions. Many products were purchased through school, Dell was not popular among the college market yet.
Direct method and customization approach posed problems for home users. Customers could not go to retailers because Dell does not use distribution channels until 2008. Customers could not purchase Dell as simply as other brands because each product is custom-build according to their specifications and this might take days to finish. ( Lie and Shih, 2005). Dell faced a number of problems when it seek entrance into Chinese market. The cost significant was government regulations on manufacturing, consumer access to its online selling system upon which Dell relies, and nationalized competitors. (Cut, 2009).
In order to successfully enter and seek the opportunity in Chinese market, Dell have to make concessions to the Chinese government which the location of production facilities, and tailor their direct selling method for a culturally different consumer audience are the most notably. Treats: As China is developing country in the world, companies have to produce high quality products with low price, this is one challenge that Dell contends with. The biggest read for Dell is the brands of computer are getting smaller and similar. The direct model which provided by Dell attracts customers because it saves cost.
Since other companies are able to offer computer as low costs. Moreover, the increased competition from MOM, HP, Acre, Leno, and Apple. Retailers are also learning from Dell and are implementing direct model in China. If Dell wishes to improve its market share and profit, it must realize that have to find ways to significantly improve or differentiate its direct model further. Opportunities: Economic environment has an important effect on the development of industries and impasses, and economic development can drive the development of industry.
China’s economy has been keeping a rapid growth and China has become the sixth biggest country in the world measured by GAP. (Huh, 2010). The good economic environment will lead to the continuous development of the industries in China, especially the manufacturing industry. PC industry is expected to keep growing in the future influenced by the good economy development prospects in China. PC has become a necessary tool to people in China, so people have strong interest in the products of PC and more home user and enterprise users buy PC in China. Cut, 2009). Demand for laptops is also growing.
As a matter of fact, demand for laptop has overtaken the demand for desktops. This is another opportunities for Dell to grow in other segments. Dell adopts its special direct distribution mode in China and this mode has helped Dell to succeed in the markets of many countries. Dell does not invest in establishing its own traditional distribution channel in China and it does not sell the PC through the traditional channel like shops. The strategy of Dell is to sell their PC products directly to the customers through the direct contacts with the customers via the internet or phone (Lie and Shih, 2005).
Dell expects to reduce the cost of PC products and more convenient way for the customers in China to buy its products. This strategy has helped Dell to achieve a certain success in the market of commercial PC in China, but this mode has faced many problems in the market of home PC, because this mode to some degree is contradicted to the consumer culture in China. The customers in China are more likely to purchase the products like PC in a traditional face-to-face way, and most of the customers are not willing to accept the direct distribution mode via internet or phone. So Dell’s strategy is not successful in the home PC market of China.
From 2008, Dell also began to adopt the traditional distribution channel to combine with its direct distribution mode. (Cut, 2009). Case analysis #4: Samsung in China Company’s background: Samsung is one of the top brands in the world, and it is know because of its electronic devices. Samsung has many types of products, which include laptop, cell phone, tablet, camera and monitor. The mainly products are the cell phones and they keep pushing their new cell phones. Samsung wants to compete with other technology companies and takes a major part of the international market.
Samsung goal is that becomes the top five brands before 2020 by improve their management strategy: “Creativity,” “Partnership,” and “Talent. ” At the same time, they have a mission, which is to “Inspire the world, Create the Future. ” Therefore, they are one of the earliest companies enter china in order to advance their globalization strategy. It is a very important step for them as a technology company, which set a good start for them before so many competitors enter the market. However, the situation changes by the entry of ‘phone which soon take over most of the market all over the world.
Therefore, the international market has been tough for every major player in the market. Samsung is always one step after the new thing comes out, but they keep up all the time. They give people an alternatives beside ‘phone. External Environments Analysis: Macro environment The technology market in China is not that complicated, especially for the past three years. The Chinese government more and more open to international business, and more of more chances for people to get world news. These days, China’s major cities in each states are able to compete with most American cities on the economy level.
Therefore, they are willing to pay for full price for ‘phone without a blink instead of consider other choices. They Just want to use their accessories to show their social level instead of consider the usefulness of the cell phone. The Chinese pay for a ‘phone in full price, and they are willing to pay for the exchange rate. Therefore, the Samsung battle with Apple in china will be hard, because of the popularity of certain to attract more customers. This is not easy for all the technological company, and everyone are looking for the next feature that bring them more profit.
At the same mime, the knock offs take a fair amount proportion of the market, and some of the population prefer those knock offs. China is a large population country after all, and those knock offs may have very similar software, operating system and outlooks with the major cell phone companies. They do have very appealing characters that fit to the Chinese market, and support many types of format and downloads. The software are much more open than the commercial cell phones, and they do not care about the quality of the phone. The cost of each part are mainly from dispose parts from major companies and old cell phone.
Therefore, The knock offs often very cheap which can beat every major cell phone companies in the market External Environments Analysis: Industry analysis At the same time, the major battle more Samsung to gain more profit is on its supply chain. Samsung wants to reduce its cost if it is hard to take more new customers, and they can decrease their price as well. Samsung has most of its supply chain in Korea, and Samsung should get lower labor in other places which may cause conflict with Apple(Leonard, 2013). However, there are only so many numbers of manufacturers can produce good quality goods under certain price.
Korea is a good place which has good quality work and low cost of labor(Han, Lime ; Lee, 2013). However, the they don’t have enough factories to support Samsung and the labor is not cheap enough any more. Therefore, they have to expand their supplier before they can expand their market. Internal environment analysis – SOOT analysis The external analysis is something that Samsung has to learn to adapt to the situations. Samsung is a large company which has many small branches all over the world. Everyone of those branches have their own way to promote their products in many ways.
They can post ads on radio, TV, Internet, and the Internet promotion is more and more important during current economy. Therefore, the internal analysis is as important as the external analysis. The international business mode is very complicate to control and raise actually sales in different country. Therefore, every local branches should have the right to do certain kinds of decisions in order make more appropriate marketing decisions. Samsung does have a good quality on hardware and software and it makes the employee’s work easier to do. The major battle is lay on the advertising in the local areas.
Therefore, the SOOT analysis is a critical to the company. Strength Understanding the strengths of Samsung is important in order to compete with other companies. Samsung has a good quality of hardware which has relatively low cost. At the same time, the open source SO is also important for international business. People love to have their own way their cell phone, and specially the Chinese people. There are large proportion of the Samsung customers have a good understanding of software and chose Samsung because of that. The design and engineering are easy for the company to promote the products which results Samsung is the number two
