Entry into foreign market - Assignment Example

? Entry into foreign market Contents Introduction 3 Risk factors and whether Supports Entry 3 VRIO Analysis 4 Existing Cultural Issues 5 FDI or Subcontract 6 Recommendation 7 Greatest Difficulties 7 Reference 9 Introduction Cameron International Corporation provides flow equipment along with equipment in pressure control for both sea oil and land rigs. The company ventured towards FDI dealings with Brazilian companies which tends to manufactures items for the “Brazilian oil and gas” industry and thus support expansion strategy in the respective market. The company recently plans to expand into Myanmar, formerly Burma. The reason behind choosing Myanmar is the business opportunity that it intends to provide the international companies entering the country for the purpose of doing business. Myanmar’s potential with investment and trade are huge and the country is dynamically endeavored in the development of the economy (Ministry of Commerce, 2011). Myanmar’s facilities made available for the foreign investment also makes it attractive to enter the region. Foreign investors has been given the right to incorporate in the country with 1005 foreign owned company, establish as well as operates as 100% owned foreign partnership (Myanmar.CA, n.d). Risk factors and whether Supports Entry Analyzing the market condition in Myanmar, have shown ample opportunity for the foreign companies to expand and enter Myanmar. Investing in Myanmar can sound very lucrative as the market is surrounded with diverse range of business opportunities and is rich in natural and mineral resources so Cameron International Corporation has all the valid reason to expand its business and expand into oil and gas resources in Myanmar. However with opportunities of the company to enter Myanmar, the foreign country is also associated with risk such as low economic growth. The economic growth is rated below the potential growth about 6% in the fiscal year 2012-2013 which is driven by FDI in sectors such as infrastructure, oil and energy. Consumption seems to remain stable built it does not contributes towards the economic growth due to the population under the poverty line. Inflation is expected to reach about 5.8% in 2012 and 2013 and this is because of the inability of the central bank to induce monetary growth. The GDP is also expected to deteriorate along with the service sectors. Further Myanmar had in the past two set of exchange rates which recently changed into a single exchange rate which aims to remove distortion of market favoring the mode of entry through FDI (Global Edge, 2012). Myanmar is among the emerging market and has been undergoing economic as well as political reform and doing business in Myanmar are subject to risk (Austrade, 2012) and thus Cameron International Corporation should thoroughly investigate the conditions of the market before entering the market. But Myanmar has huge opportunity and it is feasible to enter the market. VRIO Analysis The VRIO framework was initiated by Barney and VRIO stands for Valuable, Rare, and Inimitable and organized (Kazmi, p.127). Valuable: If Cameron International Corporation enters Myanmar, it will be valuable for the company as Myanmar is well versed in natural and mineral resources and the company entering the market with its oil and gas will proved to be valuable for the company and the economy as a whole. Therefore it can be said that the entry into Myanmar market is valuable and should be encouraged so that better opportunity and business prospective are developed and leads to economic growth. Rare: Cameron International Corporation provides flow equipment and pressure control equipment for both land and sea oil rigs and incurs revenue of $6,134.8million along with net profit of $562.9million in 2010. Since Myanmar has huge natural and mineral resources, the company will be able to utilize it effectively. Inimitable: the work done by the companies are hard to imitate as it requires heavy capital and huge brand name. The company has a huge brand name and is able to generate profits on year to year basis. With respect to Myanmar, the foreign market has various opportunities for the international companies to enter but the opportunities are not very rare as all the emerging countries posses’ one of the opportunities. However, the availability of abundance natural resources can be said to be rare and investing in Myanmar will prove to be beneficial for the company. Organized: the foreign market, Myanmar suffers from various weaknesses and one of them is lack of organized sectors both in public and private sectors. The country lacks from structural reforms which can hamper the entry of the international brands into Myanmar. Existing Cultural Issues In Myanmar the women has equal status along with men with respect to marriage, divorce and inheriting the properties. The Myanmar population pride themselves towards proper etiquette and at the same time they are equally sensitive. The working conditions are different from that of other countries mainly the western countries. People based in Myanmar are usually reluctant to say no to any visitors especially foreign visitors. With respect to the working condition, Burma labor condition is said to use forced labor on projects. According to the ILO, International Labor Organization, the authorities of Burmese had not yet discontinued the practices and has thus advised the other members to review the relationship with Myanmar (Advameg, Inc., 2012). Myanmar and US culture differs from each other, right from the working condition to manners to etiquettes. Therefore to tackle the problem of cultural differences Cameron International Corporation should provide training to its employees so that when the firm enters the Myanmar market, it does not have to face problems and cultural shock. Cultural shock is one such reason which leads to business failure and an important issue which must be dealt effectively. Thus analyzing the existing cultural difference it can be said that before entering Myanmar the employees needs to learn and apply the culture of Myanmar to attract and capture the market share. FDI or Subcontract FDI is the new buzz word in the emerging countries and is a way through which the foreign countries are able to enter the emerging countries and incur profits to maximum extent. It can be said that FDI is the best suitable option for any company which is planning to enter foreign market. Based on the above discussion it can be said that Cameron International Corporation should enter Myanmar through FDI and not through sub contract. FDI has the ability to generate favorable outcomes for Myanmar, its society and the political factors which depend on the framework of where FDI takes place. FDI in manufacturing and other sectors will enable the host country to derive creation of job, local suppliers, exports and non tax revenue in case of FDI (Moran, 2012). The government in Myanmar has been encouraging FDI flows to induce economic growth rate and financial stability of the society and to encourage foreign investors to invest freely in the host country. ASEAN countries are the major sources of FDI for the host country which accumulates about US $10,000 million. The major investors are EU, Thailand, UK, and Singapore along with Malaysia. Thus it would be feasible for the company to enter through FDI in Myanmar. Recommendation Cameron International Corporation can enter into joint venture with Myanmar Oil and Gas Enterprise (MOGE) which is a state owned company. The company would engage would MOGE with about 40%. Since Myanmar has been facing certain difficulties for which the company will not engage with a major percentage. Greatest Difficulties Three greatest difficulties for the company to enter Myanmar are the economic instability, issues with regards to FDI and cultural differences. Myanmar has been facing economic instability with low growth of GDP which has decreased over the years. But with the natural resources, the country has the possibility to grow and improve its GDP growth rate. The company can implement strategies such as investing in the host country in collaboration with any state owned organization such as Myanmar Oil and Gas Enterprise. Next difficulties are with regards to FDI. Myanmar has been encouraging international brands to enter the market. Although the rate of entry is particularly low as compared to other emerging countries but it can be said that the country has the potential to improve its FDI content and the Cameron International Corporation by investing into Myanmar will prove to be beneficial for the country as well as the company. Another major issue is cultural differences, Cameron International Corporation is a US based company and its way of doing work generally differs from that of the working condition in Myanmar which might lead to issues in entering and expanding the business. Thus the company can provide effective training to the employees who will be operating in Myanmar so to get a glimpse of the culture of Myanmar and deal effectively. Thus despite of the major difficulties in entering and doing business with Myanmar, it can be concluded that it still exists to be one of the most emerging countries by the foreign markets and like US many other countries plans to expand their business in Myanmar. Reference Advameg, Inc. (2012). Burma (Myanmar) - Working conditions. Retrieved from http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Burma-Myanmar-WORKING-CONDITIONS.html Austrade. (2012). Doing Business. Retrieved from http://www.austrade.gov.au/Doing-business-in-Myanmar Global Edge. (2012). Burma: Risk Assessment. Retrieved from http://globaledge.msu.edu/Countries/Burma/Risk Kazmi, A. (2008). Strategic Management And Business Policy. India: Tata McGraw-Hill Education. Ministry of Commerce. (2011). Business opportunities. Retrieved from http://www.commerce.gov.mm/index.php?option=com_content&view=article&id=94&Itemid=83&lang=en Moran, T. H. (2012). FDI and Burma’s future development. Retrieved from http://www.dvb.no/analysis/fdi-and-burma%E2%80%99s-future-development/23571 Myanmar.CA. (No Date). Doing Business in Myanmar. Retrieved from http://www.myanmar.ca/business/index.htm Read More