Founded in 1981, Creative sold Sound Blaster sound cards in Singapore and moved on to wireless speakers, earphone products, and portable media devices. Creative is now known as a global leader in product innovation in the audio and PDE segments and has since become a public listed company since June 1994. Creative’s global corporate headquarters is located in Singapore. It has regional business units in Europe (Dublin, Ireland), US (Milpitas, California) and Asia.
We will be looking at Creative’s largest worldwide manufacturing plant in Malaysia which was opened in September 2002, by Cubic Electronics Sdn Bhd.i
Malaysia Government’s democratic and collectivism attitude is seen in the commitment to maintain a business environment that provides companies with growth and profits through feedbacks from consultation channels like the regular government-private sector dialogues.
Malaysia also offers a wide range of tax incentives for manufacturing projects under the Promotion of Investments Act 1986 from Reinvestment Allowance, Investment Tax Allowance, Pioneer Status, Incentives for High Technology Industries and Incentives for Strategic Projects and Incentives for the Setting-up of International/ Regional Service-based Operations and the Income Tax Act 1967. With the corporate tax rate is 25% and the maximum individual tax rate 26%.iii
Malaysia’s political stability was also marked at 0.46 which is at mid-range when compared with neighboring countries of Indonesia(-1.62), Japan(1.1), China(-0.36) and Singapore(1.18).iv
Malaysia is governed by the common law legal system based on precedents and the common law system( the Syariah court system), which assists with issues involving the Muslim faith. The government’s main agency for promotion in both the manufacturing and services sectors is Malaysian Investment Development Authority (MIDA).
Performance Management and Delivery Unit (PEMANDU)’s role and the objective are overseeing the implementation, facilitation, support, and progress of the delivery and drive of the government’s Economic Transformation Programme (ETP).
Creative can also apply to list on the Malaysian Stock Exchange (Bursa Malaysia), in either the Main Market or the ACE Market. While there are no specific minimum eligibility requirements for admittance to the ACE Market, companies seeking to list on the Main Market have to satisfy one of the following:
· Profit test.
· Market capitalization test.
· Infrastructure project corporation test.
Malaysia is a mixed market economy which allows the government to decide on the resource allocation of the commodities which are scarce, which is especially good for a manufacturing facility. They have a GDP of 100.8 billion USD in 2002. Their GDP has been on a steady constant rise since 1998. According to the 2002 Annual Report (Malaysia), Supply of Goods and Services was at 15.2% for manufacturing, the 3rd highest Contributing factor and the Export of goods was at 46.7% the largest contributing factor, while 23.3% for private consumption for the Demand for goods and services. This made it a favorable factor to enter the mixed market as there is constant rising economic growth. With the rising GDP, there would also have an increase in consumer confidence in the economy.
As of 2002, the unemployed rate in Malaysia was reduced to 3.5%. The declining unemployment of 3.6% in 2001, 3.5% in 2002 to 3.4% in 2003(Forecast) makes it a positive motion to set up a factory in Malaysia as there would be an increase in employing workers in labor force. vii
With the rising rates of the labor force (million persons) from 9.6 in 2000 to 9.9 in 2001 and 10.2 in 2002 and the forecasted 10.5 in 2003, it shows that with the introduction of the manufacturing facility in Malaysia, there would not be a shortage of manpower as more and more people would enter the workforce on a yearly basis. The steady growth of the population and the increasing income per capita for Malaysia is another positive indication that in the years to come there would be a steady flow of people entering the labor force.
In terms of work communications, english is considered to be the language of business. In addition to english and bahasa malaysia, some of the other languages spoken locally are cantonese, mandarin and tamil. With the diverse language systems, it would make it break language barriers.
Mode Of Entry
Wholly Owned Subsidiaries
Creative is known to create wholly owned subsidiaries worldwide. Creative established another wholly owned subsidiary with the manufacturing facility, Cubic Electronics Sdn Bhd which opened in 2002. This is important as it ensures that they have no risk of losing control over technological competence especially since the main Head Quarters is located in the parent country. Cubic Electronics Sdn Bhd has a better control over the operations and would be able to ensure that the product and quality are at the specific standard set throughout production. This is to ensure that there is no difference in the same products made in other manufacturing facilities across the world.
Seeing that they are moving towards the global setting, it would be understandable for Creative to go for the Global Standardization strategy as it is a low-cost strategy on a global scale and would market a standardized range of products e.g the Zune and Sound Blasters, globally and this would go hand-In hand with having wholly owned subsidiries.
Functions of the organization’s international business operations
Creative’s business operations would operate in a traditional hierarchical organizational structure as they are a product based facility which manufacture digitized sound and video boards and related multimedia productsviii so as to organize to maximize quality, productivity, and shareholders’ value. Because of the importance of quality, the organizational structure gives quality assurance special consideration.
To improve quality, the manufacturing organizations use a matrix organizational structure close to the production line. Creative needs a structure that would enable the employees to work in a coordinated and cooperated unit. The organization’s chart below shows the line of authority and responsibility of each individual in the organization.
Organisation’s International Business Strategy
Creative’s Cubic Electronics Sdn Bhd is operating as a facility to manufacture and export to the worldwide market and to meet the demands of consumers. When competing on a global scale, there have to be competitive in terms of pricing without reducing or sacrificing the quality of the products especially in developing countries like India and China. Thus, if they adhere the Global Standardisation and International strategy they would benefit from it.
Global Standardization Strategy
When Creative’s Cubic Electronics Sdn Bhd uses the global standardization strategy, it is centralized and controlled by the home office and aims to maximize efficiency as they are able to market a standardize product e.g Creative Zen, globally without changing their strategy, thus meeting the similar needs of the consumers across countries and cultures. The global standardization strategy emphasizes economies of scale and offers greater opportunities to utilize innovations developed at the corporate level or in one country in other markets.
This would lower the pressure for cost reduction as the products would be affordable and be able to meet the demands of the locals across the world. For example, they would be able to sell the same Creative Zen to both the Singapore market and the Indian market at similar price point without increasing the price due to the lower cost.
International Strategy can be used by Creative’s Cubic Electronics Sdn Bhd when they are exporting the warranty parts and various electronical components to different countries with different languages and culture. International strategy is a strategy that is defined as being able to take a domestic made product and with minimum customization, sell and offer it to different countries internationally.
Such as the different languages, resolution, power amps and different colors exclusively for the respective continents. This would substantially increase the local responsiveness of their products and lower costs. As they do not have any foreign direct investments in the other foreign companies which they export to for their services and be able to cater to the different cultural or market trends. This strategy is more prominently used in operations and trading companies.
In conclusion, Creative’s Cubic Electronics Sdn Bhd is able to deliver great products through the strategies mentioned above. With their careful consideration to the responsiveness of the locals (overseas clients), cutting cost policies in the manufacturing countries, product and quality control, Creative should and will be continuing these strategies and by opening up more manufacturing facilities across developing countries like India and Vietnam, they would continue to create innovations that are low cost and high quality beating their competitor like IRiver and Al Shellco LLC and achieving their goal to be a global worldwide leader in digital entertainment products.