International Business: The problem of Auto Sales Soar in India and Global Consequences of Dubai's Debt - Essay Example

International Business (INTB) The Global Consequences of Dubai's Debt Problems Abstract Dubai is known as the business hub of Middle East. People from all over the world are equally active in exploring the business prospects of Dubai. Indians, Pakistanis, Africans, Europeans, Americans etc are some of the biggest luck seekers in Dubai. In fact Middle East in general and Dubai in particular was a paradise for the enthusiastic entrepreneurs. Even though, Middle East in general heavily dependent on the revenue from oil, Dubai has not had much dependence towards oil revenues. It concentrated on business revenue alone for their economic growth. Dubai has welcomed everybody with both hands and so far they have not made anybody dejected. But the recent reports from Dubai about their financial stability have made many people anxious. The Asian share market has dipped drastically when the first report from Dubai has reached the external world about the debt of one of the prominent governmental companies in Dubai; The Dubai World. The announcement of Dubai government is also not positive for the investors of the Dubai World. This paper summarizes the reports from Dubai about the current financial crisis based on the article “The Global Consequences of Dubai's Debt Problems” published on The Economist on Nov 30th 2009. The Global Consequences of Dubai's Debt Problems Last week, Dubai government has announced that it would delay repayment of the debts of Dubai World, a vast government-owned conglomerate, which put the investors in anxiety, not only in Dubai, but even in other Asian countries as well (The Global Consequences of Dubai's Debt Problems). Apart from Dubai world, Nakheel Properties, Limitless World like companies also under severe financial crisis as per the reports from Dubai. Dubai world, the billion dollar company is one of the biggest organizations in the world. Nakheel properties which named the Palm Island in Dubai, DP World, Economic Zones World, Dubai Maritime City, Dry docks World, Limitless LLC, etc are some of the business groups under Dubai World. It has undertaken many projects not only in Dubai, but in India like Asian countries as well. They have recently constructed some of the biggest skyscrapers in the world, at Dubai. Moreover, they have undertaken many projects in Asian countries. In India they are at present developing a harbor and a container terminal along with many other projects. Standard Charted, HSBC, National Bank of Dubai (NBD), Abu Dhabi Commercial Bank, Lloyds and Royal Bank of Scotland etc are some of the financial institutions which has provided financial support to the Dubai companies under financial crisis at present. In other words, majority of the banks which helped the Dubai organizations are from Britain. The current crisis in Dubai can thus affect Asian countries and the European countries as well. The announcement of Dubai World’s huge liability and the Dubai government’s decision to stay away from the crisis has created lot of doubts about Dubai’s financial abilities among economists and investors. Dubai was believed to be not affected much by the current global financial crisis. But the latest information coming out from Dubai shows that economists have miscalculated about the financial stability of Dubai government. Al Nakheel, one of the subsidiaries of Dubai world alone have more than $ 3.5 billion debt at present (The Global Consequences of Dubai's Debt Problems). It is a fact that Dubai government has technically no legal obligation towards the Nakheel’s liability. But the government’s decision to stay away from the crisis has raised the eye brows of many economists about the financial capabilities of the government itself. Some people argue that Dubai’s debt is more than $ 80 billion at present. It is a fact that Dubai economy cannot do much damage to the world economy. Moreover, Dubai already started to show sign of recovery. At the same time, the current economic crisis in Dubai cannot be neglected as a passing storm or after effects of a big “financial earthquake” happened in the world. The image of Dubai as one of the stable economies of Middle East has spoiled a lot because of the current problems. Everybody is looking at Abu Dhabi’s responses against the Dubai crisis. Many people believe that the much wealthier Abu Dhabi government would come for the rescue of their neighbor and close ally Dubai. But so far Abu Dhabi has not responded anything publicly. Some of the economists are keeping a different view. They argue that Abu Dhabi would never come for the rescue of the Dubai firms. They feel that rescuing of the Dubai firms is suicidal for Abu Dhabi as these firms under crisis is competing against their Abu Dhabi counterparts. Dubai has suffered because of their unhealthy handling of the financial capital. Still it is unknown to the external world that who actually owns the government companies in Dubai. Some people believe that even though these companies have the governmental label, it operates mainly under some of the richest Sheiks in Dubai. Dubai needs to give more transparency about the ownership and capital structure of its public enterprises. Moreover, they should reveal to the external world that how much protection is provided to the public or private capital. The rights of the citizens and the rights of the immigrants are defined separately in Dubai. In other worlds, Dubai is keeping a double standard towards the investment or it treats the investments of the locals and the foreigners differently. Dubai needs to clarify all doubts existing in the investment sector. They should provide more transparency to their dealings to regain their lost status. For example, investors of Dubai World believed that it was a public company and has the backing of the Dubai government. But the government has recently washed their hands away from the crisis citing technical reasons. One of the comments made by a reader of the article in our discussion “The Global Consequences of Dubai's Debt Problems”, seems to be relevant; I feel, all the value creation that Dubai did was a direct product of brilliant marketing, buying out influential people and a safe-outlet of black money. Less to do with anything fundamental. Dubai is a highly leveraged economy... its bound to be doomed if they do not create any real value in their assets (The Global Consequences of Dubai's Debt Problems, Readers comments) In short, the current crisis in Dubai has shaken some Asian and European countries even though it has not many effects on global financial arena. The lack of transparency in dealings and the lack of management expertise have caused the current problem in Dubai. Even though Dubai already shows signs of recovery, it will take time for them to regain their lost image. Works Cited 1. “The Global Consequences of Dubai's Debt Problems”. 30 November 2009.The Economist. 03 December 2009. 2. “The Global Consequences of Dubai's Debt Problems, Readers Comments”. 30 November 2009.The Economist. 03 December 2009. International Business (INTB) Auto Sales Soar in India Abstract Indian auto industry has attracted many auto manufacturers recently because of the immense financial growth in the country. India is one country which escaped without many damages from the current global financial crisis which encouraged international auto manufacturing companies to take more interest in Indian market. The huge size of Indian population is another attraction for them. The living standards of the Indian public has increased a lot and even luxury cars are selling heavily in India at present which was a distant dream a couple of decades before. The major domestic car manufacturer in India Maruti, in collaboration with the Suzuki motors of Japan, TATA Motors, and Mahindra & Mahindra. Apart from the domestic manufacturers, foreign companies like Ford, GM, Hyundai, Toyota, etc are also operating in India at present in order to exploit the current favorable situation. This paper briefly summarizes the article “Auto Sales Soar in India” written by Nikhil Gulati on Wall street Journal Asia dated a couple of days before (DECEMBER 1, 2009). Auto Sales Soar in India Maruti, the local unit of Suzuki Motor Corp. and India's biggest carmaker by sales, posted a 67% rise in total vehicle sales in November at 87,807 units (Gulati). Apart from domestic sales, Maruti’s sales in overseas countries were also marked significant growth last year. Maruti has recognized or assessed the pulse of the Indian consumers correctly which helped them to introduce different models of cars suitable for the Indian conditions. For example, Mariti has introduced the Maruti 800, Alto, Wagon R, A- star, Zen etc like vehicles in order to cater the needs of the ordinary people in India. “Sales of Maruti's small car models--A-Star, Alto, Wagon-R, Estilo, Ritz and Swift--grew 60% to 56,005 autos” (Gulati). “A slew of tax cuts announced by the government late last year and a decline in loan rates by banks as well as introduction of new models gradually lifted vehicle sales since February” (Gulati). Indian financial institutions have lowered the interest rates on vehicle loans which helped the automotive market immensely. In India, even the richest people look for loans in order to escape from the burdens of income tax. The income tax department in India allows certain rebates on loans taken by the individuals. Moreover Indian government is keen on increasing the economic activities in the country. Indian Prime Minister Dr. Man Mohan Singh (He was the governor of Reserve Bank of India once) who is one of the renowned economists in the world knows very well that in order to escape from the current crisis, increasing of economic activities in the country is essential. So the Man Mohan government is keen in allowing tax cuts to boost the business exercises in the country. The current global financial crisis has caused little impact on Indian economy. Even though the Banks in the initial half of the last financial year were reluctant to lend for purchasing motor vehicles, the scenario has completely changed during the second half of the last financial year when they recognize that the Indian economic growth has not affected much by the current global financial crisis. The introduction of new model cars by the domestic and foreign manufacturers in Indian market has created a boom in the Indian auto industry at present. The growth of Indian car market has significantly contributed to the growth of the foreign auto manufacturers as well. Hyundai, Toyota, GM all marked heavy increase in their sales in India even though their performances in some of the other foreign markets were not so good. The Indian unit of Hyundai Motor Co. reported its highest-ever monthly sales in November. The company, which started operations in India in 1998, sold 55,265 vehicles, up 29% from a year earlier. Local sales at Hyundai, maker of the i10 and i20 hatchbacks, grew 93% to 28,162 vehicles, but exports fell 5% to 27,103 vehicles (Gulati). In fact, some of the above foreign auto manufacturers are using India as one of their places for manufacturing their vehicles for Indian and foreign markets. Hyundai has already started exporting of vehicles manufactured in India. Their models accent, Xing etc are exporting to many other countries from India. Apart from the car market, the two wheeler market in India also has shown considerable growth in the last year. “Hero Honda, India's biggest two-wheeler maker by sales, posted a 32% rise in November sales to 381,378 units” (Gulati). Not only Hero Honda, TVS motors, Bajaj, and Royal Enfield were also grown considerably during the last year. Steel prices are on a decline all over the world and India also not an exception. The reduction in steel prices should again boost the auto manufacturing industries in India. Today’s (03/12/09) financial express newspaper from India, reported that flat steel prices saw a fall of Rs 1,000 per tonne in the last two months. The paper also reported that the Steel Authority of India Ltd (SAIL), on Tuesday reduced its flat product prices again by about Rs 500 per tonne (The financial express). In short, automotive industry in India is one the verge of a significant growth. The stable Indian economy and the increasing living standards of life styles in India are good signs for the auto industry in India. Works Cited 1. GULATI, NIKHIL. DECEMBER 1, 2009. “Auto Sales Soar in India”. The Wall Street Journal Asia. 03 December 2009. 2. The Financial Express. 03 December 2009. “Steel makers fail to cash in on auto sector demand”. 03 December 2009. Read More