Australian Subsidiaries in France, China, Canada - Essay Example

An Australian MNC has subsidiaries in France, China, Canada, Turkey and Vietnam, Indonesia and South Africa. With particular reference to legal, political, economic and cultural issues, explain how the business environments of each of the abovementioned locations can necessitate different approaches to the establishment of subsidiaries and their on-going operations. Introduction Australia with its vast natural resources is an internationally competitive, advanced and fast-growing market economy. Many multinational corporations trace its origins in this country-continent “down under” that expounds on European legacy with a democratically free market economy that just adopted economic reforms in 1980s contributing to its current robust economy. With a Western-style capitalist economy, output had risen beyond the internal needs so that raw materials and agricultural products lead the export sector of Australia. Low inflation, reforms and strong ties with countries like China coupled with conservative fiscal policies have maintained a very strong economy boasting of a $642.1. billion GDP purchasing power parity (CIA, 2006) and a 2.6 percent 2005 growth rate estimate. Australia’s GDP per capita is $32,000 as of 2005 (CIA, 2006). In order to necessitate different approaches to the establishment of an Australian multinational corporation’s (MNC) subsidiaries and their on-going operations in countries like France, China, Canada, Turkey, Vietnam, Indonesia and South Africa, various legal, political, economic and cultural issues must be addressed. Following are a country-per-country exploration on tackling business in consideration of the country’s environments, needs and other issues: Zitta Jewelries Corporation Zitta Jewelries Corporation established in 1978 is one of the clienteles of Climax Mining Limited of Australia with vast connection and outlets all over the world, or among country capitals and major cities. Zitta either supplies raw materials such as gold, silver, copper, precious and semi-precious stones to jewelry manufacturers all over the world but they also distribute finished jewelry products, with their own exclusive jewelry shops in France, Canada, China, Turkey, South Africa, Vietnam and Indonesia. It employs about 350 persons all in all. Likewise, Zitta also outsource products from various countries especially where subsidiaries exist and leverage this products in all other outlets. Zitta both supplies raw materials to a subsidiary, or either source out raw materials from the subsidiary country when allowed. This way, each country location always have in-house jewelry designers as well as purchasers to both source out raw materials, incorporate product design with local materials. Following are the country per country view and company strategies. France Various considerations of an MNC in doing business in France include a stable government, the superiority of the French economy, high rate of unemployment, work hour at 35 per week, and labor restrictions, and the good prospects of an educated workforce, a high profile economy and prime tourist destination. Considered as one of the most modern countries and a leader among European nations, France, a republic government, has an impressive economic profile of a democratic, unitary semi-presidential republic. France also boasts of an extensive private enterprise of about 2.5 million registered companies with a declining government intervention. This translates to government influence on infrastructure such as majority ownership of railway, electricity, aircraft and telecommunication sectors, declining as it sells off holdings in France Telecom, Air France, Renault, Thales, insurance, banking and defense industries (wikipedia, 2006). The civil law system of France is based on codes and statutes as interpreted by the courts but arbitration by the French courts or by international bodies like the International Chamber of Commerce of Paris is allowed. French is the basic language while business in general accepts English. France is known as the world’s culinary and fashion center as well as a country of luxury goods. Metropolitan centers abound with great works of arts, theaters, ballets and operas while the topography is good for exercise, as well as land and water recreational activities. France ranks as the fifth largest economy in the world in 2004 behind the United States, Japan, Germany and the United Kingdom and is a founding member of the European Union. It is also the fifth largest exporter of manufactured goods and received the second highest foreign direct investment next to Luxembourg with $47 billion while French companies invested $57.3 billion outside France. It also leads in terms of productivity measured as GDP per hour at $47.7 and a leading tourist destination with 75 million foreign visitors in 2003. Issues such as low working hours, reluctance to reform the labour market is considered the weak spots of the French economy with notable current demonstrations of the younger workforce due to a recent legislation that allows firing of younger workers in the workplace. The CIA World Factbook (2006) states that “Frances leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that reduce income disparity and the impact of free markets on public health and welfare.” The French government also lowered income taxes, introduced measures to boost employment, has reformed the pension system, although problems of the high labor cost, labor market inflexibility due to the 35-hour workweek and restrictions in lay-off persist (CIA, 2006). The issue on low percentage of working population at 41.5 percent in 2003 has been addressed but was the result of almost 30 years of massive unemployment; about 10 percent of the of the active population is without a job, students prefer late entry to the labor market and early retirement incentives (wkipedia, 2006). The government, nevertheless states that “France lacks oils but not ideas.” Extensive developments were focused on nuclear power plants (Price Waterhouse, 1993) causing low air pollution, and a modernized manufacturing industry with solid cooperation with other European countries most especially Germany. Considering the vast market of Paris tourists, Zitta put up their own exclusive shop in Paris that caters to the cosmopolitan as well as sophisticated city tourists and dwellers. Picking only the best, unique and masterful pieces from all other branches especially China, Indonesia and Vietnam, the Paris shop has its own top rate jewelry designer that cater to the whim of its vast clientele. China With the opening of the market of this socialist country by former leader Deng Xiaoping in 1978, China has adopted piecemeal reforms assigning and creating various government agencies to address all, if not part per part of all the economic growth impediments that need to serve 1,313,973,713 population (2006 estimate, CIA, 2006). The phasing out of collective agriculture was followed by gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, development of the stock market and diversification of the banking system, and the opening of foreign trade and investment. China today with a 2005 estimate of GDP PPP of $8.182 trillion (CIA, 2006) is next only to the United States of America in market size although 150 million of its population still fall under the international poverty line. Legal and political considerations in doing business with China deals first and foremost to what one in-coming business-- in particular foreign investment—can bring for the benefit of the populace. This, the socialist government emphasizes as it strongly supports the belief that there must be obvious positive for the populace more than anything else. The entry of China in the World Trade Organization facilitated a “uniform, impartial and reasonable” manner of establishing the rule of law in China (Orts, 2001) coinciding with the economic reforms currently being implemented. This serves as a plus factor for all MNCs trying to penetrate China, although the traditional connection to authorities cannot be overlooked. Western businessmen may be overwhelmed at times for the seemingly overlapping, endless reviews of legal requirements but the gradual changes towards a transparent business sector is initiated by the government and seeing progress (Duffy, 1996) as more investors come in and Chinese investors leap in the international market. With a prevalent Oriental culture, dealing business with the Chinese have to consider aspects like individualism, collectivism as well as Confucianism (Boisot and Child, 1996). Confucianism was under attack during the Communist Consolidation Era of 1949 to 1965 as characterized by purging against the educated which later on was relaxed during the Social Reform Era that started with Deng Xiaoping. Confucianism once again flourished during this period as Western commerce commenced (Lin, 1995). The three factors now are scrutinized as Individualism being a self-orientation on self-sufficiency and discipline, with value allowed to individual accomplishments. Collectivism on the other hand is the setting aside of personal goals for the group with emphasis on sharing and harmony (Morris, et al, 1994), an Eastern value of upholding family or clan, friends and work associates. Confucianism on the other hand is deep-rooted and has been a traditional formation for Chinese for thousands of years. These factors, although not absolute, measure a significant consideration in doing business with the Chinese. With the growing borguise population and the fast growing economy, the newly established Zitta shop in China showed surprising results after only abot two years of operations. The establishement of a jewelry shop in China, particularly in Beijing, was quite risky due to the vast resource of Hong Kong suppliers and already established shops prior to the entry of the Zitta subsidiary. The oriental choice of the majority Chinese clients also was underpinned prior to the opening of the shop and hard-to-find-in China products were the initial offerings. The formula worked and Zitta serves as an alternative jewelry shop that featured rare products catering mostly to the growing elite. Canada Closely associated with the U.S., Canada occupies the northern portion of North America and is considered the world’s second largest country in land area. Canada is a parliamentary democracy and a constitutional monarchy with a bilingual and multi-cultural nation. With the North American Free Trade Agreement of NAFTA, business in Canada is guaranteed access to the entire North American market. Besides a very low business cost (KPMG, 2006) as compared with 11 other countries in North America, Europe, and Asia-Pacific, it boasts of lower labor costs inclusive of wages, salaries, and statutory benefits. Low production costs accounts for the low cost of electricity as well as land and buildings although technology and infrastructure are world-class. Canada is rich in natural resources and is parallel in economy and technology with the US. The government considers meeting public demands for improved quality health care and education services as its primary political concern although corruption is a universal struggle that Canada was not spared of. The population of Canada is estimated at 33,098,932 by July 2006 (CIA) and boasts of a $1.08 trillion GDP PPP as of 2005 (CIA, 2006) with an estimated hundred or so thousand each of the 34 ethnic groups catering to a diversified culture. It is considered an affluent and high-tech industrial society that resembles the US market-oriented economy as well as its affluent living standards. It showed impressive manufacturing growth, mining as well as the service sector transforming rural economies into primarily industrial and urban. It welcomes business with a positive business climate of vast natural resources, skilled labor force and modern capital plant, the government encourages investors worldwide. The Zitta subsidiary in Toronto catered to a wide variety of ethnic groups or races from Caucasians to Asians. But recent reports showed that most of its clienteles are Asians that prefer simple and elegant gold and silver in classic designs or settings for their mostly solo diamonds. Sales proved at its peak during the Holiday Season between November to January as revelers are deep into gift-giving. Turkey The Republic of Turkey is a Eurasian country located mainly in the Anatolian Peninsula connecting Europe and Asia. It has a democratic constitutional republic with a political system established in 1923 and a member of the United Nations, WTO and the Council of Europe. A fractured democracy is of great concern for foreign investors in Turkey as its government undertook reforms to strengthen its democracy and economy with membership to the European Union a priority at the moment. The economy is a mix of modern industry and commerce vis-a-vis traditional agricultural sector that still accounts to about 40 percent of employment. Its rich history and as an economic centre makes it a viable country for growth especially in the tourism and trade sectors. The economy, nevertheless is considered dynamic with a strong growing private sector. Political and legal impediments to investment include the major role of the government in basic industries like banking, transport and communications. The largest industrial sector is textile and clothing accounting to 1/3 of the industrial employment as it faces stiff international competition. The automotive and electronics industries also contribute to the export growth while economic reforms are being addressed that contributed in part a growth. When doing business with Turkey, consideration of major religious belief must be noted. Formal communications are preferred such as formal letters with telephone call confirmation and follow-ups. Traditions include Friday prayers and other secular Islamic holidays, and extended vacations during the summer months of June, July and August. Fasting during daytime is also of consideration for proper business etiquette. Roads and poor infrastructure must also be of consideration. All throughout the year, the Ankara shop of Zitta in Turkey proved competitive in sales of both classic western and eastern jewelry designs. University students and tourists are its main clientele and its democratic government proved an asset for Muslim women tourists who often find time to try the vast offerings of the shop. Indonesia The only Asian country associated with OPEC, Indonesia is the most populous Muslim-majority nation with a 2006 estimate of 245,452,739 (CIA, 2006) people. The government, after an economic setback that hit most Asian countries in the 1990s is currently tackling poverty alleviation, prevention of terrorism, consolidate democracy, implementing financial sector reforms, stemming corruption, among other internal conflicts on human rights violations. The 2004 tsunami also made a dent to the socio-economic growth of the area that caused about 100,000 lives and $4 billion in damage (CIA, 2006). High unemployment makes Indonesia another venue for possible foreign investment although consideration must also be taken on its banking sector, endemic corruption, inadequate infrastructure, poor investment climate and unequal resource distribution. The declining oil production made Indonesia a net oil importer and subsidizing domestic fuel further strained the government budget. Inflation and high interest rates already posts a decline in investment and growth and unless strict internal reforms are implemented, Indonesia remains a poor prospect for MNCs. Terrorism as well as pandemic avian flu are other concerns. It is advised that MNCs first appoint agents or distributors prior to application for Incorporation of the Penanaman Modal Asing or PMA with regulatory impositions. Short government office hour of 10 am to 3 pm is of another consideration in doing business in Indonesia. English is of wide use in the business sector although Bahasa Indonesia is encouraged and translators may be easily available but not reliable. Likewise, Whitfield III (2004) added, “Most businesspeople and most government officials are indigenous Indonesian, and their concept of time is very different from that of the Chinese Indonesians. Generally, Indonesians place less of an emphasis on efficiency, punctuality, and deadlines--hence the popular concept of rubber time [jam karet] that exists in Indonesia. Consequently, it is important to remain patient and accommodating in all of your dealings with Indonesians.” The Indonesian shop of Zitta has been existing for about a decade and although it showed vast potential during its early years, the recent political turmoil, as well as terrorism and natural disasters that hit it, the subsidiary proved to be much affected. The company is currently seeking to transfer to Kuala Lumpur where a better environment will be for the good of the company and its stake holders. Vietnam The Socialist Republic of Vietnam is a communist country located in Southeast Asia. Conservative leadership have contained the growth of Vietnam prior to the adoption of “doi moi” or renovation in 1986 that followed the Chinese model. Consequently, the opening towards market-oriented economy proved useful and worthy as Vietnam achieve an 8 percent annual GDP growth between 1990 to 1997. Although the authorities showed commitment to economic liberalization, enacted structural reforms must be implemented allowing a more transparent transaction which accounted to the high cost of real properties comparable to modern cities of the world like Tokyo and New York. “Corruption, bribery and embezzlement committed by many government officials have pushed property prices even higher as real estate investment is a popular form of money laundering,” (qtd., wikipedia, 2006). Vietnam is currently populated by an estimated 84,402,966 people (CIA, 2006) and is still recovering from the ravages of war, loss of financial support from the Soviet Bloc, as well as rigid centrally-planned economy. Poverty is greatly reduced during the doi moi adaptation. The CIA (2006) reported that “GDP growth averaged 6.8% per year from 1997 to 2004 even against the background of the Asian financial crisis and a global recession, and growth hit 8% in 2005. Since 2001, however, Vietnamese authorities have reaffirmed their commitment to economic liberalization and international integration. They have moved to implement the structural reforms needed to modernize the economy and to produce more competitive, export-driven industries.” Protests from religious groups such as Protestant Montagnard and Hoa Hao Buddhists over persecutions have also been noted with the Montagnards also appealing for the loss of land to Vietnamese settlers. Rapid changes in Vietnam’s trade and economic regime led to doubled export to the US in 2002 and 2003 while it is hoping to join the WTO this 2006. Quota on textile and clothing export shall be of great advantage to the growing workforce but high lebvel of inflation is of primary concern for investors. Worldbank (2006) noted that launching a business in Vietnam allows an 11-step process with a 50-day average “at a cost equal to 50.6 percent of gross national income (GNI) per capita. There is no minimum deposit requirement to obtain a business registration number.” Still considered as one of Asia’s economic tigers, doing business in Vietnam entails consideration of “problems do abound in Vietnam. Its underdeveloped economic infrastructure, a ponderous and pervasive government bureaucracy, and an embryonic legal system are but a few of them. But the countrys dynamism lies in its principle asset--its people,” (Looksmart, 1996). Vietnam has a young population, mostly educated at 90 percent, with strong work ethics and a sense of entrepreneurship. Low labor cost is also a plus factor at estimated $250 per annum in 1994 (Looksmart, 1996). The article also suggested that Vietnamese are considered “high context” giving emphasis on gestures, attitude, and non-verbal behaviour more than the spoken words. Exposure to Western culture (though inappropriate to mention) through the war have changed traditional perception and Smartlook (1996) added that, “Vietnamese can still be expected to take a longer view of time and be suspicious of the need for urgency in making decisions or culminating a business deal. Patience remains the ultimate Confucian virtue in personal life as well as in business.” Courtesy also plays a major role in dealing with the locals. Nevertheless, formality decreases the uncertainty in personal interaction carried over to the business realm so that initial meeting with authorities entail a “getting-to-know-you” stage about the background, expertise and character of a person in business. There is much emphasis to interconnection of people (family, clan, friends) prevalent as an Eastern tradition so that careful consideration must also be entailed. Harmony is also of emphasis as Vietnamese often agree with things they disagree to maintain harmonious relationship. With the competitive labor cost as well as vast source of raw materials, the Hanoi branch of Zitta has become more of a supplier for most of the other subsidiaries of Zitta. The rather low sales in the display shop was compensated for by the production and manufacture of quality ethnic as well as traditional jewelries exported to the other cities of the world. The company is planning to close the shop and expand the manufacturing as market demand grows. South Africa Considered as a prosperous nation against its other African neighbors, South Africa is located at the Southern tip of the African continent with minerals gold and diamond. The discovery of its rich minerals led to the Western immigration starting in 1860s and encroachment of natives until the 1990s when apartheid was ended. South Africa has the most European immigrants ushering in racial diversity as well as economic growth and development as spurred by the Western interest on gold and diamonds. It has a large White population as well as Colored or mixed racial background of Indian and Western and natives. Its relatively peaceful evolution with the black majority rule made it progress as leaders such as Nelson Mandela brought forth further humanistic reforms and today, South Africa is often called the Rainbow Nation (wikipedia, 2006). It was the first and only country that built nuclear weapons and voluntarily dismantle it. It is considered having a middle income economy with an emerging market due to its abundant natural resources. South Africa also boasts of well-developed financial, legal, communications, energy and transport sectors with a stock exchange that ranks among the ten largest in the world. Its modern infrastructure supports an efficient distribution of goods to major urban centers throughout the region. Low employment rate and daunting economic problems remain the biggest problem from the apartheid era and poverty as well as lack of economic empowerment among the majority of the marginalized are still an issue. Business among strangers is not usual among South Africans so that initial meeting is concentrated on getting-to-know-you process, culminating from a formal request with specified background details of the business person. Letter of recommendation from authorities that they know as well as news clippings will help establish trust and rapport. It is therefore advisable that investors first channel through proper government agencies such as embassies for initial contacts and appointments to avoid waste of time and effort. Major city Johannesburg is a major Jewish enclave so that mid-December to mid-January have businesses shut down (Executive Planet, 2005). One of the most promising Zitta shops, the Johannesburg branch is very competitive and second only to China in sales per annum although prior to the opening of branch in China, the Johannesburg shop was the biggest seller. Although Zitta also outsource gold and diamonds as raw materials in South Africa, most of the imported jewelry items from China, Indonesia and Vietnam are selling like hot cakes in the area and both operations are proving to be a big asset of the company. Conclusion In consideration of the above mentioned seven countries --- France, China, Canada, Turkey, Vietnam and South Africa as satellite or subsidiary locations of an Australian MNC, it is of note and necessity to consider all major details about the on-going political structures and issues. China and Vietnam for their governmental efforts in building the economy for the socialist majority, with a cultural note on their prevailing Confucianism or Eastern attitudes with emphasis on family or clan over individual. Nevertheless, the low cost of labor as well as the vast labor populace is of great importance for MNCs looking for lower labor costs. Turkey and Indonesia, although poles apart, may be categorized under the Muslim culture with prevailing work attitude that emphasizes daily prayer as well as various holidays and religious obligations, with individual or regional characteristic, with Indonesia as an Eastern country, and Turkey as a European. Both also may provide low labor costs but not as attractive as that of China and Vietnam. In China, Vietnam, Turkey and Indonesia, corruption as elsewhere is also a problem as government intervention and regulations as well as bureaucratic tapes must be un-winded in a denting manner for business enterprises. Canada and France are particularly attractive and conducive place for MNCs for their open-market economies, modern and progressive legal as well as social structures, high technology and modern infrastructure as well as skilled and educated labor forces. The multi-diversity of culture in Canada and France also add up to their attraction although cost of labor may be of consideration due to the more palatable costs form China, or Vietnam. South Africa on the other hand may provide a competitive advantage for MNCs with its well-developed infrastructure, legal, and political structures. Cultural diversity may also add attraction but the apartheid effect of having the majority marginalized are of negative impact as the majority of targeted labor force or market may not be as open and cooperative to new or MNC culture and work relations. All in all, there are a varying degree of adjustments for Zitta Jewelries Corporation undertaken in each country, for one is unique from the other. In most cases, there exists a sourcing out of raw and finished materials from the host country but all of the countries’ city shop branches proved competitive in sales of products except for Indonesia. MNCs are then left on their own upon business entry on a country, particularly those that are already mentioned. Social, political, legal as well as cultural issues must be tackled by the MNC as they come for each country. Political and legal matters most often than not, come hand in hand. Business registration all go through a process dependent on country policies and procedures. Zitta JC was not exempted in all the processes that MNCs undergo in each host country but the hiring of competitive locals proved worthy while management conforms with the local requirements. Nevertheless, the management did not leave everything to the local managers but worked closely with them to entail a competitive and desirable output. Connection with authorities, in most cases, always proved useful although cultivating red tape. This is an integral part of doing business with all forms of government although transparency is a case to case basis. In most parts of the business, this relationship is considered a part of the promotional and advertising process that necessitates competitive performance. Since jewelries are the corporation’s main products, Turkey, with its rich heritage and history, as well as location provide for an advantageous ZJC subsidiary location and so did the South Africa and China branches. For the mean time, natural resources and market competitiveness account for the continuity of ZJC subsidiaries in all countries mentioned except Indonesia. While people are empowered through employment, consideration of their living standard must also be of high priority in order to allow the employees of the ZJC capable of supporting their own output. This will make a better economy of supply being consumed, and a workforce with quality output. Globalization also account for all of the growth of ZJC but already, the establishment of subsidiaries in other countries already contributed to globalization itself as the company believes in accessorizing the people. As one business observer put it, business managers must always grow and adopt, or perish, and this is also being adopted by ZJC. Reference: Boisot, M., and J. Child. “From Fiefs to Clans and Network Capitalism: Explaining China’s Emerging Economic Order.” Administrative Science Quarterly. 1996. 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