Identification and Evaluation of Business Opportunities - Essay Example

?International Business Table of Contents Introduction 3 Critical Analysis of: 4 Political Risk 4 Economical Risk 5 Cultural Risk 7 Ethical Risk 8 Identification and Evaluation of Business Opportunities 9 Appropriate Examples of Companies to Support the Argument 11 Findings and Recommendations 12 Conclusion 14 References 15 Introduction International business has attained a whole new dimension in the present globalisation driven era especially with the aid of technological advancements. Exploring new regions for investing and building a business setup has given the modern business scenario a plunge to develop. Hong Kong in recent scenario has been ranked as the ‘World’s Freest Economy’. It essentially represents a business hub within Asia, which provides the foreign investors proximity to rich culture, social customs and international business environment and diversified languages. These basic characteristics of Hong Kong assist the investors to invest more in the regional and global markets. Global reports state that Hong Kong continues to be the Asia’s second and world’s third major recipient of ‘Foreign Direct Investment’ (FDI). Furthermore, in accordance with the report presented by the World Bank, it can be ascertained that Hong Kong is considered to have bagged the second position associated with ease in conducting business within the region. Hong Kong government has implemented advanced measures in endorsing a market that entails policy related to minimum government interference. In Hong Kong, foreign investments are readily welcome and there exists no law for protecting the local business against the international competitors. Another advantage which Hong Kong enjoys is its location in central Asia from where all the key markets are at a distance of merely four hours by air (PwC, 2012). This report intends to discuss the strategic operational facets related to a major British international retailer, which wants to expand its business in one of the Asian Dragon’s i.e. Hong Kong. It provides an insight about the implications of political, cultural, economic and ethical risks associated with the foreign business. Identification along with evaluation of the opportunities frames a vital part of the study with the inclusion of appropriate examples. Furthermore, it will provide findings and recommendations related to the market entry strategy required for the international retailer to enter the Hong Kong market. The key aim of the report would be to reveal the attractiveness of Hong Kong in terms of potential return on investment. Based on the analysis, the feasibility of the nation would be determined and accordingly recommendation would be placed to the management of the retailer whether it can invest or not. Critical Analysis of: Political Risk Political factors of any region frame an important constituent for new business setup. It frames the bases of the policies and regulations that are needed to be adhered by the new business setup for growth and continuation of trade. For any foreign investors, it becomes necessary for them to acquire a vivid understanding about the political conditions prevailing within that particular region. If a particular region enjoys favourable political relationships, it initiates stable business environment and facilitates to accelerate the international collaboration in many of the areas. Furthermore, stability in political conditions further increases the foreign business opportunities by lowering the risk factors. Considering Hong Kong with regard to the political condition, ‘The HK Special Administrative Region (SAR)’ was basically headed by Donald Tsang, whose tenure of being the Chief Executive ended up in the year 2012. Furthermore, Hong Kong is considered to be a free and an open society, where the courts are free to take independent decisions, human rights are greatly respected, stable law is abided by the citizens and they are empowered with the ability of changing their government. The various political parties being prevalent within the regions are Democratic Party, Frontier Party, Civil Party and the Liberal Party among others. These various political parties play a vital role in reframing the policies and regulations being executed in Hong Kong. The decisions laid down by these parties lay a greater impact upon the foreign business strategies (Martin, 2007). Correspondingly, it has also been ascertained that the legislative body being operated in Hong Kong exert limited power to affect the government policies. The aforesaid scenario ensures that there involve certain risk factors for the new retail sector to be established in Hong Kong (Martin, 2007). Economical Risk In keeping with the economy of Hong Kong, it can be determined that it had reflected per average performance in the year 2012. The external economic factor has assisted the concerned region in achieving growth by confronting it with challenging environment of trade. However, the highly uncertain economic conditions globally have knocked down the exports of the services which has gradually receded the economy of Hong Kong. In these adverse economic conditions, the domestic factors assist Hong Kong to combat the adverse scenarios. Domestic sector of Hong Kong has laid measures to keep the unemployment rate at a lower level. According to the economic reports of Hong Kong in the year 2012, in the midst of low economic growth and pressure of the external prices, inflation rate tapered gradually. The pictorial representation given below depicts the trend of growth of Hong Kong economy in the year 2012. Source: (HKSAR, 2013) In the economic report of Hong Kong, the performance of the retail sector has been reflected. Retail industry holds a vital place in Hong Kong, as it fosters to be the largest sector that provides employment opportunities in Hong Kong. The facts depict that in the year 2012, 64000 businesses related to retail trade industry had been established in Hong Kong. Furthermore, it has also been revealed that 9% of the total population of the concerned region is being employed in the retail industry (HKSAR, 2013). Correspondingly, Hong Kong’s ‘Closer Economic Partnership Arrangement’ (CEPA) resembles the free trade, which has been established by the region to foster trade relations between China and Hong Kong. Under the norms and regulations of CEPA, both have assured to enhance the collaboration in terms of trade along with investment promotions. Furthermore, in order to bring about improvement pertaining to the business environment ‘Hong Kong Service Suppliers’ (HKSS) enjoys liberalisation measures as compared to that of the other foreign investors. As analysed, it has been depicted that establishment of CEPA in Hong Kong has facilitated ample scope and opportunities for the foreign market or foreign investors. Slower economic condition of Hong Kong might pose a considerable risk for the foreign retail business (PwC, 2012). Cultural Risk Culture of Hong Kong is essentially explored by applying 5-D model. Considering the power distance (PD) as a factor, it relates to the inequality within the society. Hong Kong has scored 68 in PD indicator as revealed by Hofstede (2013), which depicts that this particular region supports inequality among people. Coherent relationship between superiors and subordinates inclines to get differentiated and there exist no protection law against the superior who have exerted the power. This scenario can be taken into consideration as a negative factor which might pose a significant risk for the foreign investor to set up its business unit in Hong Kong. Concerning individualism, it principally depicts the interdependence of the members within the society. In accordance with the individualist society the concerned members are supposed to take care of themselves and the family members only. With regard to individualism, Hong Kong scores 25, which resembles that the members basically act in accordance with the interest group. Considering biasness amidst the society, it can be ascertained that in Hong Kong, hiring and promotions are greatly affected by the preferential treatment being inducted. Moreover, masculinity/femininity as the concerned cultural factor prevailing in Hong Kong reflects the prevalence of masculine factor. Hong Kong has attained a score of 57, which signifies a masculine society that is driven by success. Hong Kong scores around 29 in the uncertainty avoidance dimension, as the people tend to change the situations and regulations according to the demand of the circumstance. In terms of long-term orientation, Hong Kong scores around the 96, which certainly reflects persistence, perseverance and greater focus on ensuring sustainable progress. Relationships are basically ordered by reviewing the status and once formed is preserved for a longer period (Hofstede, 2013). Thus, considering the cultural aspects of Hong Kong, it can be ascertained that certain rigid cultural factors might pose risk for the new foreign investor to establish the retail industry within the region (Hofstede, 2013) Ethical Risk According to an evaluation of The Political and Economic Risk Consultancy, “for Hong Kong, the corruption problem has been contained to levels that most other societies would be happy to have its citizens have been educated to be partners in the fight against graft.” (Independent Commission Against Corruption, n.d.) In this context, it can be analysed that ‘Zero Tolerance of Corruption’ is being practiced as an ethical aspect in Hong Kong. Furthermore, it has been ascertained that government has adopted the policy of zero tolerance to corruption with a view to foster strong business ethics (ICAC, 2010). The increase in globalisation and accelerated economic amalgamation with Mainland China has provided Hong Kong higher business opportunities. Hong Kong Ethics Development Centre (HKED) has been established in order to maintain strong business ethical standard during trading. In the modern business scenario, it has been observed that practicing strong ethical standards within an organisation assists it in developing strong brand values and providing satisfaction to the end customers. Furthermore, ethical practices amidst the modern business assist the companies to have command in the premium of product along with share prices. According to the survey report conducted by HKED, it has been observed that multi-national companies in Hong Kong have witnessed deception, bribery and unethical practices that have resulted in a decline in overall performances of the companies businesses. Hong Kong’s approaches to the ethical standards are quite unique. By establishing a partnership between the community related to business and government of Hong Kong, HKED was formed to initiate ethical practices amidst the business environment pertaining to the particular region. In Hong Kong, corruption is strictly prohibited amidst business culture therefore, it is necessary for the foreign investor to deal fairly, while setting up the business in Hong Kong (ICAC, 2010). Identification and Evaluation of Business Opportunities Recent reports state that service sector of Hong Kong is determined to be the most developed within the East Asian region. The Gross Domestic Product (GDP) of Hong Kong had reflected a rise from 88% to 93% between 2001till 2011. Retail, wholesale and the import/export sectors frame the major industrial areas in Hong Kong market. According to certain business reports related to Hong Kong, it has been ascertained that in the year 2012, the region had enjoyed US$127.7 billion of export services. Considering the government of Hong Kong, it has implemented various regulations and policies to facilitate business-friendly environment within the region. Hong Kong government has planned to represent the region as the international financial centre to link up with strong economies that are emerging worldwide (HKEJ, 2012). Hong Kong is looked upon as the freest economy. It essentially resembles free trade, free capital, stable currency, free market and limited foreign exchange control among others. Furthermore, the region facilitates lower tax rates within the Asia Pacific region and is also considered as the third largest region engraving favourable business environment for investment. Legal implications and policies frame a vital part of Hong Kong. Civil rights along with private ownership are engraved under the purview of the law. Contractual relationship amidst the partners is legally enforced and any disputes between them are resolved by legal authorities on terms of fair justice. Location of Hong Kong has provided the region with an opportunity of connecting with the strong economies within a shorter tenure, which has assisted in developing the industrial relations of the concerned region. Intensive partnership with Mainland China has provided the concerned region with the opportunities of entering into the Mainland market (HKEJ, 2012). Continuous growth in retail sector within Asia has opened doors for improvement in the fields of telecommunication infrastructures, which has given an opportunity to internet retailing to enter the market. Hong Kong market’s major players belong to basically the retail sector, which opens up opportunities for the foreign retail investor to establish a unit in the concerned region. Internet penetration in the market of Hong Kong has shown a rise of 68.5% in the year 2011. Demand for retail goods has depicted a strong influence within Asia. Due to highly populated region, consumers of Hong Kong are more attracted towards the retail products. Retail sector’s annual turnover within Hong Kong shows a rise of 8.6% from 5.4%. Strong economic power within the region facilitates accelerated demand for the consumer goods. With the rise of globalisation and modernisation amidst the society, the demand for retail products has taken a great leap. In recent reports, it has been ascertained that with in lieu of the present busy life of consumers, retail products frame the basis of major households for providing easy availability of all the products under the single roof. Thus, in relation to the retail market within Hong Kong, it can be ascertained that the availability of market opportunities and policies foster favourable conditions for any foreign investor to enter and rule the market. Moreover, the location of the region is the attractive feature, which helps in luring important and strong economies from surrounding geographic locations (HK Gov, 2013; Ogcio, 2013; HKEJ, 2012; PwC, 2011). Appropriate Examples of Companies to Support the Argument The fact that Hong Kong provides ample scope for growth and development of the retail organisation can be well judged and substantiated by citing examples of three best retail companies operating as successful brands within the region. Wal-Mart Stores Incorporation is one of the leading retailers operating in Hong Kong market. It has been determined that Wal-Mart has used the ParknShop chain, which is the second largest food retailer as the base for expanding its business within the concerned region. In accordance with the recent news reports, it has been analysed that Wal-Mart has announced the opening its new Asian headquarters in Hong Kong. Considering the establishment of the new headquarters, it can be said apparently said that this initiative will incorporate strategic responsibilities to maintain the company’s operations in Asian market. According to Mr Vicente Trius, Chief Executive Officer of Wal-Mart, Hong Kong represents a perfect location to monitor the operations of Asian market with utmost feasibility and readability. The detail analysis of the Hong Kong’s history reveals that over a long tenure, the market has experienced the entrance of a large number of international companies and their investments within the region have fostered growth and development. Furthermore, Hong Kong is measured to be a favourable place for conducting international trade as all the major economic regions are at a shorter distance. Furthermore, Wal-Mart’s Vice-President has commented that Hong Kong entails a quantified amount of talents and professionals, which provides the region a competitive advantage as a base for international trading (The Standard Newspaper, 2013). Another example of a leading brand is Marks & Spencer Plc. In this context, it can be said that this particular company is fundamentally famous for being one of the leading brands in the retail industry. According to Marc Bolland, the Chief Executive Officer of the company, M&S works well within a challenging environment. One of the major operating markets of M&S is Hong Kong. Hong Kong is considered as the region that facilitates favourable trade regulations, which fosters international trading and provides a competitive market with high population for the retail industry to grow and develop. Thus, the aforesaid citations of two leading retail companies provide an in-depth insight about the success of the retail sector within the concerned region because of its favourable political, legal, ethical and cultural considerations (Marks & Spencer, 2013). Findings and Recommendations The conducted study about the present and future of the retail sector within Hong Kong market has revealed various pertinent variables in relation to cultural aspects, ethical standards, economic strategies and legal systems being followed within the region. Considering the facts available, the findings revealed that societal structure and culture of Hong Kong are very rigid, which might create a hurdle for the new business set up. On further analysis, it is observed that Hong Kong has gained the popularity of being a favourable place for conducting international trading. Being in relationship with the Mainland China, Hong Kong has gained an entrance into the international market. Furthermore, it has also been revealed that the region entails a business-friendly environment for the international trading. The region enjoys low tax rate, which signifies that earning income in foreign states is not taxed within the region which in turn becomes the capital gain. Despite the presence of these positive factors, there exist certain unfavourable conditions that might become a hurdle for a foreign business’s growth and development. In Hong Kong, the prevalence of strong PDI reflects its dominancy. Inequality among the masses must be abolished from this region as it causes a hurdle in the growth and development of the lower section of the society. Thus, based on these particular aspects, overall it can be justifiably said that Hong Kong will attract more international players to enter its market and flourish. Conclusion To sum up the entire study, it can be considered that assimilating all the favourable factors of Hong Kong, it becomes an industrial hub. The study provides a brief explanation about the legal, cultural, economic and ethical aspects of the region. In consideration with the political factors of the region, it has been revealed that political regulations and policies remain stable, which is a positive sign for the foreign investor. Furthermore, considering the legal systems of the region, it is observed that legal implications, rules and regulations are basically implemented to foster safe business environment. Contractual agreement between the partners is based upon the legal implications. Cultural system of Hong Kong is very rigid, it is essentially a dominating society and inequality is very much supported within the societal context. This inequality amidst the masses might create a hurdle for the foreign investors. In keeping with the ethical standards, in this particular region, ethics play a vital role. Corruption is strictly prohibited in Hong Kong. HKED has been established in order to maintain strong ethical standards in terms of business transactions. Furthermore, it has been ascertained that Hong Kong has been located in such a way that all the major economic regions are at a proximate distance. Two of the leading retailers i.e. Wal-Mart and Marks & Spencer are operating successfully within the Hong Kong market. Thus, it can be ascertained that retail sector provided a better prospect in the Hong Kong economy for growth and development. The British international retailer can certainly aim to venture in the prospective Hong Kong market to ensure sustainability and progression. References HKSAR, 2013. 2012 Economic Background And 2013 Prospects. Overview Of Economic Performance In 2012, PP. 1-7. Hofstede, 2013. What about Hong Kong? National Culture. [Online] Available at: http://geert-hofstede.com/hong-kong.html [Accessed November 10, 2013]. HK Gov, 2013. Hong Kong as a Service Economy. Hong Kong: The Facts. [Online] Available at: http://www.gov.hk/en/about/abouthk/factsheets/docs/service_economy.pdf [Accessed November 10, 2013]. HKEJ, 2012. Hong Kong Retail Market. Solid Performance Ahead. [Online] Available at: http://www.hkej.com/hkej_upload/news_report/20120508/Hong%20Kong-Retail-1Q-2012.pdf [Accessed November 10, 2013]. ICAC, 2010. Business Success Rests On Strong Ethics. ICAC Post. [Online] Available at: http://www.icac.org.hk/filemanager/en/content_1025/post1009.pdf [Accessed November 10, 2013]. Independent Commission Against Corruption, No Date. The Key to Business Success. Integrity. [Online] Available at: http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCoQFjAA&url=http%3A%2F%2Fwww.hkedc.icac.hk%2Fenglish%2Ffiles%2Fpublications%2FPG010.doc&ei=k5x_UpqzGcyGrgeL04GQDA&usg=AFQjCNFGBEggASDp5DQQYDYs75VPgQX7RQ&sig2=mj0X1tn5GE5JVjJGtbZSYw&bvm=bv.56146854,d.bmk&cad=rja [Accessed November 10, 2013]. Martin, M. F., 2007. Hong Kong: Ten Years after the Handover. 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