Management of International Business - Essay Example

?Management of International Business Introduction The global trend by major business operators to venture in international business through operation of multinational chain stores poses challenges to such business operators that are differ importantly from business within national boarders. Creating a trade niche in a foreign country requires a thorough analysis of the foreign market scenario to establish not only the profitability of the business but also the safety and sustainability within the foreign market (Dunning 1999). We shall consider business management in international business with reference to Wall-Mart Stores, which has potential of expansion into the Malaysian market with its wide range of retail electronics, furniture, IT products, and toys products. Wall-Mart Stores operate as chain discount retail stores spread through all 50 states in the US with the growth based on basic but unique operational principles (Ingram, Yue & Hayagreeva 2010). The industry has expanded to incorporate chain stores, multinational operations and lately, the introduction of e-commerce. With success in other foreign markets like Mexico Wall-Mart has potential to expand to the fast growing Asian market like Malaysia amidst technological and logistic challenges in the industry. This paper considers the potential of expansion into this market by analyzing the company’s Corporate Social Responsibility (CSR) and carrying out a PEST analysis of Malaysia. This will be used to examine the potential for expansion into the foreign market and the possible risks that may be faced by expanding into such a market. The analysis bases on the entry mode of foreign market servicing strategy that gives best strategic expansion into foreign market. PEST analysis of Malaysia Political analysis When considering the political system of a nation some of the important elements include the responsiveness of the system to corruption, tribalism (nepotism m), collusion and democracy (if any) and then the overall stability of the government system as noted by Knol (nd). This may include the legislature, judiciary and the executive arms of government. In this case the factors leading to government stability are manifested through the electoral systems, clear separation of powers and the strength of the justice system. The federal constitution monarchy in Malaysia has been able to work out a stable government with reduced political risks manifested (EDC, 2010). The political system has been able to maintain peace with the neighbourhood as well as contain internal conflicts that are a sign of low political risk to foreign investment according to the BBC (2010) and the Encyclopedia of the Nations (2010). As one of the current indicator of business security, political risk manifests in form of internal or border strife, terrorism or other unseen political matters. The Malaysian situation has witnessed internal strife between the major communities in the country (the Malays, the Chinese, and the Indians) that easily cause riots in the country (Knol nd). An example of such a strife is one that resulted from how the word “Allah” was used hence sparking up nationwide strife in most if not all government system. However, since the worst 1969 strife the communities co-exist easily in spite of the differences in the areas they live in. This means that in hiring labor the company must equally consider job distribution among these communities in terms of type and number of positions to avoid rejection by the locals. In terms of national political governance, the country has established strict immigration controls that may have an implication on foreign traders. Movement into the country may therefore require early arrangements to avoid possible hindrance of movement especially where outsourced employees are of foreign origin. The country is ruled under political monarchial government consisting representation of members from all communities in the country but mainly run by the Malays under the United Malays National Organization (UMNO) and other political parties such as the Malaysian Chinese Association (MCA) and the Malaysian Indian Congress (MIC). Although the parties have tribal affiliations they have been able to co-work at the national front in the parliamentary democratic system to ensure beneficial and democratic governance of state issues (EDC 2010). The government through the legislature has been able to formulate laws in the interest of the nation at large to protect the people from what they may consider unacceptable to the people and the nation at large. These include trade laws, immigration and laws regulating FDI. The monarchial approach to leadership is used in the country to concentrate power which is used by the people to solve political problems especially those stemming from ethnic strife. It can therefore be asserted that Malaysia has dependable political stability compared to most Asian states (as noted by the Encyclopedia of the Nations 2010). It has had a history of stability even when the region faces crisis which is the reason why the country has easily attracted foreign investors and maintained their loyalty to the carrying out business in the country. Economic analysis Over the years the Malaysian economy has reaped well from the political stability, a convenient bureaucracy, sound national economic policies, technological support and encouragement of direct foreign investment (FDI). This has made the economy to flourish in spite of low income by the people and recessional effects where the purchasing pattern of the people has remained stable and predictable. Other than the general complaint from investors about the government indulgence in control of capital and exchange markets (Dato’ nd) the economy has been able to keep inflation low (less than 3%). However a lot is being done to ensure that the capital and money markets are fully liberalized along other aspects of the economy. Malaysian economy is mainly characterized by the strong bid to recover from economic recession that led to slowing down of most of the country’s industries as noted by Mida (2010). Government spending in public spending is generally high (following a contraction of economy after the economic crisis stemming from the expansionary economy) which makes investment in the country fairly easier for foreign investors. Further the current situation in the economy is of low inflation rate with adequate labor from the local population given the high unemployment rate that will be cheap enough for an investor to hire. Better still is that the country’s economy is highly predictable with predictable growth with GDP averaging 5% growth to top over 10% annual growth (Economic Review 2000). The challenge of entry into this economic environment will be from the stability of the economy that is favoring exportation rather than importation of goods and services (Mida 2010). However, Wall-Mart can capitalize on the lack of policy reforms in the economic sector to sustain such stability as witnessed in poor corporate reforms where the corporate debt is high. With the recessional impact, the economy has slackened enough to allow for such foreign entry before it fully regains. Under the given global economic situation, Malaysia still has the challenge of maintaining its capital control and financial reserve that directly caused relaxation in foreign entry restrictions and access to the market. The risk of investing in such economy is low because once established the foreign investor will continue taking advantage of economic stability and predictability necessary for establishing a niche for the goods and services. Further, the economy in recovery state with less liquidity in the public will give the discounting approach by Wall-Mart an advantage to grow as the locals are used to low cost of living. The potential of the economy cannot be underestimated because from history the economy was able to maintain a competitive economy even during the recent tough global economic crisis that saw many big economies crumble (Mida 2010; Economic Review Dec 2000). The strength of the economy is in the regional economic boom among Asian countries which has attracted many foreign investors thus giving the economy the surplus export goods and services. This is further supported by the government through support of high economic growth stimulus strategies aimed at boosting the national local economy. Socio-cultural analysis The country is known to have a multicultural setting with a diversity of ethnic and linguistic groups (Awid 2003). The main communities in the country include the Malaysians, the Indians and the Chinese whose diversity can be regarded as an asset to national growth. Except for the 1969 crisis, people from different cultures are known to co-exist peacefully with respect. This can also be associated with other social issues like religion and subcultures which are known to unify people from different ethnic backgrounds. Many Malaysian institutions are founded on the fragile ethnic and ground including the political and governance systems. In other cases the people are aligned according to religious affiliations which mainly include Islam, Buddhism and Christianity among other religious groupings. The implication of this is that the nation has delicate social and cultural system that requires extreme care when dealing with it. Fro example the religious beliefs like the Islamic beliefs require a clear outline of the halal products they can consume from the market. The laws may also affect their access to other services like financial loans which in a direct manner affect the people’s consumption style and the general consumer behavior. The religious inclination of consumer behavior has made it mandatory that any foreign investment must be able to follow and meet the standards set out by these socio-cultural norms (Turton 2000). In cases where the laws are not observed then there is likelihood that the company together with the goods and services may be rejected. Because of the sensitivity of the cultural and religious beliefs, it becomes a challenge for a company intending to operate in Malaysia to place goods that may be deemed haram by one group yet consumed by another set of people (Pryor 2007). In this case product and service placement and branding is an important business element that must be researched on before any product is introduced in the country. However the situation should not be taken for granted because the tribal and religious affiliation has been known to easily cause serious strife in the region. Therefore, investing in the land may require care when handling the corporate social responsibility in which the company is required to invest in the communities and social institutions in the most equitable way possible. Another interesting thing about the Malaysian socio-cultural system is the characteristic prevalence of women literacy. Given that the general behavior of the people is of low spending because of their unstable income, it is expected that spending may not be on luxurious goods which may be part of Wall-Mart’s display. It is important that entry into this fairly simple socio-cultural setting be cautious by considering carefully the nature of goods to be placed and their pricing in the market. With low cost goods it may be possible to target the majority of low-wage earners including women while at the same time reaching the high income earning category with technology-based goods such the IT and electronics which may appeal to them. Technological analysis With the growing economy the country has shown great interest in investing in technological development the production, transport, and communication industry (Lai & Yap 2004). This general trend has been motivated by improved education standards and the level of innovation in the country. However even though the innovations have supported technology, an interested investor in the country must be aware of the esteem given to green technologies. This may directly affect introduction into the market any technological goods and services that is deemed as threat to the environmental protection policy adopted through the use of green technologies. The available technological development in the country is sufficient to support business in terms of communication and other infrastructural needs (Lai & Yap 2004). This has made transactional business easier and faster especially at a time when the country is experiencing a fast population growth which has been putting pressure on infrastructure. There is no doubt that internet based business transactions can be handled with reliability and security. As part of government policy the use of technology is in a way that discourages malpractice which may be relief to multinational investments that purely rely on electronic transaction. It is therefore imperative to say that technological development in the country is supportive to e-commerce which is being practiced by many multinationals including Wall-Mart Chain Stores. This is further supported by the stable and faster internet connection because of the presence of such technologies as WCDMA (World Code Division Multi-Access) and optic fiber seaway connection. Such technologies have supported such internet and other communication speeds such as 3G+ or even better. To ensure uninterrupted connection the country has invested in nuclear power which is used to generate supplementary electricity which runs most of the communication infrastructural hubs. Such stable electricity is also supportive of other electricity-dependent technologies. The growth and development of technological aspects in Malaysia that is supportive to businesses and homes has with it other challenges that cannot be ignored. Particularly it is important to note as technology advances growth of online business is growing. However this may mean a threat to genuine E-commerce businesses in terms of internet hacking and other web-based theft and malpractice. It goes without say that the most targeted by such malpractice are usually multinational companies and supply chains whose transactions are mainly electronic and web-based. In such a case an in-coming investor must within its own means ensure more care in securing business transactions and its customers who may be exposed to fraudulent acts by internet hackers. With consciousness of technological misuse it is also worth noting that the level of intellectual and other property rights protection and patenting in the country is still in the developing stages. This means that there are chances of disputes arising from issues related with technological rape especially on goods and services which may be unpatented. The nation is however doing its best to ensure technological safety and other business operational safety by enforcing intellectual property rights as well as ensuring patenting of available technologies locally to avoid disputes with similar products and services from the international market. Conclusion With due regard to operating an international business the business environment largely determine the success or failure of take-off and sustainability of the business in the foreign land. The environment incorporates the political, economic, socio-cultural, and technological. In a situation where any one of these factors is hostile to the business entity, it is registered as a business risk that the business venture must consider whether it is manageable or not before choosing to invest in the foreign land. For Wall-Mart retail stores, the business environment in Malaysia will offer them a business operation that will not only be profitable but also open up new opportunities for the chain stores. Given the company’s policy of customer value the company will be able to make a quick appeal to the public because of the flexibility they give to purchases. In this even the low income earners are likely to benefit from the negotiated discounts they offer. The environment is further supportive because the company will easily outsource labor from the local community even though care has to be taken to employ equitably from the tribes to avoid misunderstanding. Creating a business niche will equally be an easy task for the chain because the country has embraced technological development which will mutually benefit from the business. Therefore except for the challenge of securing legal permits to operate the retail chain in Malaysia, other operational business processes will easily be adjusted to align with the local consumer culture given an assessment of the market. These can be best done by taking up their CSR in supporting and initiating community and environmental programs which Malaysia has always esteemed. References Awid (2003) Women Organizing in the Malaysian Socio-cultural and Political Environment. Accessed 17th January, 2010 http://www.awid.org/eng/Issues-and-Analysis/Library/Women-Organizing-in-the-Malaysian-Socio-cultural-and-Political-Environment BBC (2010) Malaysia Country Profile. Accessed 17th January, 2010 http://news.bbc.co.uk/2/hi/asia-pacific/country_profiles/1304569.stm Dato’ M. (nd) Malaysia’s Economic Challenges: Coping With The Global Slowdown, National Economic Action Council, Accessed 17th January, 2010 http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN002296.pdf Dunning J., 1999, Governments, globalization, and international business. Oxford University Press. Economic Review (Dec 2000) Malaysia: Economic Performance and Prospects. Accessed 17th January, 2010 http://ww2.publicbank.com.my/cnt_review15.html EDC (2010) Malaysia Country Overview: General Political Environment. EDC. Encyclopedia of the Nations (2010) Malaysia - Future trends. Accessed 17th January, 2010 http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Malaysia-FUTURE-TRENDS.html Ingram P., Yue, L. and Hayagreeva R., 2010, "Trouble in Store: Probes, Protests, and Store Openings by Wal-Mart, 1998–2007," American Journal of Sociology, Vol. 116, No. 1: pp 53–92. Knol (nd) Malaysia's political investment environment. Accessed 17th January, 2010 http://knol.google.com/k/accounting-kl-management-services/malaysia-s-political-investment/zldh5amdpvqb/30# Mida (2010) Why Malaysia: Economic Strength. Accessed 17th January, 2010 http://www.mida.gov.my/en_v2/index.php?page=economic-strength Lai M. & Yap S., 2004, Technology Development in Malaysia and the Newly Industrializing Economies: Acomparative Analysis, Asia-Pacific Development Journal Vol. 11, No. 2. Pryor R., 2007, Movers and Stayers in Peninsular Malaysia: A Social and Economic Study. Issue 1 of (Occasional paper series) Dept. of Geography, University of Malaya. Turton A., 2000, Civility and savagery: social identity in Tai. PublisherRoutledge. Read More