MNC from an emerging market
13MNC FROM AN EMERGING MARKET
MNC FROM AN EMERGING MARKET
The ZTE Corporation
ZTE Corporation previously known as Zhongxing Telecommunication Equipment (ZTE) Company is a multinational corporation (MNC) in the systems and telecommunications sector headquartered in China. Having originated from an emerging market, ZTE has managed to become the fourth-largest manufacturer of mobile devices in the world. Android tablets and mobile phones comprise the largest percentage of the devices manufactured by the company (Jiang 2005). Currently, the firm uses its ZTE brand to market its products. Moreover, ZTE is an original equipment manufacturer (OEM). Globalisation has yielded both opportunities and threats to the success of the company on the international scene. This paper focuses on the opportunities and threats presented by globalisation for decision-makers. It also includes lessons that managers of international businesses should learn between home and host country differences in achieving success.
Opportunities Presented by Globalisation
ZTE’s global growth strategy is evident in one of its vision statements that states that the MNC should become a true local and global company by 2008. By so doing, the firm intended to reap 50% of its revenue from the international market. The vision statement turned out to be a reality since the firm has emerged to be one of the largest manufacturers of mobile phones in the world. There are a number of opportunities presented by globalisation that have influenced decision making and are responsible for the massive success of the company in the international arena. They include increased market for products, cost incentives, government incentives, and increased competitive forces (ZTE.com, 2016).
Globalisation subjected ZTE to global consumers thereby paving the way for the firm to generate additional revenue from foreign customers (Jiang 2005). Just like other global vendors of telecom equipment, the continued success of ZTE depended on its ability to avail its products to the international market (ZTE.com, 2016). At the time of embracing globalisation, the world’s top 10 mobile operators served the needs of the global market. There were approximately 900 customers of mobile wireless services that required a stable supply of mobile devices. The realisation acted as an incentive for the decision of ZTE to venture into the global market. ZTE realised that the customers were evenly distributed all over the world. As a result, it was imperative for the decision makers in the company to extend its operations as a vendor of telecom devices so as to meet the rising customer demand.
The emergence of global markets due to globalisation implied that telecom vendors realised much of their revenue from global customers as compared to local ones. For instance, 90% of revenues generated by Nortel, Nokia and Ericsson originated from global markets that were outside their home countries. Increased revenue from foreign markets was as a result of the fact that foreign markets are usually larger than domestic markets. As a result, firms that intended to attain higher revenues had to globalise their operations into the global market rather than focusing on home markets. The ability of ZTE to capitalise on global customers and lead countries turned out to be the main opportunities presented by globalisation with regard to global markets (Jiang 2005).
The Cost Driver
There are a number of cost-related forces associated with globalisation that acted as incentives for the decision of ZTE to internationalise its operations. With regard to the experience curve, globalisation yielded a steep learning curve for many companies (Nikoloski & Paceskoski 2015). ZTE gained direct access to leading countries in the telecommunications sector that included the USA, Europe, Canada, and Japan (ZTE.com, 2016). The result was the ability of the company to interact with the leaders in the market thereby gaining substantial experience in the development of customer-centric telecommunications devices. The steep learning curve was contrary to the shallow learning curve experienced in the Chinese market that did not expose ZTE to global demands and requirements about telecommunications devices.
Globalisation also impacted positively on ZTE’s logistics aspect. Globalisation resulted in low transport costs thereby reducing the necessity of ZTE to establish plants in foreign markets. The introduction of better modes of transport such as rail, road and air networks guaranteed the fast transportation of products from the warehouses to target markets (Maggi & Mariotti 2011). Globalisation also yielded cost differences in each market with regard to several factors. The case was different in the local market since prices were similar in all regions. The differences in prices enabled ZTE to determine better target markets that yielded better earnings to increase its revenue. The increased exposure of the company to the global market also yielded rapid technological changes in accordance with the underlying technological trends in the market. The result is the ability of ZTE to develop telecommunications products using the latest technology thereby meeting the demands and expectations of customers in the contemporary world.
On the aspect of logistics, MNCs have not found it profitable to establish new plants near their customers. As an alternative measure, they have resorted to establishing their production facilities in Southeast Asia to capitalise on reduced production costs and the adequate availability of labour in the region. The incentive is to lower costs of production thereby availing equipment to the market at reduced costs. As mentioned before, globalisation enhanced the necessity of investing in research and development to develop products that address customer needs (Ibrahim 2005). Globalisation also escalated the pace of developments and changes in the telecom sector thereby making the adoption of latest technologies a prerequisite for companies. Globalisation has catalysed the introduction and adoption of such technologies. Ever since the introduction of the wireless technologies in the 1980’s, the sector has witnessed paradigm transitions and interventions from the first generation to the second generation and finally the third generation. The inventions for the first, second and third generations were the NMT, GSM and CDMA and UMTS respectively. Currently, wireless technology has seen new inventions such as 3G and 4G networks that have enhanced the ability of telecommunications devices to upload and download information from the Internet.
The fact that globalisation encountered a positive reception from the Chinese Government implied that firms could capitalise on the opportunity to expand their operations (Branstetter & Lardy 2006). ZTE was no exception. It is evident that the market for global telecom equipment is one of the most international markets due to reduced barriers of trade in the industry. The sector also exhibits a relatively deregulated market for telecom services. The success of leading firms in the US and UK emanated from the decision of their respective governments to deregulate internal telecom markets as early as the 1980’s. The result was a dramatic rise in the international trade of equipment in the telecommunications sector. The recent decades have also witnessed developing countries in the Latin America also deregulate their telecommunications market thereby increasing the market for telecommunications equipment for the vendors in the sector. Market deregulation provided significant opportunities for ZTE to avail its products to such markets. Access to global markets also disentangled ties that existed between local firms and local carriers in Chinese thereby enabling ZTE to form foreign partnerships with foreign carriers (Wu 2005).
Globalisation also resulted in the development of interoperable and compatible communication standards (Atkinson 2009). This paved a way for developing telecommunications equipment that can serve all markets in the world without the need for hardware adjustments. In order to attain the objective caused by globalisation, ZTE and other major vendors in the telecommunications sector created and attended international forums to enable the development of interoperable and compatible technologies.
Increased Competitiveness Driver
Globalisation resulted in the massive deregulation of national markets for telecom services in both developing and developed nations. The result is a high volume of imports and exports of equipments in the telecommunications sector (Brooks et al. 2010). Since the number of telecom operators in the world is limited, globalisation has provided a fair platform of competition for all vendor firms in telecommunications equipment. ZTE just like other vendors competes in the global market for contracts with telecom operators. Besides competing on contracts, telecommunications vendors also cooperate on technologies to ascertain the development of equipment using the latest technologies. Such competitions have yielded fierce battles since vendors have to compete for the limited contracts offered by the available telecom operators. The use of foreign partnerships in the globalisation drive has enabled ZTE to win several contracts with global telecom operators. ZTE has focused on technology partnerships that have enabled it to capitalise on its local understanding of foreign firms as a strategy of entering foreign markets. ZTE has focused on distribution and service sectors (ZTE.com, 2016). Globalisation has enabled ZTE to benefit from the influence and assistance provided by foreign companies that have distinctive understanding of the sector as well as substantial globalisation experiences.
Threats Emanating from Globalisation
Lack of Competent Human Resources
The decision of ZTE to go global has created the need for expert human resource personnel to be responsible for managing the company. The success of the company on a global scale depends on the existence of senior management team that has the required skills (Meyer 2009). With reference to the challenge, ZTE found the need of grooming a Chinese management team internally by providing the required training and development in skills about the management of global businesses. The other option that ZTE could have used to deal with the skills issue is the recruitment of foreign professionals in human resource management. The professionals can either be of Chinese or foreign origin. However, hiring foreign professionals poses another challenge for the company since it is difficult for foreign individuals to understand and implement ZTE’s corporate culture.
Building Global Brands
ZTE has also encountered numerous challenges in its efforts to build brands that serve the global market (Fan 2006). Just like other firms, ZTE attributes high significance to brand ownership due to the contribution that brand ownership plays towards brand marketing. However, the challenge faced by ZTE and other Chinese firms is the inability of the firm to invest heavily in brand ownership as it has been the case with Coca cola and other global brands. Venturing overseas has necessitated the development of a globalisation strategy that determines how the firm would differentiate its products in the global market to create value and use the right business model. Prioritising target countries for market entry has also posed significant challenges to the company. The survival of a company in the global marketplace requires the firm to differentiate its products beyond price differentiation as is the case with most Chinese brands. ZTE should also differentiate itself in terms of innovation and brand.
In essence, globalisation has yielded the challenge of attaining excellence in at least two dimensions for the company to succeed in the global marketplace. ZTE has had to fight towards excelling in the establishment of an effective industrial or customer brand as well as process or product innovation (IBM 2006). The fact that Chinese firms pose as anonymous contract manufacturers implies that they have insignificant consumer branding power in the global market. This explains the decision of some firms to become leaders in the manufacture of low-cost products as an innovative strategy. Prior to the advent of globalisation, ZTE and other Chinese companies did not have to position their brands properly in the market as a prerequisite for success. However, globalisation has compelled Chinese firms to invest heavily in their brands as a necessity of competing favourably.
Difficulty in Selecting a Market Entry Strategy
It is evident that there is no single market entry strategy that guarantees success on the part of the company that intends to globalise its operations (IBM 2006). ZTE has faced its globalisation process by creating capabilities in established markets such as the US and UK prior to finding access in emerging markets such as other Asian countries and Africa. The firm has also considered Africa to be a favourable investment decision since Africa is an emerging market. The difficulty in selecting a proper strategy to enter new markets emanates from increased competition that ZTE witnesses in most markets particularly developed economies. The last few decades have witnessed an increase in the number of firms in the telecommunications sector. The greatest competitors in the global market include Samsung Electronics and Apple Inc. as well as domestic competition from Infinix and Huawei. The challenge has compelled ZTE to differentiate its products in the market to compete favourably with already established brands.
Lessons learnt about the interplay of home and host country differences
International business managers should understand that doing business abroad is different from doing business domestically. As a result, there are a number of areas of focus that managers should address in their quest to attain success in the foreign market. The areas include cultures, levels of competition, market intelligence, international law, technology, logistics, and media.
It is evident that media plays a pivotal role in advertising products in the foreign market. As a result, the selection of a marketing strategy for a foreign market is void if it does not encompass the appropriate media for marketing its products. Business managers should be aware of the exact types of media that are available in the market (Harrison 2011). The managers should also understand the most preferred type of media that individuals in the target market use to access information about products and services. On the aspect of media, managers should understand that not every customer has access to the Internet. Moreover, not every individual in the emerging market understands how to read and write.
Business managers that delve into international business should understand that no two cultures are similar. The implication is that each foreign market has its own culture (Harrison 2011). As a prerequisite to achieving success in the international market, the manager should understand both the business and social culture of the target market. The manager should understand that culture defines all aspects of a society including business practices, response to marketing and advertising and negotiations associated with sales. Managers should prioritise research on the culture of the society of the target market before entering the market. Cultural areas are sensitive at all times. As a result, the success of a business in a foreign market depends on the successful integration of the pertinent cultural aspects of the target market.
Managers of international businesses ought to consider three main points while gathering market intelligence. Firstly, they should understand the working of the market. They should also understand the particular source of direct competition. Lastly, managers should devise the best strategy of entering the market (Dumitrescu & Vinerean 2010). Emerging economies pose difficulties in gathering data due to their less-developed statuses. However, a manager of an international business that intends to enter an emerging market should gather as much information as possible to guarantee a successful entry into the market.
Managers of international businesses ought to understand that countries set their laws in accordance with the needs of their citizens as opposed to the needs of foreign companies (Harrison 2011). As a result, it is imperative for a business manager of a multinational corporation to honour international law. Honouring international law such as the law on intellectual property eliminates possible conflicts with local firms with regard to the manufacturers of existing rival products.
Before entering an emerging market, managers of international firms should understand that different countries have different levels of development of critical business infrastructure such as roads, railways, and water and air transport channels (Fischer 2003). Managers understand that such infrastructure determines the ability of their companies to transport products to the market. Prior to committing to the market, managers should conduct intensive research on the existing infrastructure to understand how locals transport their products to the market.
Foreign markets exhibit varying levels of technology advancement (Dahlman 2007). Therefore, managers of international businesses should gather substantial data on the degree of technological sophistication in relation to the complexity required to manufacture its products or offer its services. By so doing, they will only invest in foreign markets whose degree of technological sophistication can meet the demands of their company.
Level of Competition
Apparently, MNCs anticipate a hypercompetitive foreign market environment that surpasses the domestic competition. Managers should understand that the level of competition in emerging and other foreign markets is complex and dynamic. As a result, they should use tools such as the Porters Five Forces Analysis to assess the supplier power, threats from rival products, buyer power, and the threat posed by new market entrants (Porter 2008).
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ZTE. Com, 2016, <http://www.zte.com.cn/global>