Opening Remarks
Our organization has indeed drifted to a difficult position where we have to make an informed decision that will ensure we remain in business in the foreseeable future. Looking at the state of the company today, it is important to acknowledge that Panoshiba has effectively served its market and managed to deliver its mission continuously. However, in the recent past, we have noted a turn of events emerging from external market factors.
To start on a positive note, the organization has an impressive track record in healthy and beneficial supplier relations. As you may all know, our organization also received formal recognition for standard working conditions and good corporate social responsibility. The amicable internal and external relations are a pivotal influence in the outcome of the negotiation ahead of us.
Having stated the positive, I want to focus on the main issue on the table. The fact that in the recent past, the organization has experienced a marginal decline in profits is alarming. In our analysis, the Ukraine War has inarguably disrupted supply chains across the world, and our organization is no exception. There are also unprecedented changes in international business along the lanes of environmental concerns, infrastructure, labor supply, and competition that have negatively affected our output and consequent profitability in business (Szkudlarek et al., 2020). Precisely, the key challenges that I am to address at this point are;
- Increased foreign competition;
- Decaying infrastructure;
- High tax rates;
- Tension in the domestic supply chain;
- Rising labor costs.
In my leadership experience in the organization, I am certain that these bottlenecks are a challenge to the fulfillment of the organization’s responsibility to its stakeholders (Petricevic and Teece, 2019). Given that the above-listed setbacks are directly related to the organization’s business longevity, we should consider the proposal to offshore manufacturing to China. China has proven time and time again to be a prime destination for multinationals, and here I will demonstrate how the move is a potential solution to the challenges we are experiencing.
Resolution
Increased Foreign Competition
Increased foreign competition is the number one challenge that the organization has been battling. Primarily, Panoshiba faces stiff competition from competitors who have better pricing because they operate on low production costs. On the contrary, it is almost impossible to cut down the current operation costs because of the high cost of labor, the high cost of production materials, and statutory charges (Hill and Hult, 2022).
The decision to offshore manufacturing to China must thus prove to provide a solution to the increased foreign competition. From where I stand, China’s output surpasses that of the U.K. market essentially because China is highly industrious (Fernandez and Joseph, 2020). According to the World Bank, China ranks position 31 in ease of doing business (World Bank Group, 2020). This begs the question of how and why the company should be out of the country.
In my research, China is very attractive to multinational corporations globally. The country has robust direct foreign investments because of its political stability and solid financial systems. As an industrial hub, there is easy access to materials, suppliers, labor, and the global market. Since thousands of industries are in close proximity, our organization will be able to cut down operational costs so as to set competitive prices here in the U.K. and in our global markets.
Looking at the boisterous FDI trends in China, data indicates that China has fully embraced international business. As Hull Hult (2022) states, the influx in the global marketplace is attributed to the elimination of trade barriers across borders. I strongly believe China is rich in capital, material, and human resources that will directly result in economical manufacturing for competitive pricing on quality products.
Decaying Infrastructure
Infrastructure, in the context of the organization’s decreased profit margins, spans across regulatory frameworks, labor, physical transport channels, and mechanics of operation, such as employee relations. In as much as the organization thrives on a positive reputation of great employee welfare, there is the trade-off that labor has increasingly become expensive (Lin et al., 2020). To mitigate this, there needs to be either automation of access to cheaper labor or more productive labor. China offers all three options in a sense that translates to more productivity. Aside from this, China’s physical transport network is something to marvel at and consider as an addition to business growth.
China’s position as an offshore destination is supported by the fact that China has excellent infrastructure for business operations. It has the most developed road, rail, and transport system that is very efficient (Lin et al., 2020). This upside means that Panoshiba will experience minimal disruption while tapping into optimum transport efficiencies for more excellent production. The organization is bound to revive its profit margins with more excellent production. China has successfully embodied the globalization of the marketplace by simplifying business registration processes, providing access to amenities and business and construction permits, and easing import and export tariffs.
High Tax Rates
The tax rates between the U.K. and China are widely comparable primarily due to the differential economic standing of the two countries. As an economically informed person, I want to bring to light the fact that the UK and the US are global leaders in taxation. The high taxation definitely affects the business’s profit margins.
Although China has been gaining a competitive edge over the two global superpowers in the recent past, its taxation structures are bearable. As stated, China is politically stable, for taxes do not fluctuate tremendously (Inkman, 2022). This makes it quite conducive for business. Deciding to offshore the organization’s manufacturing will tap into this stability to make strategic sourcing and production decisions for higher profitability.
In addition to this, I would like to draw attention to the fact that China’s manufacturing industry is under the oversight of international bodies. International organizations develop fair regulations that control systems of taxation and regulations that would protect our organization from the exploitation that we are witnessing in the U.K. For example, the United Nations stipulates requirements on environmental pollution for all organizations in China.
Meanwhile, China has committed to invest in carbon-neutral manufacturing (Thomas and Pearson, 2022). This system of governance protects MNCs from unfair taxation and stringent environmental regulations here in the U.K. (Sun et al., 2021). This is a perk that will also save additional expenses.
Tension in Domestic Supply Chain
Our organization has also been affected by growing tension in its domestic supply chain. This is a result of all the other external market factors, of which fierce competition is at its best. As we consider offshoring, we must reassess the host country’s national and social environmental issues to pinpoint how the situation will benefit the organization’s operations.
At this point, we are prepared to employ international business strategies, including the use of the host country’s communication and business modalities. The National Bureau of Census confirms that a majority of China’s population is middle class (Du et al., 2019). This means that supply and consumption are high, which translates to access to a ready market. It also means that there is a large variety of suppliers, which increases the organization’s bargaining power for low-cost production.
Still addressing tension in the domestic supply chain, the sociocultural environment in China is easy. By this, I mean that business relations are straightforward because of how fast-paced China is. A classic illustration is that most businesses in China make short-term decisions so as to meet current market demands (Froese et al., 2019). Essentially, this allows for business continuity, and suppliers would be open to negotiations. Suppliers would also be cooperative because they focus on executing their contracts to maturity as they think of re-negotiating or making other considerations. Operating business in this environment eases the pressure on supply chain relations, giving ample time for management to make strategic decisions.
Rising Labor Costs
I think we can all agree that the cost of labor in China is significantly lower than that in the U.K. because of the suitable demographic factors in China’s population. As I speak today, I am confident that Panoshiba’s management has excellent cross-cultural leadership skills. This is demonstrated by the organization’s ability to hire and retain thousands of employees (World Bank Group, 2020). As data indicates, Panoshiba is one of the most significant employers globally, exemplifying excellent leadership.
Moving into a global market, there is a need to implement cross-cultural management strategies. One of these is Porter’s Diamond Model of international business operations. In line with this theory, Panoshiba must prepare for the new market by combining structure, strategy, and rivalry and considering its competitors (Gerlach and Eriksson, 2021). In this sense, it is advisable to develop an all-round strategy in differentiating value addition, pricing differences with competitors, and having an efficient operational structure. Practical strategies that could be implemented for better take-off include:
- A management team with the representation of business experts from China,
- The conduction of thorough market research to develop a sound supplier base and
- The engagement of international business consultants.
Further, Panoshiba may increase its prospects of excelling internationally by working on cross-cultural communication. Panoshiba would consider customizing its leadership to low power distance leadership at the onset. Low power distance leadership is recommended because it allows for close communication between management/leadership and staff (Tsai, Chen, and Yang, 2021.). In this case, this form of leadership is pivotal in understanding the local people’s business dynamics. The more excellent interactions will inform the organization’s culture abroad while helping meet employees’ needs for optimum productivity.
Conclusion
As I wind up, I would like to reiterate that the case for offshoring the organization’s manufacturing to China requires extensive market analysis. I picked China because of its unique provisions and the fact that its market strengths speak directly to the pressing challenges that we are experiencing. Of all the reasons why we should relocate, the unending marketing potential is a strong factor. We must appreciate that China has large labor resources, well-developed infrastructure, and a vibrant business culture.
In addition to this, China’s business environment is categorically very innovative (Ghauri, Strange and Cooke, 2021). This opens up more doors beyond just helping the organization restore its profit margins. I am certain that offshoring our manufacturing to China under a guided international business approach is the best decision for our business sustainability.
Reference List
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