Evaluation of External Envoirment and Business Etnics. Apple Corporation - Assignment Example

? EVALUATION OF EXTERNAL ENVIRONMENT AND ETHICS Evaluation of External Environment and Ethics Introduction Emerging markets have become an attractive destination for investment in the recent years due to the better returns, provided by these markets as well as many other factors conducive for investment there(Stoica, 2002).Hence, many multinational corporations have started investing in these markets. These are found to be attractive than developing nations due to the above mentioned factors. However, many risks are also reported in relation to the investment in these markets. These include risks associated with the economic, social and political factors in these markets. These risks are very serious and have many implications when compared to the benefits of the investment in these markets. Hence the appropriateness of these markets for investment needs to be carefully examined before taking decisions. Given this background, how far an emerging market is appropriate for investment in a particular industry by a multinational corporation seems to be an important question. An analysis in this regard becomes very relevant since based on this analysis, the market strategies to be adopted by the firm can be examined. Given this background, this essay examines the opportunities and threats existing in the emerging markets for investment in an industry. This essay examines the case of investment by Apple Corporation in China and Brazil. The external environments in both these nations are evaluated to examine which country is most suitable for investment by Apple Corporation. PESTEL analysis is used for the external environment analysis here. Moreover, the marketing strategies for the firm to be adopted if they want to invest in these markets are examined with the help of Ansoff matrix. Recommendations regarding the appropriateness of investment in both markets by Apple Corporation are made based on the analysis here. This essay consists of the following sections. Section 2 discusses the results of PESTEL analysis for these two nations. Section 3 discusses the recommendations based on the analysis and the marketing strategies to be adopted by the firm for investment using Ansoff matrix. Section 4 concludes the essay. 2. PESTEL Analysis Results PEST analysis means the analysis of Political, Economic, Social and Technological (PEST) factors that assess the strategic decisions of a company (Oxford University, 1998;Bennet,1999).This analysis is also called STEP analysis(Peng and Nunes,2007).PESTEL Analysis is an updated form of PEST analysis which includes analysis of Environmental and Legislative factors also. This analysis is very important in assessing the external environment factors affecting an organization. Here the PESTEL analysis of both Brazil and China are done to examine the most appropriate destination for investment by Apple Corporation. The analysis of Political, Economic, Social and Technological, legal and environmental factors that assess the strategic decisions of a company are examined in both the cases. 2.1. PESTEL Analysis China Political Factors China has a stable political system with only one party ie Communist party (Cui, 2009). In the recent years, however, China has reported a trend towards democratic form of government while Communist party still remain the single party here without any change (Price Water House Coopers, 2005). This stable political system is an important factor conducive for international investment in China (Word Press, 2011).The political environment for international investors is very favourable in China due to the various incentives provided by the government in spite of the complexity of norms for the new investors. Reports show a preferential treatment towards foreign invested enterprises since 1979 by Chinese government (Tian, 2007). Approval procedure is complicated while after getting approval, it is easy there (Word Press, 2011). Economic Factors A very good indicator of the strength of Chinese economy is its GDP of 10.1 percent which shows the continuous growth of the economy. This shows China as a good destination for foreign investors (WordPress, 2011). The low labour costs and huge consumer markets make China a preferred destination for FDI(Table1). Table 1: FDI inflows in the International Scenario 1986-91 1992-2000 2006 2007 2008 World(US$ million) 159331 422171 1461074 1978838 1697353 Share of Developing Nations in world Total Inflows(%) 18 32.96 29.68802 26.75024 36.57065 China FDI inflows (US $Million) 3105 34609 72715 83521 108312 Share of China in total Inflows(%) 1.9 9.26 4.98 4.22 6.4 Share of China in developing nations total inflows(%) 10.7 27.53 16.7 15.8 17.5 Source: World Investment Reports 1999,2009. The reports show some fluctuating trends for FDI in recent years in China due to the complicated approval process. The low inflation rate, low commodity price rate and the low central bank discount rate are all very conducive for international investments in China. Inflation however, shows a rising trend in the recent years though its still very low. Social Factors China is the world’s most thickly populated nation in spite of the measures adopted by the government to control population growth there. Reports show the persons born after 1980 called baby boomers dominating Chinese population and workforce in the recent years. This is reported as very favourable for international investments in China due to their better education, higher salaries, better coverage of pension, parents with pension coverage and more luxurious lifestyles due to their shortage of difficult times and harsh experiences in life (Morgan Stanley, 2010). Moreover, urban population constitutes the majority of population which is again conducive for international investments in China (Morgan Stanley, 2010).Reports also show China transforming from producer to consumer market ((Morgan Stanley, 2010).The credit consumption is reported to be very high in China. Technological Factors The advanced technology users in China is a favourable factor encouraging international investment there. The number of internet users, mobile users, telephone users, telephone lines and mobile phones are very high that can make China a favourable international investment destination (Word Press, 2011).Most user snow prefer broadband connection here now as shown by reports((Word Press, 2011). Environmental Factors China has been reported as a main sulphur dioxide polluter in the world, which shows the negative environmental externalities of economic growth (Trading Economics, 2010). The environmental externalities seem to create economic loss and environmental harm according to the reports. In addition to this, China has also been reported to have high coal consumption, which has resulted in acid rains, damages to crops and buildings and many health problems to persons. Thus, it has resulted in reduced quality of lives of people in spite of the rapidly growing economy. Many policy measures have been announced and implemented to reduce the environmental effects in China to improve the benefits of economic growth. Legal Factors There was preferential treatment to foreign owned enterprises than domestic enterprises throughout and it increased particularly after 2002 with China joining WTO. In December 2001, China became formally a member of World Trade Organization (WTO), which provided further incentives for export oriented FDI. Many new industries like telecommunications, banking and insurance were opened up to FDI and foreign firms were granted direct trading rights because of China joining FDI. From 2004, the policy restrictions on FDI were further removed. Many special tax incentives are available to the foreign investors in China. PESTEL Analysis Brazil Political Factors In Brazil, a volatile political system is reported with many political parties that reflect the vested interests of each group in the country (Price Water House Coopers, 2005).Reports also show no well developed ideologies for the political parties. Moreover the federal system consists of three different sections. The bureaucratic interference and regulation are also reported to be high in Brazil. Economic Factors Most of the companies are controlled by the private sector in Brazil after the privatization programme in 1998 in spite of very small number of semi state owned companies (Price Water House Coopers, 2005).GDP growth is very low compared to that of China with very high inflation in Brazil. Social Factors The reports show low quality of life in Brazil with very high income inequality between rich and the poor and low housing (Price Water House Coopers, 2005).The number of people living in urban areas is very high(81percent).Brazil has a multicultural environment with many immigrants. Majority of the population is under20 years. The population is reported to be growing in Brazil. Reports show the need for significant improvements in education standards in Brazil. Technological Factors Reports show very high internet usage among Brazilians and very high growth of mobile phone and broadband markets (Internet World Stats, 2011). Environmental Factors Pollution is reported to be a major problem in Brazil also like China in spite of the programmes and initiatives by government, NGOs and other institutes (Price Water House Coopers, 2005). Legal Factors After being a relatively closed economy in the previous years, the country has now opened up to trade and foreign investment.100 percent foreign ownership is permitted now after the liberalization process with the condition of providing benefits to the Brazilian domestic residents. Still many controls exist with high bureaucratic interference. In spite of the equal treatment towards foreign and local investors, no special tax incentives are reported to the foreign investors. 3. Recommendations Based on the PESTEL analysis, it can be recommended that China remains the more appropriate investment destination for investment by Apple Corporation. This is because China has a stable political system conducive for foreign investment compared to Brazil and has more attractive incentives for the foreign investors. The bureaucratic interference is relatively lower in China and regulatory environment is also conducive for foreign investment here compared to Brazil. Brazilian economy remains relatively closed with lots of restrictions in spite of the gradual relaxation of controls in the recent years. The tax incentives offered by Chinese government are very beneficial to the foreign investors. The preferential policy towards foreign investment in China especially after accession of WTO makes it a more appropriate investment destination. Moreover, the rising baby boomers in China give a major hope for investment there to the Apple Corporation. This section is expected to dominate the Chinese population in the coming years which is another favourable factor for investment in China by Apple Corporation. The environmental and technological factors remain the same for both nations. Though approval procedure is little bit complicated in China, starting business is comparatively easier than in Brazil as is obtained from the above analysis. The Ansoff matrix below shows the different choices of action for Apple Corporation to increase its profitability based on the discussion above. Ansoff Matrix Existing Products New Products Existing Markets MARKET PENETRATION Attracted the growing baby boomers in China PRODUCTDEVELOPMENT Ipods New Markets MARKET DEVELOPMENT Looking for Chinese Market DIVERSIFICATION Investment in local dealers in China 4. Conclusion In this essay, the major external environment factors affecting the investment in China and Brazil for investment by Apple Corporation are examined using PESTEL analysis. The results show China being more appropriate for investment than Brazil due to the stable political system as well as the conducive environment for foreign investors there. In Brazil, still many controls exist with high bureaucratic interference. In spite of the equal treatment towards foreign and local investors, no special tax incentives are reported to the foreign investors. GDP growth is very low compared to that of China with very high inflation in Brazil. Pollution is reported to be a major problem in Brazil and China affecting the quality of life. The social factors also show China being a more appropriate destination for investment by Apple Corporation. References Cui X (2009): “In depth Analysis of PC Industry in China”, International Journal of Business and Management, Volume 4, Number11. Bennett, R. (1999). “Corporate Strategy”, 2nd Edition, Glasgow: Bell & Bain Ltd. Internet World Stats(2011): “Brazil Internet Stats and Telecom Market Report”, http://www.internetworldstats.com/sa/br.htm,Accessed August 12 2011. Morgan Stanley2010): “Apple Inc: China Still Underappreciated as Potential Growth Driver”, http://pdf.cyberpresse.ca/lapresse/dufour/AAPLKH.pdf http://www.compustream.com.br/downloads/Brazil%20Market%20Entry%20information.pdf, Accessed August 12 2011. Oxford University Press. (1998): “The Oxford dictionary for international business”, 2nd Edition, Great Britain: Market House Book Limited. Peng, G C and Nunes, M B (2007): “Using Pest Analysis as a Tool for Refining and Focusing Contexts for Information Systems Research”, Sixth European Conference on Research Methodology for Business and Management Studies, Lisbon, Portugal, pp. 229-236, July 9-10, 2007. PriceWaterHouseCoopers(2005): “Doing Business and Investing in Brazil”, http://www.pwc.com/pt_BR/br/publicacoes/assets/doing-business-brazil05.pdf ,Accessed August14 2011. Stoica, O(2002): “Emerging Capital Markets: Opportunities and Risks” . Available at SSRN: http://ssrn.com/abstract=949351 Tian X(2007) “Managing international business in China”, Cambridge ; New York : Cambridge University Press. Trading Economics(2010): “China GDP Growth Rate”, http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=CNY, Accessed August 14 2011. Wordpress(2011): “PEST Analysis China”, mba13c.files.wordpress.com/2011/05/pest-analysis-china2.doc Read More