Competing in the Global Marketplace: SonAngol Limited - Term Paper Example

International Business "Competing in the Global Marketplace" Introduction: Son Air is an Airline company of SonAngol Limited. SonAngol was started inthe year 1976 and is the national leader in the field of oil and gas reserves in Angola. The main business activity of Son Air is to support the oil industry. The company has a unique business strategy which helps it grow very fast. “Over time, Son Air plans to branch out into yet other new markets. And to successfully venture into those new areas when time comes, we are already setting up flexible management structures so that we can respond rapidly to changing conditions and maximize our efficiency. This strategy will enable Son Air to survive and prosper, and to be ready for the time when we have to compete with local and foreign companies.” (SonAir is a client oriented business: We put the safety and comfort of our clients first, 2006). Son Air is now planning to enter into Asian markets. Before implementing the expansion, there should be a well-organized planning and also an in-depth study of the market and geography should be conducted. As the global market is more competitive, a global competitive strategy should be designed which will help the company to enter the Asian market easily and survive there. When a company plans to expand its operations to other countries it must make sure that the product selected is having export possibilities. For that it must analyze different products that are available for export and top among them should be selected. The product that the parent company of Son Air is dealing with is oil which is having high export potential. Internal and external environment: Before taking a decision to enter in the Asian market, a detailed study of internal and external business environment should be conducted. Internal environment analysis includes a market study of various internal factors like planning, organizing, implementing and controlling the activities in order to make the international expansion successful. External environment analysis includes the study of various external factors like economic environment, political environment, legal system, cultural environment, business environment, religious environment and competitive environment…etc in the country where the company is going to expand its business operation. Planning: Systematic planning plays an important role, in the success of any market expansion. Planning helps the company to be ready for facing any challenges in future. When a company opts for expanding its business into foreign countries it must realize that it is a tough task to be successful and also it may not be profitable in short term. The company should be ready to use its human resources and capital. The market expansion plan should be flexible enough which can be modified as and when required. The plan should include clear- cut targets or goals which are to be achieved within a fixed or stipulated time period. After that the company should compare the benefits and demerits of expansion to the Asian market. Then a self analysis (analysis of the business of Son Air) and an industry analysis should be conducted. Self analysis includes analyzing whether the company was successful in the local market, if yes what are the reasons for the success, what are the factors that make the company different from competitors, opinions of the top level managers regarding the expansion program and availability of capital and resources…etc. Industry analysis includes the analysis of the present position of the industry and growth chance of the industry. The oil and gas industry is always having high growth rate, because the need for oil and gas goes on increasing as they are essential commodities. Then the next step is to design a plan of action to achieve the target. After that, an evaluation of the product like, does the company’s product or service have any special features that the competitors’ product or service do not have, what changes should be made in the product or service mix…etc. Next step is to select a country, after considering different factors (external environment), from among the list of some selected countries. In the case of Son Air, the company already selected Asia as the target continent. So they have to select a country from Asia. External environment or factors to be considered are explained below. Economic environment: The economic environment of the target country should be deeply analyzed. This includes the analysis of the position of the economy with regard to the development, growth rate, Gross Domestic Product, Gross National Product, interest rate, foreign trade and balance of payment, investment opportunities…etc. Today most of the Asian economies are in a growing stage and there are numerous opportunities for foreign investment. In Asian countries interest rate is comparatively lower than other continents. This is a favorable sign for the company for expanding its business to Asian countries. Political environment: Political system is another important factor to be considered. This includes Government’s Acts and Regulations, constancy of the political parties and the government, the attitude of the government towards business and especially towards foreign investment, export and import policies of the Government…etc. In Asia, except some countries, the political system is very stable and it is supportive of foreign investment. Most of the Asian countries have a liberalized export and import policies. Legal system: Top Asian countries like China, Japan and India have a globally challenging and powerful legal system which protects the interest of the foreign investors and exporters. They have got separate norms and laws for international trade. The decision of a company regarding international expansion largely depends on the legal system prevailing in the target country. Cultural factors: Cultural and social environment of the country where the company is planning to expand its operation also have to be taken into consideration. This includes the analysis of the country’s language, education system, literacy rate, different food habits, and different social systems prevailing in the country. Though some of the countries in Asia are socially and culturally well-developed, most of the countries are still socially backward. Business environment: A detailed study of the business environment of the country where the company is planning to expand its operation should be conducted. The business environment in Asian countries is entirely different from that in African countries like Angola. An in-depth study of business environment of the proposed country includes the study of return on investment, general business trend in the country, industry position of particular industry, infrastructure facilities, availability of efficient and hard working employees, buyer behavior…etc. Religious environment: The study of religious environment in the targeted country should be conducted. This includes the study of standpoint of various religions towards the business organizations, especially towards the foreign investors. In Asian countries the different systems of different religions affect the business. In some countries there may be religious pressure for not entering into a business agreement with the foreign investors. In some countries religions have a great influence on the political system of the country. That means the government is not in a position to take decision without consulting the religious leaders. All these factors have to be deeply analyzed before taking the expansion decision. And also some religions may be more concerned of environment. If any kind of business affects the environment, they will raise opposition against that business. Competitive environment: Global business is filled with tight competition. To survive in a competitive business environment there should be a well-organized competitive strategy. The Asian market is highly competitive. The company should analyze in deep about the competitors (mostly domestic companies of that particular country) including their strengths, weakness, strategy, pricing policies, compensation policies, attitude towards the society…etc. And also there should be a strategy by which the consumers feel that the Son Air’s service is different from others and it is unique. Entry mode selection: For any business company, to step into or to make an entry to the international market it requires a deep knowledge and awareness of the global economy. In fact, it is a very tough task to expand the business internationally. We can use a fine Chinese proverb which is apt to the subject discussed: “Fish see the bait, but not the hook. Men see the profit, but not the peril”. The purpose of all business is to achieve or attain a goal. During that course they will not be too much concerned about the traps. Many obstacles are awaiting a newcomer in the field of international business especially in export/import, licensing, franchising, turnkey operations, whether it be a joint venture or a wholly owned subsidiary. If a new business is to be originated then don’t wait the economy around to be twisted. Begin now and the economy will come after you. If the decision is made then find out trade leads, approach the commerce department, foreign trade commissions and once you are approved for this, then the law has to be faced. Law creates a red tape for the international business as discussed earlier. In order to start up a business in a foreign country, license has to be obtained. A good international business should have good advertisement or sales promotion system in order to introduce the company globally. The different modes of entry and various formalities to be fulfilled, for commencing international operation are explained below. Export/Import: First of all the company must find out which countries have the merchandise it wants to import. If the company has an idea about the trends in the market then it is easy to come up with good decision. And the company must develop good relationship with the local bank handling the international business. There should be a deep knowledge about the current updates on the law regarding the international business and host government’s import/export policies. License: Granting license to a beginner involves many legal, commercial, marketing and economical issues. The question of how the license is going to be used must be answered, how the quality will be controlled and how well the legal disputes shall be managed. The terms of the license must be well defined so that no conflicts arise later. And an explanation of the territory the trade extends should be given. Certain trademarks will not be agreed by certain countries, so the license must be specific about the exceptional instances and countries. It must be clearly expressed whether the license is exclusive or non-exclusive. In exclusive license the scope of license is limited, that is the licensor will not give license to so many parties in that particular scope. But in the case of non-exclusive license, the licensor gives license to so many parties without any limit in a particular scope. The next important point of license is regarding its use. If the trade mark is not properly utilized the license is liable for cancellation. As pointed out earlier the quality is the main attraction in foreign markets. And the value of the product absolutely lies on the quality that is assured by the product. The quality must be kept throughout the existence of the agreement or the period of the license agreed between the licensor and the licensee. Franchise: The Company must have the self assurance of the base (money) and a clear idea about the business that the company is going to get into. Franchising is not the process of spending money and waiting for the profit to come. It needs much effort to be put into. The function of a franchise is to extend a beginner in the field of business an easy access to a brand. The franchisor will guide on the systems and methods of the business. A good franchise brings up the business as a perfect operating system and a branded company. Franchisor provides technical assistance and assistance in buying power in the market. Turnkey operation: Defining the term “turnkey” is very important as it contains everything for a business to start operation. InvestorWords.com defines a turnkey operation as “A product or service which can be implemented or utilized with no additional work required by the buyer (just by turning the key).” (Ward, 2009). Joint Venture: By Joint Venture what is meant is that it is a treaty made between two or more parties to take an economic movement together or it is the partnership between two or more individuals or businesses to share the profits and risks. Here they take on the same strategy and plan. Joint Venture has a specific aim to be achieved. For example, the oil companies through the method of joint venture, makes a treaty on oil and gas projects. The control here will be shared by the two parties. There are some basic points to be noted when a joint venture is formed. First of all, find out the suitable partners who are likely to be good in the long run. If there are more partners then list them according to the priority based on their contribution in the business. Check whether they are qualified or will they be trustworthy. By making interviews with third parties one can clarify this point. Both the gain and losses should be agreed to be shared among the partners. A business architect plays a vital role in creating joint ventures. They are the people who lead to new inventions to happen. They are even more responsible and good at developing a balanced business system. Joint venture helps the business to have a continuous growth. But it is very important to bear in mind that there are lots of chances for failure of joint ventures in the first three years (the valley of death). So, utmost care should be taken when doing a joint venture business. Wholly owned subsidiary: A wholly owned subsidiary is a company whose stocks are wholly owned by another company. And this company who owns the stock of another company is recognized as the parent business or parent company. This parent company controls all the activities of the wholly owned subsidiary. Now the question is why the wholly owned subsidiaries? These entities are only for the application of the laws of the country where the company is situated, so it does not affect the parent business. Here, SonAngol is an Angola based airlines company which is the wholly owned subsidiary of Angolan National Oil Company. If the company is not interested in doing business as joint venture mode, it can enter the market as a wholly owned subsidiary of another company or taking another as wholly owned subsidiary of the Son Airlines. International functions: International Marketing: Using the same strategies used for national marketing, extending the borders to other countries is commonly referred to as international marketing. In other words, it is the application of the same strategies of marketing to more than one country. The companies planning to extend their boundaries must be well aware of the language barriers, ideals and customs of the nation they are moving toward. Attractive marketing policies are imperative. The practices of marketing are often defined as advertisement, distribution and sale. They also must have the concern about the requirement of the customers in international market. Finance: What is financing? It is about taking good financial decisions. This decision making can be divided into three: 1. Where to invest - This calls an attention to the knowledge about the investment objectives and various assets like stock, bonds…etc which involves a lots of risk and asset valuation (capital budgeting). 2. How to invest, here it is required to understand the working of the capital market, the cost and benefits of the funds and how the risks can be controlled in business. 3. How to manage day-to-day working capital including cash, inventories, receivables…etc. Obtaining business finance is the fundamental tool for the success of the international business. Whether the organization is big or small, finance play a great role. Finance can be obtained by approaching strategic investors. If the business-product is benefiting a large organization directly, then it is very easy to find the investors. The company has to convince the international market by proving that its products are capable of catching their attention. Accounting: It is one of the important functions of any business organization. Differences in accounting will be reflecting in the financial strategy. Many business firms in various countries have adopted a standardized accounting system in order to compete in the market. So the accounting tasks must be performed in a global method legible to all. Accounting is treated as the language of business, so it must be attractive enough and should help in various decision-making. The globalization of business puts forth remarkable demands on the internationalization of accounting principles. These principles play a lot in creating a consistent income statements and balance sheet ratios which are the chief factors for the competition among the companies. International Accounting Standard Committee (IASC) is the authority for suggestions on accounting. This committee was founded in 1973. Human resource management: Proper HRM empowers the employees of a business to produce their best and thereby achieve the goal of the organization. Human resource management can be defined as employing people, providing opportunities for the development of their resources and twisting their abilities as per the requirement of the firm. HRM is related to those decisions to manage the employees and implementation of strategies to make competitive advantages in the market. Since human beings are not machines HRM needs to extend interdisciplinary movements to them. If there is an efficient HRM system in an organization it is possible to select the best persons for different jobs, promote service safety, create teams with innovative activities, provide wide range of development and training, reveal the vital information to the employees, produce loyal cultures, lessen the status differences, reward the employees based on their performance, endorse health and safety and integrate its strategy. Research and Development: Research is the process of gathering the details about requirements of consumers, collecting information about the competitors and a study on the effectiveness of business marketing plan. Development can be stated as the process of building up the strategies according to the researches. Small business firms make researches to find out if there exists a feasibility of new business. They will be interested in new products and services and to bring about more improvement on the existing strategies and developing the areas where they can compete in the global market. Researches add to the development of a business. Without performing research analysis there cannot be any development in a firm. Research and development are usually connected with innovation of new outputs. But, it is very important to note that consumer preferences keep on varying. The result of research and development should be apt to meet the requirements of tomorrow’s customers. Research and development, in a well-running company, are said to have some commercial aspects. This improves operational processes and helps to give professional advice to the employees. After the researches and study about the business the specialists build a prototype which then undergoes a testing. If it seems to be successful, then they will tool up its production line. Operations and Manufacturing: These are two inevitable factors in any business. First, let the operations be briefed. Business operations add to the process of production of value for the stakeholders. The result of these operations is the profit that will be gained in the business. Business operations can be split into three main objectives to harvest more from the business: 1) Allowing the income to recur, 2) Increasing the value of assets, 3) Security for the income and value of the business. Another vital part of a business is a business model. Manufacturing is the process of transforming the raw materials into finished products that can be used or sold. Economists say that manufacturing is the profit-producing sector of any firm. Manufacturing includes product conception, design, fabrication, assembling, testing and distribution. Cost/benefit analysis: Before taking a decision of expansion, a cost/benefit analysis should be conducted. Cost/benefit analysis refers to the analysis of cost in all the sense if a project is implemented and the advantages from that particular project or proposal. If there is no adequate ROI (Return on Investment) from the proposed project, it is meaningless to invest in that project. ROI is the net income of the business or in other words it is the book value of the total assets of the company. ROI should be analyzed from the point of view of both the parties, which are the company and the host government. If the host government does not get any benefit out of the expansion project, they will not take a supportive action. So steps should be taken for the host government to feel that they are also benefited out of the expansion. It is comprised of two factors, such as, a formal disciplinary move taken towards the judgment of the business and the informal way of approaching in order to make any kind of decisions. It is the method of analyzing the value of money in large private or public firms. The analysts perform this action through survey in the market. An important tool used for cost/benefit analysis is ‘time value of money’ which is found out by converting the expected costs and benefits in future to a present value. And some other tools like PVB (Present Value of Benefits), PVC (Present Value of Cost), NPV (net Present Value)…etc. are used for cost/benefit analysis. NPV=PVB – PVC. If this value is positive it means the benefits derived from the proposed project is more than the cost of the project and the company can go on with the decision. Conclusion: The international business is filled with full of competition. In order to survive in this competitive world, competitive business and marketing strategies are required to be adopted by any business organization. There should be a dedicated team of staff especially top level managers for implementing expansion plans and for taking controlled action for achieving the set objectives of the company. The management team should be well-equipped in such a way that they carry on the business like they do in domestic market. “Managers can obviously spend all of their available time and resources becoming ever-more educated about the global business environment without knowing all that they think they should know in order to be effective decision-makers. As in all aspects of life, priorities must be established- in this case, to focus on what is arguably most important to know in order to compete successfully in the global business environment.” (Globerman, 2008, p.5). The employees, who are going to relocate to Asia as part of the expansion plan of the company, should be ready to adjust with the language, food, culture…etc. of Asia. They have to regularly assess the progress of the plan and if any changes are required, they have to be made. References Globerman, Steven. (2008). Assessing the global business environment. Authors Adaptation of Peng Wang and Jiang. 5. Retrieved February 21, 2009, from http://www.cbe.wwu.edu/CIB-NEW/docs/assessingglobalbussenviro.pdf SonAir is a client oriented business: We put the safety and comfort of our clients first. (2006). Son Air Wings of Tranquility. Retrieved February 21, 2009, from http://www.sonairsarl.com/sonairEstrategias_en.shtml Ward, Susan. (2009). Turnkey business: Definition. About.com: Small Business Canada. Retrieved February 21, 2009, from http://sbinfocanada.about.com/cs/startup/g/turnkey.htm Read More