Discuss the main challenges faced by a company producing products or services in China for sale on the domestic market.
Introduction
Competition, typically the most powerful external force, is increased by the advent of globalization. The number of companies and the number of countries where these companies operate and the way governments are dealing with the impacts of globalization is accelerating. The interaction of changes in government policy and business innovation has actually made globalization even faster. If a company does not become a global, it would simply be shut out of new markets. This is what pushed firms around the world to adopt Corporate Governance. Also, a company must be able to make contact with its consumers. According to most theories on strategic management, the customer is the ultimate judge of competitiveness; that is, by buying the products of a firm, the customer indirectly decides which firms will continue to exist and which firms will go bankrupt. (2002). The reasons for the turmoil are numerous: a sputtering economy, increased global competition, the implementation of new technologies that displace jobs, the deregulation of certain industries, and the general consolidation of other industries, such as banking and health care. Observers will see a continuing progression in the ruinous steps which have forced the industry into a socio-politico-economic corner. The industry is likewise linked closely to the policies of governments, the earnings of banks. The industry’s approach to dealing with political institutions has not always been brilliant. It tends to be good on technical issues, although it has not always fully presented the longer-term options, in order to make the choices and their implications clear.
Globalization is a word often used but vaguely defined. Globalization is understood as the integration of the economic, technological and social advancements of the countries around the world. The advancements in the aspects of technology and science have brought the world together. The first attempt of globalization was in the era of colonization and discovery. Today, globalization plays a major part in the betterment of the economy of many countries. But many have also failed to see the gap that globalization can bring to underdeveloped countries.
The impacts of globalization on the business world are many, but the most important is competition. All of this competition is pushing multi-national companies into strategic responses. As global competition increases, many companies are forced to reevaluate their position in the global marketplace. For some companies this entails strengthening their domestic position against competing foreign products. Other firms respond by expanding their undertakings into foreign markets. For many, collaborative/cooperative agreements with other businesses are an effective alternative to the more traditional approaches (1993). In effect this would create a problem for those who are responsible for the management of companies. Management of companies, especially multi national companies, has to apply the appropriate strategies needed to respond to the opportunities and pressures created by the process of globalization of business.
Globalization is universal and inescapable. It affects economic, political, social, cultural, technological, and environmental conditions. Increased integration of the world’s economies offers widespread opportunities for development of nations across the world. This enforces on countries, institutions, business organizations and individuals to conform to universal standards, rules, norms, expectations, and requirements.
Countries have embraced outward-oriented economic policies and have lowered barriers such as import tariffs and open themselves up to investment and trade with the rest of the world. This increases the integration of economies around the world, particularly through trade and financial flows. The formation of a universal market open to all countries around the world, on all continents, facilitates increased international trade in goods, services and foreign investment.
Some countries are becoming integrated into the global economy more rapidly than others. Most countries that have been able to globalize their economies are experiencing reduced poverty and faster economic growth. As living standards increase, it became possible to make progress on other issues such as social equality, environmental and labor standards and other economic issues.
The same goes true for businesses. International business is increasingly developing multi-national networks composed of alliances, affiliates, licensees, and other partnerships. The most rapidly changing route for large multi-national companies entering overseas market / international business is through a growing variety of joint ventures and strategic alliances (1993).
Multi-national companies have come to characterize global business, and to dominate industries and national economies. Multi-national companies evolve from domestic firms that go beyond simple exporting and importing activities to acquire foreign affiliates. The growth and prosperity of the company become interlinked with business linkages to foreign firms. As the business linkages deepen between the two companies, the need for broad coordination and cooperation emerges (1995).
Many companies increasingly understand the significance of a growing global marketplace. They realize that exporting and establishing overseas ventures are no longer the only choices they have in participating in international business. Cooperation, like in the form of an alliance, with businesses abroad is becoming significantly evident as an alternative response (1993). Alliances have become an important strategic option in international business (2002).
The presence of an emerging worldwide market underscores the necessity for firms to develop strategies that will enable them to compete successfully on a global scale. Although many strategies are available for companies to pursue -- cooperative contractual relationships, strategic alliances and joint ventures, and the establishment or acquisition of overseas production facilities -- the need for globally oriented companies to get their products into foreign markets is paramount ( 1993).
A strategic alliance means forming a long-term collaboration between at least two firms without one firm fully owning the other. A strategic alliance presents two distinct properties: long-term commitment and contribution to strategic performance of the partnering firm(s) (2002).
Strategic alliances are not a guaranteed formula for successfully competing in international business. Many companies believe that alliances are necessary to reduce the risks associated with operating in an uncertain and fast-changing global marketplace. Yet the nature of alliances is essentially one of a trade-off between risk-sharing and innovation. Risk-sharing may help ensure that a company obtains or maintains a competitive position in the short run, but innovation and the ability to adapt to changes in the world market are far more important in determining a company’s position in the long run ( 1993).
In collaborations and alliances there may well be factors that remain hidden. Not all technologies are disclosed to the partners and some knowledge will remain confidential. For example, Coca Cola has many franchise bottlers whose job is to process and bottle the condensed Coca-Cola syrup, but the recipe for which is never disclosed. The bottlers understand this and make a profit by working at the lower end of the value chain (2001).
China’s Markets
Despite many years of development, risk management remains problematic for the majority of organizations. One common challenge is the human dimension, in other words, the way people perceive risk and risk management. Risk management processes and techniques are operated by people, each of whom is a complex individual, influenced by many different factors, the problem is compounded by the fact that most risk management involves people working in groups. The issue of corporate social responsibility is increasingly becoming the object of attention from government, opinion formers and institutional investors. Until now, the way in which environmental liabilities should be reported has been rather vague. ‘Managing Environmental Risk’ looks at the different types of risk, the legal issues, and how risk can be mitigated using insurance and other financial measures. It clearly explains the relationship between environmental issues and business performance and how companies can meet the challenges.Given the influence of economic and political factors, there is a risk that regulatory attitudes may stiffen again. Some people believe that in good economic times the public becomes more concerned about the quality of the environment, with politicians and regulators following suit, and that in lean economic times, jobs and the economy become the primary concern with the environment suffering. If so, one can expect the attitude of environmental regulators to swing back and forth like a pendulum in sync with the ebb and flow of the economy. The environment change pose distinctive challenges to the creation of an adequate knowledge base concerning both the environmental perturbations and the vulnerability of human and ecological systems to the shaping of appropriate societal responses, and to the enhancement of the capability of the current global state system to respond effectively (1999). The capabilities are important because in many industries environmental issues can significantly affect companies' financial results (1995). Unless environmental issues are handled in ways similar to those used to manage other business risks and opportunities in those companies, then environmental control will remain an internal regulatory function superimposed on the company's core business concerns rather than become part of the process of maximizing shareholder value ( 1992).
Competition between business organizations put pressure on the company to produce products of excellent quality at a competitive price which won’t bring about a negative return of investments. Sometimes, the lack of resources, manpower and capital and the high demands for a product would influence business organizations to employ strategic collaboration. As stated, two obvious examples of this would be increasing adoption of global products standards in IT industry and homogenization of consumer demand through the world.
Globalization in effect raises the expenses needed to run a company into staggering amounts. Sometimes, the company won’t be able to cope up with such financial demands and thus would rather collaborate with other companies than suffer loses or worse be closed.
The motivations for strategic alliances are complex and varied. The major external forces behind international strategic alliance formation are often interrelated and may stem from varying causes. The key identifiable current factors seem to be the globalization of markets and technologies, the shortening of product life cycles, and the consequent need for enterprises large enough to take advantage of scale and scope economies, and to be able to access adequate resources and competencies. Other factors exist in specific situations (1998).
A motive behind the conclusion of strategic alliances is the need for speed in reaching the market or the need to compete in all major markets. In the economic world of the 1990s, first-mover advantages are becoming dominant, and often the conclusion of an alliance between a technologically strong company with new products, and a company with strong market access is the only way to take advantage of an opportunity in time.
Alliances are the fastest means of achieving market goals to meet an opportunity, if the partners each have strong resources and competencies, but alone insufficient to achieve critical mass.
A second reflects the continued importance of national boundaries: government preferences for 'local' firms in industries such as aerospace where an alliance with a national or regional firm may be a necessary requisite of sales to either the military or a national airline.
The most important motivation for alliance formation, however, is the increasing cost, risk, and complexity of technology. The high cost of technological development has encouraged companies to collaborate to share both the costs and the risks of this activity. The need to limit financial risk is a further factor advancing alliance formation as opposed to merger/acquisition or organic development. Even the world's largest and most international companies can no longer 'bet the company' on the next generation of semiconductors or jumbo jets; in many industries the cost of a competitive R&D budget has risen to the point where it is no longer possible to 'go it alone' (1999).
In other cases, collaboration may take the form of interaction between assemblers and component suppliers - a common situation in the automotive and electronic appliance sectors.
The need for strategic environmental management will only intensify as affluent consumers demand better environmental quality while economic growth presses increasingly on ecological constraints.
Business managers and analysts could use this approach to:
- uncover hidden liabilities or risks in potential acquisitions;
- estimate the value of investments that would reduce environmental exposures;
- measure the self-insurance value of environmental control programs;
- benchmark a company against its competitors; and
- communicate its environmental strategy to financial analysts.
There prioritizes issues according to their likely significance for future earnings and risks. Companies have positioned themselves differently with respect to these environmental issues mainly through decisions taken in years past for broader business reasons. Where mills and forestlands are located, what products they turn out and what technologies are imbedded in the capital stock are historical factors that largely determine companies' exposure to impending environmental issues. Just as a company's present exposures are determined by past decisions, a company's current environmental management decisions will determine its future exposures.
There was a study at Yale School of Management signifies that companies can affect the way financial analysts evaluate their environmental issues by developing a consistent internal position on how the environment adds value to their business by linking environmental performance data to key financial valuation criteria by collecting broader data on the financial implications of environmental risk and opportunity by developing better techniques for quantifying and comparing the financial impacts of environmental risks and opportunities and by placing relevant environmental financial data into the mainstream of their communications with analysts and investors (1997). To be useful, the financial implications of environmental issues must be expressed in a way that can be incorporated into the valuation frameworks currently used to assess conventional business risks and future prospects. For each company and each scenario, the financial impacts on revenues, production costs, investment spending, and the value of owned assets were estimated individually for all years of the forecast period and then reduced to discounted present values using an estimate of the firm's weighted average cost of capital. Thus, the scenario was related to each company's shareholder value. Thus, environmental issues create winners and losers among companies, depending on their exposures and potential compliance costs. When industry and environmental experts participated in scenario development, they were asked to use their best judgments to assign probabilities to the occurrence of each scenario. Since many of the impending environmental issues are one-time occurrences, the use of judgmental probabilities of this type is appropriate and unavoidable.
An example of an international business in china is the Ocean Park. Obviously, the tourism industry plays an important role in the world, no matter environmentally or on the economy. It is believed that the tourism planning within the industry is extremely significant. In Hong Kong, tourism has been a very important aspect in their economy. For this paper, one of Hong Kong’s main tourist attractions, the Ocean Park will be examined with regards to its core competencies and competitive advantage.
Since its opening in January 1977 as a non-profit organization, the home-grown Ocean Park has developed itself into an attraction connecting people with the nature by attracting more than 76 million tourists by the end of last year. Ocean Park has also been named one of the "10 Most Popular Amusement Parks in the World" by Forbes.com ( 2006). The company sees this recognition as a source of pride for their staff and the people of Hong Kong. The park will continue to offer new and exciting attractions as well as events and programs to bring people closer to nature. It was also chosen by Hong Kong citizens as the most favorite scenic spot in Hong Kong last year.
There prioritizes issues according to their likely significance for future earnings and risks. Companies have positioned themselves differently with respect to these environmental issues mainly through decisions taken in years past for broader business reasons. Where mills and forestlands are located, what products they turn out and what technologies are imbedded in the capital stock are historical factors that largely determine companies' exposure to impending environmental issues. Just as a company's present exposures are determined by past decisions, a company's current environmental management decisions will determine its future exposures.
CONCLUSION
Therefore, the pervasiveness and complexity of risk presents strong challenges to managers. Perhaps the most important challenge is to coordinate the management of risk across areas within an organization. There is based on developing scenarios for significant future environmental issues and seeing how companies are likely to be exposed and financially affected under each scenario. It uses probabilities derived from past experience and expert judgment to weight the possible scenarios and uses these weights to forecast a likely financial impact and to construct measures of financial risk. In constructing scenarios, the first step is to identify environmental developments that are likely to have significant financial impacts that are significant environmental issues might emerge throughout the product life cycle.
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