The Raque Food Systems - Assignment Example

INTERNATIONAL INVESTMENT OF THE RAQUE FOOD SYSTEMS NAME: INSTRUCTOR: INSTITUTION: COURSE: DATE: INTRODUCTION The Raque Food Systems is an industry that deals with machinery used in food packaging and baking equipment for industries that deal with frozen and refrigerated food since 1975. From the International investment perspectives. (2006), before Raque Food Systems decides to expand to Malaysia and Mexico, it should consider the following; The cost of expansion; the company should determine how much they will require in order to set up the business in another country. Expanding a business globally requires a lot of funds that the company should consider if they can afford the expansion without partnering with other companies in the local market. Considerations of the foreign governments; the company will look at the stability of the local government and its authority, Tvaronavičienė, M., et al. (2013). Some of the issues that the company should consider include; i) Exchange rates ii) Accessibility to the required resources and raw materials; the resources to be utilized in the production process. iii) Business assistance programs from the foreign government; how supportive is the local government? iv)Accessibility to affordable capital; the company should consider the borrowing rates of the country. v) Business Protection policies available in the foreign country. The local market and competition; it is important to also look at the market structure especially the competition levels. The higher the completion the harder it will be for the business to penetrate the local market. Consider if they require an international partner; according to Benyon, J. and Dunkerley, D. (2014), for various companies, it is hard to find a local partner when expanding abroad. It is important to have partners because they can help enable sales, while at the same time keeping costs down for the local offices of the company. Additionally, creating a partnership takes time which can be a year or more and hence requires due diligence to find the right partner to fit the company. For this reason, countries like the United States has companies whose main objective is to help local industries find appropriate partners abroad. This industry eases the hustle for the company to find a partner on their own the process that in most cases is expensive and time consuming. How beneficial the expansion will be to the business; will the business make more profits from the expansion or not. After considering the benefits, the company will expand its business in other countries. The market conditions in the country; the company should determine if the market conditions such as the tariffs applied are favourable so as to invest in the country. For Raque Food Systems to consider investing in both Malaysia and Mexico, it has to look the tariffs that apply in their line of business. How will the expansion affect the production capacity of the company; expansion may increase or lower the production capacity of a country hence it is important for the company the effects that expansion will have on the production capacity of the company. A reduction in the production capacity will lead to lower returns in terms of the profits of the company and consequently, high production levels increases the profits of the company. The product's pricing policies in countries abroad; this will help the company come up with the pricing policies that are compatible with the local policies, as a result, the company will be able to penetrate the local markets with ease. The cultural difference can determine whether the business will succeed in the foreign country or not. Therefore, if the product does not meet the needs of the local markets, there is no reason for the company to invest in that particular market; hence, it is important for the management team to have a clear understanding of the communities in the local market together with the products that they value. Legal and governing barriers; engaging in business activities in foreign markets is attainable if the industry is supple enough to work within the local laws and regulation. The business should consider issues such as; i) The business and investment procedures ii) Labour and employment laws in the foreign country. iii)Trademark requirements. Last but not least, the company should consider how popular its product is in the countries of interest; this will help the company come up with advertising methods to help market the products in the countries and as a result better market penetration. QUESTION ONE According to Waters, M. (2009), business expansion especially at a global level has various benefits. Some of the benefits the company will enjoy if it invests in Malaysia and Mexico include; By expanding the business to a global market, the company gains access to high revenues due to the large customer base. If after introducing the product in a foreign it succeeds, the company will enjoy the high returns earned from the success, therefore, globalization could be the best and first way for the company to increase its revenues. Through international investment, the company will be able to improve its reputation in the countries hence the company will succeed globally and as a result, market its products to the new market as a multinational company. Through international investment, the company will be able to diversify its markets. Operating a business in a global platform allows the company to diversify its markets and as a result stable sources of revenue. The company may be able to access cheap labour costs in the country of interest. Countries such as Malaysia have high population most of whom are unemployed; the unemployed population act a source for cheap labour for the company hence cutting on the costs of production. QUESTION TWO THE MEXICAN ECONOMY According to the International Monetary Fund, the Mexico is the 13th biggest economy in the world in nominal terms and the 11th largest by purchasing power equivalence. Practical economic and financial policies have improved the macroeconomic performance of Mexico over the years. The rate of change has increased over the past few years due to the adoption of unlikely structural changes in some sectors in the economy such as the energy and communications subdivisions. The formation of business has turned out to be easy as a result of the regulation in the commercial operations streamlining the business operations in the country. Trading activities are significant to Mexico’s economy since exports and imports contribute about 72% of the country’s GDP. The normal tariff applied is 5%. Mexico partakes in several free-trade contracts and therefore the country accepts foreign investment so as to boost its economy. The financial subdivision is inexpensive and exposed and hence the investment system remains comparatively well capitalized, and overseas contribution has developed over the years. The Mexican economy has benefitted from FDI flows, free trade and incorporation in the international value chains. Therefore, the remaining obstructions to foreign investment and services trade ought to be lifted in order to move up in the international value chains, improve the variation of exports and reinforce environmental links. However, certain locations and categories of workers have benefitted less from open borders than others as a result of ignorance; therefore, improving education outcomes and reducing informality would help to spread the benefits of globalisation more widely. THE MALAYSIA ECONOMY Continuing economic changes have enhanced the competitiveness of Malaysia’s economy. The financial subdivision has experienced controlling changes that include expedition of the restrictions on foreign possessions in financial subdivisions in that various local equity desires that controlled overseas investment have been abolished. The trade system is quite open, although nontariff barriers that limit general trade liberties are still operating so as to control foreign investment and also protect local investors. Trade is very significant to the Malaysian economy; the total value of exports and imports contributes about 132% to the country’s GDP. The average tariff rate that is applied is 4.2 %. Investment in some subdivisions is limited, and enterprises that are owned by the state misrepresent the economy. The financial sector continues to grow, and its competitiveness is increasing throughout the country. Management of the banking subdivision has been reinforced and actions to liberalize capital markets have advanced. Due to open boarder trade, Foreign Direct Investment (FDI) contributes about $11.1 Billion to the economy. Hence international investments prove to be beneficial towards economic development in the country, Arnold, R. (2011). The above graph represents GDP growth in Malaysia from 1980 to 2013. From the graph it is evident growth in GDP fluctuates with time due to factors such foreign investments and contributions from imports and exports. QUESTION THREE Advantages and disadvantages of investing in Mexico Advantages The company will be able to enjoy the low labour costs in the country. This is due to the availability of cheap labour in Mexico. The peso crisis; While economic problems in Mexico are hard on its citizens, the peso deflation has made goods and services manufactured in Mexico by the US companies significantly affordable for the Americans who pay for the goods and services with dollars. North American Free Trade Agreement (NAFTA) allows companies from the United States to sell numerous products which are tariff free in Mexico and to also set up low-wage industries. Disadvantages Societal variety; Many Mexicans live under the poverty line and some secluded Indian populations in the country's south have been staging troubling uprisings. As a result of mixed societies in the country, it is hard for development in terms of investment in some parts of the country. Advantages and disadvantages of investing in Malaysia Advantages Escape Home Loan Restrictions in Singapore; investors are excluded from some taxes in the country, for instance, the loan-to-value ratio. More Land for Less Money; since there is largely open space, the cost of land is low hence the company will save more on the cost of buying land. Lower Stamp Duty; depending on the type of property, the stamp duty is between 1% and 4%, a range that is lower as compared to other countries. Disadvantages Higher Home Loan Interest; the average interest in Malaysia is 4%-5% which is very high especially on investment. This means the interests paid on any investment is very high meaning low returns on investment. Possible Oversupply; due to open market operations, there is a possibility for the congestion in the market leading to an oversupply of the products. This will lead to low returns and hence the company will experience losses. Currency Fluctuation; the exchange rate on the Malaysian currency and the dollar fluctuates on a daily basis hence it is difficult to measure returns due to the changes. Untested Resale Market; in Malaysia, resale of a property is restricted in that if a company would wish to sell the company, it will incur a given cost for the sale. As much as international investments are necessary for a country, it is accompanied by various risks. Due to international investments; Local economies tend to depend more on the world market, with less room for national and state regulation of the economy. This may lead to under-development since the nations don’t work towards improving their economy but rather wait for the developed countries. International investors have increasingly liberated themselves from the political control and the social accountabilities of the countries in which they operate. Thus, they tend to control and engage in decision making in the less developed states a move that is advantageous to them since they consider legislation that favours their activities whether legal or illegal. The level of competition among businesses rises, leading to, for instance, to the migration of individuals to areas with low wages for the services they are able to provide. There is continuous flow of money in the economy leading to monetary instability and economic catastrophe in the money market as a result; the currency in the local country loses its value. Industrialization in developing countries leads to massive environmental problems in terms of pollution especially the processing industries without proper waste product disposal. QUESTION FOUR According to Meng, J., et al. (2012), cultural differences play a crucial role in international businesses. Since Raque Food Systems plans to invest in both Mexico and Malaysia, the two have different cultures and beliefs and hence it is important for the company to understand those cultures before investing to ease the process of settling the company in the country. Therefore; International investment is hastening the contact between different cultures around the world. Goods that are involved in the trading activities reflect the various cultures. International investment, therefore, brings global enterprises into contact with overseas communities, these results in migration people from diverse cultures living together as one community Different nations learn and appreciate each other’s culture improving the relations between the nations. Due to international investments, people have taken keen interest in learning their partner's cultural beliefs to fit in their community. This may cause the other community to forget their culture as they are concentrating on learning a new culture. CONCLUSION Globalization is the process by which businesses begin operating on an international scale. Most arguments indicate that globalization provides net benefits to individual economies around the world by increasing competition among traders, spreading wealth equally around the world and also making markets more efficient. However, costs of globalization tend to outweigh its benefits especially when one involved in short term business. In the long term though, advantages of globalization outweigh the disadvantages. Some of its advantages include; Globalization encourages Foreign Direct Investment (FDI) especially in the less developed countries which tend to increase at a higher rate leading to transfer of technology, growth of global companies and also restructuring of industries in the developing countries. Due to high completion levels between countries as a result of globalization, there is growth in the technology levels which aids in the improvement of the economic output through efficient production. Due to globalization, large companies are able to realize economies of scale that cut on costs and prices which promotes economic growth in the participating nations. This statement implies that globalization tends to harm small businesses that compete in the domestic markets Aside from the benefits that globalization has, the benefits are accompanied by risks; Countries tend to depend upon each other for survival which could lead to regional instabilities; in case the fluctuations in the local economies affect the many countries depending on it in terms of investment. As some states rise in terms of economic development especially developing sates, the developed states view it as a threat to their sovereignty hence causing their leaders to become chauvinistic. Nations engage in international investments due to the benefits that they expect to enjoy but these benefits can be shared unfairly in that the developed countries benefit more which may lead to conflicts between nations. For the less developed countries to benefit from international investments, the government has to develop measures to govern investment, especially in the developing countries. The measures the government can come up with include; Introduction of tariffs; this is normally applied to protect domestic producers against the international investors in the country. Import quotas, which are numerical limitations on the quantity of products that can be imported, through the quotas, the government controls the amount of imports that come into the country. The government can protect domestic producers by controlling demand and supply. This form of protectionism not only controls domestic gains and foreign losses, but a rule that levies substantial domestic costs as well. REFERENCES Surender, R. and Walker, R. (2013). Social policy in a developing world. Cheltenham: Edward Elgar. Meng, J., Janavaras, B. and Gomes, E. (2012). Cultural Differences on Globalization. Journal of Euromarketing, 21(1), pp.53-63. Heine, J. and Thakur, R. (2011). The dark side of globalization. New York: United Nations University Press. Benyon, J. and Dunkerley, D. (2014). Globalization. Hoboken: Taylor and Francis. Moran, T. (2011). Foreign direct investment and development. Washington, D.C.: Peterson Institute for International Economics. Waters, M. (2009). Globalization. London [u.a.]: Routledge. Surender, R. and Walker, R. (2013). Social policy in a developing world. Cheltenham: Edward Elgar. Tvaronavičienė, M., Grybaitė, V. and Tunčikienė, Ž. (2013). GLOBALIZATION DRIVERS IN DEVELOPED AND LESS DEVELOPED COUNTRIES: IF CONSISTENT PATTERNS CAN BE TRACED. Journal of Security and Sustainability Issues, 2(4), pp.5-11. International investment perspectives. (2006). Paris: Organisation for Economic Co-operation and Development. Arnold, R. (2011). Principles of macroeconomics. Australia: South-Western Cengage Learning. Read More