Wednesday, 27 September 2006

International business

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?


'Cadence to invest $50m', Business Standard, February 25,2003. Retrieved: March 7, 2003, from .015.asp

Junnarker,S. 2003, 'Marriott to double Wi-Fi coverage', CNET Networks, February 27, 2003. Retrieved: March 7, 2003, from,,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 /21 Jan2003 - opin33. html

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