Weekly Preparation for International Business - Case Study Example

WEEKLY PREPARATION FOR INTERNATIONAL BUSINESS (Student Name) (Course No.) (Lecturer) (University) (Date) Week 1 According to the World Investment Report (2015), indicate that global foreign direct investment increased by 36% in the year 2015. This increase in global foreign direct investment is attributed to cross-border mergers and acquisitions and corporate reconfigurations. UNCTAD also expects an increase in mergers and acquisitions. FDI has consistently been growing for the last ten years as a response to the liberalization of world economies. Foreign direct investment by individual private investors increased as they are targeting infrastructure internationally. The manufacturing and automotive industries experienced an upward trend in foreign direct investment. FDI increase significantly in all regions, but the Eurozone experienced little FDI due to ongoing uncertainties in the region, increased economic and political risks, and persistent vulnerabilities. Foreign direct investment increased in developing countries as big firms have realized there are plenty of underutilized resources in developing nations. MNEs in developing countries expanded foreign investments through Greenfield operations and cross-border mergers and acquisitions. Large MNEs are continuing to acquire developed countries affiliates in developing nations. For instance, MMG South America Company Limited, which is based in Hong Kong, China acquired Xstrata Peru, which is an affiliate Glencore (Switzerland). Large MNEs in China, Hong Kong, and Singapore are targeting companies in the U.S, and the U.K. FDI from large MNEs accounted for over 40% of finance to develop and transition economies. Large MNEs engaged in divestments by increasing cross-border deal activities and expanding the proportion of their international assets. These MNEs have increased liquidity in the global private equity markets. Large MNEs are willing to spend a significant portion of their retained earnings in cross-border deal-making activities. Internationalization of state-owned MNEs has declined for the past four years due to global financial crisis. Week 2 China has engaged in 12 regional and bilateral trade agreements and had six agreements under negotiation and four agreements under considerations. It has participated in the Trans-Pacific Partnership negotiation with the other 12 Pacific countries and engaged in a bilateral agreement with large partners like U.S and India. Several benefits have accrued the companies from the region. Member states have eliminated, and reduced trade barriers and tariffs the companies in the countries with which China has formed agreements can freely move goods and services without facing trade restrictions, quotas or embargoes. Companies also incur low transaction costs as a result of elimination and reduction of taxes. Companies have increased sales by selling their products both locally and internationally. Through free trade, the countries have transferred technology, and this has facilitated their growth. Despite the many benefits associated with the trade agreement, the companies in the regions that have entered into trade agreements. Some countries have relied too much on imports for valuable goods, and this has resulted in the collapse of local industries. Developing countries that have entered into agreements with the nation have fallen victims of dumping of harmful products such as poisonous chemicals. China has advanced in technology and thus entering into an agreement with a nation in developing countries serves as a threat to the companies. The competition might be unhealthy in the industry, and thus, the local company might be forced to exit the industry since it cannot keep up with the pace of competition in the market. As a result of this, local employees will be declared redundant and thus suffer the economic burden of unemployment. Week 3 The Uppsala Model is a model that describes the internalization process of companies in the advent of globalization (Amal et al, 2013). It explains he changes in the international business environment by explaining the various steps of entering the global market. The model views the business environment as a network of businesses involving many independent suppliers and customers. This model does not view the independent company relationship the model postulates that there are no regular export activities and a representative conducts export. According to this model, the company begins expanding in a nearby market and with time they acquire more knowledge and resources and begin expanding to a distance market. With time, they get to know that there are differences in the market. They, therefore, establish a foreign production or sales subsidiary. The firms develop a matrix to explain the relationship between knowledge acquaintance and commitment decisions (Amal et al, 2013). The model allows them to distinguish between general knowledge and specific knowledge. They transfer and share knowledge from one market to another and with time the firm develops a global orientation and operates as an international business. The relationships among firms enable them to advance their knowledge and companies learn new strategies for conducting businesses. The firm adopts the use of more intensive and demanding operational modes. Domestic firms not only conduct themselves as local enterprises doing business abroad but regard themselves as international companies. This is because they position their strategies as that of multinational corporations and overtime they transform from SMEs to MNEs (Amal et al, 2013). The firm begins competing with large multinational corporations and is therefore considered an international firm. Week 4 Sources of county-level data i. World Bank Trade Data The World Bank has various databases on trade such as production activities, the sale of goods and services and tariffs among others. It retrieves information compiled by various international organizations concerning trade and tariffs. For instance, it can collect information concerning balance of trade, exchange rates, and interest rates among others. Users can access the information freely and download the content materials. The data is detailed to industry-level production, and thus, users with specific interest can access specific information by searching the keywords. World Bank websites are however constantly changing. ii. International Trade Commission ITC is an independent federal agency that conducts information concerning unfair trade practices such as dumping. It collaborates with the International Trade Administration in conducting investigations and also allows users to query ITC databases concerning tariffs and amounts charged for specific products. The main function of International Trade Commission is to carry out investigations concerning commerce. Data for trade is collected by ITC and analyzed at the centre. ITC also implements sound trade policies. iii. National Trade Data Bank This agency is the source for vast amounts of data concerning trade and financial matters of the U.S and other countries. It carries out research on trade for specific markets and industries. The agency has links from which trade persons can access information relating to finance and commerce. Access to National Trade Data Bank is however restricted. The government is the main user of information from National Trade Data Bank. It uses the information to formulate economic policies. Week 5 PESTEL Analysis of China Political factors China has promulgated over 300 laws and regulations governing trade. Following riots due to unstable conditions of foreign companies in China, strict measures have been put in place to prevent this situation and create a safe environment suitable for doing businesses to foreign investors. China has tried everything possible to ensure political stability and encourages foreign investment. Economic factors China reformed its economy and made it open since 1978. The country is ranked as the second largest economy in the world, and this is attributed to its market reforms. China’s economy is stable, and this is evidenced by factors such as a flexible exchange rate regime (Li, Wang & Whalley, 2014). The government has made the best conditions favorable to foreign investors. Social factors The country has a huge population of approximately 1.3 billion people. The population supplies spontaneous labor to the market and also offers an opportunity to the business to expand by providing a market for the products. The government of China has increased the minimum wage, and this means that companies that intend to do businesses in China will have to pay the workers higher salaries. China is a collectivist culture, and many people would prefer physical shopping to online shopping. Technological factors China has greatest opportunities in the fields of technology. China is highly innovative when it comes to technology, and this has attracted super powers like the U.S and the European Union to form business partnerships with China (Li, Wang & Whalley, 2014). The Chinese government has given the industrial sector a priority by developing technological innovation projects that will help enhance efficiency in the industrial sector. Several districts such as the Silicon Valley have been established to facilitate technological research and development. Environmental factors The biggest problem that China faces is environmental pollution. WTO report indicates that China is one of the most polluted cities in the world. Japan is the world’s largest emitter of carbon dioxide and other greenhouse gases due to industrialization. Water scarcity is a big threat to companies that want to conduct businesses in China. Despite all these challenges, China has a highly impressive and attractive market. Legal factors The country has been formulating business friendly policies that will attract and encourage investors to make their investments in China. Despite making China open, the government has been very keen to protect domestic small industries from being overtaken by foreign companies. It offers tax incentives to promote investments. It is currently working on regulations that support privacy through intellectual property rights. Week 5 Similarities and differences between Australian and Indonesian culture Similarities The similarities between Australia and Indonesia are subtle. Both countries are in the same geographical region and are multicultural. They are multicultural and comprise of a broad range of people from the different races. They host races like Javanese, the White, Asian, and Banten among others. Both countries have a similar origin, which is Taiwan. Both countries are trading partners with China, Japan, India, South Korea and China. Differences Australia is a liberal society that is a very much advanced regarding economic development, as shown by its high GDP per capita ($ 36300). Australia has only two dominant groups, the White being the majority while others account for only 1% of the population. On the other hand, Indonesia is underdeveloped with a GDP per capita of $ 3800. Indonesia has more than five ethnic groups, Javanese being the dominant group. Issues that the Australian manager might face while leading the Indonesians The manager might face language barriers, and this will hinder communication process. A delegation of tasks might be very difficult particularly when there is no translator. Cultural differences might be another issue, and this might result in conflicts. What is acceptable in Indonesian culture might be unacceptable in Australian culture. In such a case, the manager might find himself in a dilemma as to which is the right way to pursue. Strengths and weaknesses of Hofstede’s study Strengths Hofstede shaped an excellent foundation that is used today by other researchers in understanding the culture. Hofstede recognized that culture is a crucial aspect of any organization and therefore expounded on it. The model makes the comparison of cultural values possible. The model is very practical since it discusses the relevant issues that are faced by the international manager. The model has also been tried and proven, and it is evident that it works. Weaknesses Hofstede argued that culture is static, but this is not true since culture is highly dynamic and changes over time. Researchers have also criticized Hofstede’s study on grounds that it is difficult to say which dimensions of culture one is looking at. Organizations are not looking at cultural factors while recruiting employees, and this means that the study might be irrelevant when it comes to selection and recruitment of employees. Week 7 Steps that Nike should take to eliminate issues of child labor in production Child labor can be a practice that the company engages in to minimize costs. Child labor is believed to be cheaper since most employed children do not have the qualities mandatory for the job. For this reason, child laborers have no objection to the salaries they are paid. The factory also pays its worker's low wages and thus qualified persons are not attracted to the organization. The only option remaining is child laborers. Nike should attract qualified employees and increase the minimum wage for both footwear factories and apparel factories. If Nike raises the minimum wage, workers above the age of 18 will be attracted to Nike’s labor market. It should also give better-working conditions to its workers so as to prevent high levels of employee turnover. The organization should stop the abuse of employees in the organization so as to retain the best workers. The organization should engage in corporate social responsibility by promoting child education. Nike should collaborate with the government and other organization to provide free education to children. The school is the best place that children can work as education can help them get rid of their poverty, and also keep them busy. The idle time will instead be utilized in school and education will also empower children to be self-reliant. The organization should impose the minimum age limit of workers. It should put stringent measures in place that should be observed by the human resources department. Nike has the obligation to stop child labor, and it must adhere to the international treaties and conventions that prohibit child labor. If the company conforms to ethical standards, it will not hire underage children. Week 8 Global mobility trends Mobility is an indication that some countries are more advanced than others regarding human resources, and therefore the countries in which expatriates are sent require knowledge and skills (Cullen & Parboteeah, 2014). Expatriates provide better expertise to corporate governance to countries in which they are sent. Respondents have expressed concerns about the failure of the organizations to adopt cost planning and management practices. Respondents have also shown that the company does communicate the importance of the assignments to them, and this has made it difficult for employees to align their skills with the goals of the project. Organizations use selection and assessment tools to selecting the expatriates and integrate career management into the assignment lifecycle. The candidates for the assignment are chosen carefully to ensure that they have the best required skills. The assessment tools focus on knowledge, awareness and skills. The expatriates should be aware of their assignments, they should have knowledge of the country in which they are sent and they should have advanced their skills (Cullen & Parboteeah, 2014). The employees to be sent to other countries must demonstrate a variety of skills such as problem solving, communication skills and assertiveness among others. In the case, no intercultural training is given to employees as companies do not have the right career management practices to support their employees. For this reason, employees usually find it hard to adapt to the new environment comprising of diverse cultures. Transition is usually very slow for expatriates who have not undergone intercultural training. Employees are not psychologically prepared before they leave to foreign countries and this, in turn, affects their ability to perform. Week 11 Frontier markets Frontier market is a term used to refer to equity markets in a developing country that is more advanced than the least developing countries (Cullen & Parboteeah, 2014). The market is not however very sophisticated to be called an emerging market and is thus called pre-emerging market. An example of the frontier market includes Argentina, Botswana, and Pakistan among others. Investment and liquidity in frontier markets are limited, and information sources are also limited. Investors who are ready to accept higher risks for the purpose of getting high returns pursue these markets. These markets are most preferred by investors because they provide additional diversification to the investment portfolio. Developing countries, particularly poor countries that are on the way up are classified as frontier markets. Most of these countries are from Africa. It is very easy to get into investment in developing countries because these countries grow very quickly. It can, however, be very unfortunate if the market turns against the investor. These countries have a GDP of less than $10000 and thus, qualify to be classified as frontier markets. The economies of countries that are not diversified are also classified as frontier markets. Advantages of MNEs to operate in frontier markets Frontier markets offer great opportunities and benefits to multinational enterprises. The markets in these countries are still developing, and they, therefore, offer opportunities to MNEs to establish their brands and consequently gain a larger share of the market. It also provides an opportunity to MNEs to diversify their investment portfolios thereby minimizing risks in the event of adverse economic conditions and financial crisis. Most developing nations offer friendly policies to MNEs to encourage them to develop the frontier markets. The MNE s will, therefore, benefit from reduced or eliminated trade restrictions, and this helps the organizations incur low transactional costs. MNEs will also benefit from free movement of goods and services and thus increase their volume of sales and consequently realize more revenues which translate to higher profits. Large MNEs do not yet exploit a significant number of frontier markets and there is a wide gap that is yet to be filled. If the MNE takes the advantage to explore this market and fulfill the needs of the consumers and thus earn higher returns. The MNEs get to change their reliance on the local environment which might no longer be profitable to operate in. Frontier markets offer the opportunities to reinvest and try something else following the sunk costs they incurred (Cullen & Parboteeah, 2014). MNEs get the benefit of exploiting the underutilized resources without very tight trade restrictions and less stiff penalties on pollution. Countries with frontier markets are still in the developmental stages and would do anything possible to promote investment so as to get rid of their social ills like unemployment, prostitution, and poverty among others. MNEs also benefit from subsidies offered by developing countries and other trade incentives to encourage supply. Challenges presented by frontier markets Countries with frontier markets are ravaged by wars, diseases, social and political unrests, and famine among others (Madura, 2014). It is, however, unfortunate that the media and advertising agencies misrepresent these conditions to attract foreign investors. The greatest challenge comes in when the investors start their operating activities. They are more likely to experience losses due to these conditions. It can also be difficult for expatriates to cope up with tough conditions such as harsh climate and famine in developing countries. Frontier markets tend to be highly volatile than the emerging markets (Madura, 2014). The manager usually finds it hard to deal with the many challenges that result in volatility. Lack of liquidity is also a challenge due to high levels of poverty. Infrastructure is poorly developed and thus making it difficult to access some markets. The corporation might, therefore, be incur high costs in trying to handle the challenges than what the business will return. References Adler, N. J., & Gundersen, A. (2008). International dimensions of organizational behavior. Mason, Ohio, Thomson/South-Western. Amal, M., Baffour Awuah, G., Raboch, H. and Andersson, S., (2013). Differences and similarities of the internationalization processes of multinational companies from developed and emerging countries. European Business Review, 25(5), pp.411-428. Cullen, J. B., & Parboteeah, K. P. (2014). Multinational management: a strategic approach. Mason, OH, South-Western Cengage Learning. Graham, G., & Emid, A. (2014). Frontier markets for dummies. http://about.nike.com/sustainability http://globalmobilitytrends.brookfieldgrs.com/#?q=5 http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx Li, C., Wang, J. & Whalley, J.,(2014). China's Regional and Bilateral Trade Agreements (No. w19853). National Bureau of Economic Research. Madura, J. (2014). International financial management. Shambaugh, D., (2013). China goes global: The partial power. Oxford University Press. Read More