Investing in the Asean members - Case Study Example

Instructions Investing in the Asean members Introduction Company expansions and diversification is always good for a firm as it may increase sales volume and heighten the level of income. However, shifting to an international market can be challenging given there are many factors that affect business performance in every country (Hill, 2011:54). These factors range from the political system to the environment, to social structure and in other cases, they include technological advancement, infrastructural development, cultural differences and type of governance (Schwab, 2011:33). For companies wishing to expand their business operations towards the Asean countries, they must be aware of the issues that will affect their businesses hinting that just a few of these speak the mostly known languages such as English and/or Spanish (Daniels, Radebaugh and Sullivan, 2011:75). This paper will seek to analyze the political, economic, cultural and ethical risks that might affect Asda’s expansion into an Asean member state particularly Philippines. The paper will also identify and evaluate business opportunities in this country. Political analysis Asda is a high street supermarket located in Britain retailing a large variety of food products and may deliver at a customer’s doorstep upon an online order (Oxford Business Group, 2009:26). This company is planning to expand its investment prospects into Philippines as part of its long-term investment plans and looking into this country’s political system can help the business consultant understand the kind of risks or opportunities that the company should expect to face (Schwab, 2011:46). Generally, political stability and the system of governance of a country act as a substantial factor of consideration at times when a firm is planning to invest internationally (Hill, 2011:70). This is so because, every country in this world maintains unique and/or different political and economic systems pointing out that when doing business in any overseas country; it is advisable that you be familiar with that country’s market availability and its leadership structure (Cavusgil, Knight and Tiesenberger, 2011:49). The Philippines’ political system is not that complex, but for a British food retailer like Asda, changing its structure to accommodate certain rules and regulations is necessary (Daniels, Radebaugh and Sullivan, 2011:89). The Philippines’ political system is a structured framework constituting a presidential, democratic and representative republic, where the president is both the head of government and the head of state within a system characterized by pluri-form multi-party (Menipaz and Menipaz, 2007:84). Reliable sources establish that different political systems influence the functioning of a business. Philippines have a transitional business environment where the political structure allows for international investment. Since 1986 when Corazon Aquino took over as the president of Philippines, the country formulated its political system with constitutional amendments being the first to change (Schwab, 2011:62). The country’s political administration system has three bodies, which consist of the judiciary, executive and the legislative branch. It has other administrative divisions that facilitate the proper administration of the cities, municipalities and barangayas among other regions. Despite a bit of political turmoil at times, there is no surmountable business pressure or threat posed by these issues (Oxford Business Group, 2009:50). Adequately, the people of Philippines are peaceful and they have a strong liking for investors from the west a particularly in such countries as Britain and the United States (Menipaz and Menipaz, 2007:106). Thus, Asda is at a considerable position to expand its food retailing services into the Philippines since the political system of this country allows for favourable working conditions. Bearing in mind that political issues erupt at any given time, Asda should prepare for such risks in the future and thus find it necessary to insure itself against political risks (Hill, 2011:83). Economic system The economic system of Philippines otherwise referred to as “Economy of Strong Republic” is relevant to the country’s form of government. In its pure market system, commonly referred to as capitalism, the country’s business community is responsible for determining all aspects of the country’s economic development (Cavusgil, Knight and Tiesenberger, 2011:66). The government through its business regulatory department regulates the market system of this country. On one end, the country has a free market structure. On the other end, there are rules and regulations and according to them, every company must fulfil them before establishing any kind of business in this country (Schwab, 2011:78). Particularly, entry of an international investor is faster and easier. This happens because Philippine is overly a state directed market where the central administration determines procedures and economic policies that a business should follow before and after inception (Suryadinata, 2006:63). It is therefore understandable that the Philippines’ economic policy and any other aspect of business production and/or service are market driven as opposed to essential services, such as health care and electricity, being government controlled. Social systems Formerly known as the Army Area Handbook Program, the Country Studies Program views the people of Philippines as bound together by not only a common religion but also similar values (Menipaz and Menipaz, 2007:128). Doing business in Philippines gets the advantage of the people’s great regard for self-esteem (amor proprio), respect for authority, smooth interpersonal relationships and strong religious beliefs. Any company including Asda that wishes to invest in Philippines has a better chance of succeeding provided it makes a maximum of the people’s hospitality. Filipinos pay huge respect for elder society members and unbelievably, they also respect much those who hold bigger positions or power (Daniels, Radebaugh and Sullivan, 2011:96). The level of dignity, hospitality and respect expressed by the Filipinos is an added advantage since it can help facilitate the essential aspects of business growth. The inhabitants of this nation consider food and other products brought in by an international investor especially of a much more developed country are essential and quality (Schwab, 2011:101). Analysis of this country’s social aspects indicates that the government has no control over people’s choice of religion or values (Kerkvliet, 2002:58). Moreover, there are no regulations dictating which religion people should be loyal to or what values to consider. Therefore, it is true to say that, the Philippines social factors influence business growth and development mainly because there is freedom of individual judgment (Schwab, 2011:140). One can choose to do business in any part of the country as Filipinos try as much as possible to avoid anything that might hurt somebody else’s self esteem. For Asda to be in normal terms with the social organization of the Philippines, it should take note of the general procedure followed when carrying out business activities in this country (Oxford Business Group, 2009:79). Philippines social organization follows a single patter although variations do take place at times reflecting business influence on local beliefs and traditions (Hill, 2011:95). Within the lowland Christian Filipinos, personal alliance systems characterized by groupings consisting of ritual and real mark the social organization of people. Root Model Applied in terms of instability risk, control or ownership risk and operations risk among others declares that, Philippines has a strong base for doing business specifically due to the minimal level of different risks that a business can expect to incur. For quiet a long time, Philippines remains to be one of the most politically stable countries (Oxford Business Group, 2009:96). Thus, any risks related to instability, ownership or control, operations, transfer and/or repatriation are minimal. Given that the UK currency is much stronger than that of the Philippines, Asda retail business will enjoy huge profits (Abinales and Amoroso, 2005:53). Apart from currency difference, there is also the aspect of cheap labour. It is agreeable that the Philippines have less cheap labour force and its availability is easy (Cavusgil, Knight and Tiesenberger, 2011:76). Ideally, owning or controlling a business in Philippines is not that risky. In fact, international investors receive a warm welcome in the interior aspects of conducting business sin this country. Operation in the Philippines has limited risks for international investors as labour is readily available, raw materials are cheap but these are influenced by the kind of business an investor resolves to establish and the requirements of starting a business are easy to acquire (Hill, 2011:102). Conducting business especially that deals with foodstuff is cheap and the risks involved are minimal and can negligible threat to well being of the company (Suryadinata, 2006:87). When a business is seeking to repatriate or transfer either majority of its share or the whole shares to another business or individual, there are risks involved but they are minimal. If the business were doing well in its line of business, then transferring anything would not prove to be a hard or risky thing to do, as the market is open-ended (Schwab, 2011:159). Incidence of cultural or ethical risk Truthfully, the Philippines and the UK share diverse cultural and value differences. In fact, just a few cultural risks may be common between these two countries. The existing fundamental cultural and ethical differences between the host and home countries such as extend of government influence in business, the signification of religion, the existence of the ethic mix, the degree of the toleration of difference, the extend of censorship of information are considerable (Kerkvliet, 2002:88). For instance, Filipinos value personal alliance which is a system anchored by kinship (Daniels, Radebaugh and Sullivan, 2011:100). The British on the other side value the culture of organizational alliance. Precisely, these two nations have diverse cultural and ethical risks since on one side; the risk of corruption is high while that of the other is minimal. UK has a great influence on its business operations even if the business is in a foreign market. Religion plays a major role in existence and success of a business in the Philippines. In both countries, there is the existence of the ethic mixture since people must uphold respect for other people’s property and ensure respect for law as well (Hill, 2011:110). Pertinently, bonds related to ritual kinship always sealed with the three ceremonial occasions namely baptism, corroboration or confirmation and marriage make the Filipinos personal alliances more intense and extensive. People in this country hold a strong belief for respect and relationships whereby, according to them, is a way of extending the kinship system in which one can get favours from other people in the forms of loans, simple gifts and jobs among others (Schwab, 2011:196). Thus, it is essential for a company like Asda that wishes to fulfil its globalization goal by expanding to other nations like the Philippines to understand the differences share between and amongst people, businesses and laws in this country (Oxford Business Group, 2009:113). In Philippines, studies show that the level of corruption cases is very low. People have respect for their traditional and religious beliefs that deter them from engaging in business deals said to have a curse. People in this country beliefs that if an individual does something wrong unto somebody else, that ordeal might come to happen to the same individual later (Cavusgil, Knight and Tiesenberger, 2011:81). As such, it is very rare to see people engaging in unlawful businesses, as they are afraid of facing such consequences. This point out that Filipinos uphold a strong ethical conduct which in turn shows that issues related bribery are minimal (International Business Publications USA, 2007:43). Sturdy results highlight that working conditions in Philippines are favourable and companies try as much as they can to ensure people work in humane conditions (Kerkvliet, 2002:106). Wages that people receive after working the normal amount of working hours in a day are considerable and there are no cases of oppression of the minorities. Analysis of opportunities Definitely, business opportunities in the Philippines are in plenty especially in the hospitality and/or food retailing industry. Observations maintain that Filipinos are cautious people and love buying raw food in order to save more. Their level of income is gripping back to its feet after the great Asian Financial Crisis tore it into different classes (Hill, 2011:122). The cost of living the Philippines is very low and the country’s economy ranks number 47 worldwide with its GDP totalling to over 120 billion Euros. Expatriates find living in the Philippines being very cheap unlike in other countries like the United Kingdom the cost of living is very high (Schwab, 2011:210). The level of income of every Filipino is different with some people living under 2 Euros in a day. This is so because the country is very populous as it is the 12th populous country worldwide with a population of over 88 million people (Daniels, Radebaugh and Sullivan, 2011:112). The education system caters widely for people of all walks while the country’s demographics favour food retailing business. Consumers in the Philippines prefer to buy raw products in order to achieve better savings since cooked food costs a bit higher than the raw one. In addition, Filipinos consider foreign products being of more quality and cheap than those produced or manufactured locally (Kerkvliet, 2002:118). Therefore, the demand for international products is high while foreign competition is low. Asda will find it easy to venture and start business operations without major setbacks. The level of unemployment in Philippines is not that much high but cases of poverty are high due to overpopulation (Abinales and Amoroso, 2005:91). This country’s economy is a free market and according to the latest economic review, most of the Philippine foreign income comes from overseas - Filipinos working in other cities comprise over 10 percent of the country’s entire population (Menipaz and Menipaz, 2007:131). Recently, the government reported that the nations’s economy has been growing by 7 percent yearly. As such, the country is currently looking for international investors to invest in the intensive sectors of the country, which comprise agriculture, trade and telecommunications. Thus, it is observable that degree of government ‘welcome’ to foreign investors is high. Successful UK companies in the Philippine market Since the economy in this country is a free market system, many UK based companies tend to succeed business wise when they invest in Philippines. For example, Tesco, which is a UK retail company, records high returns every year. Potentially, products offered by foreign companies readily move in the Philippine market due to the belief that UK products are cheap and of high quality (Cavusgil, Knight and Tiesenberger, 2011:90). Due to technological difference between the two proprietors, products from the Tesсo’s home country have a high demand due to advantages related to technological advancements. Other companies that show success results in this market include the Wal-Mart chain of retailers who have had tremendous operations and income levels not only in the Philippines but also in other countries. Acquisition of local workforce is cheap and easy as jobless people are many while the cost of maintaining workers is low (Schwab, 2011:256). Recommendation With reference to the analysis of this country’s risks of operation, repatriation and cultural among others, it is observable that business opportunities are more compared to risks involved (International Business Publications USA, 2007:55). Asda will have more business opportunities and additional chances of negotiating for cheaper labour as well as other operational costs since Philippine provides a wide and favourable market for international investors (Daniels, Radebaugh and Sullivan, 2011:119). It is therefore recommendable that, Asda should go ahead to and invest in the food-retailing sector of this country since there are many advantages that contribute to foreign investment growth and development in this country. Overseas companies enjoy government support, easier access to free market and cheap labour making it cheap, substantial and friendly to work in this country (Schwab, 2011:336). Conclusion In conclusion, the people of Philippines uphold strong cultural and ethical values and have great respect for people of different classes. Admittedly, foreigners especially from the UK get essential treatment and heightened level of hospitality when they encounter Filipinos (Hill, 2011:125). Therefore, Asda will enjoy benefits ranging from easier venture into the market to easier business orientation course given the fact that the government of this country welcomes foreign investors with great hospitality. Frankly, the best market entry, which this paper finds appropriate for Asda to use while venturing into the Philippines market, is direct investment (Cavusgil, Knight and Tiesenberger, 2011:105). Alternatively, Asda can still use licensing or joint venture in order to avoid any risks that might come along with direct investment. Reference List Abinales, P. N. and Amoroso, D. J. 2005. State and society in the Philippines. Lanham: Rowman & Littlefield Publ. Cavusgil, S. T., Knight, G. and Tiesenberger, J. R. 2011. International Business: Strategy, Management and the New Realities (2nd. Ed). New Jersey: Prentice Hall. Daniels, J. D., Radebaugh, L. H. and Sullivan, D. P. 2011. International Business: Environments and Operations. 13th Edition. New Jersey: Prentice Hall. Hill, C. W. 2011. International Business: Competing in the Global Marketplace. New York, NY: McGraw-Hill. International Business Publications USA, 2007. Philippines industrial and business directory. Washington, DC: International Business Publications, USA. Kerkvliet, B. J. 2002. Everyday politics in the Philippines: class and status relations in a central Luzon village. Lanham: Rowman & Littlefield. Menipaz, E. and Menipaz, A. 2007. International business. London: SAGE. Oxford Business Group, 2009. The report: Philippines 2009. London: Oxford Business Group. Schwab, K. 2011. Global Competitive Report 2011-2012. Accessed http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf on November 05, 2012. Suryadinata, L. 2006. Southeast Asia's Chinese businesses in an era of globalization: coping with the rise of China. Singapore: ISEAS Publ. Read More