EXPANSION OF CADILLAC INTO SINGAPORE
Executive Summary
The right internationalization strategy can lead to business growth. Cadillac, a division of the U.S. Company General Motors, is a prestigious brand that plans to expand its operations into a foreign market. Singapore is a more viable market than Brazil because of the substantial wealthy population, income equality, supported FDIs, and favorable regulatory laws. Cadillac can adopt strategies such as differentiation, brand positioning, and a solid organizational structure to combat competitive pressures and realize growth experiences. The decision to enter the market should be based on the population size, consumer wealth, and political stability. Cadillac should enter the market as a fully-owned subsidiary to enjoy more ownership advantages. Besides, Singapore protects foreign investors from expropriation and nationalization through trade agreements.
Contents
Expansion of Cadillac into Singapore
1. Introduction
1.1 Purpose
When carried out strategically, internationalization can quickly generate profits for a business. However, robust research into foreign markets is necessary to understand the various underlying factors that impact business operations. Concerning the same, there is a need for meticulous research into the Singapore market in terms of the target market, international strategy, and entry modes before advising Cadillac automobiles to expand into the country. To outlines pertinent to the same are detailed in this report.
1.2 Company Background
Cadillac is a division of General Motors Company in the U.S., founded in 1902. Cadillac is a prestigious brand and a great seller in the luxury car markets of the US, Canada, China, and other countries in the Middle East (Fourie, 2016). Being amongst the old automobile brands, Cadillac enjoys the high status and is the U.S. presidential state car commonly referred to as “the Beast.” The brand faces stiff competition from brands such as Lexus, BMW, Audi, and Mercedes Benz. Cadillac has few operations in the Middle East and Asia, forming some of the world’s wealthiest parts. Cadillac serves a particular target market of the rich in the current areas of activity, commonly called the elite. The brand’s impeccable history and milestones create up-and-coming prospects in the international markets’ geographical footprint.
1.3 Assumptions
- Singapore is the fifth wealthiest city in the world; hence Cadillac will have a lucrative market to sell its products.
- Singapore is a massive recipient of FDI inflows and embraces openness in trade, which will make Cadillac’s entry into the country smooth.
- Singapore’s buying power for luxury cars will recover from the expected global economic recession from the COVID-19 pandemic and the US-China trade wars.
- Cadillac will manufacture more electric cars, and Singapore embraces a green economy.
- Cadillac will implement an appropriate target market, internationalization, and entry mode strategies.
1.4 Limitations
Several limitations are accompanying this empirical study due to the use of more qualitative compared to quantitative data. The COVID-19 pandemic and the ongoing US-China trade wars are hardly predictable, as are their impacts soon. Different countries’ efforts to cushion their economies during the coronavirus pandemic may significantly change the government interventions that previously supported FDI inflows. Although the buys of the Cadillac automobile have a common characteristic of being rick, the lack of symmetry in values and cultures of Singapore and other Cadillac markets presents uncertainties in the target market. However, this report is robust enough to recommend expansion strategies to Cadillac and justify Singapore as a viable market.
1.5 Outline of the Report
The above highlights detail the purpose of this report and a background into the case study of Cadillac’s expansion. The report is based on several assumptions that have been outlined together with the countering limitations. The paragraphs outlined below detail aspects of the internationalization theory. Such include the viability of the target market, the appropriate internationalization strategies, and the entry modes that will be adopted to the Singapore market. The main highlights regarding the same have also been provided in the executive summary. A conclusion of this report and the necessary recommendations to be adopted have also been provided. The report has reliable internationalization insights that are well-supported by research.
2. Internationalization Theory
2.1 Target Market
Brazil is a puny market for luxury cars compared to Singapore. Among the luxury cars in the Brazil market, none of the top 10 in the Digital Luxury Index had a considerable increase in revenue and sales in the last few years. On the other hand, Singapore registered one of the highest numbers of units sold for Bentley, Lamborghini, Ferrari, Rolls Royce, Aston Martin, and McLaren in order last year. Luxury cars are the desire of the youth in Singapore and the toys of the wealthy population. While Brazil has the second-highest income inequality rate globally (Assouad, Chancel, and Morgan, 2018), Singapore has registered the lowest level of income inequality in the last two decades. In 2015, statistics for wealth distribution in Brazil based on national income share showed that 50% of the national income goes to Brazil’s richest 5%. The rest of the 50% is taken up by the remaining 95% of the population (Pasquali, 2019). Meanwhile, 10% of Singapore’s population is wealthy, 85% are middle class, and 20% can be considered poor (Li, 2020). Even if Cadillac was to examine the rich bracket alone, Singapore still takes the day.
A closer look into Singapore’s PEST analysis further proves Singapore’s viability for Cadillac’s expansion. Although Singapore is the fifth costliest city globally, it is very livable, creating a conducive business environment. Besides having a tiny portion of the population constituting the poor, the country has a considerable number of rich people and a vast middle-class population, unlike in Brazil, where half the community represents the poor (Pow, 2017). Owning a luxury car in Singapore is associated with a particular class that most residents and expatriates continuously try to achieve. Additionally, in a bid to move towards a green economy, and reducing traffic congestion and pollution, the Singaporean government makes it difficult and expensive to buy a car (Park, Feng, and Qureshi, 2016). Consequently, the rate of Car Ownership is 11% in the country. However, a vehicle costing averagely $24,000 in the U.S. and U.K. costs $99,000 in Singapore (Car Ownership Singapore, 2019). The life of cars in Singapore is averagely 5.46 years in Singapore, unlike 11 years in the U.S., which means that after every five years, there is a need for a new car. For car manufacturers, Singapore is an attractive market.
UNCTAD’s world investment report placed Singapore in the fourth position when it comes to foreign direct investments in 2019. Singapore follows closely behind the U.S., which is the parent country of the brand (United Nations, 2019). The value of foreign direct investments in Singapore is currently $77.65 billion, the highest ever registered. Through open trade, Singapore has a proactive strategy to lure foreign investors into the country. Singapore had held the first position in the World Bank’s Doing Business Ranking until recently when New Zealand overtook it. Singapore has managed to attract and keep foreign investors through favorable regulatory mechanisms, tax incentives, political stability, and intolerance to corruption. The processes for paying taxes and enforcing contracts in Singapore quick and affordable. The number of Greenfield investments in Singapore has also risen steadily in the last decade, making it easy for Cadillac to venture into the country for business and set up operations without interference.
Singapore is a viable market for any car manufacturer, but it is essential to establish why it a good market for the Cadillac brand. First, the Cadillac automobile is relevant in the Singaporean market. The population’s need to associate with prestigious brands gives Cadillac a unique competitive niche. Considering that Bentley’s sales have increased four times in the last decade, Cadillac is likely to register overwhelming deals (Car Ownership Singapore, 2019). Despite facing a competitive landscape in Singapore, Cadillac has the advantage that General Motors is manufacturing Cadillac electric cars, unlike other luxury brands. As Singapore pushes towards having more electric vehicles on the road, Cadillac should have an easy time selling its scars. Germany manufactures most luxury cars in Singapore, and Cadillac will be the first U.S. brand. Therefore, Cadillac is likely to catch people’s attention compared to other local and foreign brands. Singapore has very few legal barriers, such as high levies, which are least imposed on foreign investors. Singapore has no laws that use expropriation or force international companies to transfer ownership to local interests (Akalpler and Adil, 2017). Besides, Singapore is diversified and flexible, having a large number of expatriates.
2.2 International Strategy
Cadillac needs to pursue internationalization strategies that will increase both profitability and profit growth. The brand must have several unique selling propositions that will help create value, position the brand, and overcome competitive pressures in Singapore. Cadillac is a prestigious brand that cannot afford to lower costs as a strategy for generating profitability. Instead, Cadillac will need to add value to its models and consequently raise expenses to achieve profitability. For instance, the electric car will outdo most luxury brands as Singapore continues to advocate for electric vehicles that reduce the country’s levels of pollution (Sperling, 2018). The profit growth strategy for Cadillac is to enter the Singapore markets rather than the Brazil market. Porter’s differentiation strategy is more applicable to Cadillac’s expansion (Rothaermel, 2016). The differentiation strategy will help Cadillac penetrate the Singaporean market by offering unique and attractive models that will allow consumers to pay a premium (Sperling, 2018, p.28). Furthermore, Singapore is the right place to spend a lot of money.
Market STP efforts are essential in creating a brand position for Cadillac. The brand must have a strategic position in the market in terms of cost and value (Alden and Nariswari, 2017). Most people in Singapore are will to pay for luxury products, but they must also choose alternatives. Cadillac’s brand should hence be positioned in a manner that reverberates in the consumer’s mind whenever they want to make a purchase. Cadillac needs a high value at a high-cost efficiency frontier position because that way, the company can maintain a prestigious name associated with the elite and increase its profitability rate. Adopting a cost strategy in the face of an expected global economic recession may cause the company’s sales to nose-dive. Cadillac should then configure its value chain operations to support the value creation process (Vidgen, Shaw, and Grant, 2017). Such activities will include business information systems, human resources, and company infrastructure logistics. The operations should be in psych to create value for the business.
A solid organizational structure will help Cadillac realize more significant cost economies from the experience effects. Strategic leadership and management policies will enable a smooth transition into the Singapore market, and arising challenges will be dealt with efficiently. Leadership and management policies will create unmatched core competencies, such as skills and flow of operations (Rubin and Abramson, 2018). The core competencies will make value creation and cost reduction easier for Cadillac. Cadillac can move down the experience curve smoothly if it reduces production costs by creating value over time. The cumulative versus production costs curve should translate into learning and economies of scale experience effects if Cadillac maintains a solid organizational structure. In the learning outcomes, employees will learn efficient production while managers will determine the best ways to manage the company’s operations. Competitive pressures such as costs and local response may hinder Cadillac’s ability to realize experience effects. However, Cadillac can combat costs pressures by producing high-quality products and remain locally responsive through standardization and adaptation efforts of the product portfolio.
2.3 Entry Mode
Horizontally direct investment into Singapore is likely to be less risky for Cadillac. Besides Singapore being favorable to foreign investors, Cadillac will enjoy ownership, location, and internalization advantages by expanding into Singapore. The government incentives and intervention measures in Singapore promote FDI inflows rather than hinder them (Akalpler and Adil, 2017). Entering the new market as a wholly-owned subsidiary is advisable for Cadillac while making an entry decision. The vital factors to be considered before entering a foreign exchange include size, economic growth, political stability, and the consumers’ present and future wealth (Grünig and Morschett, 2017). Of these factors, Singapore has a sizeable population that can afford luxury cars, has a favorable economic growth rate, enjoys profound political stability, and 10% of its population is rich enough to provide a luxury car every five years.
Given the increasing number of Greenfield investments in Singapore, Cadillac will have fewer risks and more advantages if it owns 100% of its stock. Although Cadillac will face all the risks associated with entering a new market as a wholly-owned subsidiary, Singapore has ensured that such chances are minimal (Akalpler and Adil, 2017). As a foreign investor, Cadillac enjoys protection from the US-Singapore free trade agreement signed in 2003. The pact has been implemented since 2004 in both countries. The bilateral investment convention between Singapore and the U.S. protects Cadillac from war and non-commercial risks such as government expropriation and nationalization. Additionally, Singapore has no existing disputes with UNCTAD, and it has no laws that would force foreign investors to transfer ownership towards the country’s local interests (United Nations, 2019). Singapore protects foreign investors more than any other country in the world. Singapore has high transparency transactions, great manager responsibility, and shareholders can easily take legal action.
Cadillac should enter Singapore as a wholly-owned subsidiary in the form of a Greenfield investment to enjoy advantages such as the ability to realize a learning curve and location economies as experience effects. Cadillac will face no risk of losing technical competence to a competitor under this status. Having 100% control over its stock, Cadillac can quickly establish operating routines without external interference. Cadillac will be in a position to exercise ownership advantages such as building the subsidiary it deems fit in operations (Stämpfli and Vladimirov, 2017). The stiff competition in the luxury car market makes it impossible to establish a strategic alliance during the entry phase. Still, it may be considered in the long-run to improve sales and growth rate.
3. Conclusion and Recommendations
The internationalization theory provides profitability and growth strategies that can help businesses excel in international markets. Singapore offers a better target market for Cadillac’s expansion plan compared to Brazil. Unlike Brazil, Singapore has the least income inequality in the world and is a massive recipient of FDIs. Cadillac is a luxury vehicle, and Singapore has a larger population of people who can afford it compared to Brazil. Adopting internationalization strategies such as differentiation, brand positioning efforts, and a solid organizational structure will heal Cadillac expansion into Singapore successfully. A sizeable population of Singapore can afford Cadillac’s vehicles; the country has political stability and sound economic growth influence the decision to enter the Singapore markets. Cadillac should enter the market as a wholly-owned subsidiary to enjoy ownership advantages. Besides, Singapore protects foreign investors through favorable regulatory mechanisms and trade agreements. From the above highlights, the following recommendations are advised:
- Cadillac should move its expansion operations into Singapore.
- The internationalization theory should influence expansion decisions and strategies.
- Internationalization strategies such as differentiation, STP efforts for the brand position, and value creation models should be adopted.
- Cadillac should enter the Singapore market as a fully-owned subsidiary.
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