Flat Panel Tv and the Global Economy

Q2. â€Å" Flat Panel Televisions and the Global Economy† Vizio is a U. S. company founded in 2002 by William Wang, Vizio CEO, with the idea that everyone deserves to own the latest technology. It is a producer of consumer electronics, primarily produces television sets. It grows fast despite a limited number of staff. Now, there are over 160 employees and it remains the first American brand in over a decade to lead in U. S. LCD HDTV sales. This passage has mentioned two main issues, which are related to what I have learnt in the lecture. They are globalization of production and the reasons for businesses to become international. 1) Globalization of production Vizio has achieved globalization of production. Globalization of production means sourcing of goods and services from locations around the world to take advantage of national differences in the cost and quality of factors of production, for example, land, labor, capital, and energy. Vizio sources the components of televisions around the world. It source panel, electronic components, and processors from South Korea, China, and United States respectively. Assembly of TV is in Mexico, while final product design, sales, and customer service are in California. The final products are sold in retailers, such as Circuit City or Wal-Mart. Globalization of production makes companies more competitive by improving their quality or volume, and lowering their costs. According to William Wang, Vizio CEO, he can undercut his competition because his overhead is low. The company has about 85 employees and they are mainly responsible for technical support or engineering. It outsources manufacturing to Asia because there are low-cost, for-hire factories. 1] Because of reduced cost and high quality TV, it allows Vizio to compete with it rivals, e. g. Sony, Samsung, and Panasonic more effectively. 2) Reason to become international – proactive & reactive There are some initiatives for Vizio to become international. The proactive reason why Vizio become international because it can generate greater profits by reducing costs of acquiring resources. B y souring the television components worldwide and lower cost in labor and factories in Mexico, Vizio gain advantages to reduce its total cost. From Vizio’s perspective, greatly reduced production cost cause it able to offer lower selling price of TV sets to customers. This becomes Vizio’s competitive advantage and allows it to beat its competitors- Sony, Samsung, and Panasonic. From customers’ perspective, they are benefited from falling price and improved living standard because they can enjoy high quality flat-panel TV. The reactive reason is because of the competitive pressure in domestic market. There are many competitors in the United States, for example, Sony, Samsung, and Panasonic. In order to survive, Vizio has to Vizio has to enhance its competitive advantage. Therefore, it source suppliers of the components around the globe, which can offer low cost and high quality products. This makes Vizio’s TV become competitive and attract many customers to buy its products. Globalization also has its pros and cons. One of the advantage globalization is that competitions can increase the quality of products. Since Vizio now have to compete with rivals from worldwide, it has to provide customers with better flat panel TV than Sony, Samsung and Panasonic. Also, competitions force Vizio to create more innovative products so as to attract more customers to buy its products. Customers are thus benefited under globalization. On the other hand, globalization causes companies to lay off employees in home country. Since many manufacturing work are outsourced to China or Mexico, which can provide low cost labor and factories, employees in home countries are laid off because of their high labor cost or the factories in home country are closed down, causing unemployment. Q3bii As there is a trend towards globalization, many firms are involved in cross-broader trade and investment. Managing international business becomes not as easy as managing a purely domestic firm. Managers are now facing more difficulties related to globalization. The issues that managers have to grapple with are as follows. 1) Difference in culture The firms are doing business with many other firms or investing in other countries around the world. Since the countries are not the same, there are differences in cultures, political systems, economic systems, legal systems, and levels of economic development. Because of these differences, international businesses need to vary its practices country by country. Take General Electric as example, GE invest in China on infrastructure. Since China is a communist society, many businesses are still operated by the government although it has opened its market to outsiders to invest in China. Therefore, government is a large customer in China and GE needs to work closely with the bureaucrats. It is difficult for the outsiders, who are not familiar with Chinese culture, to gain cultural sensitivity. Even if they are exposed to Chinese environment, they still need time to learn Chinese Culture. For example, eastern and western people are different in expressing their anger. Western gives unhappy face when they are angry while eastern gives smiling face even they are angry. [2]Therefore, when GE do business with Chinese people, businessmen have to be careful with their conversation with bureaucrats because they may not know bureaucrats get angry or unhappy with them. Since eastern people may not adapt to this cultural difference or may not get used to it, they cannot do business successful with the Chinese. Besides, about punctuality, western are punctual while it is common for eastern to arrive a little earlier or late. When GE do business with the bureaucrats, it is better to come a little earlier. So the government bureaucrats need not wait for too long. Moreover, about confronting a problem, western faces the problem and think about prompt action to deal with the problems while eastern tends to avoid the problems. If eastern managers work in China to manage his subordinates, it is easy for them to have conflicts or argues because of different methods in handling the problems. Eastern managers may force its Chinese subordinates to give prompt action but the subordinates may not get used to it and may feel unhappy or pressure. Therefore, different culture leads to changing management skills and skills doing business. Country managers are often local internationals as they have deep understanding of local language. 2) Which foreign market to enter and which to avoid? It is suitable for the firm to choose economically and politically stable market to invest or cooperate with. Take General Electric as example. It chooses to invest in China because China is a emerging country. Since it is a developing country, it has high demand for infrastructure investments, such as airport and railways to facilitate trade. Without these infrastructures, products imported or exported to and from China become difficult. Globalization is then difficult to take place. Also, China is economically stable. It is the world's third-largest economy in 2007 and contributes more than 5. 5% of the world's GDP. [3] Besides, China is politically stable because there are no wars and riots rarely happen. It is not suitable for company to invest in politically unstable market, such as Iran and Iraq, because wars are usually happen. Otherwise, firms will suffer from political risk resulting in expropriation, confiscation, violence and conflict. Since China is politically stable, there is low possibility for GE suffering from political risk 3) Adaptation for global market When companies do business with countries around the world, it is important for them to beware of the difference in culture. Differences in culture require companies’ products to adapt to local environment for business success. There are some factors encouraging adaptation, for a example, differing use conditions, differing buyer behavior patterns, government regulatory influences. In the case of GE, GE Health Care makes MRI scanners that cost $1. 5 million, while Chinese research center is designing MRI scanners that only priced $500,000. If GE sold scanners that cost $1. 5 million in China, the sales may not be very good because China may not afford this expensive scanner. Even if Chinese companies can afford $1. 5 million, Chinese citizens, who are not rich enough, cannot afford the fee for using MRI scanners. Therefore, GE should seek ways to lower the cost of MRI scanners to better suit the needs of Chinese. GE Chinese research center can serve this purpose because it can easily gain more information about the consumption pattern of the Chinese and design a equipment that is more likely to gain sales. 4) Mode of entry When a company wants to enter a foreign market, managers need to decide which mode of entry is the best. Exporting, Turkey projects, licensing, franchising, joint venture, and wholly owned foreign direct investment are the six mode of entry. The six entry modes have their pros and cons. Besides, the higher the profit potential, the higher is the amount of firms’ financial commitment, risk and marketing control. Thus, firms have to seriously consider which global market entry strategy to use. GE use foreign direct investment strategy (FDI) to enter Europe, Latin America, and Asia. The pros of FDI are that GE can have total control over its foreign business. When there are strong interdependencies between headquarters and local operations, total coordination achieved through ownership will guarantee acceptable performance. On the other hand, the current international environment mat be hostile to full ownership by GE. It has to bear all the risk. Reference [1] Kessler K,  Ã¢â‚¬Å"Vizio's unexpected flat-panel kin†, USA Today; 2007. [2] Yang L, Differences between Eastern and Western culture, [homepage on the Internet], 2008 [cited 2011 Feb 7], Available from: http://mountainrunner. us/2008/01/differences_between_eastern_an. html [3] Xin H. Hey, hey: Look how China's growing, [homepage on the Internet]. 2007 [cited 2011 Feb 10]. Available from: http://www. atimes. com/atimes/China_Business/II20Cb01. html