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Strategic Planning Approaches for the Chinese Market

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 2762 words Published: 21st Oct 2020

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Abstract

This paper reviews the strategic planning approach for AB Electrolux in the Chinese market. Strategic planning is vital for success in foreign markets. The experience of AB Electrolux in the Chinese markets highlights the fact that success on the global market does not necessarily imply the company will be successful in any local market it invests in at any time. Therefore, elements of strategic planning must be applied sufficiently to help the organization determine its strengths, weaknesses, existing opportunities and threats within the new market to develop unique strategies that can boost its profitability. There are various strategic planning tools available for organizations to leverage in their strategic planning endeavors. These include tools such as the VRIO framework and Michael Porter's generic strategies for competitiveness, which have been applied in this analysis for AB Electrolux in China. Based on the analysis of the company's strategic approach using these various strategic planning tools, it is vivid that AB Electrolux is poised to continue being successful and competitive, heading into the future.

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Discuss Whether AB Electrolux Can Compete With Local Chinese Consumer Manufacturers

The VRIO framework is a strategic planning model developed by Barney, J. B to help organizations evaluate their internal resources and capabilities (Barney, & Hesterly, 2015). This helps the organization to determine if its existing resources can be a source of competitive advantage in a new market. According to the VRIO framework, an organization’s resources must be Valuable, Rare, Imperfectly imitable and Organized (Barney, & Hesterly, 2015). Based on this model, an organization must ask itself four questions to determine whether its resources are valuable, rare, costly to imitate and whether the organization is organized to take advantage of the value of its internal resources. Internal resources that meet these questions can help the firm achieve a competitive advantage in the market.

Therefore, in the case of AB Electrolux, for it to determine its competitiveness in the local Chinese market, the organization must first determine the competitiveness of its resources based on the VRIO framework (Barney, & Hesterly, 2015). The resources of the company can be considered valuable because AB Electrolux has invested significantly in innovating its products and making its products highly differentiated. In the same way, its resources are also rare because the competing products do not have the same quality and design that AB Electrolux’s products have (Barney, & Hesterly, 2015). Given the amount of investment that the company has invested in its research and desk department, its products are highly costly to imitate. Finally, AB Electrolux is very well organized to take advantage of the qualities of its internal resource to achieve success. The company's corporate culture supports innovation, which is an essential factor in ensuring the company continues to be innovative heading into the future.

AB Electrolux can effectively compete with other local Chinese firms in the industry. Having encountered challenges initially in the Chinese market, a subsequent change in the company's business strategy has positioned it better to compete with the local manufacturers. The Chinese manufacturing sector has developed immensely over the past few years. Furthermore, the local culture in China is supportive of local products due to the ethnocentric views held by most of the consumers in China. Therefore, for a foreign company to compete and win over the local consumers, it must have precious products that differ significantly with the local products.

When AB Electrolux first entered the Chinese market, the firm encountered problems because consumers could not immediately see the value its products brought to them as compared with the locally manufactured products (Barney, & Hesterly, 2015). This was even though AB Electrolux was already a successful global company with great success in many other markets across Europe and North and South America. As a result, the company encountered significant challenges in establishing itself in the Chinese market as the local competition proved more powerful. However, based on its experiences in other similar markets such as in Brazil, AB Electrolux was able to redevelop its strategy by making its products more appealing to the locals.

The firm invested heavily in Research and Design to boost its innovations in China. It also increased its capital invested in the Chinese market. Thus, the company was able to begin manufacturing highly innovative electronic appliances that were specifically tailored for the Chinese market (Barney, & Hesterly, 2015). This approach helped rebrand the company as a premium brand in the Chinese market. Consumers could also realize the value that its products were offering as compared to those of local manufacturers.

The other factor that is likely to contribute to the success of AB Electrolux in China is the rapidly growing market for home appliances. The middle class in China, as in many other Asian markets, is growing rapidly. This creates new opportunities for AB Electrolux to keep increasing its market share and remaining competitive among other local manufacturers. The growth in the middle class indicates that more families will have higher disposable incomes that they would spend on quality appliances (Barney, & Hesterly, 2015). Therefore, the demand for home appliances is poised to increase significantly, heading into the future within the Chinese market. This opens up more opportunities for AB Electrolux to keep innovating and manufacturing and keep prodding high-quality products that will meet the emerging and changing needs of the growing middle class.

Discuss the Three Leading Perspectives on Strategy, and How This Strategy Tripod Influences Electrolux

Mike Peng’s strategy Tripod can help an organization such as AB Electrolux that is operating globally to achieve success and efficiency. The strategy tripod enables an organization to constantly evaluate its business strategy to determine the effectiveness of its operations. The elements of the strategy tripod focus on creating an introspective as well as an external comprehension of the market that the firm hopes to infiltrate (Peng, 2009). The tripod's elements include focusing on the resource-based view, institutional based view, and the industry based view of the approach used to penetrate new markets.

The resource-based perspective requires an organization to implement strategies that are aligned to its internal resources. This helps the organization to become more efficient in managing its internal support to achieve competitiveness (Peng, 2009). For instance, the company can focus on strategies such as cost leadership and differentiation in line with its internal resources to remain competitive in the new markets. In this regard, AB Electrolux’s success has been based on its implementation of both cost leadership and differentiation strategies in the Chinese markets (Peng, 2009). The company can make unique products that are produced at lower costs as compared to its local competitors.

The industry-based perspective, on the other hand, required companies to implement strategies that cut across the industry. For example, a company can use the standardization approach to produce and market its products across different global markets. While this approach can be useful, it limits the organization from being innovative (Peng, 2009). Furthermore, it makes the products appear foreign and may not be appealing to markets that have higher levels of consumer ethnocentrism as the Chinese market.

On the other hand, the institutional based perspective focuses on strategies that meet the needs of specific institutions, bodies or organizations in the new market. The company uses a strategy that is aligned towards meeting the needs of these existing institutions in the new markets (Peng, 2009). For instance, the organization can shape its strategies to reflect the needs of regulatory bodies in the foreign market, including government entities. This approach can enable the firm to establish itself and operate seamlessly in the new market. However, these studios can also act as barriers to entry in the market based on the nature of the guidelines and regulations that they prescribe.

Identify Porter’s Four Generic Strategies. Discuss Which Of These Would Work Best For Electrolux

Michael Porter identified four generic strategies for achieving organizational competitiveness. According to Porter, there are four basic strategies that organizations can select to incorporate into their strategies for gaining competitive advantage. These strategies are cost leadership strategy, focus strategy, differentiation strategy and the integrated cost leadership-differentiation strategy (Kossowski, 2007). An organization can either use these strategies singly or in a combination of two or more strategies depending on its objectives and goals.

Cost leadership strategy involves gaining a competitive advantage by keeping manufacturing costs lower but selling the products at the market price. This can be achieved through the organization focusing on achieving economies of scale, using proprietary technologies, and preferential accessing raw materials amongst other factors (Kossowski, 2007). Being a low-cost producer enables a firm to achieve a competitive advantage because the organization will be able to enjoy the market prices, thereby gaining more productivity.

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On the other hand, the differentiation strategy helps a firm to focus on making its products unique and rare as compared to other similar products in the market. This makes the company’s products more identifiable and recognizable amongst consumers (Kossowski, 2007). Furthermore, highly differentiated products are appealing to consumers because the consumers can easily see the value that the products have as compared to the competing products. As such, the company will be able to attract more customers who will purchase its products and gain more profitability.

The cost strategy, on the other hand, involves focusing on a specific niche where the firm can achieve greater profitability. This approach enables the company to understand the unique dynamics of the market and the different needs of the particular segments of customers in the market. This enables the firm to develop products that meet these unique segments (Kossowski, 2007). The firm will be able to win over more customers because its products will be relevant to the unique needs and preferences that they have.

The fourth strategy involves a combination of the cost leadership and differentiation strategy. Thus, the business will focus on other achieving low production costs while also making its products unique (Kossowski, 2007).

Based on these strategies, the fourth option will suit AB Electrolux is cost leadership strategy. This will enable the company to manufacture its products at a lower cost as compared to its competitors. The firm has made substantial investments in research and design to make unique products that will be easily identifiable among the target consumers (Kossowski, 2007). Therefore by combining both cost leadership and differentiation, the company will be able to achieve greater competitiveness in the industry.

What Is The Corporate Culture Of Electrolux? Discuss Two Distinct Attributes Of Culture Within The Organization

Corporate culture entails the beliefs, attitudes, and values that characterize and influence the behavior of employees in the workplace (Byun, 2007). The corporate culture develops over time organically based on the values that the management instils in the workforce and other stakeholders in the organization. The employees and other stakeholders in the firm must all embrace the shared values, beliefs, and attitudes that help to define the nature of the organization and its workplace (Byun, 2007). Based on this definition and understanding of corporate culture, global organizations such as AB Electrolux must embrace global values as well as incorporating local elements of the local culture in the respective markets that they operate to be successful. The company’s corporate culture must be relevant to its goals, objective, and the strategic mission that it hopes to achieve within a specific period.

There are four main types of organizational culture. These are clan, adhocracy, market, ad hierarchy. Clan oriented corporate culture refers to the workplace culture where the employees have stronger ties and operate like a family (Byun, 2007). This type of corporate culture has elements such as nurturing and mentoring each other to achieve a greater vision of the company. On the other hand, adhocracy corporate culture is more dynamic and entrepreneurial. Thus, this type of culture has elements such as risk-taking and innovation.

Conversely, market-oriented culture is usually result oriented (Byun, 2007). This focuses on the issues that can help the organization become more competitive and profitable in the market. This type of culture is characterized by elements such as competitiveness and achievement. On the other hand, the hierarchy oriented type of corporate culture is more structured and controlled (Cameron, & Quinn, 2006). This focuses more on attaining efficiency and stability in the workplace.

The corporate culture at AB Electrolux is more of adhocracy oriented. This is because the company focuses more on taking risks, investing in innovation to make its products unique and highly differentiated for the customers to easily notice the value they can derive from the products (Cameron, & Quinn, 2006). The adhocracy oriented culture ensures the workforce focuses on doing things first. The organization must focus on being the number one choice of consumers in the industry. Therefore, the employees must aim at being risk takers and highly innovative to help the organization always come first with innovations and inventions that reflect the emerging and changing needs of consumers.

Conclusion

In conclusion, strategic planning is vital for success in foreign markets. The experience of AB Electrolux in the Chinese markets highlights the fact that success on the global market does not necessarily imply the company will be successful in any local market it invests in at any time. Therefore, elements of strategic planning must be applied sufficiently to help the organization determine its strengths, weaknesses, existing opportunities and threats within the new market to develop unique strategies that can boost its profitability. There are various strategic planning tools available for organizations to leverage in their strategic planning endeavors. These include tools such as the VRIO framework and Michael Porter's generic strategies for competitiveness, which have been applied in this analysis for AB Electrolux in China. Based on this analysis, it is evident that AB Electrolux will be a successful company in the Chinese market. The company will be able to compete well with other local manufacturers. There are several opportunities in the market that the company can leverage, together with its existing corporate culture that s inclined towards innovation, to achieve success. The growing middle class presents a good opportunity for the business to keep increasing its market share with unique products that are tailored to the needs of the customers.

References

  • Barney, J. B., & Hesterly, W. S. (2015). Strategic management and competitive advantage: Concepts and cases. Boston : Pearson.
  • Byun, H. (2007). Culture & hierarchy: Japanese Dutch encounters in the workplace. Amsterdam, The Netherlands: KIT Publishers.
  • Cameron, K. S., & Quinn, R. E. (2006). Diagnosing and changing organizational culture: Based on the competing values framework. San Francisco: Jossey-Bass.
  • Kossowski, A. (2007). Strategic management: Porter's model of generic competitive strategies - theory and analysis. München: GRIN Verlag GmbH.
  • Peng, M. W. (2009). Global strategy. Mason, Ohio: South-Western/Cengage Learning.

 

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