December 2, 2008

Market Entry Strategy of IBM in China

 

1.0  Introduction

Strategies are central to the achievement of sustainable development. These are the driving force of practically every organisation that are motivated to grow fast ahead of the competitors, grow in line with the industry or to simply catch-up and defend an existing status. The orientation of these organisations is to expand, to reach and to penetrate into new market segments despite of all the hindrances that the market environment imposes. IBM is not an exemption to this as this multinational corporation is known for initiating efforts to maximise profit and minimise risks through strategizing.

This paper discusses in detail the research proposal of the market entry strategy of IBM in China. In particular, the research will focus on evaluating the most appropriate entry strategy and the basic entry decisions that IBM should consider prior to penetrating an otherwise highly-paternalistic, communist market like China. In this research proposal, the context and theme of the study are presented; the objectives of the study and the research statements are formulated. Here, vital concepts and questions are stated. Finally, the methodology to be used is discussed.

2.0  Theoretical Framework

The theory that supports the aims of this research is Hofstede's (1980) four value dimensions, which explain differences among work-related value patterns which affect the structuring and functioning of organizations. The four dimensions are the following: large versus small power distance; strong versus weak uncertainty avoidance; individualism versus collectivism; and masculinity versus femininity. According to Hofstede's analysis for China, the Chinese rank lower than any other Asian country in the Individualism (IDV) ranking, at 15 compared to an average of 24 (ITIM, 2003). This may be attributed, in part, to the high level of emphasis on a Collectivist society by the Communist rule, as compared to one of Individualism (ITIM, 2003).

China is proven to be a collectivist society (Triandis, 1994). Chinese are generally willing to give priority to the goals of the collective over their own personal goals, and emphasize their connection to the members of these collectives. Furthermore, they focus their trust and solidarity toward the norms of the members of their collectives, also called in group, and is often distrustful of out-group. The Chinese believes that individualism connotes selfishness, a lack of concern for others, and an aversion to group discipline, whereas collectivism is understood to affirm the solidarity of the group (Ho & Chiu, 1994).

3.0  Literature Review

The study will review a document and present related literatures. This will primarily include literatures from Hofstede, Hill and Jones and Johnson and Scholes. Basically, Hill and Jones discuss the basic entry decisions a company faces when going international. There are three basic decisions that a firm contemplating foreign expansion should take into account: which markets to enter, when to enter those markets, and on what scale.

a)     Choosing foreign market. The choice must be made on the basis of an assessment of their long-run profit potential. As such, the attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country.

b)     Timing of entry. The philosophy is: entry is early when an international business enters a foreign market before other foreign firms, and late when it enters after other international businesses have already established themselves.

c)      Scale of entry and strategic commitments. Entering a market on a large scale involves the commitment of significant resources to that venture. Though not all companies have the resources, even some large companies prefer to enter foreign markets on a small scale and then gradually build their presence as they become familiar with the foreign market.

According to Hill and Jones (2001), there are five options that companies could ponder on. These are exporting, licensing, franchising, joint ventures, and the establishment of a wholly owned subsidiary.

Johnson and Scholes (2002) establish the role of strategic management incorporates the corporal understanding of the application of strategic positioning, the power of strategic choices and putting such strategies into practice. Such strategies are inherent for the companies which are diverting their attention from a domestic marketplace into the international scene.

A) Strategic positioning illustrates the implications of strategies on the external environment, the strategic capability of the organisations and the corporate expectations.

B) Strategic choices provide an array wherein the companies could decide what approaches, directions, or methods use in achieving business-level and corporate-level objectives. Expansions purport a greater profit for the company through business and corporate-levels strategies towards cost leadership, differentiation and competitive advantage.

C) The companies' effort to ensure that strategies are functioning is acknowledged as translating strategy into action.

Literatures about international marketing strategies will also be reviewed, as well as literatures about how a culture plays an important role in determining market strategies for multinational corporations so as the reader will have references about the different concepts and elements used in the study. 

4.0  Statement of the Problem

The problem that will be addressed in this research is the most suitable market entry strategy of IBM in China. The key question to answer is: For IBM, how does the company could successfully penetrate the Chinese market? In lieu with this, the following specific questions will be answered.

1)     What are the strategies that IBM should engage in entering the Chinese market?

2)     What are the challenges and hindrances that IBM will face relating to Chinese market penetration?

3)     How will the IBM combat the challenges imposed by the Chinese culture?

4)     How important is succeeding to penetrate the Chinese market for IBM?  

5.0  Research Objectives

The main purpose of the study is to analyse the most suitable market entry strategy that IBM could adopt in penetrating one of the most powerful yet convoluted markets in the world – the Chinese market. The following specific objectives will be addressed.

§         To evaluate how Chinese culture will affect the expansion strategies of IBM

§         To determine the challenges that IBM will expectantly face in penetrating the Chinese market

§         To scrutinise how the Chinese market penetration will provide benefits and advantages to IBM 

6.0  Research Methodology

The study will explore the problem in a positivist view, using exploratory research strategy because it aims to know more about the phenomenon of employing market entry strategies. Exploratory research will enable the study to look at the problem in both descriptive and exploratory manner. It will look into the problem by exploring the views of different sets of respondents, as well as by exploring different literatures related with the study.

This research is also cross-sectional because of limited time. This research is a study of a particular phenomenon (or phenomena) at a particular time. (Saunders et al, 2003) Accordingly, cross-sectional studies often employ the survey strategy, and they may be seeking to describe the incidence of a phenomenon or to compare factors in different organizations.

In this study, primary and secondary research will be both incorporated. The reason for this is to be able to provide adequate discussion for the readers that will help them understand more about the issue and the different variables that involve with it. The primary data for the study will be represented by the survey results that will be acquired from the respondents. On the other hand, the literature reviews to be presented in the second chapter of the study will represent the secondary data of the study.


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