Entry Strategy for the Company into Bahrain - Case Study Example

President, PRECISION PHOTONICS CORP (Insert The Export/International Business Development Director, PRECISION PHOTONICS CORP. Re: Entry strategy for our company into Bahrain Date: 5th May 2012 Introduction Precision Photonics Corporation is a Colorado based firm that manufactures optical components, assemblies and coatings. Major customers of the company include semiconductor, defense, biomedical and telecommunication industries among others. Under the leadership of Christopher J. Myatt, the CEO, Precision Photonics has emulated high technology in its operations that has seen it develop ultra-sensitive detection system to test HIV in US and other developing countries. Overview of Bahrain The word Bahrain means two seas. Bahrain is a small island in the Persian Gulf off the coast of Saudi Arabia with a population of less than one million. The country provides its people with free medical care, old age pension and education. Bahrain has for the last 40 years hosted US naval and the US 5th fleet headquarters (Al Muraikhi 23). The U.S Navy does not take part in local politics but over the years it has become a symbol of the close relationship between Bahrain monarchy and White house. The continued presence of the US navy creates feelings of mistrust among the opposition. The government of Bahrain has had strong ties with the U.S Government. The Sunni are the minority to which the ruling al-khalifah family belongs controlling power and wealthy in the country with conflict between the shite and the Sunni sects more frequent. Since 1783, Bahrain has been lead by the Al-Khalifa family. It became a British protectorate in 1861 and in 1971 it gained its independence. The country is currently a constitutional monarchy with an elected legislative assembly. King Hamad bin Isa bin Salman Al-Khalifa has ruled Bahrain since 1999. The King is the Chief of State. He appoints a prime minister, who serves as the head of government and cabinet. The cabinet has legislative powers. There are no political parties. From then, Sheikh Hamad had initiated many reforms like scrapping the restrictive state security laws and giving women the right to vote. The first poll was held in 2002 with MPs serving four year term. The second parliamentary election was held in 2006. The parliament is a bi-cameral legislature with the chamber of Deputies having 40 members elected in single-seat constituencies by universal suffrage. The upper house – the Shura council has 40 members appointed directly by the King. The legal system is based on combination of Islamic law and the English common law. The kingdom of Bahrain does not face any threats from foreign nation neither is it currently involved in any international dispute. Although in the recent past, relations between Iran and Qatar have been less than agreeable. Bahrain does not face any threats from individuals or organization that want to undermine its sovereignty, but in the past, it has experienced political uprisings. For example a coup was foiled by the government in 1981. Political/ legal system One major issue/obstacle our company will face as a result of Bahrain’s political/legal system is terrorism. Threat of terrorist attack is a matter of concern for the government, the international community in general and the United States in particular. The government of Bahrain has cooperated with other countries on criminal investigations linked to terrorism. According to the Department of Foreign Affairs and Trade (DFAT), terrorists target shopping areas, supermarkets, embassies, hotels, restaurants, clubs, cinemas and theaters. Our company will have to put the effects of terrorism into consideration in doing business with Bahrain. The recent political unrest that was inspired by protests in Tunisia and Egypt may negatively affect our operations. For example, since our customers are large telecommunication companies and hospitals the closure of such institutions may negatively affect our sales. Lack of democracy in Bahrain is also a major issue that has led to imprisonment of political leaders and death of innocent civilian. Being a new company, we can be affected if the civilians or the government decides to regulate or ban the services of foreign companies. Economic system 2011 Bahrain GDP was estimated to be $31.101 billion while per capital income was $27,556. Due to Bahrain oil resources, the country has registered a recommendable economic growth that has made the country to be recognized as the fastest growing financial in the world. Oil accounts for 60% of the foreign income, 30% of the country’s GDP and 60% of the total government revenue (Al Muraikhi 11). The country level of inflation has continued to decrease thus resulting to more household demand for basic products. For example, in 2008 the inflation rate stood at 3.53, this decreased to 2.79 in 2009 and further reducing to 1.97 in 2010. There are no major obstacles or issues that our company may face as a result of doing business here. Bahrain has many multinational firms with business in the Persia Gulf and unemployment especially among the youth remains a major economic problem. Taxation and import laws apply to Bahraini and foreign-owned companies and that foreign investors have to comply with the same requirements as those of the local firms. Bahrain is a country that is open to creating a unique economy which is fast growing and open for all to create business opportunities hence investment for our company will be ideal. The unique mix of market access, low operating costs, excellent lifestyle, and skilled labor together with zero corporate taxes is an area our company may venture into on a wide range of sectors. Bahrain has widely been regarded as the best regulated financial institution in the Middle East and has been the regions undisputed financial capital for the past 40 years. Bahrain makes up to about 60% of the people employed in this industry with high levels of skill and expertise. Since 2002, the central bank of Bahrain has continued to function as a single regulator making it easier for businesses to operate throughout in the kingdom without free zones restrictions. Bahrain has the largest Islamic financial institution including commercial, investment and leasing banks and mutual banks. Insurance firms like ALICO, Zurich operate here and enjoy a trusted regulatory environment and transparent legislation. Bahrain has small oil resources and through petroleum processing and refining, it has transformed itself into an international banking center (Hal 57). Its economy has become one of the most advanced and diversified in the region. According to the United Nations Economic and Social Commission for western Asia, Bahrain is one of the fastest growing economies in the Arab world. In 2005, Bahrain signed the US-Bahrain free trade agreement- the first bilateral trade agreement with the United States. Challenges that Bahrain faces just like most developing countries, is youth unemployment which is rated over 19 per cent. Recently, the Western allied monarchy hosted the United State Pentagon to respond to the influence of the Iranian military in the region. The country’s religious split- composed of a Sunni political elite and a large Shi’a citizenry has raised anxieties over the rise of Iranian in Bahrain. After the fall of Saddam Hussein in Iraq, with the similar demographic composition as Bahrain, Iran has gained influence in that country. The unrest of 2011 led to worries about increased Iranian ascendancy in Bahrain, given the shifting political winds. According to transparency international 18, Bahrain corruption index fell from 6.1 in 2003 to 5.1 in 2011. It became a member with the United Nations Convention against corruption in 2010. Another major concern for our company will be terrorism. In a report released by the Bahrain Centre for Human Rights (BCHR) poverty and the miserable conditions of the citizen is as a result of unequal distribution of wealth, waste of public money, financial and administrative corruption plus poor planning, and dumping the market with low wage foreign workers who constitute 60 % of the labor force. Social and security issues in Bahrain One of the major social systems in Bahrain that will have an effect on our company is human trafficking. Bahrain is a country that receives men and women trafficked as servants and commercial sex workers. Men and women from Africa, South Asia and Southeast Asia migrate to work in Bahrain as laborers or domestic servants where some face tough conditions like non payments of wages, withholding passports, sexual or physical abuse and threats. The effect of corruption in Bahrain is another social vice that may affect our company. Due to economic mismanagement and corruption sectors like the education and social services systems have suffered from insufficient funding. Though Bahrain has a small oil resource, the corruption that is experienced in the country may result to regular fuel shortages that may affect the industrial sector as well as the prices of basic commodities. One of the key issues that make Bahrain government to attract investors is that it provides free and comprehensive medical services for both nationals and foreigners with programs that care for the disabled and the elderly. In addition, the government has established an institute for the physically handicapped and the blind. As a result, organisations such as the World Health Organization (WHO) and UNESCO have established their offices in Bahrain. Statistics show that crime rate has escalated with divorce rate and the number of people who are single has also increased (BCHR 37). It is feared that these poor living standards will have a negative impact on the country’s social tranquility and political scene. In Bahrain, women do all the domestic work with few of them being in gainful employment. It is worth to note women accounts for 15 % of the labor force (USAID 68). This however is beginning to change as girls are now allowed to attend school. There are no women represented in government. As is the tradition in the Islam, women have a lower status in society than men as they are considered the weaker sex that needs to be protected. Arranged married in Bahrain are common. On marriage, a sum of money is paid to the bride by the groom. Wedding are usually big event. Traditionally, the extend family live together under one roof. Bahrain is one of the most liberal countries in terms of its economy and attracts foreign investments due to its tax-free society. However, there are fees charged by government on services delivered. Proposed corporate social responsibility Program Precision Photonics Corporation will allocate reasonable financial resources to cater for children and adults who have been affected by HIV. This will include establishing clinical HIV testing sites in large cities within Bahrain as well as in rural areas. As a company we understand that we have to give back to society what we have gained from it especially in assisting the less fortunate members of the society. We understand that education is one of the most important investments that one can offer to an individual. Hence we will reward talented and hardworking young Bahrainis with opportunity to education. In the same way, we will partner with institutions that offer programs that develop leadership skills. Though we are just a new firm, we will also find out from institutions like schools and hospitals together with Non Governmental Organisations (NGO) the specific needs that they may want our company to offer if it will be within our responsibility. Cultural issues One major cultural issue that our company should consider is religion. The population of Bahrain is composed mainly of Muslims that include Sunni and the Shia sects. Most of them are native-born Bahrainis with a minority being Omanis or Saudis. Most of the foreigners are from countries like Britain Iran, Philippines, United States and India. Christians are a minority. The English language is widely used although most of he Bahrainis know Hindi and Urdu languages as well. Despite its economic development, Bahrain is essentially an Arab country. The traditional Bahraini woman dresses conservatively, usually the daffah – a long loose-fitting black gown (Amnesty International 46). However, there are no formal dress codes implying that foreigners and the locals wear modest outfits. Soccer is a popular sport and so is hunting. Bahrain as a country has many similarities with other Muslim countries in term of moral and cultural values. Their cultural values includes: to abide by the laws of Koran – the holy book of the Muslims, to defend their family’s name and honor fiercely the father as the authority in the home, respect and love for the elders and religion are important aspects of their culture, for example they pray 5 times a day. Works Cited Al Muraikhi, Khalil. Glimpses of Bahrain from Its Past. London: Sage, 1991, print. Amnesty International. Bahrain Women and Children subject to increasing Abuse, New York, 1996, Print. Hal, Lippman. Linking Democracy and Development: An idea or the time USAID Program and Operations Assessment Report No. 29. Centre for Development information and Evaluation, USAID. Transparency Intentional. Corruption Perception Index 2011, Staff writer, retrieved 25 December, 2011. USAID. Promoting Transparency and Accountability: USAID Anti-Corruption Experience Centre for Democracy and Governance, USAID, 2011, print. Read More