a global enterprise

Alexander Dennis Limited (ADL) is the UK’s leading manufacturer of buses and coaches. ADL was established in 2004 as the result of the purchase and integration of the Alexander bus body building business and the Dennis bus chassis manufacturing group. It employs nearly 2000 staff throughout the UK, North America, and continental Asia. It is one of Western Europe’s fastest-growing bus and coach manufactures. ADL is committed to producing eco-sustainable cars. Globally, there is a greater emphasis on reducing emissions from diesel engines, especially in densely populated areas. Lower-emission motor vehicles have emerged to be of great importance in the current century (Partridge, Julius, Wei and Richard 12).ADL is one of the companies in British that is focused on developing environmentally friendly and more fuel efficient vehicles. The move has made the company have access to new markets around the globe.

Consider the reasons why the British firm ADL was attracted to the Hong Kong market. Use appropriate theory to explain this form of international business.

The internationalization has realized a very strong growth in the past decades in both domestic and international markets. The company introduced the concept of the double-decker bus to be a mainstream player in the British public transport system. ADL’s double-decker buses are fuel efficient, light weight and carry so many people. The buses reduce congestion since they do not occupy too much space on the roads. They have made the experience of passengers internationalization since they provide more logical and sensitive alternative mode of transport to the public. The company produced 900 vehicles for the Hong Kong market in 2015. The Kowloon Motor Bus (KMB) is the single biggest ADL international client in Hong Kong. The region has emerged to a suitable market for ADL vehicles since it has a vehicle service life of 18 years. The company dominates 80% of Hong Kong’s market due to its ability to manufacture reliable, light weight, durable, fuel efficient, and give its clients their value for money. The Dunnings (1977) OLI framework explains the internalization strategies adopted by ADL in penetrating foreign markets like Hong Kong.

OLI (Ownership, Location, and Internalization) refer to the three potential sources of advantages that may underlie the decision of a firm to become multinational. Ownership advantage can be used to explain why some firms are successful when venturing abroad while others are not. The ownership advantage explains that successful multinational enterprises (MNE) like ADL enjoy firm-specific advantages that are crucial in overcoming the cost of doing business in a foreign nation. The location advantage focuses on examining where MNE chooses to establish itself in a foreign country. The location should be ideal to make the firm maximize benefits and minimize risks. The internalization advantages focus on influencing the choice of a firm’s operation in a foreign country, trade-offs in savings of transaction, the cost of monitoring and hold-up in comparison to the merits of other modes of entry like joint venture, licensing and exports. The OLI framework focuses on the incentives individual firms are facing. Internalization is the third strand of Dunning’s taxonomy that explains why certain activities are carried a firm while others through arms-length transactions. The optimal degree of internalization is a reflection of the balance between the costs of transactions using the market and the organizational costs of running a firm (Dunning 4-10).

The dominance of ADL in the Hong Kong market can be explained using the ownership advantages that are essential in conferring net competitive advantages to a firm in foreign nationality in the supply of any particular market or set of markets. The advantages may be due to privileged ownership of the firm, the ability to access income-generating assets. It may also come about because of the efficient coordination of assets across national boundaries in a manner that brings relative benefits in relations to competitors or potential competitors. ADL is capable of applying assets in production at different locations without compromising its effectiveness. The high productivity of the company can be attributed to investment in research and development and marketing in the foreign nations like Hong Kong (Partridge, Julius, Wei and Richard 15-19).

The location advantages focus on revealing the motives of MNEs to locate abroad. Foreign direct investment (FDI) can either be vertical or horizontal. Horizontal FDI occurs when a firm locates its plant abroad with the aim of improving its market access to foreign consumers. This can be achieved by replicating domestic production facilities at a foreign location. Vertical FDI focuses on lowering the cost of production in a foreign country. ADL has retained its headquarters at home just like most firms to enjoy firm-specific or ownership advantages that come about due to the flow of head quarter services to the host-country plant. Building a local plant is essential in saving the costs of trade, and has the advantage of proximity. The advantages are traded off by the benefits associated with concentrating production in the home plant of a firm. The decision to venture into FDI is influenced by the trade-off between the benefits that can be concentrating on the home plant and the cost saving that can result from off-shoring. The host-country wage and the source-country wage are critical factors that should be considered when making an off-shoring decision (Ramamurti, Ravi and Jitendra 22-23)

ADL has been able to successfully penetrate the Hong Kong market due to the efficient execution of its strategy based on the concept of the double diamond. Double diamond is a vital process that assists in mapping the divergent stages of a design process. The company has perfected the art of perfecting solutions before they are released to the public by describing significant up-front design before producing the final solution. The double diamond strategy is appropriate in the motor vehicle manufacturing since it is expensive to change a physical product after shipment (Clune, Stephen and Simon 69). It is essential to understand the phases of double diamond and how they relate. ADL has emerged to be MNE due to its ability to adopt appropriate methods and activities for solving a problem or exploiting market gaps. The company adopts enterprise innovation in which integrated strategies are used in defining a full program of work.

Critically appraise ADL’s internationalization strategy as detailed in the case study. How typical is this pattern of growth and internationalization?

According to the transactional theory, an MNE is an organization that extends its employment contracts over national boundaries. The utilization of hierarchical methods of coordination in organizing international interdependencies is considered to be a distinguishing characteristic of MNEs like ADL. International dependencies can also be organized using market prices. Transactional costs theory can be used in explaining why individuals located in separate nations are more effectively coordinated when they are employees of an MNE than when they, act as independent entrepreneurs responding to market prices. As an MNE, ADL is financing its activities abroad using funds from home country. The company is undertaking foreign direct investment and is expanding its operation in Asia and North America. It is difficult to understand why firms extend their businesses to another country since operating in overseas tends to be more expensive as compared to operating in the home country (Teece 11-14). It may be profitable for a firm based in one country to incur additional expenses of operating in a foreign environment. Market imperfection can explain the existence of MNEs. MNEs are capable of bypassing the market imperfections that tend to be structural. The internationalization of ADL can be attributed to the mergers, acquisitions and joint ventures that it has engaged in with the aim of penetrating the global market. ADL capitalizes on its robust technology and knowledge in setting up captive manufacturing operations abroad.

The Hong Kong market experience has played a vital role in enabling ADL to access difficult markets in Asia. The experience provided access to New Zealand, Singapore, and Malaysia. The company believed that if it can succeed in Hong Kong despite the heat, humidity, and topography, then it could as well succeed anywhere in the world. The company is currently focusing on new markets in Indonesia, Thailand, and Vietnam. The double-decker bus is considered to be a cost efficient mode of transport in the three nations. ADL launched new double-decker models at one of its industries in Europe. The new vehicles have been designed for Switzerland and North America. It delivered approximately 400 fleets of ultra-low height buses to Toronto, Canada in 2016. ADL focuses on providing the European market with hybrid vehicles and has partnered with the BAE systems which are an aerospace giant in British that is known for its reliability and impressive performance. BAE system has been providing technical support to ADL for building electric buses in the UK since 2007. Hybrid vehicles are known to highly sustainable and make the desire for greener and smarter public transport a reality. The focus of the company is the leading operator of next-generation buses outside long through the adoption of a hybrid-Drive system consisting of electric motor, generator, and system for energy storage whose management is performed by computerized controls. The technology makes it possible for attaining a constant speed at optimum efficiency since the diesel engine turns the generator and operates independently of the electric drive motor. Unlike conventional diesel buses, the system does not use mechanical transmission which is associated with a high need for maintenance. The technology offered by the BAE systems has proved to be environmentally friendly, smooth, reliable and powerful. The partnership between ADL and the BAE systems has played a crucial role in the development of market-leading hybrid bus technologies. The largest hybrid bus fleet globally is powered by ADL hybrid-Drive system. Other crowded and polluted cities have no option but to adopt hybrid diesel-electric buses like London.

The annual global bus market has been estimated to be around 4000,000 units, and ADL controls less than 1% of the global market share. ADL’ share of the global bus market can be increased by a small increase in global sales. ADL considers tri-axle Enviro 500h to be its overseas star performer. It has attracted global attention despite being expensive due to its desirable attributes that make it a global product. Big fleets in North America and continental Asia have drawn interest on it due to its quality, seating capacity, and reliability. Penetrating the North American markets have proven to be difficult for ADL mainly due to the serious height issues in Canada, and the buy America compliance in the United States. The buy America compliance policy requires 60% of vehicles to be US dollar dominated. As a result, the company needs to build in the USA and go through grueling accelerated life test with the aim of meeting the defined requirements. In 2012, ADL entered into a joint venture with the US based New Flyer industries with the aim of designing and manufacturing medium-duty to low-flow bus particularly for the North America market. The joint- venture stipulated that ADL will be in charge of engineering and testing while New Flyer will be responsible for production and marketing. Although international joint ventures do not result in the realization of all the benefits associated with full vertical integration, it does not come with the disadvantages associated with large fixed costs.

Tata JLR is a company in the same industry as ADL that has realized significant milestone. Tata JLR came about like ADL since it emerged following the acquisition of JLR business from Ford Motor Company. Tata Motors Group has realized a revenue of over sevenfold between 2008 and 2015. The acquisition of JLR is considered to be one of the most successful milestones by Tata. Jaguar Land Rover and ADL are both based in the UK and have heavily invested in research and development with the aim of manufacturing innovative and sustainable motor vehicles making them on top of the global. JLR has been a subsidiary of Tata motors since 2008. In 2014, it sold a total of 462,678 vehicles. JLR focuses on the production of luxury vehicles whose demand is on a rising trend particularly in Europe, North America and China. Tata motors acquisition of JLR revived the Indian company since it was on the verge of collapsing (Pathak and Atul 15 -18).

Works Cited

Dunning, John H. The Globalization of Business (Routledge Revivals): The Challenge of the

1990s. Routledge, 2014.

Clune, Stephen J., and Simon Lockrey. “Developing environmental sustainability strategies, the

Double Diamond method of LCA and design thinking: a case study from aged care.” Journal of cleaner production 85 (2014): 67-82.

Pathak, Atul Arun, and Atul Arun Pathak. “Tata Motors’ successful cross-border acquisition of

Jaguar Land Rover: key take-aways.” Strategic Direction 32.9 (2016): 15-18.

Partridge, Julius, Wei Wu, and Richard Bucknall. “Development of bus drive technology

towards zero emissions: a review.” Hybrid Electric Vehicles. InTech, 2017.

Ramamurti, Ravi, and Jitendra V. Singh, eds. Emerging multinationals in emerging markets.

Cambridge University Press, 2009.

Teece, David J. “A dynamic capabilities-based entrepreneurial theory of the multinational

enterprise.” Journal of International Business Studies 45.1 (2014): 8-37.