International Economic Strategies Analysis
Generally, company’s products have long-term market potential, as the product is popular despite the high price. As we already have retail outlets in major Asian cities and access to plenty of production capacity and capital, our company can expand its activity to the whole Asian region. Furthermore, the company’s downstream functions have already been transferred to the region. Thus, the business outside of the USA will be organized as region centers with regional headquarters in Asia.
Formation of region centers implies creation of regional headquarters or appointment of a ‘lead country’. The company will set up one headquarter in order to play the role of coordinator and stimulate sales in the whole region. There will be local wholly owned subsidiaries in each country of the region dependent from the head office. To set up the presence of subsidiaries on the local markets, it is necessary to establish an initial presence through a local distributor or through a joint venture. Such major factors have influence on the choice of the lead country: the marketing competences of the foreign subsidiaries; the quality of human resources in the countries represented; strategic importance of the countries represented; location of production; legal restrictions of host countries (Casson, 2000).
Our platform country, such as Singapore, can be used in the starting phase as bases for gathering intelligence and initiating first contacts that can later become the center of regional coordination. Singapore market already has significant economic infrastructures and well-established local and international competitors. In the entry phase the task here is to find an approach to acquire through huge investment the essential operational capability to catch competitors up. The role of the leading country consists of facilitating the adaptation of cook ware line of goods into local country strategies to meet the appropriate requirements for each consumer. Thus, there are many socio-cultural differences between the USA and Asia (e.g. differences in consumer purchasing behavior). Therefore, marketers of the company need to provide in-depth analysis of the market and then adjust their strategy to the unique elements of each market. As it should be expected, the adaptation approach is more expensive and time consuming. In addition, the strategy of the head office is supporting local subsidiaries in their development (Lasserre, 1996). Our forthcoming strategy is location of subsidiaries in the growing countries, such as China and ASEAN countries. A significant presence in these markets gives us a chance to capitalize on the opportunities generated by rapid economic development.
What advantages would that bring for the company? First and foremost, in some markets – China, for example, the wholly owned subsidiaries can be erected much faster than joint ventures with local companies that may consume years of negotiations before their final take off (Vanhonacker, 1997). Such entry mode approach allows being mutually coherent with region and business strategies. The adequate synergy is fully identified and exploited across the business and countries. Besides, one subsidiary does not harm another, as they are coordinated by head office. Formation of region centers leads to the regional scale efficiency. As resources and people are flexible, they can be put into operating units around the world. Of course, our potential profits are higher because we are removing the long chain of middlemen. Also, the control level over all aspects of the transaction is higher. Formation of region centers provides knowledge of our target customers. They feel more secure in doing business directly with us. After all, they ensure faster and immediate feedback on the product and its efficiency in the market. With establishment of region centers, we get a bit better defense of our copyrights, patents, trademarks, etc.
However, there is a chance of missing communication between head office and subsidiaries in case if regional manager can feel no influence. The region orientation of the company could cause limited national-level responsiveness and flexibility. Furthermore, the more subsidiaries a firm establishes, the more it needs to coordinate or integrate them. After all, this entry mode needs sound investment in the involvement, time management and finances. There are considerable risks, too, as subsequent withdrawal from the market can be very expensive – not just in terms of financial expenses but also in terms of reputation in the international and domestic market, particularly with customers and staff (Porter and Fuller, 1986).
Apparently, establishment of region centers undertakes more time, power and capital than we can afford. Servicing such type of business will require more responsibility from every department of our organization. When major barriers exist, the wholly owned subsidiaries are hard to divest and, therefore offer very little flexibility compared to other entry alternatives.
On the other hand, in the final stage the region centralization companies can coordinate and integrate operations across national boundaries so as to achieve potential synergies on a global scale.
To sum up, the establishment of headquarters’ subsidiaries will perform for us a distinctive role. Their major responsibilities are to coordinate and control activities of the firms' regional affiliates. They can position firms better for the regional integration of marketing, finance, R&D, component manufacturing and assembly. The wholly owned subsidiaries give companies full control of their operations. It is often the optimal solution for companies that do not want to be faced with risks and anxieties associated with other entry modes. Full ownership means that all the income goes to the company. Fully owned enterprises allow the investor to manage and control their own processes and tasks in terms of production, marketing, logistics and sourcing decisions. Setting up regional centers with fully owned subsidiaries sends a strong commitment signal to the local market.
