Internationalisation

CESIM Personal Reflection Introduction Internationalization becomes more and more important to the companies which have the ambitions for the whole world market. (Laanti, Gabrielsson and Gabrielsson, 2007) However, the industry giants always have a large number of groups for the international markets, which contains market analysis, demand distribution, production, sales, human resources, research, development of productions, logistics, finance, etc. (Miller and Yang, 2016) Cesim includes the corporations, and other educational institutions training courses and business simulations that can be regarded as a general task for the business school student. (Manuals.cesim.com, 2018) Simulation Analysis 1. Market conditions analysis. For each new round, there will be a different condition of

the global market. The conditions were set in the first position could be regarded as a reminder for us to have the first view of the market growth prediction, the production cost, the financial situations of three main markets, and the reflection of social responsibility. But the market development could be different from the market descriptions due to the fact that the markets were shared by total 5 groups, and their actions in the markets might change the real markets from predicted.

a. The market growth and strategies. According to the description, we can roughly

make the strategy aiming to the different market by calculating the market growth based on the original data. For example, Asia market was the largest with the highest increased rate, therefore, if we want to focus on the Asia market, we will plan to invest more new plants in Asia and set the main products as Tech 1 and Tech 3. With more productions were produced by our plants instead of the manufactory, the cost sharply decreased due to the learning-curve effect. Then, the price war could be used to fight against with other groups in Asia market. If we want to run the mobile company into high-end routes, then the US and EU markets should be our main project. Since 12 plants had been set in the US, which can satisfy the demand for Tech 2 and Tech 4. Besides that, the EU and US market had more interested in high-tech, the profit could be maximized by setting a high price with more features. With more investment in research and development in technology, more profit can be made in the last-half of this simulation. However, the US market would be larger than EU market around the 5th round, there were a few difference between US and EU markets, we considered this situation and the transportation cost of EU market in the real simulations,

b. The cost decides the effectiveness of production. The cost description was mainly

about the tariff and production cost, the influence of manufactories occasionally

occurred. Basically, the extra import tariff cost had the most important impact on the Asia market. Because at the first 2 rounds, only US plants had the ability to produce the productions, and increased tariff would increase the cost. We insisted to produce by ourselves, therefore, there was not a big issue about the change of the cost and manufactories after the 2nd round.

c. Finance. We observed that the corporate tax rates had a trend of increase in the

global market. Thus, our aim was tried to clear the short-term debate, balance the equity and long-term debt between 40% to 60%, and reasonable use internal loans to avoid extra cash.

d. The social responsibility. To be honest, the social responsibility had less influence

than those factors above, 2%-3% sales amount was not important, and different suppliers had a trace difference of the price ($10.5 to $8.5). What we noticed that the component supplier 3 provided a high price which hardly matched the rates of ethics and sustainability. And there should be more than 2 suppliers in each round, some rounds needed 3 more to stable the production.

2. The demand of the market. For this part, it was not difficult to analyze the total market

demand of the 3 market, however, how to ensure the competitors market share was the key point for this part. We learned that the total market size for each market area should be calculated in advanced. Then, the total market demand would be divided into different technologies, a different tech had different increase rate and peak-time. At the last, the market shares for each company needed to be determined by the factors, which including the number of features, the average price of productions, promotion, former round market share, and the attractiveness of trend of new technology in the market. (Manuals.cesim.com, 2018)

a. Market share. Market share could be predicted after a few rounds when we learned

enough from the other groups, the actions could be forecasted. In one word, extra 4% market demand for each round was our decision. We assumed to take 1% from each group in our universe, which can satisfy our production in case we had more demand than our productions and make sure that there was less amount of inventories. And there were other reasons that influence the market share, such as the price level, the number of companies offering the same kind of techs and the marketing efforts.

Figure 2.1, the total sales revenue for 7 rounds (blue team)

According to the figure 2.1, we had the largest market share in global markets at most rounds. The reason was that we had specific plans for the different market. The Asia market focused on the price, even ￥1 low than competitors could cause a huge advantage in sales. Therefore, we set the price always end with 9. Since the sensitivity of market, we set the lowest for most rounds. With the lower cost of productions and fewer features, we still made some profit. We failed to achieve the aim to maximize profit, nevertheless, the total market was fixed, if we took the largest market share, our competitors would have less market share, which caused troubles to their inventories. a. Network coverage forecasts. It was a necessary factor for determining the demand

for new technologies. Normally, the attractiveness of different kinds of technology would vary a lot regarding on the market area. However, what should be noticed here was sometimes a new technology could turn out to be a flop on some of the market areas. According to the real markets’ reflections, the tech 4 market was not as large as the forecast in EU and US markets. And the demand for high-level techs in Asia market is seriously underestimated. For example, we were the first team that had tech 4 to sell, however, even there were no competitors in the market, the demand was far from our predictions based the forecasts. To solve this problem, I collected other universes’ data and made a graph to analyze this problem. After simulating the demand and price curve, I found there was a relationship between the price and demand as it was shown in the following part, besides the price, it also related to technology promotion, number of companies offering this technology, and network attractiveness.

Figure 2.2 The demand-price relationship in all universes’ market (Tech 4, round 3)

3. Production planning. Production, the second place of importance in this simulation,

control most cost and future plans. There were 4 parts in total, planning, inventory, investments, and procurement in this part, which represented the cost of productions and future plans, separately. Only two areas and two production lines in each area that we could produce four technologies.

a. Planning and inventory. For the decision in this part, the cost was combined with

three factors: the basic cost level in the production area (Asia plants had lower labor

price), the production cost function (U-shaped curve), and the learning curve effect (the more production in last round, the less cost in this round). Firstly, the area basic price was the facts which could not be changed, the only method to low the cost was to invest more plants in Asia. Secondly, the capacity allocation was the key to distribute the different production. The capacity was related to the number of plants you had in the same area and learning curve effect, after the calculation, one plant could produce 550K units’ production in total. However, according to the U-shape curve, 100% capacity allocation was not the best result. To minimize the cost, total 80% to 85% of allocation was the best. (Manuals.cesim.com, 2018) Thirdly, the learning curve effect could be found in the inventory bottom, the rate that decreases the cost by producing this production also decreased, which means the cost trended to be stable after a few rounds productions.

b. Investments and procurement. The new plants would be finished for the next two

rounds; therefore, we should estimate global demand’s growth. This part was extremely difficult because the change of market conditions and competitors’ actions for each round, which we invest more plants in US area than we needed. Using socially responsible suppliers reflected the part of our group’s social responsibility and had an impact on the public image and demand for products. The ethics value showed that how well suppliers treated their employees and the sustainability value reflected their environmental responsibility. (Manuals.cesim.com, 2018) In some rounds, EU and US market had an effect on environmental responsibility due to the media.

4. HR and R&D. HR was tightly related to the research and development, and the main

factor was the number of employees. a. HR. The human resource was constituted of three factors: the number of employees

was hired, monthly salary and monthly training budget. The number of employees can be hired was related to the monthly salary and training budget, the higher salary was provided, the more people could be hired in the team. As a result, the person- days was allocated to different technology and features. As it was mentioned in the guide, the key points to consider in human resources are employee turnover and efficiency. (Manuals.cesim.com, 2018) However, as the figure 4.1 indicated, we found that even kept a high turn-over (46%) and slightly low efficiency (99.1%), our actual efficiency was highest among 5 groups. That was because we decreased the salary every turn and hired as many as we can. With the help of cost control on HR, we successfully researched tech 4 in advance, and lead the features of technology 2 and 4. At the last round, we chose to lay-off all the persons to save our cost because we have had all the features in tech 2 and tech 4.

Figure 4.1 The contrast of personal turn-over and efficiency

b. R&D. We invest much available cash in the research and development on the new technology and new features. We knew that the investments into R&D do not decrease technology and design licensing costs, and tech 4 had a high block to other teams which focused on Tech 1 and Tech 2, therefore, we selected to research Tech 4 in-house and bought feature licenses to fit the need of markets. The cost of in- house research was much lower than buying, thus, it saved a large amount of money on the research. What was useful for me that the own R&D has one round delay, license purchases could produce the technologies and features available immediately. Thus, we needed to buy features license (much cheap than new technology) to follow our competitors.

5. Marketing analysis. There were 3 parts that needed to be decided in this part: the first decision was the number of features to be offered. In general, more features had more attractiveness to the various customer but also had higher costs. Secondly, the price and promotion cost decisions, the marketing effects were related to the company's image in the particular market area. (Manuals.cesim.com, 2018) Therefore, the cost of promotion has a long-term effect in this area. Thirdly, balance the budgeted financial outcome. Speculating the competitors’ price setting was the key to winning the market shares. Not only set a low price, but also made sure the profit was the maximum for different markets. a. US markets. From what we concluded, US market was a combination of Asia and

Europe. The features of technologies were important (less than EU) and the price was sensitive (less than Asia), but the promotion for new technologies had an unexpected influence, which strongly increases the market share in US market.

b. EU markets. Europe market was interested in new technologies and more features, even with a higher price. Therefore, we always put the most features and the newest technology in this market. Meanwhile, there were plants in EU, all the profit could be regarded as cash for internal loans, the price could be set higher if we had advanced technology to make more profit.

c. Asia markets. The largest market provided the largest demand, with more and more plants build and productions sold in Asia, we found that price was the huge impact on Asia market. If the price was attractive, the market demand could help us to clear the inventory from last round. And due to the demand, most groups thought Asia market was an excellent resource to make the profit. We decided to start a price war in Asia market since this market was not our main profit resource. This step was aimed to decrease competitors market share, and offset the lack of tech 3 in our group.

6. Logistics (Taxation) and Finance. These 3 parts included all the money transfer except

the market actions. In the real international companies, the high-level management people would directly participate and use different methods to decrease those costs. a. Logistics (Taxation). Deciding in which order should be satisfied demand in the

markets firstly was the logistics. The market conditions revealed that the transportations between the US and Asia was expensive, and Asia productions to EU was cheaper than US area. As the figure 6.1 showed below, the price trend did not change but the price would increase with time. Thus, we set both US and Asia plants satisfied the local market, then the EU market, at last, the opposite market.

Figure 6.1 The transportation cost at round 7

For the Taxation, however, the Asia market had the lowest tax rate at the first few rounds, though it would increase evenly, we tried to make more profit in Asia market when the rate was low, and transfer the cash by internal loans to decrease the administration cost.

b. Finance. There were 3 main processes in finance: Firstly, balance the long-term loans and equity. If the ratio is less than 40%, it means we should repay the debate to grain more equity and save the interest from the debate. If it is more than 60%, we should buy more long-term debate instead of short-term debate. (Manuals.cesim.com, 2018) Secondly, share issues and buy-backs. We decided to share more issue at the beginning to low our issue price, and buy-back with a high price to increase cumulative shareholder return. Thirdly, control the cash flow in 3 markets by internal loans. Set a safe buffer (2M in parent company) to avoid short- term loans. The US area had a deficit in most rounds because the cost of production belonged to here but the profit belonged to the markets’ areas. Thus, we transfer the excess cash from EU and Asia to US parent company every round.

Results and Conclusions. We won the 1st place in our universe. There are 2 important theories we learned from the courses which lead us to the total simulation.  Internalization theory. Internationalization strategy refers to plans that guide

commercial transaction taking places between entities in different countries, it consists of trades and transactions at a global level. (Collinson, Narula and Rugman, n.d.) Strategies influenced by this theory:  Save the cost on R&D by the high efficiency of HR.  Avoid short-term debate through the internal loan.  Decrease the cost by learning curve effect instead of heavily relying on

manufacturing.

 Competitive advantages. Competitive advantage is the attribute that allows an organization to outperform its competitors. It is the leverage that a business has over its competitors. (Stutz and Warf, 2007) Strategies influenced by this theory:  Focus on high-technology to gain greater value.  Control the price to expend the markets share.  Analyze the preferences of different markets to offer clients better service.

There are a few regrets about this competence. Firstly, if we could have an accurate prediction of demand, then we would control the investment of plants and inventory, which could significantly decrease our cost and increase the efficiency of plants. Secondly, we assumed all the competitors were reasonable. There was no breakdown and limit during the simulation, thus, some competitors with penny stocks had vicious competition in some areas, which lead all the groups cannot make the profit in some rounds. Thirdly, considered all the decision too far. There were 7 rounds in total, but we chose a long-term and high return way, invest too much in high-level technology, which caused a low efficiency of profit return. In the end, this course and simulation taught me how the industry giants treat the international markets, which trained me in market analysis, demand analysis, production, price setting, HR, R&D of productions, logistics, finance. And I also practiced the theories from the course in this simulation, which helped me enforce my comprehension of internationalization.

Reference Manuals.cesim.com. (2018). Decision-making guide. [online] Available at: https://manuals.cesim.com/globalchallenge/html/en_EN/GC-Decision_making_guide.html

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Laanti, R., Gabrielsson, M. and Gabrielsson, P. (2007). The globalization strategies of business-to-

business born global firms in the wireless technology industry. Industrial Marketing Management, 36(8), pp.1104-1117.

Miller, D. and Yang, H. (2016). The dynamics of diversification: Market entry and exit by public and

private firms. Strategic Management Journal, 37(11), pp.2323-2345.

Collinson, S., Narula, R. and Rugman, A. (n.d.). International business.

Stutz, F. and Warf, B. (2007). The world economy. Upper Saddle River, NJ: Pearson Education Inc.