Market Analysis Assignment Sample : Chinese Fictional electronic
cars company entering UK electronic car market
Here’s the best sample of market analysis assignment written by industry expert.
Executive Summary
Business expansion or internationalization refers to taking the operations into a new overseas market. Expanding the business internationally provides immense benefits and advantages to a company. The present report emphasizes the expansion and internationalization of a fictional Chinese electric car company, named, Hirao. It analyses and highlights the external factors influencing the entry of the Chinese firm in the new car market of the UK. Lastly, it includes a recommended entry mode for the company with a proper justification.
Introduction
Business expansion or internationalization refers to taking the operations into a new overseas market (Collinson, 2017). Expanding the business internationally provides immense benefits and advantages to a company, such as increased growth potential, extending the global footprint of the firm, increased market share, etc. The present report emphasizes the expansion and internationalization of a fictional Chinese electric car company, named, Hirao. It analyses and highlights the external factors influencing the entry of the Chinese firm in the new car market of the UK. The report also sheds light on the available methods and modes of entering into a new global market, and their associated pros and cons. Lastly, it includes a recommended entry mode for the company with a proper justification.
External environment analysis- PESTLE Model
UK automotive industry is well-developed and a major contributor to the economic growth and development of the nation (Buckley et.al. 2018). The automobile companies operating globally consider the UK as the main market for boosting sales and improving profits. The Chinese car company, HIRAO finds the UK as the best suitable market to expand internationally. But, before initiating the process, it is essential to analyze and study the different aspects and variables of the external environment. The external environment of the UK automobile industry will majorly influence the entry and sustainability of HIRAO in the new market (Nambisan et.al. 2019). The PESTLE model highlights the factors involved and their implications on the entry of the company into the new market.
Political factors: It comprises factors such as government stability, laws, and policies, the effectiveness of the government policies, low or controlled corruption, administrative aspects, etc. The UK government is highly stable and the nation is top-ranked in the terms of political stability. It also includes the taxation policies, imposed duties on export-import, insurance aspects, etc.
The political factors which affect the entry of HIRAO are the safety rules and regulations formulated by the UK government. The government has also enforced strict rules and regulations regarding the manufacture of electric cars, safety aspects, specific requirements, etc. In addition to this, the UK government has also taken stances to enhance the development of electric and hybrid engines in the country. A policy regarding specific taxation is formulated to facilitate the purchasing of electric cars by UK customers, thereby, resulting in increased sales of the electric automobile company. Hence, all such factors and political conditions of the nation affect the entry and growth aspects of the concerned electric car company (Cantwell, 2017). The political conditions, rules, and regulations regarding the selling and manufacturing of electric vehicles, safety considerations of the consumers, electric stations, taxation and duties imposed, etc. are the different factors that should be carefully analyzed before entering the UK automotive industry.
Economic factors: It comprises of factors such as fluctuations in the exchange rates, inflation or recession conditions, GDP growth rate, per capita income, taxation policies, duties on import-export, unemployment conditions, the purchasing power of the customers, income level, etc. The GDP growth rate puts the UK economy at the sixth position and the per capita income puts the nation at the 20th position worldwide. Additionally, the economy is well-known for diversity in the corporate world, which provides immense opportunities and growth potential to businesses of all types (Clougherty et.al. 2017). It attracts the attention of investors worldwide and hence seeks foreign direct investment in terms of capital and resources.
The Chinese electric car company HIRAO will be affected by the price of materials required, taxation policies, duties on import and export, the purchasing power of the target customers. UK is a developed country and experiences a high rate of GDP, which is a positive aspect as it determines the high-income level and purchasing power of the target customers. In addition to this, the entry of the car company will also be affected by the inflation or recession conditions, exchange rate conditions, pricing conditions prevailing in the UK’s automotive industry, etc.
Social factors: It includes different factors and aspects such as population demographics, health and safety regulations, traditions and culture, education level, income level of the concerned population, unemployment rate, etc. (Parboteeah & Cullen, 2017). Moreover, modern customers are also affected by sustainability, eco-friendly techniques, and green procedures adopted by automobile companies. The preferences and tastes of the customers regarding the automobile industry and the aspects involved in electric cars should be analyzed before entering the UK market. The popularity of electric cars and the different socio-cultural aspects affecting the customer perception towards electric cars also determine the growth and sustainability of the automobile company in the UK.
The beliefs and customs of the target audience impact the work and culture of the organization. Customer perceptions and shared opinions regarding cars, driving experience, safety aspects, gender roles, leisure interests, and environmental consciousness are the other aspects that affect the sales and profit earning of an automobile company (Reuber et.al. 2018). Hierarchy and family structure, attitudes, behavioral patterns, psychographic variables, age of the target customer group, and the required income level to afford an electric car are the other key determinants affecting the entry of electric car companies in the new UK market.
Technological factors: It comprises different aspects such as technology innovation and digital advancements. The UK is a well-developed nation in terms of technology and digitalization; hence, it offers immense opportunities to the business houses to adopt the latest technological trends. The country also highlighted several inventions and innovations in the corporate world in recent years. The automotive industry in the UK is well-established and developed. The biggest technological shift observed in the automobile industry was the introduction of self-driving technology (Tien, 2019). In addition to the manufacturing systems and patterns, the other technological aspect is improved safety equipment in electric cars.
Implementation of the latest technological and digital advancements provides several benefits to the automotive company, in the terms of reduced cost, ensured customer safety, gaining a competitive advantage, increased growth potential, and less requirement of physical manpower. Moreover, HIRAO should also analyze the AI or Artificial Intelligence technology and the automation into the vehicles, so that it ensures the successful adoption of the latest innovations in electric cars. Electric cars also have built apps and gadgets which influence the customer experience and satisfaction level (Ghemawat, 2017). Hence, the company needs to determine the availability, cost, reliability, pricing policies, etc. related to the technological advancements and equipment used to upgrade the electric vehicles in the new UK market.
Legal factors: It comprises the legal frameworks and institutions in the concerned nation. The laws, acts, rules and regulations, contracts, agreements, etc. constitute the legal factors that affect the firm’s entry into the new international market. The anti-trust laws, data protection, employment acts and laws, consumer protection laws and rules, etc. are the factors affecting the entry of HIRAO in the UK’s automobile industry. In addition to this, the laws related to copyright, patents, and intellectual property, e-commerce, discrimination, etc. also constitute the legal factors.
The Chinese electric car company, HIRAO should consider all the Acts, laws, agreements, and regulations regarding the set-up, designing, manufacturing, and selling the electric cars in the UK market (Birru et.al. 2019). The health and safety regulations of the customers need to be prioritized and suitable measures and equipment should be built to prevent any danger or harm to the consumers. Moreover, the laws and guidelines formulated by the UK government towards sustainability standards, green techniques, and energy-efficient methods of operating a business should be considered. Such guidelines and laws might impose threats and barriers in the future course of action; hence, these should be examined before entering the new automotive industry based in the UK.
Environmental factors: Environmental footprints generated by the firm, carbon emissions, use of energy, concern towards global environmental issues, climate change, deforestation, etc. are the environmental aspects affecting the entry as well as the sustainability of a company. Environmental conditions and climate change differ from location to location, hence, HIRAO needs to analyze and understand the different aspects of environmental issues. The UK government also formulated certain laws and guidelines for automotive companies regarding the use of renewable energy sources, environmental pollution, ecological products, waste management and disposal, recycling of materials, etc.
The automotive company HIRAO should carefully evaluate and analyze the environmental standards and guidelines required to operate in the UK market (Teagarden et.al. 2018). It should also define the liability clauses in certain cases like environmental disasters and mishaps. In addition to this, the organization should also evaluate the healthy tax breaks provided to the companies operating in the renewable sector. By adopting environmentally-friendly techniques and using electricity more than gas, the automobile company can avail competitive advantages in the industry. Lastly, by focusing on and considering the environmental aspects, the electric car company can create an effective brand name and a strong reputation in the UK market.
Hence, the PESTLE Model highlights all the related variables and aspects of the external business environment in the UK. The Chinese electric company, HIRAO should carefully identify and analyze all the factors affecting its entry, sustainability, and growth potential in the UK market (Ferraro, 2021). The political, social, technological, legal, economic, and environmental factors influence the success and the growth of a company, either positively or negatively. A firm should ensure that all the factors are pre-analyzed so that it supports the business operations and enable the firm to sustain and develop in the new international market.
Different entry modes to enter the international market
Internationalization and business expansion offer immense opportunities and benefits to a firm (Aithal, 2017). There are several reasons which contribute to the decision of internationalization and expanding the business overseas. Some of the rationales are exploring new markets with improved profitability, achieve economies of scale by capturing a huge customer base, reduced dependence on a single market, cater international customers, gain a competitive advantage, and ensure the company’s growth in the long run. Hence, a company should focus on success and growth worldwide. But internationalization demands crucial decisions such as location, marketing strategies, etc. (Aithal, 2017). The entry mode refers to the way adopted by a firm to enter into a new market for introducing its fresh products in the concerned industry. There are five major ways to enter into a new market which are discussed below.
Direct exporting: It comprises of directly exporting the products to the new concerned UK’s market. It is often regarded as the fastest mode of entering the international market. HIRAO can choose direct exporting after analyzing the demand of the product in the concerned location. It is an excellent way of boosting the sales of the product, cater the international customers, and increasing the business reach without setting up an official store or location of the firm in the new market. Electric cars can be effectively marketed and promoted in the international market, either by direct or indirect promotional strategies.
The direct exporting mode of entry offers some advantages as well as disadvantages. The advantages offered are the freedom to select the foreign representative of the product in the international market. HIRAO company can also utilize and adopt the direct exporting strategy to test the preference of the products before investing in the new international market. On the other side, the disadvantages of direct exporting are high costs and expenses in the case of offline products, as it demands the company to start everything from scratch (Nambisan et.al. 2019). Although it is the fastest entry mode for online products, it involves a longer lead time involved in market research, hiring representatives in the concerned nation for the offline products.
Licensing and franchising: The licensing and franchising strategy is the best suitable for an organization seeking to establish a retail presence in the concerned international market with a minimal risk factor. In this entry mode, the overseas-based company pays a royalty or a commission for using the established brand name, trademark, product, manufacturing process, and other owned intellectual properties (Schellenberg et.al. 2018). It can be adopted by HIRAO to enter the UK market, as the licensee or the franchisee party shares a portion of the revenue and the profit earned with the licensing company, after assuming all the risks and bearing all the losses.
The pros offered to HIRAO by selecting this strategy are low cost involved in entering into an international market, provides a passive source of generating income, the licensing or franchising partner already possess knowledge regarding the concerned market, etc. This strategy also enables the firm to expand and diversify the business operations in multiple regions with minimal investment and capital. Whereas, the company will also face the disadvantages associated with this strategy, which is partial control and management upon the overseas business (Schwens et.al. 2018). It also includes the leverage of information and knowledge by the franchisee/licensee which can pose future competition to HIRAO itself.
Joint ventures: It is one of the most preferred modes of entering the international market by the companies which can share their expertise, brand, and knowledge. HIRAO can enter into a joint venture with a local car company operating in the UK, thereby, sharing the rewards as well as the associated risk factor. In this strategy, both the companies share their profits, costs, losses, and the investment in the predetermined proportion (Collinson, 2017). It is an effective way to enter into a foreign market, as it minimizes the risk factor and also divides the investment required into the predefined ratio.
The joint venture strategy offers some benefits to the company, which is both the companies can leverage their knowledge and expertise to grow, develop, and expand in the chosen market (UK). Moreover, it also involves lower political and legal risk as the local partner possesses complete knowledge and information regarding the different aspects of the concerned economy. However, it also offers disadvantages such as the possibility of cultural clashes and difficulties in maintaining a diverse workforce and operations (Buckley et.al. 2018). Also, joint-venture businesses are subject to complicated and lengthy procedures to sort out any disputes between the partners.
Strategic acquisition: The entry mode of strategic alliance implies that HIRAO acquires and holds controlling interest in an already operating company based in the concerned UK market. The acquired company can be directly or indirectly involved in the automotive industry in the market. The company can exercise control over the other firm by purchasing its stock or exchanging the stock, or even by paying the business owners a purchase price (Nambisan et.al. 2019). This strategy provides quick and established access to the company in the international market.
The advantage of adopting a strategic acquisition entry mode is that it is the fastest mode of expanding business operations internationally. The Chinese electric car company can also avail benefits from the experience, expertise, skills, and knowledge of the existing management and the personnel. Moreover, the other benefit is that the company doesn’t need to start from scratch as it can utilize the existing distribution channels, infrastructure, manufacturing facilities, existing market share, and the customer base. Contrary to it, the disadvantages of strategic acquisition are the high probability and complexities of managing cross-culture and diverse workforce (Cantwell, 2017). Lastly, it also offers issues with seamless integration of the methods, systems, and procedures.
Foreign direct investment: This strategy comprises of entering an international market by substantially investing in the nation. It includes different forms such as mergers and acquisitions, greenfield investments, and joint ventures. The FDI mode of entering a new market is viable when the size, scope, and demand of the electric cars is substantially high to justify the investment (Clougherty et.al. 2017). Moreover, HIRAO can also opt for this strategy due to the advantage of cheap material and low-cost labor.
The strategy also offers some pros as well as cons to the company. The advantages are retention of control over the business operations and other managerial aspects, opportunities to avail subsidies, concessions, and tax breaks from the country’s local government. It also offers the benefit of leverage cheaper material and low-cost labor to reduce the costs involved in manufacturing, thereby, gaining a competitive advantage in the industry. Contrary to the advantages, the disadvantages of FDI are exposure to high risks related to political and legal aspects of the international market (Parboteeah & Cullen, 2017). It includes protection policies to support and protect the local companies from foreign rivalries. Lastly, this strategy also demands high investment to enter the new UK market.
Recommendation
The Chinese electric car company is highly recommended to adopt Joint Venture as the mode of entering into the new UK automobile market (Reuber et.al. 2018). It can also select the WOS approach or the Wholly-owned subsidiary mode. The factors such as country risk and market potential induce the enterprise to choose a joint venture strategy. The reason behind recommending joint venture as the best suitable entry mode is to spread the costs and the investment required for business internationalization. It is an easy and quick way to access the new international market and also to increase credibility in the industry. A joint venture will also help HIRAO to access the financial resources, achieve economies of scale, and enhance technological resources. Moreover, the Chinese electric car company can also introduce and adopt stronger innovations in the manufacturing as well as selling of electric cars in the UK. The joint venture strategy is also suggested due to its ability to improve the speed and growth potential to capture a significant portion of the market share (Tien, 2019). Lastly, shared risks, investment, resources, etc. will support the medium-sized firm, HIRAO to expand its business in the UK market, and hence, cater the international customers.
Conclusion
The above report concludes that business expansion and internationalization are the key aspects of growth and development in the corporate world. The Chinese electric car company, HIRAO analyses the external environment of the UK’s automotive industry by conducting a PESTLE analysis. The different factors and aspects of the external environment drive the sustainability and growth potential of the car company in the new market. Moreover, it can also be concluded from the report that there are several modes for entering into a new international market, such as joint venture, franchising, etc. Lastly, HIRAO is recommended to adopt the joint venture strategy to enter into the new UK car industry and cater to the new customer group.
References
Books and Journals
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Aithal, P. S. (2017). Impact of Domestic, Foreign, and Global Environments on International Business Decisions of Multinational Firms: A Systematic Study. International Journal of Management, Technology, and Social Sciences (IJMTS), 2(2), 93-104.
Birru, W. T., Runhaar, P., Zaalberg, R., Lans, T., & Mulder, M. (2019). Explaining organizational export performance by single and combined international business competencies. Journal of Small Business Management, 57(3), 1172-1192.
Buckley, P. J., Enderwick, P., & Cross, A. R. (Eds.). (2018). International business. Oxford University Press.
Cantwell, J. (2017). Innovation and international business. Industry and Innovation, 24(1), 41-60.
Clougherty, J. A., Kim, J. U., Skousen, B. R., & Szücs, F. (2017). The foundations of international business: Cross‐border investment activity and the balance between market‐power and efficiency effects. Journal of Management Studies, 54(3), 340-365.
Collinson, S. (2017). International Business, 7th Edition. Pearson.
Ferraro, G. P. (2021). The cultural dimension of international business. Prentice Hall.
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Nambisan, S., Zahra, S. A., & Luo, Y. (2019). Global platforms and ecosystems: Implications for international business theories. Journal of International Business Studies, 50(9), 1464-1486.
Parboteeah, K. P., & Cullen, J. B. (2017). International Business: Perspectives from developed and emerging markets. Taylor & Francis.
Reuber, A. R., Knight, G. A., Liesch, P. W., & Zhou, L. (2018). International entrepreneurship: The pursuit of entrepreneurial opportunities across national borders.
Schellenberg, M., Harker, M. J., & Jafari, A. (2018). International market entry mode–a systematic literature review. Journal of Strategic Marketing, 26(7), 601-627.
Schwens, C., Zapkau, F. B., Bierwerth, M., Isidor, R., Knight, G., & Kabst, R. (2018). International entrepreneurship: A meta–analysis on the internationalization and performance relationship. Entrepreneurship Theory and Practice, 42(5), 734-768.
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