IBS Examination - Assignment Example

Name) (Instructors Name) (Course) (Date) IBS Examination Q1. Discuss why foreign companies establish Alliances of International JVs when entering Emerging market Foreign firms often enter into a strategic alliance of international joint ventures for many reasons. One important reason is the ease of market entry. Due to advances in transportation, computer technology and telecommunication, entry into international markets by foreign companies has been made easier. Further, entry into foreign markets is often associated with benefits such as the economies of scale as well as the scope related to marketing and distribution. Notably, entry into an international market as a lone firm is often accompanied with considerable costs thus beyond its capabilities. However, when entering into a foreign market through alliances of international joint ventures, a firm will benefit from rapid market entry while maintain the cost down. Besides, choosing an international joint venture alliance as a firm’s entry mode to a foreign market addresses foreign market obstacles such as hostile government regulations as well as entrenched competition. The other important benefit is related to risk sharing. Risk sharing is often considered as a typical undertaking in any cooperative undertaking more so, when there is instability and uncertainty in a particular. It is also a common undertaking where a new market has just opened up thus sharing risks becomes predominantly significant. In addition, the competitive nature associated with running a business often makes it difficult to enter into a new market or launch a new product. Therefore, international joints ventures helps in reducing or controlling a firm’s risks. Shared expertise and knowledge is the other important benefit that comes along with international joint ventures. Typically, a firm can be competent some areas but lack expertise in other fields. As such, by entering into a strategic joint venture, a company will benefit from readily accessible expertise and knowledge in areas that the company lacked earlier. Fair enough, the knowledge, expertise as well as the information a company gains will not only be beneficial in the joint venture initiative alone but also in other future projects and purposes. The knowledge as well as the expertise could be related to learning to dealing with the existing government regulations, how to obtain resources and production knowledge. Competitive advantage as well as synergy is the other significant benefit of international joint ventures. Competition in the business environment often becomes more effective when joint venture partners leverage off each other’s capabilities thus bring into place the synergy needed, which could not have been attained singlehandedly. Entering foreign markets through international joint ventures help in limiting the risk associated with research and development as well as further international expansion. Q2. Risks involved in using Alliances of JVs in Emerging markets. There are often a number of risks associated with using alliances of joint ventures as a strategy of entering new markets. The most common risk is related to the partnering firm holding information with regard to their objectives thus communicating unclearly during the contract engagements. When a partnering firm does not communicate clearly, misunderstanding issues could emerge. The communication failure may often be exacerbated by the cultural and geographic distances between the two firms in the joint venture, for instance the use of languages such as “them versus us.” The communication issue can lead to one firm setting unrealistic goals and objectives, which could be considerably unclear in advance thus derailing the whole project from the intended common goal thus leading to loss and management failures. Management and operation aspect is yet another major issue. Due to the unfamiliarity by one partner with regards to importance of regular monitoring performances, trust and mutual understanding between the two firms can be compromised. Ideally, the governance mechanism established at the onset of the contract engagements may lack flexibility to adapt to the constant changes that one partner may need thus allowing management and operation challenges to occur. More often than not, the nature of strategy employed by different firms may undermine the joint venture. The two firms may have differing strategies in between the joint venture process thus failing to realize a set of mutually agreeable goals and objectives associated with business as well as exit strategies. Risks can also emerge due to differing strategies closely related to conflict resolution, human resource, governance, decision-making and accountability. In special circumstances, there might emerge the issue of imbalanced resources in the joint venture. Some firms may want to take advantage of the foreign company’s resources as it may have little knowledge regarding the cost of raw materials and human resource in the host country. For instance, one firm might have feeling that its technology is somewhat being appropriated by the other firm. Q3. Discuss the typical characteristics of an emerging market. What are the Risks & Opportunities these characteristics present to foreign entrants? Emerging markets, which can also referred to as developing and emerging economies can be associated with a country’s economy that is progressing with a vision of becoming advanced. Such a country often characterized by some form of market exchange, liquidity in local debt as well as equity markets. Although, they have physical financial infrastructure such as banks, unified currency and a stock exchange, emerging markets typically lack strict stands with regard to securities regulation and accounting. Emerging markets also do not have as a high market efficiency levels compared to advanced economies such the U.S and Europe. The most common characteristic attached to emerging markets is low per capita income in fact; lower than average per capita income. According to World Bank, developing economies are those countries with a low middle per capita income typically less than $4, 033 (Data.worldbank.org, par.1).With the low income aspect, countries often strive to strength their economies through research and investment, tax holidays for foreign companies as well as empowering their citizens through education that is in ICT-oriented. The second characteristic is associated with the aforementioned point: low income. In effect, the emerging markets are characterized by rapid growth due to their quest to advance and be as per the world greatest economies such the U.S and Britain. Statistics indicate that in 201, the economic growth for major economies such as Japan, U.K and the U.S was between 1% and 2%. On the other, those of emerging economies such as Turkey and South Africa grew by 4.6, while that of India and China grew at a whopping 8% (Data.worldbank.org, 'GDP Growth). Further, the emerging economies have high volatility rates due to the rapid social changes they witness. This is often as result of constant domestic policy instability, natural disasters and external price shocks. The developing countries rely mostly on which is often susceptible to natural disasters such as droughts earthquakes and floods. Some of these characteristics offer opportunities as well as risks to foreign entrants. Looking at the opportunities, the emerging markets provide foreign companies with an opportunity to expand their markets and revenue due to the rapid growth evidenced in the emerging markets. This indicates that any foreign firm investing an emerging market has high changes of gaining profits due to their quest to engage in business and the urge to obtain higher social classes. Moreover, governments to emerging economies are commitment to grow their economies therefore; they have initiated friendly business regulations and policies for foreign companies to invest in the respective economies. Secondly, the emerging countries are characterized by a rapid literacy level and high population rates. This indicates that foreign companies will have a readily available market for the communities as well as the required human resource. Additionally, the emerging economies have untapped or unexploited resources thus foreign companies have the opportunity to acquire raw materials at a limited cost. On the other hand, the emerging markets are characterized by unpredictable and unstable currency due to the volatile currency value of emerging economies compared to the dollar. In effect, foreign companies risk being lessened if its currency drops significantly or devalued. Secondly, due to political instabilities in the emerging economies, foreign firms risk suffering from sudden losses in case of a tribal clash. Q4. Some 100 companies from Emerging Markets are poised to become Multinationals. How and why are these Emerging Markets Multinationals now major competitors in the international stage? In 2003 when the Forbes magazines published top 100 largest companies in the world, majority of the companies came from giant economies such as America, U.S.A, Britain and Germany. Later in in 2007, the list was full of multinationals from emerging economies such as India, China and Brazil. Much of this drastic change that is giving the predominant players from the advanced economies stiff competition is due to various reasons. Unlike the western countries in the twentieth century, many emerging markets multinationals (EMMs) never waited to be competitive enough at home in order to expand globally. Evidently, these EMEs are from countries that often experience political instabilities and lack adequate legal protection and have infrastructure and technological limitations. Therefore, these EMMs learned to make out of the unfavorable business environments thus knowing how to cope with uncertainties and consequently utilizing fully any opportunities they got in the international market. Due to their obsession about continuous learning, the EMMs used the advantage of foreign expansion to acquire more knowledge, resources and skills from the developed countries thus producing quality goods and services. They used the foreign expansion as a springboard to acquire the knowledge and expertise needed to produce products that can effectively compete with those that are produced by companies from advanced economies. Further, the emerging economies often give scholarships to students, who go to advanced economies and come back with knowledge and expertise required to develop local firms at an affordable cost with regards to human resources. It is also evident that the cost of production in the emerging economies is low compared to advanced economies this has somewhat pushed the EMMs to gain more capital that may be needed to expand internationally. These companies were also quick to learn how to apply the current management techniques that would in turn help their international expansion. Studies indicate that majority of the EMMs do not employ performance management practices based on indigenous practices, but rather on the best international practices. Lastly, the desire for higher value in the new markets is the reason the EMMs have managed to indicate a continuous success with regard to foreign expansion. Q5. What are the types of obstacles these emerging market companies will experience in their pursuit of international growth? Explain the strategies that they will adopt. As the name suggests, the emerging marketing companies are slowly entering the international market thus, they are to experience the disadvantages associated with entering the global market as latecomers. To begin with, since these companies are coming late into the industry, they face branding problems. With the already established brands such apple and Samsung, EMMs face problems of introducing their products and building their brand. To deal with this challenge the EMMs will have to know their customers and what they need. That way, they will be in a position to come up with a strong brand in a new market. Secondly, is through market positioning and making sure that a company knows its competitive advantage thus making customers to come for the new firm’s product. The organization should also be quick at learning and embracing new culture in order to relate with its customers in foreign markets. It is worth noting that EMMs are used to a low cost of production at home due to the cheap labor and readily available raw materials. While expanding internationally however, these companies are faced with the challenges associated with meeting the high cost of labor in advanced economies as well as raw materials as such limiting its revenue capacity. To address this issue the EMMs will need to cut on other costs that could be unnecessary and make use of the the little resources they get. When entering into a new market one great challenge an investor will face is culture and language barrier. To curb this challenge, the management should incorporate the locals in their management as well as the junior staff in order to help the organization conform to the culture and norms of the respective host countries. The other obstacle the EMMs may face is government laws and business regulations. These regulations can hinder the business operations and for the business to address this, it must enter such markets through joint ventures. Moreover, the firm can negotiate for trade agreements with the government. Works Cited Data.worldbank.org,. 'Country And Lending Groups | Data'. N.p., 2015. Web. 22 Aug. 2015. Data.worldbank.org,. 'GDP Growth (Annual %) | Data | Table'. N.p., 2015. Web. 22 Aug. 2015. Read More