Aims and Objectives
When a company decides to begin manufacturing its products in another country it is important that a SWOT and PEST analysis are carried out to determine whether it is really worth the risk. The aims of this research are:
- To perform a SWOT analysis of the company through its employees and
- To do a PEST evaluation of the target country.
Literature review
Market expansion into other countries is faced with a lot of challenges since many elements are out of control for managers or owners of multinational companies. The most important thing to successfully enter a foreign market is the ability to adapt and coordinate a marketing plan in an environment that is unfamiliar and unstable foreign environment (Ofek &Turut, 2008). There are different reasons why companies choose to start new plants in particular geographical regions. One main reason is due to unsolicited demand of products from consumers in those countries (Mugele & Schnitzer, 2008). Business abroad is associated with a number of risks including political environment, and other undesired domestic situations. For a multinational company to choose to enter a particular country, their products must be better than the similar products available in the local market and also the management of the company should be ready to educate themselves about those particular countries through understanding of potential benefits and risks that are likely to occur after opening that new plant abroad (Janssen, 2004). There are different methods through which companies can gain entry into foreign markets and they include exporting products to the foreign market, entering into joint ventures with foreign companies, licensing patent rights to the foreign companies or opening new manufacturing plants in the foreign country. The choice of setting up operational manufacturing plant in a foreign country is chosen when the foreign demand for the products justifies the costly investment (Husted & AllenSource 2007). This also reduces the high importation taxes imposed in many countries in addition to cutting down on transport costs. In many foreign countries, there is availability of cheap labor while providing a better access to raw materials.
One of the important factors that foreign companies should focus on to determine their feasibility in a foreign market is the legal and political environment of the host country. Multinational companies are accountable to laws on both home and host countries. Furthermore legal systems in different counties differ in interpretation and content. Most hindrances lie in product marketing strategies where they have product restrictions and product specifications (Guler & Guillén, 2010). Political scene in the host country is the most volatile aspect of opening manufacturing plants abroad. If the political scene is unstable it may expose the business to many risks which can result into los of labor or damages of the products or the factory. Government regulation s can either bring profits or result to losses. International firms must be able to be flexible to make necessary adjustments to their existing marketing strategies in accordance to the ever changing government policies. A company must therefore be ready to take the risk by venturing into the host country (PESTEL analysis of the macro-environment. 2007). Economic conditions in a country are measured by gross national product (GNP) and economic development which vary widely. It is important for a firm planning to enter foreign markets to first investigate the economic condition of the country. Indicators like individual standards of living have a great impact on the size and the purchasing power of the target market. Trade agreements exist between different countries and therefore it is also important for the management of the company to educate itself on the existing trade agreements that the host country has signed. Knowledge on local and regional economic conditions and the directions that these conditions are likely to take will be essential to determine how profitable the target market is. Evaluation of competition is also important given that if the country is attractive to foreign companies entry there is likelihood that the country would have many imports from other companies. The government in most cases lower the costs required for companies to enter into the country therefore making the competition more intensive
especially if other companies hoping to gain entry offer similar products.
One important consideration that many multinational organizations rarely look at is culture. Culture is a very important aspect and can make or break the existence of a firm in the host country (Li & Li, 2003). Culture refers to the main language spoken by the population, religion, level of education of the population and other social aspects that makes the population react differently to certain events. The basic is to understand the culture of the host country population which makes it easy to conduct business because the managers understand the impact of changing conditions. A different application of strategies from one country differs from those that would be applied in a similar situation in another country. Most common failures are as a result of applying the domestic cultural values in a foreign country. It is important to know that goals and problems can only be defined in reference to the culture of the host country. Most managers are however faced with the difficult challenge of differentiating the cultures of the home country with that of host country such that it influences the product prices and also the product design. In most cases international companies have had to change the brand image in a country to be relevant in the market.
The choice for a company to open a plant into a foreign country is caused by the need to bring services closer to the customers (Saliola & Zanfei 2009). However, a company has to make a decision on whether to open a plant or partner with a local firm through licensing patents. This decision is influenced by distance which is said to have a significant effect on foreign domestic investment volume. The volume of foreign domestic investment decreases with increase in distance (Evans, Felix & Bridson, 2008). This distance is defined as geographical distance and cultural distance. Distance also affects trusts which is considered encourages direct investment. Foreign investors have difficulties in understanding local environment business which is also negatively affected by distance. Cultural distance influences the kind of entry mode that is chosen by a foreign investor. It may cause many companies to get out of joint ventures with local companies because each partner wants to control how business will be run but unfamiliarity of the local business scene will influence the decision for foreign investors to seek partnerships with local companies (Lymbersky, 2008). The level of corruption in country plays a huge role in determining whether a company shall partner with a local company or it is going to start a wholly owned venture. The higher the corruption levels the higher the likelihood of a partnership due to the ease of the communication with local authorities (Couturier & Sola, 2010). In cases where the political situation in a country is fragile yet it holds many customers, a multinational enterprise might start a new plant in a country that is nearer so that they can reduce the distance to customers.
Arguments have been based on the effect of the multinational companies on the local economies especially if they are developing economies. It has been said that the international company link poor and rich economies through transfer of knowledge, capital transmittance, ideas and values. This interaction may result in negative or positive consequences for players both at home and host countries. The research conducted on the influence of the multinational companies on host country economy has been witnessed by the government using various incentives to attract foreign investors in their countries (Cherian et al, 2010). This is done with the expectation that the society would benefit from availability of jobs and also that the entry of international companies would raise competition which would prompt production of quality goods for consumer consumptions resulting in less cases of substandard goods. (Frost Birkinshaw & Ensign, 2002). Positive results would enhance the image of the company thus benefiting all stakeholders. The multinational enterprises are also considered as a source of knowledge to existing local companies because of the technical and managerial sophistication associated with such companies. Other arguments created show that international companies have a very great influence over government especially in emerging economies (Meyer, 2004). This is attributed to the fact that many companies have a lot of capital and are willing to invest it in the host country in exchange of some favors. This includes the favoring of the company by the government over other companies which might see the government policies on tariffs and trade changed to suit a particular company. This happens especially when the company dominates over other foreign investors resulting into an unfair competition ground, (Görg & Strobl, 2003).
Methodology
For a multinational company to successfully start manufacturing in a foreign country, it is important that a SWOT analysis of the company is carried out to determine if it is ready to invest huge revenues into the venture then eventually doing a PEST evaluation on the environment of that foreign country (Saunders, Lewis & Thornhill, 2009) SWOT analysis refers to strengths and Weaknesses, which are internal factors within a business and opportunities and threats external factors determined by the physical environment in which the business engages while PEST evaluation refers to the political, economical, social and technological aspects of environment in a country. In order to carry out the SWOT analysis, a questionnaire will be designed to incorporate discussion questions that will be used. These questions will be given to the company employees for collection of personal views while another data will be collected through discussion of questions in a workshop environment and through the internet blog site. The following is a set of Questions that will be used to compile data on SWOT analysis. Interviews will also be conducted with various employees who will not be available for the discussion but are willing to be part of the research.
Strengths
What advantages does the organization have over others with similar products?
What does the company do better than others?
What unique resource can the company draw on that others do not have?
What is the company’s Unique Selling Proposition?
What does others in the market say about the company’s strengths?
Weaknesses
What does the company have to improve on?
What are other market players likely to see as the weakness of the company?
What factors contribute to loss of sales?
What should the company avoid?
Opportunities
What opportunities does the environment provide?
What does the market trends indicate?
Threats
What obstacles does the company face?
What are the competitors doing that the company is not doing?
What is the status of the product quality standards and do they keep on changing?
Does the company have a cash-flow problem?
Is there a possibility that the company would be threatened by its weakness?
To do a PEST analysis, the data will be collected via the internet and also through research on the literature written about other multinational companies in that country. The following topics will be included.
Political
The type of government and whether it is stable
Corruption levels and press freedom
The trends of regulation and de-regulation
Legislation on the society and employment
Trade tariffs and tax policies in force
Policies on consumer protection and environment protection
New developments I the political environment that may cause change in the country
Economic
Current and expected economic growth
Inflation and interest rates
Costs of labor
Unemployment status and availability of labor
Income distribution level
Technology impact on the economy
Projected changes in growth of the economy
Social cultural
Growth rate of the population
Population age profile
Status of health, education, and social mobility
Public opinion, attitude of press, social taboos
Choice of lifestyle
Attitude to products similar to those manufactured by the company
Socio-cultural changes
Technological Environment
Emerging technologies and their impact
Research and development (R&D) activity
Effects of the internet and costs of communication
Technology transfer impact
Data Analysis
The data collected on SWOT analysis will be classified under Strengths, Weakness, Opportunity and Threats beginning with major factors followed by minor factors. Significance and relevance of the answer will also be considered given that not many employees are keen about the operations of the company and some do not think about the question before answering. Similarly, data on PEST analysis will be recorded in a table based on literature review on the situation in the foreign country considering information from other companies that have established their market there.
Ethical issues
Ethics are the most important aspects in a research as they govern the general conduct involved in executing the research and generating data, (AIAA, 2007). Every research has ethical issues to be considered and followed to maintain objectivity of the research. One of the most important issues is honesty. This refers to honesty in reporting data, procedures and publications. The investigator is not supposed to deceive participants or the public about the research for self-interest. This might occur especially if some one was positively convinced that the data collected would support the claims only for the results to record otherwise. The researcher should however create a discussion and conclusion based on that data instead of doctoring it to prove a point. Maintaining objectivity throughout the research project would avoid bias or self-deception in the research which can be brought by the personal interests (Wu 2008) Promises and agreements made before commencing the research should be kept. To avoid errors or negligence, the data should be examined critically and the records on data collection and research design should be carefully stored to avoid any bleach of confidentiality or privacy (Shaw Petchey & Chapman 2009).
Moreover, it is important to share the data collected, ideas, resources and tools used during the data collection process so that it can be criticized accordingly by others in order to be open on new ideas that can be used in collecting similar type of data. When conducting research it is important to honor copyrights on resource in attempt to respect intellectual property through giving recognition of information and ideas obtained from resources where due too avoid plagiarized work (Mavinic, 2006). It is necessary to keep confidentiality of personnel who do not want to be identified to avoid trouble resulting from loss of privacy to the concerned individuals because through revealing information on the company, they might be fired. After the report is finalized, it is good to publish it in research journals or other means so that others may also benefit from it. The information on environmental scan in other countries to establish whether they are viable for business would be useful to other companies that have similar dreams but have no idea where to start. The
research should be conducted in a socially responsible manner to avoid causing social harms through the research. Discrimination should be avoided at all costs especially race discrimination because the opinions voiced by the each respondent is an important contributor to the research. However, discriminatory factors or references should not be included in the final report. For example in such a research maybe the most people who contributed to the weaknesses of the company were black or Latino or White or of female gender because this could show lack of objectivity in research. The research process is an opportunity for an individual to enhance their competence in conducting research through seeking out information on how to conduct oneself during research. Finally when conducting this research it is important to adhere to institutional laws in addition to those set by the government on research (Stapleton &Thomas 1998). This is in order to avoid unnecessary brush with the law and policies on the wrong side so that research can run according to the time table. Before agreeing to participate in the research it is important that the details regarding the research are communicated and rights to privacy being highlighted so that the participants will give an informed consent towards their participation.
Limitations
Most companies agree to participating in research when there is evidence that the research will be of benefit to the organization like as a way to improve sales or incorporating new strategies into their market entry strategy. This would create delays before permission is granted by the authorities to continue the research. Moreover, the permission is accompanied by restrictions regarding the code of conduct during the research process. Some of the limitations for conducting this research include the policies of the company. This is because part of the data is going to be collected from the employees in the company including the senior managers. The policies may restrict the amount of information revealed during discussions to avoid breaking the company laws therefore not give enough information which might affect the research discussion. Some managers may also be busy and may not have the time to answer the questions given that they travel a lot and so some questionnaires will not be returned. The time given to conduct the discussion is likely to be during the break which might be too little to completely discuss the different aspects of the questions. Also during that break, many employees have other commitments and therefore will not be able to contribute to the topic. Many ideas given will be biased as they will be based on the experience of working in the company that the employee has had instead of looking at the bigger perspective of the success or areas of failure of the company. Other employees are too concerned with their area of specification to pay any attention to other matters concerning the company and therefore their knowledge of the proceedings or performance of the company is limited giving irrelevant answers which will not be useful for the research. During the discussion some employees may tend to dominate the discussion giving only their opinions and not letting others give their views which might be different therefore biasing the final findings of the research.
The other limitation could be the format of the questionnaire which might be difficult for some employees, especially the ones who are to give individual in formation to understand. The depth of the answers given will also affect the quality of the research (Sociology.org, 2007). Another problem that will be encountered is the possibility that individual questionnaires will not be returned and some people might not understand the questions asked. This will affect the truthfulness of the information given which might lead to a misleading conclusion that does not depict the real situation as it is. During the interview the presence of an interviewer can determine how the question will be answered given that many will give incomplete answers or may give misguiding answers. Others are so intrigued by the chance to be included in the research such that they use the opportunity to give what they think which might not reflect the true situation.
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