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Dong Feng Motors Company: Internationalization Strategy

Executive Summary

Dong Feng Motor Corporation is a Chinese automotive company that is wholly owned by the government of China. It has been successful in the local and regional market, but its brand is barely known in the international market. A time has come when this company must make aggressive entry into the international market. Greece and Nigeria have been singled out as the most appropriate markets that Dong Feng Motor should target. Of the two countries, it is suggested that this firm should give Nigeria market a higher priority than that of Greece because of the high population of the middle class. Direct market entry is the suggested mode of market entry.

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Introduction

Dong Fend Motors Corporation is one of the leading Chinese automobile manufacturers. The company was founded in 1969 and currently operates in the global market with its headquarters in Wuhan city, China (Gong 2013). Dong Feng Motors is not a widely known car brand in the international market. However, it has created a pool of loyal customers in the home market. The main target market for this firm’s product in China. With a population of over 1.3 billion people, China is the most populous country in the world. It also has the largest population of the middle class in the world, making it the most appropriate market for the products of this company. Most of the cars manufactured by Dong Feng Motors are relatively cheap and targets the middle class.

The company has also made a successful entry into some of the neighbouring countries. It has a strong presence in India and Taiwan, countries known to have a rapidly growing middle class. The support that this company has been receiving from the government of China is one of the primary reasons why it has been achieved massive success over the recent past. Locally, it faces stiff competition from some of the strong brands such as FAW Group and SAIC Motors. However, this has not stopped its impressive growth both locally and in the international markets. Through a partnership with some of the top global car brands such as KIA, Nissan, Renault, Honda, and Peugeot, this firm has successfully spread its operations to numerous other countries in Asia, South America, Europe, and Africa (Grünig & Morschett 2012). In this paper, the researcher seeks to evaluate the internationalization strategy of Dong Feng Motors as it seeks to enter new markets across the world.

Summary of Environmental Audit

According to Cavusgil, Knight, and Riesenberger (2016), the success of a firm is often determined by both the internal and external forces of an organisation. When a firm is planning to explore new markets, it must understand that external environmental forces in the new market will define its ability to succeed or not. Conducting an environmental audit of a new market is a critical activity that a company must do before making a move to enter a new market. A company must understand the political, social, economic, and legal forces of the target market. It must also determine how these forces may favour or hinder its operations in the new market (David 2008). Before making an entry into such a market, the management must come up with a plan on how to handle the challenges and take advantage of the opportunities that exist. In this section, the researcher will conduct an environmental audit of the two possible countries that Dong Feng Motors should consider making an entry into in the near future.

International Development

Dong Feng started its operations in 1969 with its primary market being China, which is its home country. However, a number of factors made it necessary for this firm to consider expanding its operations beyond the borders of China. The company’s success made it necessary for it to consider other markets because of the increased production of a motor vehicle. When China liberalized its market after becoming a member of the World Trade Organization, a number of international vehicle manufacturers entered the Chinese market. Other new local firms have also emerged. The increased number of competitors in the local market has made competition to be very stiff in the Chinese market. Going global is one of the ways of countering the stiff local competition (Amrosini, Johnson, & Scholes 1998). The new international market helps in compensating for the loss of market share in the local market. International development, therefore, is the only way through which this firm can achieve sustained success in its operations.

External Analysis: New Host Countries

According to Coulter (2009), when choosing new host countries, a firm must take into consideration a number of factors. One of the most important factors is the size of the market. The market must be big enough to support commercialization of a firm’s product. China is one of the most attractive markets in the world for firms planning to go global because of its huge population. This company should equally target a country that has a high population that can successfully enhance sales of its products. The second factor when choosing a host country is purchasing power. It is not just the population that matters. A country can only be considered attractive if its citizens have the purchasing power. Willingness without the ability to purchase a given product is just a mere wish. The management must ensure that the targeted country’s gross domestic product per capita is as per what is desired (Spulber, 2007). Other common factors, such as political, social, and legal environments must also be considered.

In Europe, one of the countries that this firm can consider making an entry to is Greece. Although the country’s economy has not been stable over the recent past, the support it received from the European Union and strategies put in place by its leaders have been very helpful. Other major vehicle manufacturing brands firms have turned their focus away from this country because of the economic problems. As a futuristic firm, Dong Feng Motor Corporation should consider making an entry into this country. Nigeria is another attractive market that this firm should consider making an entry to. Nigeria has a population of over 170 million people, making it the most populous country in Africa. It also has the largest economy in that continent. A study by Cavusgil (2016) indicates that Nigeria is having a rapidly growing middle class even though the majority of the population still live in poverty. Of the two countries, Nigeria will be a better choice because of the massive population and the rapid growth of its economy.

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Strategy to Adopt and Entry Mode

It is suggested that Nigeria will be the most appropriate market that this firm should consider making an entry into as it seeks to expand its operations. The management must come up with an appropriate strategy to adopt in terms of market entry mode. As shown in appendix 1, three different strategies exist that a firm can adopt when planning to enter a new market. Each entry mode has its strengths and weaknesses. Dong Feng Motor should consider using foreign direct investment when entering the Nigerian market. It should consider putting up its own manufacturing assembly in Nigeria. Cost of labour in Nigeria is cheaper than it is in China. Given that no other car manufacturing firm has its manufacturing assembly in this country, Dong Feng Motor will have the perfect opportunity to control this market. It will also offer it an opportunity to spread its operations to other neighbouring countries with ease.

SWOT Analysis

Internal analysis of a company is important as it plans to make an entry into a new market outside the home country. The main strength of Dong Feng Motor is its financial capabilities. Its success in the local market and support from the Chinese government has earned it a massive financial success. The company has been in operation for over 40 years. The experience gained in the market for these years gives it a competitive edge over the new rivals firms that are yet to understand the local market forces. However, the firm also has weaknesses that may affect its ability to be successful in this market. Dong Feng Motor is a relatively unknown brand outside China (Power, Mohan & Tan 2012). It means that it cannot compete favourably in the international markets against popular brands such as Toyota, Ford, Mercedes Benz, Audi, and Nissan, among others. This will be a big challenge because it often takes time for people to trust a new car brand. This company also lacks understanding of the Nigerian market because it has never operated in this country.

It will force it to invest in research in order to understand important environmental factors in the country. The Nigerian market has a number of opportunities that this company should take advantage of in the market. The growing middle class in Nigeria means that the market size is rapidly growing. The economy of this country has also been growing rapidly, which means that the purchasing power of the target market is relatively high compared with other regional markets. Dong Feng Motor should be ready to deal with a number of challenges in the external market. One such challenge is competition from numerous other firms exporting their products in this country. Brands such as Toyota, Benz, and Ford are very popular in Nigeria and it will take a lot of effort to convince local customers to test a new brand. High level of crime and cases of terror attacks are other factors that the management must be ready to deal with as it enters this new market.

Internationalization

According to Frynas and Mellahi (2011), internationalization of a firm’s commercial activities often comes with a number of challenges just as much as it offers opportunities. When entering a new market, a firm must understand that there are factors that must first be considered before making the entry to avoid cases where a firm is forced to move out of such a market after making heavy investments. The macro and micro environmental factors should be properly audited before making any investment in the new country.

Macro and Micro Factors and Lifecycle Analysis

Understanding both the macro and micro environmental factors in the new country is very important. In the macro environment, economic environment in the new host country is one of the most important factors. As mentioned above Nigeria has a fast developing economy, with a rapidly growing middle class willing and capable of purchasing cars. The political environment in the country is also favourable to trade. The country has strong political leadership despite the challenge posed by the Boko Haram terror group. Technologically, Nigeria is not as advanced as China. The firm must be ready to find ways of meeting the technological gap in the country. It may be forced to hire some home country nationals to work in its new plant in Nigeria, especially in areas that require high level of skill.

The socio-cultural forces in the country are favourable to Dong Feng Motor. The micro environmental forces in the new host country will also have significant impact in the operations of this company. One of the most important micro environmental factors is the availability of suppliers. Dong Feng Motor may be forced to import some of the raw materials used in manufacturing its products in this foreign country. The management will also be expected to come up with ways of meeting the needs of its customers in the best way possible in order to develop a pool of loyal customers. Competition is another critical micro environmental factor. Dong Feng Motor will have to develop effective mechanisms of dealing with stiff market competition. Appendix 2 shows the market lifecycle. In Nigeria, the motor vehicle industry is at the growth stage, which means that with appropriate strategies this Chinese company can achieve great economic success in this country.

Motive for internationalization

According to Scholes and Whittington (2011), before making a move to enter a new global market, the motive for internationalization must be very clear. In the case of Dong Feng Motor, the motive for internationalization is to develop new markets because of the level of saturation in the current market. Competition is increasingly getting stiff in the current and this firm must find new markets to help it remain sustainable in its operations. That is why it is necessary for it to look for new markets.

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Evaluation of national competitive advantage

Dong Feng Motor is currently a brand that is barely known in the Nigerian market. This market is dominated by Toyota, Nissan, Ford, and Benz among other brands. These known brands already have a national competitive advantage over Dong Feng Motor in the Nigerian market. To compete favourably with these known brands, this company will need to aggressively promote its brand in this market to create awareness. It will have to understand the local needs and come up with ways of meeting them in the best way possible.

Evaluation of mode of entry and its feasibility

It was suggested that Dong Feng Motor should make a direct market entry into the Nigerian market. This method has its pros and cons. The biggest advantage of the strategy is that the parent firm will have full control of the overseas branch. It will be able to dictate how operations in this foreign market are carried out. However, there are a number of challenges that the management must be ready to deal with when using this strategy. One of the biggest challenges is the cost. Putting up a new plant will involve heavy investment into this project. It will also require this firm to be heavily involved in activities such as market research, advertising, and sales. The project’s feasibility often determines its suitability. The initial cost of the project is very high, but the long term benefits will exceed the costs involved, which means that it is a feasible project if it is executed in the right manner.

Conclusions and Recommendations

Dong Feng Motor is a successful car manufacturer in the Chinese market owned by the Chinese government. The firm has been in operation since 1969 and has become a dominant player in the local automotive industry. However, a time has come when it has to spread its operations beyond the current market in order to acquire new market share. The main advantage of the internationalization process is that it will create a new market for this firm. It will help in increasing the company’s revenues. However, the process will require a lot of resources. Investment will be needed to put up the plant, conduct market research, and promote the firm’s brand. It was suggested that Nigeria will be a better market than Greece. The following should be taken into consideration.

  • The management should commission a comprehensive market research in the two countries before making any other investment decision
  • The firm should ensure that the chosen market has the financial capacity to sustain its operations.
  • When using direct market entry strategy, the management should ensure that it has the financial capacity before making any commitments.

Appendices

Appendix 1: Global market entry strategy

Global market entry strategy.
Source (Liu 2004, p. 54).

Appendix 2: Market Life Cycle

Market Life Cycle.
Source (Patrizi & Patton 2010).

Reference List

Amrosini, V, Johnson, G & Scholes, K 1998, Exploring Techniques of Analysis and Evaluation in Strategic Management, Financial Times Press, New York.

Cavusgil, S 2016, International Business: The New Realities, Pearson Education Limited, London.

Cavusgil, T, Knight, G, & Riesenberger, J 2016, International Business: The New Realities, Pearson, London.

Coulter, M 2009, Strategic Management in Action, Pearson Higher Education, London.

David, F 2008, Strategic Management: Concepts, Pearson Higher Education, London.

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Frynas, J & Mellahi, K 2011, Global Strategic Management, Oxford University Press, Oxford.

Gong, Y 2013, Global operations strategy: Fundamentals and practice, Springer, Berlin.

Grünig, R & Morschett, D 2012, Developing International Strategies: Going and Being International for Medium-sized Companies, Cengage, New York.

Liu, K 2004, Globalization and cultural trends in China, University of Hawai’i Press, Honolulu.

Patrizi, P & Patton, M 2010, Evaluating strategy, Jossey-Bass, San Francisco.

Power, M, Mohan, G & Tan, M 2012, China’s resource diplomacy in Africa: Powering development, Palgrave Macmillan, Basingstoke.

Scholes, K & Whittington, R 2011, Exploring Strategy, Financial Times Press, New York.

Spulber, F 2007, Global Competitive Strategy, Cambridge University Press, Cambridge.

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StudyCorgi. (2020, December 13). Dong Feng Motors Company: Internationalization Strategy. Retrieved from https://studycorgi.com/dong-feng-motors-company-internationalization-strategy/

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