Business Expansion Report on Proposal Essay
- Length: 11 pages
- Sources: 11
- Subject: Business
- Type: Essay
- Paper: #6396270
Excerpt from Essay :
The differences in culture with the American culture will meant the American staff that may go to help open the branches in China will have to take quite some time to learn the culture and the ways of the people there.
The other difficulty will be the language barrier that may exists between the Americans and the Chinese. It may even call for a translator in the initial days as transactions between the American sales people and the Chinese customers, or interaction between the staff themselves may be a big challenge.
On the technical side, the Wal-Mart may have it hard when it comes to acquainting themselves with the market trends and the competition from the older players who are already in operation in China. It will take a lot of research work to be able to know the finer details of the market trends and the ways through which such competition and other market challenges that may exist between the host market and the new player.
3.0 Patterns and trends of trade between China and USA
China, like many other developing countries had for a long time adopted the import substitution strategy especially in the manufacturing sector, accompanied by high protective barriers. It is a strategy that discriminates against the export manufacturing and the imported goods and advocated more for the manufacturing for the domestic consumption. This made the Chinese population get acquainted and glued more to their brands and shunned the foreign brands, an attitude that still exists in China in a significant proportion. However, in the late 1960s leading to 70s and onwards, these developing countries China included started shifting towards the outward oriented development strategy which focused much more on exports than before and allowed importation of other countries' goods into China. This external engagement was further fuelled by the exhaustion of the imports replacement and the narrowing of the markets which could not sustain the high cost of imports substitution. This prompted China to start a vigorous promotion of manufactured exports. It is against this trade trend that Wal-Mart will be setting up camp in China hence it will be incumbent on the management to mix the local products and the imported products in order to balance and meet the needs of the diverse clientele that is present in China.
The presence of Multi-National Corporations (MNCs) like Microsoft in China in the face of the continuing globalization is a positive factor for the Wal-Mart in their bid to establish their stores in China. There is however a challenge when it comes to the obedience to the multi-national agreements since, as opposed to the U.S.A., China is fond of flaunting the rules and agreements that are contained in international agreements like General Agreement on Tariffs and Trade (GATT), General Agreement on Trade in Services (GATS), Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS) (Jean-Marc F.B., 2007). The tendency of China to ignore in part or as a whole the terms of the agreements, or to extremes not belonging to the International agreements poses a challenge to Wall-Mart since it would be hard to synchronize the trade trends that Wal-Mart is acquainted to in the U.S.A. that respects the agreements and a country where these agreements are flaunted at will. This mismatch will be accelerated by the fact that there will be a price differences between USA and China due to the varying trade agreements honored in the two countries. There will be more factors to be looked into more than just the dollar rate and the cost of imports, hence Wall-Mart will have to engage more of the extraneous factors that are prevalent in China and not found in the U.S.A. The factors can and will include the perceived difficulties of doing business in China (that is regionally different from the U.S.A.), the strain of social integration, the government controls that is evidenced in many quarters in China, a thing that is quite different from USA.
It is also worth noting that there has been an increase in the importation of goods from China into USA and in many aspects this is seen as a threat to the industries in the U.S.A. This however is a myth that is dispelled by Council of Economic Advisors (2004) which indicates that it is simply a substitute for the hitherto declining importation from other Pacific countries. It is also worth noting that China has become a large scale buyer of agricultural commodities, raw materials, machinery and electronic components from South East Asia as noted by Sadanand Dhume (2002), an indication that Wal-Mart still has a vacuum to fill in the China economy particularly in the supply of fresh agricultural products and the raw material for the hospitality and food industry. There are however the other eminent challenges that Wal-Mart will have to surmount in China that include the protection that the Chinese businesses get from the local governments and the protection of trade secrets that highly exists in China. However, with the international reputation and experience that Wal-Mart has, it will be possible to find alternatives to the hindrances that will allow the business to be at par with other internal competitors in China.
4.0 Exchange regimes in China and USA
For a very long time China has always protected their currency the renminbi pegging it against the U.S. dollar at an exchange rate of 8.28. It was not until 2005 when the People's Bank of China allowed a revaluation of the rate to 8.11 and appreciation of 2.1% according to Mark M. Spiegel, (2005). This is a different situation from other countries where over the years the dollar has been appreciating significantly. On the other hand, the American dollar in the U.S.A. has more floating exchange rate than the Chinese renminbi allowing the prices to be determined by the market forces in terms of supply, demand and even labor availability.
The other challenge in the trade trends between the two countries is the exchange rates that are continuously manipulated by China. This exacerbates the weak currency condition created by the trade deficit that exits between the U.S.A. And China making the American dollar weak on the onset. To curb this, traditionally companies have resorted to carrying large cash balances or borrowing hugely in the currency of the host country or even hiking the prices. However these mitigation measures don't always work since the competition is rife. The suggested effective mitigation Wal-Mart is to employ operational hedging. These include having a flexible supply chain, distribution patterns and financial positioning that Wal-Mart can make swift changes on where they source, sell and possibly manufacture (Delloite Development LLC., 2006). These will help Wal-Mart manage the risk exposures since they will be able to manage the cost and revenue sensitivities to offset the exchange rate risks.
This then presents Wal-Mart with a challenge when it comes to importation of items into their China branch. This will in turn force the Wal-Mart to concentrate on sourcing for their stock from within the Republic of China and avoid transactions that are done in dollars unless inevitable. This is due to the fact that the importation cost will be so high and the items will end up losing value once they land in China making it tricky when it comes to pricing.
Currently, there is a USA trade deficit with China of $252 billion which was recorded in 2010, which means that the U.S.A. imports more in terms of goods and services from China than it exports to China. This is due to the fact that China produces cheaper goods that the Americans want. The competitive pricing is due to the availability of mass man power which allows Chinese companies to pay lesser salaries as well as an exchange rate that is always lower than the U.S. dollar (Kimberley Amadeo, 2011). This therefore means that Wal-Mart will have an advantage in terms of the workforce but it may find it constraining on the items that can be imported and sold at a profit hence it would be advisable to source locally for everything that is available and only import from across the world the goods that are not locally found.
4.1 Leadership and motivation system
Since Wal-Mart is an international brand and all it is doing in the current situation is opening another branch (es) in China, it will be essential to adopt the participative leadership style since the organization will employ the qualified people, there is need for them to be performance oriented, improve on quality of their work, be creative in making their orders and argue out in complex decisions like the supplier to choose regardless of the standing in the market as suggested by Center for Creative Leadership, (2009).
These are qualities that cannot be forced into a team neither can one teach the team but there can be participation by the manager in leading others in achieving those. It will involve the manager working together with the team in…