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International Business Management
Review of International Strategy at Metricum
Overview of the Metricum Company
Metricum is an SME manufacturer of materials handling equipment and intelligent handling systems. It has been based in the east of England for the last 28 years and has been catering to clients in several parts of the world. The company exports equipment to 40 countries around the world and has manufacturing facilities in Sweden and China in addition to the United Kingdom. Metricum has vertically integrated up the value chain by acquiring a key supplier in Romania. The Romanian subsidiary has great room for expansion. The company has expanded internationally through joint ventures and acquisitions. Manufacturing operations have been decentralized on the basis of local expertise. Standardized products are manufactured in China, which makes up 25% of total production. Innovative products are made in Sweden while a scaled-down labour force in the United Kingdom focuses on customized bespoke manufacturing. The challenge would for it to retain the flexibility of its small size with the economies of scale brought by expansion (Bannock 2005, p. 47).
Strategic Objective of the Metricum Company
The Metricum Company is aiming to expand its operations at the Romania facility and use it as a base for expanding in the eastern European region. The eastern European economies have been emerging from a period of transition from centralized economies to a market economy system. Some have made radical changes like the 'Big Bang' price liberalizations whereas others have made a guarded transition (Jeffries 2002, p. 385). This opening of the markets presents a potential growth opportunity for Metricum to grow beyond its traditional markets. The Romanian facility is currently operating at 20% capacity. The opening up of neighboring markets will help Metricum to achieve economies of scale through increased output levels and establish a firm presence in a growing region. The company does not possess the strategy to undertake an analysis of the investment opportunity and evaluate its feasibility. This report presents the outline of a strategy Metricum can use to assess the international business opportunity.
STRATEGIC CHALLENGES TO INTERNATIONAL MARKETING AT METRICUM
The Challenges of Political Orientation
One of the most significant challenges to international business for Metricum will be political challenges. Historically, East Europe has been under communist rule for decades. After the collapse of the Soviet Union the countries have opened up their economies to capitalist ideals. In addition, they have been increasingly trying to integrate their political systems with that of the European Union and the international community. The central banks, especially in countries like Hungary, have played an important role in this financial integration (Jarai 2004, p. 31). Metricum is based in the United Kingdom and has experience of working in Sweden. The two are politically similar because both are constitutional monarchies. However, the case of Romania and Ukraine is different because they are relatively new to a presidential form of democracy and the institutions are not very well-established. A political elite from the Soviet era has also been active (Zon 2000, p. 23). Politically, the country has tried to maintain a balance of influence between its immediate neighbor Russia and the United States. There is the risk of political instability in the region as was observed in the colored revolutions during the early years of the twenty-first century (Copsey 2010, p. 30). Whether a rightist or leftist government is in power will have a direct impact on the attractiveness of the investment opportunity. With regard to legal aspects, Ukraine has a number of regulations that would affect foreign direct investment efforts by Metricum. These include the Foreign Investment Law, The Competition Law, and the Law on Protection from unfair Competition. The Tax Law offers some initiatives for foreign investors. Registering as a foreign investor also makes it easier to transfer remittances and dividends abroad (PWC, 2011). Metricum will have to weigh in all these factors by analyzing the political history of the region and its shifting alliances across Europe and the international community. Factors like political risk, political ideologies, government policies towards investment and business should be analyzed to make an informed decision about expanding in the region Vaghefi et al. 1991, p. 197).
The Challenges of Technology
Technology transfer is a strategic issue in international business (Good 1991, p. 37). Metricum is in the business of manufacturing materials handling equipment. It is a technologically-intensive industry and depends on the sophistication of the technology being used. The usage rate of the technology and its diffusion in the industry are important factors in considering whether the industry can sustain the technology efficiently. If the company wants to expand into Ukraine, the heavy equipment industry there is highly well-developed and is one of the largest industries of the country. The level of technology is also at par with manufacturers in other countries in Europe. In order to make the best of this opportunity, Metricum needs information on the major equipment manufacturers and the degree to which the manufacturing process is automated and technology-intensive. It also needs information on the availability of electricity and the condition of transport and the infrastructure.
The Challenge of Globalization and Economic Uncertainty
Globalization is a significant challenge that Metricum needs to analyze, especially in the light of the global economic recession and the European debt crisis. Globalization has been termed as both a curse and a good because of the increased interdependence of economies (Stonehouse et al. 2004, p. 8). Metricum is aiming at increasing the globalization of its industry and markets. It wants to establish manufacturing bases in the region and sell to customers in that part of the world. Such a strategic objective requires that the economies of the two regions will become interdependent so that any negative impact on one will have an effect on the other. The east European countries have relied on support from the major powers of the European Union through the European Commission and its development programs. This in addition to national stimulus packages has led to a speedy recovery from the global financial crisis and sustained consumer demand. However, after the Euro debt crisis, it has become uncertain whether the European Union will continue to support development programs. The governments will also have to curtail subsidies to continue receiving support from the IMF and the World Bank. This may adversely affect demand in the east European countries. Ukraine joined the WTO in 2008 and has been growing its exports since. The GDP was reduced by 15% in 2008 following the financial crisis but since then the economy has been growing at a steady rate of around 4%. In 2011, the European Bank for Reconstruction and Development estimated growth of 1.7% for the region (Ewing, 2011).
The Challenge of Cultural Adaptation
Cultural adaptation is a major strategic challenge for Metricum. The company has manufacturing facilities in the United Kingdom and Sweden which are marked by individualistic cultures and low power distances (Murray et al. 2006, p. 101). Eastern European countries like Ukraine and Romania are more collectivistic and have high power distances between managers and subordinates. The national culture is marked by the influence of communism and subordination to authority. Informal relationships and obligations take precedence over formal rules enforced in the United Kingdom. Employees are also more flexible compared with their western European peers (Saunders et al. 2010, p. 216). Bribery is also a major issue in Ukraine, as well as corruption in the form of corporate raids (Goehring 2008, p. 613).
Metricum can improve its international business strategy by analyzing the national, industry, organizational and individual cultural variables in the target country. The greater the cultural similarity in terms of attitudes towards work, time, specific and diffuse relationships, the easier it will be for Metricum to integrate its operations in Ukraine into its existing value chain.
MARKET OPPORTUNITIES IN EASTERN EUROPE
Eastern Europe is a growing economic region of the world and has weathered the economic crisis relatively well because of limited integration with the international financial markets. Recovery from the crisis has been swift and there is greater room for increased cooperation among the countries of the region. The region includes Russia, Romania, Ukraine, Belarus, Hungary, Bulgaria and Turkey among the larger economies. Metricum already has a foothold in Romania through a wholly-owned subsidiary but the plant is operating at 20% capacity only. There is an opportunity for maximizing output by catering to the regional markets of Eastern Europe. Metricum intends to target Ukraine as the first step of its expansion in the region.
Ukraine is the second largest country in Europe after Russia (Murphy et al. 2008, p. 196) and has an estimated population of 45.8 million people (CIA, 2012), one of the largest in the region. The rate of urbanization is also high at 70% (CIA, 2012), which means there is a great potential for construction and heavy machinery industry. Russia and Turkey are two large economies in the region and are situated close to Ukraine. During Soviet rule, Ukraine was…[continue]
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