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Wanda Company’s Internationalization Drivers

Drivers for Internationalization

In order to understand the drivers of Wanda’s internationalization, it is crucial to understand the strengths, weaknesses, opportunities, and possible threats. Tables 1-4 provide Porter’s Five Forces, PESTEL, Capability, and VRIO analyses to identify the drivers for internationalization.

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Table 1. Porter’s Five Forces.

Threat of New Entrants Weak Force The movie industry has a very high threshold for new entrants, as the cost of entry is very high. Additionally, multiple special resources and competencies to compete in the market.
Competitive Rivalry Medium Force The number of movie-making companies was comparatively low in 2017; however, it was rising due to favorable government policies.
Bargaining Power of Buyers Strong Force The bargaining power of buyers is strong, as they can select among a wide variety of entertainment options.
Threat of substitution Strong Force There are numerous products and services that can substitute the movies as they provide a similar level of entertainment, including video games, drama, and sporting events.
Bargaining power of suppliers Medium-to-high Force The movie studios can charge any fee they want for the rights to demonstrate movies in the cinema.

Table 2. PESTEL Analysis.

Political
  • The political factors supported internationalization in 2017, as the Chinese government is interested in expanding the Chinese culture to other countries (Deloitte, 2017).
  • China-US political relations were associated with a high degree of uncertainty, as President Trump was unsure about what strategy toward China he should take (Bader et al., 2017).
Economic The economy of China was on the rise in 2017, as the movie industry was growing rapidly. The global economic situation also supported the development of the movie industry (Deloitte, 2017).
Sociocultural While the industry was growing, more people started to prefer alternatives to going to the movies, which included streaming services and video games (Frue, 2019).
Technological Technological factors supported the development of the movie industry, as theatres started to use the latest technology, like 3D and IMAX movies.
Environmental Environmental factors were not a significant influencer of the industry; however, the use of disposable glasses and plates appeared to be concerning for waste management.
Legal
  • The legal frameworks adopted by the government supported the development of the industry and its internationalization in 2017 (Leung & Lee, 2019).
  • China had a quota for foreign movies, and all of the movies went through the censorship process (Johnsons et al., 2017).
  • The US government was very cautious about allowing Chinese investments into the US economy, which resulted in several restrictions for different industries (Johnsons et al., 2017).

Table 3. Capability analysis.

Resource Competence Capability
Large financial resources Expanding the company to enter new markets Using large financial resources to enter and operate in new markets
Talented managers Applying unique Chinese culture and business model Using the talents to promote Chinese culture and business model to other countries

Table 4. VRIO analysis.

Capability Valuable Rare Inimitable Organized Conclusion
Using large financial resources to enter and operate in new markets Yes Yes No Temporary Competitive Advantage
Using the talents to promote Chinese culture and business model to other countries Yes Yes Yes Yes Sustainable competitive advantage

The analysis provided above demonstrates that there were several drivers of internationalization. In particular, Wanda wanted to exploit its strengths, such as the large financial resources gained from the booming movie industry in China and the ability to use the money to expand to new markets. At the same time, the company had talented managers like Zhang Lin and unique Chinese culture that could be used to gain a competitive advantage. Wanda Cinema Line Corp. also aimed at using the opportunities described in Table 2. In particular, the political, economic, and legal aspects of the PESTEL analysis provided a significant opportunity for the company to expand to the US and other countries. VRIO analysis also demonstrated that the company had a capability that could bring sustainable competitive advantage (see Table 4).

At the same time, internationalization could help to address the weaknesses and threats of Wanda’s position in 2017. In particular, the primary weakness of the company was that it operated only in the Chinese movie industry, which was associated with significant censorship (Johnson et al., 2017). This was a major weakness that limited the company’s development opportunities. Additionally, the growing tension between China and the US was a threat to Wanda’s future ability to enter the US, the largest movie industry in the world. At the same time, entering the US was associated with the ability to diversify the income streams. In summary, the primary drivers for the internationalization of Wanda Cinema Line Corp. included rich financial and human resources, favorable political and legal situations, the need for diversification, and the seeking to exploit the opportunities of the largest movie market in the world.

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Buy, Ally, or DIY

The best strategy for expansion can be identified using the Buy, Ally, or DIY Matrix. The matrix helps to select between three options, acquisition, strategic alliances, and organic development. The DIY matrix for Wanda is provided in Table 5 below.

Table 5. Buy, Ally, or DIY matrix.

Buy Ally DIY Recommendation Justification
High urgency Fast Fast Slow Buy or Ally The analysis demonstrated that the tension between China and the USA was rising, which could have led to political or legal changes.
High Uncertainty Failures are sellable Share losses and retain buy options Failures likely unsalable Buy
  • Wanda was experienced in the movie industry, which made failures highly improbable;
  • Wanda had no experience in the US market, which was associated with a moderate degree of uncertainty.
Soft capabilities Culture and valuation problems Culture and control problems Cultural Consistency DIY
  • The company has a strong culture that has proven to be appropriate for China. However, inconsistency with the culture of the purchased company may negatively affect the acquired company due to integration problems;
  • The company does not have any established leaders outside China.
High modular capabilities Avoid buying the whole company Ally just with a relevant partner Develop a new venture unit Buy There was no indication that Wanda needed highly modular capabilities to compete in the
USA effectively.

The analysis provided in Table 5 above demonstrated that the most appropriate strategy for Wanda was to buy for three central reasons. First, the expansion of the firm was relatively urgent, as there was high uncertainty about the future political environment between the US and China. In August 2017, there was no coherent strategy Trump’s administration adopted toward China (Bader et al., 2017). Considering that Trump’s presidency was often viewed as chaotic by other countries, it was unclear how the relationships between the two countries would develop (Bader et al., 2017). Therefore, it was highly urgent to act, while the relationships between the two countries were somewhat favorable. The hurry was not baseless, as China-US wars broke out in March 2018 (Council of Foreign Relations, 2021). As a result, it was crucial for Wanda to either buy orally.

The second reason for selecting the strategy was the moderate uncertainty associated with entering the new market. Wanda Cinema Line Corp. was the largest operator in China, with more than 2,550 screens in the country (Johnson et al., 2017). This implies that it was highly experienced in providing services and making profits. As a result, the possibility of failure was relatively lower in comparison with a scenario when Wanda would need to explore a new industry altogether, such as video games, for example. At the same time, Wanda had no experience operating outside China, which was associated with a moderate risk of failure. Therefore, the most appropriate corporate strategy was to buy, as it would allow to maximize the profits and sell assets in the case of failure.

The third reason for selecting the “buy” strategy was the lack of indication that Wanda needed highly modular capabilities to compete effectively. Thus, there were no restrictions that would encourage the company to select another expansion strategy.

The only concern with the selected acquisition was that Wanda would need to integrate its culture into the new unit for consistency. The company has a well-established ideological structure and values, which include a commitment to innovation, integrity, sustainable development, philanthropy, excellence, and tradition (Wanda Group, n.d.). At the same time, AMC and Legendary Entertainment had established cultures and traditions which were different from those of Wanda. In the case of acquisition, a lack of cultural integrity would cause significant problems. Additionally, Wanda would need to solve valuation issues. As a result, Wanda decided to retain senior management of the acquired companies and let them make all the major decisions. It was a crucial decision to minimize the possible drawbacks of trying to integrate Wanda’s corporate culture into the newly acquired companies. In summary, the decision to use acquisition as the expansion strategy was appropriate.

Post Merger Integration

PMI Matrix

The post-merger integration (PMI) strategy can be determined using the PMI matrix provided in Figure 1 below.

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PMI matrix by Haspeslagh and Jemison
Figure 1. PMI matrix by Haspeslagh and Jemison (Bodner & Capron, 2018).

According to the matrix, there are four possible strategies that should be selected based on the need for autonomy and the need for strategic interdependence. Therefore, it is crucial to assess these matters in relevance to both EMC and Legendary Entertainment and then make the final decision.

Need for Strategic Interdependence

In order to identify the required level of interdependence between two companies, it is crucial to understand the degree to which their supply chains overlap. The supply chain of the movie industry is conceptualized in Figure 2 below.

Movie industry supply chain.
Figure 2. Movie industry supply chain.

When speaking about the supply chains of AMC and Wanda Cinema Line Corp., the activities seem to overlap significantly. Movie theaters demonstrate the same movies around the world, which implies that they use the services of the suppliers. However, the situation in China is very peculiar due to censorship (Johnson et al., 2017). The Chinese government retains the right to recommend films for exhibition in movie theaters and has a quota for the number of foreign movies.

Therefore, in China, Wanda Cinema Line Corp. largely relies on the services of the supply chain that produces Chinese movies. At the same time, American authorities are worried about the fact that Wanda would try to promote Chinese movies to AMC, which would be unfavorable (Johnson et al., 2017). Since AMC does not need to demonstrate Chinese movies, the supply chain will of the two companies differs considerably. Therefore, a low level of strategic interdependence is required.

As for Legendary Entertainment, the level of required interdependence is high, as the acquisition of the firm is associated with vertical integration. Wanda Cinema Line Corp. is expected to use the supply chain of Legendary Entertainment, as it manages the development and all steps of movie production. It is crucial for the company to ensure that the movies produced by Legendary Entertainment can be demonstrated both in China and in the US. Therefore, the level of required interdependence between Wanda and Legendary is high.

Need for Autonomy

The two acquired companies have a high need for autonomy, as they operate in a different market in comparison with Wanda Cinema Line Corp. US cinema market is different from the one in China, which implies that they will need to make different decisions to effectively compete in the market. The central reasons for high autonomy needs are provided in the PESTEL analysis (see Table 2. On the one hand, the Chinese government put significant limitations on the choices of movies Wanda could demonstrate in China. At the same time, the US market had no significant legal limitations.

Thus, both Legendary Entertainment and AMC needed to be able to make their own decisions concerning their development. However, Wanda should be able to interfere with the operations of Legendary to ensure that the produced films are appropriate for both Chinese and US audiences.

On the other hand, the political relationships between China and the US were uncertain in 2017 and turned into a trade war in 2018 (Council of Foreign Relations, 2021). This implies that interference in the strategic planning of the two acquired companies may have caused concern for the US government authorities. Therefore, it would be more appropriate for both acquired companies to maintain a high degree of autonomy.

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Selecting the Strategy

According to the PMI matrix, Wanda needed to adopt two different strategies for the integration process. In particular, Wanda needed to use preservation to the AMC. This strategy is associated with keeping the businesses separate and stimulating the development of business. At the same time, Wanda should accumulate learning and transfer competencies if they are found valuable. As for Legendary, symbiotic post-merger integration. This implies that Wanda should start with preservation, identify joint sources of synergies, and develop a common culture. While preserving autonomy, Wanda needed to implement progressively needed interdependencies.

Challenges

There are several challenges that Wanda may face when trying to enter the US movie market. These challenges are best analyzed using the CAGE framework. The analysis using the approach is provided in Table 6 below.

Table 6. CAGE framework.

Cultural Administrative Geographic Economic
Bilateral
  • Different languages;
  • Different religious beliefs;
  • Different values and norms.
  • Lack of common currency;
  • Different legal systems;
  • Political hostility.
  • No land border;
  • Long physical distance;
  • Different time zones.
  • Significant differences in income levels of customers;
  • Differences in financial resources;
  • The difference in access to knowledge.
Unilateral
  • Individualism in the US;
  • Low trust in the Chinese culture.
None None None

The analysis using the CAGE distance approach revealed that Wanda would need to mitigate a wide variety of cultural, administrative, geographic, and economic risks. Wanda will need to overcome the cultural differences between China and the US. The most obvious problems include language differences and differences in cultural norms. Additionally, Wanda will need to account for the fact that the majority of the US population is Christian, while the Chinese population is atheistic. The US culture is highly individualistic, which may cause significant problems for Wanda, as it values collectivism. Cultural differences are the central concern for Wanda, as it is associated with the highest number of possible challenges.

The administrative differences are also a source of possible barriers to successful entrance. The countries have different currencies and legal, which will cause accounting and judicial issues. The deepest concern, however, is political hostility, which appeared as a result of the US-China trade war that broke out in 2018 (Council of Foreign Relations, 2021). This may cause sanctions and tariffs that can negatively affect the supply chain of the company.

The third source of concern is the geographic factor. US and China are situated far away with no land borders, which will negatively affect logistics between Wanda’s main office and the newly acquired companies. The countries are also in different time zones with a difference of 12 hours.

This implies that having online meetings and controlling operations from China will be difficult. Finally, there are significant economic differences between the countries. In particular, the level of individual income in the US is significantly higher than that in China, which implies that the characteristics of the target customer segments are different. Additionally, US companies have different levels of access to knowledge. However, while there are significant differences in the economic systems of China and the US, they are unlikely to cause any significant challenges.

In summary, the central problems that Wanda will face trying to operate in a new market are associated with cultural and political differences. US citizens are highly individualistic, and they have different values and norms. Wanda will need to adapt its corporate culture to accommodate for the differences. Additionally, Wanda will need to overcome the overall political hostility of the US towards China, which may be associated with financial losses.

References

Bader, J., Dollar, D., & Hass, R. (2017). U.S.-China relations, 6 months into the Trump presidency. Brookings. Web.

Bodner, J., & Capron, L. (2018). Post-merger integration. Journal of Organization Design, 7(1). Web.

Council of Foreign Relations. (2021). U.S. relations with China. Web.

Deloitte. (2017). China’s film industry. Web.

Frue, K. (2019). PESTEL Analysis of the movie theatre industry. Web.

Johnson, G., Whittington, R., & Regner, P. (2017). Exploring Strategy Text (12th ed.). Pearson.

Leung, W. F., & Lee, S. (2019). The Chinese film industry: Emerging debates. Web.

Wanda Group. (n.d.). Values and philosophy. Web.

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