Iron Pump A/S Into China Essay

3988 words - 16 pages

1. Introduction

In 1906, Mr. C.G. Arnesen established Iron Pump A/S. Six years later in 1912, Iron Pump presented their first pump, which was installed in the world’s first ocean going diesel motor vessel, M/S Selandia (Iron Pump, Company). With more than 100 years of experience, Iron Pump is today a leading manufacturer of pumps in the marine and offshore industry. Today, the pumps are supplied worldwide where almost 90 percent of the output is through Iron Pumps network of agents in more than 70 countries (Iron Pump, Company). Iron Pump’s core competence is its main focus on production and R&D in the value creation activities (Hill, 2012, p. 425). This knowledge of applications has ...view middle of the document...

15). Thirdly, from an internal point of view, 50 percent of Iron Pumps orders come from China and this trend is expected to increase further in the coming years (Interview, Iron Pump). From a financial point of view, Iron Pump does have the financial resources to support expansion into China. In the period from 2008-2012, the group Iron Pump Holding A/S has generated profit. Important key figures have improved over this period of time, showing a liquidity ratio of 286 as well as solvency ratio of 66,6 percent in 2012 (Iron Pump Annual report, 2011-12). Currently, Iron Pumps presence in China is limited in scope with their RO office (Iron Pump, Agents and distributers). Based on the above-mentioned factors, this report will examine and analyze how Iron Pump can utilize its resources and thereby expand into China.

2. Methodology
In order to give a good and clear insight into the analysis of the report, qualitative and quantitative data will be used to support considerations and statements. The report will initially focus on an evaluation of Iron Pumps competencies followed by analysis of specific conditions and factors in China. Finally, possible entry strategy and risk assessment will be evaluated and a conclusion will be derived thereof.

3. Theories
In order to assess the optimal entry strategy for Iron Pump, the structure of this report will follow John Dunnings eclectic paradigm (Dunning, 2000). By using the OLI-framework analysis will be made dividing the report into three parts. A SWOT-analysis has been conducted to shed light on Iron pumps ownership advantages, where the main strengths identified will be used. In the second part, a thorough PESTEL analysis will focus on and describe location advantages. Finally, the third part will encompass considerations and discussions regarding internalization, including opportunities and threats identified in my SWOT/PESTEL-analysis. The reason for using the OLI-framework is to better illustrate the nature and direction of FDI that Iron Pump can undertake in order to exploit assets that are location specific and resource endowments (Hill, 20012, p. 277).
To further support my analysis, specific theories and concepts will be used. The report will incorporate Hofstede’s cultural dimensions in the PESTEL-analysis (Hill, 2012, p. 122).

4. Ownership advantages:
4.1 Financial stability: As mentioned earlier, Iron Pump has a solid economy and can therefore financially facilitate expansion into China.

4.2 Niche strategy: Iron Pump’s strategy is to focus on high-quality pumps in niche markets (Interview, Iron Pump). Therefore, the firm specific advantage lies within Iron Pump’s core competence where they can exploit more than 100 years of experience/know-how and thereby differentiate themselves from other competitors in niche markets globally. This is identified as a competitive advantage of Iron Pump.
4.3 Organizational architecture: Another crucial specific firm advantage is Iron Pumps...

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