Valeria Astrid Mendoza Arias 2824254 Doing Business in Europe and Asia Ana de Los Angeles Sada Treviño

Reporte
Name: Registration:
Valeria Astrid Mendoza Arias 2824254
Course name: Teacher’s name:
Doing Business in Europe and Asia Ana de los Angeles Sada Treviño
Module 3 Assignment 6
Date: April 8, 2018

Bibliography:

Objective:
To weigh the internationalization of a company as an strategy to stay
competitive.
Process:
Results:
Read the following hypothetical Case of Electronics International, LTD (Ajami,
2006, p. 41) and answer the questions below:
ELECTRONICS INTERNATIONAL, LTD .
Electronics International, Ltd., is a large consumer electronics manufacturer
based in Southampton, England. Its product line consists of CD players, DVD
players, home entertainment systems, and so on. Annual sales in 2004 were
$186 million, 44 percent of which came from overseas sales. Most of the
company’s exports went to developing countries in Asia and Africa, with a small
percentage of its products going to Turkey and Greece. Its most important
export market is Zempa, a relatively prosperous developing country in the
western part of Africa.
Exports to Zempa total nearly 26 percent of all export revenues and have been
showing an up-ward trend for the past six years. Total sales to Zempa in 2005
were $120 million, up from $40 million in 1998 and $110 million in 2004. The
company controlled approximately 20 percent of the audio products market
in Zempa, with the rest being taken up by other competitors, all of whom were
overseas corporations.Zempa has no audio products manufacturing industry,
and all domestic requirements were met through imports. Electronics
International was the third largest player in the Zempa market, with the top two
slots being occupied by a German company and a Japanese company.
Electronics International’s products were well established and enjoyed
considerable customer loyalty. Recently, some problems have emerged. The
government of Zempa has become increasingly concerned about the relatively
backward state of its manufacturing industry and wants to rapidly industrialize
the economy by attracting overseas investment in key sectors. One of the
important priorities for theZempa government in this connection is the consumer
electronics industry. As a part of its policy to develop the local economy by
Reporte
stimulating domestic manufacturing activity, the Zempa government inquired

with each of the major exporters of consumer electronics products about setting
up domestic production facilities in Zempa. The managing director of
Electronics International received a letter from
the Zempa government, invitng the company to set up a manufacturing facility
in Zempa, and promising considerable official assistance should the company
decide to do so.
Electronics International was asked to evaluate this offer and to reply within
three months. The Zempa government said that the other leading suppliers
were also considering setting up local manufacturing establishments in Zempa.
The idea of setting up a manufacturing operation in Zempa did not appeal
initially to the managing director of Electronics International. The company was
doing well as an exporter and sales had been increasing each year. There had
been no difficulties in shipping its products, and most of the goods were
transported by sea and costs were acceptable. True, there were some problems
with the local customs authorities, but they were not insurmountable.
The distributors were good, reliable people who were pushing sales hard and
were meeting their contractual obligations to the company without any major
problems. The government’s regulations regarding remittance of payments for
imports and exports were tedious and at times a little frustrating, but with the
help of the company’s local agents, most of the issues regarding repatriation of
exchange proceeds were resolved in reasonable time. Therefore, why should
the company think of setting up manufacturing operations in Zempa? The
infrastructure for industry in Zempa was relatively undeveloped.
The electricity supply was especially unreliable. There was little trained
manpower, and the production of electronic products requires workers who are
adept at carrying out delicate assembly tasks. The managing director was about
to dictate a letter thanking the government for the invitation to set up a factory
and conveying the company’s decision to stay on only as an exporter, when he
decided to consult Bill McLowan, the strategic planning director at Electronics
International. A couple of days later, McLowan presented a seven-page
executive memo that differed from the thoughts of the managing director. Five
main points were raised in the memo:
1. Zempa is a valuable market for Electronics International, and as the
economy of the country develops, the market size is likely to continue to
grow rapidly. What is therefore needed is not only an increase in sales
volume but also an increase in market share. The memo pointed out that
although the sales of Electronics International’s products had risen
steadily over the past six years, its market share had stagnated while
those of its main competitors had increased.
2. The Zempa government not only had invited Electronics International to
set up manufacturing facilities, but also had solicited investments from its
two major competitors. If both competitors accepted the invitation and
set up local manufacturing operations, they could outprice Electronics
International from the Zempa market because costs of local production
were bound to be lower, given the lower wage rates and other input costs.
3. Zempa was under increasing domestic and external economic pressure.
There was considerable inflation, primarily because of a substantial
Reporte
federal budget deficit (the government had not been able to raise required
levels of revenues). Although the external balance position had been
comfortable in the past five years because of firm commodity prices
(commodities were the main exports of Zempa, generating 95 percent of
export revenues), indicators of a weakening were already apparent. In the
event of a balance of payments crisis, the government was likely to limit
imports, and one of the first items to be put on the banned list would be
consumer electronics, because they would be deemed nonessential in the
face of competing demands from such imports as defense equipment.
4. Although there were some impediments to the establishment of
manufacturing operations, at this stage the government had assured the
company of all assistance. If the company went in now and the other
competitors did not, it would gain considerable leverage with the home
government, which could be used to attack the dominance of the
competition.
5. There were certain risks—the local currency might depreciate, and the
lack of training of local workers and the state of local infrastructural
facilities might impair the efficiency of the plant. Other constraints might be
imposed later on the manufacturing operation. Given the emerging
scenario, however, these risks were worth taking, and the company
should at least in principle accept the invitation from the government
of Zempa and prepare for further negotiations.
McLowan’s memo seemed to open a new line of thought, but it did not
convince the managing director. He asked his secretary to organize a
meeting of the international investment committee to discuss the issues of
exporting and direct investment in Zempa.
Discussion Questions.
1. How would you frame the story? Write a short summary of the case
(about 200 words) in first person, as if you were the CEO of the
company.
Electronics International, Ltd., is a large manufacturer of consumer
electronic products. Our most important export market is Zempa, exports
to Zempa account for almost 26 percent of all export revenues and have
been showing an upward trend over the past six years.
Recently, some problems have arisen. The Zempa government has
become increasingly concerned about the relatively backward state of its
manufacturing industry and wants to rapidly industrialize the economy by
attracting foreign investment in key sectors. This is why he decides to
invite us to position ourselves in the market but with a plant. I am not sure
of establishing myself in Zempa, due to several factors that can affect us
as unskilled labor and the supply of electricity failed.
Before reaching a final decision, I decide to consult with the director of
strategic planning who told me that if it was convenient to settle in Zempa
for 5 points:
1. Participation in the market.
2. Low local production costs.
3. Claims of conflict in imports.
4. Considerable advantage with the local government.
5. Depreciable local currency.
Even with this, I am not fully convinced.
Reporte
2. What strategy should Electronics International adopt in this

situation?
3. Should the company continue exporting, or maybe make a direct
investment?
4. Are there any other alternatives open for Electronics International?
Conclusion:

Valeria Astrid Mendoza Arias 2824254 Doing Business in Europe and Asia Ana de Los Angeles Sada Treviño

Uploaded by

Copyright:

Available Formats

Valeria Astrid Mendoza Arias 2824254 Doing Business in Europe and Asia Ana de Los Angeles Sada Treviño

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Valeria Astrid Mendoza Arias 2824254 Doing Business in Europe and Asia Ana de Los Angeles Sada Treviño

Uploaded by

Copyright:

Available Formats

Reporte

Date: April 8, 2018

stimulating domestic manufacturing activity, the Zempa government inquired

2. What strategy should Electronics International adopt in this

You might also like