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International Business Management - Eastern Europe - Essay Example

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In respect of the proposed join venture arrangement of GM Europe with RABA, the state owned enterprise of the Hungarian Government the following issues are to be addressed and possible answers/commitments are to be obtained from the respective parties:
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International Business Management - Eastern Europe
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Download file to see previous pages 2. The maximum rate of Income tax that could be levied after the tax holiday period of 10 years should be fixed at not more than 20 percent of the taxable earnings: In addition to benefit of the tax holiday period the developing countries normally offer concessional rates income tax for any joint venture arrangements.
3. Free conversion and free transferability of funds from and to Hungary to European or US destinations2: Though these facilities were available at the time of negotiation the Hungarian government should make a commitment for the uninterrupted continuance of these facilities, which is very important for the profitable functioning of the join venture arrangement.
4. Concessional duty rates on the import of engines and reduction in the VAT (Value Added Tax) being charged by the Hungarian Government: The import duty on engines depending on the size of the vehicle varied from 10 to 40 percent and there was an additional VAT of 25 percent charged by the Hungarian government. Though Hungary is a signatory to the GATT (General Agreement on Tariffs and Trade) the country was free to vary the duty and VAT structures as it may deem fit in the case of automobiles. Hence there is the need to get the government committed on the basic duty structures which is advantageous to GM Europe.
In addition to the tax incentives it is also important that the Hungarian government should provide basic infrastructural facilities to fac...
Hence there is the need to get the government committed on the basic duty structures which is advantageous to GM Europe.
(ii) Provision of Infrastructural Facilities:
In addition to the tax incentives it is also important that the Hungarian government should provide basic infrastructural facilities to facilitate the successful operation of the project. Such infrastructural facilities may include the provision of natural gas to the site in addition to the provision of water, electrical power as may be required, well maintained roads for easy transportation and hassle-free physical movement of engines, components and cars during import and export.
(iii) Protection from Competition:
In order to gain a distinct competitive advantage there should be a commitment from the Hungarian government that at least for an initial period of 5 years or so the import of cars needs to be banned. Since the Hungarian market was small and the affordability of Hungarian population was also less there is the need for this condition. The country could get other advantages in the form of generation of additional employment and development of local suppliers which need to be traded against the protection needed by the GM Europe for its joint venture in Hungary. Though at the start, the GM plant would be small the facility could be enlarged with modernizing and restructuring of the economy. This is usually the case with any developing economy where there are going to be economic reforms the local industry would naturally develop along with the measures for economic reforms.
b. Issues to be raised with RABA:
The following issues are to be discussed with RABA for possible acceptance as ...Download file to see next pagesRead More
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