Analysis of Sichuan Education Publishing House

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Analysis of Sichuan Education Publishing House 2016-11-10T15:00:31+00:00

Project Description

Introduction

The Sichuan Education Publishing House Company Limited was set up in 1983 to carry on the business of publication and distribution of books. The company was accordingly giving legal incorporation in the May of that year with its registered office in Sichuan in China’s where it has it main production base. The company is a privately owned enterprise however majority of the shares in the company is owned by another publishing house called the Sichuan Publication Group Company Limited. To this end it can be said to be its subsidiary although its operations are entirely different according to their 2010 end of year corporate report (SEPGC, 2010).

At the time of incorporation about 28 years ago technological advance which affected the publishing industry was still growing but the prospect of growth of the sector was very much in the mind of the promoters and later founding directors. The company started off with two three employees but current it has a total of one hundred and ten (110) employees and ten managers who are responsible for different sections. To this end the company’s prime duty was to be involved in the publication of books for education and non-education purposes through self researched source however the company began to grow into publishing individual authors who were in need of publisher. Obviously enticed by the profitability gains in that sector the company took advantage of the advance in communication and ventured into digital publication through the use of the computer aided designs which was not so popular (SEPGC, 2010). Between the year 2007 and 2010 the company achieved a consistent profit growth of 25% and has achieved a 23 % market share in the education book publishing sector, 26 % of the non educational book publishing sector and 12% in the internet and music publishing. The figure below represents the market share of the company in the three markets in Sichuan

It is this initiative which saw the massive transformation of the publishing sector in the small Chinese province in which was still not the best till today. Today the publications of Sichuan Education Publishing House Company Limited go beyond books and periodicals to cover internet based publication where it has gradually develop a lot of expertise. The publishing house is open to anybody who desires to be aided to come out with a publications of his or her own but the company has not lost focus on bringing out books and other publications for both academic and non-academic usage.

Review of Literature

Although the advent of globalisation which has provided a major platform for to integration of the global economy is considered to be the beginning of internationalisation, that is not the entire case of the Chinese international process. Johnson (2001) traces the attempt by Chinese companies to internationalise as has been instigated by violent and hostile economic condition at home that did not support the development of private initiative. This according to him is the reason for the many Chinese restaurants which are dotted across the different corners of the globe. The above aberration notwithstanding most efforts at internationalisation across the globe has proceeded from this point of globalisation. Small and medium scale enterprises have also explained into international countries through a process these studies can be seen in the level of sequential development and on strategic solutions. With regard to internationalisation through sequential development Ohmae (1990) Venon (1966) and Johnson and Vahlne (1977) and Oviatt & Dougall (2000) have conceptualise the approach in the 5-stage globalisation model , the Product life-cycle, the Internationalisation model  and the born global model respectively

From the perspective of Ohmae it is his position that in all most instances every firm has to go through a set of different process on its way towards becoming a full global corporation. For a typical domestic company it starts by exporting then later it may attempt to establish a joint venture or a subsidiary in an overseas country. It is at this point that it will develop into a multinational firm and then possibly to a full blown global organisation. Ohmae identifies five major stages of global development which start from a first step of  providing and arm’s length service  activity from the  domestic company which is then moved into a new markets abroad through linkages and connections with local dealers and distributors. This then prepares a way for a second stage which has to do with process whereby the company assumes oversight of these service activities on its own without agent assistance

From there the next stage which is where the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets is activated. In stage four, the company fully moves to occupy an insider position in the overseas market with supported of a complete business system such as research and development and engineering. It is at this stage that the managers replicate the hardware, systems and operational approaches that having worked very well at home in a new environment. They are forced to extend the reach of domestic headquarters, which now has to provide support functions such as personnel and finance, to all overseas activities. The last stage is the pint of saturation and in this case the company moves toward a genuinely global mode of operation by developing capabilities to service the domestic international customers in ways that are truly responsive to their needs as well as to the global character of its industry depends on its ability to strike a new organisational balance.
The product life cycle approach rather examines the growth from the perspective of the product as and not the firms. In this way it is the firms product which leads the growth to the extent that it begins from an introductory stages, then it gets to the growth stage where it begin to make heavy presence of the market, then it reaches the maturity stage in which case the product has become known worldwide.
In such a case the internationalisation market pulls the product and the management effort is to respond to the pull and eventually leads to its entry. While the view of Ohmae assumes push approach to internationalisation the product life cycle rather emerges from a pull philosophy hence their difference however it is clear that all confirms the fact that internationalisation is the results of a processes and dos not start immediately. They also affirm the fact that strategy and a lot of research- are necessary in venturing into a global environment. This is exactly the position which Porter examines when he argues that strategy development must take place after careful interrogation of the factors which are within the external and internal environment which affect the way the management of business is done. The PESTEL analysis was proposed by Porter as a tool which can be used to scan the external environment to examine the degree of risk which it posses to the sector.
With PESTEL, the company looks at the political system and regime in which it is operates and defines its own tactics to business through the policies and progress which is designed (Wright and Rip, 1999). For example in a typical market or capitalist economy everything is determine by the forces of demand and supply but this cannot be the case in a socialist or a centrally planned economy. In this regard strategy development cannot be the same. This is also seen when it comes to the policies which are out in place to support such as the laws on taxation and accessibility to venture capital. Porter also points to a relationship between the social cultural factors and the management of strategy by asserting that demographic features and general cultural value are so critical that if they are well considered they will ultimately affect the growth of the enterprise
The economic conditions directly affect the cost of production, the prices of goods and service which produce, consumer behaviour and the quality of staff which can be employed as a result of the ate of salary which need to be paid out. It is for this reason that it is important for this to e done.

Macroeconomic Environment

Political Factors

A major advantage which the company enjoys lies in the fact that there has been major development in the Political Economic, Social cultural and Technological environment and the company has taken advantage of each of them. In terms of the political environment the first major achievement has been the shift in economic philosophy as a result of the accession to the World Trade Organisation the economy and partial departure from centrally planned, government or state engineered economy which had all powers invested within the State. It is even argued by Lamb et al (2008) that prices of goods and services were directly under the control and manipulation of the state to the extent that it was virtually of no use to invest in that country. For example many people were producing goods and services for production and are only told to sell it a particular price without any complain. In such an economy that has very little regard for the role of the forces of demand and supply to determine the economic destiny of the people it is an obvious disincentive to engage in any meaningful business.

But today all these are no history as changes in administration even though the same party have seen the introduction of a number of centres of right polices which support economic growth and the development for private businesses. This change has not only been seen in the level of political interference even though there are still many areas where the state plays a role in economic activity but also a number of government packages have been put in place to ensure that any company or group of people who desire to operate any meaningful business will be assisted in terms of information, skill development, infrastructure, and above all finance. The establishment of the venture capital fund to support small and medium scale enterprises is a testimony to the massive growth which has taken place in the Chinese economy (Lester, 2009). Sichuan Education Publishing House Company Limited has taken advantage of this very policy of allowing the market forces to dictate consumer choices competing on prices while also taking advantage of the venture capital which has been provided by government to support small business development a case which was noting existence. It is refreshing to notice that the current eastern block (Studio B3) was solely funded by the local government venture capital which will never have gone to the private sector

Economic Environment
Sichuan Education Publishing House Company Limited  has also taken advantage of major changes in the Chinese business environment is for now the most vibrant of the economies in the world having toppled Japan as the second highest growing economy of the world and only lagging behind of the United States of America. Today the country can boast of some of the most sophisticated industries and technologies. But researchers into the business environment in China have been unanimous in explaining this sudden rise of the economy and market which was until the 1975 considered to be the haven of inferiority. Firstly the remedial of this tag mean that the company is now able to take up international assignment and produce to the specification which has further increased the market which they are serving For examine in the year 2006 and 2007 the company was contracted by the Ministry of Education in Gambia and Senegal to provide all the text books which are needed by the. During the fiftieth independence anniversary of Ghana and Nigeria the company was the one contracted to provide the brochure and the publications which were done.
Another aspect of economic changes which the company is also taking advantage of is in terms of the conducive environment measures which has been seen in the development of the sector comes from the fact that many international companies are now making Chinese the hub of their operations (Blaxill et al, 2009). This is also partly blamed on the favourable environment which has been designed to attract foreign direct investment into China. The formation of the China-UK Chamber of Commerce, The American, Canadian and Brazilian trade and commerce arrangements and the recent promotion of the African-Chinese Trade Cooperation are all evidence of the support which the Chinese government is giving to foreign direct investment which comes in the form of partnership or takeover or even fresh businesses (Lester, 2009). Evidence of this has come from the abolishing of the Nationalisation Act which gave the state the unchallenged right to takeover foreign firms that were seen to be operating with evangelical virtues which are alien to the Chinese business culture.
Similarly foreign organisation can now have access to the venture capital and pay at the same rate as Chinese companies. This is the reason for the massive competition within the sector especially the tourism, the printing and the publishing sectors. Significantly non of them is operating in the sector where Sichuan Education Publishing House Company Limited and considering the need for publishing which they require the company has approached a number of them a especially  the international companies that are operating in Sichuan and dos all their publishing for them. Because of the quality work sometimes these foreign companies recommend them to other parent companies when they have to do some publishing on a scale which the company can do For example the IKEA office in Sichuan asked the company to take charge of all of its promotional printing and also those of the offices in Korea and Japan were recommended to them

Socio-Cultural Environment
When Nag et al (1997) analysed the Chinese culture he pointed out that different perspective however related and how they affect business. Sichuan Education Publishing House Company Limited has taken advantage of all of these socio-cultural features. The large Chinese market which is the biggest single market in the world has provided a reason for many companies to fight for a share of which Sichuan Education Publishing House Company Limited is not an exception. This is backed by the fact that the China when compared with the western world is home to the least cost raw material, labour and other factors of production. To this end even if the companies do not want to market to the Chinese, they see it appropriate to set up their production centres there so that from that end it can be brought to the west to encourage investments. This arrangement is given support by the Chinese economic arrangement due to the large amount of taxes and employment which this is creating for the people in the region (Barney, 2001).
The last major socio-cultural dimension of economic significance in the Chinese market which has created a favourable environment for the growth for Sichuan Education Publishing House Company Limited is in  the adoption of their cultural value of sobriety and moderation into marketing by positioning themselves over the world as the providers of cost effective products and services (Feignbaum, 2000) Compared with the west the Chinese products are cheaper, they produce at a better speed (reliability of supply) and can be depended upon to meet deadline irrespective of the quantity for production which is needed to this has made Chinese product more favourable in the eyes of the world compared with the case where they were noted to be of below standard.

Industrial Environment

The publishing industry in China is very competitive and can be compared to any of the industries. In the Sichuan the pattern of competition is not different from what is happening in the whole region. Using Porters five forces to gauge the competitive industry, it is noted that easy of entry and exist is what can be describe of the market. This is because the market is made up of many small publishing companies with none of them dominating the market. The leader of the market hardly gets more than 30 percent of the market while Sichuan Education Publishing House Company Limited has about 23 percent of the market. The rest are evenly distributed among the small competitors who are all doing their best (Weise, 1999).
Although competition is said to be very keen, the publishing industry has no knowledge of risk as the market continues to see new companies on a daily basis who are either introducing new form of technology or the other. The ease of entry is also seen in the ease of exit, it is noted that as many companies who are not able to contain the competition either take a quite bow or attempt to merge or collaborate with other major companies. This has resulted in localised forms of mergers where smaller companies come together to fight competition.

The industry has usually accused the state of only focusing on big companies to receive government contract. In order to manage these accusations the government through the state agency for trade and development decided to engage the members in the industry into constituting them into an association. The association is then offered contract which are shared among their members. Even in that there is little guarantee that one is likely to be successful because of what is often known as the Guanxi attitude (Yates, 1996). This means that the major source of success is by focusing on self made publications. Thankfully many schools have sprung in the region requiring huge publication. These have usually become the area where a number of contracts do come from however the competition is basically limited to price and speed of delivery. The sector is so fast to the extent that any company that is unable to abide by the terms of contract are likely to lose it because other companies are also around to get the contract.
Another major feature of competition is price. In China as directed by culture the prices of products crucial to the extent that the cheaper and quality goods gain the upper hand. To this end most companies adopt the strategy that is intended to reduce cost although some level f differentiation is also upheld. The study of Yan (2004) on the publishing industry in China he argued that it is one of those industries that is responsive to change.

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Key success factor

The key success factor of the company is scattered in the different level of its operation.  The company does not draw its sources from a concentration on a few factors but rather in the support which efficiency and skill make available to them. This is evident in the use of technology where it has superiority in both access and use. This is able to aid successful and quick production processes and innovation which is a capability that is very important (Feignbaum, 1990). For example the ability to come out with books on adventure and myth are all a demonstration of the innovation capabilities which are inherent. Closely related to this is the quality of skill of human resources which is available to the company.
Along with a team of management expertises which are well grounded in modern management techniques the company is able to convert research data into products and are sent to the market in no time. Other key success factor which have been identified in the companies operation includes a well trained sales forces, favourable image in the public light due to continuous involvement in social responsibility, a strong and reliable network of wholesale and distributors of products that are able to seek and gain ample space in shop and supermarkets as well a the ability to make use of the Guanxi (Yates, 1996) which is the Chinese form of relationship building

Corporate Strategy

A review of the existing information about the company leads to the conclusion that the company has build its strategy around the core elements of the marketing mix with each been designed to archive the end of the company. Relating their operation to the Porter’s (1985) generic strategy, it comes out clear that the company is operating a hybrid of a cost advantage strategy and the differentiation strategy. With a cost advantage strategy it is identified that the company has been able to design its operation to manage the sources of cost are identifies measures put in place to reduce it as much as possible.  This means that it is constantly taking advantage of new technology which is able to process information and production better and faster (Bandyopadhyay and Robicheaux, 1993).

In the same measure makes the company gain from economies of scale through large scale production techniques are seen to be dominant in the operations of the company. Excerpts from the corporate report suggest that the company has a policy of ensuring that at least there is constant monitoring of consumer activities make sure that features which are less valued by the consumer are taken out as a measure to cost control. In the same way the company ensures that the features which are of the clients interest are those ware are highlighted in the entire product which they bring out.
This also shows that the company understands the role of the consumer as dictated by marketing concept. The company also has set their products above that of their competitors so much that they look different in appearance and packaging. This is the point of tangent between the company and the differentiation strategy (Porter, 1985)

Effectiveness of Organization Strategy
 
The effectiveness of this system is seen in the 20 percent profit growth rate in 2010 and by looking at the position of the company on the market share for the publishing industry in the province. The company as at the end of the year 2010 had a 9 percent share of the market compared to the 6 percent in 2007, 7 percent in 2008 and 8 percent in 2009. This clearly shows that the company is making inroad in term of sales and market share year after year
A look at the closing balances of the 2009 and 2010 financial statement shows that that both return on capital employed and return net profit percentages increased from 15 percent to 20 percent. It is particularly encouraging to note that the company between the year 2006 and 2009 consistently recorded sales levels that was about 19. 8 percent an increment and a profit level figure of 12.88 percent the previous year.
The implication of this is that during the periodic of the global economic crisis when many companies were not in any way close to profit the company made a profit and underscore the fact that it has built immense stability and goodwill within the market where it is operating. The call by the CEO for  the public to restrained the pressure which is been put on the company to star exploring opportunities on the stock exchange is a clear demonstration of how customers consider the company as appealing and therefore willing to  put their money into that investments

Recommendations for efficient performances

The major limitation of the company is in the analysis of its financial statements. Although the company seems to be making higher profit levels there are clear indication of liquidity management crises. For example between 2006 and 2009 the working capital cycle  has widened due to the fact that debtors turnover which determine the rate at which the company is able to collect fund from debtor has widened (Gavor, 2000). This is not backed by a favourable creditor’s turnover as there are indications that the company period has rather reduced. This has that the company spend less time paying debts but long time collecting debt this can be very dangerous to the long and short term. This is even more the case when it has a negative relationship for current ratio (1:6). It shows that company will not be able to meet its recurring debt when they fall due. The advances which have been made in the operation is not backed by an effective financial management strategy and requires further check since cash determines a lot about business success (Woode, 2000).

 

List of References

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Wright, P. and Rip, P. D. (1999) Product class advertising effects on first-time buyers’ decision strategies. Journal of Consumer Research 7:2 , pp. 176-188.

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