SAIC Motor Corporation’s Entry into Singapore

Introduction

Reports Summary

Over the past few decades, the world’s economies have changed enormously, and the gradual integration of national economies from their initial independence and isolation to the present has been inextricably linked to globalisation (Hill, 2020). However, in 2019, an unexpected epidemic severely hampered the development of various countries. As a result, during that chaotic year, almost all countries affected by the epidemic suffered economic downturns and reduced trade (Bloom et al., 2005; Keogh-Brown & Smith, 2008). In 2021, as the epidemic was brought under control in a number of countries, international flows again showed signs of growth (Altman, 2020). According to expert forecasts for the food market over the next five years, revenues will grow at an annual rate of 4.5%, which is a strategic opportunity with uncertainty for food sector businesses (Food – Worldwide).

The internationalization of businesses has meant that international competition has intensified. Therefore, many scholars believe that the best strategy by companies seeking entry into foreign markets is to accelerate the pace of internationalization (Cheng et al., 2020; Hilmerson & Johanson, 2016; Lin & Si, 2019). In many cases, venturing beyond national borders presents firms with possibilities and opportunities to exploit new markets. Companies seeking to improve their profitability by enlarging their markets and increasing sales volumes find it necessary to become global. The argument is that the domestic markets are not adequate to offer an entity the possibilities desired. Global expansion means that a company can share foreign assets, sales, and employment depending on the entry method selected (Dangi et al., 2018). The focus of this report is exploring the case of a Chinese national company, SAIC Motor, and its expansion into Singapore. After presenting a brief company overview, the report will highlight the purpose of the company’s strategy. Additionally, an examination of the external market will be done alongside the best entry strategy for the company.

SAIC Motor Overview

SAIC Motor is a Chinese national company operating in the automotive industry. It is the largest automotive manufacturer listed in China’s A-share market (SAIC, n.d.). In recent news, this national company was ranked 60^th on the Fortune Global 500. Additionally, it is the largest company in the world by operating revenue, which was estimated at $107.56 billion (SAIC, 2021). The origins of the company can be traced back to the late 20^th century when SAIC, by then a small company established in the 1970s, made a cooperative agreement with Volkswagen in 1984. As a national company, SAIC received support and guidance from the local Shanghai authorities. During the 11 years leading to 1996, SAIC had seen its annual production capacity rise ten-fold to reach 300,000 (Companies History, 2018). Since then, SAIC has grown to become a dominant firm in the industry.

The Purpose of the Company’s Strategy

Analysis of SAIC Motor’s Mission

The mission for SAIC Motor is designed to deliver a key message of what the company seeks to achieve. The mission statement is to deliver extraordinary mobility solutions with green and sustainable technology (SAIC, n.d.). An interesting aspect of this statement is that the company expressed the desire to pursue sustainability and green development. If all the operations are guided by the mission, it can be assumed that SAIC Motor is one of the most environmentally-friendly companies in China. The expression ‘extraordinary mobility solutions’ hints that the company does more than just manufacture vehicles. This can be manifested by the fact that SAIC Motor also designs, develops, and commercializes new energy vehicles.

Analysis of SAIC Motor’s Vision

SAIC Motor’s vision is tied to the mission statement expressed above. The company expresses its new vision as “becoming a user-centric high-technology enterprise: (Monika, 2021). This vision is designed under the blue planet, rising sun philosophy, which seeks to make the company more environmentally friendly. The vision is pursued through the development of green technologies in the automotive industry. Additionally, new battery technologies for electric vehicles are a key concern considering that the global market for electric vehicles is expanding. Lastly, the company has embedded in this vision such elements as autonomous driving and other software developments tied to the blue planet concept.

Analysis of SAIC Motor’s Values

SAIC Motor has developed a set of core values to accompany the mission and vision statements. The core values are focusing on consumers, growing with partners, and achieving through innovation. A closer examination of these values reveals that the company places further emphasis on being customer-centric and introduces the aspect of innovation. The technological advances highlighted in the new vision statement are supported by the third core value where the company seeks to achieve its objectives through innovation.

Analysis of SAIC Motor’s Objectives

The objectives of SAIC Motor can be derived from vision, mission, and value statements. In this case, it can be seen that the key objective of the company is to become environmentally friendly in terms of the products offered to consumers. Green and sustainable technology means that the company invests heavily in research and development to help in the design and commercialization of green products. Therefore, profitability and growth do not form part of the main objective since SAIC Motor prioritizes consumers and the planet.

PESTEL

PESTEL framework can be described as a strategic management decision-making model extensively used by companies to examine the external environment of a business. According to Pan et al. (2019), PESTEL is best applied to the macro business environment of a company. PESTEL is an acronym for political, economic, social and cultural, technological, environmental, and legal factors (Matovic, 2020; Fedushko et al., 2021). Various typologies of the framework can be used, including the PEST and PESTL, depending on which of the elements are discussed. In this case, a PESTL framework will be used to examine Singapore’s automotive market, which is where SAIC Motor seeks to expand. The factors explored will be political, economic, social and cultural, legal, and technological.

Political Factors

The political factors in the PESTL framework describe the aspects of a country’s governance and how they influence business. Singapore can be described as a highly prosperous island country that currently acts as a business hub for entire Southeast Asia, as well as being among the world’s most vital ports (Department for International Trade, 2021). Due to its political stability, Singapore’s political risks are very low (Baruah, 2020). Therefore, both domestic and international companies can thrive because the government also encourages business. As a country with few natural resources, Singapore has a favourable foreign direct investment (FDI) policy, which is usually exploited by foreign businesses. According to Ting (2021), the country attracted an estimated $ 17.5 billion in investments in fixed assets in 2020 alone. These figures are indicative of how conducive the political environment of Singapore is to foreign investors.

Opportunities and threats associated with the political environment are present in Singapore. Opportunities include protection from the government through favourable governance frameworks, including tax policies. Threats can also be perceived, especially with Singapore not being entirely corruption-free. Even if the country records one of the lowest levels of corruption in the world, SAIC Motor may encounter rogue government officials demanding bribes and other kickbacks to gain permission to operate in the country.

Economic Factors

The economic environment comprises those economic factors that affect the success of a business, and include exchange rates, economic growth and development, demand and supply mechanisms, and inflation. The World Bank (2019) has described Singapore as a high-income economy with one of the most business-friendly regulatory frameworks in the world. The country has developed from a low-income to high-income since its independence, with an average growth rate of 7.7%. In a press release by the Ministry of Trade and Industry (2021), it was established that the manufacturing sector grew by an estimated 7.2%. Since SAIC Motor falls under this industry, it is important to acknowledge that entry will help improve these figures.

Opportunities in Singapore include a growing market for vehicles and other technologies developed by SAIC Motors. The country is also keen on ensuring that the environment is protected, which means that there can be a ready market for green products. Additionally, Singapore is an export hub for countries across South East Asia, which means that SAIC Motor can have easy access to the port and the global markets. In other words, Singapore can serve as a strategic location for the company seeking to export products across the markets served by Singapore’s ports. In terms of threats, Singapore is home to several automotive manufacturers, which means that competition for both markets and resources, including labour, can be very high.

Social and Cultural Factors

Singapore faced several social and cultural issues that any business entering the market should consider. A list of social issues has been presented by Tjin (2019), who outlines such aspects as cost of living, education, and the presence of systemic discrimination in the country. Singapore can be described as a plural society that has embraced multilingualism and multi-ethnicity. Cultural diversity also extends to religion and other cultural aspects. Pluralism is the result of the presence of people from different nationalities and backgrounds. The most predominant ethnic groups are Chinese, Malay, Eurasian, and Indian (Reloc8 Asia Pacific Group, 2016). Diversity can be good for business, especially where a company can curve out niche markets driven by cultural differences.

The opportunities brought about by these social and cultural issues include the presence of Chinese-speaking people in the country who can help the company acquaint itself with the Singaporean market. Additionally, the educational achievement of many citizens means that labour can be readily available. Additionally, lower levels of poverty mean that the markets have significant disposable incomes to spend on the company’s products. Systemic discrimination in the country poses the greatest threat to the success of SAIC Motor in Singapore. Therefore, the company should consider deploying an all-inclusive approach to avoid being associated with this vice.

Legal Factors

Every country has developed legal frameworks that regulate the conduct of business. Singapore has one of the most favourable legal environments as it seeks to harness globalization. The business laws in the country are friendly, which helps start-ups and MNEs operate smoothly in the country (TMF Group, 2018). With many businesses going online, Singapore has also developed laws to govern e-commerce, including property rights, electronic transactions, and content regulation (Baruah, 2020). Overall, the country has a legal framework that is used to attract businesses to the country, both domestic and multinational.

The opportunities available for SAIC Motor include favourable tax laws that can help the company save on costs. With the positive legal frameworks, establishing facilities in the country will be easy and seamless, which helps minimize the loss of time and resources. In terms of threats, compliance with Singapore’s tax systems may pose a challenge. This is because companies seeking tax residency must pass a management and substance test administered by the Inland Revenue Authority of Singapore (IRAS). Failure to pass the test may lead to a denial of residency and the tax framework will no longer be attractive for foreign companies.

Technological Factors

Technology is a critical environmental factor because it determines how businesses operate in different markets. Singapore has been described as a global hub for technology and innovation, which attracts business across East Asia and the rest of the world (Forbes Custom, 2018; EDB, 2018). Manufacturing companies can find all the necessary technological frameworks in the country to help them establish modern operational models. However, this depends on the entry methods selected where such approaches as FDI requires more extensive technological frameworks while exports simply require basic information and communication technologies (ICT) to connect the various stakeholders. Technological advances have also touched such contexts as waste management, energy, and water treatment (International Trade Administration, 2020). These elements are critical for factories, which means good technologies can make operations easier. Therefore, SAC Motor can benefit from a conducive technological environment presented by the Singaporean market.

Porter’s Five Forces Framework

Further analysis of the external environment can be accomplished using Porter’s five forces. This model presents an analytical framework that can be used to understand the influence of the structure of an industry on the profitability of firms (Pervan et al., 2018). It is also important to acknowledge that Porter’s framework can be used for cities, regions, or nations, which makes it ideal for exploring the potential of a company’s success in a specific market (Ferras-Hernandez & Nylund, 2019). In this case, SAIC seeks to operate and serve in the Singaporean market, which means that the five forces model will be applied to the context of a nation. This section examines Singapore using the five forces to determine the potential that SAIC Motor can exploit.

Threat of Entry

The threat of new entrants focuses on examining how easy or difficult it is for new businesses to enter a market. Under normal circumstances, the automotive industry is dominated by large global manufacturers, which can be the same case in Singapore. Additionally, start-ups often require massive amounts of capital to establish themselves. SAIC is a large corporation, which should make entry into the market easier. The threat of new entrants should be low because not many start-ups have the financial base to fund factories. However, other forms of market entry make it easier for most businesses to sell their products in Singapore. Exporters, for example, can easily establish themselves in the market. This means that the threat level is raised significantly but only to the medium level. Additionally, SAIC Motor seeks to enter the new market for green products, which includes electric motors. According to (Fitz, 2021), several start-ups deal with such vehicles as electric scooters, bikes, and commercial vehicles. In this case, SAIC Motor should consider the specific market served and watch the trends spearheaded by the increasingly emerging businesses in Singapore’s automotive industry.

Threat of Substitutes

The threat of substitutes focuses on the availability of products serving similar purposes in the market. As explained by Torres (2020), auto manufacturing firms face a significant threat of product substitution from their rivals. In Singapore, the threat of substitutes is very high because global businesses have already flooded the market with many models of commercial and personal use vehicles. With the number of companies in the market increasing, some observers note that each of them will have an increasingly smaller share, which will reflect on the annual sales figures (Lee, 2018). Therefore, it can be deduced that the threat of substitutes in the Singaporean automotive market is very high and the threat levels will continue to rise across all segments. As mentioned earlier, the many electric vehicles (EV) start-ups mean that SAIC will also face multiple substitutes in the EV market. Brand popularity and brand loyalty play a critical role in reducing the detriments of the high threats. However, SAIC has an insignificant influence in Singapore, which means it cannot effectively rely on its brand.

Bargaining Power of Buyers

Buyers in many markets have significant power to force certain decisions by corporate managers. According to ALCOR (2020), the bargaining power of buyers answers the question of how easy it is for consumers to force a company’s prices down. The market for vehicles is highly segmented with different firms and car models becoming marketable in different contexts. Additionally, many companies compete on different levels, which means that the threat level posed by buyers is medium. The argument is that despite the fragmentation, some companies compete based on affordability and only very few premium brands that do not pay close attention to costs as their consumers can afford even the most expensive cars. Singapore can be described as a high-income country, which means that brand loyalty will manifest itself through preferences to certain brands that depict class and style. Affordability may also be a key consideration for the lower-income markets. SAIC hopes to offer some of the most modern products, which means that it can position itself among innovative brands. Many customers will still prefer affordable options, which means that SAIC has to consider them.

Bargaining Power of Sellers

The automotive industry is global and hardly any company operates in a closed economy. In this case, it is assumed that the supplies are sourced all over the world by all producers in the industry. The power of suppliers is very high despite the presence of many global players. The argument is that some materials are rare and have to be sourced from far countries. In some cases, observers argue that there were times that companies had to deal with up to nine-months lead time for basic materials (Opsahl, 2021). Therefore, many companies operating in Singapore have decided to deploy clever mechanisms to attract and maintain suppliers. An example is BMW, which has started arranging events attended by multiple organizations in its supply chain (BMW Group, 2017). Supplier management becomes critical because it can help firms secure materials easily and at lower costs, which makes them more competitive. However, the competition for supplies means that bargaining power increases, which in turn affects certain operational decisions, including product cost and the eventual prices.

Rivalry between Competitors

The rivalry between competitors focuses on how companies in an industry compete for market share. The automotive industry in Singapore comprises many global brands, which means that the rivalry is very high. Therefore, it can be expected that different businesses will adopt several tactics to gain an edge in the market. Singapore is an increasingly wealthy country, which means vehicle purchases are on the rise. Therefore, the government is implementing control measures to manage the country’s traffic and pollution from vehicles. Therefore, such producers as Tesla are experiencing a significant edge in this market since their EVs are non-pollutants (Lin, 2021). SAIC also seeks to develop and commercialize green technologies, which means it can compete on the same level as Tesla and other EV start-ups in the country. With the market dominated by Tesla, the rivalry will increase as each firm strives to get a foothold in the country.

Entry Strategy

SAIC Motor is a national company, which means that its management will be more inclined to assume as much control of the company and its overseas operations as possible. This means that there are fewer options available for entry into the Singaporean market that can help the company achieve the desired level of control. Additionally, strategic objectives may also rule out such strategies as exporting. The reason why any company should go beyond exporting has been presented by Stoian et al. (2018), who argues that a deeper knowledge of host-country factors is critical. In this case, a foreign direct investment (FDI) is suggested because of the many benefits it offers the company.

First, it is important to acknowledge that both China and Singapore boast of some of the world’s cheapest labour markets. Though controversial, the fact remains that Singapore is an attractive destination for companies hoping to lower production costs through affordable labour. According to Lagon and Fred (2016), the Singaporean labour market relies heavily on foreign workers who comprise up to 40% of the country’s total workforce. The foreign workers attract lower wages as compared to natives, whose rising levels of education means that they increasingly demand higher salaries. Establishing a wholly-owned subsidiary in Singapore means that SAIC Motor can enjoy the benefits of labour affordability, which will make it possible for the company to compete effectively within the country.

FDIs can also be accelerated using such strategies as business incubation. In this case, incubation allows the business to familiarize itself with the domestic market condition to effectively compete in it (Blackburne & Buckley, 2019). The knowledge of the market is critical because it influences vital management decisions, including the selection of business strategies. FDI is seen as the best strategy because the operations of the subsidiary in Singapore will operate based on the Singaporean market condition despite being under the control of the SAIC parent company. FDI allows the company to design its operations based on the dynamics of the market as opposed to decisions dictated by the parent company. As mentioned earlier, Singapore has a conducive environment for attracting foreign investors. Therefore, companies seeking to establish manufacturing operations in the country will be welcomed by the government as they help develop the country’s economy. Exporting may face certain challenges, including higher taxation. Therefore, selling cars produced in the country may help SAIC save on costs and reflect these changes on the prices of the end products.

The large size of SAIC Motors means that it is best suited to become a foreign investor in any foreign markets in which it seeks to venture. Larger companies experience greater success through FDI as explained by Lin and Ho (2019). Additionally, strategic benefits can be derived from FDIs, including the possibility of using the foreign country’s external connections to gain further access to international markets. Singapore is a major player in the ASEAN, which means SAIC can access this market through Singapore as well.

Conclusions and Recommendations

SAIC Motor is a large national company in the Chinese automotive industry. As one of the largest firms, its international expansion should aid in access to new markets. The PESTL and Porter’s five forces frameworks have been used to examine the external environment in Singapore, which is the selected market. The PESTL analysis reveals that the company can enjoy several opportunities derived from the deliberate efforts of the government to attract foreign businesses through a conducive environment. However, the competitive forces do not offer a similar image as various components indicate that Singapore will not be an easy market in which to operate. Lastly, the strategy selected for SAIC to enter Singapore is FDI due to the strategic benefits it offers.

The main recommendation is that SAIC should proceed to enter the Singaporean market, especially with the new technologies and innovative transportation as the main segment. Despite the market for cars facing an upward trend in terms of growth, environmental considerations are increasingly becoming part of the government’s policies. Therefore, the country embraces EVs now more than before, which has seen Tesla dominate the market. A focus on EVs and other green energy products can make SAIC an instant success in Singapore.

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