A Marketing
Assignment
Dyson Case Study
Issues to be considered
The main issues that Dyson would have to examine prior
to deciding to export Malaysian manufactured vacuum cleaners to
the USA are: the import market share of Malaysian made vacuum
cleaners in USA, this would give them the idea on how well
imported vacuum cleaners, especially those made in Malaysia, are
accepted in the US; the effect of currency difference in exporting
the products, this can give the company reference as to exporting
the same product from different locations; historical performance
according to sales of Malaysian made vacuum cleaners in the US,
this data will give the company a bigger picture on how well the
product will sell in the future; the political stability of
Malaysia, this can tell if the company will be expecting a closure
in the coming years of operation; and, the government relationship
between Malaysia and US, this data will be important in
determining if either of the two countries is likely to ban trade
from the other.
Corporate Objectives
From articles and interviews, James Dyson has implied
some of his objectives for the Dyson Company. The objectives are:
-
To
be a household name like one of it’s competitor Hoover
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To
make Dyson product line known and be sold worldwide
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To
be the number one brand for floor care in the U.K.
-
To
be able to make innovations that would satisfy its market
In the beginning of James Dyson’s career, he offered
his patented bagless vacuum cleaner to these companies, but they
all turned him down. Instead, he got support from a Japanese
Company and that started his company. Today, these companies are
feeling the pinch because of the success of Dyson Company. The
success was so great that Dyson today is the undisputed brand
leader in the U.K. floor care market, outselling its nearest
competition by a ratio of 9:1. (Josephs, 2000)
Dyson has already surpassed the sales of other
brands. In the total market share, Dyson dominates 50% of it.
Competitors’ Analysis
Most
of the factors that need to be considered before an action leading
to exportation need statistics data. The importation data of US is
needed to determine the feasibility of exporting products to US.
According to International Trade Administration (2003) in the US,
Malaysian export to the United States of vacuum cleaners reached
189,926 units (up to October 2003 only) valuing to USD 14,144,000
(accumulated). This data includes three types of vacuum cleaners:
portable, hand-held; canister type; and vacuum cleaners with
weights exceeding 5 kilograms.
In U.K., Dyson’s major competitors are the Hoover,
Panasonic and Electrolux. Hoover, which Dyson look up to,
previously infringed the bagless vacuum cleaner and ended up
paying Dyson £4 million (BBC News, 2000). Today, Hoover a
household name having served for more than 30 years. Panasonic,
which originated in Japan as Matsushita Electronics, is one of the
world’s leading names in almost all kinds of electronic product.
Worldwide, the mother company Matsushita, accounts for more that
$50 billion in revenue. The company’s guiding principle is
“putting the needs of customers and employees first (Panasonic,
2000).” The Electrolux’s mission is to make daily life easy, safe
and comfortable as possible (Electrolux, 2000).
Effects of Currency on Marketing
Malaysian currency will not have adverse effect on the
exportation of vacuum cleaners to the US,
this is because the value of Ringgit, which is the Malaysian
currency, against the US dollar has been pegged at 3.8 ringgit
against the dollar since 1998. Unless there will be changes in
fees that is applied on exportation of products, there would not
be a problem. But since talks about changing the value of
Malaysian ringgit is about, exporting companies should be ready
for any change. Malaysian politics has been quiet for the past
months, which is a good sign that business can flourish there. But
labour issues have emerged. The Malaysian sector has been asking
for the government to set a minimum wage. Although, they have a
Labour Law, which are not properly implemented, Malaysian workers
suffers from being underpaid.
Promise of U.S. Market
The
life of products is not necessarily a requirement; this is due to
the fact that new innovations always appear on market, but this
does not stop people from buying new vacuum cleaners in the US. As
to acceptability, the figure given above comprises to about 1.46%
(up to October imports only) of the imported vacuum cleaner market
in US. From 1997-2002 (US Report, 2003), the market for vacuum
cleaners in the US grew 29%. This sales growth is mainly because
of decrease in product price, while the number of units sold is
due to innovation and promotion. Although the number of vacuum
cleaners sold increased, the retail sales is flat. This is because
in order to attract consumers to buy more expensive units, the
supplier must develop cleaning products that (US Report, 2003):
-
address contemporary consumer needs such as convenience of
cleaning products and methods,
-
demonstrate an understanding of what consumers wish to achieve
with their cleaning
-
and
utilise totally new cleaning methods and technologies rather
than relying on historical methods and technologies.
Effect of Politics
The Malaysian government has good relations to the
United States. This is according to former Prime Minister Mahathir
Mohammad (People’s Daily, 2001). With this statement it can be
said that there is a peaceful relationship between Malaysia and
the United States. If ever the relationship will not hold, the
market would still not be affected since, the business is
happening between Malaysian companies and US companies and not
between Malaysia and US itself.
Looking in on China to Joint-Venture
According to Guo-Liang Xuan and Gunnar Graf (1996), there are
factors that need attention in particular for Chinese-foreign
enterprises. These factors include completing a feasibility study,
because through this study the partners can determine terms that
are reasonable and that will lead to a viable project (Xuan and
Graf, 1996). Selection of the right partner is another factor that
has to be considered, as stated by Xuan and Graf (1996): China is
characterised by its bureaucracy and hierarchies. Therefore, it is
important that the Chinese partner has good network in government
and other institutions, good knowledge of international management
habits, good understanding of culture, and mentality of the
counterpart, and should have an optimistic attitude towards
getting into the market and acquire a big market share. Also, it
is important that the Chinese partner have good language skill (Xuan
and Graf, 1996).
Considerations to China’s Market
Market access, supply of raw materials, low cost sourcing, and
environment, are the four motives of European companies in
investing in China. But their main objective is to obtain the
China’s market and other Asian market as well. Therefore,
co-ordination of investment objectives of the Chinese and the
foreign partner is important (Xuan and Graf, 1996).
China’s Joint-Venture Reasons
While
meeting the factor that has been mentioned, foreign investors must
also understand why the government of China is promoting joint
ventures. From Xuan and Graf (1996), the principal motives for
co-operation of Chinese companies are:
-
transfer of production factors that are raw in China,
-
transfer of technology, patents, management, and marketing
know-how,
-
improvement of the products and introduction of new products,
and
-
growth of exports and diversification.
Money Matters
Still another factor to be considered before entering an
international joint venture is the foreign exchange balance. Since
joint ventures need large amounts of foreign currencies to import
equipment, materials, technology, know-how, and to pay the salary
of the expatriate management. Foreign companies may repatriate
their profits from China subject to certain restrictions:
-
all
prior years’ losses must first be cleared,
-
all
relevant taxes must be paid, and
-
the
required contributions must be made to the three “funds,” namely
the staff bonus and welfare fund, the enterprise expansion fund,
and the general reserve fund.
Joint ventures usually have their own responsibility to
balance exchange income and expenditure (Xuan and Graf, 1996).
China’s Policies on Joint-Venture
China's objective of increasing it’s exports using
the connections acquired through its foreign partners stands in
conflict with the investors’ objective to acquire a big share of
the Chinese market. This law on exportation is applied strongly
especially during the first years of operation. This problem can
be solved as follows (Xuan and Graf, 1996):
-
Distribution on the Chinese market. Joint venture products
sometimes can be sold as import substitutes in the Chinese
market. Those products must have a high quality standard and
must be “conducive to the development of China’s national
economy.”
-
Balance of foreign currencies between two joint ventures. Where
a foreign investor is participating in different joint ventures,
it is possible to balance the losses of one company with the
foreign currencies of another joint venture.
-
Export of other products. Sino-foreign joint ventures can use
the distribution system of the foreign partner for the export of
other products produced in China. Another possibility is the
purchase of Chinese products in Chinese currency and the
distribution in foreign currencies.
-
Increase the local content. The needed amount of foreign
currencies when buying the material overseas may be very
inconvenient. Therefore, it is important to find a suitable
Chinese supplier to increase the local content of the product.
Some companies even ask suppliers from overseas to invest and to
produce directly in China.
-
Use
of swap-centres. It is possible to exchange currencies in one of
the “swap centres in Shanghai or in Shenzhen. However, the
prices are very high.
-
Decrease number of expatriates. The number of foreign management
personnel should be limited to the lowest possible level where
the joint venture still can operate. At Shanghai Volkswagen, for
example, the cost of about 45 expatriates is almost the same as
the cost for the 2,000 Chinese employees.
In
China, the usual agreement that takes place has a span of 15 to 30
years. Currently, the Chinese government amended their law on
Joint Ventures and allow contracts to expire after 50 years. With
this, the foreign company that wish to invest in China should be
reading really well what they are signing up on. Breaking a bond
like this in China is not taken lightly. Since most companies in
China are state-owned, the government is likely to sue foreign
companies that break the partnership. This action would likely
deteriorate the financial status of the foreign company.
Management
Issues in Joint-Venture
The
two last factors that need to be considered before entering a
joint venture are management and organisation. The parent
companies should always remember that the company formed by joint
venture is an independent one. The joint venture company must deal
all the decision-making process and management difficulties that
the joint venture company will face only. The objectives, rues,
strategies, and concerns of the different parent companies have
been fixed in the joint venture contract; therefore the joint
venture managers should have complete rights and responsibilities
in the independent management of the company (Xuan and Graf,
1996). An example of management issues is given by Xuan and Graf
(1996), it is about a joint venture manager in Beijing who had to
fire a Chinese vice-manager employed by the German parent company.
Later, he even had to dismiss a German director from his job. The
manager was acting under his own authority, without following the
concern of one of the parent companies. This is one reason for the
respect the manager received in running the joint venture (Xuan
and Graf, 1996).
A joint venture company can have either a “board”
structure, where the board of the directors manages and control
the company, or adapt a dual organisation. A dual organisation is
what most German companies adapt. An example of a dual
organisation in a joint venture is Shanghai Volkswagen (Xuan and
Graf, 1996).
Advantages and Disadvantages
Like
every business dealings, joint ventures have its advantages and
disadvantages. From Xuan and Graf (1996), the advantages that an
international joint venture are:
-
Equity joint ventures have fewer restrictions on project
approval than wholly foreign owned companies.
-
Chinese partner can assist in areas such as obtaining government
approvals, labour, recruitment, sourcing of raw materials, and
obtaining marketing and distribution channels.
-
Investment capital may be recovered and repatriated during the
venture period.
-
The
partners have the flexibility of operating as either a limited
liability company or a partnership.
-
Profit distribution ration may be varied over different stages
of operation.
-
Access to Chinese know-how of market knowledge and understanding
of the Chinese language, culture and mentality.
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Achieve “Guanxi”, the term stands for friendly network Business
people need to know representatives of institutions and
governmental bodies to get the most efficient information.
Although the disadvantages are fewer than the advantages,
companies still need to review them in order to not get surprised
in the end. Also from Xuan and Graf (1996), the disadvantages of
international joint ventures are:
-
There is not enough autonomy in joint ventures.
-
Control and management of operations in joint ventures are also
adjoined.
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Sharing of technology and know-how about production.
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Strong effect of law during the first years about exporting
products, which is a conflict with investor’s objective to
acquire a big share of the Chinese market.
Culture Clash
As Dyson is trying to determine whether to invest in
China or not, the company should also take into consideration the
context variables that predicts the performance of an
International Joint Venture. These include: difference in culture
between Europeans and Chinese, since excessive diversity leads to
misunderstanding and degraded performance (Parkhe, 1991; Germain
and Lin, 1998); dominance of one partner, because partnerships
with equitable management structures tend to be less stable over
time (Killing, 1983; Germain and Lin, 1998); and the age of an
International Joint Venture, since relationship duration may
correlate with experience, which allows partnerships to learn each
other’s idiosyncrasies (Anderson and Weitz, 1989; Germain and Lin,
1998).
A
compromise between the two cultures should be taken into
consideration. The foreign investor should know if the host is
willing to bend its traditions in order to accommodate the other.
By doing so, the foreigners would feel welcome and by that be much
more encouraged to join in the venture. Also, this will teach the
foreigner the traditions and practices in the host country, so
there will come a time that the bending on the host will be
minimised because the foreign company has already adjusted to the
culture of his host.
Expansion to Joint-Venture
A
company’s decision for expansion or relocation can be brought
about by reasons that the company wishes not to disclose. But for
whatever reason it is, the decision always has to undergo a
meticulous study, because it can affect not only the host country
but also the company’s market share. Joint ventures needs to be
considered with care and both parent company needs to study the
agreement that they will sign. The parent companies, especially
the foreign company has to review the agreement and confer with
all it’s stakeholders. Both companies should review any
disagreement until a compromise that is not biased is attained.
This
company should learn on what others before them has failed to do:
co-ordinate with partner company and communicate with them
regularly. Their failure proved to be fatal for them but not for
the other company, especially if the company is Chinese. As what
was said before, Chinese companies need joint ventures to widen
their reach of international market and improve their know-how on
the production of different products. Also, they need to know
other products to widen their production capabilities, although
they are not as skilful in which the quality of the product may
suffer. They offer a very low pay, not because they want to, but
because of their need to attract foreign investors. With this move
they can acquire what the foreigners know about technology and
improve theirs.
Example
An example of this is RCA. RCA invested in Japan for
production of coloured television. But that proved to be a very
wrong move. Once the Japanese knew how the technology work and how
they can work their way around it, they became a member of the
competition. And now Japan is one of the world’s largest producer
of television, and they can also compete for television
innovation.
This among many others is a reason for a company planning
to enter international joint venture to review all their options
and not let their partner to do all the technical work that needs
to be done before the venture. And look into the disadvantages of
this kind of business deal, do not only look into the advantages
and the gains. Any wise company would balance everything before
make a business move. Also, look deeply into the effect of
cultural differences. Cultural difference can have a great impact
on the quality of business that companies are entering.
Developing Business in China Through Joint-Venture
As what was said before, considerations have to be
taken before deciding to invest or not. If Dyson would still like
to invest in China through a joint venture, then the following
statements are suggested for the venture:
It is
important that Dyson look into the financial status of its
prospective partner so as to not be in a disadvantageous position
afterwards.
It
cannot be helped that having mixed employees will occur, even
though the main reason for investing in China is the cheap labour.
This is because, as cheap labour is very much available in China,
the proper skills to run a big company may not be available, so
Dyson and partner would still have to hire foreigners. But remind
the foreigners properly and orient them with the city first before
leaving them with the partner.
It
should be made clear from the beginning how much of the profit
would be going to the partner and to Dyson. The equity can be
divided variably with time, so that the partnership may have equal
equity in the beginning but Dyson’s equity will rise as time
lapses.
Before signing anything Dyson should review everything first. The
plant site, the equity, the financial status of both companies and
others. Plus Dyson should have a forecast what is to be expected
of the venture. Another is to prepare the entire marketing plan
that will be used once the venture is in full force.
Again, it was already discussed that Chinese businessmen do not
easily let go of a partner that can lead them to their goal. If
Dyson is still not sure of how things will go, he can make a
shorter contract, one that will be through as soon as he will be
able to break-even, then make the necessary adjustments that he
and his partners are willing to make and sign another contract.
This way he can always play it safe and so will his partners.
At
every time period, the venture together with Dyson and his
partner, should make a review of how well the venture is going and
if they are meeting with what they had placed in the business
plan. Also, they should periodically evaluate the performance of
their employees to see if they are productive or not.
The
strategy should be a fair one. Example, Dyson would still like to
continue the business in China, but his partners do not want to
continue. Then, the contract from the beginning should be one that
indicates that should one party of the partnership decide to
discontinue, the defecting partner should sell whatever hold he
have on the company to the other party involved or to a third
party. Or something like that.
As
for relocating the companies production site from England to
Malaysia, since data gathered showed that even from Malaysia, the
market for vacuum cleaners in the United States accept the
product, the relocation can be deemed viable. Plus, relocation is
a move that is being done by most companies that has their base in
a country that can only offer low profit. Inevitably, companies
have been moving away from “expensive” countries and transfer
their location on a low-cost country such as Malaysia, as the
manufacturer Dyson is planning to do.
Conclusion
As an ender, it does not matter whether a company is
planning to transfer its production site in China or Malaysia, or
if they want to enter an International Joint Venture that is
offering them a biased agreement. All that matters is that they
study and review all the factors that is involved and would affect
them. Malaysia may give them a better opportunity to earn bigger
profits, but companies should also weigh the downfall of having a
company in Malaysia. Also, International Joint Venture in China
may provide them an easier way to access the Asian market and have
employees that have low pay. But a downfall to that is, the
company's Chinese employees may ask for a wage that is as big as
the wage in the foreign parent companies country. A foreign
company mining in China faced this specific problem, as the
employees asked for a higher wage, the mining company tried to
compromise with the employees.
Problem may arise even before the signing of agreement and it can
run further up to the time when operations are expanding. The
problems when not solved may even lead up to a break-up of
partnership. Although problems really do come in a company, and
its roots cannot be eliminated, a company should always ready
itself for things as such. And companies should do a review of why
the problem had risen in the first place. The review will be a
guide for the company’s future leaders, so that they may be
guided. The circumstances may be different, and the technology and
training for the leaders may be different, but a know-how on
dealing with problems is a training not learned from any
institute. The skill needed to solve a problem comes from
experience and basic knowledge on how to do compromises to
achieve, even if not common, a goal.
References:
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