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International Business Operations: Market Entry Strategy for Motorola in China
Table of Contents
Introduction
Courtesy of the high degree of integration enabled by globalization, attention has been raised to how multinational companies have altered their models to expand into other countries. Motorola’s entry and operations in China are a classic example of the integration brought about by globalization. This paper evaluates strategies that Motorola adopted to establish itself as a major brand in China. Motorola’s operations in China were greatly influenced by the deep integration that the company made in the Chinese economy and into the community in which clients and partners operated.
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Tools To Analyze Strategic And Environmental Factors
The business tools that Motorola used to analyze the strategic and environmental factors are “SWOT Analysis” and “PEST Analysis”. The insights were relevant to the market entry strategy adopted in China.
SWOT Analysis
SWOT Analysis enables Motorola to know their Strengths, Weaknesses, Opportunities and Threats before entering into Chinese market.
Strengths
In its market entry strategy for China, a set of strengths motivated its entry. Importantly, Motorola had established experience in international operations prior to establishing a representative office in Beijing in 1987. Establishing the office acted as a point that facilitated the company’s import-export trade as well as a learning center through which the company laid the groundwork so that they could establish a significant presence (Post et al., 2002).
Prior to entry in the China’s market, Motorola had the financial strength that would enable it to assume a leadership position. Hereby, apart from having the capacity to raise the investment capital in China, the company had the resources for community involvement and humanity (Post et al., 2002).
Weaknesses
In comparison to its competitors, Motorola lagged behind in its technologies. As well, the traditional industry production structure dominated the Chinese market. Hereby, the traditional technology dominated the entire production process. This was likely to hinder the flow of Foreign Direct Investment (FDI) to China (Fung et al., 2006).
As a foreign company seeking to operate in China, it success is dependent on the relationship it establishes with the government. Limited progress had been made in china to respect human rights and copyrights. Furthermore, the productivity of the local labor in China was a major concern. Unlike in the US, the locals lacked managerial talent critical in managing operations while it was evident that it had to hire more Chinese employees to increase its market share.
Motorola was at a disadvantage when compared to local firms because of gaps in understanding the host Chinese culture. Hereby, difficulties are likely to occur between managers and subordinates of the company who are from different cultures due to basic differences in the manner individuals respond to others’ behaviors (Buckley et al., 2006).
Opportunities
The prevailing conditions in China when Motorola was devising its market entry strategy were a motivating factor for them. The government was attempting to accommodate foreign investors and Motorola had established relationships with authorities and officials in Tianjin, which was its initial operating location in China. In addition, Motorola was entering a sector with little domestic competition and brought with it significant new technology that played a role in providing the company with a favorable entry environment (Guthrie, 2012). The perceived benefit being made by Motorola in China increased the company’s relations with the government, paving the way for the company to establish an atmosphere of favorable interdependence and mutual trust.
By venturing into China, the company had first-mover advantages that contributed to its success. This is considering that if a communication revolution were to take place in China, the first mover advantage was to greatly benefit (Fung et al., 2006).
Threats
While China offered a large potential market, Motorola had to be aware of political risks. Any political setback in China would affect Motorola as a foreign company. With the significant economic disparities between provinces, the degradation of the countryside, and rapid urbanization, there remained a threat of social unrest. Furthermore, the Chinese government considered the telecommunication industry as a vital sector. Thus, numerous rules governed the industry. This was likely to be a threat to Motorola considering the strict adherence that foreign companies had to give to regulations and terms that have been set by their contacts (Luo, 2000). China posed a threat to Motorola as the government had imposed content quotas that Motorola had to meet for it to operate in China.
In the period Motorola was making its market entry in China, the concept of market economy was relatively new. The significant differences in philosophy between the market and the foreign companies posed a challenge in finding a common understanding and mutual goals (Fung et al., 2006). Such threats could obstruct Motorola’s trade and investment.
PEST Analysis
PEST Analysis helps Motorola to identify the Political, Economic, Social and Technological factors prevailing in China. These factors would shape its entry strategy in China:
Political factors
From a political point of view, the Chinese market was one of the largest markets with relatively limited foreign participation. The Chinese government played an important part in limiting oversupply in the telecommunication market and this was bound to affect any foreign company. However, the desire to stimulate consumer demand and sustain investment levels in the private sector drove the Chinese government to relax controls and establish a clear regulatory framework making the market attractive to Motorola as the measures provided benefits even for foreign interests (Pecht, 2006).
The conditions of entry favored Motorola’s entry into China as the government made efforts to offer multinationals opportunities to invest in the country. The government was keen to dismiss the prevailing view that existed that the highest value-added products had to be imported rather than manufactured in China (Post et al., 2002).
Economic Factors
In comparison to a developed country such as Japan, China was significantly behind in economic development. However, Motorola’s entry strategy was motivated by the significant promise that China held for the future (Post et al., 2002).
Social Factors
Setting a corporate image in China is a critical aspect for any multinational seeking to enter the local market, as it is likely to experience local government and consumers’ inconsistency or collision. An opportunity to develop the enterprise’s public image was in implementing personnel, corporate culture, materials, and marketing localization (Post et al., 2002).
Technological Factors
Before Motorola entered China, the country was still mired in the technologies of the 1940s and 1950s. This posed significant opportunities considering the government was keen on modernizing its economy and making a long-term commitment. Furthermore, Motorola was aware of the fast technological changes that would characterize the telecom industry. Breakthroughs in technology and offering new services in China would place the first movers at a significant advantage (Chang, 2013). With incumbent firms often failing to move fast to maintain leadership in the emerging generation of services, Motorola was well positioned to exploit the disruptive innovation to dislodge the incumbent industry leaders.
Environmental Factors
In its market entry strategy for China, Motorola had Tianjin as its manufacturing base. The location favored the company considering the advantages of Tianjin’s convenient geographic location, government support and solid industrial foundation.
Motorola was optimistic about China’s future. As a result, the company remained committed to a sustainable ‘win-win’ cooperation with its Chinese partners while focusing on developing technologies, services and networks that meet the demands of China’s market. Committed to being a good corporate citizen, Motorola donated resources to environmental protection.
Legal Factors
Motorola’s entry strategy was subject to the laws and regulations imposed by China’s government and local authorities. A challenge arises since laws and regulations could change, which would affect operations in China. However, as Motorola entered China, the government established a legal system encouraging foreign companies to invest in China (Zimmerman, 2010). The government had established a framework enabling technology-intensive foreign investors, especially in those industries whose technologies were evolving in the establishment of research and development centers.
Identify And Assess Motorola’s Market Entry Strategy
The success of Motorola’s market entry strategy in China was evident through the significantly high growth rate that the company experienced. The company had by 1997 assumed the leadership position in every major market in which it competed in China, especially in cellular telephones and pagers. Alongside this is the unprecedented rate of growth as sales in 1992 were under $250 million while they had reached $1.5 billion in 1994, which was a drastic growth in just two years (Avishai, n.d.). The success of Motorola in China remains an extraordinary case as the company remained one of the most profitable foreign investors in China over the 1990s. The success of the company’s entry can be observed even by the company’s openness in discussing and documenting its China experience.
The speed at which Motorola established operations in China exemplifies the successful acceptance of the company in the nation. Before the company’s incorporation in China, Motorola had already established a relationship with the Tianjin officials. The company chose the coastal city as its initial operating location. Merely three months after its incorporation, it had broken ground and was already producing a range of products for domestic and export markets (Post et al, 2002).
The rate at which Motorola committed its investments in China demonstrates the effectiveness of its entry strategy. It opened its first office in China in 1987 and established a wholly owned manufacturing facility in 1992. Expansion proved a characteristic feature of Motorola operations in China with the company establishing a holding company in Beijing, a series of joint ventures, factories, R&D facilities and sales offices throughout China. Ultimately in 2005, the company was recognized as the Best Corporate Citizenship Practice and the Most Influential Multinational in China (Low and Johnston, 2008).
A central element in the effectiveness of a multinational company is the relationship it can establish with the host authorities. Motorola established close linkages with official government policy, which is central to the success of the company’s entry strategy (Post et al., 2002). In attempts to become part of the plan fronted by the Chinese planning authorities, it also created strong stakeholder linkages to critical government bodies.
The success of Motorola’s market entry strategy in China can be summed by the kind of favorable joint ventures that the company established. Such strategic alliances improved Motorola’s technology and managerial support. Additionally significant, Motorola secured government-related or government-owned network operators and Chinese distributors as its customers who to some extent became partners even though they were subjected to official regulation and pressures (Post et al., 2002). Uniquely and in a twist to the previous conditions that multinationals experienced in China, the government did not interfere or have active involvement in running Motorola’s operations.
The success of Motorola’s entry strategy can be viewed from the goodwill that it established gradually. At first, the company was able to boost its presence after opening sales and marketing offices and expanding investments. In particular, the company trained people across various state-owned enterprises and universities, which gave it direct access to a great talent pool. Moreover, Motorola was keen on being involved in corporate social responsibility to build its brand image in China. For instance, to build its image as a good corporate citizen, Motorola took part in ‘Project Hope’ established by the China Youth Development Foundation aimed at spreading primary education and offering financial assistance to school drop-outs in rural areas to complete their education. In the program, the company also provided training for teachers and donated teaching equipment (Steinbock, 2003). Such mechanisms enabled Motorola to establish the local goodwill that paved the way to establishing a wholly owned semiconductor testing facility in Tianjin.
Appropriateness Of Motorola’s Staffing Approach For Senior Management In China
The great success that Motorola achieved in China was attributable to the commitment that the company had made to people and capital administration (Giudice et al., 2012). For Motorola to realize the goals of its operations in China, it embarked on implementing a localization strategy in the country. To be able to create its corporate image and to occupy the local market rapidly, it sought to achieve the principle of ‘do in Rome as the Romans do’ (Wang Wen-Cheng, 2010). Hereby, Motorola has been undertaking training of Chinese citizens to be senior managers by sending them to their various headquarters and global training centers. Such training proved beneficial considering the immense contribution it made in enabling the local recipients to master and develop management philosophy, global strategy, managerial characteristics and marketing approaches of the company (Jiang, 2003). These facilitated the opening up of their horizons and mastery of advanced management expertise worldwide.
Motorola’s interest in its staffing approach was to avoid conflicts with the government. In China, a ‘federation’ problem may emerge in polycentric staffing. As a result, Motorola found it necessary to ensure that local Chinese filled most of the senior management positions. While moving to China in 1987, all the senior management positions in the company were filled by the parent-country national. However, significant changes in the company’s staffing approach meant that by 2003, 84% of all the senior management positions were filled by local Chinese in the various affiliates that Motorola had established in China. Either overseas Chinese or parent country nationals would fill the remaining senior management positions in the company. In the company’s staffing approaches, Motorola developed a differential compensation scheme as it adopted the localization strategy. The local Chinese were paid at a lower rate than the parent-country nationals (Tian, 2007). This enabled Motorola to meet its strategic objective as it reduced the high-cost structure problem characterizing geocentric staffing.
By being keen on polycentric staffing in the case of the company’s management positions, Motorola was enabled to achieve its strategic objectives as having local Chinese in such positions assisted in resolving the challenge of cultural myopia. The local citizens are more aware than the parent-country nationals, about the manner the business should be run in the specific business environment in China. Furthermore, the staffing approach provided the Chinese with opportunities to move to senior management positions (Tian et al., 2014). Promotions proved beneficial to meeting corporate objectives as they cooled resentments that Motorola would face from local employees.
Furthermore, the establishment of Motorola University in Beijing helped advance the company’s strategic objectives. The company opened business management, communication technology, marketing, and other subjects in which it trained its staff and the joint venture partners, distributors, supplies, state government officials and customers. With the curriculum was adapted to fit the unique Chinese culture and market and integrate Motorola’s business culture and organizational structure, these facilitated faster management staff localization and strengthened the management of development potential.
The maintenance of an open door policy by the company implies that it is easy for the high potential talent to reach upper management facilitating the maintenance of upward and downward communication lines. The development of clear career paths and frequent communication with local high-potential talents increased the likelihood of retaining the talents (Fan, 2006). According to Tian et al. (2014), localization that Motorola adopted for senior management is an ongoing struggle in all foreign-invested enterprises as local Chinese are generally perceived to function better in the Chinese market while costing less than expatriates.
Another crucial element of the localization strategy adopted by Motorola’s staffing approach relates to providing management training for its cooperative partners. An example of the most notable training efforts by the company includes the ‘enterprise optimizing center management training that Motorola jointly launched with China’s Planning Committee. Such projects played a significant role in establishing the company’s legitimacy in China as the focus was on production and quality management experiences that Motorola had (Wang et al., 2010). While these were aimed at increasing the participants’ international competitiveness, they also expanded Motorola’s components suppliers, further realizing stock localization and reducing product costs, reducing the development cycle of new products and controlling inventory.
Branding efforts that Motorola undertook were critical in attracting local employees. This is considered, as the potential employees were interested in working for the company. Hereby, the company’s involvement in social development projects such as Project Hope by contributing to the China Youth Development Foundation has benefitted the company. Coupled with the competitive benefits and compensation packages offered by Motorola, the company managed to be attractive to talented Chinese employees (Nankervis et al., 2013). Such contributed significantly to facilitating the absorption of the most talented people in the workforce critical to achieving Motorola’s corporate objectives.
Conclusion
As Motorola demonstrated in China, globalization entails integrating people, nations, markets, culture, and technology. It has become critical for multinationals to be aligned with globalization, and Motorola has not been an exception. However, how it entered the Chinese market portrayed the maturity that the company had in devising a strategy that would increase business revenues. Maneuvering in foreign markets is riddled with challenges, and the manner in which Motorola handled its entry and operations in China provided insight into focusing on local relationships, respecting the local workforce, satisfying customer needs, and adhering to a strict sense of responsibility. In particular, the localization strategy that Motorola adopted emerges as a desirable strategy that a company can adopt to succeed in unique circumstances in China.
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