A Marketing Assignment Dyson Case Study

Issues to be considered

The main issues that Dyson would have to examine prior to deciding to export Malaysian
manufactured vacuum cleaners to the USA are: the import market share of Malaysian made
vacuum cleaners in USA, this would give them the idea on how well imported vacuum cleaners,
especially those made in Malaysia, are accepted in the US; the effect of currency difference in
exporting the products, this can give the company reference as to exporting the same product from
different locations; historical performance according to sales of Malaysian made vacuum cleaners
in the US, this data will give the company a bigger picture on how well the product will sell in the
future; the political stability of Malaysia, this can tell if the company will be expecting a closure in
the coming years of operation; and, the government relationship between Malaysia and US, this
data will be important in determining if either of the two countries is likely to ban trade from the
other.

Corporate Objectives
From articles and interviews, James Dyson has implied some of his objectives for the
Dyson Company. The objectives are:

 To be a household name like one of it’s competitor Hoover

 To make Dyson product line known and be sold worldwide
 To be the number one brand for floor care in the U.K.
 To be able to make innovations that would satisfy its market

In the beginning of James Dyson’s career, he offered his patented bagless vacuum cleaner
to these companies, but they all turned him down. Instead, he got support from a Japanese
Company and that started his company. Today, these companies are feeling the pinch because of
the success of Dyson Company. The success was so great that Dyson today is the undisputed
brand leader in the U.K. floor care market, outselling its nearest competition by a ratio of 9:1.
(Josephs, 2000)

Dyson has already surpassed the sales of other brands. In the total market share, Dyson
dominates 50% of it.

Competitors’ Analysis
 Most of the factors that need to be considered before an action leading to exportation need
statistics data. The importation data of US is needed to determine the feasibility of exporting
products to US. According to International Trade Administration (2003) in the US, Malaysian export
to the United States of vacuum cleaners reached 189,926 units (up to October 2003 only) valuing
to USD 14,144,000 (accumulated). This data includes three types of vacuum cleaners: portable,
hand-held; canister type; and vacuum cleaners with weights exceeding 5 kilograms.

In U.K., Dyson’s major competitors are the Hoover, Panasonic and Electrolux. Hoover,
which Dyson look up to, previously infringed the bagless vacuum cleaner and ended up paying
Dyson £4 million (BBC News, 2000). Today, Hoover a household name having served for more
than 30 years. Panasonic, which originated in Japan as Matsushita Electronics, is one of the
world’s leading names in almost all kinds of electronic product. Worldwide, the mother company
Matsushita, accounts for more that $50 billion in revenue. The company’s guiding principle is
“putting the needs of customers and employees first (Panasonic, 2000).” The Electrolux’s mission
is to make daily life easy, safe and comfortable as possible (Electrolux, 2000).

Effects of Currency on Marketing

Malaysian currency will not have adverse effect on the exportation of vacuum cleaners to
the US, this is because the value of Ringgit, which is the Malaysian currency, against the US dollar
has been pegged at 3.8 ringgit against the dollar since 1998. Unless there will be changes in fees
that is applied on exportation of products, there would not be a problem. But since talks about
changing the value of Malaysian ringgit is about, exporting companies should be ready for any
change. Malaysian politics has been quiet for the past months, which is a good sign that business
can flourish there. But labour issues have emerged. The Malaysian sector has been asking for the
government to set a minimum wage. Although, they have a Labour Law, which are not properly
implemented, Malaysian workers suffers from being underpaid.

Promise of U.S. Market

The life of products is not necessarily a requirement; this is due to the fact that new
innovations always appear on market, but this does not stop people from buying new vacuum
cleaners in the US. As to acceptability, the figure given above comprises to about 1.46% (up to
October imports only) of the imported vacuum cleaner market in US. From 1997-2002 (US Report,
2003), the market for vacuum cleaners in the US grew 29%. This sales growth is mainly because
of decrease in product price, while the number of units sold is due to innovation and promotion.
Although the number of vacuum cleaners sold increased, the retail sales is flat. This is because in
order to attract consumers to buy more expensive units, the supplier must develop cleaning
products that (US Report, 2003):

 address contemporary consumer needs such as convenience of cleaning products and

methods,
 demonstrate an understanding of what consumers wish to achieve with their cleaning
 and utilise totally new cleaning methods and technologies rather than relying on historical
methods and technologies.

Effect of Politics

The Malaysian government has good relations to the United States. This is according to
former Prime Minister Mahathir Mohammad (People’s Daily, 2001). With this statement it can be
said that there is a peaceful relationship between Malaysia and the United States. If ever the
relationship will not hold, the market would still not be affected since, the business is happening
between Malaysian companies and US companies and not between Malaysia and US itself.

Looking in on China to Joint-Venture

According to Guo-Liang Xuan and Gunnar Graf (1996), there are factors that need
attention in particular for Chinese-foreign enterprises. These factors include completing a feasibility
study, because through this study the partners can determine terms that are reasonable and that
will lead to a viable project (Xuan and Graf, 1996). Selection of the right partner is another factor
that has to be considered, as stated by Xuan and Graf (1996): China is characterised by its
bureaucracy and hierarchies. Therefore, it is important that the Chinese partner has good network
in government and other institutions, good knowledge of international management habits, good
understanding of culture, and mentality of the counterpart, and should have an optimistic attitude
towards getting into the market and acquire a big market share. Also, it is important that the
Chinese partner have good language skill (Xuan and Graf, 1996).

Considerations to China’s Market

Market access, supply of raw materials, low cost sourcing, and environment, are the four
motives of European companies in investing in China. But their main objective is to obtain the
China’s market and other Asian market as well. Therefore, co-ordination of investment objectives
of the Chinese and the foreign partner is important (Xuan and Graf, 1996).

China’s Joint-Venture Reasons

 While meeting the factor that has been mentioned, foreign investors must also understand
why the government of China is promoting joint ventures. From Xuan and Graf (1996), the principal
motives for co-operation of Chinese companies are:

 transfer of production factors that are raw in China,

 transfer of technology, patents, management, and marketing know-how,
 improvement of the products and introduction of new products, and
 growth of exports and diversification.

Money Matters

Still another factor to be considered before entering an international joint venture is the
foreign exchange balance. Since joint ventures need large amounts of foreign currencies to import
equipment, materials, technology, know-how, and to pay the salary of the expatriate
management. Foreign companies may repatriate their profits from China subject to certain
restrictions:

 all prior years’ losses must first be cleared,

 all relevant taxes must be paid, and
 the required contributions must be made to the three “funds,” namely the staff bonus and
welfare fund, the enterprise expansion fund, and the general reserve fund.

Joint ventures usually have their own responsibility to balance exchange income and
expenditure (Xuan and Graf, 1996).

China’s Policies on Joint-Venture

China's objective of increasing it’s exports using the connections acquired through its
foreign partners stands in conflict with the investors’ objective to acquire a big share of the Chinese
market. This law on exportation is applied strongly especially during the first years of operation.
This problem can be solved as follows (Xuan and Graf, 1996):

 Distribution on the Chinese market. Joint venture products sometimes can be sold as
import substitutes in the Chinese market. Those products must have a high quality
standard and must be “conducive to the development of China’s national economy.”
 Balance of foreign currencies between two joint ventures. Where a foreign investor is
participating in different joint ventures, it is possible to balance the losses of one company
with the foreign currencies of another joint venture.
  Export of other products. Sino-foreign joint ventures can use the distribution system of the
foreign partner for the export of other products produced in China. Another possibility is the
purchase of Chinese products in Chinese currency and the distribution in foreign
currencies.
 Increase the local content. The needed amount of foreign currencies when buying the
material overseas may be very inconvenient. Therefore, it is important to find a suitable
Chinese supplier to increase the local content of the product. Some companies even ask
suppliers from overseas to invest and to produce directly in China.
 Use of swap-centres. It is possible to exchange currencies in one of the “swap centres in
Shanghai or in Shenzhen. However, the prices are very high.
 Decrease number of expatriates. The number of foreign management personnel should be
limited to the lowest possible level where the joint venture still can operate. At Shanghai
Volkswagen, for example, the cost of about 45 expatriates is almost the same as the cost
for the 2,000 Chinese employees.

In China, the usual agreement that takes place has a span of 15 to 30 years. Currently, the
Chinese government amended their law on Joint Ventures and allow contracts to expire after 50
years. With this, the foreign company that wish to invest in China should be reading really well
what they are signing up on. Breaking a bond like this in China is not taken lightly. Since most
companies in China are state-owned, the government is likely to sue foreign companies that break
the partnership. This action would likely deteriorate the financial status of the foreign company.

Management Issues in Joint-Venture

The two last factors that need to be considered before entering a joint venture are
management and organisation. The parent companies should always remember that the company
formed by joint venture is an independent one. The joint venture company must deal all the
decision-making process and management difficulties that the joint venture company will face only.
The objectives, rues, strategies, and concerns of the different parent companies have been fixed in
the joint venture contract; therefore the joint venture managers should have complete rights and
responsibilities in the independent management of the company (Xuan and Graf, 1996). An
example of management issues is given by Xuan and Graf (1996), it is about a joint venture
manager in Beijing who had to fire a Chinese vice-manager employed by the German parent
company. Later, he even had to dismiss a German director from his job. The manager was acting
under his own authority, without following the concern of one of the parent companies. This is one
reason for the respect the manager received in running the joint venture (Xuan and Graf, 1996).
 A joint venture company can have either a “board” structure, where the board of the directors
manages and control the company, or adapt a dual organisation. A dual organisation is what most
German companies adapt. An example of a dual organisation in a joint venture is Shanghai
Volkswagen (Xuan and Graf, 1996).

Advantages and Disadvantages

Like every business dealings, joint ventures have its advantages and disadvantages. From
Xuan and Graf (1996), the advantages that an international joint venture are:

 Equity joint ventures have fewer restrictions on project approval than wholly foreign owned
companies.
 Chinese partner can assist in areas such as obtaining government approvals, labour,
recruitment, sourcing of raw materials, and obtaining marketing and distribution channels.
 Investment capital may be recovered and repatriated during the venture period.
 The partners have the flexibility of operating as either a limited liability company or a
partnership.
 Profit distribution ration may be varied over different stages of operation.
 Access to Chinese know-how of market knowledge and understanding of the Chinese
language, culture and mentality.
 Achieve “Guanxi”, the term stands for friendly network Business people need to know
representatives of institutions and governmental bodies to get the most efficient
information.

Although the disadvantages are fewer than the advantages, companies still need to review
them in order to not get surprised in the end. Also from Xuan and Graf (1996), the disadvantages
of international joint ventures are:

 There is not enough autonomy in joint ventures.

 Control and management of operations in joint ventures are also adjoined.
 Sharing of technology and know-how about production.
 Strong effect of law during the first years about exporting products, which is a conflict with
investor’s objective to acquire a big share of the Chinese market.

Culture Clash

As Dyson is trying to determine whether to invest in China or not, the company should also
take into consideration the context variables that predicts the performance of an International Joint
Venture. These include: difference in culture between Europeans and Chinese, since excessive
diversity leads to misunderstanding and degraded performance (Parkhe, 1991; Germain and Lin,
1998); dominance of one partner, because partnerships with equitable management structures
tend to be less stable over time (Killing, 1983; Germain and Lin, 1998); and the age of an
International Joint Venture, since relationship duration may correlate with experience, which allows
partnerships to learn each other’s idiosyncrasies (Anderson and Weitz, 1989; Germain and Lin,
1998).

A compromise between the two cultures should be taken into consideration. The foreign
investor should know if the host is willing to bend its traditions in order to accommodate the other.
By doing so, the foreigners would feel welcome and by that be much more encouraged to join in
the venture. Also, this will teach the foreigner the traditions and practices in the host country, so
there will come a time that the bending on the host will be minimised because the foreign company
has already adjusted to the culture of his host.

Expansion to Joint-Venture

A company’s decision for expansion or relocation can be brought about by reasons that
the company wishes not to disclose. But for whatever reason it is, the decision always has to
undergo a meticulous study, because it can affect not only the host country but also the company’s
market share. Joint ventures needs to be considered with care and both parent company needs to
study the agreement that they will sign. The parent companies, especially the foreign company has
to review the agreement and confer with all it’s stakeholders. Both companies should review any
disagreement until a compromise that is not biased is attained.

This company should learn on what others before them has failed to do: co-ordinate with
partner company and communicate with them regularly. Their failure proved to be fatal for them but
not for the other company, especially if the company is Chinese. As what was said before, Chinese
companies need joint ventures to widen their reach of international market and improve their know-
how on the production of different products. Also, they need to know other products to widen their
production capabilities, although they are not as skilful in which the quality of the product may
suffer. They offer a very low pay, not because they want to, but because of their need to attract
foreign investors. With this move they can acquire what the foreigners know about technology and
improve theirs.

Example

An example of this is RCA. RCA invested in Japan for production of coloured television. But
that proved to be a very wrong move. Once the Japanese knew how the technology work and how
they can work their way around it, they became a member of the competition. And now Japan is
one of the world’s largest producer of television, and they can also compete for television
innovation.

This among many others is a reason for a company planning to enter international joint
venture to review all their options and not let their partner to do all the technical work that needs to
be done before the venture. And look into the disadvantages of this kind of business deal, do not
only look into the advantages and the gains. Any wise company would balance everything before
make a business move. Also, look deeply into the effect of cultural differences. Cultural difference
can have a great impact on the quality of business that companies are entering.

Developing Business in China Through Joint-Venture

As what was said before, considerations have to be taken before deciding to invest or not.
If Dyson would still like to invest in China through a joint venture, then the following statements are
suggested for the venture:

 Financial Position of Prospective Partner

It is important that Dyson look into the financial status of its prospective partner so as to not be in a
disadvantageous position afterwards.

 Mix of Different Culture

It cannot be helped that having mixed employees will occur, even though the main reason for
investing in China is the cheap labour. This is because, as cheap labour is very much available in
China, the proper skills to run a big company may not be available, so Dyson and partner would
still have to hire foreigners. But remind the foreigners properly and orient them with the city first
before leaving them with the partner.

 Shared Equity

It should be made clear from the beginning how much of the profit would be going to the partner
and to Dyson. The equity can be divided variably with time, so that the partnership may have equal
equity in the beginning but Dyson’s equity will rise as time lapses.

 Developing the Business Plan

Before signing anything Dyson should review everything first. The plant site, the equity, the
financial status of both companies and others. Plus Dyson should have a forecast what is to be
expected of the venture. Another is to prepare the entire marketing plan that will be used once the
venture is in full force.

 Contractual Obligations

Again, it was already discussed that Chinese businessmen do not easily let go of a partner that
can lead them to their goal. If Dyson is still not sure of how things will go, he can make a shorter
contract, one that will be through as soon as he will be able to break-even, then make the
necessary adjustments that he and his partners are willing to make and sign another contract. This
way he can always play it safe and so will his partners.

 Evaluation of Performance

At every time period, the venture together with Dyson and his partner, should make a review of
how well the venture is going and if they are meeting with what they had placed in the business
plan. Also, they should periodically evaluate the performance of their employees to see if they are
productive or not.

 Exit Strategy

The strategy should be a fair one. Example, Dyson would still like to continue the business in
China, but his partners do not want to continue. Then, the contract from the beginning should be
one that indicates that should one party of the partnership decide to discontinue, the defecting
partner should sell whatever hold he have on the company to the other party involved or to a third
party. Or something like that.

 Plant Exportation

As for relocating the companies production site from England to Malaysia, since data gathered
showed that even from Malaysia, the market for vacuum cleaners in the United States accept the
product, the relocation can be deemed viable. Plus, relocation is a move that is being done by
most companies that has their base in a country that can only offer low profit. Inevitably,
companies have been moving away from “expensive” countries and transfer their location on a
low-cost country such as Malaysia, as the manufacturer Dyson is planning to do.

Conclusion
 As an ender, it does not matter whether a company is planning to transfer its production
site in China or Malaysia, or if they want to enter an International Joint Venture that is offering them
a biased agreement. All that matters is that they study and review all the factors that is involved
and would affect them. Malaysia may give them a better opportunity to earn bigger profits, but
companies should also weigh the downfall of having a company in Malaysia. Also, International
Joint Venture in China may provide them an easier way to access the Asian market and have
employees that have low pay. But a downfall to that is, the company's Chinese employees may
ask for a wage that is as big as the wage in the foreign parent companies country. A foreign
company mining in China faced this specific problem, as the employees asked for a higher wage,
the mining company tried to compromise with the employees.

Problem may arise even before the signing of agreement and it can run further up to the
time when operations are expanding. The problems when not solved may even lead up to a break-
up of partnership. Although problems really do come in a company, and its roots cannot be
eliminated, a company should always ready itself for things as such. And companies should do a
review of why the problem had risen in the first place. The review will be a guide for the company’s
future leaders, so that they may be guided. The circumstances may be different, and the
technology and training for the leaders may be different, but a know-how on dealing with problems
is a training not learned from any institute. The skill needed to solve a problem comes from
experience and basic knowledge on how to do compromises to achieve, even if not common, a
goal.