International diversification is vital for a global enterprise, it is a corporate strategy. It really is created by higher sales of new products and new markets, and increase profitability. Diversification may appear at the business enterprise unit level and corporate and business level. In this essay, we will concentrate on advantages and disadvantages of international diversification for the business. At the moment, many companies are international established which developed their business to the several countries and areas, of course, in addition they facing a lot of hazards and opportunities, in the following, I will analyze the advantages and cons of checking out business internationally. This process involves different strategies. For the various sectors of the business enterprise, different countries must be developed and carried out. The management of the high capacity of the strategies must be developed, the huge chance to enter into new market of business whatever the implementation of the top challenges and difficulties, cross-border diversification to draw in the business's long-term growth, and development in existing business on the market in other countries.
International diversification is a basic and the main principles available world. In the past 10 years, the impact of the value of corporate and business diversification is just about the emphasis of attention of the study significantly. Almost all this short article has targeted the industry on this issue. Diversification is a technique to increase profits for advertising the new products in new market segments of a corporate and business. In fact, all strategy has its benefits and drawbacks, one of the business's management staff will be used to attain different purposes of these advantages and disadvantages. Diversifying internationally is an idea to enhance the value of the organization, which is a source of overseas immediate investment (FDI). Corporations to invest overseas, the utilization of company assets transferred abroad, reached the economies of scale and the economies of opportunity. Through the operational flexibility associated with a multinational corporate system, value creation from international operations can also be created. Now a day, international environment is really uncertain, an internationally varied network can provides possibility to the firm to exploit market conditions. Diversified corporate marketing, it can be used in a developed market, the establishment of new corporations, to be able to increase the profits of the company. Also, it could be used to diversify the investment of the company's assets, in order to prevent the downturn in the market of their country. You can find two kind of diversify, the first one is the internal development, through the internal extension and diversification of creation, creation of different products and brands. It could be achieve the perfect interior development. On the other hand is the external development, external enlargement through acquisitions or strategic alliances to enhance the visibility of the enterprise in the global market, to growth of profits and achieve the international criteria. In the next, consumer electronics big Samsung Electronics is taken a good example to illustrate the advantages and cons of international diversification.
Case analysis - Samsung Electronics
Consumer electronics massive Samsung Electronics is an international corporate, It's the flagship subsidiary of the Samsung Group. Samsung Electronics the greatest electronics industry in South Korea, employed in LCD, semiconductor, cell phones, digital press business, it's the biggest sales of the electronics industry manufacturers in the worthy of. "Inspire the earth, Create the near future. " is the vision of Samsung Electronics. Inside the mobile phone market, Samsung Electronics is the number one of the marketplace share in the world, successfully beat a normal mobile phone manufacturers such as: Nokia, Motorola, Sony. Sights on future market movements to touch smartphone, Samsung also remain competitive to launch the products corresponded to the rivals, such as Galaxy S2, to equate to the biggest rival Apple's Iphone.
3. 1 International trade of Samsung Electronics
International trade across edges the deals of goods and services, standard import and export trade, therefore, it also call transfer and export trade. International trade straight have an impact on the gross local product (GDP), it is very important for many countries; it can adapt the economic framework of the country and improve the fiscal revenue.
In order to reduce the creation cost, Samsung Electronics using global procurement, they looking for the actual suppliers, is focused on enhance product development, corporate and business culture, and contributions to the global culture. Samsung Electronics and Suppliers as well as the manufacturers can cooperate to help make the best product. Global procurement not only can decrease the development cost, it can also enhance the production. Samsung Electronics comes with an absolute benefit over another in creating a good in Korea and the other country. It could produce that good using fewer resources than another country. Samsung Electronics can enjoy the absolute gain when they carry out the international trade. In additional, Samsung Electronics conducted international trade, which also produced of international immediate investment (FDI), FDI is immediate investment into creation in a country by way of a company in another country, Samsung Electronics investment in China or the other country, the both countries have helped bring some Advantages.
Now, we can speak about what is the advantages and cons of Samsung Electronics when the corporation diversifying internationally.
Advantages of the firm diversifying internationally
Economic of scale
Economic of level is the enlargement of production level and increase the economic benefits. It really is to reflect the relationship between the attentiveness factors of creation and the economic benefits. Economies of scale help producers to lower their cost by producing massive amount output at lower costs. Samsung Electronics has became aware economies of scale in semiconductor creation. Semiconductor devices can perform a number of control functions in electronic equipment, such as Samsung touch smartphone. Through the constant improvement, Samsung's semiconductor creation successfully lengthened the R & D centers and production lines to China and other countries, and the products can sell about the world, via mass production to reduce the expenses. This is actually the cost advantage
The benefit of the economies of size of Samsung:
Can be achieve the harmonization and standardization of the products
high level of raw materials, reduce the purchase cost
Easily to regulate the quantity and quality of products
Conducive to management and technician expertise and professionalization
It can has strong competitiveness in the nationwide market
Economic of scope
This is also a cost edge to make the cost lower to make a selection of related products than to produce only one of the average person products using one company. An organization can extend its selection of products to use full benefit of the value of its existing capacity. Samsung produces various electronic digital products, such as TELEVISION, LCD -panel, semiconductor (DRAM, NAND Display), mobile phones, digital cameras, LCD monitors, printers and other related electric business, production of these products can use the same or similar of recycleables, for example, produce the TV and the computer may use the same type of LCD display screen, it may also be carried out in the same factory, and the employees all have same knowledge, produce different products to reach international diversification, totally for taking the good thing about economies of range.
Spread the risk
Diversifying internationally through acquisition or alliances can raise the market ability of a firm, to strengthen the competitiveness in the international market. At the same time, it can distributed the chance of investment by avoid having all eggs in one basket. Enough reserve to respond to market decline. Samsung Electronics has attained the related business companies, such as English semiconductor custom Cambridge Silicon Radio Ltd, merger with Seagate Technology (USA), its market causes continue to grow and greatly enhance the visibility and competitiveness. In addition, in order to diversify their investment and risk. Samsung Gadgets set up their head office and plants all over the world.
Learn from advanced technology
If a corporate diversifying internationally, for example, which part of the products to their alliance's company responsible for, it can learn the competence and technology from the alliance. Samsung Gadgets maintains good marriage with their companions, to learn advanced and unique technology in all of the creation process, also, they barely to study every one of the knowledge and skills from the other country, like the electric technology from Taiwan and the clinical knowledge from USA. Learning knowledge from difference country can enhance the grade of personnel, greatly to help the long-term development of the company. In addition, it also can enhance the core competitiveness of the corporation on earth.
Experts of expertise
When access a fresh market in other country, except to learn from advanced technology, Samsung Consumer electronics also gain professionals of expertise, combine different experts through merger and acquisition. For instance, Samsung Electronics usage of the advanced country, such as USA or UK, it can gain the experts in the locality, to understand their professional knowledge and technology. Furthermore, China's people is more than 1. 3 billion, it features to have greater human resources than other countries. As the increasing of population, China will have the greatest number of pros.
Low labors and resources cost
Samsung Electronics can benefit from the cheap labors from other country and everything developing country, for example, China has 1. 3 billion people and generally of the labor force, compared with the pay of staff far away will be lower, so, to create factories in China or merge with Chinese companies, it can enjoy the low-cost labors and production as well as the resources and the raw materials are also relatively cheap. Furthermore, the lands and lease are the most devote of the cash, China has well Infrastructure, now, it investing in the outsourcing industry. Like metropolis Chengdu already are likely to have a high-tech area in areas that are spanning upwards of 1 million square meters. China gets the cheaper lands and low lease for build-up the factories, so Samsung Electronics can save additional money upon this part.
Enhance competitive power
Foreign competition can be urged to enhance the business's productivity. Conducting business in the international market, the firms will continue to increase the quality of their products, to be able to gain a market competitive advantage. The facial skin of powerful competitor: Apple Store, Samsung Electronics continuous creativity and reform the merchandise, for example, Samsung Electronics produce the smartphone, such as Galaxy S2, S3, Records, to equate to the biggest competitor Iphone from Apple Store, to be able to occupy a solid position and strengthen competitiveness on the globe market.
3. 3 Disadvantages of your firm diversifying internationally
Increased management costs and complexity
Samsung Electronics recognized International diversify may add complexity of the venture. Merger or alliances can make management costs rise, thereby increasing the price of production abroad. To entry into the new market, the largest hurdle is the huge capital need, for the founded of headquarters and factories, recruitment, procurement, management etc. Furthermore, it have significantly more management problems related to structural complexity with the new administrative structures, it may increase the information processing when gain access to the new market in the global.
Actually, the terminology barrier is a serious problem, the coordination, communications and desire issues are very important when access to a fresh market. Samsung Electronics can be an oversea company, when they would like to set up factories or headquarters in China or the other country, foreigners don't realize Korean, miscommunication might occur, affecting the business's operations. They have to recruit some terminology expert to solve the trouble, also, they can recruit the translators or local real estate agents to manage, but it'll boost the management cost.
Globalization made enterprises desire to be accessibility in the major countries globally. To response the growing need of competitiveness on the globe, many venture want to outsourced a few of the productions in China, to be able to take pleasure from relatively cheap creation cost, Samsung Electronics outsourced parts of its creation to China like the power and the case of Samsung smartphone, actually, China is still at its early stage of being in the outsourcing industry. the product quality may not be guaranteed, especially in China, although China has labor resources stronger than the other country, but the low academic qualifications and lack of skills of the employees may be damaged the quality of the product. However, it can be improved by training and the technology.
Economic risks, such as exchange rates, authorities regulation, decrease in per capita gross home product (GDP), inflation and capital airfare. In recent years, inflation in China is very serious, inflation demonstrates Samsung facing the business enterprise crisis, and company might need to save the manpower and recycleables, affecting the produce and quality of its products. In today's financial risk, Samsung Electronics came across a serious effect on the global business, it has a great deal of economical problems, such as inflation, growing unemployment, these factors will straight affect the business of Samsung Electronics.
This is a risk, because you won't know whether you will see changes, before joining each country, Samsung Electronics must understand the culture of the united states, such as people's preferences, habits and the buyer behavior, it all arising from ethnic differences. Western companies are insufficient knowledge of Chinese culture. There is also a perception of problem and bureaucracy in China. Samsung Electronics is found in Korea, a long way away from China, geography and time dissimilarities may require personnel to adapt their business procedures.
In reality, a lot of traders, businesses entering a new market are facing the chance of political risk. Political risks including systemic risk, procedural risk, distributive risk and catastrophic risk. Such as fiscal, economic, trade, investment etc. As opposed to the threat of market factors including industrial, income, labor and development, or related to politics instability, such as terrorism, coups, civil conflict, riots, rebellion event. Samsung Electronics is also facing of these problems, China has just started with implementing guidelines on security and intellectual property rights, they are still thought to have poor coverage. This becomes a problem in particular when creation of products are outsourced to their country. Political uncertainty could also bring unpredicted costs, which is often substantial. In addition, in their own country, South Korea and North Korea continues to be creating a problem, in a tense confrontation, it may conflict anytime, affecting the procedure of the venture.
International trade could cause delays in payments, for example, Samsung Electronics sell the products to other country, it could delays in repayments when the goods trade between your trading companies, also It has the foreign currency problem, such as RMB and HKD, the speed is difference from Korean, affecting the money flow of the organization. Furthermore, the exchange rate of foreign currency may not secure, exchange rate fluctuations and the inflation are also the life risk. However, in recent years, RMB rising is the significant dangers experienced by Samsung, deterred lots of the intended development of foreign-funded businesses in China. RMB gratitude, increasing costs of labors, raw materials and lands, all is the currency and exchange risk factors.
In different countries have different legislation and standards, the corporation need to adhere to the new standard when gain access to a fresh market. It may have some factors to improve, in order to aid restructure of the business, it's important to training or retraining of the management, for example, in the development process, the source and packing, therefore producing additional costs. To be able to access to USA market, Samsung Electronics are facing the big problem which is intellectual property of the biggest competition Apple Store. Earlier, Apple sued Samsung and its own Galaxy series smartphone copied the design of the iPhone smartphone, Samsung has the hefty fines to Apple Store, thereafter, Samsung sued again to U. S. International Trade Commission and complaint the Apple Store, discussing Apple guilty of Samsung patent such as 3G, wireless technology, prohibit Apple iPhone, iPad and iPod devices sold in the United States. Plagiarism and infringement of the battle, Samsung and Apple contend with each other; there is a certain amount of difficulty in coming into the U. S. market. This is actually the risk of Samsung Electronics.
Samsung Electronics is a leading consumer electronics brand in the world, is focused on satisfy consumer's need and reach the international standard, Samsung Electronics noticed international diversification, Samsung Electronics only gets the Authorized Partner shop in Hong Kong. To further enhance the customer services and the quality of products, it is recommend to develop the flagship store and even more retail trader all around the world, it could be extension the sales network and strengthen the market power. In addition, in order to prove the quality of products, it is recommend Samsung Electronics to make the adjustment of the warrantee period of products. In addition, in order to solve inflation and the potential threat of China, it is strongly recommended that the vegetable can move to the other place, such as Vietnam, this is a expanding country, the price of raw materials and the cost of labors and lands are also cheaper than China.
Undeniable, international diversification is accurate flexible and effective for Samsung Electronics. International diversification both have advantages and disadvantages, but relatively, advantages outweighs the down sides, Samsung come to in economies of level and economies of range, because of their frequent improvement and invention, successful in the international electronics market accounted for an important position. However, Samsung Electronics are facing a lot of dangers, such market risk and the exchange risk; many of the unknown factors exist. Over time, Samsung must have a comprehensive intend to package with these problems.
(Number 1) Economic of scale
(Physique 2) Samsung Galaxy S3
(Figure 3) Samsung products and slogan
(Physique 4) Samsung flagship store in Singapore
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