MANAGEMENT STUDY Document No:

PROGRAM
FINAL EXAM
FACULTY OF ECONOMICS
UNIVERSITAS NEGERI
PADANG
Course
STRATEGIC MANAGEMENT
Name
Credit 3
Semester Seven
Course
Mandatory
Attribute
Lecturer TIM DOSEN

Directions and Rules. Read The Instructions Below Carefully!

The questions on the exam are designed to test your comprehension of the material, and you are allowed
to look up in a book or in your notes, given the time allowed for completion.
PLEASE NOTE: The midterm exam must be taken on your own - this is not a group endeavor! The
exam will last 90 minutes for writing proposal and 30 minutes for video presentation, the last five minutes
of class will be used for collecting the exams. You need to make a research proposal as topic below. You
are allowed to select one of topic, and the object of analysis should be in Padang or around. Taking the
exam with another student is considered cheating, and students suspected of collaborating with one
another during the exam will be referred to University Committee Judicial Ethics. If you
experience technical difficulties, contact the lecturer immediately (not a classmate), so that we can
resolve the issue.

An asset-light strategy equivalent to licensing

This strategy would mean that the global partner would provide the design of the product together with its brand name. It
would be responsible for the design and development of any new vehicle. The Chinese partner would contract to build the
automobile, sourcing com- ponents locally, rather as the Finnish company Valmet has already done for Porsche.

• Advantages

1. This mode of entry would allow the entrants to take full advantage of the low costs of Chinese manufac- turing
and the steady build-up of component supply
2. It would allow capital to be saved by the global partner and concentrated on those areas in which the foreign
entrant has the most decisive advantage – for example, research and development, design and marketing.

• Disadvantages

1.The foreign brands may suffer a loss of reputation if quality controls are poor
 2. There may be a danger of establishing potential com- petitors and eventually losing control of all value- adding
activities
3. There may be disputes over the sharing of profits.

Building the whole facility in China independently of any Chinese partners

This is by far the riskiest mode, involving the greatest commitment of resources.

• Advantages

1. The foreign company would control most aspects of production and maintain quality
2. The company could train its own managers and workers
3. The company could apply best-practice technology.

• Disadvantages

1. The company may not have access to either the key supplier or distribution networks
2. The company may have a disadvantage in poorer access to the government and be vulnerable to action taken by
the government to favour Chinese manufac- turers or foreign manufacturers with Chinese partners.

Continuing the present system

• Advantages

1. With all its strengths and weaknesses, the system is already known
2. The system may be more flexible in allowing the most efficient mode to be adopted, depending on the cir-
cumstances of both product and market.

• Disadvantages

1. It is very expensive and not very profitable. GM has already invested US$1.5 billion in its Shanghai plant, VW
US$1.7 billion in its two facilities. The returns have not yet been commensurate with the level of investment
2. The environment has changed and is changing very rapidly.

The main problems in China for foreign players are twofold. The first involves the local industry. There is a lack
of local brand names, a poor design of all vehicles and a generally poor quality control which results in
inefficient production methods and overmanning. Local players are too small to take advantage of economies of
scale. It is difficult to set up quickly the necessary supply chains in China. The second issues relates to the role of
the govern- ment. Any foreign player must take into account the fact that the Chinese government is bound to be
a major player, although now constrained by the need to appear to be playing according to the WTO rules. Any
mode of entry must satisfy the strategic aims of the Chinese government.

Case Study Questions

1. What are the arguments relevant to the automobile industry in favour of creating joint ventures and the arguments against?
2. Who are the main strategic players in the Chinese auto- mobile market? What is likely to be the influence of their strategies on
the mode of entry into the Chinese market?
3. What is the impact of entry into the WTO likely to be for the Chinese automobile industry?
4. What is the present place and likely future place of China in the world automobile market?
5. What are likely to be the main factors relevant to a scenario-building exercise for the Chinese automobile industry? Note in
particular the forces of change, the pre- determined elements and the critical uncertainties.

Good Luck!