sm 3.01.62 case analysis

7/27/2019 SM 3.01.62 Case Analysis

1/67

Midstream and Petro Vietnam1

1. Case summary

By late 1991, the offshore oil of PetroVietnam was in production just 3 year earlier.

Everyday, 100 million cubic feet of gas rose to the surface during extraction of oil,causing a loss of US$500,000 per day and also a big harm to the environment.

Being aware about the waste of natural gas sending to the atmosphere. Tom

Higgins, president of Higgins Engineering, would like to take the opportunity to add

a natural gas processing plant to the offshore oil facilities in Vietnam. He firstly

assumed leadership of the project and approached Midstream to invite participation

to the project in late 1991.

After outlining the project details to PetroVietnam in January 1992, Midstream andHiggins had made many short trips to Hanoi for discussion with PetroVietnam. At

last, they were rejected in July 1992. However in late 1992, PetroVietnam

contacted Midstream and Higgins when the project was again thrown open to bid.

Since the cost of the project was assumed so high, Higgins and Midstream then

invited other companies from Calgary to form a consortium in order to spread the

financial risk and to contribute skills to the joint venture. There are four Canadian

companies in the consortium: Higgins, Midstream, Extensive Pipelines Limited and

Willet Engineering, each of which brought a unique skill to the project which life was

estimated at 15 years and can bring in over $80 million.

After spending a lot of efforts, the consortium was still uncertain of whether being

selected for the project till late June 1993, it was informed being the number one to

proceed with the project.

However, before the announcement about successful bidder, the Canadian joint

venture had some problems with their feasibility studies. And misfortunes never

come alone, one of the joint venture member, Willet Engineering, pulled out of the

project.

2. Discussion question

2.1. Who are the stakeholders in this project?


2/67


Stakeholders are those that gain or lost as a result of perceived success in project

implementation. In this case, the project stakeholders including:

The Canadian Government. Since it had funded the technical feasibility study of the

project, so, it was assumed to be a sponsor of the project.

The project consortium consisted of 4 Canadian companies; Higgins, Midstream,

Extensive Pipelines Limited (ELP) and Willet Engineering. However, Willet

Engineering pulled out of the project before the bidding result was announced.

Higgins also hired a South Vietnamese woman, Ms. Minh Chau, to be the

interpreter.

The local counter part and user of the project was PetroVietnam.

Other interested groups: Vietnamese Ministry of Heavy Industry, Economic and

Planning Department, Production Department and Gas Department

2.2. How would you evaluate the consortiums progress to date?

In these days, trying for gaining the contract with PetroVietnam, the Canadian JV

was aiming to persuade that the consortium has considerable expertise and

provide the essential credentials to make the project a success

So far, they had spent over $80,000 per company without any return in sight. At

last, in June 1993, the consortium was informed that it had been selected as

number one to proceed with the project.

However, the Canadian JV had formed for 6 months without setting out each

member s role in a formal agreement. In addition, The project lacked a business

principal approach. Moreover, their technical feasibility study was very weak. It was

time to consider again all the procedure so far and probably must redo all feasibility

studies. Besides, in July 1993, Willet Engineering pulled out of the project, claiming

that the project was not consistent with the companys new vision.

So, the consortium was in tough situation and continuing with the project or not was

a big question mark.


3/67


2.3. If Midstream continues with the joint venture, how can the

consortium increase the probability of being selected for the project.?

To increase the probability of being selected for the project. The consortium has bundle

of things that must be considered carefully.

Firstly, they should redo all feasibility studies carefully, especially the technical

feasibility since the finance feasibility study has to be based on the technical

feasibility study which was weak at the time. In addition, they should learn to

understand in deep Vietnamese legal, taxation and banking system. And most

important, setting up business principle approach.

At the time, the joint venture did not have an office in Vietnam, it was one of its

disadvantage. In the process of bidding for the contract, they just made several

short trips to Hanoi, just for meeting and discussion PetroVietnam about the

project. Therefore, it will be much better if they set up an representative office in

Hanoi, the capital of Vietnam where PetroVietnam as well as the Ministry of Heavy

Industry and other concerned organizations are located. The representative office

would create sense of reliability to the Vietnamese side, proving that the Canadian

joint venture are seriously want to do a business with Vietnam. Besides, they will

have more opportunities to contact with Vietnamese side frequently, with reduced

cost of flying in and out.

In addition, Higgins had hired Minh Chau whose business was similar to that of a

travel guide to be an interpreter. Since she did not have any experiences in

technical field, it would hard for her to interpret in technological aspects or else, her

interpretation would be not exactly what the Canadian meant. This fact would be

very dangerous if happened. So, it will be better if the joint venture hire an engineer

or technical expect who have experiences in the gas industry and many other

aspects that can be the interpreter and Vietnamese consultant as well.

They should also build a plan with more detail to persuade Vietnam side about the

merits of project. Such plan should mention to many aspects that would draw the

Vietnamese side s interest. Those can be the application diversity of gas, revenue

received from gas and saving cost from stopping gas flaring, limiting pollute that

derive from the flaring of the raw gas, improving knowledge and skill for

Vietnamese technical staffs and workers, and also a source of opening jobs to


4/67


unemployment since the project implementation as well as the plant afterward need

many employees. In addition, their plan should clearly show how and what they

have learned from the very best gas processing technology in the world.

Studying the competitors is also what they must do. The consortium should learn

who are its competitors, their strength and weakness, in which aspects they are

better than the Canadians. In the same time, it should determine itself about its

advantages as well disadvantages in financial aspect, experiences, technology,

human resource and the like to build a suitable strategy of dealing business in

Vietnam.

Since Willet Engineering pulled out of the project. The consortium should invite

another company to enter consortium, at least to replace the WE position, tocontribute finance and skill as WE. Moreover, it should build a formal organization

structure of the consortium and clearly clarify the roles and responsibilities of each

member in the consortium.

There would be many others ways to increase the probabilities of being selected for

the project. But the final way we would like to mention is that, the consortium

should create good conditions for Vietnamese side to understand clearly about the

consortiums strategy, plan and their commitment to the project. For those

purposes, it could invite some main officers and technical staffs in Vietnamese side

visiting Canada and their Canadian firms premises, organize press conference in

Hanoi. Besides, all the concerned documents (proposal, feasibility study, contract,

etc.) should not only in English but also in Vietnamese as well.

2.4. What cultural aspects of doing business in Vietnam should be

considered?

For being success in doing business in Vietnam, there are many cultural aspects that a

foreign firm should consider.

Firstly, in Vietnam, the social mobility is possible. It means one persons position in

the society can be changed easily depending on his property, talent and so on.

Secondly, authority is achieved through age and seniority. And Vietnamese often

expect to do serious business only with those of similar rank, seniority, and


5/67


sometimes, the same age. We can take one fact from the case that Clint Markson

was a boyish good looks man in his early 30s. And dealing business with such a

man was not a willing to Vietnamese officers who were usually in old age.

Therefore, it would be one of reasons of the stagnation of the bidding process while

using Clint Markson as the Canadian spokesperson.

Another aspect would be considered that religion does not influence very much on

doing business. The Vietnamese consider good relationships very important.

One advantage of doing business in Vietnam is that Vietnamese characteristics are

hard working and studious. So, they can be easily learn and adapt to the new

technologies transferred. In addition, the labor cost in Vietnam is lower than in

some neighbor countries.

However, Vietnamese is a high power distance culture. One person makes all

decisions and mid-level technocrats have no decision making power. Sometimes,

those who make the final decision of what to do and how to do are not the one who

will do.

Moreover, Vietnamese display risks avert behavior.

With the Vietnamese, time is not money and deadlines are irrelevant. Successful

completion of a transaction is more important than keeping to schedules. They also

consider long term control very important and worth fighting for.

And last, Vietnam is still working with a war mentality. Some still keep skeptical to

foreigners and defensive behaviors are often taken place.

2.5. What are some of the barriers to creating an international joint

venture?

The barriers to creating an international joint venture stem from both home country

(Canada) and host country (Vietnam).

We will mention firstly about host country, Vietnam. Vietnamese attitudes towards

business decisions is still backward that spent so much time to negotiate and

discuss about the project and had to pass various management degrees for the


6/67


final decision. This creates many obstacles for foreigners to plan and control the

project.

In addition, the shortcoming of language competence and expertise of Vietnamese

people, who foreign firms have to deal with, also creates some restrictions in

understanding as well as communicating the ideals and matters about the project,

creating some obstacles to creating an international joint venture. Specially,

underestimation of the role of foreign direct investment in the development of the

country is probably the big reason to block the process of creating international joint

venture.

Moreover, Vietnamese law system is not stable, one that is not permitted today

would be permitted tomorrow and vice versa. Regulations and decrees aresubjected to be updated and changed.

And what are barriers in the home countries of the foreign firms, the Canadian side

in this case. Without formal agreement of each member's roles and responsibilities

in the consortium is one reason that influence their success, creating many

difficulties in managing the project efficiently. In addition, disputing for influences

between members to the Vietnamese partners, pulling out of the project and the

like create obstacles to them.

Furthermore, lacking understanding about the host country - its culture, capability,

infrastructure, legal system and the like - is also a significant barrier of creating an

international joint venture.

2.6. What do you understand from this case in relation to the objectives of

doing business internationally?

The objectives of doing business internationally are transferring technology,

intellectual property and managerial skills. In addition, it also helps to expand the

market and to use outside labor sources and others resources that have lower

costs. Those things help reduce the production cost and increase the

competitiveness of the firm as well as its products. So, both the home country and

the host country get benefits from doing business internationally.


7/67


In this case, Vietnamese oil and gas business is a fledgling one, it needs FDI as an

opportunity to improve the technology, the offshore oil facilities, as well as technical

skills of staffs. And the Canadian firms expect profits gaining from the project.

However, to attract investment sources, the FDI policies should offer a favorable

environment for foreign countries in doing business in Vietnam. Such good policies

will help minimize the time and cost spending for creating an investment project.

3. Conclusion

In this case, we can see the process of approaching the international project of

Midstream. The case focused on activities in the initial time of project implementation

such as: meeting, contacting, planing, preparing feasibility studies as well as learning

about the cultural aspects in the host country. The case, through a very vivid illustration

of how difficult and costly it was for Midstream to win the contract with PetroVietnam,

gives a experienced lesson to those who want doing a business in Vietnam and doing

business internationally as well. One obvious fact is that, before making investment

decision, foreign investors should learn about the conditions, policies and cultural

aspects of the country where they want to invest. This helps the investor avoid the risk

and minimize the cost and time spending for the project.


8/67

Ford: Exporting to Japan Case 9

Case Analysis

I. The likeliness and difference in Japanese and American car

companies exporting strategies

American car companies Japanese car companies

Likeliness

Overseas production (including local brand)

Export

Hire local personnel to help establishing the firm in foreign market

Difference

Focus on dealer relationships.

Initially focus on one small nichemarket (high profile).

Small-scale investment to reducethe risks

Export from home or local

production

Focus on low-cost production.

Export to large markets

Large-scale investment (inUS)

Produce in one foreigncountry and export to another

foreign countryExplanations:

Both American car manufacturers (represented by Ford) and Japanese car

manufacturers (represented by Daihatsu Co.) sell cars in foreign markets which

composed partly by local production and partly by export from home. They also

have to hire local personnel to help penetrate the new foreign markets especially in

distribution systems.

However, there are some differences in their exporting strategies:

American car manufacturers ( represented by Ford Motor Company): Japan is a

country with impressive cultural characteristics, for example: Japanese refer door-

to-door selling, they pay much attention to the products appearances, etc

Therefore, Ford policies was offer an American icon at a discount price and back it

up with other models adapted for Japanese market. Also Ford focused so much on

distribution systems building good relationships with local dealers. First of all,

Fords target market was the youth with well-design sport cars Mustang.

Japanese car manufacturers (represented by Daihatsu Co.): utilized the low-cost

manufacturing at US., they invested heavily in US. And then exported to the third

countries (in Asia, Europe)


9/67


II. The approaches of Japanese and American car companies to adapt

their marketing mixes to foreign markets:

American car companies Japanese car companies

Product Changed product design

Focus on back-up services

Fuel economy

High qualityPrice Pricing competition Low price

Place Focus on local dealerships

Invest more additional dealers

Local distribution

Owned distribution system

Promotion

Push strategy (door-to-door)

Car trade-off

Advertising

Pull strategy

Product:

In Asia, people like to go out or make an own vacation with their family. Japanese

customers for family outings and recreation for users and their families prefer theAmerican cars with large internal space enough. Besides supplying the car basic

attributes, American car companies also offered the extra features such as safety

features, improved fuel economy, etc. Moreover, they also considered the Japanese

physical conditions by offering the good back-up services for their customers.

Generally, the product strategy of Japanese car is well known as offering fuel-

economic and high quality car.

Price:Perhaps, price is the most important weapon for the Ford Company in a marketing mix

strategy in such a fierce competition market. How to choose an appropriate pricing

strategy is a critical determinant of the firms success. When the firm tries to find out

the effective price strategy, it should consider some factors that influence pricing

strategy such as transportation charges, taxes, exchange rates, marketing expenses,

etc. In this case, thanks to the stronger strength of yen compared with the U.S dollar

helped the price of American firms product lower than Japanese. As a result, American

cars priced reasonable and more attractive than comparable Japanese ones.

For Japanese companies, since they have highest productivity in producing cars, cost

advantage is also the strategy of them.

Place (distribution):

When American car companies entered the Japanese market, they tried to buy a

number shares of domestic car companies in order to access the domestic distribution

channel because customers are brand loyal and it is very difficult to access the

distribution systems. After they are familiar with dealerships and the market, they build

their own dealers in addition to the existing ones.


10/67


For Japanese, the distribution problem is not serious in their export markets. They

freely use their own systems as well as the well-established ones.

Promotion:

In this case, the difference in promotional mix strategy of Japanese and American car

companies are clearly. Although car is a consumer product, Japanese car companies

used push strategy instead of pull in Japanese market. They developed their door-to-

door salespeople based on personal relationships with customers to make their sales

pitches in their customers living home. This situation made American car companies

had to apply this strategy although they disliked it. However, they also invested in the

advertising media to gradually change the Japanese traditional buying habit in this

field. At that time, two trends in Japan helped their efforts to succeed. Firstly, more and

more Japanese women are working. Secondly, the typical Japanese consumer is veryinterested in latest modern car models that make to increase his/her value. Of course,

in their largest exporting market U.S., Japanese may just apply pull strategy to

access customers.

Strategies may not be the same for all Japanese or American companies in all

markets. The above are general. It can be different in different circumstances.

III. What market attributes should Ford be aware of as it steps up its

effort in the Japanese market?

When Ford entered into the Japanese market, there are many differences compared

with the home country the American market.

First, it must recognize the differences in consumer tastes and preferences there. The

difference we may find in the case is that Japanese consumer is less interested in how

a car drives than in how it look because the Japanese treat their car as an ornament to

be polished and cared for but use only occasionally. Japanese likes going to picnic with

their family for recreation and weekend. In addition, one thing can not be forgot is the

nationalism of the old Japanese and the western style of the young generation. In the

recent years, Japanese are also aware of environment protection for their huge

population.

Second, differences are in infrastructure and traditional practices. In Japan, the roads

are narrow, twisting and constant stopping and starting. Additionally, improved fuel

economy made the cars more attractive in Japan with very high gasoline prices. One

more thing is that the exchange rate between U.S. and Japan is fluctuating so it canreduce the pricing effect of Ford.


11/67


The third is the difference in the distribution system, most Japanese never go to an

auto dealership and most are strongly brand loyal, so the door-to-door salespeople are

popular. However, and more consumers are willing to go to showrooms to see the

latest new cars. In addition, more Japanese women are working (they are counted for

60% of purchase), not at home for traditional sales calls. In recent years, the

development and applications of Internet can create more advantage customers with

the appearance of online service. These all what Ford must be aware in Japanese

market for its future success and becoming the leading carmaker.

IV. What marketing recommendations would you make to Ford to help

it be successful in the Japanese market?

Because of attributes of Japanese market, there are many recommendations to be

considered so that it can help Ford success in the new arena. Those recommendations

are:

Ford must sell the good-looking image of car to clients by advertising and product

design to satisfy the preference of Japanese customers in how the cars look.

The car must pay attention to product design that orient towards environment

compatible. That is environment friendly and low level of pollution.

The car must be flexible and easy driving for narrow roads with constant stops.

Women are more and more important in purchasing power since they are working

and spending their money more than ever, Ford must focus on women-fit design

that reflect in product design and in advertising messages. This is the area for

improvements and creative work. For example, the car design must be appreciated

by women, or the control components must suit women drivers.

For high nationalism, car design may have to reflect the Japanese symbol. In

addition, Western style can help the car more attractive in the eye of Japanese

since they prefer the foreign origin of products. These characteristics do not conflict

each other.

Internet and e-commerce was emerging in Japan and become very important in

terms of servicing. Ford cannot forget this trend. However, e-commerce itself is not

enough, it must be associated with local dealers in serving customers.

The dealers are difficult to access. Salespeople are popular. Therefore Ford must

treat distributors as initial customers to increase its ability to access to the whole


12/67


target market. Ford can use more incentives than other companies for salespeople

associated with building good relationships with dealers. The good relationships

can be strengthened by helping them in advertising and financing.

In macro level, since the trade between U.S. and Japan is imbalance with the trade

surplus is on the Japan side. Naturally, Ford must be well prepared for trade-

balancing efforts by Japan - US agreements.

In addition, Ford had to develop its own policies to manage the exchange rate

between the two countries currencies.

Finally, after considering all possible attributes of the new market, Ford may identify

its target customers are middle class including professionals who have spending

enough for their car as well as looking for high differentiation of foreign origin,

strong nationalism with professional lifestyle and high social positions.

Conclusion

To be successful in Japanese market, Ford must realize some local characteristics that

very different from any other area in the world. That is the customer tastes and

preferences, infrastructure, distribution etc. The largest changes occur in product

design. However, other thing that is not much related to those attributes is the macro

effect of international business exchange rates and trade imbalance. Therefore, it will

not be enough for Ford to success if it is only response to local attributes. The

company must proactively prepare for those macro problems.


13/67

Poland Dramatic Gamble 14

TABLE OF CONTENT

I. THE LIKELINESS AND DIFFERENCE IN JAPANESE AND AMERICAN CAR COMPANIES

EXPORTING STRATEGIES...........................................................................................................................9

LIKELINESS.....................................................................................................................................................9

II. THE APPROACHES OF JAPANESE AND AMERICAN CAR COMPANIES TO ADAPT THEIR

MARKETING MIXES TO FOREIGN MARKETS:....................................................................................10

III. WHAT MARKET ATTRIBUTES SHOULD FORD BE AWARE OF AS IT STEPS UP ITS

EFFORT IN THE JAPANESE MARKET?..................................................................................................11

IV. WHAT MARKETING RECOMMENDATIONS WOULD YOU MAKE TO FORD TO HELP IT

BE SUCCESSFUL IN THE JAPANESE MARKET?..................................................................................12

Conclusion.................................................................................................................................................13

V. EXECUTIVE SUMMARY...........................................................................................................................1

VI. CASE ANALYSIS........................................................................................................................................1

THEOLDSYSTEMANDITSEFFECTS..................................................................................................................1

BENEFITSOFPRIVATIZATIONANDPRIVATESECTOR........................................................................................2

THEADAPTATIONOF POLISHPEOPLETOTHENEWSYSTEM.............................................................................3

THERESULTOFRAPIDREFORMPROGRAMS......................................................................................................4

RELATIONSHIPBETWEEN DEMOCRATIC POLITICAL SYSTEMAND ECONOMY..................................................5

RECOMMENDATION...........................................................................................................................................6

VII. BIBLIOGRAPHY.......................................................................................................................................7

VIII. APPENDIX 1: POLAND TODAY..........................................................................................................6

I. INTRODUCTION...........................................................................................................................................1

II. SUMMARY OF THE CASE........................................................................................................................1

LOGICOF AIRLINE ALLIANCE...........................................................................................................................1


14/67


SIA'S ALLIANCE STRATEGY.............................................................................................................................1

THE STARALLIANCE ATTRACTION..................................................................................................................2

III. SHOULD SIA JOIN THE LUFTHANSA-LED STAR ALLIANCE......................................................2

ADVANTAGESOF JOINING STARALLIANCE.....................................................................................................2

DISADVANTAGESOFJOINING STARALLIANCE................................................................................................3

IV. BENEFITS OF FORMING STRATEGIC ALLIANCES FOR AIRLINES AND THEIR

CUSTOMERS.....................................................................................................................................................3

BENEFITTO AIRLINES.......................................................................................................................................3

BENEFITSTO CUSTOMERS................................................................................................................................4

V. REASONS WHY SIA DISSOLVED ITS ALLIANCE WITH SWISSAIR AND FORGED A NEW

ALLIANCE WITH LUFTHANSA...................................................................................................................4

VI. STRATEGIC AND OPERATIONS CONSIDERATION FOR SIA JOINING THE STAR

ALLIANCE AND REASONS WHY SIA RELUCTANT TO JOIN.............................................................5

VII. ARE STRATEGIC ALLIANCES BETTER THAN ACQUISITIONS AS AN INTERNATIONAL

BUSINESS...........................................................................................................................................................6

VIII. CONCLUSIONS.......................................................................................................................................7

IX. BIBLIOGRAPHY........................................................................................................................................7

X. BRIEF OF THE CASE.................................................................................................................................5

XI. ANALYSIS OF THE CASE........................................................................................................................6

XII. CONCLUSION.........................................................................................................................................11

XIII. SUPPLEMENTARY DOCUMENT......................................................................................................11

TRADE AND ECONOMIC PROFILE FOR CHINA...................................................................................11

Country Information: ................................................................................................................................11

Political Environment: .............................................................................................................................12

Economic Environment: ...........................................................................................................................13

FOREIGN TRADE BARRIERS ...........................................................................................................................15

People's Republic Of China ......................................................................................................................15


15/67


Import Policies .........................................................................................................................................15

Tariffs and Taxes ......................................................................................................................................15

Nontariff Measures ...................................................................................................................................18

Transparency ............................................................................................................................................20

Trading Rights and Other Restrictions .....................................................................................................20

Import Substitution Policies .....................................................................................................................21

Government Procurement ........................................................................................................................24

Export Subsidies .......................................................................................................................................26

Services Barriers ......................................................................................................................................29

XIV. BIBLIOGRAPHY...................................................................................................................................33

XV. PRESENTATION SLIDES......................................................................................................................33


16/67


V. Executive Summary

The most important political development during the previous years in the communist

world was the transition of power at the Center and State levels in a democratic tradition.

The most significant economic development was the reiteration of the course of economic

reforms. Since 1990, all of the Eastern Bloc countries have held democratic elections and

have made some attempts to both democratize their political system and liberalize their

economy. The most successful of these are Poland, the Czech Republic, and Hungary.

Other countries, such as Russia and Ukraine, have not been so successful. The former

Communist party cadres have reemerged in most of these states, and have even won

recent elections in a number of them. That process is also emerging in other area in the

world. This text covers matters concerning with the transition process of Poland. By tracingthe historical events as well as making the comparison with other nations, it could be more

understandable about this process, its benefit and drawback as well. Various ideas that

were raised and discussed indicate an overall picture of the normal transition. The success

and failure of the relevant countries would be valuable considerations for Vietnam

implications

VI. Case analysis

The old system and its effects

In centrally-planned economy, State determined all economic and social activities:

production, price, wage, human resource assignment, and so on.

Under this system managers of factories have no authority to make decisions, to control

production process and costs. Their responsibility to plants and workers did not exist.

Almost of managers were appointed by Government based on political position not on

ability.


17/67


Regarding to workers, everyone was given jobs. The jobs were guaranteed. Workers did

not care of shutting down or going bankruptcy or lay-off. Every worker received the same

wages which were low and not based on workers performance. They did not have to

concern about their works. Qualified people were not important.

All of the above characteristics of the old system resulted in many problems:

Low productivity

No satisfaction and incentive to make workers being efficient in their work.

Managers did not have responsibility for the development of the plant and their

workers.

Shortage of almost everything in Polands society.

Recession and inflation.

Benefits of privatization and private sector

Moving to free market economy, the Poland leaders chose a path of radical change.

Privatization is one of the most important approaches to help them to reach their goals.

Laws for selling state enterprises to private investors were enacted. Thank to privatizing

state owned enterprises, Poland get following benefits:

Creating motivation. Now the employer and employees work for themselves. The more

they work the more they get.

Operating more efficiently. Not like the old days, now the managers must take into

account the production cost, control cost in order to make sure that they can make

profit and compete to be survive and develop.

The rights to making decisions in the hand of the owners now managers select

qualified, skillful, productive employees so it forces employees caring of good

performance. This results in more productivity.


18/67


If a factory does not make profits, it might be shut down or lay off. Thus employees

must work in a sprite of hardship.

According to Omig's Marck Ogradzki, one manager of the first privatized firms, "The only

way for Poland is privatization. I think in the future it will be 80% private sector and 20%

state or government sector".

Referring to Vietnam, similarly privatization (equitizing State-own companies and develop

private sector) is also one of the most important step in reform. The government's

consistent policy is to develop multisector economy including the private sector1. Because

private sector has a great potential and strength such as:

Fueling economic growth

Creating employment

Having productivity, fairly good quality, competitive exporting capabilities, and high

growth rate (15-20%)

Contributing to development of economy (taking up to 40.2% of the GDP in 1998)

Followings are activities or programs in the effort the encourage investment in private

sectors:

National Assembly's approval of the Enterprise Law

Implementing "The private sector Development Program" to support private sector in

procedures, finance,

Program to support SMEs Small and Medium Enterprises conducted by MPDF to

providing training, financial assistance, helping in accessing information, consulting.

The adaptation of Polish people to the new system

Besides affects on operations of factories, the changing economic system of Poland has

brought strong effects on Polish.

1 Mr. Tran Xuan Gia, Minister of Planning and Investment


19/67


Many Poles seem to support Government program. Their reasons in terms of a national

emergency and they were willing to accept sacrifices. They trusted and confident in their

leaders who they could democratically elect.

At one aspect, not all Poles were easy to adapt to the new reform. It was difficult for them

to live in a new Poland. They felt that they were loss for country because new economic

system requires them to learn to work in different ways and the old generations were not

ready for change everything especially in a very short time. They need time for adaptation.

Besides that some Poles were afraid that time would not wait for them because maybe the

fruitful performances of the new economy come lately when they are older.

However, at another aspect many Poles have not waited. They have tried learned the

ways of capitalism and market through another growth industries in Eastern Europe

enteprenuership education. They established and improved the link between Poles

institutions and United State to promote entreprenuership and trade.

All Poles had their own way to adapt to the new system of controlled management whether

they like or not. However, they did everything to make their country and their life better. It

is considered that Poland should take time to change the habits and the thinking of people.

The result of rapid reform programs

By choosing a rapidly reform path the Polish government played a gamble. If they had lost,

there would have been a terrible calamity, not only for the Poles, but also for the West2.

Fortunately, they seem to be in the right direction.

The results of these policies were creating a free-market economy with 80 percent private

sector and 20 percent state or government sector in a short period. The mechanism of this

new market is the interaction between supply and demand. However, at the beginning,

some big problems were emerged. The country was forced into recession because of

rapid price increasing. Another problem was that a big portion of Polish was not prepared

for new working way, a capitalist way.

2 According to Dr. Jeffrey, a Harvard economist.


20/67


Many Poles have not waited. They are learning the ways of capitalism and markets

through another growth industry in eastern Europe-entrepreneurship education. Poland

needs western management skills, modern western technology, and western capital to

succeed with its dramatic transformation. However, private investment is the key to longterm development.

Now, in the bottom line, the Poles have seen the light at the end of a tunnel. There are

some evidences for success (See Appendix 1).

Relationship between Democratic Political System and Economy

Over the past decade or so, a number of factors have profoundly changed the outlook for

global political and economic developments: the increasingly widespread acceptance of

democratic institutions and market-based economic development; rapid economic growth

of several economies. The government would likely implement policies that are in the

special interests of the groups, even though the policy may generate net losses to the

economy as a whole. Thus by maintaining a policy of free trade, an economy could avoid

national efficiency losses that could arise with lobbying in a democratic system.

There is general agreement that innovation is the engine of long-run economic growth. If a

countrys economy is to sustain long run economic growth, the business environment must

be conductive to the production of innovation. Economic freedom associated with a market

economy creates greater incentives for innovation. Thus, there is a strong relationship

between economic freedom provided by market economy and the economic growth.

Some argue that democracy is good for growth. Democracy creates more economic

freedom and a good base for market economy. However, some others argued that

Democracy does not necessarily lead to development, country needs to develop

discipline more than democracy. The exuberance of democracy leads to undisciplined and

disorderly conduct which is inimical to development3

. The current problems in the EasternEurope were due to the fact that democracy arrived before economic reform. It seems that

subsequent economic growth leads to establishment of democratic regimes.

3 Lee Wuan Yew, Singapores leader, 1992


21/67


Democracy is not a necessary precondition for the establishment of a free market

economy, e.g. South Korean, Taiwan. China maintains a totalitarian government but

moved gradually toward market economy. In addition, economic progress could lead to

the adoption of Democratic regimes. There is also the belief that once China has a freemarket system, democracy will follow.

Today's globalizing world economy thus provides an historic coincidence of interests for

the nations. Closer linkages between these economies are beneficial for sustained

economic growth, improving living standards, eliminating poverty and promoting

environmental sustainability, which will strengthen the foundations for global political

stability.

Recommendation

The case of Poland may be a good model for many countries to imitate. But we must

consider two things if we do not want to fall into a pitfall: is the success of Poland a result

of its rapid reformation? And the risk associate with it.

Many western counties wanted to use Poland as a sample to encourage eastern countries

reform their political and economic system. For doing so, they invested a lot of money intoPoland. It may be the cause of Poland success.

Rapid reformation is too risky. Many eastern European countries did it and fail such as

Russia and Ukraine. In the opposite side, China applies a gradual moving from centrally-

planned to free-market economy and keeps the totalitarian political system. As the result,

the economy of China grows gradually but sustainable.

According to analysis above, we think that it is better for Vietnam to implement a gradual

reform program.


22/67


VII. Bibliography

1. Guastello, S. J. (1995). Chaos, catastrophe, and human affairs: Applications of

nonlinear dynamics to work, organizations, and social evolution.

2. Hillsdale, NJ: Lawrence Erlbaum Associates. Meadows, D. H., Meadows, D. L.,

Randers, J., & Behrens, W. W. III (1972). The limits to growth. New York: Universe.

3. United Nations (1992).Agenda 21: Programme of action for sustainable development.

New York: United Nations.

4. Dore, M. H. I., & Ward, A. J. (1994, October). Modelling intertemporally sustainable

development: A nonlinear approach. Paper presented to the CASX Sustainable

Development Forum II, Naperville, IL.

5. International Trade Theory and Policy Lecture Notes: 1997 Steven M. Suranovic

Last Updated on 5/19/99

6. Hill, C. W. L, 1998, Global Business Today, McGraw-Hill, United States.

7. The Saigon Times Weekly, No0 51 '99 (428) December 18, 1999.

8. The Saigon Times Weekly, No0 34 '99 (411) August 21, 1999.

9. www.poland-embassy.org.uk

10. www.sarnow.com/poland

7


23/67


VIII. Appendix 1: Poland today

Source: www.poland-embassy.org.uk

Macroeconomic indeces, 1996-2000

- Source: Ministry of Finance -

1995 1996 1997 1998 1999 2000

1. GDP 7.0 6.0 5.5 5.3 5.1 5.1

2. Consumption 4.4 4.5-4.7 3.2-3.6 3.2-3.6 3.1-3.6 3.1-3.6

3. Gross Investments 19.0 10.5-13.0 9.5-14.0 9.5-12.5 10.0-10.5 10.0-10.5

4. Imports 21.1 11.5-13.6 8.0-13.0 7.0-10.3 6.5-8.6 6.5-8.3

5. Exports 17.0 13.4 12.4 10.0 8.4 8.3

6. Unemployment 14.9 13.6 13.1-13.4 12.0-12.4 10.7-11.3 9.4-10.2

7. Inflation (Dec.-Dec.) 21.6 17.0 12.0 8.0-10.0 6.0-8.0 5.0-7.0

Unemployment

6
http://www.poland-embassy.org.uk/http://www.poland-embassy.org.uk/


24/67


- Source: Ministry of Finance -

December to december inplation

- Source: Ministry of Finance

7


25/67

Case Singapore Airline Alliance: A Star attraction: 8

TABLE OF CONTENT

I. THE LIKELINESS AND DIFFERENCE IN JAPANESE AND AMERICAN CAR

COMPANIES EXPORTING STRATEGIES..........................................................................................9

LIKELINESS..............................................................................................................................................9

II. THE APPROACHES OF JAPANESE AND AMERICAN CAR COMPANIES TO ADAPT

THEIR MARKETING MIXES TO FOREIGN MARKETS:............................................................ ...10


EFFORT IN THE JAPANESE MARKET?............................................................................................11

IV. WHAT MARKETING RECOMMENDATIONS WOULD YOU MAKE TO FORD TO HELP

IT BE SUCCESSFUL IN THE JAPANESE MARKET?......................................................................12

Conclusion..........................................................................................................................................13

V. EXECUTIVE SUMMARY.....................................................................................................................1

VI. CASE ANALYSIS.................................................................................................................................1

THEOLDSYSTEMANDITSEFFECTS...........................................................................................................1

BENEFITSOFPRIVATIZATIONANDPRIVATESECTOR.................................................................................2

THEADAPTATIONOF POLISHPEOPLETOTHENEWSYSTEM......................................................................3

THERESULTOFRAPIDREFORMPROGRAMS...............................................................................................4

RELATIONSHIPBETWEEN DEMOCRATIC POLITICAL SYSTEMAND ECONOMY...........................................5

RECOMMENDATION....................................................................................................................................6

VII. BIBLIOGRAPHY................................................................................................................................7

VIII. APPENDIX 1: POLAND TODAY....................................................................................................6

I. INTRODUCTION....................................................................................................................................1

II. SUMMARY OF THE CASE.................................................................................................................1

LOGICOF AIRLINE ALLIANCE....................................................................................................................1

SIA'S ALLIANCE STRATEGY.......................................................................................................................1

THE STARALLIANCE ATTRACTION...........................................................................................................2

III. SHOULD SIA JOIN THE LUFTHANSA-LED STAR ALLIANCE.......................................... .....2

ADVANTAGESOF JOINING STARALLIANCE...............................................................................................2

8


26/67


DISADVANTAGESOFJOINING STARALLIANCE..........................................................................................3


CUSTOMERS..............................................................................................................................................3

BENEFITTO AIRLINES................................................................................................................................3

BENEFITSTO CUSTOMERS..........................................................................................................................4

V. REASONS WHY SIA DISSOLVED ITS ALLIANCE WITH SWISSAIR AND FORGED A

NEW ALLIANCE WITH LUFTHANSA................................................................................................ ..4


ALLIANCE AND REASONS WHY SIA RELUCTANT TO JOIN.......................................................5

VII. ARE STRATEGIC ALLIANCES BETTER THAN ACQUISITIONS AS AN

INTERNATIONAL BUSINESS.................................................................................................................6

VIII. CONCLUSIONS.................................................................................................................................7

IX. BIBLIOGRAPHY..................................................................................................................................7

X. BRIEF OF THE CASE...........................................................................................................................5

XI. ANALYSIS OF THE CASE.................................................................................................................6

XII. CONCLUSION..................................................................................................................................11

XIII. SUPPLEMENTARY DOCUMENT...................................................................................... .........11

TRADE AND ECONOMIC PROFILE FOR CHINA............................................................................11

Country Information: .........................................................................................................................11

Political Environment: .......................................................................................................................12

Economic Environment: ....................................................................................................... ......... ....13

FOREIGN TRADE BARRIERS .....................................................................................................................15

People's Republic Of China ...............................................................................................................15Import Policies ...................................................................................................................................15

Tariffs and Taxes ...............................................................................................................................15

Nontariff Measures ................................................................................................................... .........18

Transparency .....................................................................................................................................20

Trading Rights and Other Restrictions ..............................................................................................20

Import Substitution Policies ...............................................................................................................21

Government Procurement ..................................................................................................................24

9


27/67


Export Subsidies ................................................................................................................. ......... ......26

Services Barriers ................................................................................................................................29

XIV. BIBLIOGRAPHY.............................................................................................................................33

XV. PRESENTATION SLIDES...............................................................................................................33

10


28/67


I. Introduction

Joining alliance has been considered a good way to go international. It provides many

benefits for individual firms as well as for customers. However, joining alliance is not a

cure-allfor every firm. It also has drawbacks. This case study is exemplifies how a firm

and its customers can benefit from alliance. In addition, we also discuss disadvantages

of joining an alliance, strategic and operational considerations for joining the alliance,

and how strategic alliances are better than acquisitions.

II. Summary of the Case

SIA began its history in May 1947. Over a period of half a century, SIA has earned a

reputation as an innovative market leader, combining a quality product with excellent

service. Today, SIA is internationally recognized as one of the worlds leading carriers.

Logic of Airline Alliance

Up to May 1996, there had been 389 airline alliances, 16% of these were equity. The

nature of alliance relationships ranged from code sharing arrangements to full-fledged

cooperation and complete mergers of ground service and frequent flyer programs. The

motivation of joining airline alliance depended on the advantages partners wished to

obtain from their cooperation both from an airline service provider and passenger

points of view.

SIA's Alliance Strategy

In 1989, SIA entered into Global Excellence Alliance with Delta Airline and Swiss Air to

form a global network spanning 300 hundred cities in more than 80 countries. The

Alliance enabled it to effectively service a variety of destinations both in US and

Europe. However, after the formation, all three partners also tied up with other airlines,

including competitors.


29/67


The Star Alliance Attraction

In November 1997 SIA dissolved its alliance with Swissair and Delta Airline and tied up

with Lufthansa in a bilateral alliance. The Star Alliance established in 1997, made up of

Lufthansa, Thai Airways, United Airlines, Air Canada, Scandinavias SAS and Varig of

Brazil. Joining the Star Alliance would extend SIAs market reach and help it to cut

cost, provide a competitive safety net against potential alliance. However, SIA need

concern about the transaction cost in negotiating and maintaining multiple alliance.

III. Should SIA join the Lufthansa-led Star Alliance

Many firms that compete globally see strategic alliances as an important component of

their strategy. Though collaboration between competitors has become fashionable

thanks to a lot of advantages, strategic alliances have its own disadvantages. This is

probably true for SIAs strategic alliance. Therefore, perhaps the best way to decide

whether to join the Star Alliance or not is to analyze the advantages and disadvantages

of joining this Alliance.

Advantages of Joining Star Alliance

SIA can get a lot of advantages from joining Star Alliance. First, Star Alliance provided

SIA with opportunities to expand its market to Frankfurt, Thailand, USA, Canada,

Scandinavia and Brazil. This market is much largerthan the market SIA can gain

through its bilateral alliance with Swissair.

Second, joining the Star Alliance would not only extend SIAs global market reach and

help it to cut costs by pooling resources with partner airlines, but also provide it with a

competitive safety net against other alliances that may be formed in the future.

Finally, SIAs customers would also benefit being part of the Star Alliance network in

the form of lounge privileges, better scheduling, convenient ticket purchase, check-in

and boarding, improved access to affordable shares and improved customer service.


30/67


Disadvantages of joining Star Alliance

Despite benefits of being part of a global alliance, SIA needed to be concerned about

the transaction costs in negotiating and maintaining multiple alliances, schedule

coordination and operational problems, and the cannibalization of business on certain

sectors, for example those served by SIA and Thai airways in Asia.

As the advantages of joining Star Alliance outweigh disadvantages, the SIA airlines

should join Star Alliance. And in Tokyo, 15 October 1999, SIA Airlines announced that

it would become a member of the Star Alliance in the spring of the year 2000.

IV. Benefits of Forming Strategic Alliances for Airlines and their

Customers

Benefit to Airlines

Forming strategic alliances brings significant benefits for airlines. First, alliance

facilitates airlines entry into new market. Their flights no longer limit to a number ofairports but enter into new ones of the partners as long as the flight schedules are

coordinated. Opening market not only provides benefit for airlines, but also increases

the airlines reputation.

The second benefit is cost savings which are realized primarily from the capital-

intensive services such as the sharing of ground services including baggage handling,

check-in, and business lounges. Other operational cost savings could be realized with

partner airlines spacing providing each other maintenance, catering services and

exchange of personnel in times of need.

Third, through joint purchasing agreement, the alliances bargaining power with

suppliers would be increase. Suppliers now have to serve better to keep a big

customer. Finally, forming alliance brings together complementary skills and assets

that neither airlines could easily develop on its own. In operation integration, each

airlines realizes its own service weakness by comparing to partners, and thereby

improving their service to increase its competitive advantage.


31/67


Benefits to Customers

Not only does airlines benefit from forming alliance but also customers. Benefit to

passengers include the ability to travel to a greater number and variety of destinations

in a seamless manner on one ticket with convenient connecting flights through

harmonization of partner airlines schedules. Additionally, the integration of frequent

flier programs and benefits enabled passengers to redeem awards on any of the

partners flights. Finally, often customers are better served and could pay a lower price.

V. Reasons Why SIA Dissolved its Alliance with Swissair and Forged a

New Alliance with Lufthansa

Although SIA and Delta Airlines and Swissair have formed an alliance so-called Global

Excellence Alliance for 8 years, this relationship did not provide benefit for SIA. When

entering this trilateral alliance, SIA expected that it would have effective service of a

greater number of destinations both in US and Europe. However, after the formation of

the Global Excellence Alliance, all three partners also tied up with other airlines

including competitors, in stead of sharing a closely bilateral relationship. This does notonly reduce benefits of the member airlines but also increase the threat of losing

confident information.

Besides, SIA seeks to cooperate with many airlines in multi-activities, e.g. with British

Airways, KLM and Lufthansa in cargo services, with SAS in marketing of all cargo-

services, with Malaysia Airlines and Cathay Pacific in running a viable frequent flier

program to share the high cost and administrative overhead. In other words, these

alliances bring many benefits to SIA.

Obviously, forming alliances with other partners seem to be more profitable for SIA

than with Swissair. Lufthansa is not an exception. Since Lufthansa already had a cargo

and maintenance division in Singapore, forming alliance with Lufthansa is promising.

On one hand, it can strengthen the Singapore-Frankfurt route as the premier trunk

between Europe and Southeast Asia. On the other hand, it can lead to code sharing on

flights on the Singapore-Frankfurt route and on services beyond both hubs, joint

frequent flyer programs and benefits, access to both carriers airport lounges for


32/67


qualified members, ticketing and service assistance worldwide at offices of both

airlines, and improved siting of airport facilities in both Frankfurt and Singapore to

reduce transit times. For such reasons, SIA dissolved its alliance with Swissair.

VI. Strategic and Operations Consideration for SIA Joining the Star

Alliance and Reasons Why SIA Reluctant to Join

Though joining alliance ban bring about many advantages, some issues should be

considered before making decisions on joining alliance as partners need to make a

variety of changes in their organization, strategies, and operations.

First, to benefit from joining purchasing agreements, the equipment bought by the

partners (e.g., airplane type, cockpit design, inflight systems, etc.) have to be

similar.

Second, partners have to be better coordinate their flight schedules to extend their

reach effectively.

Third, each partner should consider the likelihood of success because there is no

guarantee of commercial success for airlines that enter into these alliances.

Fourth, partners need to be concerned about the transaction costs in negotiating

and maintaining multiple alliances, schedule coordination and operational

problems, and the cannibalization of business on certain sectors.

Finally, the lack of consistency in service delivery of any of the Star Alliance

members could have a negative effect on SIAs strong brand positioning.

All of these considerations explain why SIA was reluctant to join Star Alliance at thattime. The transaction costs in negotiating and maintaining multiple alliances were much

higher than entering a bilateral alliance. Moreover, schedule coordination and other

operational problems were much more complicated. There costs and disadvantages

outweighted the benefits that SIA can gain through this bigger alliance, leading to SIAs

reluctance to join Star Alliance.


33/67


VII. Are Strategic Alliances Better Than Acquisitions as an International

Business

Strategic alliances refer to cooperative agreements between potential or actual

competitors. Strategic alliances are better than acquisitions in following aspects

Ability to access to new markets and technologies: an example of this advantage is

that the South-Pacific alliance combined fleet of 223 aircraft, enlarged network of

airline partners covering 200 cities in 47 countries. It also introduced new around

the world, around the Pacific, and around the Asia travel packages.

Efficiencies promoted by flexibility and informality:an alliance can be put together

in no time and fold it up just as quickly; love affairs instead of marriages.

Ability to create and disband project with minimum paperwork:Many alliances

entail little in any paperwork maybe only handshake, so it is very speed and

economy.

Multiple parties share risks and expenses:As project become ever larger and more

complex, strategic alliance allows partners to share the fixed cost (and associated

risk) of research and development, additionally cost saving achieved through

economies of scale.

Partners can retail their independent brand identification: Working with partners

possessing multiple skills can create major synergies. Strategic alliances is a way

to bring together complementary skills and assets and to trade core competencies

that neither company could easily develop on its own .Both sides believe there is an

equitable chance for gain.

Rivals can often work harmoniously together: Firms ally themselves with actual or

potential competitors for various strategic purposes. I m fighting with you over

what the rules of the game will be but in the mean time I will be happy to work with

you to play today s game as best we can.

Alliances can take multifarious forms, from simple R&D deals to huge projects

Ventures can accommodate dozens of participants

Antitrust law can shelter cooperative R&D activities


34/67


Help the firm establish technological standards for the industry that will benefit the

firms: Since the two technologies do very similar things, there is probably room for

only one new standard. The technology that becomes new standard will be the one

that succeeds. Alliance is a tactic for winning the race.

VIII. Conclusions

Through this case of Singapore Alliance, we can see that alliance can bring many

benefits to both individual firm and customers. However, in order to take advantages

from airline alliance, each airline must be viable, competitive and efficient. Putting two

weak airlines into an alliance is not going to help. This contributes to explain why the

failure rate for international strategic alliances seems to be quite high. Therefore,

strategic and operational considerations are needed before making decision of joining

alliance. Finally, firms should join alliance only when it when the benefits and

advantages of joining the alliance outweigh its costs and disadvantages.

IX. Bibliography

1. Debra Sparks, 1999, 'Partners', Business Week, October 25, p. 74

2. Hill, Charles W. L., 1998, Global Business Today, Mc Graw Hill.

3. About SIA, Available: http://www.singaporeair.com [2000, March 13]

4. Star Alliance, Available: http://www.star-alliance.com [2000, March 13]
http://www.singaporeair.com/http://www.singaporeair.com/


35/67


SDC

COURSE: INTERNATIONAL BUSINESS MANAGEMENT

INSTRUCTOR: DR. GODWIN NAIR

CASE STUDY

DOING BUSINESS IN THE PEOPLE'S

REPUBLIC OF CHINA

HOCHIMINH CITY - 2000

S A VSwiss-AIT-Vietnam Management Development Programme

c/o HCMC c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail:[email protected]/ [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]


36/67


TABLE OF CONTENTS

I. THE LIKELINESS AND DIFFERENCE IN JAPANESE AND AMERICAN CAR

COMPANIES EXPORTING STRATEGIES..........................................................................................9

LIKELINESS..............................................................................................................................................9

II. THE APPROACHES OF JAPANESE AND AMERICAN CAR COMPANIES TO ADAPT

THEIR MARKETING MIXES TO FOREIGN MARKETS:............................................................ ...10


EFFORT IN THE JAPANESE MARKET?............................................................................................11

IV. WHAT MARKETING RECOMMENDATIONS WOULD YOU MAKE TO FORD TO HELP

IT BE SUCCESSFUL IN THE JAPANESE MARKET?......................................................................12

Conclusion..........................................................................................................................................13

V. EXECUTIVE SUMMARY.....................................................................................................................1

VI. CASE ANALYSIS.................................................................................................................................1

THEOLDSYSTEMANDITSEFFECTS...........................................................................................................1

BENEFITSOFPRIVATIZATIONANDPRIVATESECTOR.................................................................................2

THEADAPTATIONOF POLISHPEOPLETOTHENEWSYSTEM......................................................................3

THERESULTOFRAPIDREFORMPROGRAMS...............................................................................................4

RELATIONSHIPBETWEEN DEMOCRATIC POLITICAL SYSTEMAND ECONOMY...........................................5

RECOMMENDATION....................................................................................................................................6

VII. BIBLIOGRAPHY................................................................................................................................7

VIII. APPENDIX 1: POLAND TODAY....................................................................................................6

I. INTRODUCTION....................................................................................................................................1

II. SUMMARY OF THE CASE.................................................................................................................1

LOGICOF AIRLINE ALLIANCE....................................................................................................................1

SIA'S ALLIANCE STRATEGY.......................................................................................................................1

THE STARALLIANCE ATTRACTION...........................................................................................................2


37/67


III. SHOULD SIA JOIN THE LUFTHANSA-LED STAR ALLIANCE.......................................... .....2

ADVANTAGESOF JOINING STARALLIANCE...............................................................................................2

DISADVANTAGESOFJOINING STARALLIANCE..........................................................................................3


CUSTOMERS..............................................................................................................................................3

BENEFITTO AIRLINES................................................................................................................................3

BENEFITSTO CUSTOMERS..........................................................................................................................4

V. REASONS WHY SIA DISSOLVED ITS ALLIANCE WITH SWISSAIR AND FORGED A

NEW ALLIANCE WITH LUFTHANSA................................................................................................ ..4


ALLIANCE AND REASONS WHY SIA RELUCTANT TO JOIN.......................................................5

VII. ARE STRATEGIC ALLIANCES BETTER THAN ACQUISITIONS AS AN

INTERNATIONAL BUSINESS.................................................................................................................6

VIII. CONCLUSIONS.................................................................................................................................7

IX. BIBLIOGRAPHY..................................................................................................................................7

X. BRIEF OF THE CASE...........................................................................................................................5

XI. ANALYSIS OF THE CASE.................................................................................................................6

XII. CONCLUSION..................................................................................................................................11

XIII. SUPPLEMENTARY DOCUMENT...................................................................................... .........11

TRADE AND ECONOMIC PROFILE FOR CHINA............................................................................11

Country Information: .........................................................................................................................11

Political Environment: .......................................................................................................................12

Economic Environment: ....................................................................................................... ......... ....13

FOREIGN TRADE BARRIERS .....................................................................................................................15

People's Republic Of China ...............................................................................................................15

Import Policies ...................................................................................................................................15

Tariffs and Taxes ...............................................................................................................................15

Nontariff Measures ................................................................................................................... .........18

Transparency .....................................................................................................................................20

Trading Rights and Other Restrictions ..............................................................................................20


38/67


Import Substitution Policies ...............................................................................................................21

Government Procurement ..................................................................................................................24

Export Subsidies ................................................................................................................. ......... ......26

Services Barriers ................................................................................................................................29

XIV. BIBLIOGRAPHY.............................................................................................................................33

XV. PRESENTATION SLIDES...............................................................................................................33


39/67

Doing business in the People Republic of China 5

X. Brief of the case

Seneca, a small US steel company, was set up in 1974. It was 3 miles away from its

supplier, which is a larger mill.

For the first 5 years, Seneca operated profitably. It bought hot-rolled steel bars from the

larger mill and then created cold-drawn products with customized specifications.

Seneca was able to meet customers fluctuating delivery and specification

requirements.

After 1980, competition increased and thus drove many of Senecas customers out of

business. The supplier was also forced to reduce production. As a result, Seneca had

to buy raw steel from mills 500 miles away. The costs went up while its ability to meet

customers requirements decreased.

Facing difficulties in the domestic market, Seneca saw an opportunity of doing

business in China. This is a potential market with a great deal of resources. The policy

of open door was also being applied in China. To enter this market, Seneca must

transfer technology to China.

Seneca identified some alternatives:

Compensation-trading: Seneca would sell production lines of small-sized products,

which are now obsolete in the US, to China, then buy back finished products and

resell to US customers.

Processing-and-assembling trade: Seneca would acquire raw materials from Pacific

Rim Countries, send to Chinese partners for cold-drawing and then resells finished

products to US customers.

Establishing a joint venture: Chinese partner would supply hot-rolled bars to

Seneca for making cold-drawing steels. The J.V could also serve the Chinese

market.

Wholly foreign-owned enterprise: Seneca could set up its own business in China.

Seneca need to consider some constraints before making such an important decision:

foreign exchange, labor practices, legal aspect, and relationship with Chinese partners,

and location.


40/67


XI. Analysis of the case

We now understand the situation facing Seneca. The increased competition in the

domestic US market and therefore the diminishing market share were major pressures

which forced the company to look for a new direction of investment. Meanwhile, China

was realized as a promising market.

Lets now take a look at Chinas investment environment in more details to see how

attractive this Asian land is to Seneca.

We are to talk about a stable and reliable political environment of China. The

President Jang Zemin has been embracing his policy of transforming Chinas economy

into a Western-style market system while maintaining the Soviet-Union rule, which is

known as totalitarianism. Unlike its former socialism friends in Europe, typically SovietUnion and Czech & Slovakia which have not been able yet to get rid of chaos and

conflicts, the political framework of China is still rigid and rather stable under the

Communist Party unique control.

The picture of the economic environmentin China is also bright and promising. Since

1979, its former centrally planned economy has been moved to one that is more

market-oriented. In recent years, China has recognized as one of the fastest growing

economies in the world. The GDP has grown at least 10% annually. In 1998 alone, per

capita GDP of China reached $2,800. With a huge population of more than 1.2 billion,

China is really a great potential market with high demand and purchasing power. In

addition, Chinas open-door policy implemented since 1979 has seemed to be effective

in encouraging foreigners to make investment in the country. Despite the Asian

financial crisis, Chinas economy was much more resilient than others nations in the

region. Rapid growth will likely continue but at a declined rate, of course.

One turning point of Chinas economy is its joining into the 135-nation World Trade

Organization (WTO) in a couple of years. This is really an advantage for foreigncompanies like Seneca, since they would be given the right to trade and invest in China

with higher self-confidence. In fact, preferential policies, for instant tax exemption, have

been applied step by step to encourage foreign investment in western and central

China. Its attempts to improve the cooperation relationship with foreign partners,

especially with U.S companies, are motivators for foreign investment to be significantly

promoted.


41/67


We come back to our case of Seneca. Along with more friendly policies issued by the

Chinese government, Seneca, if investing directly, could gain preferential treatment

because steel is one of strategically important industries in the country. The country

has still to import this kind of commodity, mainly from U.S.

We have discussed opportunities as well as motives for foreign companies in general,

and Seneca in particular, to enter the new market of China. In fact, however,

opportunities are always accompanied by challenges. There are many other things

involving political, economic, legal framework, and cultural aspects we, as investors,

need to take into consideration before making decision.

Political environment and legal framework

Although China has recorded achievements in transforming its political and economic

system into a Western-style market, the operational structure is still much conservative.

Regulations and laws are arbitrarily applied. Moreover, the lack of transparency in

administrative procedures is also a constraint for any investor. Therefore, key contacts

should be established by foreign firms in advance to ensure their active position in

negotiations.

Economic environment

Apart from significantly meaningful open-door policies, the Chinas economic

environment has also revealed challenges for foreign investors.

In China, anti-competitive practices, such as provisions of subsidies and authority to fix

prices and allocate contracts to domestic industrial conglomerates, were created in

order to improve the profitability of State-owned enterprises. As a result, such

monopolistic practices may restrict market opportunities

sm 3.01.62 case analysis

Documents