International Business Environment: Mega - Case Study Example

International Business Environment Contents Introduction 3 1a) 3 2 d) 5 3e) 7 Conclusion 8 References 10 Introduction In this case study the Mega store is taken as a frictional multinational company. Here USA is selected as country A and Russia is selected as country B. Mega store is based in USA. It is a large retail company and holds a very good position in the market of USA. Mega Store is one of the strongest players in the retail industry of USA. But in the present time USA market is experiencing a large number of companies in the retail industry. It is a developed country and many companies are doing their business in this country. Therefore the market of USA has become saturated. For this reason the growth of Mega Store is experiencing many limitations in its home country. So if the company expand its business in a developing country having emerging market then it will be beneficial for the company. Establishing the retail business in other country will help the company to grow internationally. It will also lead to earn more revenue by acquiring more customers in new market. The company will get all these advantages if it expands its business to Russia. There is a sharp increase in the disposable income of the Russian people in the recent year which is contributing a lot in the growth of the retail industry in this country. 1a) The developing country Russia is experiencing an emerging market. The country is having a good economic condition which influences the institutional system of Russia. It has mixed economy and is characterized with high income people. The growth of their income and spending capacity will increase the sale of the company. The rise of the disposable income of the Russian people increases their demands. They prefer one stop retail stores where they will get every product of their needs. The big retail shops of Mega Stores have various products which will attract the people of Russia. A radical transformation is observed in the country after the downfall of Soviet Union. Its economic system have become centrally planned which helps in the global integration of its market economy (Gelman and Ross, 2013). As a foreign company it will get the advantage of global integration in Russian market. In the recent years the country has achieved stability in its macroeconomic environment which protects its industry relatively from different financial crisis. Setting up the business of Mega Store in such a business environment will reduce different financial risk of the company associated with its setup and infrastructure. The national institutional system of Russia is also affected by its tax systems. The government of this country has taken different measures to reduce taxes to improve the business environment. Mega Store will have to pay less tax in this country which can increase its profit. The institutional reforms of Russia help in the development of different business plans which will benefit the establishment of the business operation of Mega Store. These reforms attract many multinational companies in expanding their business operation in Russia. The country is experiencing a positive trend in the investments of different business. Therefore Mega Store can get a lot of investors in Russia who will help the company in setting up its business. The national institutional system of Russia is also influenced by the inflow of foreign direct investments. For past few years Russia is having a positive inflow of forging direct investments. Labour resources are cheaply available in this country which helps in the development of different industry. The large shops of Mega Store require many employees which will be easily available in this country by investing doing low investments. The modernization policy of the country implemented by the government contributes a lot in the development of the business. The trade regulation of Russia sometimes creates barriers for the foreign companies to establish their trades. Moreover the national institutional system of the country is hampered by discriminating licensing policy of the government of Russia discourages the growth and expansion of foreign companies. The national institutional system of USA is hampered by high cost related to the business. The taxes and regulations of the country are very strong. This sometimes creates a negative aspect in the operations of many businesses. Moreover the institutional system of USA is affected by its strong government regulations. As it is a developed country the government of USA puts many regulations on the business activities. The retail company Mega Store will not faces these issues in Russia. The local suppliers of Russia will also helps in the development of the business process of Mega store. This type of national institutional system of the Russia will contribute in the establishment of the Mega Store. 2 d) Russia has entered into an agreement with the World Trade organization. The membership of Russia with the World Trade Organization has facilitated the country in many ways and especially for carrying out its trade. The membership with the world trade organization has facilitated Russia in importing of the goods and services from other countries, maintaining transparency in formulation of the laws and regulations of the government that will affect the trade and foreign investment. World trade organization has developed a mechanism for resolving the disputes while carrying out trade with its member countries and it reviews on a regular basis the rules and policies related to trade. Here in this case the developed country that is USA wants to establish its retail chain named as Mega store in Russia will be facilitated due to the facilities provided by the World Trade Organization since it has reduced the average tariff that is levied on all products from 10% to 7.8% in case of the manufactured goods, the limitations of the foreign equity has been eliminated and it has provided liberalization of services. USA can smoothly carry out its retail chain operation since the World trade organization has removed the exemption of tariff (Cooper, 2012). The European Union has also sanctioned the trade agreement between Russia and USA. This sanction will help USA in establishing and developing its business that is Mega stores in Russia. The agreement has facilitated the Foreign Direct Investment which is considered as an excellent indicator for carrying out trade. The European Union regulation has sanctioned the trade and has limited its restriction on trade. The European Union has penetrated in the markets of Russia for carrying out multilateral trade. European Union has facilitated in promoting and developing the integration model which will help Mega stores in earning more profit. European Union has provided a number and various indicators for developing the trade relation between Russia and its member countries for increasing and developing the economic cooperation and increasing the competition. The European Union has developed the trade agreement between the countries. It has benefitted Russia for carrying out import and export with the other member countries of the world. USA is the member of NAFTA which has permitted for carrying out cross border transaction. With the reduction of the restriction on trade agreement has facilitated the social, political and economic integration between the member countries. The deal for carrying out the trade between Georgia and Russia by the World Trade Organization has paved the way for Russia for carrying out its trade with other countries and encouraging other developed countries to develop and expand new business in Russia. The new retail chain that is Mega store of USA can develop and expand its business in Russia. The World Trade Organization will provide economic benefit to Russia. Russia has the membership of the World Trade Organization and European Union which has facilitated for carrying out unilateral and multilateral trade with the member countries. Therefore the membership of Russia with WTO and EU has facilitated the expansion of Mega store retail chain in Russia (Rocha and Trew, 2014). 3e) The political structure of Russia involves in many risk which influences the foreign business. The political policies and rule which affects the business of a country in a negative way are called political risk. Russia also faces many political risks which threatens the business environment of the country. Its inefficient government and its policies increase corruption in the country which creates an adverse effect on the business. The state owned companies of Russia are more favoured by the Government. The policies of government are made favouring those organizations. Mega Store as a foreign company can face problem regarding this issues. The political leaders of the country for fulfilling their own interest often interfere in the business processes of different companies and create various problems by misusing their political power. Many times the foreign investors have faced difficulties while investing in Russia. They have faced serious bureaucratic pressures from the Russian government which created barriers for the International companies (Schaffer, Agusti and Dhooge, 2014). The corporate policies of the state are not very transparent. Therefore it can become difficult for the foreign companies to trust the market of Russia and its policies to establish a business. The government of Russia is highly involved in the economic activities of the country. This government intervention leads to the inefficient business process in the private sector industry. The partial relationship of the Russian government with the big business of the country can become a major risk for Mega Store to establish its business. The natural resource nationalism of the country limits has made many restrictions on the foreign firms doing business in Russia. The legal policies of the country also create obstructions in the foreign business process. The government has many limitations in the policy formation of Russia for its private companies. Mega store may have to face such problems in this country. The country also faces political risk regarding the infrastructural development of its industries. This type of risk makes the industrial development expensive and difficult as the suppliers face many hurdles in distributing the products. The political violence of Russia becomes a major risk for the businesses. Many of the leaders of the country are involved in these activities to fulfil their personal gains. Often they get involves into companies internal matters and regulate the business processes. The socio political conflict of the country creates many tensions which becomes a risk for the companies operation there. This conflict harms the internal environment of the companies which creates a negative effect on the revenue generation of the company. Mega store can try to reduce this political risk by maintain a good relationship with the government bodies of the Russia. The company should make strong internal rules and regulation which will not be affected by external political risk. The retail company should understand the political environment and rules and regulations of the country before implementing any strategies and decisions in its business. To handle the major political risk of the country Mega Store can pressurize the Russian government for keeping up its commitment regarding the trade rules and regulations. Conclusion Mega Store the frictional company of USA is planning to expand its business internationally in Russia by analyzing the country’s market and all the factors which will influence its retail business. The retail market of USA has become very saturated. So it will be beneficial for the company to expand its business in the emerging market of Russia. This is because the Russian market is experiencing huge demands for the retail products. The economic development of the country increases the disposable income of the Russian people. So they trends to spend more on various products. The life style of the Russian people has also improved which influences them to purchase products from big retail stores. Mega Store will be benefitted from these factors which will help the company to establish its business in this country and generate more revenue by acquiring many customers. But there are many risks associated with the political environment of the country which can create problems for Mega Store. Therefore the company should take necessary precautions to deal with those political challenges. Good relationship with the Russian Government and with its political leaders will help the company to settle its business. Developing strong internal policies of Mega Store can help the company to keep itself free from the influences of Russian political leaders and corruptions. References Cooper, W.H., 2012.Russia’s accession to the WTO and its implications for the United States. [pdf]. Available at: https://www.fas.org/sgp/crs/row/R42085.pdf. [Accessed 9 January 2015]. Gelman, V. and Ross. C., 2013. The Politics of Sub-National Authoritarianism in Russia. Burlington: Ashgate Publishing. Rocha, M.P. and Trew, S., 2014. NAFTA gave multinational corporations the right to sue governments to block regulations they dont like, undermining democracy and local sovereignty. [Online]. Available at: http://fpif.org/nafta-20-model-corporate-rule/. [Accessed 9 January 2015]. Schaffer. R, Agusti. F . and Dhooge. L., 2014. International Business Law and Its Environment. Canada: Cengage Learning. Read More