Entry into Foreign Market - Assignment Example

Entry into Foreign Market Entry into Foreign Market Action The world economy is by no means ‘national’ anymore, and to fit into themore globalised world market many companies are expanding their trade into foreign countries. There are a host of factors that a firm has to assess before it can decide which foreign market it has to enter and when. Assessment and analysis of these factors is important during the decision making process when selecting a foreign market to enter. Research has shown that categorized according to a broad umbrella, these factors may be political, cultural, economic or legal in nature. In addition to these external factors, the firm also has to assess which mode of entry into the foreign market it is going to adopt. The selection of the mode of entry will depend upon factors like the company’s background, nature and strategic objectives. After this step is decided upon, the firm also has to decide upon its degree of involvement in this venture. Once these factors have been analyzed and decided upon, the firm is now equipped with adequate knowledge to take this step and expand into foreign trade. (Zekiri and Angelova, 2011). Action 2 Internal analysis is also necessary in addition to analysis of external factors that may affect Cameron international’s decision to expand into the Myanmar market. A framework to assess the internal situation is through the VRIO framework. (Gallagher, 2004). According to this, for a company to possess a competitive advantage it should be: Valuable; examples of factors that create value are, efficiency, quality, customer response and innovation. (Gallagher, 2004). Cameron International is valuable in the sense that it has previous work experience in this sector and is continuing to innovate and expand in it globally. Rare; a resource is rare if other companies don’t have it. (Gallagher, 2004). In this scenario, Cameron limited lacks this aspect because its operations are pretty standard as compared to other companies in its industry. Inimitable; Resources are inimitable when other companies cannot copy or acquire them easily. Normally such resources are in the form of intangible assets. (Gallagher, 2004). Cameron International displays exceptionally high levels of profits, which indicate that it is quite efficient in its field. This means that the intangible resources possessed by the company in the form of brand name, efficiency and organizational culture that give it an edge are intangible. Organized; organized resources are tangible resources. (Gallagher, 2004). For Cameron International, this could be in the form of their high levels of retained earnings which they could use to finance their investment into Myanmar and other economically viable foreign trade destinations. Action 3 However, there are some cultural and social factors that will need to be tackled if the company decides to enter Myanmar as a market. Cameron International will have to be fully prepared and train its staff beforehand so that these cultural and social issues do not become massive hurdles in the way of their success in Myanmar. Cameron International is from a social and cultural environment that is completely different from the one that prevails in Myanmar. There will be language barriers which could cause communication problems between the local people and Cameron International’s old employees. Further, there could be some problems caused by religious differences. Myanmar has a large Buddhist population and their religious culture and norms are completely different from those of a primarily Christian culture as would have prevailed in Cameron International. They would have to train their employees to adapt to Myanmar’s religious culture and be careful not to disrespect it in any way. Other factors that need to be kept in mind are Myanmar’s code of ethics regarding business, social and cultural life. These will vary from what Cameron International’s former employees are used to in the home economy, but they will have to adapt to Myanmar in this aspect as well if they wish for their business to flourish in this market. A major step that Cameron International can take to ensure that things progress smoothly in this regard is to invest in training to become more familiar with the culture and norms of Myanmar and to educate them on how to avoid letting social and cultural differences become hurdles for business. Myanmar is an emerging market in global trade. It is important for its great potential as a foreign market for many countries across the globe. There are some specific indicators of Myanmar’s trade potential; access to the most important shipping lanes of the Indian Ocean, potential as a trade and transport hub, gateway to large market including China, India and Pakistan, well established trade channels with India, China, Singapore, Japan, Malaysia and Thailand, large domestic market, rich in natural resources for example, timber, zinc, coal, natural gas and hydro power and strong potential as a tourist destination. (globaltrade.net, 2012). Since Myanmar’s emergence as a resource rich trade destination, it has been subject to a lot of exploitation which have in some part allowed it economic growth and in some parts been detrimental to the economy. The problem with Myanmar at this point is that it lacks the political and institutional stability that is much needed for foreign trade investment in the country. Moreover, there is a lack of sound economic policy implementation and what makes matters worse is that their government has not yet been able to reconcile with the ethnic armed groups in the country which leads to added instability in the economy. There is also the issue of over exploitation and exhaustion of resources. Countries in the neighborhood, like India, China, Japan, Singapore and Thailand have been using Myanmar investing in it to make use of its abundant natural resources which include oil and natural gas. (The Burma Environmental Working Group, 2011). Action 4 Cameron International Corporation provides flow and pressure control equipment for land and sea oil rigs. Myanmar could be a profitable market for Cameron International because in 2010, Myanmar had about 500m barrels of onshore oil reserves and about a 100m barrels offshore. Due to the size of Myanmar’s oil reserves, it stands at number 50th for the largest oil reserves in the world. (The Burma Environmental Working Group, 2011). Also, it is an emerging market and foreign investors are particularly interested in investing here. Many of these are interested in the extraction of oil. If Cameron International set up business in Myanmar it could exploit this trade emergence to its advantage. Based on the factors and determinants mentioned above, Cameron International should be better off using foreign direct investment to enter the Myanmar market. This is because Myanmar has immense oil reserves that are going to be continued to be exploited over the years in the long run and it would be better for Cameron International to have a strong know how and presence in their local economy to gain maximum benefit from this and these can only be achieved if it goes in through foreign direct investment and acquire a business facility in Myanmar and employ their local people. This way they will also have more knowledge about in what direction the economy is progressing and thus what their next viable move should be. Foreign Direct Investment is also suitable for Cameron International because it will be investing in Myanmar for the long run. Action 5 Since Cameron International will be opting for FDI in Myanmar, it will not need any partners for business operations. It will have complete ownership and control over production and other operations because of complete capital and other resource ownership. It would have to consider aspects of selecting appropriate firms as partners and appropriate share of business had it opted for a joint venture, however these concerns are eliminated if Cameron International opts for FDI which will give it complete control and ownership and as a result it will be able to keep the complete profits it makes through business in Myanmar. Action 6 However, there are also a few risks involved if Cameron International Corporation decides to enter the Myanmar market through foreign direct investment. In sum, these would be; high degree of risk due to political and economical instability, inability to absorb foreign acquired assets and not being able to adapt to social and cultural differences of Myanmar. To be able to effectively tackle these issues, Myanmar International needs to invest in research and development and training its employees and to make an in-depth risk analysis keeping Myanmar’s political and economic situation in mind. Further, it could install some safety measures that would help it pull out of Myanmar with little losses in case things go south. However, that will probably not be necessary and most problems here can be tackled by having trained and skilled employees who are dedicated to their work and understand the need to adapt to and work with the foreign environment and people. Negative aspects aside, this venture is highly recommendable for Cameron International because it will help it gain access to a large market consisting of a large part of the Asian continent and help it reduce its dependency ratio on the USA while making higher profits, achieving growth and becoming more globalized. References: 1. Gallagher, S. (2004). Why Does Firm Performance Differ? Retrieved from: http://educ.jmu.edu/~gallagsr/WDFPD-Internal.pdf 2. GLOBALTRADE.net. (2012). Why Myanmar? Retrieved from: http://www.globaltrade.net/f/business/text/Myanmar/Investing-Why-Myanmar.html 3. The Burma Environmental Working Group. (2011). Burma’s Environment: People, Problems, Policies. Retrieved from: http://www.bewg.org/pubs/finish/4/34 4. Zekiri, J. and Angelova, B. (2011). Factors that Influence Entry Mode Choice in Foreign Markets. European Journal of Social Sciences, Vol. 22, No. 4. Retrieved from: http://www.eurojournals.com/EJSS_22_4_12.pdf Read More