Expansion Of A Chinese Company Into Chile †Myassignmenthelp.Com

Question: Discuss About The Expansion Of A Chinese Company Into Chile? Answer: Introducation China Hongqiao Group is a leading Chinese multinational national enterprise (MNE) manufacturing aluminium products and forming corporate strategies to enter Chile. Chile has strong trade relationships with various countries in the world which have positive implications on the companies that enter its markets. The country has strong international trade relationship with the major markets in the world like the United of America, Europe and Asia. Considering this fact it can be commented that China Hongqiao Group, the leading aluminum manufacturing Chinese company would benefit from its expansion into Chile (Limited 2017). The first implication of China Hongqiao Group entering Chile is that the company would be able to exploit the mineral reserves of the country. As indicated in the PESTEL analysis, Chile is endowed with several mineral resources like copper, iron ore, manganese, silver, gold and nitrates (Appendix). The country is the largest producer and exporter of copper in the world (Forbes.com. 2017). Thus, entering Chile would allow China Hongqiao to exploit its mineral resources. The company is primarily an aluminium alloy, aluminium alloy ingots and aluminium alloy products manufacturer. The company can import aluminium into the country since it does not have reserves of aluminium. Then it can exploit the copper resources available in Chile to manufacture products like bearings made from the alloy of the two metals. The PESTEL analysis also shows that the Chile is technologically very advanced (Yadav and Pavlou 2014). This means that China Hongqiao Group can manufacture metallic products using advanced methods at cheap prices and larger quantity. This implies that entering Chile would enable China Hongqiao Group to diversify its product line, enter new alloy markets in Chile and earn high revenue (Guercini and Runfola 2014). It can inferred from the partnering with Chilean companies would serve as an appropriate market entry strategy for China Hongqiao Group to enter Chilean economy. However, the Chilean laws place certain restrictions on investment mines by foreign companies to promote its domestic mining companies. This implies that on one hand entry of foreign markets gives multinational corporations access to new resources while on the other hand it exposes them to restrictions imposed by governments on foreign companies (Castao Labajo and Xiao 2015). The second implication of China Hongqiao Groups entry into the Chilean market is access to new profitable business partnerships. The country of Chile does not have aluminium reserve but has the largest reserve of copper. It must be noted that the two metals combine into alloy which finds use in manufacture of various products like aircrafts, naval underwater architecture and engine components (Strauss 2016). This high commercial utility of aluminium and copper implies that the company can enter into Chilean firms to provide them with aluminium. Aluminium is not found in Chile which implies that it limits the manufacturing companies in the country from manufacturing aluminium products. China Hongqiao Group can enter into partnership as the fit market entry strategy with these companies to provide them with aluminium and get copper in return (Grant 2016). Business contracts of these types will enable both the Chinese firm and the Chilean manufacturing companies to boost each others pro duction. However, on entering Chile China Hongqiao Group would face challenges from aluminium companies which already have strong presence in the country. This would imply China Hongqiao Group to form strategies to counteract competition from these already existing aluminium manufacturers. Thus it can be inferred that entering Chilean market has both negative and positive implications. It will result in new profitable partnerships on one hand and expose China Hongqiao Group to competition from already existing aluminium manufacturers (Hohenthal, Johanson and Johanson 2014). China Hongqiao Group can enter the Chilean market and use it as a base to expand in the emerging South American market. As indicated by the external environmental analysis of Chile, China Hongqiao Group can make use of the bilateral trade agreements between Chile and its trading partner nations to expand its business with the USA and the EU. Chile also has strong strategic trade relationship with the other South American countries like Bolivia, Argentina and Brazil. The country is a member of Mercosur, the trade bloc formed by South American countries to allow free trade amongst them. This implies that entering Chilean market and occupying high position in it would allow China Hongqiao to expand into the other South American countries more easily (Krush Sohi and Saini 2015). Thus, entering Chilean market would provide opportunities to the Chinese company to expand in the emerging markets of South America and earn enormous revenue. The formal institutions like government policies, unions, innovation centres and international organisations have strong implication on the choice of foreign market entry strategy and impact the corporate strategies of the multinational enterprises like China Hongqiao Group. The first implication of the formal institutions on the market entry strategy of MNEs is that the former lays the policies for the later to follow while expanding into foreign markets like Chile. The government of Chile encourage free trade, open market policies, zero tariffs, solid business policies and low corruption (Fuentelsaz et al. 2015). The governments between countries often form trade agreements which encourage commerce and exchange of resources. For example, the United States-Chile Free Trade Agreement between the United States and Chile allow free movements of goods and services between the two countries. The international conventions like the United Nations Conference on Trade and Development (UNCTAD ) facilitate flow of foreign direct investment into emerging markets like Chile (Export.gov. 2017). The implication of the laws and policies laid down by the formal institutions like governments are that the companies have to frame their corporate strategies following these laws. The second implication of the formal institutions on the market entry strategies of the MNEs is that they encourage innovation. The research laboratories allow the business organisations carry out open innovations. These open innovations allow the organisations to collaborate with the overseas laboratories and share resources and knowledge which make the innovation even more effective (Rodrguez-Molina et al. 2014). This implies that the business organisations are able to bring about more innovative products suited to the new markets to meet the specific needs of the customers in that market. China Hongqiao Group can collaborate with the metal research laboratories in Chile to conduct study on new uses of aluminium copper alloys. This will help it to introduce new innovation products from aluminium copper alloy to serve new needs of the customers (Yadav and Pavlou 2014). This introduction of new products enable to firm to gain a new loyal base of customers and generate high revenue. T his implies that formal institutions like research laboratories help the firms to bring about innovations in their products and gain competitive advantage in the market. The third implication of formal institutions on the MNEs and their strategies is that the former provides financial support to the latter. The formal institutions like banks provide multiple facilities to the multinational companies like China Hongqiao Group (Diebold and Y?lmaz 2014). The banks provide the multinational companies with loans and other financial support to achieve business expansion and growth (Gennaioli, Martin and Rossi 2014). The banks and other financial institutions manage the investment portfolio of the multinational companies and help them to earn high rate of returns by investing in the foreign securities. The banks facilitate currency exchange to the multinational companies which allow them to carry on international trade in the foreign countries using multiple currencies and earn high profits (Madura 2014). This implies that the formal institutions like banks provide loans, allows investment in foreign securities and facilitate multicurrency transactions to f acilitate the multinational companies to expand and grow in the foreign market. This in turn implies that formal institutions like banks provide financial support to the international companies like China Hongqiao Group which account for their high competitive advantage in the market (Flannery 2016). The informal institutions like cultures and norms prevalent in a certain market have very strong implications on the consumption patterns of customers and in turn impact the revenue generations of the multinational companies. The cultural perceptions and beliefs of the consumers of a market affect their purchase patterns, consumption habits and their demand for goods (Holmes Jr et al. 2013). This in turn effects the sale of goods of multinational companies like China Hongqiao Group. It must be noted that there are great differences about perception of values and behaviour between the eastern countries like China and western countries like Chile (Du and Boateng 2015). For example, both Chile and China have very high power index but differ in individualism index. Chile encourages individual projection of emotions and gives importance to personal achievements. China on the other hand encourages collectivists view and does not encourage show of personal achievements (Hu et al. 2014). Chi na Hongqiao Group have to take into these differences while entering the Chilean market. This implies it must promote its goods to attract Chilean customer by incorporating Chilean customs in its promotional strategies. This in turn implies that by promoting goods and upholding Chilean customers, the company will be able to attract huge customer base and generate high profits by offering goods to them (Evanschitzky et al. 2014). It can be summed up that entering foreign markets have both positive and negative implications on the multinational companies. The multinational companies gain to access to the resources of foreign countries by entering its market. Again on the other hand it exposes them to stiff competition from the already existing business firms. Both the situations necessitate the multinational companies to form corporate strategies to deal with them. Formal institutions like governments, laboratories and financial institutions have strong impacts on the foreign expansion strategies. The government makes laws while the financial institutions provide financial support to these MNEs. The innovation laboratories assist them in carrying out open innovations. 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