Business Environment Analysis of Centaurus Metals - Expanding into Malaysia - Case Study Example

Business Environment Analysis Malaysia (Institution) (Course) (Name) (Instructors name) Date of submission Table of contents Business Environment Analysis Malaysia 1 Table of contents 2 1.0 Introduction 3 2.0 Political Environment 3 2.1 Government stability 3 2.2 Government and contribution 3 2.3 Analysis 4 3.0 Legal Environment 4 3.1 Regulatory framework 4 3.2 Business laws 4 3.3 Labour laws 4 3.4 Taxation laws 4 3.5 Analysis 4 4.0 Economic Environment 5 4.1 Interest rates 5 4.2 Inflation rates 5 4.3 Currency exchange rate ($) 5 4.5 Economic trends/forecasts 5 4.6 Tax policies 5 4.7 Analysis 5 5.0 Socio-cultural Environment 6 5.1 Hofstede’s Cultural Dimensions 6 5.1.1 Collectivism Vs Individualism 6 5.1.2 Power Distance 6 5.1.3 Uncertainty avoidance 6 5.1.4 Time orientation 6 5.1.5 Quality Vs Quantity of life 6 5.2 Analysis 7 6.0 Technological Environment 7 6.1 Technological infrastructure 7 6.2 Communication networks 7 6.3 Logistics networks 7 6.4 Analysis 7 7.0 SWOT Analysis 7 7.1 Strengths 7 7.2 Weaknesses 8 7.3 Opportunities 8 7.4 Threats 8 8.0 Recommendations 8 1.0 Introduction Centaurus Metals is an Australian firms listed in the ASX that is hypothetically expanding into Malaysia. The firm is involved in exploring, mining and processing iron ores in various countries. The firm has based its operations in iron ore rich regions with the marketing of the products poised to go multinational. Expansion plans by the company target mineral endowed countries and fast developing economies that require large amounts of iron and steel for construction and infrastructure development. Malaysia is one of the fastest growing economies in Asia that promises a huge a market for the iron and steel industry. Centaurus Metals plans to export already processed steel and iron to Malaysia. The firms operations are geographically limited by availability of mineral resources in given countries. As such, the firm will only export processed products to Malaysia. Centaurus Metals aims at being a leading iron marketer in the world providing a platform for investors to earn returns on their investment. Its foreign presence is adequately represented with a combination of local experts and Australian expatriates. The same is possible in Malaysia. 2.0 Political Environment 2.1 Government stability Malaysia follows a constitutional monarchy government system. The state is headed by a largely ceremonial king elected from and by the nine hereditary rulers of the nine Malay states. The elections are held every five years. Each state has a legislative assembly headed by a chief minister. Although the country has 13 states, only nine are involved in choosing the king with the others headed by titular governors. The government is headed by a prime minister elected by the senate. Parliamentary elections for House of Representatives are held after every three years with registered voters over 21 years eligible for voting. The current prime minister elected in 2009 is Najib Razak (Austrade 2011). 2.2 Government and contribution The New Economic Model for Malaysia paper, published by the National Economic Advisory Council in December 2010 outlines the governments plans in transforming the country from a middle income country to a high income country targeted at US$ 15 000 per capita by 2015 (Ibrahim 2008). The government has maintained peaceful coexistence with its neighbours. The government is also responsible for negotiating and entering into bilateral and multilateral trade agreements with other countries. The government also develops and enforces economic policies aimed at creating an enabling economic environment. For instance, the $25 billion stimulus package of 2009 was partially aimed at financing private investors to stir economic growth (Ibrahim 2008). 2.3 Analysis The government manages interest and inflation rates that affect national economic performance. This also influences aggregate demand that affects the industry at large and the individual market players. The recovery of the economy after the global recession can be greatly attributed to the government’s role through the economic stimulus programmes. 3.0 Legal Environment 3.1 Regulatory framework Various government agencies streamline given industries The government promotes foreign investors in specific industries through tax exemptions. Local industries are protected by taxes on imports. The government has placed controls on certain products and services to protect consumers. 3.2 Business laws Foreign businesses require approval from the Foreign Investment Committee (FIC). Withholding tax is applicable to locals who pay out foreign entities for goods or services rendered. 3.3 Labour laws A legal working day comprises 8 hrs translating to 48 hrs/week. Over time payments on normal days are 1.5 times more, 2 times on rest days and 3 times during public holidays of the normal hourly wage. Employees are entitled to 16 days annual leave and 22 sick days leave per year. 3.4 Taxation laws All goods and services whether manufactured locally or imported are liable to 10% sales tax. Import duty is imposed differently on different categories of imports. 3.5 Analysis The government is a stabilizing factor in the business environment in the country (Peng 2004). The government ensures a level playing ground for all consumers and also protecting the local industries. The different taxes imposed by the government increase the operating costs of all players which affect organizational policies. 4.0 Economic Environment 4.1 Interest rates Malaysia’s central bank has raised the overnight lending rates thrice so far this year by a total of 75 basis points to stem growing inflation. The high overnight lending rates have been transferred to investors making accessibility of finances a costly affair especially to the private sector. 4.2 Inflation rates Inflation rates in Malaysia are greatly influenced by trends in global trade. In 2008 for instance, high global prices in food and fuel saw inflation grow from 2% the previous year to 5.4%. This rapid growth in inflation is linked with the government’s economic stimulus package to help the economy cope with the global financial crisis. Recovery in global trade weathered the high inflation rates which fell to 2.2% in 2010. As of June this year, inflation was 3.3% (Trading economics 2011). 4.3 Currency exchange rate ($) The Malaysian Ringgit was trading at 0.33234 as of June 19th 2011 (MSN money 2011). Such a strong currency against the dollar indicates a strong economy (Doole, and Lowe 2008). 4.4 Free-market/command /mixed economies The market is mixed economy. The government provides essential services only, with the private sector playing the largest role in economic activities. The country does not have price controls 4.5 Economic trends/forecasts In 1997-98, the country experienced a recession following the Asian financial crisis. Another recession happened in 2009 registering -1.7% growth. In 2010, strong recovery registered 7.2% growth which is expected to decline a bit to 5-6% growth in 2011. This follows a decline in exports growth from a high of 17.2% to 9% in 2011. 4.6 Tax policies Corporate income tax stands a 28%. Personal income tax is 28% for non residents and 1-28% for residents General sales tax stands at 10%. 4.7 Analysis The exchange rate directly affects the profitability of the firms operations in the country. An unstable currency could hurt business. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1 Collectivism Vs Individualism Malays have an individualism index of 22. This is way lower than most western and non Muslim countries which tend to score highly on this. This implies that consumer decisions are not based on the concept of gaining a unique identity. 5.1.2 Power Distance Malaysia has a PDI of over 100. Research indicates that there is a high correlation between power distance and Islamism as a religion. The power distance is high implying that there are low levels of empowerment and the society expects a vertical organizational structure government by strict rules and regulations. 5.1.3 Uncertainty avoidance Malaysia has a UAI of 32 lower than the average of other Muslim countries. This index has also a high correlation with Islam which is the official religion in Malaysia. This implies that Malays are relatively more confident in trying out new products and more willing to switch employers as compared to other Muslim countries. This indicates high potential for the firm to gain new markets and even attract necessary skilled manpower. 5.1.4 Time orientation The society has a short term orientation characterized by respect for culture and fulfilling social obligations guided by the official religion, Islam. This implies that meritocracy can be hampered by cultural and social obligations. 5.1.5 Quality Vs Quantity of life The people of Malaysia are short term oriented hence value more fulfilling one’s social obligations than attaining material wealth. This implies that the firms operations in the country will be closely judged through its products and corporate social responsibility more than its ability to deliver returns to investors. 5.2 Analysis Culture is one of the strongest determinants of international business. How marketers understand the cultural values and ways of the new markets directly determine the success of these marketers in pushing their products and services into the market and also understanding and predicting consumer behaviour (Soares, Farhangmehr and Shoham 2007). Thus, Centaurus Metals will have to understand that consumption is not heavily linked to creating unique identity alone as is common with other highly individualized societies. The firm will also have to understand that its corporate social responsibility record will greatly influence the marketability of its products. Again, friendship and affiliations are critical in sealing business deals in this closely knit society. 6.0 Technological Environment 6.1 Technological infrastructure There are well established marketing and distribution channels that are open to foreign players. The IT sector is well advanced and even a global exporter of telecommunication products. 6.2 Communication networks Internet penetration and usage in Malaysia is one of the highest in Asia. The internet has evolved as a potent marketing channel for marketers. The internet also allows accessibility of investor information easily. 6.3 Logistics networks There are several international airports and seaports connecting the country to the rest of the world. The country is also well served by high speed rail that is suitable for rapid mass transport. 6.4 Analysis The availability of such communication infrastructure facilitates business operations and enables coordination of operations between the Malaysian operations and headquarters. Again, the internet provides a potential marketing and promotion channel for the firm. Furthermore, company information such as investor relations and social responsibility activities can be made easily available over the internet. The availability of seaports allows the exportation of the bulky products from Australia and other foreign subsidiaries. 7.0 SWOT Analysis 7.1 Strengths The company has emerged as a new force in the iron industry in Australia challenging the established players who are viewed as rigid. Centaurus Metals is associated with dynamism that brings a new fresh look in the industry. Its environment record has remained clean despite the challenges facing the industry. 7.2 Weaknesses The company has a limited global presence. The company only launched serious business interest in foreign markets recently. As such, the company is still experiencing toothing problems in international operations as opposed to established names such as Rio Tinto who have an impressive experience in international business. The firm has also limited its market by concentrating on iron alone instead of other minerals. This exposes the firm to a single income stream. 7.3 Opportunities Economic growth of Malaysia and the south east region as a whole, especially in the manufacturing industry points to a growing market for the firm’s products. The government is also bent on developing the country’s infrastructure thus creating growth opportunities for the firm i.e. the government commits 5.4% of its fixed capital expenditure on infrastructure development (DFAT 2011). 7.4 Threats The Malaysian economy largely relies on global trade thus the growth of the market is dependent on the global trade. The industry is dependent on the fixed availability of naturally occurring mineral res. Exploration and mining of mineral resources are heavily taxed and closely observed by governments thereby limiting the independence of the players in the industry. Established players in the international trade control the industry through long term mining and exploration contracts with governments of countries with iron ore resources. Political instability in mining regions can affect the firm negatively. 8.0 Recommendations The firm has to increase its brand presence internationally. This can be achieved through acquisition of more mining rights outside Australia more so in emerging economies. This will ensure a steady flow of the raw materials needed to keep the firm operational. Economic expansion of Malaysia provides an excellent opportunity for the firm to launch increased operations in the region. The country has a high demand for iron and its subsidiary products to power the construction of machines and industries needed to power the manufacturing industry in the country. Centaurus Metals should thus go ahead and enter the Malaysian market. The firm will do so best through exporting to the country. Development of infrastructure in the country would depend on the availability of iron ore in the country subject to the acquisition of mining rights from the government. As such, exporting remains the only available and practical option for the firm. References Austrade. 2011. Malaysia. http://www.austrade.gov.au/Malaysia-profile/default.aspx Centaurus Metals. 2011. http://www.centaurus.com.au/ Czinkota, Miacheal and Ilkka Ronkainen. 2009. Principles of international marketing. London: Routlegde DFAT. 2011. Malaysia. http://www.dfat.gov.au/publications/malaysia_an_economy_transformed/malaysia_report.pdf Doole, Isobel and Robin Lowe. 2008. International marketing strategy: analysis, development and implementation. Sydney: Cengage Learning Hofstede, Geert. 2011. Cultural dimensions for Malaysia. http://www.geert-hofstede.com/hofstede_malaysia.shtml Ibrahim, Zaid. 2008. A guide to doing business in Malaysia. http://www.mifc.com/repository/0012Doing%20Business%20in%20Malaysia%20Guide.pdf MSN money. 2011. http://investing.money.msn.com/investments/currency-exchange-rates/?symbol=%2fMYRUS Peng, Mike. 2004. “Identifying the big question in international business research.” Journal of international business studies. 35(4): 99-108. doi:10.1057/palgrave.jibs.8400077 Soares, Ana, Minoo Farhangmehr and Aviv Shoham. 2007. “Hofstede's dimensions of culture in international marketing studies.” Journal of Business Research 60 (2): 277–284. doi: 10.1016/j.jbusres.2006.10.018 Trading economics. 2011. Malaysia inflation rate. http://www.tradingeconomics.com/malaysia/inflation-cpi Read More