Evaluation of Dongfeng Motor Corporation's Internationalization Strategy

Executive Summary

The chosen company for this study is Dongfeng Motor Company. It can be witnessed throughout the paper that the company has already reached its saturation stage in China. As a result, it is necessary to access the untapped customers of various nations by entering the two distinct nations such as United States and Brazil. It cannot be denied that the organization possesses the experience of doing international business. The HR team of Dongfeng Motor Company is moderate and well performing. However, many pros and cons of the Brazil and U.S.’s external business landscapes came to the forefront. Therefore, it has been recommended to the organization to increase its innovation and technological capacity by investing in R&D. Secondly, it should focus on customization of pricing and branding strategies in those two countries for yielding maximum amount of profit and penetrating the automobile market successfully.

Introduction

Dongfeng Motor Company is one of the well-known vehicle manufacturing organizations’ in China. Its head quarter is located in Wuhan. The organization has been formed as a joint venture, where a 50:50 partnership is shared by Nissan Motors and Dongfeng Motor Group. Interestingly, there are two distinct genres of automobiles which the company produces. For instance, the commercial cars are made under the banner of Dongfeng marque. Alternatively, the passenger cars are manufactured under the jurisdiction of Nissan marque. The corporation is actually owned by the state of China. However, the company came into existence because of the joint venture formed between Nissan and Dongfeng Motor Group. Many products of the company are some way or the other, connected to Nissan. The formal operations of the organization started on 1st July of 2003. It customized several vehicles in order to sell them in the Chinese cities, where interiors are not smooth enough for journey. Thus, it can be witnessed how the customers of third and second-tier cities were addressed by the organization largely.

The company is merely in the initial phase of internationalization. Therefore, in this report, it will be analyzed how the two distinct overseas locations can be chosen judiciously so as to roll out its products and increase a significant amount of the profit margin. On the other hand, the two new host nations of the company are United States and Brazil. The resources available with the organization are suitable enough to cater the above-mentioned countries’ automobile customers. Since the advent of globalization, various organizations’ have started to enter other nations for expanding their businesses. However, it involves various processes. For instance, an organization should conduct a thorough market research before entering another foreign market. Moreover, already existing market players would try their level best to obstruct an overseas company to enter their operating zone. Thus, this report will elucidate the environment audit, external business environment, and entry modes for recommending the internationalization strategy for Dongfeng Motor Company.

Environmental Audit

Current market

External business environment analysis

The Chinese automakers are fighting with one another fiercely. Slowly, the automobile industry has entered into the mature stage and that is why expanding the automobile business in other nations, is extremely important. Many automakers are already present in China, right from domestic to international vehicle companies. Thus, it can be observed how the Chinese domestic market is already saturated. Furthermore, the popularity of low carbon emission and energy efficient cars is increasing at a rocket speed, which ultimately demands strategy change from the Dongfeng Motor Company’s end.

Internal business environment analysis

Dongfeng Motor Company can utilize its strategic partnerships that it shares with several renowned world-class automobile companies and brands including Nissan, Renault, and Volvo. It will definitely help in establishing the brand name in the international business arena. Even the options to choose from a variety of host countries also increase for the organization. In fact, the strategic alliances in European and Asian nations are instrumental in shaping the platform for business expansion in different host countries. The tried and successful techniques can be completely utilized successively by the company, for entering the new borders (Cavusgil, Knight and Riesenberger, 2017). The international process can definitely be refined if the company enhances its technologies for manufacturing automobiles like other developed nations such as Germany, U.K., and U.S. Therefore, even though it is enjoying a robust, skilled and experienced team of operations yet the same is lacking in terms of various technologies thereby demanding improving in that genre.

SWOT

Synopsis of the SWOT analysis for Dongfeng Motor Company can be witnessed in the below chart of Appendix 3. 

Internationalization

External analysis 

In this section, PESTEL analysis of Brazil and United States can be witnessed. On the contrary, industry lifecycle will be instrumental in dissecting the macro and micro business environment of Dongfeng Motor Company, which has also been included here.

PESTEL of United States

Political: U.S has a robust political landscape, where people enjoy a democratic political system. The election procedures are also quite transparent and fair in nature. Most importantly, it participates sparingly in the global policymaking pertaining to almost each and every field. However, its humanitarian activities and interventionist strategies are often criticized by the other nations as the same trigger threat of terrorism and provide an upper hand in the international relations.

Economical: United States enjoys the highest GDP. It is also the largest economy amongst the other developed countries. The nation’s economic system is quite well-developed, which gathers its strength from none other than the developed technologies (Frynas and Mellahi, 2011). Even though it had witnessed extreme economic drawbacks because of the global financial crisis yet in 2014, U.S. sprung back. Ultimately, the consumers got back their purchasing power largely.

Social: The people of U.S. enjoy quite a comfortable lifestyle with an increased standard of living. However, the nation’s biggest problem in the social front is its ageing population. On one hand, people over there possess a liberal mindset; on the other hand, they are also quite intolerant towards other races. Its medical, healthcare and education systems are incomparable to the other developed countries.

Technological: Innovation and advanced technologies are the two important strengths of U.S. Since the time U.S. started to rule over the other nations, it applied and adapted to various technologies robustly. As of now, its technological supremacy has not been superseded by any other country. However, different developing nations are giving U.S. a tough competition in the field of technology. The main technologies that can be witnessed in U.S. are environmental technology, nanotechnology, and biotechnology. It actually opens the business opportunities for various companies. The technological advantages can be tapped by both the start-ups and new entrants. As a result, it can be understood that the company can utilize technological innovations to the fullest in U.S.

Environmental: The EPA of U.S. is quite strict about the environmental laws and regulations. It is truer in the case of automobile companies. Even the U.S. citizens are inclined towards the environment friendly products and services. Thus, tapping the U.S. automobile market needs technologically developed engines which can support fuels made from renewable sources of energy as well.

Legal: Laws pertaining to the businesses are quite stringent in United States. Therefore, one should remember that legal issues may crop up if proper precautions are taken by Dongfeng Motor Company. Furthermore, going through a length legal procedure can actually prove to be detrimental for the financial resources of the organization.

PESTEL of Brazil

Political:  The Brazilian government is quite proactive in nature. However, as of now, Brazil’s political landscape is also stable. The biggest problem in Brazil is mainly its corruption. Moreover, political volatility is a matter of election. Thus, the problems may actually rise from social extremes.

Social: There is an economic inequality amongst the Brazilian population. Almost 19 percent of the total citizens dwell under the poverty line. The population of Brazil is reaching the heights, day-by-day. In Brazil, class distribution is also a big issue. Brazilian people are fashionable and up-to-date. 

Environmental: The laws and regulations pertaining to the environment are not adequate like United States. Alternatively, things are developing in this genre at a slower rate.

Legal: Brazil is quite open to foreign investors and implies several regulations for the start-ups. However, the labor unions are strong enough. Taxations agreements are made for double taxation impositions. Lastly, the corruption rate in Brazil is rising every day.

Economical: Brazil’s inflation rate is not unstable, for the time being. However, the nation has been flooded with many unskilled laborers. On the other hand, market deregulation is quite high. The exporters are always in an advantageous position because of the undervalued goods.

Technological: The nation is not dependent upon the technologies and innovations. As a result, it can be said that Brazil is a labor-intensive nation. It is largely evident in the case of many unskilled laborers’ presence in Brazil.

Industry life cycle

United States

Automobile industry of U.S. is actually in the growth phase (Appendix 1) because number of immigrants is increasing at a rapid rate. On the other hand, demand for vehicles is actually because of inflation and decreasing unemployment rate. Many Japanese and German automakers are trying to capture the market. However, several cases related to excessive carbon emission can be witnessed in the United States. Therefore, Dongfeng Motor Company can actually judiciously utilize the high demand landscape that can be witnessed for the United States. Furthermore, a high living standards urges the population to buy one or two cars, however shortage of money he or she is facing, during the economic downturns (Johnson, Scholes and Whittington, 2011). Lastly, the suppliers and automakers are compelled to manage their factory usage and supply chains cautiously in this country because of EPA’s stringent environmental policies. Therefore, the newly engineered green cars are actually going to prove profitable for the company as their sell will definitely remain high enough. Slowly and steadily, it is entering the industry shakeout phase because of higher car loan rates.

Brazil

Brazilian automobile industry is actually in the embryonic stage (Appendix 1).  The population of Brazil is invariably high. As a result, the multinational automakers are taking risks for expanding their businesses. However, a conservative approach will actually help them to stay on top of things. For instance, a steady management is required in terms of factory capacity and cost effectiveness. Thus, pricing strategies must be robust enough in an emerging nation like Brazil.

National Competitive Advantage evaluation

There are mainly four components of the Porter’s diamond model; they are demand factor, production factor, competitions, and industrial factor (Appendix 2). 

U.S.

The human capital of U.S. is quite innovative and advanced than the other nations. Therefore, it provides a fortified infrastructure in U.S. for the company. Furthermore, the higher standard of living and hi-fi lifestyle definitely increase the demand for cars, especially the environmental friendly ones. Thus, hiring the immigrant African Americans at a low cost will definitely help Dongfeng Motor Company in saving an adequate amount of manufacturing cost (Coulter, 2009). The rising population rate is proving to be fruitful, in the case of demand-supply dynamics. The supply chain of automobile in U.S. is quite robustly shaped. U.S. possesses several assembling centers and manufacturing units. The energy friendly cars are already manufactured by the company. However, their sale in China is relatively less. Therefore, it will be easier to sell the same in the U.S. Lastly, the strong innovative platform will actually help Dongfeng Motor Company to improve its manufacturing process (usage of lean technology) and engine designs.

Brazil

The newly introduced automobile industry’s policy in Brazil has helped the car makers immensely. Its emergence year is 2012. However, integrated industry policy is still lacking which can actually support the growth of R&D genre. Thus, becoming the center of production is not easy. For instance, producing the vehicle with a less local content as well as design along with higher prices is difficult, especially when competition is extremely high (David, 2008). The production factor in Brazil which can help the company is low-cost labors, unlike the other nations. Even other Latin American countries are also quite attractive for various automobile organizations’. Moreover, a high rate of Brazilian population can assist the company for hiring the candidates for various positions. Thus, the manufacturing costs will largely decrease due to the reason mentioned above. Foreign automakers are welcomed in Brazil quite gracefully. Lastly, the increased population rate and immigrants definitely keep up the demands for automobiles quite high. However, as the automobile industry of Brazil is only in the embryonic stage, supply chain is not well formed. Even though numbers of manufacturers are surging yet suppliers are still lacking over there. The competition in Brazil is sky-rising. However, most of the international players are fighting in Brazil. It shows the Brazil’s weaker domestic automobile market.

Entry modes evaluation

The company must opt to establish subsidiaries in the United States. Alternatively, the organization should go for joint ventures and strategic alliances in Brazil.

In Brazil, if the company will enter via strategic alliances and joint ventures, it will help to establish the brand name much easily. For instance, Hyundai is still struggling to sell its cars in the Brazilian market. However, it possesses a better technological advantage over Dongfeng Motor Company. As a result, it will be easier for the company to utilize Hyundai’s technologies. There are various benefits which the organization may enjoy if it becomes ready to enter the Brazilian market in joint venture with Hyundai. For instance, it can access distribution networks and market much easily. It is mostly because Hyundai is already familiar with the Brazilian auto industry.  Furthermore, it will be able to save a lot of expenses and risks by partnering with Hyundai (Spulber, 2007). Lastly, Hyundai’s specialized staffs, resources, finances, and technologies will be accessible for Dongfeng Motor Company, in this way.

Dongfeng Motor Company can establish a foreign owned subsidiary in U.S. It will help to separate taxation issues of the subsidiary and the parent company. Moreover, logistical infrastructure is favorable for the company in U.S. Furthermore, the parent company will be able to continuously support its subsidiary in the U.S. Most importantly, the U.S. people are experimental in nature which may compel them to purchase Dongfeng Motor Company’s products lucidly. Energy efficient cars are not new for the company as it manufactures them in the home country but Chinese people do not buy them. On the contrary, the U.S. people tend to purchase the eco-friendly vehicles. As a result, the firm can make various improved energy efficient models in the U.S. by judicious utilization of the technological and infrastructural resources (Amrosini, Johnson and Scholes, 1998).

Conclusion and Recommendations

Conclusion

From the above analysis, it can be inferred that Dongfeng Motor Company should actually opt for business expansion in various foreign countries. The two chosen countries for hosting, by the company are Brazil and U.S. On the other hand, the main modes of entry selected for introducing various new products in Brazil include strategic alliances and joint ventures. Alternatively, the U.S.’s infrastructures are best for opening a foreign owned subsidiary, by the organization.

Recommendations

Dongfeng Motor Company’s must keep its car prices less for the Brazilian market because it is still emerging. The rising income is still not enough to increase their standard of living. The government is providing subsidies also and that is why establishing production units over there can be expected to remain smoother. On the contrary, making energy efficient cars for both the U.S. and Brazilian markets will prove to be immensely fruitful and lucrative for the company. Increasing the compensation amount of the low-cost labors can further help in retaining them. Pricing strategy of the company should be at par with the social settings and lifestyles with the countries. For example, brand positioning in U.S. should be in the form of high-end energy efficient cars. Alternatively, in Brazil, it should position as a middle-range fuel saving cars. Lastly, it is crucial to improve the R&D teams of Dongfeng Motor Company so as to roll out various clean and green cars.