Question

Suppose that you are the managing director of MLK Auto Company, which is considering expanding its business to China. You wish to produce your auto parts within Chinese borders so that you can lower your labor costs and therefore lower production costs. You realize that you are not fully aware of the detailed economic environment, cultural barriers, and legal issues associated with operating a business within that country. Discuss the best entry method to use for this situation in order to establish production within the Chinese market.

Answer 1

The various methods through which the auto company can enter the chinese market are exporting,licensing,joint venture,mergers and through FDI.

As the company doesn't know about the detailed economic environment and the local culture so there would be legal issues if the company enters through mergers and acquisitions so the best option for the company is to enter the market through exporting and joint venture.

The export strategy will be cheaper compared to setting up manufacturing plant in China and would also be less costly and would be able to meet the demand.The joint venture strategy would require the company to tie up with a local firm which has the knowledge about the local market.This will save time and money of the auto company to be able to use the knowledge of the local firm to make strategies which are best suited to the local market. This will enable the company to manufacture the goods using the low labor cost and bypass language and legal barriers.