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CIFA, and Zoomlion: Creating Value and Strategic Choices in a Dynamic Market

Question 1.

Suggest the most important external issues and trends driving the partnership of Zoomlion with CIFA, the Italian concrete equipment manufacturer.

Political Factor

Both countries are the member of WTO and they will have to pay less tax to governments, which derived easiness for the acquisition. In order to develop its infrastructure. Chinese government control over prices of commodities in eased and prices for most of the goods and services are resolute by demand and supply deprived of government interference (Mohammad.

M 20114). The Chinese and Italian government are both stable and Chinese government encourages for business, where both countries have signed a memorandum of understanding for extension of one belt one road (John. F & Rosalind, 2018), which will benefit the acquisition.

Legal Factor

The Italian government welcomes Chinese for trade investments. Therefore, it encouraged both companies for acquisition. Furthermore, Italy is the member of European member, by having the acquisition with a company who belong to European Union country; it allows the free flow of product on European market without tariff (Lorraine, C.

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2010). However, there are some political implications which acquisition will have to follow such as labour rights, consumer rights and legal system of Europe.

Technological Factor

Since CIFA has been in this business for more than ninety years and they have become innovative reference at international level in the concrete technology field and letting it achieve several real records (Davide, C.), therefore technology factor derived the Acquisition, because the technology could help the companies to have an edge over the domestic companies.

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Moreover, CIFA was willing for acquisition because China has low production cost and technology cost, which lowers the cost of research.

Zoomlion

By the acquisition, both companies are expected to have internal benefits which are listed below.

It enables Zoomlion to gain an edge over its competitors in the domestic market. Furthermore, provides an opportunity for expansion in emerging markets, as they have the market potential and emerging markets are getting richer quickly ( Ashoka.m.2004). Furthermore, Zoomlion expects the acquisition to help it expand sales overseas (Richard.H.2008).

Zoomlion gained an opportunity to explore on the global market with reasonably low cost by borrowing the resources of CIFA, which contains sales networking globally, marketing and brand goodwill of CIFA.

Furthermore, Zoomlion can be more productive, because they have the access to CIFA technology and skilled workforce, besides Zoomlion is enabled to expedite their organization process and it enabled to increase brand awareness globally.

The acquisition entitles Zoomlion of expansion in its production scale and lowers the production cost and gross more market shares and technical level.

CIFA

CIFA has been in this business for more than ninety years, it wanted to explore more in emerging market and they needed a partner, who is financially strong and can support their further develop so by the acquisition Zoomlion turned out to be a perfect candidate with a strong base in the Chinese market.

Furthermore, according to the managing executive of CIFA, Zoomlion created a door for CIFA to enter the Chinese market. The acquisition enabled CIFA to get custom-made components and import them to Italy. Moreover, the acquisition turned out to attract more investments.

In addition to the market motives, CIFA is able to strengthen its export by targeting the Chinese market. Besides, with the competence and financial abilities of Zoomlion and advance Italian production skills both companies are up for integration. (Marco, S. (2014). Furthermore, through the acquisition, CIFA enjoys the lows cost production.

How governments are involved?

Business is a process which is regulated under the country legal system so both Chinese and Italian governments are involved in the acquisition to some extent. The governments are involved in order to encourage the betterment of the business and maintain smooth operation in terms of right and justice. The facilitative role made this acquisition possible, because Zoomlion and Sany are domestic rivals, therefore during the bid Sany wanted to offer higher tender for negotiation with CIFA, where Development and Reform Commission of Hunan Province came in to play a role ordering Sany to give up the chance or else the acquisition price will higher than it real market worth of CIFA (Zhang B. 2013).

Regarding the partnership, this partnership is wholly owned by acquisition, where Zoomlion attained CIFA. However, in such partnership there are some drawback as well, few are listed below;

Encounter of cultures

Companies coming from two different nation together, conflicts can arise, because if a company is acquired and way of doing things could be different. Therefore, companies have to communicate efficiently and effectively. The problem can arise because of the difference in culture, customs, language, and skills.

Distribution of Profit

The problem of profit sharing can arise due to companies are working together and profit share is negotiated and in case of one company is not being productive, because of its consistency in effort and attaining the profit share as the negotiated problem can occur.

Lack in power of autonomy

Regarding the partnership, if decesion is to be made and both companies will have to consult with each other, therefore in partnership a single company can not take the decision due to the divided power of autonomy.

Negative reputation impact

If the partnership between two companies does not go on the right track and they have to end up the partnership due to some reason it can harm the brand goodwill of both companies.

Limited access to the information

Compare and contrast this choice with Zoomlion’s earlier partnership with India’s ElectroMech. Justify your view.

Regarding the comparison of two partnerships, Zoomlion acquisition with CIFA is wholly owned by the acquisition, whereas Zoomlion with ElectroMech is a joint venture. CIFA was sold to Zoomlion buy an Italian private equity company Magenta and eight other shareholders. (Richard, 2008). Where on the other hand Zoomlion made a deal with ElectroMech for a joint venture which was to set a plant in India with Zoomlion holding it 70 % stake while other 30 was owned by ElectroMech (Xinhua 2012).

The major difference between the two types of partnership is the ownership structure, where one is wholly owned by the acquisition and the other is a joint venture. A joint venture is a form of partnership, which is a cooperated initiative, signed an agreement by two or more business units for business. It usually involves some specific purposes (Jean.M, 2018). Where on the other hand acquisition is formed in, which one business buys another business and acquired business no longer in existence and afterward combined business often turn out to be much more valuable to its owners, customers, and employees (Dental, T. 2018) The comparison leads to a point that the major difference is the freedom to take decision. In Zoomlion acquisition with CIFA, Zoomlion is free to take the decision, whereas in Zoomlion joint venture with ElectroMech they need to consult with each other before taking the decision.

For entering the foreign market there are numbers of ways which firm can try to, wherein one market direct exporting can be the best strategy and for another market, a joint venture may become a most suitable. In such a situation there are numbers of factors which have an impact on your chosen strategy.

Freedom of decision

The major difference is free to make decisions. In Zoomlion acquisition with CIFA, Zoomlion is free to take the decision, because of CIFA is under Zoomlion, whereas in a joint venture with ElectroMech they need to consult with each other before taking the decision.

Technology risk

It avoids technological risk because it is fully co-operating under one company, unlike joint venture.

Rescores Commitment

In acquisition, one specific company knows that is responsible for providing the resources, wherein joint venture problem can occur, in which both companies looking each other to provide.

Question3

By applying appropriate theory and using evidence from your research of these companies, analyse the national and corporate cultures involved.

Speculate on the impact of both on this ‘partnership’ between Zoomlion with CIFA. (20 marks)

Individualism

China

At a score of 20, China is a highly collectivist culture, where people do not think about their own interest, but they focus on the interest of a group. People are hired through a referral. Employees have good relationships with each other and personal relationship is above the company task.

Italy

At a score of 76, Italy is an Individualist culture. It is totally opposite to Chinese culture. Italian keep their desire of happiness above everything and they achieve through personal fulfillment.

In this case, CIFA will have work according to Chinese as people are hired through a personal reference, not on merit only.

China

China is regarded low at uncertainty accidence. Chinese are will to take risk and western people to have difficulty in picking their language. They are adaptable and entrepreneurial, they believe in having their own business rather than working for someone else. Therefore most of their business tend to owned by a family or are SME.

Italy

Italians are regarded high at uncertainty Avoidance, they are willing to take the risk but they take the calculative risk, which refers to they are uncomfortable with uncertain situations. Regarding the work, they believe in agreements and they are detailed oriented, where they can minimize the risk. Therefore this approach can create a stressful situation for Italians

Where in the acquisition CIFA will have to work in an uncertain situation sometimes because the company is acquired by Zoomlion and Chinese are comfortable with uncertainty. Therefore CIFA can face stressful situations sometimes.

Long Term Orientation

China

It is regarded as one of the best in long term orientation, China practice of a practical culture. China believes in maintaining long term relationships. Chinese have a great ability to adjust according to the situation and tradition. Furthermore, Chinese believes truth goes according to the situation and time. They strive hard for long term result

On the other hand, Italians are more or less the same in the context of long term orientation. Moreover, Italians are similar to Chinese in adopting the tradition and culture. Italian also believe that trust is dependable on time frame and situation and a great desire for success

The results of long term orientation show that both companies will get along well because both countries believe in getting along well and they are adaptable. Moreover, CIFA and Zoomlion will work hard, because they have a common desire for success

By the results, it shows that the two companies will get along with each other’s culture and traditions well. They are quick learners and welcoming different people from a different cultural background.

Indulgence

China

It is regarded as a restrained society as it has scored only 24 points. They have tendency cynicism and pessimism. They do not have much emphasis on leisure time furthermore, they control the satisfaction on desire. Their actions are restrained by social norms.

Italy

It also has a low score because their culture is one of restraint too. They are similar to Chinese with tendency cynicism and pessimism. Moreover, like Chinese Italian also do not spend time on leisure.

As a result, both CIFA and Zoomlion will go along well, because both countries people practice the same tendency. Therefore both companies can go along well as the employees do not like to spend time on leisure instead they have a strong determination regarding the accomplishment of goals.

Drawing upon academic literature and theory, critically discuss the possible effects, both positive and negative, of exchange rate movements on the deal.

Exchange rate movement pays a huge role in organizational success and failure. The exchange movement could bring advantage sometimes and disadvantages too. Furthermore, we can understand the currency impact on business such as, when there is a decline in currency this will bring the benefit exporting company by making exports cheaper, meanwhile it will have a negative impact to import business (Tejvan.p, 2017)

The impact of currency movement on the deal is listed below.

Since the Zoomlion and CIFA are operating in Italy and Italy is a member of the European Union, therefore the local currency in euro. The above picture shows how Eurobond had their impact on currency risk and cost of capital.

At 01-01-2008 1 EUR was equal to YUAN 10.7. Furthermore, at 31st December 2018 EUR 1 equal to yuan 7.8.

According to the annual report of Zoomlion annual report of 2010 its net current assets were worth yuan 17,603 million and total current liabilities were worth yuan 26,067 million.

Where according to the Zoomlion annual report 2017 states its current assets are worth Yuan33406, on the other hand, their total liabilities have increased to yuan58, 624 million.

If we compare the assets have increased by 15803, million and liabilities have inclined by a figure of yuan 32557 million.

Now if we compare the currency movement and a change in assets and liabilities it gives us the indication that when both companies had acquisition EUR had a high market value and Yuan was way low but in comparison of 2017 from annual report and statistics from European central bank yuan have inclined by a significant number, therefore, the improvement in assets can be seen.

The above chart is for comparison and evaluation of currency movement impact on the deal.

Identify three (3) specific aspects or challenges of doing business internationally that you have come to appreciate through the seminars or Expert Lectures on this module. Explain why these are significant to you personally and to the future of international business.

Regarding the challenges, doing business internationally is a complex task and it is facing certain challenges. I personally believe that negotiation with for foreign country is a huge challenge. There are five negotiating styles which I have come a cross in this module. Moreover, I believe this challenge is significant to international business, different countries have different culture and when people come together from different place to work, can create a conflict in business. People have difference in values and beliefs about what is right and wrong and when conflicts arises it hard to resolve (shanarch), because of language barriers and difference in customs, theirfore negotiation is important challenge in international business.

Furthermore international negotiation is a process where two or more parties from different units interacting to define their interdependence in a business process (Weiss, 1993:270). I believe this topic is important, because this process can play huge role in a process, success and failure. The purpose of negotiation is to create a mutually acceptable settlement, create a cooperative process and claim a competitive process. This process is helpful in building better relationship a reach a win- win solution for both parties

Additionally, understanding the importance of negotiation skill is useful to me because learning such skills enhances my dispute resolution ability. Furthermore, high negotiating skills will be helpful to me in avoiding failure and creating a smooth operation. This process is beneficial to firm to grasp an agreement and pay attention to staff dedication for achieving purpose of making profit.

Dispute resolution

Foreign exchange fluctuation & financial costs organization success and failure for a organization if we take apple Inc. as our example they are assembling their products in china and in case if Chinese currency Yuan sudden fluctuation the company might have to face a huge issue, therefore fluctuation in currency is vital. Moreover some countries may not have the free flow of currency movement. Furthermore if we take Pakistan as our example and if you are involved in a business, in that case if US dollar incline the local currency Rupees will decline and out of nowhere you will be in a uncertain situation where the prices of your product need to increase or decrease. I personally believe that currency fluctuation have a huge impact on business and hope that in future I can apply this concept in career in order to avoid risk.

Regarding the second challenge, I believe the global sourcing is a vital challenge in doing business globally and internationally. In current business world there are many trade agreement going on to encourage trade such as CEPA, WTO , one belt one road and European union. These agreement lower the limitations whereas on the other hand global sourcing is becoming a challenging too. Since one of the business part is in another country issues can arise because difference in language and culture. Furthermore, the political factor can come into play a part such as political tension between turkey and America is going on it creates a challenge for the companies which are conducting in those countries. Furthermore, I believe the uncertainty in exchange rate fluctuation can create a problem in conducting business internationally and to its future. The complexity of managing the global sourcing is difficult and unreliable. Global sourcing creates a risk of being over dependent on supplier. I believe global sourcing is vital challenge because it can be impacted by so many factors such as political factor. To me coming across this issue was a useful knowledge because in future in some situation it can be helpful before taking a decision on global sourcing.

Business approaches to cultural diversity

By applying appropriate theory and using evidence from your research of these companies, analyses the national and corporate cultures involved. Speculate on the impact of both on this ‘partnership’ between Zoomlion with CIFA.

Cite this page

CIFA, and Zoomlion: Creating Value and Strategic Choices in a Dynamic Market. (2019, Dec 14). Retrieved from https://studymoose.com/cifa-and-zoomlion-creating-value-and-strategic-choices-in-a-dynamic-market-essay

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