Elecdyne is a Japanese small medium enterprise
Introduction
Elecdyne is a Japanese small medium enterprise based in Tokyo, which started business in 1990 with a number of five workers. Over ten years, the growth of the company has increased successfully, staff strength has increased to 100 workers and with the use of technology licensed from a number of multinationals, the company now produces a wide range of electronic products which include televisions, CD players, DVD players, hi-fi equipments, Mp3 players etc.
A brief history into the Japanese economy shows that during the 1980s, the Japanese economy was the envy of the world. GDP per capita had risen from $5,000 in 1960 to $15,000 in 1980, and by 1990 had eclipsed $22,000. Through the leadership of companies like Sony, Japan had become the clear leader in innovation of consumer electronics products and high volume sophisticated electronic assembly. The combination of growing indigenous demand, global consumer electronics product leadership, and many years of investment in manufacturing technology and capacity certainly benefited Japanese electronics producers the 1980s.
The Gross Domestic Product (GDP) in Japan expanded at an annual rate of 3.80 percent in the last quarter. Japan Gross Domestic Product is worth 4909 billion dollars or 7.92% of the world economy, according to the World Bank. Japan’s industrialized, free market economy is the second-largest in the world. Its economy is highly efficient and competitive in areas linked to international trade, but productivity is far lower in protected areas such as agriculture, distribution, and services. Japan’s reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy
Overview
Japan has a history of struggling with deflation. The 1990s are often referred to as Japan’s “lost decade” because of its 10-year struggle with falling prices. As a result, a stagnant Japanese economy dampened internal consumer and business demand, as well as significant investment in domestic electronics production capacity. As a consequence, Japanese production has grown at only half the rate of the total industry over the last ten years, and local production share is on a trajectory to decline to1980 levels over the next five to ten years
Over the past two years, Elecdyne has remained stagnant; the company had an initial success competing with price but is presently finding it increasingly difficult to compete given its need to pay for licenses, distribution of products is limited as supplies are within the Japanese market only, difficulty of hiring research graduates, and its high wage rates as relative to Eastern Europe and China,
In order to detect the pros and cons the company is undergoing, a SWOT analysis will be carried out. The analysis looks at internal factors, the strengths and weaknesses of the business, and external factors, the opportunities and threats facing the business. The SWOT analysis will give a clearer picture into the status of the company and the business environment wherein it is operating in at the present time.
STRENGTH:
-20 years experience in producing electronics
100 staff workforce
Possession of equipments needed fro production
Original Product variety
WEAKNESS:
Limited market(supplies only to Japanese market)
Poor financial position
Lack of resources
No growth in the last two years
Lack of innovation
No branding loyalty
5% cut down on price
Staff is less motivated
Unable to recruit R&D graduates
Lack of international operations
Low market share
OPPORTUNITIES:
Flexibility
High chance for innovation
Advances in technology and the ability to sell via the internet
New market opportunities could be a way to push elecdyne
Changes in technology could give elecdyne an opportunity to bolster future success.
Structural changes in the industry open other doors and opportunities for elecdyne.
THREATS:
Aggressive competitors
Increase in licence cost Increased competition from overseas is another threat to elecdyne as it could lead to lack of interest in their products/services. The actions of a competitor could be a major threat against elecdyne, for instance, if they bring in new technology or increase their workforce to meet demand. A slow economy or financial slowdown could have a major impact on elecdyne’s business and profits. Lack of international operations. Rapidly changing market – Products become old very quickly. High cost of labour
POTENTIAL STRATEGIES FOR ELECDYNE
In order to compete in the electronics market, listed below are some strategies that can be useful to Elecdyne.
Reduce product range to a few Introduce the company to E-Business Company can move to an area of lower cost Source cheaper suppliers to reduce cost Develop marketing activity to promote their products Re-branding of products in order to boost company name Offer work placements for students in order to boost R&D
RECCOMENDATION
After proper and careful analysis of Elecdyne Electronics Company, inorder for the company to grow rapidly and remain in market, we the management hereby strongly recommend that the company be moved to another country preferably a country that is part of the TRIAD market, so as to gain access to more markets, deepening relations with the overseas economy.
Significance of Globalization
The World Bank defines globalization as the “freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries.” Milanovic (2002). In this definition, “freedom” means the lack of barriers in the cross-border movement of capital and labour force, among other things, and “capacity” means that there is the ability to provide commodities and services across borders or to conduct economic activities in other countries. Looking back at the past, it appears that globalization advanced as technology and information-carrying capacity for transport, communications, finance, insurance and other aspects developed and political barriers to the movement of trade, capital and other items were removed. These developments boosted income levels, which in turn further deepened economic ties. Hence globalization is a trend that brings about economic development. (Boyacigiller, 1990; Harzing, 2001). In order to enjoy the benefits of globalization, it will be necessary to promote technological innovation in companies without delay and promptly adapt economic and social systems to respond to technological innovation, eliminate barriers and foster human resources that are able to carry out these changes. Heizo (2004)
Structural reform is important in Elecdyne’s relations with overseas economies
Structural reform stimulates the domestic economy and is also important in the process of deriving benefits from globalization. In other words, the major objectives of structural reform are to ensure that the market mechanism fully functions, broadly enhance productivity and move labour and capital, among others, from low productivity areas to high productivity areas. This will also allow Elecdyne to reap benefits from closer economic ties with overseas economies. In business, the success of overseas operations has been attributed to several factors, such as good strategy, smart marketing, efficient production and excellent management.
Among them, effective expatriate management has been well documented (Mendenhall and Oddou, 1986; Dowling et al., 1999).
Despite the fact that the company has had no contact with overseas market, we the management of Elecdyne electronics have decided to deduce a strategy on going global focusing more on countries within the TRIAD market (which are Europe, North America and South East Asia). Hence we have come up with five possible countries that we could relocate to; taking into consideration two main issues- Access to technological expertise to avoid reliance on large multinationals, and cost minimisation.
These countries have been chosen based on some of the following reasons:
Advanced technology
Wide expanse of land
Favourable business environment
Low cost of raw materials and production
Highly skilled labour etc.
Analysis of the five countries using SWOT
COUNTRY 1:-GERMANY
It is the seventh largest country by area in Europe and the 63rd largest in the world. As Europe’s largest economy and second most populous nation (after Russia), Germany shares borders with more European countries than any other country on the continent. Its neighbours are in the north, and the in the east, and in the south, and in the south-west and and the in the north-west.
Therefore Germany would carefully be analysed using the SWOT analysis,
|
Strengths Germany is the UK’s number one European export market and number two world-wide among the world’s largest and most technologically advanced producers of iron, steel, chemicals, machinery, vehicles, machine tools, electronics Market- Germany hosts the largest concentration of OEM plants in Europe Personnel – Germany‘s excellent highly-skilled labour force. 750,000 highly-trained and experienced people R&D- Germany is home to 42 percent of all European OEM and tier 0.5 supplier automotive R&D centers. Has some of the world’s best universities, these include: Technical University, Munich Germany University of Bonn, Germany etc Important research institutions in Germany are the Max Planck society, the Helmholtz-Gemeinschaft and the Fraunhofer society. They are independently or externally connected to the university system and contribute to a considerable extent to the scientific output. |
Weaknesses The socialists are a strong force and there is labour union problem. ï½ The wages are high which increases the costs. Cultural differences Complex business culture Strict safety and packaging regulations |
|
Opprtunities A total of 15 billion euros made available by the Government for R&D projects in cutting edge technologies. Easy access to other EU countries – Highly developed E-commerce service – High demand for electronic products |
Threats Threat from new emerging markets ï½ Protection of environment and climate ï½ Mounting pressure to reduce the CO2 emissions. adjustment time for adapting the high German standards – Stiff competition from local and global competitors |
COUNTRY 2:- POLAND
Poland is the 9th largest country in Europe; it has a population of over 38million people, which makes it the in the world and one of the most populous Union. Its natural resources include coal, sulphur, copper, natural gas, silver, lead, salt, arable land. Poland would carefully be analysed using the SWOT analysis,
|
Strengths relatively low cost of labour, favourable geographic location on transit routes, large internal Market (compared to other Central and Eastern Europe countries). availability of highly qualified labour force presence of universities, support of authorities, the largest market in central Europe, and possibly the lowest labour costs on the continent, Member of the EU Location between East and West Long industrial tradition Stable economy Stable political system Wide educational system Biggest country of the EU members in the CEE Diversified industry Still attractive employment costs Attractive tax system Multinational companies such as: ABB, Delphi, GlaxoSmithKline, Google, Hewlett-Packard, IBM, Intel, LG Electronics, Microsoft, Motorola, Siemens and Samsung have set up research and development centres in Poland. The Polish consumer electronics market grew by 4.5% in 2005 to reach a value of 938.5 million. |
Weaknesses EU Accession may drive cost of living higher Poland imports much more in electronics goods than it exports. The value of imports is more than twice the value of electronics exports. ï‚•ï€ In 2005 Poland imported electronics goods worth EUR 6,911.3 million. The growth rate (over 2004) was almost 22.0%. |
|
Opportunities The strong inflow of FDI in this sector in LCD screens, mobile phones, domestic audio and video equipment, appliances, automotive controls complemented by electronic contract manufacturers (Flextronics, Jabil, Kimball) and telecom equipment manufacturers (Lucent, Alcatel, Siemens) creates opportunities for sub-supply, electronic components, supply chain and testing services. Poland is becoming the manufacturing hub for TVs in Europe |
Threats Current policies are not bringing changes about fast enough to maintain implementation of information society Industries in Poland will face higher costs with accession into the EU There is an increase in competition as multinational companies are investing in the polish market. In Poland the leading manufacturers of TV sets are the international companies Jabil (commissioned by Philips), Daewoo, LG Electronics and Thomson. |
COUNTRY 3:- INDIA
The Republic of India is in . It is the country by geographical area, the country, and the most populous democracy in the world. It is bordered by Pakistan, China, , , and .Its natural resources include , ore, , , , ore, , , , etc. India would carefully be analysed using the SWOT analysis,
|
Strengths India is now the world’s twelfth largest economy by market exchange rates and the fourth largest in PPP terms (2003) after US, China & Japan. inexpensive high-skilled labour needed for the industry is available in abundance in India India’s low manufacturing costs in skilled labour and raw materials Availability of engineering skills. And opportunity to meet demand in the populous Indian market, are driving its electronics market. The electronics market in India, at US$ 11.5 billion in 2004, will be the fastest-growing electronics market worldwide over the next several years Abundant low-wage skilled/semi-skilled labour; • India’s strategic location offers a promising manufacturing/exporting base; • Abundant supply of raw materials; • Deregulation and liberalisation of industrial policy; • Incentive packages for Export Processing Zones (EPZs) and Export Oriented Units (EOUs) are very attractive; • India is changing rapidly and offers an attractive opportunity based on market size (200 million middle class by the year 2000) and growth; • The non-resident Indians estimated to number over 15 million have major impact on the Indian economy, industrial policies and foreign collaborations; • India is poised to be a major industrial power by the turn of the century. It is advantageous for American firms to position themselves as partners in this fantastic growth. • The business climate of India is improving (Naidu, 1984) India is one of the largest recipients of foreign direct investment (FDI) in the world. In FY2004/05, India received $3.75 billion. |
Weaknesses Infrastructure that needs to be improved at the earliest possibility. Easing of foreign investment procedures Frequent power failures and shortages leading to disruptions |
|
Opportunities There is a strong 100 – 150 million middle class that has considerable discretionary income making India an attractive market for consumer goods. |
Threats A restructured government tariff that now makes domestically manufactured goods more expensive than imported goods with zero tariff Import licensing regulations for non-high tech items remain a major barrier. UK companies are well positioned to take advantage of this growing export and investment market. Indian policy does not favour the use of limited foreign exchange for non-essential products. |
COUNTRY 4:- TURKEY
Turkey is an emerging market with a population of around 72 million, 50% of which is under the age of 28. Turkey has the world’s 13th largest urban population at about 50 million. It’s the world’s 15th and Europe’s 6th largest economy. Turkey is also a springboard to the markets of Central Asia & the Middle East.
Turkey ispolitically stable,the government having been in office for nine years. Today, Turkey is investing significant sums in upgrading its infrastructure, including projects to build new dams, airports, roads and water and sewerage systems. Its recent, record economic growth, its talented, young workforce and its geographical location as a prime hub for regional market access makes Turkey a hugely attractive destination for trade and investment.
StrengthsNational minimum (gross) wage, which is currently YTL 608 per month (approximately £ 260 per month) Average basic salary: Japan 250,000 – 450,000 yen per month (UK £1700 – £3200 p.m.) Turkish made colour TV’s have a good reputation amongst European consumers re: price & quality Experienced local labour supply in abundance. As at 2009 approx. 2000 manufacturing companies in the field of electronics, & approx. 30,000 employed in this sector |
WeaknessesRaw materials for the electronics sector have the highest import rate as these cannot easily be sourced locally Turkish is still the official language of commerce, although English and some German are increasingly spoken. A professional interpreter would be required for official meetings. In a year, total amount of overtime cannot exceed 270 hours |
OpportunitiesFinancial incentives Strong export orientation Exports of Turkish-made consumer electronic products have increased since 1990 in 178 countries, mostly directed towards the European markets Access to European market. Opportunity to expand markets to countries which include: Romania, Germany, Portugal, Bulgaria, Jordan, Kazakhstan, Azerbaijan & Croatia The Turkish electronics industry is young but dynamic. It is committed to competing on an international scale by producing high quality, well-priced goods supported by a wide range of products. On-going R&D activities, engineering quality & efficient after-sales service , |
ThreatsThe consumer market is now moving towards demand for LCD & Plasma TV creating a need for Turkish manufacturers to invest in new technologies Aggressive competition from national MNEs. Arcelik & Beko (subsidiaries of KOC Holding): second-largest TV producer in Turkey. Has 15% approx. European market share. Beko has strong international reputation. Both have a wide product portfolio and their own technology & products using plasma, LCD, MEMS technologies. Both companies have purchased international acquisitions such as Grundig AG (Germany) “Home Intermedia System Division†(2004). Arcelik has also established a partnership with Ubicom (Silicone Valley, USA) and plans to integrate the Ubicom microcontroller solution into its projects where new technologies unique in their field have been used (“Smart†Appliances will be launched soon to consumer market). |
COUNTRY 5:-CHINA
Strengths.Huge consumer base. All the time being lifted out of poverty Cheap production. Already 30,000 factories over there. There are several free trade zones, 53 new high tech zones In 2003 China supported 1,552 institutions of higher learning. If Hong Kong is included it has immense technical expertise and language skills as well. If Hong Kong is included then it has an outstanding harbor GNP increasing an average of 9% annually (Benson, 1996) and ranked third in the World (Jing, 1993). * Export growth of 25% and imports up 15% (Landy, 1996). * Will continue to dominate light and medium-tech industries because of the large market in China and the pool of labour. Leads world in direct foreign investment – $135Billion (Taninecz, 1996). Foreign invested companies represented 31.5% of all China’s exports (or about $46.9 billion). This netted about $8.4 billion in taxes (Taninecz, 1996 and “China: The Numbers Game,” 1995. World’s most lucrative market (Schafer, 1996) of which China represents one-sixth of the world’s population (Taninecz, 1996). Surplus labor in rural areas and impoverished farm lands (Gao, 1994) and growing 10 million per year. Estimated to reach 250 million by 2000. * Lower wages than Japan and Taiwan. |
WeaknessesCorruption is a problem. Government controls everything and joint ventures are encouraged. Intellectual property rights not developed. Average inflation is 15%, and surplus labour has resulted in rising unemployment and inequalities in income distribution (Benson, 1996). Railways, roads, communications, and power supply are below standard. * Employees need customer service training. * Roads are jammed with thousands of bicycles, buses, trucks, and taxis. |
OpportunitiesOpportunity for lower cost but high quality production. As technological advancements are made we can hire better R&D staff. Good place to control operations due to proximity and infrastructure. Direct Investments or Joint Ventures Equity and contractual ventures provide quicker access to the market. Partners in China can help with the bureaucracy, customer base, and distribution. |
ThreatsAmerican recession can hit China Corruption can lead to loss of reputation Underdeveloped Intellectual property rights can mean technology can be stolen by suppliers Effectiveness of investments in China will only be evident in the long-run and policies make it hard for non-China companies to make money. Lack of a legal structure similar to those Easily understood(Taninecz, 1996). |
Having investigated these five countries based on their strengths and weaknesses, we the management team of Elecdyne have decided to shortlist these countries down to three which are:
1. Germany
2. Poland
3. China.
Further investigations into the above listed countries would be done using the PEST analysis.
PoliticalPoland has steadfastly pursued a policy of liberalising the economy. It stands out as one of the most successful and opens examples of the transition from command to a market economy. The government’s determination to enter the EU as soon as possible affects most aspects of its economic policies. |
EconomicalThe privatization of small and medium state-owned companies and a liberal law on establishing new firms have allowed for the rapid development of a vibrant private sector. Improving Poland’s outsized current account deficit and reining in inflation are priorities. Further progress in public finance depends mainly on privatization of Poland’s remaining state sector. |
Social |
technological |
Nlk
CHINA
PoliticalEconomic transactions are often used for illegitimate political purpose Communist party-led state China does not have an independent police or judicial system; party leaders order investigations. In China, political connections are an asset in business |
EconomicalChina is the fourth-largest economy in the world. It has sustained average economic growth of over 9.5% for the past 26 years. In 2006 its $2.68 trillion economy was about one-fifth the size of the U.S. economy. |
Social |
technological |