The Effectiveness of an International Business - Case Study Example

International Business Context Name Course Instructor Date Location Location decision plays a crucial role in determining the effectiveness of an international business. An organization's ability to reach the clients is mainly influenced by its location strategy. A good location strategy mainly provides a firm with a competitive edge over its rivals. The following are some of the aspects to be considered before setting a 5 star hotel in Taipei city of Taiwan; Taipei city is the center of economic, cultural and political developments in Taiwan. Taiwan has a population of around 23 million, with one-third living in this city. The distance from Taipei to the country’s international airport is just 50 kilometers. According to Tourism Bureau (2012), transportation time from Taipei to the airport is about 45 to 60 minutes. There is no other major town that is closer to the airport than Taipei. This implies that Taipei will be the first stopover for overseas visitors when they arrive in Taiwan. Thus, this hotel will target both locals and foreigners visiting Taiwan. According to Tourism Bureau (2012), there were 323 hotels in Taipei in 2011 with 123350 rooms. Most of them are tourist hotels offering high quality room facilities, conference rooms, shops, bars, sports facilities, clubs and personal services. The hotels are divided into international and standard hotels, with international hotels offering much better quality products and services at higher prices than standard hotels. The occupancy rate for international hotels is 72.51% whereas the occupancy rate for standard hotels is 70.10%. Therefore, this five-star hotel will position itself as an international hotel focusing on quality-sensitive consumers in Taipei. The hospitable nature of the local citizens also makes Taiwan as one of the most preferred location for setting up a five star hotel. Political The One-China policy recognizes Taiwan as an effective territory of the Republic of China (PRC). According to Keeling and Minnigh (2011, p. 49), PRC refuses to continue engaging in diplomatic relations with any country that recognizes Taiwan as an independent republic. However, it does not object initiatives by Taiwan to conduct cultural and economic exchanges with a nation, which do not engage in diplomatic relations. Currently, any organization producing goods in Taiwan is required to put labels on them stating ‘Made in Taiwan, Province of China’ (Keeling & Minnigh, 2011, p. 49). Nonetheless, Taiwan has a stable political environment which attracts foreign investors, supports the growth of entrepreneurship and boosts domestic economy. It has developed a good relationship with many countries and foreign manufacturing and services companies. Taiwan has also strived to keep a good relationship with China as it highly influences the performance of its economy in the global arena. President Ma Ying-jeou recently promoted closer economic ties with China, leading to increased chances of economic growth and reduction of possibilities of military conflict. According to Kou and Laugen (2012, p. 5), negotiations have been initiated to liberalize trade with China. Lately, concerns have been raised by investors on the possibility that the recent political developments in Taiwan may lead to a strained relationship with China, and hence adverse effects on their businesses and market response. Controversy has increased over whether Taiwan should become an independent republic, become unified with territories currently governed by the PRC or remain an effective territory of Republic of China. Additionally, investors have raised concerns over increased cases of corruption in Taiwan in the recent years. According to Kou and Laugen (2012, p. 4), The Taiwanese government system has been rated high on corruption than any other country across Asia. World Bank’s report released in 2010 suggested that corruption in Taiwan has deteriorated in the recent years due to lack of control by the governing authorities. However, former president Shui-bian and his wife were jailed for life in September 2009 for engaging in corruption. This restored confidence of investors on central government and improved their perception of Taiwan as a stable place to do business. Generally, we can conclude that Taiwanese political environment is volatile but currently stable and supportive to investments by foreigners. Economic Though Taiwan is a small country, it has an economic presence in the global arena. Statistics released by World Trade Organization in 2011 indicated that Taiwan was the 17th – largest importer and a 16th – largest exporter of merchandise during that year (The U.S Department of State, 2012). This country recorded a positive economic growth from 2002 to 2007, ranging from 3.5 percent to 6.2 percent per year. However, the recent global financial crisis led this economy to slump into recession by mid 2008. The rate of growth in Gross Domestic Product (GDP) fell from 5.98 percent in 2007 to 0.73 percent in 2008. The economy recovered in 2010 following a 10.8 percent growth rate, the highest rate in the past 28 years. This was followed by a slower growth of 4.03 percent in 2011 as a result of the European debt crisis (The U.S Department of State, 2012). These fluctuations in growth indicate that Taiwanese economy is highly intertwined with the world’s economies and crises occurring in other economies’ can significantly affect the performance of the Taiwanese economy. The Taiwanese economy experienced deflation phenomenon between 2002 and 2009. Deflation occurs when the inflation rate falls below zero (0) percent mark. This leads to decrease in the nominal prices of goods and services and a subsequent increase in purchasing power of money. According to Keeling and Minnigh (2011, p. 57), the Taiwanese economy experienced negative inflation ranging from -0.2 percent in 2002 to -0.9 percent in 2009. However, the figure rose to 1 percent in 2010. Also, Per-capita income for Taiwanese residents increased from US$ 35,700 in 2008 to US$ 35,700 in 2010. The low level of inflation and high level of per capita income show that Taiwanese residents are wealthy and can afford to purchase expensive and luxurious products and services. As of May 2012, 1 USD was equal to 29.20 TWD (Taiwanese currency). As Kou and Laugen (2012, p. 5) explain, exchange rate affects costs of imports in an economy and influences demand and supply of goods from foreign countries. According to Kou and Laugen (2012, p. 5), trade value in Taiwan expanded by an average of 39 percent every year from 2002 to 2010 to US$ 526 billion. The annual average growth of exports and imports over the same period was 34.8 percent to US$ 274.60 billion and 44.1 percent to US$ 251.24 billion respectively. 27 percent of exports were sold to China. This was largely facilitated by lower Tariffs brought about by Cross-Straits Economic Cooperation Framework Agreement with China. Taiwan is also a member of World Trade Organizations that encourage trade liberalization among members (The Republic of China Yearbook: Taiwan, 2012). This has helped to boost trade between Taiwan and other parties. In summary, this analysis shows that Taiwanese economic environment is supportive to foreign investors. References Keeling, S. and Minnigh, B. (2011). The rough guide to Taiwan. Ed:2. New York: Rough Guides Publishing Kou, B. & Laugen, M. (2012). ‘P.E.S.T Analysis of Taiwan’ Accessed May 2, 2013. The Republic of China Yearbook: Taiwan. (2012). Economy and society. Accessed May 2, 2013.’ The U.S Department of State. (2012). ‘Background Note: Taiwan.’ Accessed May 2, 2013. Tourism Bureau. (2012). Taiwan, R.O.C. Accessed May 2, 2013. Read More