Business Opportunity for an American product in Morocco - Coursework Example

?Business Opportunity for an American product (Clothing & Apparel) in Morocco Table of Contents Table of Contents 2 Introduction 3 Analysis of Moroccan Business Environment 4 Economic System 4 Political and Legal Systems 6 Cultural Norms and Values 6 Trade Policies 7 The Foreign Direct Investment (FDI) policy 8 Participation in Regional Economic Integration 8 Exchange Rates and Regulations 9 Recommendations Regarding Entry Strategies 10 Conclusion 14 References 15 Introduction In this fiercely competitive world, business organizations need to continuously expand in terms of its business structure, customer base, and market share as well. With this intention, business organizations often concentrate on expanding overseas during which foreign trade barriers are observed to have a significant influence over the organizational success. In this paper, the trade barriers and opportunities present in the Moroccan market will be analyzed with regards to textile and clothing industry with the purpose of suggesting entry strategies to an American clothing and apparel business enterprise. In this analysis the Moroccan trade policies in terms of Foreign Direct Investment (FDI) along with the integration of participation in regional economic structures. Notably, Moroccan market witnessed a new phase of its foreign trade relationship when the economic policies were reassessed and FDI flow was liberalized in the year 2005, rendering opportunities for a new business entering in the markets of Morocco from a foreign state. The economy also intended to execute certain programs which would facilitate the growth of industrial sector and thus benefited the new entrants to the economy (United States Agency for International Development, “Morocco New Business Opportunities Program”). With due consideration to the fact that the economic, social, political and legal factors persisting within the economic structure causes a strong influence on the organization entry strategies, this paper will emphasize on studying the Moroccan business environment with the objectives of the organization. Analysis of Moroccan Business Environment In this current business scenario, a foreign organization needs to face significant challenges in terms of the host country’s economic structure. For instance Morocco is known to be an Islamic nation. Similar to other majority of Islamic nations, the business environment of Morocco is highly influenced by the religious beliefs of the nation which might create certain challenges for the American Clothing & Apparel Company. Notably, King Mohammed VI, the pre-eminent authority of the political systems of Morocco, declared to build a democracy and granted limited executive power to the Prime Minister of the country in the year 2011. This facilitates a significant change in the economic structure of the nation developing it as a ‘Unitary parliamentary democracy and Constitutional Monarchy’ (Arieff, “Morocco: Current Issues”). Economic System According to the World Bank, the economic status of Morocco is often regarded as a Lower-Middle-Income (LMI) country. The Free Trade Agreement (FTA) with the United States was conducted by the government of Morocco in the year 2006 indicating the objective of the economy to enhance the trade relationship between the two nations, i.e. Morocco and US (United States Agency for International Development, “Morocco New Business Opportunities Program”). It is worth mentioning that in the current economic regimes of Morocco, Foreign Direct Investment (FDI) is considered as an important tool for its overall development. It is also regarded as a major indicator of the efficiency of those policies and incentives implemented toward investment activities undertaken by Morocco. Based on this notion, the economic trade policies within Morocco have been developed to facilitate the trade relationships on the international ground enhancing the business opportunities within the nation (PKF, “Doing business in Morocco”). It is in this context that the continuous growth attained by the nation in its recent fiscal performances, can also prove to be quite virtuous for new foreign entrants in the Moroccan business environment. For instance, the GDP earned by the economy has witnessed substantial rise since past three years which can be well identified with reference to the diagram below: Source: (Central Intelligence Agency, 2012) Political and Legal Systems Political environment of Morocco was highly influenced by the misconduct of the numerous illicit and a large numbers of activities which were illustrated as against the human rights. Moreover, the various parts of the country have been under detention by the government due to illegal activities. Hence, the lack of cooperation between the civilization and the government can be well observed in the Moroccan political climate which in turn contributed towards several issues in the political environment of the country (Oujani. “Morocco will not be an exception”). It is in this context that while concerning the political scenario in Morocco, a foreign entrant may consider the business environment to be unstable and thus unsuitable for expansion. However, the legal environment of Morocco in terms of trade facilities, has been considered with a large number of negotiates. This particular aspect of the legal environment of Morocco has been initiated since the year of 2002 in order to enhance the business environmental suitability of the nation in the international forefront which intends to facilitate the international trade in the country (Rogowsky & Chyn, “U.S. Trade Law and FTAs: A Survey of Labor Requirements”). Cultural Norms and Values The culture in Morocco is observed to be rich with multiethnic society indicating varied civilization practices and etiquette. According to the history of the country, it has been hosted by natives from various neighborhood countries and as a result of which, the Moroccan culture has emerged as a mixture of various ethnic beliefs. Being one of the Islamic nations, the cultural norms and values performed within the country can be observed as highly influenced by the religious teachings. It is worth mentioning that the society and its values in Morocco are fundamentally driven by paternalism which in turn significant affects the workplaces by influencing the flow of information within the nation (PKF, “Doing business in Morocco”). This particular aspect should be taken into concern by the American Clothing & Apparel Company while entering the market. Trade Policies Morocco has been applying trade reforms significantly since 1996 which were largely focused on eliminating a majority of its limitations on quantitative imports. Moreover, since the year 2005, the ‘Greater Arab Free Trade Area’ (GAFTA) and other import constituents have been admitted duty-free into the country to liberalize foreign trade relationships (World Trade Indicators, Morocco Trade Brief). Furthermore, with due consideration to its current trade policies, the economy also intends to facilitate outsourcing resources that in turn contributes to the enhancement of the trade facilities (Cattaneo & Et. Al., “The Potential for ICT-Development in Morocco”). The Foreign Direct Investment (FDI) policy With respect to the recent steps undertaken regarding Foreign Direct Investment (FDI) in Morocco, it can be stated that the country intends to facilitate larger amounts of FDI through trade aiming at the ailment of resources required for the overall development of the economy. Notably, the entrance of foreign investors and their encouraging impact on recruitment as well as the increasing productivity through larger FDI flows are expected to facilitate the expansion and internationalization of Moroccan enterprises which also ensure the presence of foreign investors in the share market of Morocco (OECD Library, The Role of Foreign Direct Investment in Morocco's Economic Development). Participation in Regional Economic Integration Morocco is one of the relatively low income countries that depend highly on textile industry in relation to export. The textile and clothing industries contribute a major part of manufacturing, employment and trade by a large extent in the Moroccan economy. Moreover, the textile and clothing have also been observed to contribute a large number of employment opportunities in terms of the entry-level jobs for inexperienced workers in Morocco (Keane & Velde, “The Role of Textile and Clothing Industries in Growth and Development Strategies”; PKF, “Doing business in Morocco”). Exchange Rates and Regulations The unrestricted authorization of import and export of commodities in Morocco has been constraint by the imposition of the Law No. 13-89 on overseas trade, especially when the transactions in question require high security and integrity in preserving country’s law and order, individuals’ physical conditions, Moroccan historical archeology as well as the stability of the country’s financial structure. Under this constitution, imports in Morocco is carried out under an importing FTA agreement prepared in five copies and directly undersigned by the authorized Moroccan banking intermediaries chosen freely by the importer (MoroccousaFTA.Com, “Moroccan Import and Export Regulations”). It is worth mentioning in this context that the financial structure of Morocco had to witness a deficit due to the inclusion of Euro since the year 2001 which has also partially changed the Moroccan trade policies and regulations (Commission of the European Communities, Commission Staff Working Paper). In the textile and garment industry, the ‘Decent Work Pilot Program’ (DWPP) tends to have a significant impact on the growth of the economic position of Morocco, which was initially launched in the year 2002. DWPP fundamentally emphasizes on the abilities of the government of Morocco, employers and workers to execute their sole responsibilities. This DWPP was developed together with these elements and customized according to the need of the country. DWPP process involves collecting and manipulating information on the decent work movements of the contributor countries (Decent Work Pilot Programme, “Country Brief: Morocco”). Recommendations Regarding Entry Strategies In the current industry competitiveness of Morocco’s textile and clothing sector, the effort of the partners can be identified as one of the most important reliable factors for both the foreign and national organizations. According to the history of strikes and anxious relations persisting within the employees and employers in the industry as well as the assurance of the social ventures in the DWPP, apparently signifies the recognition of the need to move to more constructive patterns of workers relations so as to operate with efficiency in the country. In addition, joint ventures would also intend to mitigate the different challenges that have been taking place in the business environment of the nation since the implementation of DWPP, partly because of the arguments within the trade unions which took place for the first ‘Tripartite Steering Committee’ meeting in the year 2002. The objective was also consists of developing the culture, escalating the mechanism for discussion as well as introducing conflict determination and resolution process with efficiency. Moreover, the program initiated that development of the textile and clothing division relied on the commitment of employers, of unions as well as of the government (Decent Work Pilot Programme, “Country Brief: Morocco”). This in turn depicts that employee-employer relationship within Morocco is quite significant for an effective start in its business environment where the joint venture initiative can prove to be highly advantageous. With a similar perspective, the evolution in the developing of human resource policies in Morocco has made considerable developments in civilizing the social conditions. The country has recently introduced a number of reforms that are determined to endorse human rights and developing financial structure. The National Human Resource Development Strategy has a large role to play in the success by taking some initiatives (Decent Work Pilot Programme, “Country Brief: Morocco”). Joint ventures are also quite likely to enhance the efficiency of the foreign company to understand the cultural impacts led by the cultural prospects on the business environment of that particular host country. It is worth mentioning in this context that from an American culture, the culture of Morocco is observed to be widely different which in turn tends to create a significant influence over the organizational operations to a large extent. Moreover, with due consideration to the fact that relationship between employees, employers and the government in Morocco is quite unstable and ineffective, the American company needs to provide greater consideration toward enhancing the workplace coordination along with developing a coordination with the government and other members in the supply chain. Morocco has executed a large numbers of economic improvements since 1980 to strengthen its microeconomic stability and also speed up its incorporation into the world’s marketplace. The measures adopted fundamentally focuses on enhancing the ‘per capita income’, lowering fiscal and current account debits and minimizing the rate of inflation to modest rates in the upcoming years. This in turn depicts that in the upcoming period, Morocco shall rise as a potential market of foreign exposure with more stable economic and political environment. Significantly, the market opportunity in Morocco for US companies and investors can be identified in terms of large consumer class and persuasive growth of the economy with a substantial enhancement in the GDP earned by the economy. Furthermore, a successful accomplishment of economic reformation curriculums sustained with World Bank, International Monetary Fund (IMF) and the Paris Club, which in turn emphasizes on formulating the trade regulations of Morocco. In the similar context, the same regulatory bodies also tend to operate within US and various other economies in the international forefront which develops a common concern amid the engaged economies through trade relationships. It is in this context that the American economy shall also be able to attain certain incentives with regards to the trade regulations (Morocco and American Trade and Investment Council, “Economic Profile of the Kingdom of Morocco”). According to Morocco’s economic priorities, the political and the democratic transition has been shared through demanding reforms in the direction of the significant growth. This signifies the view of a faster growth of the government along with the international organizations that simultaneously intends to reduce income disparity and poverty within the nation. This part of a wider integrated development strategy has been set out in the Morocco’s national development plan. The strategy consists of four main elements namely regional development and integration, youth employment, women’s involvement in the development of the country as well as significant steps to prevent poverty and exclusion (Morocco and American Trade and Investment Council, “Economic Profile of the Kingdom of Morocco”). With due regards to the fact, it can be stated that corporate social responsibilities through ethical standards can be of significant assistance to the sustainable growth of the American company in Morocco. The existing manufacturing industries in the country’s textile and apparels sector has been observed to decline due to the entering of the foreign competitors including Chinese and Indian manufacturers (Morocco and American Trade and Investment Council, “Economic Profile of the Kingdom of Morocco”). It is because of the fact that on the basis of the requirement of adequate power and raw materials for textile and apparel industry, Morocco is one of the sophisticated destination for the manufacturers. It has been predicted by the economists that the energy division in the country will sustain a growth for the entire country. As well as the availability of the handicraft related raw materials in the country has been signified as a center of attention for manufacturers all over the world (Morocco and American Trade and Investment Council, “Economic Profile of the Kingdom of Morocco”). The efficient transportation facilities of Morocco can also influence the manufacturer to make growth in the industrial revenue. The competence source of transportation also ensures the supply of products in different parts of the country along with the neighborhood countries of Morocco such as Tunisia, Algeria, Mauritania and Libya with minimum cost and in a time efficient way which acts as an additional incentive for the investors (Morocco and American Trade and Investment Council, “Economic Profile of the Kingdom of Morocco”). This indicates a significant competitive environment within the nation which in turn favors the initiative of joint venture to instigate a foreign business within the Moroccan textile and clothing industry. Conclusion With reference to the above discussion, the textile and apparel industry in Morocco can be regarded as one of the significant marketplaces for US entrepreneurs due to various reasons which majorly include the increasing concern of the government towards facilitating FDI inflows. From this perspective, the economy is intending to enhance the working conditions developing the economic, legal as well as the political environment as more stable and welcoming toward a foreign investor. Moreover, the economy has also been observed to earn a substantial growth rate over a few years which depicts considerable future growth prospects for the economy and thus acts as an advantage for the American organization. By entering the Moroccan economy, the American company can also attain the advantage of a time efficient and cost effective distribution channel due to the virtues of easily available power and transportation along with laborers. However, the economy also possesses certain disadvantages in terms of unstable current scenario of the political environment. Even though the country is emphasizing on the liberalization of trade regulations through FTA, the control barriers for foreign trade are yet quite high to support the American company in its initial period. Thus, it can be stated that Morocco is an exceptional location as a provincial center for trade, manufacturing and distribution along with sales, technology and communication services and so on which can be quite advantageous for the American clothing & apparel company. References Arieff, Alexis. Morocco: “Current Issues. Morocco: Current Issues”. April 13, 2012. Analyst in African Affairs, 2011. Cattaneo, Olivier & Et. Al. “The Potential for ICT-Development in Morocco”. April 13, 2012. Outsourcing is a Major Driver of Trade, 2007. Commission of the European Communities. “Commission Staff Working Paper”. April 13, 2012. Country Report, 2004. Central Intelligence Agency. “Africa: Morocco”. April 13, 2012. The World Factbook, 2012. Decent Work Pilot Programme. “Country Brief: Morocco”. April 13, 2012. The National Context, No Date. Oujani, Fouad. “Morocco will not be an exception”. April 13, 2012. Emaj Magazine, 2012. Keane, Jodie & Velde, Dirk Willem te. “The Role of Textile and Clothing Industries in Growth and Development Strategies”. April 13, 2012. Economic Aspects of the Textile and Clothing Industries, 2008. MoroccousaFTA.Com, “Moroccan Import and Export Regulations”. April 13, 2012. Non-Tariff Measures Enforceable in Morocco. Morocco and American Trade and Investment Council. “Economic Profile of the Kingdom of Morocco”. April 13, 2012. Economic Reform, 2012. OECD Library, “The Role of Foreign Direct Investment in Morocco's Economic Development”. April 13, 2012. Finance and Investment, 2010. PKF. “Doing business in Morocco”. April 13, 2012. Government Policy on Foreign Investment in Morocco, No Date. Rahmouni, Hassan. “Doing Business in Morocco”. April 13, 2012. “The Organization of the Judicial System in the Kingdom of Morocco”, No Date. Rogowsky, Robert A. & Chyn, Eric. “U.S. Trade Law and FTAs: A Survey of Labor Requirements”. Journal of International Commerce and Economics. United States Agency for International Development, “Morocco New Business Opportunities Program”. April 13, 2012. Final Report, 2009. World Trade Indicators, “Morocco Trade Brief”. April 13, 2012. Trade Policy, 2009/10. Read More