General Motors Case Study Analysis

General Motors Case Study Analysis

Introduction

International marketing involves all business performance activities that directs the flow of business operations of a specific company. In this case, General Motor’s entry into China’s market would result in the use of consumer goods such as cars by people living not just in the United States, but also in China for profit. Typically, a company like General Motors is expected to carefully plan and execute the commencement, promotions, pricing as well as the distribution of goods, ideas and services aimed at creating business exchanges that have the capacity of satisfying organizational or individual goals (Hamilton & Zhang, 2012). It is important to note that the uniqueness of foreign marketing normally comes from a broad spectrum of unfamiliar challenges, risks or problems as well as various strategies that have the capacity of coping with differing levels of uncertainty that a company such as General Motors would likely encounter in China’s market (Hamilton & Zhang, 2012). The paper will critically analyze the risks and challenges that a company such as General Motors would face when doing business in China. The research will access such risks and challenges by focusing on the Motor Industry as well as the opportunities that are available for foreign businesses.

Critical evaluation of the benefits, costs and risks associated with doing business in China

Before any company achieves success in China market, it is imperative for it to clearly understand its organizational mission and goal, including the function that marketing activities play in the process of achieving such missions and goals (Buick, 2008). Additionally, the company is also expected to establish its marketing objectives, gather, and access, evaluate and interpret important information about its distinct situation. This also includes available strengths, weaknesses, threats and opportunities that exists in China’s environment. This is critical data that will offer foreign businesses an overview of the doing businesses in China or of China’s market. Besides, it is worthy to note that foreign businesses are forced to critically access specific potential and growth as far as its product services are concerned in China including the segmentation of foreign market (Buick, 2008).

In addition, any company or business wishing to start its operations in China needs to evaluate the characteristics of potential consumers of their specific products and services (Saxon, 2009). This is by evaluating who they are and how they are particularly established in China. It is however; very crucial for businesses hoping to trade in China to find out how much such consumers are willing to spend. Such kind of information or data is critical during planning that involves establishing marketing strategies of knowing the exact wants that the business organization will be willing to satisfy. This activity is normally referred to as the establishment of target market strategy, which involves the development of various marketing mix, all aimed at satisfying the target market’s needs or desires (Saxon, 2009). In this case, marketing mix joins product, promotion, distribution as well as pricing strategy in a manner that is capable of establishing specific exchanges that seek to satisfy organizational and individual objectives.

Foreign business risk encountering political challenges in China considering the fact that China has been under a communist party for many years. In this respect, the communist party typically exercises absolute power in regards to economic, legislative as well as cultural constitutions (Schifferes, 2007). It is important to note that such kind of activities are not common in countries such as the United States, whereby the government is tasked with the responsibility of promoting transparency when it comes to engaging in business activities. Rules and regulations are not usually absolute or transparent in China, meaning that big businesses such as General Motors risk the possibility of succumbing to a variety of bureaucracies and regulations. A social network referred to as guanxiwang is typically promoted in China, in which case quanxi represents the established relationship between the entities of the network and the individual (Schifferes, 2007). This means that lack of corruption and transparency leads to avoidance of bureaucracy and red tape by the Western businesses with the help of the communist party and the existing social networks.

The process of establishing relationships is not normally emphasized in countries such as the United States due to strict cultures and laws that seek to promote contractual obligations. However, in china, small and large businesses are forced to rely on the existing guanxiwang, as it is practically impossible to conduct businesses without the social networks (Schifferes, 2007). The scenario presents a great challenge to foreign businesses seeking to do business in China as one is forced to fully understand how such social networks function. Moreover, this process consumes a great deal of time, meaning that it would be prudent to work with the right individuals according to specific guanxiwang. This will highly enable foreign companies to overcome such problems (Schifferes, 2007).

In addition, foreign companies seeking to conduct businesses in China risk the possibility of facing legal challenges. This is mainly because China’s legal system is loosely defined leading to a variety of loopholes in the overall legal system (Xi, Witzel & Ambler, 2017). This is contrasted in countries such as the United States where strict laws and regulations including patents in economies are normally aimed at protecting both foreign and domestic businesses. The accession of China to WTO has led to the establishment of patent rights amendments and inclusion of international business laws. However, it is a common scenario to encounter instances where a thing such as technology is stolen by the outsourcing company’s employees or by specific competitors in China (Xi et al., 2017).

Moreover, the copycat culture or Shanzai is usually an integral part of the Chinese society regarding how they conduct their business. In fact, it is important to understand that because China’s society is predominantly Confucian, most people are forced to share what they create in order to promote harmony, as is what is demanded by the Confucian tradition. This is the reason why virtually every product in the market is copied and then sold in the open markets existing in major cities or towns in China (Xi et al., 2017). This type of culture has consequently made China to be the largest producer and promoter of most counterfeit products. The counterfeiting activities are further promoted by China’s laws, which are considered by many to be mostly vague and can hence, be interpreted in various ways.

These laws include important business practices such as of intellectual property rights and trade laws that are mainly refined, thus resulting in complexities in the process of interpreting them (Xi et la., 2017). Furthermore, it is possible that some individuals or organizations may be tempted to manipulate such laws so as to weaken business activities of foreign businesses for the purposes of gaining competitive advantage. This is despite the fact that there are stated laws against the businesses infringing existing Chinese laws. Typically, in China, specific provincial governments have the power of blocking any such laws, resulting to big challenges for foreign businesses.

General Motor’s decision to venture into China’s markets

General Motor’s decision to venture into China’s market was a prudent one as it ensured that the company was able to survive amid great financial depression that was happening in the United States (GM Posts, 2010). The most important reason why the company was able to thrive despite the existing economic challenges was the fact that China’s internet and telecommunications infrastructures had already grown and improved the efficiency of communication for foreign businesses such as of General Motors. Moreover, the company was able to choose a viable location where there had established developments of telecommunications as well as internet. Besides, due to the development of strong financial infrastructure, China was able to receive high levels of foreign direct investment when compared to the rest of the countries (Xi et al., 2017). This has led to the renowned multi-national companies to actively engage themselves in investment activities in China.

Moreover, General Motors succeeded in introducing other product lines because China was open to engage in foreign trade, including engaging in joint ventures. Various treaties strengthened this fact and trade agreements with countries such as the United States through Sino-U.S relations as well as WTO accession (GM Posts, 2010). The trade agreements and treaties have further increased China’s level of imports and exports. However, it is important to note that China is still undergoing major changes as far as the economic infrastructure is concerned. Such processes of modernizations have further added to more gains and successes in foreign businesses such as General Motors.

Besides, General Motors had already analyzed and understood the competitive landscape and thus, was fully aware about the main competitors in the market (GM’s Sales, 2011). Such feasibility studies are important as they assists foreign businesses to be aware of the market challenges and hence be able to draw up viable strategies that are more likely to result in business success. The processes are followed up by a critical evaluation of possible new ventures and their viability in terms of strategies and directions. This is through product development in new markets where it had not been in existence before, by finding out the most demanded product line by potential consumers, staffing requirements, business operations, the most appropriate organizational structure and various job descriptions. Acquisition strategies enable foreign businesses to identify companies that may be acquired for the purposes of boosting product portfolio as well as customer access by critically accessing the existing costs and benefits that are associated by such acquisitions or mergers (GM’s Sales, 2011).

The deep understanding of Chinese culture influenced business decision made by General Motors where they had chosen to manufacture and sell their products (GM’s Sales, 2011). It is worth noting that that the concept of guanxi or social networks in the business environment remains critical and has thus enabled the company succeed in foreign market because it acts as a shield of insurance for the United States including China’s domestic market. The fact that business connections are wholly based on the concepts of guanxi, as far as outsourcing is concerned, allows foreign businesses to use their own when resolving any kind of disputes in cases where the Chinese companies fail to meet their contract obligations (Xi et al., 2017). Therefore, the key to successfully conducting business in China involve understanding the concept of guanxiwang and being able to implement it in business operations. However, it is important to note that larger companies such as General Motors require larger types of guanxi in order to be able to produce and sell products in the Chinese market.

Initially General Motors made the decision to penetrate China’s market in 1997 through an agreed joint venture with an automaker of China popularly known as Shanghai Automotive Industry Corporation. General Motors was propelled by the idea that indeed China’s market was going to be a critical market environment as far as the production and selling of automotives was concerned in the near future. The company was able to successfully capture large market share because it had conducted sufficient feasibility studies that identified any important information that needed to be carefully analyzed and addressed before it could venture in the Chinese market. As a result, China’s automotive market proved that it was capable to survive despite the existing strong global recessions. Sales were recorded to be high in the growing Chinese population that exceeded the United State’s sales, which were falling at the time. Efficient pricing and marketing strategies have enabled the company to have continued growth in sales in China more than it does in the markets of most western countries including the United States (GM’s Sales, 2011).

More important to note is the fact that social infrastructure is critical in the process of building a strong economic infrastructure of any company. In this case, the social fabric of China has been seen to be exponentially growing in the recent past and a s a result, there has been a drastic improvement towards the quality of life in the past thirty years. This means that during the inception process, General Motors had to take into account two main elements of social infrastructure that are responsible for impacting or influencing the level of productivity such as health and education (Buick, 2008). However, other societal factors must be considered such as work ethics, employment, culture and the environment. When compared to other countries in the world, China is the most populated and has continued to grow.

According to statistics, the average life expectancy is considered seventy-one. The most critical point to note is the fact that as the population grows, it sparks the employment sector to also grow. During the period when General Motors was beginning its business activities in China, the population had grown from 650 million people to 730 people by 2001 (Buick, 2008). This meant that the company had steady labor force in the market, which was both affordable and readily available. Moreover, with the government’s effort of initiating reforms in the educational sector, literacy levels have drastically increased by 7%. This meant that the labor force was predominantly composed of literate individuals who would be ideal in spurring the economy of China. This meant that General Motor’s decision of creating mergers with Chinese automotive industry was a prudent decision coupled by the fact that Chinese people are known to have strong work ethics (Saxon, 2009). This is usually based on the long history of strong laborers, hardworking farmers as well as creative philosophers. Consequently, as there is increased literacy level in China’s population, there is an opportunity of combining and offering more efficient workforce to foreign companies such as General Motors.

International workplace culture

Different cultures tend to offer different values to different people in the course of conducting business activities. This means that what may be considered a kind gesture in the United States may be highly offensive in China. This means that companies are expected to understand any existing differences in cultures so as to adapt an effective style of doing business which will enable businesses to gain trust among foreign populations or markets (Saxon, 2009).. This will also enable companies to avert any possibilities of causing mistrust from potential consumers in the target market though offensive language that may not be evident. There are various cultural differences that exist between the United States and China.

The American culture promotes autonomy and individuality when conducting business activities as opposed to China (Xi et al., 2017). This means that most people prefer to prioritize their own personal motives and goals over collective ones. According to Americans, such kind of culture promotes or encourages individuals to be more ambitious and are thus, their probability of achieving or succeeding increases. Additionally, the culture of individuality pushes people to be more different from the rest of the people, meaning that they device new methods of doing business. On the other hand, decisions made by the Chinese population are usually based on how the people around them are going to view them. This means that Chinese business individuals will have to consider the impact of their business decisions on their families, employees, friends and the organization at large before implementing it (Xi et la., 2017). This is a clear indication that the Chinese people typically view themselves in a collective manner rather than individuality. In the end, decisions are made for the greater good rather than to satisfy individual goals and ambitions.

The business people of China’s descent always seek to develop relationships with the people with whom they conduct business operations. This is while the United States culture does not seek to establish such relationships rather; they place high value on business transactions (Xi et al., 2017). This means that the United States does not really care whom they conduct business with provided they are able to obtain value from their interactions in monetary terms. Chinese people are careful to get to know and understand anybody involving a specific business transaction with them. Moreover, as opposed to conducting business over technological devices such as mobile phones or the internet-enabled devices, they typically prefer to conduct business on a face to face basis. Trust is a highly valued premium in China, despite the fact that such cultural tendency may be able to slow down various business processes. For this reason, Chinese business partners gather personal information that involves one’s financial status as a sign of respect rather than of disrespect or rudeness.

The business individuals in the United State’s cultural setting often pride themselves as a people who are dominant and tough while the Chinese people are often less aggressive when it comes to communication styles (Saxon, 2009). For this reason, the Chinese business people may find Americans as people who are too upfront when conducting business transactions. This may result in unnecessary misunderstanding that could cause hurt to the Chinese individuals particularly those individuals who are assumed sensitive. It is important to note that American culture often encourages people to be strong and tough when defending their opinions or ideas that often results to confrontations, heated exchange or debate when trying to make other business partners to agree with a specific way of thinking.

In many instances, the Chinese people would be forced to nod in agreement even though they may not fully agree with one’s opinions or ideas as a sign of respect and honor towards others. This is because they consider direct speaking to be humiliating and thus, when conducting business transactions they may find Americans to be rude as they prefer indirect and subtle methods of communicating their opinions and thoughts (Saxon, 2009). Moreover, due to their collectiveness of their culture, the Chinese business people may require more periods of consulting other interested partners about benefits or risks when negotiating business deals with Americans. This means that while the American culture promotes the need for embracing aggressiveness, such type of style is unlikely valued in the Chinese culture where it is seen as a highly unprofessional behavior.

The relative merits of fixed and floating exchange rate regimes

Flat currency does not necessarily imply that there is a fixed exchange rate in the market. Normally, flat currencies are seen to be compatible with a specified floating exchange rate regime whereby the value of a specified currency is determined in the markets of foreign exchange (Hamilton & Zhang, 2012). The first main merit of floating and fixed exchange rate regime is that it never requires global management of exchange rates. It is important to note that despite the fact that those fixed rates that are founded on a metallic standard normally require an international manager; floating exchange rates do not require them. Such international managers may be obtained from International Monetary Fund that evaluates current account imbalances. China was an ideal country to conduct General Motor’s business operations, as it did not have large current deficits (Hamilton & Zhang, 2012). It is important to note that any country having large current deficits normally results to depression of its currency.

In addition, floating exchange rate regime does not require any frequent interventions from the central bank. It is important to note that central banks have a tendency of frequently intervening in foreign exchange markets in the process of protecting gold parity (Hamilton & Zhang, 2012). However, as far as the floating rate regime is concerned, there is no such a parity that needs to be upheld by such frequent interventions. Moreover, the floating rate regime does not necessarily need to make elaborations on capital flow restrictions. It is important to point that in a fixed exchange rate, it is typically difficult to maintain parity intact, during the process of portfolio movements in and out of specific countries. However, contrary to this understanding the floating exchange rate regime the exchange rate in the international market is affected by the fundamentals of macroeconomic of specific countries (Hamilton & Zhang, 2012). This means that ultimately the portfolio flows that happen between two or more trading countries is affected. Market efficiency is therefore enhanced in a floating exchange rate regime.

References

Buick. (2008). Carmaker Learning Fine Points of Regional China Tastes, Automotive News, September 15, 2008, pp. 186-90;

GM Posts. (2010). Record Sales in China, Toronto Star, January 5, 2010, p. B4;

GM’s Sales. (2011). China Top US, Investors Business Daily, January 25, 2011, p. A1.

Hamilton, S., & Zhang, J. A. (2012). Doing business in China: Avoiding the pitfalls. Basingstoke [u.a.: Palgrave Macmillan.

Saxon, M. (2009). An American’s guide to doing business in China: Negotiating contracts and agreements, understanding culture and customs, marketing products and services. Cincinnati: F+W Media.

Schifferes. (2007) Cracking Chinas Car Market, BBC News, May 17, 2007; N. Madden, Led

Xi, C., Witzel, M., & Ambler, T. (2017). Doing business in China. London: Routledge.

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