Reasons that Influenced Rolls-Royce into Singapore Market - Case Study Example

ROLLS ROYCE (Student Name) (Course No.) (Lecturer) (University) (Date) Table of Contents 1.0 INTRODUCTION 2 2. O Reasons that Influenced Rolls-Royce into Singapore Market 4 2. 1. Existence of a relatively low corporate tax rate 4 2.2. Stable Political Environment 5 2.3. Predictable and Transparent Regulations 6 2.4. Existence of a ready market for the engine parts 8 3.0 Challenges and Risks in Rolls-Royce’s International Chain 9 3.1EXTERNAL CHALLENGES 9 3.1.1 Market Competition 9 3.1.2 Environmental Concerns 10 3.1.3 Government Regulations 11 3.1.4 Political Atmosphere 12 3.1.5 Labor and Industrial Relationship Challenges 12 3.1.6 Risk of Foreign Exchange Dynamics 13 3.2 INTERNAL CHALLENGES 15 3.3 Structure and Management of Labor within the company 15 4.0 Conclusion 17 5.0 References 17 1.0 INTRODUCTION Aerospace manufacturing continues to remain as one of the desirable industries in the global arena. The industry integrates the use of high technological application, knowledge, skills and expertise to come up with modern and sophisticated aerospace products to facilitate the developed airplanes. One of the participants in the global manufacturing of aerospace equipment refers to as Roll Royce. The British-based production companies began its operations in 1906 as a car manufacturing company. Later, the company diversified and further specialized in aerospace manufacturing. The products of this company remain significant within the aerospace manufacturing sector with most of its products spreading to further and high markets. Studies reveal that the manufacturing of aircraft components plunged the company into a competitive field leading to an expansion in its market share and customer base. Similarly, aerospace manufacturing business resulted in the strategic participation of Rolls Royce in the British market and further into external markets (ROBSON 2003). One of the outstanding features and policy decisions carried out by the company concerns its decision to spread to Singapore market. Initially, the company concentrated much of its manufacturing and sales activities within British. However, the expansion to explore the Singapore opportunities made the company climb a high strategic ladder. Studies illustrate Singapore as one of the leading countries regarding marketability for aerospace products. The studies base their facts on the concentration of several aircraft manufacturing companies in Singapore, a great aerospace market, and high a significant number of airplane maintenance companies within the country. In fact, Singapore stands out as one of the most competitive markets regarding aerospace manufacturing. Currently, Singapore hosts the two leading manufacturers of airline engines in the world which include Pratt & Whitney and Rolls-Royce. Rolls Royce focuses on the Singapore branch to make engine parts such as Trent series of engines and the titanium fan blades (WOOD, 2003). This paper intends to focus on the strategic reason which informed the decision of Rolls-Royce to explore investing in Singapore, potential risks and challenges in the Singapore market as well as a recommendation to help solve the problems and risks. 2. O Reasons that Influenced Rolls-Royce into Singapore Market Rolls Royce deals in the manufacturing of aerospace components especially the engine parts. The engine parts such as the propellers require a sophisticated high technology and a well-coordinated productions system to enable the company to withstand the competition in the modern market. Sophistication in the manufacturing of such products depends upon the technology used and the manufacturing location as well as the expertise. One of the strategic choices made by the company relates to taking its production into Singapore in February 2012. In the recent past, the company concentrated the manufacturing activities in British limiting exploration chances to external markets (WOOD, 2003). The decision by Singapore, however, resulted from some reasons which facilitated the decision. Some of the reason includes; 2. 1. Existence of a relatively low corporate tax rate Taxations stand out as a significant determinant in investment decision making. Strategists argue that firms and corporate tend to focus on markets and economies with relatively lower corporate tax rates. The tax rates usually determine the costs of operations of any firm within the market since it affects the costs of inputs into the production processes. Similarly, the corporate tax rates determine the overall costs charged on the final products of the company. The desire to operate in a relatively lower tax rate markets enables a manufacturer to reduce its costs of inputs. Usually, a manufacturing and assembling process involve importation and production of several parts to complete the processes in manufacturing. The importations and manufacturing activities dictate the overall costs of a production process. Corporate tax denotes the tax chargeable to any corporate entity by the host country, especially on its production processes. The tax rate remains as a charge remitted by the corporate, firms and manufacturers on their overall activities within a country. Studies illustrate that the lower the rate, the little the impact on the costs of production chargeable by the host country. However, a higher tax rate translates into increased costs associated with any typical production or manufacturing processes (DALTON, 1973). The corporate tax also determines the costs of the final products manufactured by the company. Strategic analysts argue that the cost implicit on inputs affect the prices of outputs. Whenever the tax rate goes high, the input costs equally raise leading to a rise in the final products f the company. Currently, the corporate tax charged by Singapore rates at 17% (KERSTEN, 2011). This rate compares favorably with other economies such as the US and Britain. Therefore, Rolls-Royce identified Singapore as a favorable destination point for manufacturing activities. 2.2. Stable Political Environment Political environment signifies the prevailing working condition within a country. Politics remains as one of the strongest determinants of economic progress since it dictates the environment within which firms operate. A hostile political surrounding makes manufacturing processes in any country difficult since the firms rely on the peace, stability and regulation by the host country to facilitate their operations. Singapore stands out as one of the politically stable economies in the whole world which experience steady political activities and administration. One of the characteristics which define the political condition of Singapore relates to the single administration created under one president. Other arms of the government work in coordination and with a relatively peaceful cohesion to deliver the government promises. Every producer or manufacturer within this economy remains advantaged due to simple operations, simple importations and exportations as well as easy integration into the local market due to the prevailing political stability (KERSTEN 2011). Scholars attribute to the political and administrative Status of the country as the primary reason for the growing number of the aerospace manufacturer within the economy. Presently, several companies and firms seek an investment space in Singapore at a relatively higher rate. The investment processes range to a varied extent without limitation to a particular economic activity. Political stability and progress remain as one of the outstanding reasons for which such a high wind of investment blows towards Singapore. 2.3. Predictable and Transparent Regulations Every country remains as a critical player in determining the prevailing policies, guidelines and regulations which prevail within the economy. The regulations stem from the legislative processes within the country. One fundamental contribution of the legal processes within a country to its economic progress concerns the ability of the rules to foster the economic growth. Scholars argue that the progress within an economy depends entirely on the guidelines placed by the government to either foster or handicap development of factor of economic progress. The framework encapsulates within the legislative policies provide a direction that the firms and companies existing within an economy follow to succeed in their operations (LONG 2003). Singapore remains a great destination point for manufacturing as well as other corporate activities due to the regulations placed by the government on the economy. The Singapore government dictates the actions within the economy which bring significant contributions to the economic progress. The policies usually cover a range of guidelines that also cut across several quarters of the economy such as regulations on importations, employment, labor regulations, exportation, environmental concerns, and taxation among other regulations. Whenever a government comes up with a restrictive policy, for example, a high custom or tax rate, the result impacts negatively on the economy. The impact results from the fact that several companies desist from investing in such countries. On the other hand, favorable policies and regulations such as favorable environmental protection regulation tend to attract several corporation, firms, and industries to a given economy. Besides the favorability of the rules, several investors require transparent and predictable regulation. Control remains open if it seeks to serve to buttress the growth of an economy without any intended prejudice. Predictable regulation, on the other hand, follows a particular pattern of operations which enables the investor budgets and come up with forecasts. Working and operating under a certain environment attracts many investors who seek to expand and broaden their activities within an economy. Therefore, the availability of desirable, transparent and predictable policies and regulation win Singapore acted as bait towards attracting the operations of Rolls-Royce and other manufacturers to the country (LONG 2003). 2.4. Existence of a ready market for the engine parts Economic success, especially on the part of manufacturers, depends significantly on the availability of a ready market. In many cases, companies which operate in such a situation incur fewer costs associated with marketing and distribution purposes. A ready market implies a prior customer base existing due to the lack of or high demand of the product within the market. Researchers single out Singapore as a hub of several companies which manufacture airplane. Besides manufacturing processes, many companies exist which perform maintenance, repair and complete aircraft overhaul in Singapore. Facts prove that the country accounts for about a quarter of the total Asia’s maintenance and repair services for aircraft. The availability of the repair industries implies that spare parts become a desirable business opportunity within such a market to complement the activities of the repair companies. Rolls-Royce identified the need to seek investment in the Singapore market to exploit the already available demand for spare parts. Some of the engine spares used in airplanes prove as herculean tasks regarding finding the genuine parts and easy availability (BOOKBINDER 2011). Some suppliers of the engine parts fail to meet the requisite expectations such as price expectations and quality of the product. Therefore, the opportunity that existed within this market led to Rolls Royce to seek investment opportunities in Singapore. Presently, the company stands out as one of the greatest suppliers of aerospace parts used in maintenance and repair activities of the airlines. 3.0 Challenges and Risks in Rolls-Royce’s International Chain The decision by any country to invest in a foreign market usually comes with associated challenges. The challenges imposed on the performance and activities occur as a result of changes in operations rules and regulation in investing into a foreign country. Similarly, the Supply Chain used by the company suffers disruption and effects from the challenges and risks. One outstanding fact concerns the ability of a firm or company to recognize the risks and try to work towards mitigating the risks. The decision by Rolls-Royce to open up a manufacturing unit in Singapore faces an array of risks and challenges which the company tends to work towards mitigation and absolute reduction. 3.1EXTERNAL CHALLENGES 3.1.1 Market Competition Problem: One of the risks factors which continue to influence the involvement of any international firm in a market relates to the prevailing competition within the market. Rolls-Royce stands out as a perfect example of a company which suffers the challenge of intense competition from companies existing within Singapore. One of the fierce rivals to Rolls Royce refers to as Pratt & Whitney founded in America and engaged in similar operations with Rolls Royce (BOOKBINDER 2011). The potentiality of any manufacturing company reduces significantly when exposed to an environment coupled with significant competitive forces. Pratt & Whitney manufactures spares and parts related to an airplane engine, therefore, playing as a major competitor to the products of Rolls-Royce. Studies reveal that the potential profitability in such a case reduces significantly as compared to a market with relatively low-level competition forces Recommendation: The feasible means of solving the challenge mentioned above concerns the creation of formidable Research Teams within the company. The primary role of the Research Teams, in this case, involves the exploration of where to set up a branch of the company and where to avoid. The research intended by such a team ensures that the company places itself within a potential market with prospects of future profitability and relatively bearable or low levels of competition. 3.1.2 Environmental Concerns The challenge regarding environmental protection and preservation continue to stand out as a major challenge owing to the nature of activities within the company. Manufacturing activities usually create an impact on the surrounding environment with a high potentiality of adverse effect. One of the risks which the host governments watch when a manufacturing plant establishes its activities within its borders regards the aspect of environmental impacts from such activities. Pollution remains a pragmatic concern in regards to environmental policies and protection. The policies existing within Singapore continue to stand out as a challenge to the activities of the company in regards to the prevailing global protections regulations (CHRISTIANSEN 2016). Recommendation: The ideal steps that the firm requires to remain relevant in such an environment relates to adopting modern manufacturing and disposal technologies so as to protect the environment. Modern technology provides a means and feasible means through which companies such as the manufacturers dispose of their products without polluting the environment. Singapore stands out as one of the strict observers of environmental regulations. Therefore, the manner of production within Rolls-Royce remains a critical aspect regarding adhering to the requirement of the government. 3.1.3 Government Regulations The government of Singapore remains as an active party that influences the operations conducted by the company within the country. Several regulations and rules stand in the way for normal operations of the enterprise. One of the outstanding pieces of regulations imposed by the government regards the labor laws which govern employment into the company. Presently, Singapore dictates that foreign companies such as Rolls Royce follow a regulation which provides that 60% percent of the total population employed within the company constitute the local natives (CHRISTIANSEN 2016). The challenge, therefore, comes in regards to the intended expertise and skills required that probably lacks from the 60% locals demanded by the law. The restriction places the company at a divergent point at which it must employ the requisite percentage of the population despite possibilities of lack of the required expertise and knowledge. Recommendation: Rolls-Royce continues to use several strategies that ensure that the company achieves its intended objectives despite the application of this regulation. One of the mechanisms utilized by the firm relates to taking advantage of Labor Turnovers. Whenever employees leave the company voluntarily or otherwise, the company receives an opportunity that enables easy employment of those with requisite skills into the business. The second strategy commonly used by businesses in such a situation relates to conducting proper interviews and identification of prospective employees with the required knowledge and skills to compose the 60% legal provision. Therefore, this strategy enables the company to have the necessary workforce and remain competitive within the environment (SAUVANT et al. 2010). 3.1.4 Political Atmosphere Challenge: The political condition of the operating environment remain as one of the critical issues which affect a foreign company. Usually, the normal operations of any business occur in a surrounding which supports active participation and peaceful co-existence. Studies reveal that a stable political environment remains as a potent stimulant spurring economic growth especially in the case of a manufacturing company. Singapore stands out as one of the peaceful countries compared to many others in the global front. However, the company faces risks of potential effects from the terror activities in Iraq and Syria. Presently, Iraq and Syria face unstable political atmosphere which exposes Singapore to significant risks. Recommendation: Political conditions prevailing within any country remains a sole initiative of the government of the day. Usually, the government dictates the peace and the political atmosphere within which foreign players operate within the host country. Therefore, this paper recommends that Rolls Royce requires a strategic plan which specifically focuses on relatively stable countries as the target destination. The strategic plan required by the company intends to enable the company to avoid hostilities and potential losses which come as a result of adverse political conditions. 3.1.5 Labor and Industrial Relationship Challenges Problem: the manner of production and nature of quality within the products of a company usually depend significantly on the skills and knowledge of the workforce. Scholars argue that a skilled workforce shows a high potentiality of delivering relatively great quality products to the market as opposed to the unskilled labor force. The labor regulation enforced within Singapore requires the employment of the natives to a tune of 60% but fails to outline the skills requisite from the workforce. The company faces the challenge of sourcing for workers with the expected skills to compose the 60% regulation. Therefore, the company at times employs people with no absolute and adequate knowledge in the manufacturing processes just to meet the regulations demands (TAN KONG YAM & TOH 1998). Recommendation: One of the recommendations fronted in this paper concerns the aspect of coming up with new leaders within the managerial roles who know how to source efficiently for skilled labor force and enhance industrial relations. In many cases, the leadership plays a significant role in determining the composition of the workforce and the formulation of the requisite standards of employment. 3.1.6 Risk of Foreign Exchange Dynamics An efficient supply chain employed by any investors takes into cognizance the dynamics involved in exchange rates phenomenon. Usually, the exchange rates determine the value at which a country imports its goods and equally exports other countries. It usually affects the value at which a foreign resident firm denominates its currencies into the host country’s currencies and the monetary implication of such currency denomination. Foreign exchange differentials impact the manner in which a foreign investor carries out its financial activities. In many countries, the money value keeps on changing thereby influencing the operations of a company (SINKOVICS & GHAURI 2009). International Supply Chain involves activities intended to make the products of a particular company available to other countries. It includes the procedures and logistical activities followed by the corporation to access foreign markets and invest in other markets besides the countries of origin. Studies acknowledge exchange rate systems as one of the great determinants of a successful international supply chain. The exchange rates influence the currency values and the sharing of such currencies between and among the countries. In financial perspective, an international company seeks to invest further in economies which suffer little or no adverse foreign exchange impacts on its operations. The primary reason which makes the international players avoid such volatile exchange rates concerns the fear of losing out regarding negative rates. Therefore, Rolls Royce focuses much on this aspect and works towards cushioning its operations against any adverse effects of foreign exchange rates. 3.1.7 Recommendation: Operating provisionary funds accounts Any internal business operations usually face the potentialities of challenges concerned with cross-border risks. The ability of an investor to seek investment opportunities in foreign marketplaces the investor at risk points regarding the likelihood of international risks. The sections above illustrated some of the global challenges such as changing foreign exchange rates, adverse customs and levies as well as inflation rates. The situation further worsens whenever a company operates in a volatile market which remains uncertain and unpredictable. In such case, the chances of occurrence of unlikely events remain equal to chances of the market experiencing favorable conditions. Therefore, this paper recommends that any company going through the international business operation such as Rolls-Royce operates a provisionary account. The provisionary accounts usually set up some funds aside that aid the company in situations of financial difficulties. Besides, Rolls-Royce needs to open other branches in other countries to mitigate the company during times of financial hardship. Whenever the company operates other offices in other nations, the risks associated with foreign exchange rates in a particular country reduces significantly. Therefore, the company remains in a stable condition despite such dynamics 3.2 INTERNAL CHALLENGES 3.3 Structure and Management of Labor within the company Structure and Management of Labor within the company stood out as one of the challenges facing the company in the recent analysis report issued in 2015. The report clarifies that the problem arose from poor coordination of the production section of the company as well as the management of the marketing department. A lot of disorganization occurred especially in the initial stages of the establishment of the branch in Singapore that ultimately led to the revenue decline. A close study of the operations of the company reveals a lack of coordination between various departments due to the poor organization at the managerial levels (SINKOVICS & GHAURI 2009). Therefore, the disorganization exposes the company to the advantage of the competitors. Recommendation: This paper recommends an overhaul and change at the managerial levels of production and marketing departments within Singapore. The change enables the company to have more organized leadership which follows the strategic plan drawn by the business and equally strengthens the performance in the global scene. 3.4 Reduced Level in Client Relations: Problem: One of the factors which continue to affect the typical performance of the company within Singapore relates to lukewarm company-customer relationships within the Singapore market. The kind of marketing techniques, commercial advertisements as well as interactions between the company and the clients remains a significant challenge. The cold relations witnessed between the market and business translates into little market share occupied by the firm. Therefore, the potentialities for expansions reduce quite significantly as compared to chances of extension in case of better relations with the clients. Recommendation: the best strategy to correct the diminishing marketability and relationships with the customer regards the establishment and reinforcement of the marketing department. Internal operations reports reveal a possible failure in the marketing department of the company, especially in the Singapore branch. The competitive ability the company stems from its capacity to persuade the clients and form a strong customer base. Failure to create firm customer-company relationships affects the potentialities of the company in the competitive market. Part of the strategy recommended in these sections concerns the creation of a department that deals with taking care of company-customer relations and improving the image of the company on the global front (KERSTEN 2011). 4.0 Conclusion Strategic planning visions a company at better and greater operational positions compared to the existing conditions. On many cases, the plans offer strategies through which a company exploits such a vision. One of the policies relates to investing in foreign markets. This paper aimed at illustrating the decision of Rolls-Royce to expand to Singapore and establish a manufacturing branch within the country. Besides, the article focused on the challenges and means of mitigating the potential challenges involved in investing in a foreign market. The major focus, however, concerned the reasons which influenced the company into investing in Singapore as opposed to any other economy. Such factors potentially led to the financial and operational progress presently seen in Rolls Royce. 5.0 References ROBSON, G. (2003). Rolls Royce & Bentley. Iola, WI, KP Books. WOOD, J. (2003). The Rolls Royce. Princes Risborough, Shire. DALTON, L. (1973). Rolls-Royce: the elegance continues. London, Dalton Watson. KERSTEN, W. (2011). International supply chain management and collaboration practices. Lohmar [u.a.], Eul. LONG, D. (2003). International logistics: global supply chain management. Norwell, Mass. [u.a.], Kluwer Academic Publ. BOOKBINDER, J. H. (2011). Global logistics. New York, NY, Springer. CHRISTIANSEN, B. (2016). Handbook of research on global supply chain management. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1095588. SINKOVICS, R. R., & GHAURI, P. N. (2009). New challenges to international marketing. Bingley, Emerald. SAUVANT, K. P., MCALLISTER, G. A., & MASCHEK, W. A. (2010). Foreign direct investments from emerging markets: the challenges ahead. New York, N.Y., Palgrave Macmillan. TAN KONG YAM, & TOH, M. H. (1998). Competitiveness of the Singapore economy: a strategic perspective. Singapore, Singapore Univ. Press [u.a.]. Read More