Suitability of Yemen for Multinational Business - Term Paper Example

Dimension of Distance Location or geography is one of the determinants of success next to (Mohanty 31). In connection, in deciding for agood business location, political environment is always taken into consideration. A country will encourage more investors if its political setting is mature, stable, and certain at a national level. This is normally reflected in costs and regulatory requirements imposed in the country, and most importantly, the imposition of taxes at the domestic level. Yemen is a Unitary Presidential Republic or Parliamentary Republic located in the Middle East with Oman (east) and Saudi Arabia (west) as its common border countries. It has a total land area of 527,968 sq km (203,849 sq mi), and it is the 50th largest country in the world (“Middle East: Yemen”). As of 2011, the total population of Yemen is 24,133,492 (70% are Muslims or Arab), which is number 49 in the world ranking. Yemen’s type of government is a Presidential Republic, and it has a 2-part legislature (House of Representatives & Shura/Consultative Council) with an executive branch headed by President Ali Abdullah Saleh (head of government & state) and Prime Minister Mohammed Mujawar. The country’s election is generally held every after 6 years for the lower house and 7 years for the President; however, many allegations have aroused regarding the poor regulation of the electoral system, which is considered unfair and fraudulent in many grounds. “Jews, Christians, and Hindus, the non-Muslim indigenous minorities, may vote but according to a 2001 Election Committee decision, they cannot hold elected office” (“International Religious”). The Yemeni Constitution is according to Shariah or Islamic law; thus, many issues about religious discriminations and human rights violations have emerged, which lead to violent protests and demonstrations. Uprising against the government of President Saleh had started in early 2011 when the Yemenis had asked him to resign after 21 years in the presidency since the reunification in 1990. The people have demanded Saleh to step down because the country is not well-managed under his administration as shown in the country’s high unemployment record (11%), deep poverty, and government corruption. In fact, there are only 57% and 39% Yemenis believed that the government has the capacity to improve good governance, peace, and poverty level (“Yemen Ranked 106”). Since the violent protests and demonstrations, the security and political setting are deteriorating. This made Yemen a deeply divided and poorest nation in various world indices, particularly in the Arab world (Bakri and Goodman). The Yemenis are highly discouraged on their government’s position about environmental preservation, particularly in the country’s oil resources and freshwater. There are several environmental regulations that have been enacted to govern hazardous wastes, soil erosion, desertification, carbon emission, and many more, but these are not properly observed and seriously implemented by the government. Culture. In every investment, customs and behaviors of people are necessary factors of success because these will determine if the company’s domestic product/services are acceptable in the new market. Figure 1 shows Yemen’s national culture using Hoftstede’s cultural dimensions. Figure 1: Index Scores of Hofstede’s Dimensions for Selected Islamic Countries (2009) Source: (Eune and Lee 1217) The figure illustrates that Yemen is a low power country, which indicates that there is fairness in the distribution of power. Also, a high score in individualism gives more importance of personal choice and not in the group. Furthermore, Yemen has a moderate masculinity score, which indicates that the society is focused on future achievements and motivated by success in terms of money, material things, and work. Yemen has a weak uncertainty avoidance, which means that people are prepared to take risks because they are comfortable in ambiguous situations. A low score in the long term orientation indicates that the society is concerned with past or current events. Cultural barriers and restrictions in terms of freedom in religion, civil liberties, gender disparities, racial or ethnic minorities’ discrimination, etc., are also present in Yemen. Laws. Business laws or foreign regulations in Yemen are created in favor to overseas companies or industries to encourage investment. The government has changed the image of the Yemen’s business structure and environment by developing the General Investment Authority (GIA) and the Investment Law of 1991, so that foreign investments will increase, particularly in natural resources sectors. In addition, they are giving generous incentives including tax exemption/breaks (profit), import and export duties, profit sharing arrangements (PSA), free capital flows, and free-market economy. Furthermore, “the law accords foreign investors the freedom to own property and implement projects without acquiring any permit from the government” (“Yemen: Country Analysis” 10). 2. Yemen’s Institutional Contexts Yemen has the lowest ranking in various world indices that cover basic factors such as GDP, political system, literacy rate, good governance, and many more (see figure 2). Figure 2: Index of Comparisons Source: (“Yemen Ranked 106” 322) Based on the Legatum Prosperity Index, Yemen’s economy based on their GDP is declining, inflation rate is above the average level, and unemployment rate is high; thus, their prospect to be moved from one of the least developed countries (LDC) is very poor. Also, the confidence level towards the government is weak, literacy rate and health spending are low, security is deteriorating because of political intimidation, and the people are not working as one community. See figure 3 for the sub-index ranking of Yemen in 2010. Figure 3: Sub-index Rankings (2010) Source: (“Yemen Ranked 106” 322) On the other hand, despite the government’s effort to attract foreign investments by establishing favourable foreign policies and tax incentives, the country’s external environment is less encouraging. The latter is facing travel, economic, and financial sanctions because of political instability, poverty, corruption, human rights violations, civil liberties restrictions, scarcity of natural resources, cultural calamities, and many more. This country context indicated that Yemen is not a good country for investment. However, the government’s commitment to a reform process, good governance, poverty reduction, and a free-market economy will make multinational businesses reconsider the country. Multinational businesses need to be proactive with their strategies considering that Yemen’s country contexts in terms of economy and political setting are less favorable. Also, they should always seek the government’s support or assistance in most of their business transactions, use new technologies, and gather lots of information about Yemen’s totality (Bhatti and Kumar). Furthermore, the Yemeni government is very serious in its role as an implementer of a free-market economy and tax incentives to offshore companies and individual investors, thus, encouraging them to invest in Yemen. In fact, they have participated in several international trade and investment relations (e.g. bilateral agreements & Gulf-EU free trade agreement), and an active member of different international organizations like WTO, UN, Arab League, IMF, OIC, etc. Also, multinational companies are given various ways to enter the Yemeni market by appointing commercial agents or distributors, creating branch/representative offices, joint venture with local governments, 100% foreign ownership, and many more. 3. The Role of Yemen’s Economy and Industrial Clusters in the Global Economy The economic environment of Yemen is not attractive to foreign investors because of its declining economy, standard of living, market confidence, educational system, and exchange rate while government corruption and inflation are high. Figure 4 below shows the GDP evolution of Yemen, which illustrates that Yemen’s economy is depreciating. Figure 4: Evolution of GDP Growth in Yemen, 1993-2008 Source: (“Yemen: Country Analysis”16) The growth of the economy is linked to the capacity of the people to spend; thus, investors cannot assure a good return of investment in a country whose economy is declining. The government also has adapted several measures to enhance the country’s institutional context, particularly the declining revenue in natural resources sectors. Yemen’s major export destinations are China, India, Thailand, and Australia, and its main export items are crude oil, coffee, dried and salted fish while its import items are food and live animals, machinery and equipment, and chemicals (“Yemen”). The country has a greater export share (0.59) than its import share (0.017) in 2007-2008 as shown in figure 5. Figure 5: Yemen’s Export and Import Shares (2001-2008) Source: “Yemen” Crude oil production and petroleum refining are among the major industries in Yemen; in fact, “Crude oil is extremely important for the Yemeni economy as it provides over 70% of total export earnings” (“Yemen: Country Analysis”10). Thus, to recover their earnings in the oil sector, the government has signed several exploration and production-sharing arrangements with investors worldwide. On the other hand, Yemen’s ranking in terms of doing business is number 66 (out of 183 countries) as shown in figure 6. Figure 6: How Yemen, Rep. Ranks on Doing Business Topics Source: (“Economy Profile 8”) 4. Yemen Global Diffusion of Technology According to Keller, “International technology diffusion is important because it determines the pace at which the world’s technology frontier may expand in the future” (752). Global diffusion of technology can be interpreted in the number of foreign direct investment (FDI), research and development agencies, technology infrastructure, and overseas investment that technologies can be transferred from highly developed countries. In Yemen, technology diffusion is hampered because of “weak technology ICT infrastructure, including very low availability of mobile phones...[and it is] among the bottom 20 countries in levels of internet bandwidth and the number of secure internet servers” (“Yemen Ranked 106” 322). Also, Yemen’s FDI is declining with an inward FDI of $917 million in 2007 to $463 million in 2008 while it has an outward FDI of $54 million in 2007 and $66 million in 2008 (“World Investment Report”). Works Cited Bakri, Nada, and J. David Goodman. “Thousands of Yemen Protest Against the Government.”New York Times. New York Times, 27 Jan. 2011. Web. 8 Feb. 2012. . Bhatti, Mohammad Awais, and Dileep M. Kumar. “Internationalization Factors and Entrepreneurial Perception: Indication from Yemen SME’s.” Far East Journal of Psychology and Business 6.1 (2012): 1-21. Print. “Economy Profile: Yemen, Rep.” Doing Business. The World Bank, 2012. Web. 8 Feb. 2012. PDF file. Eune, Juhyun, and Kun Pyo Lee. “Analysis of Intercultural Differences through User Experiences of Mobile Phone for Glocalization.” International Association of Societies of Design Research. Korea Society of Design Science, n.d. Web. 8 Feb. 2012. PDF file. “International Religious Freedom Report: Yemen (2005).” Jewish Virtual Library. The American-Israeli Cooperative Enterprise, 2005. Web. 8 Feb. 2012. . Keller, Wolfgang. “International Technology Diffusion.” Journal of Economic Literature XLII (2004): 752-782. Print. “Middle East: Yemen.” The World Factbook. Central Intelligence Agency, Jan. 2012. Web. 8 Feb. 2012. . Mohanty, Pragati. Hotel Industry and Tourism in India. Darya, Ganji: S.B. Nangia, 2008. Print. “Yemen.” The Federation of Pakistan Chambers of Commerce & Industry. The Federation of Pakistan Chambers of Commerce & Industry, n.d. Web. 8 Feb. 2012. PDF file. “Yemen: Country Analysis Report - In-depth PEST Insights.” Datamonitor. Datamonitor, Nov. 2010. Web. 8 Feb. 2012. PDF file. “Yemen Ranked 106.” The 2011 Legatum Prosperity Index. Legatum Institute, n.d. Web. 8 Feb. 2012. PDF file. “World Investment Report 2009.” United Nations Conference on Trade and Development. United Nations Conference on Trade and Development, n.d. Web. 8 Feb. 2012. PDF file. Read More