Cadillac is a luxury car brand that started in 1902 when Henry M. Leland was brought to appraise a factory of Ford Motors for sale. However, Leland saw potential in the company and reorganised it as Cadillac Automobile Company. The company mainly deals with the production and sales of luxury cars in the US market. However, due to increased competition, the company is considering venturing into the global market by expanding into either Singapore or Brazil. This report presents an analysis of Cadillac’s foreign expansion in terms of whether it should expand into Singapore or Brazil. In order to do so, the report includes an analysis of the target market, strategic considerations for international expansion, and entry mode for the desired expansion. The findings of the report suggest that Brazil is a much better option for Cadillac in terms of global expansion. The Brazilian market is sound from a long term perspective cause even though it lacks the strong infrastructure of Singapore, recent trends in its investment, presence of strong supporting industries and rising demand of luxury cars suggest that it would be the most suitable choice for the expansion of Cadillac.
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In today's globalised economy, companies of every industry and size are establishing operations in the foreign market in order to capitalise on the advantages provided by global expansion. Hamilton & Webster (2018) mentioned that nowadays, the question is not whether to expand into other economies or not, but how to do it. This report presents an analysis of Cadillac’s foreign expansion in terms of whether it should expand into Singapore or Brazil. Cadillac is a luxury car brand that started in 1902 when Henry M. Leland was brought to appraise a factory of Ford Motors for sale. However, Leland saw potential in the company and reorganised it as Cadillac Automobile Company. At face value, cars made by Cadillac were similar to Ford, but the company quickly distinguished itself for being more reliable and better made (History, 2020). In 1909, General Motors purchased the company and named it as its most prestigious division. The company was a dominant force in the luxury car market until the Japanese cars arrived with better fuel efficiency and better reliability.
The company's competitiveness further deteriorated with the advent of other luxury brands like Mercedes, BMW, and Lexus. In order to sustain its competitiveness, the company is expanding into other countries and this report deals with such progression by forming an internationalisation strategy for the company in a new market. In order to do so, the report includes an analysis of the target market, strategic considerations for international expansion, and entry mode for the desired expansion. In addition to this, the report assumes that the decisions regarding international business are influenced by the difference among countries and the company's actual understanding of the foreign context. However, the analysis of this report is limited to Singapore and Brazil.
In order to ascertain which country is best for Cadillac in terms of international expansion, one needs to analyse the target market. This facilitates the identification of the respective level of international competitiveness of Singapore and Brazil for the expansion. The literature on international business suggests numerous theories to analyse international competitiveness. One of the most prevalent theories is the Porter diamond model which maps the external competitive environment to understand the relative strength of the business (Konsolas, 2017).
Porter’s diamond model analysis of Singapore and Brazil in respect of automobile industry:
Firm strategy, structure, and rivalry
The national context in which the organization operates is an important factor that largely determines the creation, organization, and management of organizations. In this respect, Cadillac is a USA based company and experiences significant competition in its target market segment of luxury cars from BMW, Mercedes-Benz, Lexus, Audi and Tesla (Klier& Rubenstein, 2020). This intense rivalry in the domestic market is the drive behind innovation, improvement, and global expansion. Also, even though the industry has a high barrier to entry the company still faces significant competition from established players and importers (Rubenstein, 2020).
Factor conditions include a country's natural, human, and capital resources. Singapore has high quality and specialized inputs available for firms in terms of human resources, capital resources, physical infrastructure, administrative infrastructure, and information infrastructure. The county has taken an investment-driven strategy for economic development, which is also responsible for its 1st rank in the Global Competitiveness Index 2019, as compared to the 51st rank of Brazil (Weforum, 2019). Moreover, Singapore is largely driven by its “created factor conditions”, not by its natural resources. On the other hand, Brazil’s international competitiveness gravitates towards its natural resources such as river systems, forests, and plantation areas. Brazil is investing in its infrastructure but it is nowhere near in comparison with Singapore. In addition to this, both of the countries have sound literacy rates of around 95%, but Singapore has a better infrastructure to support its industries (Glap, Mulya&Nursyahida, 2017). Also, Konsolas (2017) mentioned that countries with sound created resources are better than those with natural resources, thus, Singapore is far superior in terms of factor conditions it provides to industries.
Demand conditions refer to the extent of demand from local customers of the respective country, as the presence of a sophisticated demand conditions give companies an earlier or clearer picture of buyer needs and provide a more sustainable advantage. In terms of demand conditions, Singapore can ownership is roughly 11% with nearly 1 million vehicles on roads. Despite the policies of the Singapore government to reduce the demand for cars, the number of privately owned cars saw unusual growth between 2018-19 which suggests a strong demand base (He, Ponce-Lopez, Shaw, Le, Ferreira &Zegras, 2019). However, broad market trends show that there has been a drop in the percentage of households owning a car. Moreover, the demand for luxury cars in Singapore has been steadily rising for the last decade. Demand conditions in Brazil are also improving with an increase in personal income. Nevertheless, the demand for cars in Brazil is limited to small cars. As a result manufacturers with low-cost, small cars are experiencing a sharp increase in demand. However, it should also be noted that Brazil has tremendous potential for growth, as the Brazilian luxury car market is expected to grow at a rate of 45% annually (Marx, de Mello & de Lara, 2020). This is also why major luxury car companies like BMW and Mercedes are establish manufacturing plants in Brazil.
Related and supporting industries
The presence of supporting and related industries gives the foundation on which focal industry excels and as Fainshmidt, Smith & Judge (2016) mentioned companies are often dependent on partnerships and alliances with one to create additional value. Suppliers are especially crucial for enhancing innovation through higher quality and more efficient inputs, short lines of communications, and timely feedback. In the automobile industry, supporting and related industries include iron and steel industries which provide the raw material for manufacturers, high level of training and education of the workforce, component suppliers, banks for capital, and IT infrastructure. Singapore can provide capital and skilled labour, but it lacks in terms of natural resources. Moreover, Singapore does not have a single car manufacturing plant and the country's emphasis on electric vehicles suggests that it is not planning to establish one sooner (Bailey, Rosenfield& Zhao, 2018). Thus, Cadillac would have to rely on imports for sales. Contrary to this, Brazil has clusters of local suppliers and tax exemptions from governments. The industrial complex in Camacari has the support industries of automotive spare parts, services firms for industrial maintenance, technology, tires, and polycarbonates. Moreover, the Institute of Aeronautic Technology (ITA) provides high-level education and research in Brazil which can provide specialised engineers for automobile companies (Amann, Baer, Trebat& Lora, 2016).
The above-mentioned analysis of both Singapore and Brazil suggests that it would be most beneficial for Cadillac to venture into the Brazilian economy. The Brazilian market is sound from a long term perspective cause even though it lacks the strong infrastructure of Singapore, recent trends in its investment, presence of strong supporting industries, and rising demand for luxury cars suggest that it would be the most suitable choice for the expansion of Cadillac.
International strategy refers to the strategic business plan created by an organization to expand in the international market. For Cadillac to successfully venture into Brazil, a sound international strategy is required which best fits the company's needs and capabilities. There are mainly four types of international business strategy, namely, international, multi-domestic, global, and transnational (Hitt, Li &Xu, 2016). The international strategy involves exporting services and products to the foreign market or to import resources from other counties for domestic consumption. On the other hand, the multi-domestic strategy requires investment in a foreign market to establish the presence and to tailor the offerings according to the local taste and preferences. The global international strategy entails leveraging the economics of scale to boost reach and revenue, and the transnational strategy uses an intricate method of business strategy which uses a combination of multi-domestic and global strategies (Hitt, Li &Xu, 2016).
In the case of Cadillac's expansion in Brazil, a transnational international strategy would be the most suitable one. This is so mainly due to the fact that transnational strategy aims to combine both global strategy and multi-domestic strategy to facilitate both local responsiveness and efficiency (Johnson, Whittington, Scholes, Angwin&Regner, 2017). This strategy is highly desirable in the case of the automobile industry, considering the similarities being promoted by the flatteners and differences across markets. However, Cadillac would have to deal with the increased difficulty of managing coordination and flexibility and it must balance opposing global and local goals. But, on the positive side, as Pruthi, Basu& Wright (2018) mentioned, organizations with effectively implemented international strategy more often than not, outperform their competitors who use either global corporate or multi-domestic level strategies.
Also, the implementation of similar strategies by BMW and Ford Motor Company also illustrates the effectiveness of the transnational strategy in the automobile industry. While, Ford on one hand is focusing on building the “world car” which can be sold globally and will help to reduce development cost (Hoffman, 2019). In order to design a car which caters for the need of costumers in many different countries, Ford used the strategy of BMW which uses the 'fashion-forward' concept to develop its 3 series cars for multiple markets. This approach of not necessarily reflecting on what customers think now, and showing them what the next big thing is, can also be implemented by Cadillac to build trust through familiarity and to lead the industry (Hoffman, 2019).
In order to effectively capture the market in Brazil, Cadillac needs to deliver products specially catered for the local taste, but at the same time, the company needs to manage its cost, as the price is one of the decisive factors behind the choice of the customer. Transnational strategy facilitates high responsiveness and high integration which can allow the company to maximize global integration while also maximizing the local responsiveness. In addition to this, the company must try to create economics of scale on value chain’s upstream activities and to become more locally adaptive and flexible in downstream activities like sales and marketing (Liu, 2019).
The driving factors behind the selection of a transnational business strategy for the expansion of Cadillac involves driving down manufacturing cost and to deliver a product which can satisfy local needs and give a competitive advantage to the company (Kang & Hwang, 2018). While both multi-domestic strategy and global strategy account for one of the strategic needs, the transnational strategy combines both of them and allows the company to deliver a relatively personalised product at a low cost which is more or less perfect for a county like Brazil in which there is high competition. Both of these strategic goals, low cost, and personalised products, provide a competitive advantage to the company which improves its market position and allows to withstand the high competition in the country while steadily increasing its market share (Hoffman, 2019).
Grunig & Morschett (2017) mentioned that apart from importing, international expansion is realized with the help of exporting, strategic alliances, and partnering wholly-owned subsidiaries, licensing agreements, and acquisitions. Each of these modes of entering a new market and their different characteristics are mentioned below.
Franchising and licensing
Licensee can become competitive, less control requires a sound regulatory and legal environment
Low cost, fast entry, and low risk
Integration issues and high cost
Established, known operations and fast entry
Low control, potential adverse impact on the environment because of transportation, low local knowledge (Grunig&Morschett, 2017)
Low risk and fast entry
Strategic alliance and partnering
More expensive than exporting, franchising or licensing; integration issues among corporations with different cultures
Reduced risk, shared cost reduces the need for investment
Greenfield venture (Introduction of a new, wholly-owned subsidiary)
High risk because of unknowns, high cost, and a slow entry
Facilitates better knowledge of the local market, maximum control and can be viewed as an insider who provides employment to locals (Grunig & Morschett, 2017)
For Cadillac, establishing a wholly-owned subsidiary (WOS) through FDI is the most appropriate option to enter in the Brazilian automobile industry. The key reason behind this suggestion is that a fully owned subsidiary will not only allow the company to have full strategic and operations control over a subsidiary company, which is a significant advantage for a holding company, it will also facilitate better cooperation between the subsidiary and holding companies (Meschi, Phan&Wassmer, 2016). This is so mainly because of the fact that under wholly-owned subsidiary entry mode both companies can share their administrative and other expenses and can use a common financial system. This provides considerable competitive benefit to Cadillac by making it cost-effective. In addition to this, FDI and a wholly-owned subsidiary will allow the company to keep its brand name, and branch out into new markets (Murphy, 2018). This is especially important in the case of luxury goods manufacturers as apart from price, brand name also plays a key role in influencing customers’ choice. Also, since Cadillac is not experienced in terms of venturing into other markets, it needs a strategic approach that can mitigate the impact of risks associated with global expansion.
In this respect, WOS provides limited liability to both, holding and the subsidiary company and the Cadillac will not have to bear the losses of its subsidiary arm in Brazil in case of losses to WOS. Moreover, Singh (2018) stated that competitive advantage in automobile manufacturing is largely based on technical and managerial know-how which helps to improve product quality and reduce cost as well. Therefore, it is important for companies to protect and safeguard their technical knowledge and trade secrets. A WOS approach not only facilitates these functions but also allows the company to have a great degree of control over its operations (Puck, Hodl, Filatotchev& Lindner, 2017). However, considering that Brazil has 124th rank out of 190 countries in terms of ease of doing business, it is evident that Cadillac will have to deal with stringent tax and regulations, and uncertain economic policies.
In conclusion, the report suggests that Brazil is a much better option for Cadillac in terms of global expansion. The Brazilian market is sound from a long term perspective cause even though it lacks the strong infrastructure of Singapore, recent trends in its investment, presence of strong supporting industries, and rising demand for luxury cars suggest that it would be the most suitable choice for the expansion of Cadillac. Moreover, the report recommends that in order to do so, Cadillac should opt for a wholly-owned subsidiary approach through FDI. This will provide both better control and limited liability to the company.
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