Discuss about Timkem Company……………………….
Yip developed a four stage framework used to analyze the level of globalization for a business. The four drivers that determine the extent of globalization for a business are; market drivers, cost drivers, competitive drivers and government drivers.
The following is an analysis of these drivers as pertains to the ball and roller bearings industry.
The ball and roller bearings industry is characterized by common customer needs. The uses of the ball and roller bearings in friction reduction between two surfaces are common across all markets worldwide. This therefore creates a large pool of global customers who include private companies, individuals and even governments. Due to this global demand the manufacturers usually develop wide networks across countries to ensure customer satisfaction and large market share. They normally ensure this is done through investing in wholly owned subsidiaries who concentrate their production processes in their respective countries so as to minimize costs. Large companies also acquire small operators so that they can fully consolidate their business. The mother plants establish global distribution channels to facilitate cross boarder trades as they seek to edge out their competitors in what they consider their key markets. The market is characterized by many operators due to the ability to transfer technology from one country to another. This has led to the emergence of many small companies that have offered great competition to the large multinationals some who have even been forced to close shop. The industry is also located in almost all the leading world economies like the USA, UK, China and Japan.
Due to the high demand of the ball and roller bearings, the trade is conducted globally. They are used in almost all machines and due to the rising industrialization rates in the world, they are traded almost everywhere. But due to the high product development costs, most industries are not realizing profits and they have decided to close down. That explains why there has been an increase in the importation of these products from other countries. Major world economies like the USA are relying more on imports of these products. Besides costs, some of the major producers are engaging in unfair business practices of reducing prices to very low levels in foreign jurisdictions so that their products can penetrate those markets and increase their market share. This edges out many producers in those who find the business environment hostile as they cannot make any profits. Those who have dominated this trade use their vast experience and large market share to compete unfairly since they enjoy economies of scale. The raw materials used in this industry are mainly imported since they are unavailable in most jurisdictions. The importers are faced with different import tariffs that range from country to country. There are also sourcing inefficiencies encountered in various jurisdictions due to inhibitive procurement and compliance requirements. Also those producers who seek to expand their businesses to other territories are faced with different costs of entering the various foreign markets. These costs normally differ from one nation to another.
Due to the high global demand of ball and roller bearings, major producers are continuously seeking global markets for their products. This high demand has also led to depletion of raw materials in some countries. Therefore these producers are engaging in heavy import and export trades to ensure they have competitive advantage over rivals. They all want to have enough stocks of raw materials and they also want to explore new markets as per their strategies so as to meet set targets. All these traders from different continents are actively engaged in this import export trade everyday. This creates a lot of interdependency between these trading partners and their competition goes totally global.
The regulatory role of governments in this global trade cannot be gainsaid (Kennedy, 2010). The government formulates favorable trade policies so that they can attract foreign direct invest and also promote domestic investment. Governments come together to form regional trading blocks with common and almost similar marketing regulations for the promotion of cross boundary trade. This earns them a lot of revenue and other associated benefits like job creation and development of infrastructure like roads, rail systems and airports. This also promotes other related industries like tourism and banking. The government being a major consumer of these products also buys stakes in local or even foreign subsidiaries so that they can share the profits. The government is also a player in the industry so that they can protect their locals from exploitation by foreign companies who may overcharge their nationals.
Timken is a market leader in most of its products and it can therefore be able to compete fairly with its rivals. The main brands it produces are already known by many and it does not have to engage in much advertising for its brands to be recognized. This gives it an upper hand in the market when compared to a new entrant. The company was also established long time ago and it therefore has a wealth of experience in the market dynamics. Its large market share gives it a ready market for its products and it makes huge sales volumes. These large sales volumes make the company have large capital outlays to carry out expansion activities in its target markets through acquisitions and other means. It is also able to invest in research and develop activities so that it can offer products that fully satisfy the customers’ needs.
Question Three (a)
The strategy by Timken to expand to global market will face immense competition from the rivals and therefore it must be prepared to compete with them. It will have to closely monitor their activities and respond to it timely so that it can protect the global market share. The company in achieving this must invest heavily in advertising where it can contract service providers with cross boundary reach. The company will also be able to market its main products globally just as it does in its local market. In doing this the company should also consolidate its local market because the earnings from this market will be very crucial in its expansion.
Question Three (b)
The company’s strategy is very good because its products are already known and having been in the business for long, it has what it takes. It has good capital and relevant market share and if it consolidates its local market, then it will be in a good position to expand. Being the market leader with a lot of experience and its products enjoying wide market, the company’s strategy is good.
Question Four (a)
Timkens decision to invest in Romania has its advantages and disadvantages;
Due to the high political risks involved the company will have a chance to get an assurance from the government that its activities will not be interfered with. This engagement with the government may make the company get supply deals with the government which will boost its revenues. The company will be able to gain relevant market share in that country because the government would also like to attract foreign investors. Due to the growth potential of the company, its public image will be boosted internationally and these good ratings will popularize their products even further. They growth of their brand will make any other products which they may produce now and in the future gain wide acceptability. They will be required very little in the advertisement of such brands and this will push their earnings to very impressive levels. They will enjoy economies of scale which will place them very strategically even when competing with their rivals. They will be able to control prices in the market and shut out their competitors in particular markets.
The possibility of political instability will have a very detrimental effect on the company’s sales volumes. The company will lose a lot of revenue and market share in case there is outbreak of war. The government may also impose restrictions on expropriation of profits and force the company to invest most of its earnings locally. The company may also face exchange control risks as it will be relying heavily on imports from their mother plant especially in the formative stages. This is mainly due to the frequent exchange rates shifts characterized in such nations. There may also be restrictions on the ownership of property like land in such regions. This is mainly due to frequent regime changes that also cause a lot of instability in market prices.
The company should seek government’s assurance on non interference with its activities and also neutrality of all industry players before the law. There should also be non interference in all the company’s investment decisions as long as they follow the right procedures.
Question Five (a)
This investment perfectly fits with Timken’s competencies of market dominance and expansion. Due to their experience in the industry for many years, the company will expand very well also because they are acquiring a company which also has a considerable market share. Due to the high quality of their products and few competitors in their new market, they will enjoy economies of scale and this will translate to huge profits especially in the long run. There is no market that does not have its risks and provided the right analysis of the market is done, the investment will be a good move.
Question Five (b)
Timken should go ahead with the investment because the objective of any company is to grow. The prevalence of many political risks should not slow their investment plans. They should use their experience and knowledge of various markets to penetrate this potential market. However they should carry enough market surveys and analysis. They should set performance targets which should be reviewed continuously to gauge whether they are making any impact. There should also be in consultation with the relevant government agencies to ensure compliance with the relevant legislations.
Kennedy, R (2010). Political Risk Management . New York. Quorum Books Ltd,P.4
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