Main Aspects of IBS Examination - Assignment Example

Name Course Instructor Date IBS Examination Q1. Discuss why foreign companies establish Alliances of International JVs when entering Emerging market. One of the commonest strategies that foreign companies enter emerging market is through establishment of Alliance of International Joint Ventures. Many factors explain this trend. Joint venture allows two or more companies to join temporarily to carry out a particular project. One of the reasons why these foreign companies form alliances is to save money especially, when the companies are dealing in capital-intensive industries such as gas and oil exploration. Alliances allow these companies to contribute financial resources making it easier for them to enter such markets. Other reason is to reduce costs of operation, since they rely heavily on technology. These companies are able to reduce their cost of operation, and instead increase their profit margins by contributing money and bringing personnel together. The other reason is to gain a competitive edge in the emerging marketing. The level of competition across various companies has increased and it is on this backdrop that these alliances are formed to enable foreign companies compete favorably. The competition comes from both domestic and international companies already in operation. These alliances as well are formed to allow these foreign companies gain access to foreign markets. Some countries have laws that restrict foreigners from holding certain level of investments in their domestic companies. Therefore, as a strategy to ensure they expand their markets, these alliances act as a catalyst, facilitating their entrance in these emerging markets. Risk sharing is yet an important motivation for formation of alliances among International Joint Ventures. Sharing costs reduce the cost of the project as well as individual risk in case the project fails. For instance, if two companies want to search for oil and gas in swamps and oceans, they may finance the project but, in the event the project fails, then they will have to share the losses. This reduces the cost of the share of the risks for every company in the joint venture. Joint ventures as well provide platforms to learn and acquire knowledge. These companies can share skills, knowledge and resources to enable them remain competitive in the market. International joint ventures as well look for these alliance to gain control in the emerging markets. Cooperation is also a key reason for these international joint venture alliances. These alliances enhance the chances of succeeding and learning opportunities in the emerging markets. Q2. Risks involved in using Alliances of JVs in Emerging markets. Using Alliances of Joint Ventures in emerging markets presents a number of risks. One of the risks is that these alliances are faced with management challenges. The leaders may have different perspectives, views, and leadership styles that may be a source of conflict in the operation of these joint ventures hence, jeopardize their operations. Furthermore, there is a likelihood of encountering friction and lack of cooperation especially when it comes to decision-making processes. This is a risk to the unity and cooperation of the joint ventures. Cultural differences of the foreign companies that form these alliances may interfere with the progress of these alliances. Every partner in these alliances holds to their cultures and this may present a challenge during their operation. Different cultures may be a source of conflicts and disagreements that my hinder smooth entry in the emerging markets. Another risk of using these alliances is inconsistent government interference that makes it difficult for other companies to gain entry in these emerging markets. For instance, USA government restriction against any exportation of such technologies used to make computers and jet engines may causes disintegration of these alliances. The aspect of the real boss in these alliances presents a challenge in the operations of these companies. Leadership wrangles are likely to occur hence, jeopardizing the operation of these alliances. Managing and organizing these joint ventures is also a risk. They require good management structures to succeed and reduce the chances of failure. The alliances as well, are exposed to external environmental forces such as political system, legal system, economy state, and partner differences that may contribute to their failure. Some of the emerging markets may be experiencing political problems such as civil war that may affect the smooth operation of these alliances. The legal systems of different countries that have emerging markets as well pose a risk on the operations and success of alliances of JV. Some of the countries have stringent laws in respect to joint ventures such as maximum investment in such communities, tax requirements among many other restrictions that negatively impacts on the success of these alliances. Economic changes can as well incapacitate smooth operations of these alliances especially during economic recessions and meltdown. Q3. Discuss the typical characteristics of an emerging market. What are the Risks & Opportunities these characteristics present to foreign entrants? Emerging markets also known as developing countries or emerging economies means countries that are still investing heavily on their productive capacities. These markets or countries are shifting from their traditional economies such as agriculture to more advanced technology and global business. One characteristics of these emerging economies is that they have a lower than average per capita income. According to the World Bank, these countries have a per capital income of less than US dollars 4.034. Therefore, it means that they have many people in middle class and low class. The second characteristics of these emerging markets are their affinity to spearhead rapid growth. Leaders and the people are willing and ready to adopt suitable changes that will enable them to embrace an industrialized economy as manifest by the rapid growth rate of emerging economies such as China. China economy grew at a whopping rate of 8 percent compared to other countries such as Russia whose economic growth ranged between 3-4 percent. Therefore, the affinity to ensure rapid growth is a major characteristic of these emerging economies. The third characteristic is that emerging economies have high volatility because of the rapid social changes they pursue. Countries that have lower GDP, mostly rely on agriculture hence, are vulnerable to such calamities as droughts, and earthquakes such as Haiti among many others. They are also vulnerable to domestic and external price shocks. These markets as well experience high currency swings, such as commodities and currencies that affect their growth and stability of their economies. Capital markets in emerging markets have not matured compared to the developed markets. Therefore, foreign direct investment is not solid and stable therefore, getting information listed in their stock markets is difficult. Selling debts such as corporate bonds may also be difficult in these emerging markets. The other characteristic is higher than average return for the investors. Because these emerging markets focus on export -driven strategy, as they export lower cost goods for developed countries. Hence, investors will make higher profit translating to higher stock prices for them. They will also benefit from high return on bonds. These markets are also fragmented as they have few national brands that command the market. These nations or markets have youthful and growing population, many people have low incomes, they have weak infrastructure, underdeveloped technology, have weak distribution channels, and the culture and markets of these emerging markets are demanding. Therefore, these markets have both risk and potential opportunities for foreign entrants. Some of the risks include, risk of incurring losses because of the rapid changes in business. Foreign entrants must therefore, use this opportunity to develop strategies that will help them address these changes. They should develop with the market to change this risk into opportunity. The other risk is the low level of income among people in these emerging markets. Limited income means that companies will have to be patient for quite some time to accrue profits. The markets are also fragmented and this posses a stiff competition from such other companies. Nevertheless, these emerging markets present various opportunities to the foreign entrants. One of the opportunities to win over these fragmented markets is to connect their brands to the market. This will enable these foreign markets to succeed in these markets. There is also opportunity in investing in technology. This will enable these foreign companies to gain a competitive edge. Furthermore, they should invest in the production capacity to produce cost consumer goods to export to developing countries. Focusing on youths and thinking like them will also enable foreign companies gain a wider market in these emerging markets. They must as well be flexible, appreciate the different culture of these people, and incorporate these values in their products and services they provide. 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? Emerging markets companies can expand their business operations to global platform making them multinationals. These emerging markets multinationals becomes major competitors in the international stages by competing for the global space. They have enough financial resources as well as personnel that enable them to offer their products and services. Therefore, the question of ‘how’ is well respondent to based on the capacity that these emerging markets companies have. They have as well the skills, experience, and knowledge to carry out their business across the globe. Furthermore, these companies have embraced technology that is paramount to ensure that they succeed. The reason why these emerging markets multinationals have become major competitors on the international stage is because they have devised suitable marketing strategies that put them ahead of the other multinationals. Furthermore, they provide competent services and products to customers. Some have taken time; embrace cultures, tastes, and preferences of their customers in various markets. Customization of their products and services put them ahead of their competitors. The other reason is that they have taken advantage of technology to expand their business. Technology is one of the tools that have helped many multinationals to compete on the global scene. They also invest in research and development, something that have enabled them to remain steadfast about the changes in the market economy and many other aspects that concern their businesses. 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. Emerging market companies experience different obstacles in their pursuit of international growth. One of the obstacles is inadequate finances to cover wider regions. This obstacles is however, addressed by identifying the most profitable or potential locations to invest in at the initial stages. Another obstacle is high competition level. The market is already flooded with many multinational companies that offer various products and services. For these emerginong market companies to penetrate into these markets, it requires them to adopt suitable marketing strategies. This therefore, may take considerable time for them to have a presence on the market. Already existing companies have already made their brand and it is very difficult to introduce a new product in such markets. The strategy is to spearhead different marketing campaign to ensure that customers are aware of these products. The third obstacles experienced are government restrictions. Some governments have enacted laws and legislations that bar foreign companies from investing in their domestic markets to a certain level. This therefore, makes it very difficult for these emerging companies to penetrate the market. This challenge however, can be solved through trade agreements, joint ventures, and partnerships. The fourth obstacle experienced is cultural challenges. This obstacle happens in circumstances where there is no enough market research. Recognizing that different people come from different cultures and therefore, have different tastes and preferences will go an extra smile to alleviating this obstacle. Another obstacle is lack of infrastructure in these countries. This is an obstacle that affects emerging markets companies a s they are forced to invest in infrastructure. Multinationals have already developed their infrastructure and this makes it difficult for the emerging companies to compete, as this is costly. The strategy is to consider sharing some of the infrastructure to reduce the costs of setting up new infrastructure. The other obstacle is economic challenges such as recession, inflation, currency fluctuations and so on. These are challenges that can greatly affect the profitability of these emerging economies, and even causing them to close. Some of the locations may experience frequent currency devaluation hence, impacting negatively on the returns of these emerging economies companies. This problem can be resolved by investing in countries that have a history of stable economy and with sound, and stable political systems. Read More