Discuss about the Entrepreneurship for Jamey Bennett of LightWedge.
Entrepreneurs and businesses across the world are trying to develop competitive advantage for them by reducing costs (Liu, 2008). The scope of this current case study examines an entrepreneurial venture of Jamey Bennett of LightWedge. The entrepreneur had previously set up BookWire.com and LendingTree.com in his latest venture LightWedge, he was manufacturing reading Lamp. He decided to shift production to China as that would reduce his manufacturing cost to about 30% as compared to manufacturing in U.S. Thus, he shifted out his factories and set up a trading company in Taiwan and Guangdong. Both the factories were not efficient at manufacturing the lamp’s and in time required. This led to the company missing out on sales during Christmas. Then subsequently he decided to shift the factories back to China after losing out on subsequent investment. The company is said to have lost out on USD $1.5 million from sales alone due to lateness of delivery. There was investment in factories that was involved in both the locations (Dollinger, 2008). The company currently manufactures lamp in Newport News Virginia with an employee base of 1500. The scope of the report is to identify the various trade-offs the entrepreneur was considering, the methods James could have adopted to avoid the problem and factors that needed consideration to establish appropriate factory in China.
China is an emerging economy with one of the fastest developing countries of the world. Various international businesses have built facilities in China, due to prevailing cost advantages. Manufacturing is the key function of the company that will render effectiveness to business functionalities (Hung Lau, 2006). China is a land that offers cheap access to resources for manufacturing units. Especially due to its robust population and lack of formal education cheap labor is available in China in abundant. When the company owner decided to outsource production of lamps to the Chinese territory it wanted to gain significantly on scale of production. Cost of labor in U.S. is particularly high which pushes the cost of production for any unit of goods produced. Thus, if an entrepreneur was to manufacture a product in the U.S and sell he will have lower amounts of profits. For small items as lamps with lower profits, it is nearly impossible to generate immense revenues for reinvesting in the company. But if the same company outsources or shift production and ships the units to U.S for sales he is more likely to incur less cost (Michael, 2008). As costs of production especially of human resource in China are nearly negligible, the entire cost from production goes down. After manufacturing and shipping products from China the company is more likely to remain with a larger proportion of investable profits. This is derived from the theory of comparative cost advantage. Such investible profits have a significant role in entrepreneurial ventures which often perish for lack of revenue generation (Tian, n.d.). U.S. market and its consumers are highly developed and specific in terms of its requirements thus it is almost impossible to sell a defected product in U.S. Hence the entrepreneur should have specified requirements pertaining to markets of U.S. specifically to Chinese factories.
Entrepreneurial ventures need to earn a lot of profits especially in the initial years of its business establishment. Though the entrepreneur had earned success in two businesses previously but in the current venture, lack of foresight and absence of proper analysis of strategic environment led to the loss for the company. Any loss occurring to entrepreneurial venture can significantly increase its incidence of failure due to increased cash-flow. This idea of investing for a factory in China is the cost trade-off that the entrepreneur had in mind when planning for a factory in China. While planning to set up a factory and outsource manufacturing into China, the entrepreneur strategic intention was to enhance cash and fund flows in the business by making more than normal profits. With significantly low cost of manufacturing in China and availability to market access in U.S. enables the firms to take advantages from the condition. Though factories in China failed to meet desired output but in case of success it could have rendered immense profitability to the business.
While investing in China there are several barriers which the entrepreneur needed to be aware of in order to prevent the venture running into loss. In case the entrepreneur was able to realize such gaps or barriers in China and U.S, then certain measures could have been taken to prevent any loss to the business (Zahra, 2006). The following are measures which could have been taken;
Ø Prior to opening production facility in China it was pertinent to understand their culture and appoint an individual. This appointed individual should have had thorough knowledge and awareness regarding Chinese language and its culture. The person could have overseen the operation and reported any sort of discrepancies to the head office in U.S (Mankiw, 2006).
Ø Proper description of the lamp to be manufactured such that no discrepancies in the order arise. As Chinese are experts in mass productions, but do not cater to minute details proper and adequate information is required. Specific description and requirement needed to be supplied along with samples such that manufacturers could understand.
Ø Training and development of workforce back in China to handhold them into the process of manufacturing specific lamps as per requisites of the company (Kelley, 2012). As the company manufactured lamp of specific quality and standards it was necessary to present such samples and processes to manufacture similar lamps with similar components.
Decision regarding outsourcing operations into China should have been considered by evaluating the various strategic alternatives. But the entrepreneur simply attracted by the low manufacturing costs risked the entire business. Hence a comprehensive risk assessment for the company would have enabled proper assessment of the country specific risk analysis of China. The entrepreneur could have easily adopted measures to overcome any challenges in regards to that. The entrepreneur needed to have proper strategic analysis of environmental factors impacting business in China along with clear expectations of what to expect from such businesses.
The company while production of units of lamp in China had incurred immense losses and further shifting it to U.S needed additional costs. The venture had since the beginning not functioned appropriately and there was immense amount of investment tied to the venture (Jing, 2008). Instead of generating steady line of revenue the company had losses from not been able to sell during seasons and failing to meet requisite standards. In order to re-invest back into China there are several factors that the company needs to consider and understand. The following are the lists of factors that need to be catered to;
These recommendations will help the venture sustain business in Chinese offshore model and help attain comparative advantages aimed at.
Conclusion
Entrepreneurial ventures derive significant values from innovation time, bringing product to market at appropriate intervals, attaining success in revenue generation and so on. Any decision in an entrepreneurial venture needs to be adequately backed by strategic decisions such that it can enhance capabilities and competitive advantages for such ventures. While offshoring production in China offers a relatively easy and attractive opportunity for businesses the trade-offs of such decisions needs to be well comprehended. There are various reasons for Chinese manufacturing not being able to meet standards specified by international companies. Chinese lags training, formal education and communication skills. While major challenges exists in Chinese markets readily availability of cheap access to resources offers comparative advantages to the country. The possible trade-offs of each type of businesses needs to be values and drawback need to be overcome. The case is an example where negative possibilities from manufacturing in China had not been considered leading to double investments and loss in business. The entrepreneur needs to accomplish the following recommendations in order to enhance business viability.
Entrepreneurial ventures should not only examine validity of its business venture decision, but all decision pertaining to business venture needs to be adequately verified. The following recommendations will help overcome any possibilities of failures in entrepreneurial ventures;
Reference List
Bi-fei, T.I.A.N., 2008. Chinese Service Outsourcing Strategy Based on Global Value Chain Integration [J].. Commercial Research, 4, p.041.
Dollinger, M.J., 2008. Entrepreneurship: Strategies and resources. Marsh Publications.
Drucker, P., 2014. Innovation and entrepreneurship. Routledge.
Hung Lau, K.a.Z.J., 2006. Drivers and obstacles of outsourcing practices in China. International Journal of Physical Distribution & Logistics Management, 36(10), pp.776-92.
Jing, Y., 2008. Outsourcing in China: An exploratory assessment.. Public Administration and Development, 28(2), pp.119-28.
Kelley, D.J..S.S.a.H.M., 2012. The global entrepreneurship monitor. 2011 Global Report, GEM 2011, p.7.
Liu, R.a.T.D., 2008. Much ado about nothing:American jobs and the rise of service outsourcing to China and India (No. w14061). National Bureau of Economic Research..
Mankiw, N.G.a.S.P., 2006. The politics and economics of offshore outsourcing.. Journal of monetary Economics, 53(5), pp.1027-56.
Michael, S.C..&.C.J.G., 2008. Entrepreneurial failure: The case of franchisees.. Journal of Small Business Management, pp.73-90.
Olson, D.L.a.W.D., 2011. Risk management models for supply chain: a scenario analysis of outsourcing to China.. Supply Chain Management: An International Journal, 16(6), pp.401-08.
Tian, Y..L.F.a.D.F., n.d. An examination of the nature of trust in logistics outsourcing relationship: empirical evidence from China.. Industrial Management & Data Systems, 108(3), pp.346-67.
Zahra, S.A..S.H.J.a.D.P., 2006. Entrepreneurship and dynamic capabilities: a review, model and research agenda. Journal of Management studies, 43(4), pp.917-55.
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