FDI Strategy of an American Based Firm - Case Study Example

?Running head: FDI STRATEGY FDI Strategy 29th November Introduction Based on the stiff competition that is currently experienced by local firms, most of them have taken the initiative of going global as a way of capturing more customers. One of the major strategies that companies have emulated is establishing new branches in foreign countries where the market is unexploited. To be successful in foreign markets, it is imperative to adopt effective marketing strategies including proper pricing and advertisement as a way of enhancing consumer awareness. Additionally, firms should take into account the economic and political instability of foreign country that they want to invest. This is based on the fact that any instability either political or economic might have adverse effects on the performance and profitability of the entity. This paper analyses the strategies that AT&T, an American based firm would emulate in its endeavor to enter Morocco market. AT&T Company AT&T is a telecommunication company based in US. With Its headquarters in Whitacre Tower, Texas, United States, the company is the largest provider of fixed telephony as well as mobile services. Additionally, the company provides IP-based communication services to US companies making it to enjoy high revenue. To ensure that businesses across the US emulate effective communication among themselves and with their customers, AT&T under the leadership of Randall Stephenson the CEO, provides a 4G network that covers more than 280 million people across major cities. One of the major factors that have made the company to attain a competitive advantage over its competitors in the US telecommunication industry is the extensive use of the technology. For example, the company has initiated AT&T U-verse a high technology TV that has wide range of features and capabilities making it a dream product for US residents and other foreign customers. With an operating income of more than US$ 16.309 billion and total assets worth US$ 270.344 billion, AT&T Company has the ability to enter Morocco market. Although it is new company in the market, it foreign domestic investment strategies will play a significant role in facing off challenges that might occur in the new market. Challenges and advantages of AT&T entry of Morocco market One of the major challenges that the company will face in the new market is lack of adequate customers. It is worth to note that most of the Morocco citizens are already loyal towards Maroc Telecom, the major telecommunication company in Morocco. This implies that AT&T will need to undertake extensive marketing to attract the attention of customers. Being a new company from a foreign country, majority of the telephone users may hesitate to switch to new operator since they are not aware of its benefits or intention. Another challenge that the company will face is stiff competition. Even though AT&T is well established in US, Maroc Telecom is equally recognized as a valuable company in Morocco. In this way, Maroc has acquired a wide market that has made it to acquire a competitive edge in the country (Timmons, 1994). An additional challenge is the political factors. Even though its entry in the new market has a long term impact on the Morocco economy in terms of creating employment and reducing poverty, the government may hesitate to support its operation in its effort to protect domestic companies. Despite the various challenges that AT&T will face in the new market, the company is financially strong. This implies that it has adequate resources at its disposal to enter the new market. For example, the company can employ skilled employees from its competitors by giving them high salaries and more benefits. In the same way, AT&T can lower its prices to a level that customers will start moving away from the domestic companies to adopt AT&T services. Based on its product diversification and large sales in the US market, lowering of the initial prices will not have a significant impact on its revenue. Another advantage of the AT&T in Morocco market is that it will use its skilled manpower both in the engineering and marketing department to come up with high technology services that are not comparable to the domestic services. Based on the increased use of internet in the business sector, the possibility of Morocco companies switching to AT&T services will be high. Ways for your MME to minimize foreign exchange risks Based on the strength of the US dollar as compared to Moroccan dirham (MAD), AT&T should adopt strong microeconomic policies to avoid foreign exchange rates (World Bank Indicators). One of the major ways that the company should use is to prioritize local currency loan over foreign currency. One of the major economic strategies that the Morocco government has adopted is the restriction of the exportation of the local currency but supports the importation of foreign currency. This implies that the company is at liberty to convert US dollar to local currency through the approval of Bank Al-Maghrib, the Morocco central bank. To address risks associated by foreign exchange, AT&T will have to employ a Moroccan based economist who will strategize on the microeconomic factors that the company will put in place. Ways that AT&T will leverage government policies to maximize the profitability For a foreign venture to effectively penetrate new market, government policies cannot be overlooked. The first step that AT&T should take is to ensure that it is conversant with the Morocco legislations that govern foreign investments. Secondly, the company should ensure that it acquires the mandatory license from the government to operate in the country. Based on the significant of the foreign companies in creating employment in Morocco, the government fully support external investors an aspect that is advantageous to the profitability of AT&T. Being a foreign company, AT&T should ensure that it comply with the taxation system of the country. For example, the company is subject to 30% corporate income tax since it is a nonresident company that will derive taxable income from operations carried on in Morocco (Mishkin, 2004). A key issue that is likely to enhance the profit derived by AT&T is that Morocco government offers same tax incentives to domestic and foreign companies. In this way, it creates equality that makes the companies have adequate resources to expand their activities. To avoid conflict with the government policies, it is essential for AT&T to employ local residents as a way of promoting economic growth in the country. Being a country that largely depends on exportation of phosphorus among other minerals, Morocco is focused at improving its GDP by creating jobs for its citizens. This implies that even though AT&T may need to import experienced man power from US to initiate its strategies, it should ensure a significant number of its employees are from Morocco. Such employees should be recruited in the marketing departments since they are aware of the services that the consumers like and dislike. In this way, AT&T will achieve high sales and sustainable profits. Financial management, operations, marketing, and human resources needs To ensure effective financial management, AT&T should establish an accounting office that is under the control of a financial manager. Based on the high expenditure that the company will experience at the initial stages, it is necessary to ensure that its finance is well planned. This implies that the company headquarters should allocate more resources to cater for marketing services, hiring and training of employees and legal fees. One way of ensuring proper financial management is by importing a financial manager from the headquarters since he or she is more aware of the company financial position. Other staff in the finance department can be hired from Morocco as long as they are certified public accountants. Due to the competition in the Morocco telecommunication industry, it is imperative for AT&T to open administrative and support offices in various towns within the country. In this way, its operations in the country will be enhanced. It is worth to note that most internet users are keen on the speed of the internet as compared to the costs. In this regard, establishment of offices will ensure that company services reach the new customer in a timely manner. Extensive marketing is an aspect the AT&T should not overlook. As mentioned earlier most of the local residents are loyal towards domestic telecommunication companies. This implies that AT&T should establish a marketing department that will be responsible for overseeing all the marketing strategies of the company. Skilled marketing executives and a marketing manager will be paramount in ensuring that products are easily accessible by the customers. Being a new company that is aimed at getting large number of new customers, AT&T should utilize local TV stations and newspapers to advertise its services. Another way to market its products is by initiating promotion where customers would win mobile phones and other products after participating in competitions held through road side shows or through local newspapers. Human resource is a major aspect that determines the success or failure for any organisation. As a new venture, AT&T should launch its operations by hiring and recruitment process. For example, the company should advertise for vacancies to be filled with graduate who posses degree of higher national diploma in information technology, human resources management, accounting, engineering among other technical courses. In this way, the company will hire skilled man power that will oversee its operations. To ensure adequate management of employees, AT&T should use its head office HRM department to come up with strategies on how to motivate new employees. This should include initiating flexible benefits programs that will motivate new employees. To ensure strong human resources department, AT&T should initiate a training program that entails taking its employees for further training in US. Being a US based firm with technology and innovation as its main driving forces, AT&T should ensure that its employees are conversant with the company policies that have made it successful in the US market. Another way of ensuring skilled man power is by establishing its own training institution in Morocco. Through such institution, learners will be trained on the courses such as Bachelors of Science in telecommunication, electrical engineering, computer science and other science based courses. In this way, the company will have adequate and skilled at its disposal an aspect that will reduce the costs of training and hiring new workers. Conclusion Initiating foreign domestic investment is a key strategy for economic growth of any country. To ensure the success of foreign companies in new markets, it is vital for a company that is focused at going global to undertake a risk analysis. This entails understanding the political, economic, social and cultural challenges that a foreign company will face in the countries they wish to invest. This implies that companies such as AT&T that are aimed at entering new market should hire political analysts, economic experts among other professionals. In this way, foreign companies will have adequate strategies to address political and government issues, risks of currency fluctuations, cultural diversity among other aspects that may jeopardize their operations in foreign countries. References Mishkin, F. (2004).The Economics of Money, Banking, and Financial Markets. Boston: Addison-Wesley Timmons, J. (1994).New Venture Creation - Entrepreneurs for the 21st Century. Chicago: Irwin. World Bank Indicators. Morocco-Interest rates. Available from http://www.tradingeconomics.com/morocco/lending-interest-rate-percent-wb-data.html Read More