14MONOCHARGE’S ENTRY INTO CHINA

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14MONOCHARGE’S ENTRY INTO CHINA

Executive Summary

Monowear Design, a small American mobile device innovator intends to enter the global market. The company has a unique product known as the MonoCharge. The MonoCharge is a wireless charging device for Apple smart-phones and smart-watches. A prolific market is China, one of the biggest markets in the world. This report provides an environmental analysis comprising of a PESTEL and SWOT analysis. The findings indicate that China is a viable market, whose main source of opportunity is in continuing legal and policy reforms. The reforms suggest the possibility of a brighter future for Monowear Design. The main threat posed however is the possible rise of Apple’s competitors in China, which could threaten the demand for MonoCharge. There is therefore the recommendation that:

  1. Entry into China should be gradual, to give more time for the reforms to be complete

  2. There should be development of an alternative MonoCharge version that will be compatible with the next big mobile device brand that may arise

Introduction

Mobile device users often experience the inconveniencing challenge of having to carry many charging cables around. As a solution, Monowear Design, a small business based in San Francisco, California United States came up with an innovation called MonoCharge. This is a wireless charger specifically made for iPhone and Apple Watch users. MonoCharge uses Qi Wireless Charging Technology, a concept which is increasingly becoming integrated into various models of high-end smart-phones. Unlike other wireless chargers, the MonoCharge enables the use of one charger for different Apple devices, and it can charge both the phone and the watch at the same time (MonoWear Design, 2016).

The Choice of China

The MonoCharge needs to be taken into the Chinese market, mainly because of the extremely high potential that China presents. China is for instance the largest iPhone market in the world. It is also the biggest market for the Apple Watch, with more than 20% of the devices manufactured worldwide being sold in the country (Jing Daily, 2015). By September 2015 alone, more than a million Apple Watches had been bought in the country (Evans, 2015). During 2015, revenues for Apple in China stood at $58.7 billion, a massive increase from 2014’s $29.8 billion (Singleton, 2015). The excellent performance of Apple devices in China therefore makes it a good target for the international entry of MonoCharge, an accessory designed for use by Apple. This report therefore offers an environmental analysis of China as a target destination for MonoCharge.

PESTEL Analysis of China

An understanding of the Political, Economic, Social, Technological and Legal aspects of China’s business environment will be useful in assessing its suitability.

Political

China is one of the most attractive destinations for international business investments (Xie & Zhou, 2014). From the political perspective, China is an attractive option because:

  1. It is currently one of the world’s strongest economic powers, and this has enabled the attraction of more international business through its soft power

  2. The political class actively encourages legislations which promote Foreign Direct Investment (FDI)

  3. There is still a transition into a free market economy, and this provides a good opportunity for firms such as Monowear Design because the environment offers enough affordable labour for creating its value chain

  4. The Chinese government is continuously trying to embrace global marketplaces and free commerce, and in so doing guarantees the protection of corporate assets and private property as ways of reassuring foreign investors

Economic

For most years since the beginning of reforms in 1978, China has been experiencing a good economic growth at an average of at least 8% per year (Cevik & Correa-Caro, 2015). The sustained economic performance has shaped the business environment because:

  • It has led to a continuous increase in many people’s standards of living, therefore disposable incomes and demand for premium products such as the iPhone and Apple Watch (Sile, 2016)

  • There is a good amount of capital input in the economy because of high levels of household savings, and because many foreign firms are attracted to the country, there is a lot of FDI

  • The country has in the last five years undergone a significant growth in its GDP, with some analysts suggesting that if the rate is maintained, then the country can become greater than the United States.

The socio-cultural element of China is a significant issue because the country’s demographics are always changing (Shen, 2004). It is therefore notable that:

  1. In China, age distribution and population growth trends are always fluctuating. As a result, there is the adjustment of cultural values and social trends

  2. Social behavior and family size have a significant role in determining the ways in which decisions are made

  3. Factors such as education, emigration, religion and consumer lifestyles significantly impact on the overall Chinese culture, with socialist ideology and Confucian influences guiding much of day to day life and state decisions

  4. The country has a very large population. With faster growth of industry and urbanization, millions more people are expected to be moving into cities from rural areas hence boosting the labour force.

Technological

China is generally a technologically advanced nation, and the market for mobile devices has been among the most competitive in the world (Jing Daily, 2015). Related to this:

  • Internet access is at a very high level, and the technological environment in China is quite developed with a lot of overseas information transfer

  • China has hundreds of millions of users of the internet, as a result of which even aspects such as online shopping have been embraced by many people. E-commerce is well-developed with for instance Taobao acting as a shopping destination for many people, making it the largest, and there are projections that e-commerce will grow even further e

  • E-commerce is however not fully embraced because there is a fraction of the population which associates it with certain perceived risks, as a result of which they opt for shopping in physical locations

  • The country lacks a stable system for online payments. Buyers in China score highly in terms of Long-term Orientation and Uncertainty Avoidance and this worsens the challenge of acceptance by those who fear online shopping

The massive change and economic growth experienced by China has been guided by new laws and policies (Morrison, 2010). It is notable in this regard that:

  • The country’s legal guidelines relating to international business are still developing, and the law is characterized by a lot of ambiguities and at times even gaps

  • China has been continuously opening up its markets to international businesses by aligning its laws and regulations to the guidelines provided by the World Trade Organization

  • Friendly legal provisions have led to creation of a country which is very attractive to international investors

  • China is undergoing a lot of legal and structural reforms, and it is believed that if they end up ensuring a good balance between all the factors involved, the future for international business will be made even better

  • Nevertheless, while economic opportunities in the county are many, the legal framework within which they exist is still often a challenging one.

SWOT Analysis of China

China is a high-potential market for MonoCharge and the company stands to benefit a lot if it understands the local external environment within which it will be expected to operate in future (Shen, 2004) Particularly, the political stability and fast economic growth make it an interesting destination (International Business Publications, 2015). The issues may be summarized into:

Strengths

  • Good Economic Conditions. Economic growth is likely to impact on MonoCharge sales. The high GDP growth in China suggests that every individual citizen is putting in additional value to the society, therefore boosting consumer purchasing power

  • There are low labour costs. China is attractive because even with only the running of a country office and distribution networks, the operational costs are likely to be low too.

  • A highly competent workforce. There is a large pool of workers with various aspects of expertise, from which Monowear Design can pick its local workers. Literacy levels in China are also relatively high, because more than 90% of its population is literate

  • There is an institutionalized encouragement of investment. There are incentives by government at various levels in china. Local and provincial governments offer good terms to foreign businesses within their jurisdictions, as long as they can create product export or employment opportunities

  • Political stability. The political system is extremely strong and has been able to ensure continuous stability. The predictability that has resulted makes it a more appealing investment destination , even though Monowear Design already had a specific interest in the country

Weaknesses

  1. Complexity in supply chains. Most foreign firms find it difficult to get into the domestic markets because of the issues arising, especially due to the policies aimed at ensuring that an incoming business will only find it easier if it has a Chinese business partner

  2. Bureaucracy. Processes in China take long to be completed because of the bureaucratic steps needed, and approvals required

  3. Frequent incidents of product counterfeiting. Counterfeiting is a reality which the Chinese government has acknowledged and is actively fighting. However, the complexity of controlling this has meant that the practice continues even with the restrictions.

  4. The strict nature of advertising. Media if government controlled and advertisers are snot supposed to compare themselves with others or claim superiority

  5. Policy changes are at times made very fast and in the absence of consultation, without warning and might at times not be the most favourable to international businesses.

Opportunities

  1. Rapid development of industrial infrastructure. Banking and insurance facility expansion has made it possible for foreign firms to get the confidence to reinvest in the Chinese economy. If the growth continues, the attractiveness of the country will improve.

  2. Continuing legal policy reforms. Regulations have sought to ensure that foreign and local enterprises receive equal status within the economy. The government seeks to provide favourable policies to encourage international businesses at the national level, and is for instance developing new standards relating to performance, environmental sustainability and product safety

  3. The high level of internet access. With much of the country’s population having reliable internet access, there is a possibility that the market any products that are related to mobile devices in general will expand further in future (Singleton, 2015). This is because many people opt for mobile devices for internet access.

  • The rise of Apple’s competitor brands. Most notably, Huawei, one of the competitors, is a rising market performer (Sile, 2016). If Huawei manages to overtake the iPhone in popularity, then the market for MonoCharge might be significantly reduced.

  • The Persistence of Socialist philosophy. Even though there have been a lot of reforms, the traditional socialist ideals have continued to be at the centre of culture in China. This is risky because it is likely to compromise the legal and political environments, and by extension foreign investments such as Monoweat Design’s.

  • Lack of economic equity. There are continuous complaints about power and wealth inequity, unemployment and the state of poorer provinces in the interior. Such complaints are likely to threaten the stability of the business environment in future

  • The presence of many restrictions and rules relating to business. Regulations may at times block some firms from engaging in certain business activities or simply introduce tough rules relating to financing, technology, wage and price and wage controls or taxation.

Conclusion

China is a highly attractive target for Monowear Design in its international expansion. MonoCharge’s expansion into international business is likely to be driven by the goals of attaining cost reduction as a strategic objective and strengthening the company’s core competencies within its business. These will be easy to achieve, considering the low labour costs that are anticipated, and also the skill pool from which employees will be selected in China. From the environmental analysis however, the main source of opportunity for Monowear Design appears to lie in the continuing legal and policy reforms. The main threat to it is on the other hand the rise of competitor brands to Apple, because the decline of iPhone or Apple Watch as brands would heavily impact on MonoCharge.

Recommendations

Monowear Design’s entry into China will be a good idea. Considering the main identified opportunity and threat however, if it does so, the best approach for its entry should be a branch office, then as the legal framework becomes friendlier to Foreign Direct Investments and more global, then it can transform into a Fully Owned Subsidiary. Most importantly, it will need to be willing and ready to integrate Chinese culture into day to day operations. Competition from other brands is on its part an issue of concern. This is because with technological gadgets such as smart-phones, it could imply a total decline of the status associated with the brand, and MonoCharge will find itself also losing demand. The development of MonoCharge versions for other device models apart from Apple in future will help in dealing with this challenge.

: In order to enter the Chinese market, a number of strategies for entry in the international market can be applied. It is important for the company to examine the various options that exist and select the most viable approach. Based on the fact that the company is still small, raising a large amount of capital for international expansion can be difficult. The best approach that the company can adopt is to use licensing. A license is an approved authority to permit the usage and distribution of intellectual property to another company at a charge (Gillespie and Hennessey, 2015). In this case, Monowear Design will be licensor because the company owns the intellectual property rights for the MonoCharge Wireless, while the company permitted to sell and market the innovation in the Chinese market will be the licensee.Strategy of Market Entry

A significant advantage of licensing is that it is a low-cost plan of penetrating foreign markets (Gillespie and Hennessey, 2015). The company will get the chance to still obtain income from foreign markets without too much participation in the business at a minimal cost due to lack operational costs linked with running a business in external markets. More necessarily, licensing avoids the risks connected to conducting operations in a foreign market. Problems that can emerge in the Chinese market may include; legislative requirements. Financial risks may also originate from economic problems in the foreign market, however China is a stable economy. Also, social challenges may affect the business. Despite the challenges, the company can start by venturing into the market through licensing due to the low operational costs.

When selecting a licensee, it is vital to inspect the regulations of the country concerning licensing. It is therefore important to select a licensee that meets the regulations of the Chinese market. For example, the Chinese government may favor independent local manufactures so as to develop the local industry. It is therefore significant to evaluate the countries regulations concerning licensing and whether the chosen licensee is legalized to function in that market (Gillespie, K and Hennessey, 2015).

References

Cevik, S and Correa-Caro, C. (2015). Growing (Un)equal: Fiscal Policy and Income

Inequality in China and BRIC+: IMF Working Paper. Washington DC: International Monetary Fund

Evans, J. (2015). Apple Sold over a Million Units of Apple Watch in China. Retrieved on 11 August 2016 from

<http://www.computerworld.com/article/2980277/wearables/apple-sold-over-a-million- units-of-apple-watch-in-china.html>

Gillespie, K and Hennessey, D. (2015). Global Marketing. Routledge.

International Business Publications. (2015). China Investment and Business Guide: Strategic and Practical Information. Washington DC: International Business Publications

Jing Daily (2015). Apple Watch and Hermès: a Match Made for China. Retrieved on 11 August 2016 from

<https://jingdaily.com/apple-watch-and-hermes-a-match-made-for-china/>

Monowear Design (2016). MonoCharge: Wireless Charging Reimagined. Retrieved on 11 August 2016 from

<https://www.kickstarter.com/projects/1843570774/monocharge-wireless-charging- reimagined?ref=popular>

Morrison, W. (2010). China’s Economic Conditions. Collingdon: DIANE Publishing

Shen, M. (2004). How to do Business in China. Pittsburgh: Dorrance Publishers

Sile, A. (2016). Apple Gained High-end Smartphone Market Share in China, Nielsen Report Reveals. Retrieved on 11 August 2016 from

<http://www.cnbc.com/2016/04/27/apple-gained-high-end-smartphone-marketshare-in- china-nielsen-survey-reveals.html>

Singleton, M. (2015). China is Becoming Apple’s Most Important Market. Retrieved on 11 August 2016 from

<http://www.theverge.com/2015/10/27/9622578/china-is-becoming-apples-most- important-market>

Xie, Y and Zhou, X. (2014). Income Inequality in Today’s China. Annals of the National Academy of Sciences. Vol. 111 (19): 6928-6933