In: Operations Management
Please read the above paper titled "global supply chain adaptations to improve financial performance" and answer the following questions. Should be a 3 page paper with a sumamry of the case, case analysis, and suggestions for the issues/problems. the suggestions should include answers to the questions listed at the end of the cases. 1. Please describe the following theories in the paper • Contingency theory • Economic cluster theory 2. What are main aspects and stages of the supply chain adaptation to China? 3. What are the main factors affecting the decisions of each supplier’s entry to China? Other requirements are included in the Syllabus. Please upload the MS Word file of your report.
Contingency theory becomes one of the new theory used to view organization, it claims that there is no single structure is the best way to design for organizations. Instead, the structure should fits certain factors, in the enterprise management based on the internal and external factors of the company, specific to different conditions to decide different management models, programs, or methods. The core idea of Contingency theory identified different types of organizations are needed in different types of the environment, strategy, size and also under the uncertain conditions, the organization must be based on short and long term objectives and the prevailing conditions to decided appropriate management. Some level of the organizational structural variable to certain level of the contingency, which leads higher performance, whereas misfit leads to lower of performance. Lorsch and Morse did a research showed that, for high organizational performance, environment, organization, and member predispositions are the important factors has to be concerned. In other words, where the environment was low on uncertainty, employees were more comfortable being controlled, liked to work with others and had low tolerance for ambiguity. Conversely where the environment was high on uncertainty, employees would prefer autonomy and had high tolerance for ambiguity.
Economic cluster theory is a theory of strategy. Alfred Marshall, in his book Principles of Economics, has mentioned, ''concentration of specialized industries in particular localities''. The theory states that there is less competition occurring and thus higher profits to be earned by firms. An unchanging customer base can maintain their business and steady income. According to Porter, industry clusters are geographic concentration of interconnected companies, specialized suppliers and service providers, firms in related industries, and associated . Cluster are generally help economic growth and reducing transportation costs since an industry has intermediary inputs to produce final products. Their intermediary are mostly within the same area with them, therefore transportation costs can be reduced.
Great companies should keep adapting their supply chains so they can adjust to changing needs. Adaptation could be tough, but it is critical to improve supply chain in this competitive market. In addition to unexpected changes in the world, such as economic progress, political and social change, and demographic treads. Companies in order to stay competitive for long, they need to be aware of those factors and adapt their supply chains. The following research questions aimed to these areas of interest:
Q: What are main aspects and stages of the supply chain adaption to china?
Initial growth stage
In the initial growth period, Chinese consumers interest in high-end foreign liquor, such as branded whiskey, cognac and vodka. According to a report study by UK-based Diageo Pic, net sales on the Chinese mainland raise 13 percent compared to the last year, and sales of its luxury Scotch whisky brands increased to 59 percent. Paul Walsh, the chief executive of Diageo, he acknowledges that china is one piece of a bigger jigsaw. He suggests that it is important to priorities where to allocate the resources.
Identifying The Market
China has a population that exceeds 1.3 billion people and larger land that the United States, however, China has no uniform and homogenous market, in other words, socially and economically is much more disparate and fragmented. Uneven rates of economic growth in different
area in China over recent years have shown economic and social differences between different provinces. For example, different provinces has different population levels, per capital GDP, average income levels, consumer spending behaviors, education levels, lifestyles and so on. Hence, the foreign companies should think carefully about which geographical location offers the best vantage point. In the China market such as Beijing, Shanghai and Guangzhou. Those area have higher populations and the high turnover of products entering the 1st tier city markets. Nevertheless, the numbers of the potential consumers could be underestimated, foreign companies need to have a strategic decision making methodology of identifying the target market(s) location
Secondary growth stage
Diageo operates with a joint venture with Moet Hennessy, part of Bernard Arnault's LVMH group. Hennessy allows Diageo to piggyback on MH's luxury products experience, combining the marketing of Hennessy cognacs and Moet & Chandon Champagnes with Johnnie Walker products and other Diageo brands. Such as Guinness. Walsh thinks that this relationship can definitely benefit to their brand in china which started with its Black label product. However, one of the problems that once foreign companies decided to operates with Chinese companies, it might be hard to establish and control because of the regulatory restrictions and mandatory corporate governance requirements that have the influence of protecting Chinese shareholders.
Stability and continuing growth stage
Diageo was looking for other acquisitions, in February 2011, Walsh purchased ShuiJingFang (beijing spirits company), they also got a big step to invade Chinese alcohol market and also prepare to import ShuiJungFand into U.S marketplace in the future. In the coming couple years, Walsh will also made acquisitions in Vietnam and Turkey.
Q.: What are the main factors affecting the decisions of each supplier's entry to China?
Answer:- Culture difference (Data Collection and Recommendations)
the focus group discovered that many participants did not know the difference between vodka and wine. Chinese drinking occasions and behaviors are also varied with foreign countries. In China, consumers would often buy the most expensive ''baijiu'' to engage in the important social activities, whereas purchase an inexpensive liquor to enjoy with friends. In the foreign countries, there are many different kinds of alcohol and each of them using in different occasions such as beer are considered as a casual drink, red wine are more sophisticated and romantic, foreign hard alcohols are associated with clubbing or trendy places. Conducting a Market Researching can understanding of which vodka products are suitable for whom and where they are likely to be consumed. The following key points can be addressed in the consumer market research: Consumption habits, Consumption occasions (Hotel, restaurants and cafes), Vodka category understanding, Brand name and Taste test, Packaging design test.
Policies And Regulations
Understanding government policy and regulations help company access in China market successfully. Although China's trade environment become more liberties, there are still a lot of corporations that remain off-limits to foreign companies. For example, China restricts foreign companies to involve in the field of petrochemicals, energy and telecommunications sectors. In this case, the rapid growth in the Chinese economy have been changing the drinking behavior of the Chinese population. Alcohol could relieve stress but also can cause harmful to people if drink unappropriated. In order to avoid the alcohol-related harm rapidly increase, chinese government might have a set of policy changes. Thus, if any foreign company before set up local production in china should ask advices from the China foreign investment department where they would divides foreign investment projects would be restricted or prohibited and encouraged.