Opportunities And Threats Of Globalization: Lessons From Aire Breweries In China Essay.

Critically discuss the following topic: Using an example of an MNC from an emerging market, present an analysis of the opportunities and threats that globalisation creates for decision-makers. What are the main lessons international business managers can learn about the interplay between home and host country differences in achieving success?

Chinese Market and Aire Breweries

The very fabric of the modern business is woven through globalization, internationalization and cross-border activities. The twenty four hour, boundary-less competitive market pressures the decision making managers continuously to account for the challenges and opportunities that exists. Due to the hyper competitive market the managers have to focus on the most immediate elements of globalization and thus they many times lose the sight of the long-term developments. The effects of industrial globalization are multiple and quick solutions are provided by consultants also but, it is crucial that the decision makers are able to take their decisions independently. The decisions taken by managers in term of international business are not obvious and are certainly not consistent.

Even though international business is not new it poses new challenges trends and imperatives come and go but the core conditions underlying international business have been around for decades thus, the fundamentals remain consistent. The aim of this essay is to highlight the fundamentals decision makers in an organization has to adhere while operating in a globalizing economy so as to ensure success in company intentions (Baisya, 2010) For a better understanding the emerging market of China has been taken as an example and for a better perspective achievement the MNC into consideration is Aire Breweries plc- a UK based premium beer marketing company.

In modern times China’s growth has been unprecedented, averaging almost 10% annual GDP expansion. It is the second largest economy in the world. The economic development has given way to amazing political and social development in China. Cities from Hong Kong to Guangzhou have become as modern as the cities from the west. There exists a rapidly developing middle class. There has been a dramatic decrease in the percentage of population living under the poverty line. There has been amazing infrastructure development, well displayed by China in 2008 Olympics. But, there are many significant problems like, human rights violations, restrictive currency policies, poor intellectual property protection and loose environmental protection measures. Though, China has cam e a long way since the 1978 Market reforms laid by the “great leap forward” end by Deng Xiaoping (Gimbert, 2011)

The cause of dramatic decrease in the real prices of a wide range of goods has been the rise of china’s economy for many Americans, allowing many families to stretch their dollars resulting in their own standard of living. The efficiency of labor in china has been the reason for lowering down of costs of products as basic as t-shirts to as advanced as MRI equipment’s.

The company’s expansion decision underpins the idea that the market in home country is saturated and thus the requirement of expanding the business. According to Kenichi Ohmae’s strategic triangle 3c’s factors the Aire brewer can be briefly introduced as:

1. Corporation: the brands sold under the company are San Bernando Cameolet, Hostenbech- European style beer, Pot of Gold- Irish style beer, Ark royal- British style beer with premium price. The promotion of the brands is undertaken through, supermarkets, up market city center bars, and fashionable markets. Efficiency is the strength of the company and the company has a high cost structure.
2. Customer: in terms of beer China is a large consumer target market. The biggest difficulty in convincing the Chinese consumers is due to the vast spread of consumers with varied languages.
3. Competitors: the liberalization policy of China is the reason why MNC’s are trying to tap the Chinese market. Intensity of competition of the bear market is high in the Chinese market. One of the top three selling brands in china is Sabmiller and is the largest selling brand in China. Sabmiller is the world’s second largest seller with 47 breweries and operations in 13 provinces of China. The bottom line structure is held by light beer. The various players in the beer market are china resource enterprise ltd, CBR brewing company inc, Scottish new castle, Fomento Economico Mexicano Sa de Cv, Fujian Yanjing Huiquan Brewing group, China food beverage company, etc. (Ohmae, 1982)

Market opportunities and threats in china would mark the company being successful or unsuccessful. As stated earlier for potential marketers China offers great opportunities due to its vast population; if a thorough market analysis has been made and a realistic strategy is developed. An inappropriate entry strategy and inadequate market data usually acts a barrier for MNC’s. The other barriers to success are cultural differences, vast geographical market, poor supply chain management, etc. the decision makers need to understand that a uniform market strategy would not be suitable. There is a need to understand the gap between the developed and an underdeveloped market. The beer market is often driven by local tastes and preferences i.e. more localized driven and thus not similar everywhere. It’s more like a pool of the regional markets. The maximum market share is bound to be owned by domestic players as they play the dominant role. The presence of these domestic players in the market is of mere 2% (Lipsey, 2004)

Market Opportunities and Threats in China

Crossing USA China has become the largest national beer market. The ever increasing income of the newly emerging urban middle class has been the hot button in the beer market. China is the most populated country comprising of 48% females and 52% males (Trading Economics, 2017) Thus, the vast population of china offers opportunities. These opportunities are driven while producing by advanced technological usage. Catering to a vast population over vast geographical stretch makes it difficult to establish an effective and efficient distribution channel. The managers of Aire breweries would have to mobilize their resources efficiently to adhere to risk management. The managers require analyzing their weaknesses and strengths so that an efficient and a feasible program are established to assure success. Study of local laws and the cultural aspects are very crucial to avoid chaotic situation. Chinese consumers are follow their culture meticulously and are very patriotic. They usually support local products due to socialistic approach. Non-acceptance of foreign products could be a problem due to influence of culture. The legal system prevailing is china is very complicated and it frustrates MNC’s. The company does require a local partner; as these local partners can facilitate to adhere to the potential political risks also like blockage of funds and confiscation of assets (Larsen & Vedegys, 2014)

As stated earlier the vast geographical stretch requires multi-domestic approach or region-centric approach in segmentation. Thus the subsidiaries of Aire Breweries in different provinces of china would have to develop a feasible plan with respect to the region of operation adhering to local tastes and preferences and requirements and thus ensuring success. The decision makers unlike their home country would have to put in intensive market study to establish better understanding of the market to develop an effective marketing mix that is coordinated with the efforts of other territories (AnbariF et al., 2003)

In a speech at Winsconsin’s Marquette University a question was asked to Jeffrey Immelt the CEO of General Electric about the impact of offshoring on G.E’s local employees. Mr. Immelt answered the question stating it is essentially necessary to remember that G.E’s majority of earnings, revenues, and employees were located outside of U.S. according to the G.E’s CEO the company’s future depends entirely on the world economy. Regardless of the employees nationality according to Mr. Immelt each employee contributed to the success of the company. He said he had to take into consideration the value created by the employees in other parts of the world as equal to those within the U.S. he also stated that the things that motivate people in the U.s are the same that motivate people in the other countries like getting a good job, creating a nice life for themselves and their families and make sure they provide opportunities for their families. He also said that the people outside U.S are not taking jobs from American but are just trying to create jobs for themselves. The employer has to make sure that there exists job satisfaction among the employees, the employee might or might not consider relocation of jobs by the company while accepts the job. There are chances that this could be frustrating for the company. Employees relocated from the HQ to a subsidiary of the company in other parts of the world requires cultural education, and need socialization understanding of the country he or she has been relocated to. The employees can explore opportunities to utilize human resources in other countries or work towards the achievement of goals the company has set for him and the company itself.

Adapting to Cultural Differences in China

The managers at the decision making level in Aire breweries are under constant pressure because globalization is a constantly changing phenomena and thus they require to be updated about changing world folds. Evaluation of the impact of globalization can be done by using a variety of perspectives to get a meaningful insight into the management of international business activities. There are no universal views on international business management and thus the managers have to make unique decisions every single time. From management of employees to setting up offices, to distribution, to marketing and selling the product all activities are to be taken with extreme caution because due to cultural differences that exists between the home country and the country of expansion. If a company factory is shut down one might consider it a profit for the company or to the environment and celebrate it while the other might cry over the loss of jobs (Rotting, 2007)

The major factor that effect the business operating all over the world are not only internal but external factor like political, economic, social and cultural in nature. The rules of the games are shaped by the governments. The regulations on employment, environmental impacts, safety and competition are all indicated by the government. Tax policies, monetary and fiscal policies, etc. are all established by them. The role of the government and the effects of its operations on the businesses cannot be overestimated. Managers can measure the pressure of the governments on business activities through political risk. One frame for considering business interaction with government is through Baron’s idea of “integrated strategy”. Through this strategy Baron states that the companies are capable of managing political conditions. Cultural influences on the other hand are evident from individual’s experience of the world around them. Culture can influence the professional and personal balance, compensations, expectations and proper management techniques along with the participation of firms in societies. It is easy to achieve success in the home country as the managers are well versed about the culture of the society but the host country culture could be tricky especially if the host countries are like, China, India and Japan where the culture drives day to day activity. The managers can measure culture through top-down approach and the bottom-up approach. Through top-down approach characteristics of larger groups are observed wherein particular citizen and races, nationalities, are often associated with certain characteristics; also factors such as, age, gender, and education affects individual behavior. While in down-up approach vice versa is the case. Thus, in both the case the cultural study helps managers to device better ways of management. The utilization of Hofdtede’s four dimensions of culture is a popular model to study the top-down perspective. Views on bottom-up perspective can be achieved by appreciating the differences among individuals. The use of Diamond model by porter helps to consider firms participation in clusters of industrial activity. This could help to better understand the economic conditions. Again, the trade policies and regulations and the impact of organizations like IMF helps the managers to understand the economic conditions and make decisions accordingly (Blumentritt, 2011)

Implications for Decision-Makers

Till this point perspectives from an individual’s perspective and that of an organizations perspective have been taken into consideration. The lessons learnt and the possibilities present get larger from the point when more than an individual’s perspective is taken into consideration. For example a manager works with other employees of the company these employees hold various views and perspectives and biases. The trade laws and international regulations are compiled by the company are driven by the views and opinions of foreign government officials. There are no universal rules to be followed when it comes to international business. It is unwise on the parts of the decision making managers to assume that if one strategy works in one time and place would also work in another time and place and will accepted in any situation. A good business to one might be illogical and illegal to another. The apparent confusion on the subject is evident in the press, like said earlier one might celebrate while another mourns over the same business deal, depending upon a look at the situation (Kui, 2007) 

The marketing mix for Aire breweries in brief thus can be presented as:

Price: Aire breweries to get access to the market would have to adopt Bottom-line pricing.

Product: Aire breweries would have to develop along with premium brand some localized tastes.

Promotion: The promotion done would have to be designed in developed in such a way that the core message remain the same but the approach to reach the consumers are according to the cultural dimensions varying from province to province.

Place: one mode of distribution would not be effective in a vast country like china and thus multi-channel mode of distribution would serve the purpose for Aire breweries.

The entry strategy of the company was through joint venture after a thorough profiling of the market as a joint venture eases off operations, recruitment, procurement of resources and beaurocratic issues.

Conclusion

The international managers should work on relaxing their views and assumptions with relation to the conduct of business in the other parts of the world. The geographic condition has its own economic conditions. Appreciation of differences among places, people and perspectives helps to understand the dynamics of international business. The managers need to understand that if everyone in the every country were the same then the relevance of the term international would be lost. Managers in home country can many times rely on their gut feelings or instincts but while making decisions in hot country simply being aware of the dynamics of the global business is not sufficient; the managers need to make use of the various theories and models for more specific analysis developed by scholars from international business expertise. Thus, in international business environment when the managers face opportunities and challenges these types of analysis help them to make better decisions and bring out success for the organization as a whole. An open mind and a prepared heart is all that is required to conduct business successful in a host country.

On a daily basis the headlines of the media change but the challenges thrown out by the international business rests on three tenets that are: the continuous evolvement of countries, the international business conditions are constantly changing and individual participation in the international economy is in a variety of ways. There are the differences that make the global market challenging, dynamic and fascinating.

References

AnbariF, F.T., Khilkhanova, E.V., Romanova, M.V. & Umpleby, S.A., 2003. CROSS CULTURAL DIFFERENCES AND THEIR IMPLICATIONS FOR MANAF=GING INTERNATIONLA PROJECTS. [Online] Available at: https://www2.gwu.edu/~umpleby/recent_papers/2003_cross_cultural_differences_managin_international_projects_anbari_khilkhanova_romanova_umpleby.htm [Accessed 29 March 2017].

Baisya, R.K., 2010. Winning Strategies for Business. Sage Publications India.

Blumentritt, T., 2011. The Big Picture: Decision Making and Globalization. Journal of Emerging Knowledge on Emerging Markets, 1-11.

Gimbert, X., 2011. Think Strategically. Palgrave MacMillan.

Kui, B.N., 2007. The Economic Rise of China: Threats and Opportunities from the perspective of Southeast Asia. The Copenhagen Journal of Asian Studies, 25, pp.9-26.

Larsen, J.S. & Vedegys, T., 2014. The Effects of Country-level Factors and Company-level Factors on Entry Mode Choice in China. Thesis. Aarhus: University of Aarhus Aarhus University, School of Business and Social Sciences Department of Economics and Business.

Lipsey, R.E., 2004. Home- and Host-Country Effects of Foreign Direct Investment. National Bureau of Economic Research, University of Chicago Publisher.

Ohmae, K., 1982. The Mind of the Strategist: The Art of Japanese Business. McGraw Hill Professional.

Rotting, D., 2007. Successfully Managing International Mergers and Acquisitions: A Descriptive Framework. The Journal Of the AIB-SE, 1(2).

Trading Economics, 2017. Population-Female. [Online] Available at: https://www.tradingeconomics.com/china/population-female-percent-of-total-wb-data.html [Accessed 29 March 2017].