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International Market Choice

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 Elecdyne 2

Table of Contents

1.0 Introduction................................................................................................................................3
2.0 Discussion..................................................................................................................................3
2.1 International Business Environment......................................................................................3
2.2 Country Choices for Elecdyne...............................................................................................4
2.2.1 India.................................................................................................................................4
2.2.2 China...............................................................................................................................5
2.2.3 Brazil...............................................................................................................................6
2.3 Macro-Environment - STEEP Analysis.................................................................................6
2.4 SWOT Analysis for Elecdyne................................................................................................8
2.5 Analysis..................................................................................................................................9
2.6 Winning Country..................................................................................................................11
2.7 Choice Strategy....................................................................................................................12
3.0 Conclusion...............................................................................................................................13
 Elecdyne 3

1.0 Introduction
Founded in 1990, Elecdyne is a Japanese electronics company based in Tokyo, Japan. It
is involved in the production of a number of electronic products, for example televisions,
compact disc players, MP3 players, DVD players, and other hi-fi-equipment. Elecdyne falls in
the category of small and medium enterprises and currently serves only the local Japanese
market. It also exclusively procures its raw materials from the indigenous suppliers. However,
the company’s manufacturing is based on technology licensed from quite a few Japanese
multinational corporations. However, Elecdyne has never had any more contact with the
overseas markets.

2.0 Discussion
2.1 International Business Environment
In recent years, the global electronics industry has experienced rapid growth as
consumers around the world demand more sophisticated electronic items (Fixson and Park,
2008). The compound annual growth rate for the global electronics market is expected to grow at
the rate of 5.59 percent over the period 2014-1018.

Graph 1.1: Estimated growth rates for the global electronics industry 2014-2015 by region
(www.statista.com, 2014)
The Asian region shows the highest projected growth rates for the next year, and thus
presents a good opportunity for Elecdyne for international expansion. The Asian electronics
 Elecdyne 4

industry surpasses both American and European industries and is set to grow at a pace of 6% in
2015. A business enterprise which seeks international expansion has to take into account many
important factors before making any final decisions to enter new geographic locations and
markets (Linden and Somaya, 2003; Teece, 2009).

Graph 1.2: Projected revenue of the global electronics industry from 2014-2015 by region
(www.statista.com, 2014)

2.2 Country Choices for Elecdyne

2.2.1 India
The demand for electronic products in the Indian market is poised to touch $400 billion
by the year 2020 (Datt and Sundharam, 2009). According to Nadeem (2011), the Indian
economy is growing at 7 percent growth per annum, and has a lot of potential in the industrial
segments of entertainment electronics, telecom equipment, computer and IT products, and a
broad range of consumer electronics. The impressive growth of the Indian electronic industry has
attracted many global players (Panagariya, 2008). The country is also a huge market for
consumer electronics, and quite ideal for overseas investors to claim a share in the growing
market (Roy, 2006).
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Some of the growth drivers unique to the Indian electronics industry include:
1. Low labor cost
2. A highly talented workforce, especially for designing and engineering services.
3. Indian labor is also skilled in English communication
4. Indian government reforms favorable to the sector
5. The Industrial Licensing has been virtually abolished with respect to the electronics
industry in the country.
6. The private sector also enjoys considerable freedom and incentives
7. Joint ventures under the Foreign Investment Policy can benefit from strategic alliances,
established contracts, financial support and even the sharing of marketing and
distribution networks of the local Indian partners.
8. Electronics and information technology products are freely importable in India.

2.2.2 China
China is a rising global business hub for foreigners investing in its vast electronic
products industry. It also has a large trained pool of skilled labor (Borrus and Haggard, 2000).
China has a favourable business atmosphere for electronic products manufacturer and is a
dynamic, fact-paced economy (Dean, Fung and Wang, 2007; Das, 2013). The electronics
industry in China has seen an expansion and growth three times faster than the national GDP
(Rawski. et al. 2008). China exports vast amounts of notebooks, computers, laptops, televisions
and other electronic items (Svejnar. et al. 2008). Moreover, the Chinese electronics industry is
heavily invested by foreign capital. Successive Chinese governments have taken following steps
to create a favorable external environment for the development of the local electronics industrial
sector:
1. It had reduced both federal and local taxes and import/export duties
2. Improved infrastructure and financial support for private firms
3. Implemented a legal framework for protecting intellectual property
4. Improved education and technical training to produce a skilled workforce for the industry
5. Continued support for research and development in the sector (DeWeaver, 2012).
 Elecdyne 6

2.2.3 Brazil
Brazil is the largest economic power in the Latin American region (Baer, 2001). Brazil’s
domestic market is rapidly expanding and the country has an extensive industrial base and
infrastructure (Franko, 2007). According to Gouvea (2004), Brazil has become one of the most
attractive developing economies for foreign investors. The Brazilian electronics industry has
been showing strong growth and sales volume (Baer and Rangel, 2001). It is also emerging as a
good option for foreign investors interested in entering the electronics market and industry:
1. Brazil is investing in electronics and technology companies, engineering institutions, and
industry associations
2. The country has invested considerably in research and development, product
development human resource
3. Opportunities for outsourcing
4. Strong internal market dynamics
5. Hub for the growing Latin American market

2.3 Macro-Environment - STEEP Analysis

In order to assist the management of Elecdyne, a STEEP table is presented here to allow
a holistic view of the developments in external macro environment.

Social Factors  Increased online shopping habits

 Rising living standards and emphasis
on the quality of life (Floyd, 2014).
 Better educated and empowered
consumers Increased shopping using
smart phones (Nakano and Nguyen,
2013).
 Religious and cultural values
 Consumer values and tastes changing
rapidly (Babar and Shareefdeen, 2014).
 Increased consumption of web and
internet
 Local laws governing business
performance standards, business and
financial activities (Babar and
Shareefdeen, 2014).
Technological Factors  Advanced information systems
 Elecdyne 7

emerging in various fields of operations

and production (Gurel and Cakmakci,
2013).
 New and innovative electronic products
influence how the target market lives,
works and learn new things
 Next generation technology and
research and development key to
success (Gurel and Cakmakci, 2013).
 Rapid changes in technology makes
products obsolete sooner
 Next-generation technology impacting
overall industry trends and practices
(Seung-Ryung and Kim, 2013).
Economic Factors  Developing economies like China,
India, Brazil, etc. are becoming
attractive options for overseas
expansion (Seung-Ryung and Kim,
2013).
 Emerging economies offering low cost
labor and easier access to raw materials
and technology (Floyd, 2014).
 Energy prices on the rise
 Recessionary pressures impacting
household income (Nakano and
Nguyen, 2013)
Political Factors  Tax policies, labor laws, environmental
laws impose greater risks and costs on
the businesses looking for expansion
abroad (Babar and Shareefdeen, 2014).
 Political stability and changes in
government impact local and foreign
businesses in a given region (Basole
and Bellamy, 2014).
 The availability of government
provided infrastructure, health and
education sectors (Gurel and Cakmakci,
2013).
Environmental Factors  Investments in renewable energy
sources becoming popular as fossil fuel
energy sources loose their dominance
 Waste management and environmental
laws impose restrictions on the
operations of the organizations (Basole
and Bellamy, 2014).
 Elecdyne 8

 Consumers demanding more ‘green’

products and environmentally friendly
production processes (Babar and
Shareefdeen, 2014).

2.4 SWOT Analysis for Elecdyne

Since Elecdyne is about to take some of the most important decisions in the life of the
organization in the coming months, it needs to have a thorough understanding of its strengths and
weaknesses before it embarks on the overseas market.

STRENGTHS
OPERATIONS •  An experience of 20 years
in the industry
• Low Cost production of
electronic products   operation costs in Tokyo
• High quality and
competitively priced products
PEOPLE •  Loyal and experienced
human capital for Japanese
market
•  An English speaking top
management who has studied
from abroad
RESOURCES •  Strong brand image and
goodwill
•  Wide range of quality
electronic products
•  Continuous innovation &
technology
WEAKNESS
•  Low profitability
approaching losses
•  Rising production and
•  Lack of exposure and
experience in international
marketplaces and
international trade
•  Rising labor costs
•  Lack of graduate staff in the
organization
•  Elecdyne employees have
little or no exposure to other
markets and cultures outside
Japan
•  Local supplies of raw
materials
•  Local distribution
networking
•  Lack of proper and formal
R&D
•  Company experiencing
product life cycle decline
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2.5 Analysis
India, china and Brazil are selected as the potential markets for Elecdyne for the purpose of creating an international enterprise.
The analysis are based on compare and contrast of internal and external factors which will assist in selecting the country for setting up
the enterprise. A scale of -10 to +10 is selected in order to assess the impact of each potential market. The factors are rated on the basis
of multiplier defined in Table 1.1

Factor Multiplier
Political 1-7
Economical - Cost 1 - 10
Economical - Market 1 - 10
Sociological 1-5
Technological 1-7
Table 1.1: Multiplier Scale

Category Factors Japan India China Brazil

War risk 2 3 (-2) 3 (-2) 2 (0)
Political risk (short-term) 1 3 (-4) 2 (-2) 1 (0)
Political risk (long-term) 2 4 (-4) 3 (-2) 1 (2)
Corporation tax rate (%) - 2014 35.64 34 (4) 25 (6) 34 (4)
Power Distance 54 77 (-3) 80 (-4) 69 (-2)
Political Government action and risk of expropriation 1 3 (-4) 2 (-2) 1 (0)
GDP (%) - 2014 0.89% 5.5% (6) 7.3% (8) 0.3% (-3)
Industrial production growth rate (%) - 2014 1.51% 6.59% (8) 7.2% (10) 2.23% (3)
Inflation rate (%) - 2014 2.90% 4.38% (-6) 1.4% (4) 6.59% (-8)
Unemployment rate (%) - 2014 3.50% 3.8% (-4) 4.1% (-6) 4.8% (-8)
Investment (%) - 2014 (USD Millions) 14226 2801 (-7) 1062000 (10) 4640 (-6)
Economical Cost of labor (per hour) - 2014 $1.26 0.51 (8) 1.08 (6) 1.92 (-5)
 Elecdyne 10

Interest rate - 2014 1.9% 3.2% (-2) 4.2% (-3) 18.4% (-10)
Labor workforce (millions) - 2014 65.54 481.23 (5) 793.31 (10) 106.6 (2)
Commercial risk (A to E) C C (0) D (-1) E (-2)
Population growth (%) - 2014 -0.02% 1.58% (5) 0.49% (3) 1.12% (4)
Age Demographics - 2014        
a. 0-14 15% 20% (2) 13% (-2) 18% (1)
b. 15-64 63% 71% (2) 79% (3) 58% (-1)
c. 65 above 22% 9% (4) 8% (5) 24% (-2)
Literacy rate (%) - 2014 99% 74.04% (-3) 99.2% (1) 84.4% (-2)
Social HIV / AIDS (%) - 2014 0.10% 0.3% (-2) 0.1% (0) 0.6% (-3)
R&D as % of GDP - 2014 3.75% 1.12% (-4) 2.07% (-2) 0.87% (-4)
Technical infrastructure (A to E) B B (0) B (0) C (-1)
Government activity and legislation (A to E) B B (0) A (4) C (-1)
Technological Internet Users - 2014 109,252,912 243198922 (2) 641601070 (7) 107822831 (-1)
Innovation Ranking 52.4 33.7 (3) 46.6 (1) 36.3 (2)
Table 1.2: PEST Framework ((www.clearlycultural.com, 2014; www.nationmaster.com, 2014)

Category Japan India China Brazil

Political 0 -13 -6 4
Economical 0 8 38 -37
Social 0 8 10 -7
Technological 0 1 10 -5
Total Score 0 1 52 -45
Table 1.3: Summary of Total Score
According to the results obtained from the PEST framework, the best option for Elecdyne as the destination of its overseas
expansion is China. It has scored a total of 52 and surpasses both India and Brazil.
 11

As compared to India or Brazil, China has much larger purchasing power parity, and a
robust, diverse economy. Elecdyne will be able to make use of the low-cost production and
operations by establishing itself in China. China will also provide Elecdyne with a ready market
for its electronics products, as China is one of the most populated countries in the world and has
a rising affluent middle class with an increasing purchasing power parity. Elecdyne will also find
that more markets will open for its electronics through the export trade from China to other
countries on the world.

2.6 Winning Country

The country chosen for Elecdyne to expand overseas is China on the basis of:
- Its expanding consumer and electronics products market
- Its emerging middle class and the increased purchasing power parity
- Access to raw materials and energy sources
- Low-cost, skilled workforce
- Business friendly government policies
- Business friendly macro environment
- Research and development sector
- Easy financing facilities
- Well-established infrastructure and communication facilities

When Elecdyne decides to enter China for its overseas expansion, the best entering
strategy would be to establish an alliance with a local partner. Hence, it will be able to benefit
from the existing media and distribution channels of its Chinese partner, and will also be able to
share their knowledge of the local industry and markets. Moreover, Elecdyne will bear only
minimum initial costs as they will share most of their expenses with their partner.
Elecdyne will also be able to share the plant and machinery that the partner will bring to
the alliance, as well as the know-how of local business and industry conditions. There will be
low risk involved in such an alliance, and Elecdyne will only bear part of the costs and risks
involved in operating the business in foreign land. There will be fewer barriers of
communication and language, as the local partner will be able to handle the communication and
advertising messages with the target audience.
 Elecdyne 12

2.7 Choice Strategy

The optimal choice of country for the Japan-based SME, Elecdyne is China as compared
to India or Brazil. The Elecdyne managers, after deciding China to be their number one choice,
are now faced with the decision to pursue a specific business strategy.

Strategies Strengths Weaknesses

Joint Venture - Easy access to new - The partners might
markets have different
- Easy access to objectives
partner’s distribution - An imbalance in the
network level of expertise,
- Increased capacity assets and investment
- Sharing of risks and - Coordination problems
costs with partner between the partners
- Access to more - Different cultures and
resources, in terms of management styles
specialized workforce, (Qiang and Yu, 2014)
finance and technology
(Naughton, 2007)
Greenfield Sites - Design flexibility for - Site may not be fully
meeting project developed and
requirements operational
- Lesser maintenance - Additional
costs development costs
- Improved corporate - Delays on council
and brand image approvals
- Adopted to meet - Site may be difficult to
current and future obtain (Bardhan, 2010)
requirements
(Bardhan, 2010)
Acquisitions - Increased market reach - Need for restructuring
and coverage - Risk of losing
- Quick access to company identity
acquired concern’s - Integration problems
resources and and difficulties
competencies - Cost savings might not
- Risks and costs materialize
involved in new - Unrelated
product development diversification might
decreases create problems
- Market share expands - Might harm internal
(Naughton, 2007) development (Qiang
and Yu, 2014)
Import Trade - Can obtain products - Increased competition
 Elecdyne 13

not available in home from local and

country international
- Maximization of companies
resources - Complex legal issues
- More choice available and contractual
to the company’s obligations
customers - Language and
- Company can utilize communication
surplus production barriers (Qiang and
capacity Yu, 2014)

When Elecdyne decides to enter China for its overseas expansion, the best entering
strategy would be to establish an alliance with a local partner. Hence, it will be able to benefit
from the existing media and distribution channels of its Chinese partner, and will also be able to
share their knowledge of the local industry and markets. Moreover, Elecdyne will bear only
minimum initial costs as they will share most of their expenses with their partner.
Elecdyne will also be able to share the plant and machinery that the partner will bring to
the alliance, as well as the know-how of local business and industry conditions. There will be
low risk involved in such an alliance, and Elecdyne will only bear part of the costs and risks
involved in operating the business in foreign land. There will be fewer barriers of
communication and language, as the local partner will be able to handle the communication and
advertising messages with the target audience.

3.0 Conclusion
China is the best choice for Elecdyne for overseas expansion for a number of reasons.
The labor cost in China is lower than both India and Brazil. Moreover, the availability of and
access to a skilled workforce is comparable with India and even better than Brazil. China has
emerged as the most attractive magnet for foreign direct investments. China is also increasingly
becoming one of the largest consumers of electronic items in the world. Elecdyne will not only
gain easy access to raw materials, human resource and industrial energy resources, it will have a
ready market for its products and services.
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