Custom «Doing Business in Emerging Markets» Essay Paper Sample
Table of Contents
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- Background of the Company
- India as an Emerging Market
- India's Business Environment
- Indonesia as an Emerging Market
- Political and Legal Factors
- Economic Factors
- Hofstede's Four Original Dimensions of Culture
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In the last few years, the economic reforms in emerging markets and the increasing globalization have made many multinational corporations seek opportunities in the emerging markets. The continuous rise of emerging markets is greatly contributing to the increased foreign direct investment flow. Many American multinational companies are seeking to establish their operations in such emerging markets (Castellani & Zanfei, 2006). It is for a reason that they want to exploit the presented opportunities while at the same time, they cut on their cost as it is believed in most of the emerging markets there is cheap labor. There are challenges that the corporations face risks that might affect their overall performance.
A US based MNC is seeking to outsource its IT department, shipping and warehousing to any emerging market so as to reduce excessive costs. The paper analyzes how emerging markets where the company can outsource its operation. The paper considers India and Indonesia.
Background of the Company
Samba Technologies Corporation is a multinational corporation that deals with production of technological electronic devices and offers IT related services. The company headquarters are based in California, and has branches in many parts of the world. The company has been doing well in the market, and has survived the cutthroat competition in the technology industry. The company wants to cut its cost of operation by outsourcing some of its departments to an emerging market either in India or Indonesia.
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Being a multinational corporation, it is registered to operate in many countries, thus, producing goods and services in the regions it operates. Multinational corporations develop an economy a country by investing in it. The company has developed economies of many Asian and African countries. The corporation sees the emerging markets economy with low cost of labor and low tax burdens as its competitive advantage over the other firms. Globalization has enabled free movement of goods and services and many organizations to move abroad for them to achieve competitive advantages using their technological know-how and innovations (Lim, 2001). The corporation has played a great part in changing the environment by inventing technologies that reduce pollution. It has also created many jobs across the world as the investment creates infrastructure in the respective countries.
Production and labor costs are the point of interest for the multinational company seeking to outsource in an emerging market. As the costs for such inputs are varying from different countries, many firms have the interest in harnessing the opportunities and using them to amass the benefits.
India as an Emerging Market
The economy of India is among the top ten most performing economies globally being ranked the tenth largest economy based on its GDP. On the other hand, the Indian economy has been ranked third globally in terms of purchasing power parity. The country has kept its interest rates low at 7.25 with inflation being kept low. The Indian rupee performs well when compared to the US dollar. The country has over 498 million people meaning that there is a high labor force that is cost effective. In addition, this means that there is a ready market for the company to enter. The unemployment rate is high as compared to the US. The country’s economy has mainly been boosted by many sectors such as the service and agricultural sector, energy and power, banking and finance, retail, mining and tourism. India has been attracting multinational companies globally as its economy has been continuously increasing. Samba Technologies Corporation will have to consider the business environment in India prior to making a decision to enter the market.
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India's Business Environment
India's legal factors will not have a high effect on any multinational company from the United States as the factors are more or less similar. In other words, the legal and political environments are good for doing business. India has been ranked among the best democratic countries around the globe, thus, there is political stability. However, the intermingling of religion and politics creates tension in the country. The company will be obligated to obey the laws that are business related (Bhasin, 2012).
The countries having experienced economic growth in the last decade means that nay country entering the country ought, not to worry. The country's taxation structure has been well-established meaning that the business will be able to ascertain its tax liability with ease (Corbridge, Harriss & Jeffrey, 2013). The population means that the labor force is available and that the consumers of the goods and services will be there. Over 50% of the population are literate meaning they have the skills and knowledge.
In terms of technology, the US is more advanced compared to India but the investment environment is very good for the multinational corporation. Majority of the Indian population are Hindus with some practicing the Confucius culture (Bhasin, 2012). The cultural diversity of India and US are very much different.
Indonesia as an Emerging Market
Indonesia is a country in Oceania in Southeast Asia, which is made up of 33 provinces with over 338 million in population. Indonesia has been attracting many multinational corporations as it is a significant trade region. Samba Technologies ought to understand the difference in the business environment between the US and Indonesia.
Political and Legal Factors
Indonesia is a republic country that bases its law on the Roman Dutch law. Elections are held after five years meaning that the country is stable. The company has a large pool of a labor force but unlike India the government has put strict measures protecting workers from exploitation. Every company ought to be registered before they enter the country, but this will not affect Samba Technologies Corporation as it is a multinational company. The government treats all the companies the same. Thus, the corporation will be taxed the same way as the others.
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Environmental laws are very strict in the country. Corruption is an issue in the country as compared to India, and this will affect equitable distribution of business resources. Compared to the US, the rate of corruption in Indonesia is very high, thus, the company ought to be willing to face this challenge. In summary, the political and legal systems will affect the company's decision regarding the mode of entry and business activities in the country. However, the political and legal environment is favorable for Multinational Corporation to enter.
Indonesia is the largest in the whole Southern Asia, and is among the countries experiencing rapid growth of their economies globally. Economic factors affecting multinational corporations include interest, inflation and exchange rates, taxation changes among others (Castle, 2011). The country's inflation rate is below 5% with inflation rates remaining law over the last five years. Interest and inflation rates determine the price of products, thus, the corporation's prices are deemed to be high. It is for a reason that the US inflation rates are very low compared to Indonesia. The currency of Indonesia has appreciated in value over the last decade. This indicates the country provides an investment hub for American companies.
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Social and cultural factors affect multinational corporations and their decisions when entering a foreign market. They determine the kind of products and services to be introduced in a country like Indonesia and what market strategies the company will use to enter the market. The population of Indonesia is very high (338 million) with the life expectancy being 70.76 years. The majority of the population is young people, who are conversant with technology, and this is good for the company. The country's literacy rate stands at 92% meaning it has a bright future as the citizens can invest, thus, raising the economy of the country.
The cultural beliefs in Indonesia vary from region to region as the country is populated by people with many cultures. Majority of the population are Muslims at 86.1%, and the company ought to adhere to Islamic culture before venturing into the country. Their cultural practices ought to be respected by the corporation to avoid resentment from the population. Majority of the American people are Christians, unlike the Indonesian population where many are Muslim. This leads to issues relating to ethics as some products may not be acceptable to Muslim society. The company should be worried about the marketing strategies some are not accepted in Islam culture.
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Technological factors will affect the multinational company. The Indonesian infrastructure has developed and is dependable by businesses. The country has effective road and rail system of transport. The country has developed in technology and innovation, and it will be easy for the company to invest in the country.
Hofstede's Four Original Dimensions of Culture
Geert Hofstede's cultural framework is the well-known in the world, and its influence and impact is hard to overestimate. This is because of its ability to cluster countries by cultural values. The four cultural dimensions include individualism vs. collectivism, masculinity vs. femininity, power distance and uncertainty avoidance (McFarlin & Sweeney, 2012). This framework helps managers who interact with employees around the globe with guidance.
In America, they practice individualism where individualistic values hold sway and that people should individually take responsibility. This means that autonomy, personal achievement, and privacy are highly valued. On the other hand, India and Indonesia practice collectivism culture, and dominates. This means that group membership is highly valued, and people see themselves belong to a group that protects and care for them. People value clan, family, tribe as they belong to these groups. Sharing is very vital in this culture.
In India and Indonesia, they practice the masculinity culture where men dominate the society, and men value the assertive masculine side of things. In both cultures where people are motivated by achievement, they feel that men can handle powerful positions, thus, called masculine cultures. In America, they value harmonious workplaces where women are treated the same as men, and the country emphasizes gender equality. The culture of uncertainty avoidance is concerned with the degree to which members are willing to accept and deal with risky and ambiguous situations. America as opposed to India and Indonesia has strict laws and explicit behavior as it has a high level of uncertainty avoidance. Americans accept change and are risk takers just like the Indians, but the Indonesians being Muslim are somehow conservative. Individualistic culture tends to have a preference for lower distance powers while collectivist cultures prefer high power distances to control them (McFarlin & Sweeney, 2012).
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Having considered the two business environments in the emerging markets, it is recommended that the multinational corporation invest in India. It is for a reason that India is more capitalistic just like the US, and its culture won't negatively affect the business. The inflation and interest rates that are economic factors are favorable in India as opposed to Indonesia. In addition, India is among the best democracies, thus, their country is more stable than Indonesia. The large population that is illiterate means that the cost of labor will be cheap as compared to Indonesia.