Importance of International Operations Management - Dissertation Example

?International Operations: Brummie Screens Inc. - Expansion Strategy Executive Summary International operations management in such an environment aims at managing the diverse operations globally in such a way as to achieve overall optimum results consistent with the objectives and strategies of the firm (Cherunilam, 2007:33). Internationalization of business is important in order to create a market for the product or to utilize the market demand of a product which is increasing by establishing an operation plant in other country. Improvements in global telecommunications and transport networks along with liberalized trading policies, the growth of international ventures have attracted numerous researches (Fan and Phan, 2007). Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Singapore, though being a small nation has a good GDP and per capita income as compared to United States and this coupled with good spending habits of consumer provides good market for Brummie Screen Inc. Introduction Globalization implies emergence of a borderless, hurdleless, competitive economy in which survival of the fittest is the order. International operations management in such an environment aims at managing the diverse operations globally in such a way as to achieve overall optimum results consistent with the objectives and strategies of the firm (Cherunilam, 2007:33). Most of the countries are developing relations to create market for their businesses whereas the developing countries are allowing the foreign companies to invest in their market so as to create employment as well develop the economy. Several studies of international business have indicated that internationalization of the firms is a process in which the firms gradually increase their international involvement that influences the pattern and pace of internationalization of firms (Johanson and Vahlne, 1997:23). Internationalization of business is important in order to create a market for the product or to utilize the market demand of a product which is increasing by establishing an operation plant in other country. However, according to Hymer (1960:5) businesses go for internationalization because the firms control enterprises in many countries in order to remove competitor between them when the enterprises sell in the same market or sell to each other under conditions of imperfect competition. The world and its customers are changing constantly creating markets for world class organization to meet these changes and to compete successfully by transforming themselves into a global operation, with multiple production facilities in multiple countries to service international consumers (Schniederjans, 1998:3). Firms undertake operations in a foreign country in order to appropriate fully the returns to certain abilities which they possess. Firms, before entering into the alien land, formulate and devise an effective strategy to analyze the market situation, competitors, political situation, economic development, available resources and capabilities, etc. so as to start successful operations in the country. Similarly, present paper analyzes the above factor for Brummie Screens Inc. as the management of the firm proposes to establish its plant in Singapore or in the United States to procure the market for Tablet PCs “BrightWy”. Anyhow it is important to mention that despite all the differences among regions within countries, the diversity between nations is small when compared to the differences among nations. Therefore, to successfully conduct business abroad, companies must often adopt practices other than what they are accustomed to domestically (Katsioloudes and Hadjidkis, 2007:3). Brummie Screens Inc. – Introduction Brummie Screens Inc. is one of the world’s major manufacturers of screens for laptop computers, PC monitors and other large devices. The company has been growing gradually and achieving high level of customer satisfaction due its innovative and reliable production systems associated with its clever product design. The company has entered into new markets such as screen small devices and increased its competences in working with a wider range of products during economic recession. In view of its increased competencies and good customer feedback, the company plans to expand its operations by developing, manufacturing and commercializing its own tablet brand “BrightWy” all over the world. The company has identified Singapore and United States as two destinations to start its international operation in view of attractive market and availability of expertise at low price. Therefore it is necessary to make an analysis of the countries mentioned above for investment by Brummie Screens Inc., the market for tablet PCs, threats and opportunities so as to make viable suggestions to the management at Brummie Screens Inc. (Case Study). New Business Set Up – Country Profile Improvements in global telecommunications and transport networks along with liberalized trading policies, the growth of international ventures have attracted numerous researches (Fan and Phan, 2007). According to Oviatt and McDougall (1994) international new venture is a business organization that seeks to derive significant competitive advantage from the use of resources from and the sale of outputs to multiple countries. Therefore, Brummie Screens Inc. has to take a close look at the capabilities and resources available in Singapore so as to invest in that country. According to the reports published by World Bank Group, doing business remains easiest is OECD high income economies while it has been considered to start a business in Sub Saharan Africa and South Asian region. Singapore, according to the report, retains the top ranking on the ease of doing business for the year 2011 whereas the United States is ranked fifth for the same period. (Table 1) The table below shows the ranking of countries which are recommended by the World Bank on the basis of ease in doing business. It should be noted that rankings and 5 year measure of cumulative change in doing business score are still only indicative (World Bank Group, 2010). According to the data in Table 2, Singapore ranks 4th in starting a business ahead of United States ranked at 9th place in the World Bank Report for the year 2011. Singapore leads in every determinant of doing business factors as compared to United States except for registering property and enforcing contracts (Table 3). (Doing Business, 2011) Table 3: Doing Business Comparison: United States vs Singapore Rank United States Singapore Ease of Doing Business 5 1 Starting a Business 9 4 Dealing with Construction Permits 27 2 Registering Property 12 15 Getting Credit 6 6 Protecting Investors 5 2 Paying Taxes 62 4 Trading Across Borders 20 1 Enforcing Contracts 8 13 Closing a Business 14 2 Source: Doing Business Reports, www.doingbusiness.org. World Bank gives a clear picture about the business prospects in United States as well as Singapore, but it is necessary from the entrepreneur’s as well as from the management’s perspective to analyze the different business environments in country opted for doing business. In view of this, analysis are made on the PESTLE factors of both the countries so as to evaluate the market conditions for the product and strategic decisions to be taken to compete with the existing as well as future competitors in the market industry. PESTLE analysis is an integrated tool to assess the opportunities existing within the market by evaluating the changes in political, economical, social, technological, legal and environment (Cheverton et al 2005:28). According to Cheverton et al (2005:28) changes in PESTLE factors throw new challenges along with new opportunities. Political Analysis Political interference is one of the major threats for the international companies. Companies often tend to look into the political environment of the country it wants to enter so as to analyze the growth and setbacks if any. Singapore consistently ranks as one of the top most destinations for investing. Singapore is one of the top five least corrupt countries in the world and least corrupt in the world with minimum red tape for doing business in Singapore. It is famous for its high standards of tidiness and stringent policies for maintaining cleanliness in the nation (Peng, 2008:141). Singapore is 2nd world’s freest economies according to the Heritage Foundation, Index of Freedom for the year 2011 and is the Asia’s highest integrity government (www.singaporesetup.com). According to Heritage Foundation, Index of Freedom, United States ranks 9th in doing business, trade, fiscal policies, political interference, financial freedom, property rights, and labor freedom. The government faces enormous challenges as interventionist responses to the economic slowdown have eroded economic freedom and long term competitiveness. Regarding corruption, United States ranks 17th (www.nationmaster.com) far below Singapore which makes the latter a better place to setup the business (/www.heritage.org). Economic Analysis Singapore is economically more free that United States as per the statistics mentioned by the Heritage Foundation. Singapore has improved its economic freedom by 1.1 while United States figure has gown down marginally by 0.2. However the improvement between the two nations is significant in view of the geographical location and size of the population (www.heritage.org). United States has the GDP of $14.2 trillion with a population of 307.4 million while Singapore’s GDP is $240 billion to serve the population of only 4.8 million. Social Factors Singapore has the highest literacy rate as compared to other Asian countries with English being widely used as the medium of communication (www.singaporesetup.com). Singapore is the only country that is totally urbanized (Waller, 2001:5). Per capita income of Singapore ($50523) is higher than that of United States ($46381) which makes it easier to understand that economically people living in Singapore have more income than those living in US which creates more spending opportunity for the people and great market for the products (www.heritage.org). However it should be noted that Brummie Screens Inc would have to pay more to their employee than the employees of United States due to drastic effect of recession on the US economy causing massive unemployment. Further Social Watch, which measures the poverty index of countries though Basic Capabilities Index, reported that Singapore has remained stagnant over the years from 2000 to 2010 with BCI evolution at 98 points while United States has remained stagnant at 97 during the same period (Social Watch Report, 2010). Further Singapore’s labor market is flexible with regulations related to work hours are also adjustable. And moreover, dismissing an employee is not a problem while in United States, union workers are currently working for government organizations rather than private companies. Technology Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Effective modes of transport, including quality roads, railroads, ports and air transports, enable entrepreneurs to get their goods and services to market in secure and timely manner as well as facilitate the movement of workers to suitable jobs. Technology has increasingly become an important element for firms to compete and prosper. Singapore has a well developed infrastructure which is able to meet all the requirements for setting up a new business. The country is ranked third in the world’s infrastructure capabilities and it is placed 1st for the efficiency of goods and labor markets and ranked 5th in world class infrastructure. On the other hand, US is currently placed at 4th dropping from 2nd in 2010 (Schwab, 2011). Legal Analysis Singapore has signed agreements for free trade with many of the leading economies in the world including United States, Australia, European Union, India and New Zealand which may create additional market outside the country as well and company could cover all the markets with the use of this agreement (www.singaporesetup.com). In United States, Office of Investment Affairs develops and carries out US policies regarding investment related issues and handles all the issues related to overseas investments through Bilateral Investment Treaties and Free Trade Agreement (US Dept of State). Environmental Analysis . According to Hill (2009) emergence of global institution, decline in trade barriers and technological change are the macro factors that resulted in greater globalization. However it is essential for Brummie Screens Inc, to analyze the internal and external environment so as to gain competitive edge of its rivals in the market. The entry of Apple IPad serving as the first modern tablet in mid 2010 has created a revolution for tablet PCs which was followed by Samsung’s GalaxyTab. Sarah Rotman Epps of Forrester Research stated that ‘Apple Tablet PC accounted to 80% of market share for the year 2010’ (www.batterytip.info). According to the report released by Yankee Group, tablet sales are estimated to grow from 21 million in 2010 to 168 million in 2014 (Gray, 2011). Recommendation Critical analysis of all the factors in Singapore and United States reveals the Singapore is better and safest place to set up a business due its ease and less corrupt policies as compared to United States and any other nation. Singapore, though being a small nation has a good GDP and per capita income as compared to United States and this coupled with good spending habits of consumer provides good market for Brummie Screen Inc. Singapore is the viable option to set up the manufacturing plant of Brummie Screen Inc due to the best infrastructure, technology and human resources. Moreover Free Trade Agreement by Singapore will allow the company to export its product to other countries as well over the period of time as the market size is estimated to increase by 168 million by 2014. Therefore Singapore is the most preferable place to start the business. References 1. 2011 Index of Economic Freedom, Singapore, The Heritage Foundation, http://www.heritage.org 2. 2011 Index of Economic Freedom, The Heritage Foundation, http://www.heritage.org 3. 2011 Index of Economic Freedom, United States, The Heritage Foundation, http://www.heritage.org 4. Apple Tablet PC Market this year, accounting for 80% of the US share, Battery Tips, http://www.batterytip.info 5. Cherunilam, F (2007) International Business: Text and Cases, Ed. 4., PHI Learning Pvt. Ltd., Delhi 6. Cheverton P, Foss B, Hughes T and Stone M (2005) Key account management in financial services: tools and techniques for building strong relationships with major clients, Kogan Page Publishers, United States. 7. Doing Business, (2011) Doing Business 2011: Singapore, Making a Difference for Entrepreneurs, World Bank & IFC, Washington 8. Doing Business, (2011) Doing Business 2011: United States, Making a Difference for Entrepreneurs, World Bank & IFC, Washington 9. Ferber, J (1993) Foreign Direct Investment, Marquette Law Review, Vol, 76, pp 805-832 10. Gray, T (2011) Tablet Computer Market set to soar, Live Science, www.livescience.com 11. Hill, C. W. L. (2009) - International Business: Competing in the global marketplace 7th Edition. Publisher: McGraw-Hill 12. Hymer, S.H (1960) The International Operations of National Firms – A Study of Direct Foreign Investment, Doctoral Thesis Submitted to Massachusetts Institute of Technology. 13. Johanson, H and Vahlne J (1977) The Internationalization Process of the Firm –A Model of Knowledge Development and Increasing Foreign Market Commitments, Journal of International Business Studies, Vol. 8, No. 1., Spring-Summer, pp.23-32 14. Nation Master.com Corruption, Government Statistics, http://www.nationmaster.com 15. Peng, W.M (2008) Global Business, Cengage Learning, US 16. Schniederjans, M.J (1998) Operations Management in Global Context, Greenwood Publishing Group, United States. 17. Schwab, K (2011) The Global Competitiveness Report, 2010-2011, World Economic Forum, Geneva 18. Singapore’s Advantages: An Ideal Location for a global entrepreneur? Singapore Setup, http://www.singaporesetup.com/ 19. Social Watch Report (2010) Time for a new deal After the Fall, www.socialwatch.com 20. US Department of State, Office of Investment Affairs, http://www.state.gov 21. Waller, E (2001) Landscape planning in Singapore, NUS Press, Singapore 22. World Bank Group (2010) Doing Business 2011 – Making a Difference for Entrepreneurs, World Bank Publications, Washington. Read More