Hybat Corporation - Essay Example

Introduction: Hybat Corporation (Multinational) is a USA based public limited company registered at New York Stock exchange. It is presently involved in a business of manufacturing and selling Hybrid cars that run on solar charged batteries at a speed of approximately 200 mph. Being a multinational, the company has a grand strategy of growth and expansion by making most of lucrative opportunities in different countries. The company has now chosen Hungary as its new destination for initiating a Green Field Venture by creating a subsidiary to cater the demand of Hybrid Cars in Central Europe. Answer 1: As mentioned above, Hybat is a multinational corporation with enormous financial resources and strength, management expertise and an organized research and development department which is capable of making new innovations. Because of this, company is aimed to start a new green field venture (creating a subsidiary from scratch) in Hungary. According to KPMG Report (2008), there are several factors that make that investment decision attractive in Hungary such as availability of Infrastructure such as “extensive road system” and “railway network”, an established telecommunication network in which further technical developments are in progress, availability of utilities such as “natural gas” and electricity to ensure smooth production at work sites, availability of “highly skilled”, trained and well-educated labor force “particularly in engineering” that could contribute in much higher productivity and efficiency thus lowering down the average costs of production. In addition, the KPMG report highlights the fact that minimum wage in Hungary is 69000 HUF or 270 euros approximately per month which is surely quite lower in comparison to other European states such as France, Britain, Germany, Czech Republic etc. Hungary’s complete membership to European Union is also among the factors that attracted Hybat Corporation because it would provide the access to fairly developed European markets for its hybrid cars. A report prepared by HKTDC revealed that “Hungarys business environment is more liberal than many other East European countries. Accession to the EU has only reinforced the countrys solid fundamentals. Notably, its better business infrastructure, including its financial and legal environment, has enabled the country to play a leading role in business, finance and trade in Central and Eastern Europe, making it a place conducive to business activities.” ( HKTDC.com, 2007 ) Moreover, the corporate tax rate stands at 16% which is fairly lower than European Nations because the Hungarian government is inclined to provide maximum investment incentives to foreign investors to create employment opportunities and boost business activities across the country. ( ITDH.com ) Answer 2: Besides the ground realities as mentioned above, there are some other specific reasons that compelled Hybat Corporation to choose Hungary as its target market. The first reason is the favorable investment climate and business friendly environment. The cumulative Foreign Direct Investment since 1989 is reported to be nearly $60 billions. According to ITDH.com (official website of Hungarian authority), the Hungarian Investment and Trade development authority endorses “high value-added investment projects” across the nation and provides different types of subsidies such as “cash subsidy, development tax allowance, training and job creation subsidy”. In addition, the authority also provides extensive “information”, direction and guidelines about the business conditions, consumer morale, consumption patterns, taste and preferences and societal taboos to investors willing to invest, initiate projects or build a subsidiary in Hungary. “In cases where no EU co-financed subsidy is available, the Hungarian Government offers tailor-made incentive packages for projects with eligible costs exceeding €10 million or 50 million for tourist projects.” (ITDH.com) Hungary is a reasonably better option for Hybat than Britain. According to Dimireva (2009), the corporations are taxed at 28% on their corporate earnings of 1.5 mn British Pounds compared to just 16% in Hungary which may reduce further (as part of government’s policy) if companies invest mammoth amounts. Dimireva (2009) also pinpointed the fact that minimum wage in Britain lies between 6.5 to 4 euros/hour (2008 conversion) which is extremely higher than 270 euros a month in Hungary. For instance, the KPMG report reveals that the Hungarian economy has observed reasonable growth at an average of 3-4 % in past few years despite economic recession. Moreover, it has seen “successful transformation from a planned economy to truly free market economic system”. In other words, it has adopted the principles of Capitalism by opening its economy for foreign investors and multinationals. Japanese and Germans have also shifted some of their assembly lines to Hungary amid friendly policies. The private sector now accounts for 80% of its GDP because of its privitization policies. Inflation was around 3% (end of year) in 2008. (economywatch.com) Undoubtedly, the concept of Hybrid cars (that combine solar, gas, electric, and pedal power to propel the vehicle) as mentioned by Trainor (2008) have gained consumer acceptance in Hungary. The consumers highly appreciated the Hungarian Antro Solo prototype which will be launched by 2012. This further endorses the fact Hybat Corporation would surely get positive response from consumers in the wake of changing demand patters of automobiles. Consumers are now tended towards “eco-friendly, light-weight and streamlined” small hybrid vehicles for their routine use. (Trainor, 2008) Risks Associated with Green-Field Venture: The exchange rate stands at 170 HUF for US $1 in 2008. (economywatch.com). The weakness of dollar in international market because of economic meltdown and downturn might affect the forecasted revenues, expenses and cash flows based on exports from Hybat’s Hungarian plant to other regions. Furthermore, any changes in trade policies such as regulatory measures, minimum wage rate, environmental laws etc might also affect the company’s business. The demographic factors such as income, occupation, age-cycle, education and tastes would also be considered when formulating a suitable business strategy. According to KPMG report (2008), Hungary has remained ”politically stable since its transformation process in 1989” and parliament has enjoyed the ”dominant” role which is a plus point for Hybat. Conclusion: Hence, after conducting such a comprehensive analysis on Hybat’s would-be initiative, it is worthwhile to conclude that Hungary could be a way better option for business expansion as compared to Britain. The chances of survival and growth are reasonably high because of the ground realities in Hungary that stands currently at 47th (2010 ranking) in the list of countries favorable for doing business. Bibliography: N.a. (2009) “Investment Incentives”. Itdh.com Available at http://www.itdh.com/engine.aspx?page=investment_incentives [Accessed: January 17, 2010] N.a. (2009) “Hungry Business Environment – Doing Business in Hungry”. Available at http://www.eucommerz.com/business/hungary [Accessed: January 17, 2010] N.a. (2008). “Investment in Hungry” Published by KPMG. Available at http://kpmghu.lcc.ch/dbfetch/52616e646f6d495609c1f60677a031babdab358c46343fad67f1206bb1062f5a/investment_in_hungary_2008_web.pdf [Accessed: January 17, 2010] N.a. (2007). “Hungary: Business Environment”. Available at http://www.hktdc.com/info/mi/a/bgem/en/1X005JB4/1/Guide-to-Emerging-Markets/2-2-Hungary---Business-Environment.htm [Accessed: January 17, 2010] N.a. (2008)“Hungary Economic Statistics and Indicators” Available at http://www.economywatch.com/economic-statistics/country/Hungary/ [Accessed: January 17, 2010] Dimireva, Ina (2009). “UK Investment Climate 2009” Available at http://www.eubusiness.com/europe/uk/invest [Accessed: January 17, 2010] N.a. (2009). “Future of Hybrid Cars Remains Buoyant Despite Recession” Available at http://www.prlog.org/10438452-future-of-hybrid-cars-remains-buoyant-despite-recession.html [Accessed: January 17, 2010] N.a. (2009). “Hungarys answer to automotive future” Available at http://blogs.chron.com/carsandtrucks/2009/03/hungarys_answer_to_automotive_1.html [Accessed: January 17, 2010] Wray, James (2008). “In photos: Hungary Hybrid Car”. Available at http://www.monstersandcritics.com/lifestyle/autos/features/article_1411516.php/In_photos_Hungary_Hybrid_Car [Accessed: January 17, 2010] Trainor, Kate. (2008). “Hungarian Hybrid Combines Solar, Gas, Electric, and Pedal Power”. Available at http://www.carectomy.com/hungarian-hybrid-combines-solar-gas-electric-and-pedal-power/ [Accessed: January 17, 2010] N.a. (2009). “Hungary slips on latest World Bank "Doing Business" ranking”. Available at http://www.realdeal.hu/20090911/hungary-slips-on-latest-world-bank-doing-business-ranking [Accessed: January 17, 2010] References Trainor, Kate. (2008). “Hungarian Hybrid Combines Solar, Gas, Electric, and Pedal Power”. Available at http://www.carectomy.com/hungarian-hybrid-combines-solar-gas-electric-and-pedal-power/ [Accessed: January 17, 2010] N.a. (2009). “Hungary slips on latest World Bank "Doing Business" ranking”. Available at http://www.realdeal.hu/20090911/hungary-slips-on-latest-world-bank-doing-business-ranking [Accessed: January 17, 2010] N.a. (2009) “Investment Incentives”. Itdh.com Available at http://www.itdh.com/engine.aspx?page=investment_incentives [Accessed: January 17, 2010] N.a. (2008). “Investment in Hungry” Published by KPMG. Available at http://kpmghu.lcc.ch/dbfetch/52616e646f6d495609c1f60677a031babdab358c46343fad67f1206bb1062f5a/investment_in_hungary_2008_web.pdf [Accessed: January 17, 2010] N.a. (2007). “Hungary: Business Environment”. Available at http://www.hktdc.com/info/mi/a/bgem/en/1X005JB4/1/Guide-to-Emerging-Markets/2-2-Hungary---Business-Environment.htm [Accessed: January 17, 2010] N.a. (2008)“Hungary Economic Statistics and Indicators” Available at http://www.economywatch.com/economic-statistics/country/Hungary/ [Accessed: January 17, 2010] Dimireva, Ina (2009). “UK Investment Climate 2009” Available at http://www.eubusiness.com/europe/uk/invest [Accessed: January 17, 2010] Read More