International Business Enviroment: Analysis of Iomart Investing in Kenya - Research Paper Example

? International Business Environment and Executive Summary With businesses struggling everyday to survive and maximize their profits, it is crucial for the owners and stake holders to ensure that they invest in industries and firms in which they are assured of success. Multinational companies have really focused on investing in the developing countries, most especially in Africa. One of these firms is the iomart IT Company in the UK. It has adopted an approach of expanding its operations all over so as to maximize on its revenue. It intends to make its investments in Kenya, with intent to providing cloud computing services. The essence of this work and report is to evaluate and to critically analyze how viable this idea is. It will do this by discussing a few factors such as the institution systems in Kenya, exchange regime that governs the country and the political risks involved, and how they may affect the success or failure of the iomart venture. The report shall then be submitted to the CEO of iomart Group of Companies, with a conclusion on whether the idea is viable or not, and furnished with a few recommendations. Table of Contents Executive Summary……………………………………………………………………2 Introduction……………………………………………………………………………4 National Institutions Systems………………………………………………………….5 Exchange Rate Regime………………………………………………………………...7 Political Risks………………………………………………………………………….9 Conclusion and Recommendations……………………………………………………10 References…………………………………………………………………………….12 International Business Environment Introduction . The iomart Group is a multinational company in the IT industry based in the UK. Over the last decade the company has risen to be the best provider of cloud services in the UK and Europe at large. The firm offers wide and varied cloud computing services such as: server, storage and different forms of computing infrastructure; managing of cloud services, data backup and protection. The iomart Group is keen to expand and one of its objectives is to be a globally recognized brand. The last expansion phase saw it expand to Asia and now the focus has shifted to Africa. The iomart Group is highly profitable and as a result has been able to take advantage of business opportunities around the globe through comprehensive market researches (iomart, 2013). Kenya is considered to be East Africa’s fastest growing economy, and is endowed with many resources. In the recent past, the country has witnessed many drastic changes and growth in terms of leadership, growth of industries, expansion of investments and growth in the national Gross Domestic Product (Nzwili, 2012; Nyong’o, 2007). The iomart branch, if established, is intended to be a major provider of cloud computing services to the already established and the growing businesses in Kenya (iomart, 2013). This report will serve to examine the exchange regimes that govern Kenya, determine and compare the two countries’ national institution systems and finally look at the political risks in Kenya. A conclusion shall be drawn and recommendations given. National Institution Systems It is important to know the institutions that govern businesses in a country and how different they are from what one is used to (Cullen and Parboteeah, 2009). The IT firm to be established, just like the iomart in U.K will deal with handling personal data, and hence this will be the main issue since Kenya and UK have different policies regarding how personal information is treated. The main body that regulates the operations of the IT industry in Kenya is the Communication Commission of Kenya and the National Communications Secretariat. These two regulatory bodies are responsible for licensing and regulating information and communication (Murungi, 2011). The CCK moderates how information is acquired and is used, and ensures that businesses under this category carry out their activities lawfully and legally. Kenya, being a developing country does not have many and demanding rules and regulations concerning data use or privacy. However, CCK categorically maintains that personal data should not be used for other purposes other than that which it was intended. In addition, businesses are not allowed to share people’s confidential and personal information with other people without the person’s knowledge (Murungi, 2011). This is almost similar to the EU Data Protection Act that governs and determines how personal data is handled. The act, whose importance and impact is reinforced by the Information Commissioners Office, is very keen on personal data. The act states that a person who is alive and is identifiable, whether directly or indirectly must be informed if at all his or her data is to be used or transferred to another firm other than the initial one. This act gives rights to the people who have given out their information to any firm and bestows responsibilities on these firms to ensure that they protect their customers’ data. Of importance to note is that though Kenya is a developing country, it has one of the biggest internet sectors in the whole of East Africa, providing the internet and cloud computing services to universities, cyber cafes, public libraries among others (Murungi, 2009). The main hindrance however is the fact that it usually takes a lengthy period of time to register a business and to be licensed. This is usually harder for foreign multinational companies (McCormick and Alila, 2007). Closely related to this is the tax issue which is under the Kenya Revenue Authority. The Kenyan government places huge importance to payment of tax by businesses (Nyong’o, 2007). All businesses in Kenya, including the firms in the IT industry pay their taxes under the rules set by the KRA. For the non residents and non-citizens businesses, they pay more taxes, also depending on the income and revenue generated from their businesses. The variation and difference, however, is not too big and this makes investment in Kenya a very wise idea (Nzwili, 2012; Nyong’o, 2007). In UK, taxes are paid both to the local government and also to Her Majesty’s Revenue and Customs. Just like Kenya, citizens in UK pay taxes based on their incomes, whereas for the non residents, they pay the corporate tax from their revenue (Graetz and Joud, 2013). A comparison shows that the companies in UK have a slightly higher tax margin for the non residents as compared to Kenya. This further appraises the idea for iomart to invest in Kenya. Exchange rate regime Another issue to consider is the exchange regime of the country. An exchange regime refers to how a country governs and manages its currency in comparison to other countries’ currencies in the foreign exchange market (Garofalo, 2005). There are three basic types of exchange regimes; free floating regime, the fixed rate regime and the pegged float regime (Michael and Jay, 2009). A free floating regime is where the market conditions affect the exchange rate of a country. In pegged float, it is the responsibility of the central bank to monitor the exchange rate, and to take measures to keep it from too much deviation (Corden, 2004). The fixed rate regime is where the exchange rates are fastened to another currency such as the dollar, or valued according to metals that are precious, gold for example (Williamson, 2001). Kenya uses the floating exchange regime in the foreign market, just like the UK. This may mean several things to the IT firm. To begin with, Kenya may have a chance to experience an optimal balance of payment, which is a benefit to the firm. Secondly, with the free floating exchange rate system, crises are usually minimized. This is because, unlike fixed exchange rate, there are no pressures to value or devalue a currency. This being the case, the firm might assume that there will be no common and frequent fluctuation of prices (Straumann, 2010). The float regime is automatic and very flexible compared to the other exchange regimes, a very important aspect for the business. Since the UK uses the same exchange regime, there will be little or no benefit derived from this angle (Graetz and Joud, 2013). Growth of the iomart new firm, if started, however might be fostered if inflation in Kenya is controlled. The government should also try to control the fiscal and monetary policies, but since the firm will be more inclined in handling data, these measures might not be of much significance to the firm since its services do not include physical goods and products (Murungi, 2011). Political Risks Kenya is a country that is developing in terms of democracy. It is faced by immense challenges politically. For instance, it is worth noting that negative ethnicity is a really big challenge to the country. Nationalism has not yet been fully developed and embraced, which is a huge hindrance to businesses (Nyong’o, 2007). During the 2007-2008 elections, a lot of property was destroyed during the country’s post election violence, driving away foreign investors and entrepreneurs who were afraid of risking their finances and resources. The 2013 general elections were much more peaceful. However, the investors were still not confident of how politically mature Kenya was. It’s only after a time span that investors are slowly starting to reinvest in the country again, with a big number opting to invest in neighboring Uganda and Tanzania. In addition, Kenya is a country where politicians use citizens to get back to foreign investors, especially if they are from country where the relations are not too good (Nyong’o, 2007). In addition, cybercrime is slowly becoming rampant, yet the government does not have strict rules and regulations to govern the operations of data handling, transfer and sharing. Another political risk might be the strained relationships between the country and other people, for instance, its conflict with Somalia. This was evident in the September 21st attack in its Nairobi’s Westgate mall where about 70 people were killed and scores injured.? How many foreign businesses were affected by the terrorist attacks? However, even with all the above political risks, research shows that Kenya is slowly attaining political maturity. Their political environment is slowly stabilizing and holds the promise for a better place for long term investments, just like iomart intends to. If one compares this with the UK, there is a huge difference (Jain and Grosse, 2009). The UK has attained a high level of economic maturity and hence businesses in this place have higher chances of succeeding (. Conclusions and Recommendation After the research, this report has concluded that iomart investing in Kenya, a developing country, is a risk worth taking. Research and statistics show that Kenya’s GDP is slowly rising and becoming steady. In 2011, Kenya’s GDP was $ 35.8 dollars , an in 2008, due to the post election violence, the economy’s GDP dropped all the way to 1.6% from a steady 7.1 % in 2007 (Nzwili, 2012). In 2012, the GDP grew to about 5%. The rate of growth in this country has not been steady or uniform, but with time, it is deemed to get better. If by extension, comparison is drawn between Kenya’s annual growth and that of the UK, the UK has a steady growth in GDP since it is already more established market wise, but investing in Kenya, a third world but developing country, iomart definitely has a huge chance of reaping maximized returns. In line with the above, the following recommendations are forwarded. Kenya has a huge and vast amount of resources, is strategically placed and has rampant developing infrastructure (McCormick and Alila, 2007; Cheng, 2008). With the experienced rate of growth in Kenya, growth for the iomart IT firm will definitely be higher in this country compared with the other African countries. (Jain and Grosse, 2009). In addition, the country’s population and culture is not only friendly but also easy to adapt to for the expatriates. This growth, added to the vast resources, a high population that is learned and available, the huge government support and the readily available market portray high chances of growth (Nyong’o, 2007). This report recommends that if the iomart firm invests here, but before doing so, it should send a few expatriates to familiarize themselves with the country, talk to the locals, take a tour in the businesses and establish their appropriate business customers and the labor available, both skilled and unskilled. In Kenya, there is a readily available market, and other IT Firms already in operation. The firms offer services similar to those offered by iomart at very high costs. Iomart’s ability to subsidize prices and costs will be a big plus for them. Kenya readily adopts to change in the IT industry since there are many businesses already established and others slowly rising and hence the clod computing services are needed. The recommendation here, therefore, is for the iomart firm, if established, to make plans to offer their services at subsidized prices (Cullen and Parboteeah, 2009). Further research should be however be conducted to ensure that all facts are known about the country. It is wise to ensure that the country where the investment will be made has a steady maturing economy and already matured democracy, has the talent that is needed to contribute to the investments growth and development and has a strong exchange regime that has no or little fluctuations (Graetz and Joud, 2013). All these is the case of Kenya, and in East Africa, it is the best of all the countries for a multinational country such as iomart to make its investments. References Cheng, K., 2008. Kenya, Uganda and United Republic of Tanzania: Selected Issues. Nairobi: Zebra Publishers. Cullen, J., and Parboteeah, P., 2009. International Business Strategy and the Multinational Company. New York: Routledge. Garofalo P., 2005. Exchange Rate Regimes and Economic Performances. Banca d Italia Graetz, M., and Joud, R., 2013. Technological Innovation, International Competition and the Challenges of International Income Taxation: Columbia Law Review, 113(2), pp. 347-445. Iomart., 2013.The U.K’s Leading Cloud Computing Company. Iomart.com [online] Available at: [Accessed 21st December 2013]. Jain, S., and Grosse, R., 2009. Impact of Terrorism and Security Measures on Global Business Transactions: Some International Guidelines. Journal of Transnational Management. 14(1), pp. 42-73. McCormick, D., and Alila, P., 2007. Business in Kenya: Institutions and Interactions. Nairobi: University of Nairobi press. Michael, M., and Jay, S., 2009. Exchange Rate Regimes in the Modern Era. MIT Press Murungi, M., 2011. Cyber Law in Kenya. Amsterdam: Kluwer Law International Nyong’o, P., 2007. A Leap into the Future: a Vision for Kenya’s Socio-political and Economic Transformation. Nairobi: African Books Collective. Nzwili, F., 2012. Kenya joins the great African oil boom with latest discoveries. Christian Science Monitor, 2(1), pp.10-15. Straumann, T., 2010. Fixed Ideas of Money: Small States and Exchange Rate Regimes in Twentieth Century Europe. Cambridge: Cambridge University Press. Read More