I originally wrote this article, "International business" in March 2003.
Reasons for international business growth
'Marriott to double Wi-Fi coverage' by Junnarkar (2003) is a good
example of the reasons for international business growth. The
article reports upon a strategic alliance between Intel and Marriott to
provide high speed internet wireless access in the US, Canada and
Europe. It shows how market expansion, competitive forces,
technological changes and social changes create international business
growth needs for both Intel and Marriott.
Junnarker (2003) quotes a Marriott vice president as saying, 'High
speed internet access is one of the most common requests at our
worldwide reservations department.' The article notes that 'many
hotspots offer free access, but security concerns often keep business
travellers from tapping into the network.' Marriott, with Intel, will
expand into the market of providing secure high speed internet access
for business travellers. The article also describes how Intel is
working with companies such as Marriott to 'verify wireless
compatibility.' This approach is essential. The service is being tested
in a smaller market to identify product improvements, prior to further
market expansion.
Competitive forces influence Marriott's decision to enter this new
market because, according to the article, 'customers are selecting
hotels based on it's [high speed internet access] availability.'
Junnarker (2003) also reports on competition to Intel from T-mobile,
Cisco and Connexion. The Intel and Marriott strategic alliance will
combat these competitive forces. Additionally, the article reports that
'as hot spots proliferate in cafes, hotels, airport lounges and city
neighbourhoods, companies from various industries have been seeking
ways to provide Wi-Fi services to business travellers. This could mean
a drop in Marriott's revenues derived from business communications
unless the company also provides the same service.
This particular international business growth has only been made
possible because of technological changes. Commercially available
equipment that utilise wireless network services have only been on the
market in the last few years. Telecommunication advancements have
made broadband hubs more readily available in diverse locations.
Portable computers and hand held devices are now produced, or easily be
adapted, to utilise wireless network technology. Business e -mail
security systems, once reliant upon land based telephone line country
hubs, are now adapted to provide security with web based systems.
Social changes also create the need for wireless networks to be made
available to the business traveller. The businessman replaced office to
hotel communication by fax with e-mail through hotel room telephone
lines. A disadvantage of this technique is that large documents and
files can take a long time to download. Additionally, the businessman
has to conduct all communications in his personal room so that call
charges can be billed. This compromises business discussions between
travellers in hotel conference rooms and lounges. This change of
attitude is reported by Junnarker (2003), 'High-speed access is
increasingly available at work and at home, and business travellers
aren't willing to compromise a fast connection when they travel. '
The timing for this strategic alliance between Intel and Marriott is
explained by the accelerating competitive forces at the moment,
together with social and technological changes.
Foreign direct investment
'Cadence to invest $50m' (2003) is a good example of foreign direct
investment. The article reports on international investment of $50
million in the customer call centre and IT support service business.
India currently enjoys comparative advantages in the CCC and IT support
service businesses. The availability of skilled workers at low cost
entice companies like Cadence to continue their foreign direct
investment which, according to the article, is $100 million since 1987.
India has a large pool of well educated graduates and their good
command of the English language is a legacy from colonial times. Whilst
western countries also have workforces skilled in the CCC and IT
support service industries, India is able to offer workers at a
relatively much lower cost.
The article quotes the Cadence CEO as saying "We will approximately
invest $50 million in India in three years for research and development
and for scaling up capabilities to outsource customer support and
high-end call centre jobs to India." It's interesting to note
that the Cadence CEO is focusing on the 'high-end' of call centre jobs.
Although not stated in the article, it follows that the Cadence CEO
recognizes that innovative Indian CCC and IT support service companies
are in the maturity stage of their life cycle and that this focus on
high-end jobs is due to competitive, socio-economic and technological
factors and a need to differentiate.
Low entry costs into the CCC market have created a glut of Indian
service providers, some well organised but others being more
speculative and lacking a good business model. These companies provide
insufficient CCC agent training and attract the attention of labour
unions from countries whose workers are displaced by foreign direct
investment. The quality of customer relations in these companies could
be better and bad international publicity is creating a backlash. Firms
in countries with large numbers of redundant CCC agents are improving
working conditions and training to compete on the quality of service.
Ireland lost market share in the CCC industry when it's low labour cost
comparative advantage was reduced. Wages were increased to workers due
to demand and this appears to be also now happening in India.
Technological changes in natural speech recognition within the next
five years will automate such low-end call centre activities as
telephone directory enquiries. The internet is already the preferred
method for parcel tracking, train times, airline bookings and on-line
shopping.
According to the article, the Cadence CEO states, "India offers Cadence
tremendous opportunities to grow and expand it's scope of
activities..." However, political instability and infrastructure
factors may influence this growth.
Historically, Indian governments have opposed foreign direct
investment. The current ruling coalition party encourages FDI.
This policy may be reversed with a change in government.
Privatisation of the Indian telecom companies is proceeding at a slow
pace because of government bureaucracy. The telecom infrastructure
needs rapid improvement if the CCC and IT support service companies are
to maintain current growth rates.
The role of culture
‘Bickering is something of a habit' by Oon (2003) is a good example of
the role of culture. The article discusses the many unresolved
bilateral issues between Malaysia and Singapore. Oon (2003) identifies
the water issue as being the most important. The role of culture
plays a significant role in the majority of these unresolved issues. It
is well understood that Malaysia's additional income from a water price
increase wouldn't have a noticeable effect on the country's wealthand
Singapore has more than enough financial reserves to pay whatever price
Malaysia demands. The problem could be solved tomorrow wereit not for
one cultural factor common to both - saving ‘face'.
Although Oon (2003) attributes today's problems to the acrimonious
split in 1965, it is evident that the cultures of Malaysia and
Singapore have been very adaptive since 1965. Unfortunately, they
have been diverging. Singapore's culture is being influenced by
the European and U.S. continents whilst that of Malaysia is being
influenced more by the Arab nations. The Singapore government has
actively sought to maintain a status quo between all nationalities
since 1965 whereas Malaysia has internally promoted the interests of
the Malay businesses at the expense of the Chinese.
In negotiations between the two nations, Malaysia often accuses
Singapore of being too legalistic and the Malaysian PM refers to water
agreements of 1961 and 1962 as 'special prices on ancient pieces of
paper.' This difference in importance attached to written contracts is
another example of divergent cultures.
Religion or social conduct is also an important factor. Confucianism
and effective business practices by the Chinese majority in Singapore
have been significant in the State's success since 1965. The
independent success of Singapore was unforeseen by Malaysia.' To
associate itself with some of Singapore's glory, according to Oon
(2003), 'Malaysia has tended to regard Singapore as the little brother
which needs to show the big brother more respect and deference.'
Obviously, statements like this are not well received in
Singapore. They give rise to what Malaysia sees as 'arrogant'
counter statements. Singapore is well aware of it's secular minority
status in the region of mainland Malaysia, Sumatra, Kalimantan and
Java. This is why it maintains an independent armed force strength
which is disproportionately greater than that of Malaysia and sometimes
displaying a siege mentality. According to Oon (2003), religious
differences also created problems in 1986 during a meeting when Israeli
diplomats visited Singapore, 'it's relationship with Malaysia was
soured for some time after that.' The current Malaysian PM is
replaced this year by Mr Bawadi and the article states that, 'many
political observers say there will be great pressure on him to stand
tough against Singapore.' This shows how the malevolent behaviour
aspect of Malaysia's culture is transmitted intragenerationally, due to
peer pressure.
The role of culture in bilateral relations between neighbouring
counties is not unique to Malaysia and Singapore. Cultural
differences are usually the catalyst for the formation of two or more
new nations from an existing country.
National trade policy
'Businesses Say Reforms Must Start at Top' by Lavrentieva and Clark
(2003) is a good example of national trade policy. It reports upon an
interesting export demotion strategy in the energy sector. Russia is
the world's largest producer of natural gas. The country has an
oil reserve of fifty years in comparison to the world's average of ten
to twelve years and a gas reserve of seventy years. Russian companies
achieve margins six times greater for exporting gas when compared to
domestic gas sales.
Russian Deputy Prime Minister Alexei Kudrin proposes a change in the
national trade and investment policy. The article states that 'export
duties on oil and petroleum products are likely to be increased to $39
to $40 per metric ton as of March 1, which would provide an additional
$500 million in the following two months and contribute as much as
$$4.6 billion to a stabilization fund by the end of the year.' Many
countries are removing barriers to international trade and most
remaining tariffs are collected only on imported goods or services. The
aim of this particular Russian government policy revision is to
diversify the economy away from it's heavy reliance upon energy sector
exports.
The article quotes Kudrin as saying, 'The government is optimistic
about the diversification, which he said would allow for the
modernisation of the economy and give a much-needed jump start to
domestic production.' Although not stated in the article, the increase
in export duty would also tend to prolong the life that petroleum
products, as a natural resource in Russia, would give the country a
comparative advantage in the energy sector.
The article states that additional revenues gained from the energy
export tariff increase will 'contribute as much as $4.6 billion to a
stabilisation fund by the end of the year.' This will shift the
current tax burden away from the manufacturing industries, allow for
increased spending in the country's infrastructure and could enable
export promotion of manufactured goods.
Russia already has trade agreements with countries such as Kazakhstan,
Belarus and Ukraine which share their borders and with whom a common
heritage exists since soviet times. Russia's President Vladimir
Putin is keen for the remaining members of the eiS, currently outside
of the free economic space, to participate in trade agreements. Putin's
plan is for co-ordinated efforts to join the World Trade Organisation
in the future.
Whilst the change to Russia's trade and investment policy to encourage
diversity is good, two factors may prevent $4.6 billion being realised
for the stabilisation fund.
Firstly, as quoted by Kudrin in the article, 'If oil prices drop to $16
to $17 per barrel, due to the situation in Iraq, we could fall into a
trap where we don't get those taxes.'
Secondly, as stated in the article, is the 'more amorphous and
persuasive problem of corruption.' Will the government's stabilisation
fund actually receive monies due by the large oil and gas corporations
for the export tariff increase?
References
'Cadence to invest $50m', Business Standard, February 25,2003.
Retrieved: March 7, 2003, from
http://www.business-standard.com/archives/2003/feb/50250203 .015.asp
Junnarker,S. 2003, 'Marriott to double Wi-Fi coverage', CNET Networks,
February 27, 2003. Retrieved: March 7, 2003, from
http://news.zdnet.co.uklstory/O,,t269 S2131173,00.html
Lavrentieva,V. & Clark,T. 2003, 'Businesses Say Reform Must Start
at Top', The Moscow Times, February 27,2003. Retrieved: March 7,2003,
from http://www. Themoscowtimes. co m/stories/2003/02/27/002. html
Oon, Y. 2003, 'Bickering is something of a habit', Bangkok Post,
January 21, 2003. Retrieved: March 7,2003, from
http://www.bangkokpost.com/210103_News /21 Jan2003 - opin33. html
No comments:
Post a Comment