Assignment Task
1. What were the main factors behind Bauing Group’s decision to expand internationally? Why do you think Bauing Indonesia was so successful?
Suggestions
• Application – as appropriate/relevant of (Yip’s) internationalisation drivers: market, government, cost, and competitive
• Application – as appropriate/relevant of the Uppsala model, the eclectic paradigm (also known as the OLI framework), the RBV theory, and Mathews’ LLL model
• Application – as appropriate/relevant of the idea of FSA (same as RBV and you need to recognise that)
• Application – as appropriate/relevant of home-country advantage/Porter’s Diamond
• Application – as appropriate/relevant of host-country advantage (or Locational advantage in OLI)
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The first factor behind this decision was increasing competition in the building and decoration industry in China. In 2016, most public companies in this industry in China experienced decreasing gross margins due to increased period costs, decreased operational capabilities, and poor cash flow. Bauing Group’s performance from 2013 to 2016 illustrates many of these factors. For example, from 2013 to 2016, Bauing Group’s net profit was increasing, but its growth rate was decreasing: (1) the growth rate of total revenue became negative in 2016, (2) costs had been increasing since 2013, and (3) the operational cash flow was unstable. To address these issues, one of the inevitable choices for Bauing Group was to expand abroad.
A second factor in this decision was the great business opportunity provided by the One Belt, One Road (OBOR) initiative promoted by the Chinese government. OBOR, a development strategy proposed by China’s President Xi Jinping, focused on connectivity and co-operation between Eurasian countries, primarily the People’s Republic of China (PRC), the land-based Silk Road Economic Belt, and the ocean- going Maritime Silk Road, all of which provided a great opportunity for Bauing Group. In recent years, OBOR’s key focus areas have included infrastructure investment, construction materials, railways and highways, automobiles, real estate, power grids, and iron and steel, in addition to China’s push to take a larger role in global affairs with a China-centred trading network. Bauing Group’s primary business matches well with this primary focus on infrastructure investment. As China’s leading integrated construction and design enterprise, Bauing Group can utilize its comprehensive qualifications, rich experience, and good reputation in this industry to bid for various projects under OBOR.
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