Entering International Markets

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US based computer company Entering International Markets
15.04.2019
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Introduction

Computer technology has been experiencing rapid development in recent years. Computers have been implemented almost in all areas of people’s lives and simply became indispensable. It is logical to assume that with the growth of opportunities in this area, the ability to use these chances to make progress should increase too. High demand for the services and products computer technology creates had an impact on the decision to open a computer shop in China.

IT-Future is the US-based computer company located in Dallas, Texas, US. The company has operated on the US IT market since 2005 and managed to create several shops for retail sales as well as an online shop that helps customers to check with the company’s offers and prices from all over the globe. IT-Future offers the entire spectrum of computer, office, digital, audio and video equipment, software, supplies, paper products, and special literature.

One of the company’s current aims is the entrance on an international level so as to gain more respected customers and earn higher profit. China has been chosen as the entrance country as it is considered the world center for the development of computer technology as well as the country with cheap labor. The expansion will help the business to grow, and reduce operational costs, improve logistics and direct contact with manufacturers.

Culture of Your Company

Operating in the US market for 15 years, IT-Future is in a constant search of qualified employees as well as the development of the company’s corporate culture. All this is done to grow true professionals at the company, provide incentives needed for the staff promotion as well as improve ethical concerns of the company’s personnel. Although it is rather a small company with a staff of 20 people, the team operates effectively with mutual understanding and respect for each other.

Company Strategy

The Choice of the Strategy

There are three strategies to enter a new business area. These are the acquisition, the creation of a new internal venture, or joint ventures. The choice of a strategy depends on several factors, which include barriers to entry, the extent of a new business with the existing companies, the rate of return on investment, risk inherent in a particular model inputs, and factors related to the life cycle of the industry (Hill & Jones, 2012).

As for the choice of the entering strategy for IT-Future, it has been decided to enter a new market with the help of the acquisition strategy as it varies from obtaining a license for the purchase of the already developed products. It is explained by the type of the company’s business activity since it does not produce any product itself but performs a retail function. Moreover, the acquisition is the most common form of entering new markets because it not only speeds up the penetration of a new industry but also makes it easy to overcome the entrance barriers. In order to make the strategy successful, IT-Future is required to set clear goals, a make realistic assessment of the acquisition costs, put efforts to implement the acquisition to the company structure, as well as prepare an effective strategy and evaluate reduced costs. The choice of the strategy is also explained by the matureness of the industry and high barriers to entry in China.

It is also worth considering possible reasons for the infelicitous implementation of the strategy to make the entrance successful. Thus, the reasons can be the integration of different areas of activities and different corporate cultures, revaluation of synergies, avoidable costs like debt-related expenses, as well as improper purposefulness (Hill & Jones, 2012).

The Implementation of the Strategy

In order to launch a business in a newly entered market, first of all, it is required to decide on the location of a store, form a product range, and establish business contacts with suppliers (Longenecker, 2010).

Considering the fact that China has 53 areas of development of new and high technologies, the location is going to be considered in one of the cities related to such areas (Whalley, 2011). Thus, Beijing and Shanghai are the cities with the rapidly developing high-tech sectors such as microelectronics, telecommunications, computer products, as well as the release of the software, new material production, etc. It makes it easy to decide on the location and consider Shanghai as the potential place for the entrance of IT-Future since there are several areas of new and high technologies that fit the strategic plans of the company. At the same time, the company’s strategic aim is not only to gain new purchases in a new market but also sign business contacts with suppliers in order to reduce costs.

Thus, it is required to analyze the Shanghai market before opening a computer shop there. The research project must include the analysis of the outlets already presented in the market as well as a potential buyer. A review of the proximity of transport routes, good access, and ample parking will have a positive impact on the image of the store. Due to the specifics of the sales activity, it is also necessary to study thoroughly a retail space. The study of the retail space will have a positive influence on the introduction of hot positions offered by the store. The setup of a free Wi-Fi zone will also attract consumers seeking for advanced computer technology as they will be able to access the Internet during their shopping and, therefore, analyze the feedback on the product they wish to buy (Longenecker, 2010).

As for the development of a product range, IT-Future is going to consider the audience’s preferences. The bulk of consumers are end users who want to buy a ready-made computer or accessories at an attractive price. To interest them, the company always monitors and analyzes market innovations. The pace of development of digital technology is so great that the outdistancing of the rivals only in a few days can give excellent financial results. Another large group of consumers to be taken into account are corporate consumers who need supplies for office performance. Thus, the range of cartridges, paper, and temporary storage media will also be a part of the company’s product range. These positions are constantly in great demand, and the mark-up is usually higher than in other categories of products. Additionally, people who use computer technologies in a professional manner will be a part of the target audience since they use these technologies as a working tool and source of income, which makes the audience the one with a high purchasing demand. Such customers are often interested in upgrading and looking for good deals on quality components. Gamers are also a part of the same category as professional users. Apart from the parts, they can be offered a variety of play equipment ranging from small mouse devices to control surfaces and pedals. The fact that computer stores survive mainly thanks to regular customers allows becoming indispensable to clients if starting to perform after-sales services. It can include the refill, delivery, installation, and configuration of the purchased equipment at home or in a client’s office (Albrecht, Stice, & Stice, 2008).

As for the establishment of the business contacts with suppliers, IT-Future is planning to look for the best suppliers in the region where the store is located in the first place. Although the prices are higher than the manufacturers’ deals, this step will help to quickly update the product range in the store. As a long-term strategy, the company is planning on the establishment of direct relationships with manufacturers and their dealer networks in order to reduce costs for the operation both in China and the USA.

Readiness to Diversify

A diversified business is more resistant to the changing economic environment. It allows a company to receive income from a variety of unrelated sources, as well as gives it a chance to expand its segment in the market. However, the development of diversified companies is largely related to the proper planning of costs, profitability, and payroll. To avoid challenges, IT-Future must take into account not only the specifics of the industry but also the geographical features of the business.

Since the aim of the business is to expand its geographical presence and take advantage of tax preferences of the offshore jurisdictions, IT-Future has decided on a geographical differentiation of the business. The choice of the type of differentiation considers the following specifics. First is the cost of labor abroad as it is lower in the Asia-Pacific region than in the US. Second is taxation. The rates of corporate and payroll taxes vary in different countries (Cantwell, 2014). The rate of taxes on profits of enterprises with foreign capital is 33% in China. However, the government has provided significant tax benefits for investors in order to attract foreign investment to the country. Companies with foreign capital can pay tax from 15% to 24% when registering in such special economic zones like Shanghai and, therefore, receive a tax holiday. The tax holiday means that companies are free of income tax for the first two years and can pay 50% from the ordinary tax rate in the following three years. Moreover, the Chinese government has reduced the income tax rate for small low-profit enterprises and entities offering new and high technologies. Thus, IT-Future operating activities in a newly entered market allow operating under a reduced tax income rate of 15% in China (Whalley, 2011). Another aspect of the chosen differentiation strategy is lower costs of materials and equipment due to a high concentration of manufacturers of high technologies in the region.

Country Information

It is not a secret that the development of the world IT industry has been directly linked to China in recent years. China has become the first grand assembly shop for personal computers and peripherals, as well as the largest manufacturer of computer components. It also takes the largest market place of IT products in the world being a leader in the number of Internet users. Although the headquarters of the largest IT companies on the globe are still located in the US, China determines the existence and development of all computer and telecommunication industry these days. China occupies a large part of the territory of Eastern and Central Asia, which allows the country to establish business trade on both continents, Europe and Asia since it is closely located to each of them. Demographically, China is a unique country as its population problem is primarily caused by its vast numerical strength that affects all aspects of life in Chinese society. The issues are mainly related to the environmental and food situation in the country, particularly employment and the growth of the productive forces, as well as the nature of industrial relations. This fact is advantageous for the business as companies may recruit personnel for lower wages due to the increased competitiveness in the labor market in China. Due to the economic significance of the country, people speak mainly not only Chinese but also English, which makes it possible to recruit them at foreign companies for lower costs.

Along with the benefits the company can get entering the Chinese market, there are several issues related to the current infrastructure of China. Thus, given the number of population and the size of the country’s territory, transportation has not been developed on the proper level that could meet the country’s requirements needed for a successful operation of the economy. A half of its entire volume depends on the railways. Water plays an important role in the transportation infrastructure, in particular, sea transport, conveys cargo, while automobiles are used for passengers’ transportation. It is negative for the terms of products delivery but beneficial in the way of costs reduction. At the same time, the country has a deficit in electric power, which makes it difficult to consider opening a large building for business purposes as there is a chance the company may be cut down in electricity.

According to Ning (2009), China has approved a plan to support the electronic and innovation industry under which the government encourages innovation, increases investments, and promotes information technology in real production these days. This fact creates favorable conditions for the operation in the Chinese market.

China produces a large range of electronics including more than 20 categories. These are control instruments, electronic equipment for aircraft, communications equipment, computers including microcomputers, as well as digital and analog computers. Moreover, the country makes peripheral equipment, information processors and other products. Financial and technical power accumulated by the leading Chinese electronic companies allows them to set large-scale tasks of entering the advanced level in the manufacturing of certain types of electronic industry.

China considered one of the options of Asian development of a market economy. This model is usually attributed to a large authoritarian political system and greater paternalism in the relationship between an employer and an employee. However, China is open to foreign investments to a much greater extent. Moreover, the very Chinese model of development depends on a constant influx of foreign capital, which is also attractive for opening a business in the region.

The implementation and improvement of corporate social responsibility are very important in China these days since it has become prestigious to be socially responsible. There are government programs in China aimed at the eradication of poverty, assistance to victims of natural disasters and catastrophes, sponsorship in the field of education, and other incentives. The Chinese leadership believes that companies should adopt the initiative of the state and take responsibility for the financing of charitable programs.

Another issue is related to personnel management services since they, as a rule, have a low organizational status and are weak professionally. This is the reason why they do not perform a variety of tasks on personnel management to ensure their normal operation. These problems have been considered secondary in terms of the command-administrative system. However, they have become primary issues with the transition of the economy to market relationships. Every organization is interested in resolving these issues. This is the reason why IT-Future has set up a goal to take the issue into consideration and resolve it as human resource management is very important for successful company performance. It allows the organization to compile and implement a range of issues of individual adaptation to external conditions, etc.

Conclusions and Recommendations

The research paper has discussed the steps required to run a business of selling computer technologies and accessories in China, as well as providing the background information needed to evaluate the Chinese market. Thus, the report has uncovered the aspects of the company’s operational activities when entering a new market and discussed the strategy of a successful entrance that could be able to compete with the existing companies. The analysis of the Chinese market has revealed both entrance barriers and the attractiveness of the entrance. China offers various incentives for the development of new high technologies in the market that allows foreign investments to come into the market. At the same time, a deep analysis of the steps IT-Future is required to take to successfully launch the business has allowed to understand the company’s strengths and weaknesses. As a result, it is possible, to sum up, that the company is worth entering the Chinese market in order to increase the target audience and reduce operational costs.

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