Globalization of Enterprise

2012 Nigel. S. Paltoo A11904 10/9/2012 Globalization of Enterprise 715 GE SourceFlikr. com appointee COVER SHEET(to be completed by the student) AIB student ID number A11904 Student name NIGEL. S. PALTOO fly the coop name MBA -GENERIC d confess name Globalization of Enterprise 715-GE Subject facilitator Dr. Brian OToole Teaching Centre NATIONS UNIVERSITY-GUYANA No. of pages 17 Word count 2708 from Intro to Conclusion (2500 +10% tolerance) DECLARATION I, the above named student, confirm that by submitting, or causing the attached assignment to be submitted, to AIB, I hurl non plagiarised any other(a) persons work in this assignment and let off where appropriately acknowledged, this assignment is my own work, has been expressed in my own words, and has not previously been submitted for assessment. ASSESSMENT SHEET(to be completed by the examiner) Student name NIGEL. S. PALTOO Course name MBA -GENERIC Subject name Globalization of Enterprise 715-GE Assesso r/marker COMMENTS Principles learnt (for example, number and understanding of principles referred to, their influence on the structure of this paper, number and correct citations ofreferences, uptake of appropriate jargon) /4 Application of principles. That is, theanalysis and evaluation of the example puzzle cornerstoned on the principles, including the final recomm block offations and their justification /8 How easy the example problem was described, including the extent and depth of information (including the data) about it that was accessed /4 Structure and presentation /2 Style, grammar and language /2 Total Less penalties GRAND TOTAL /20 General comments FOR MODERATORS USE ONLY I agree with the assessors assessment I disagree with the assessors assessment and the crude mark is as follows for the following reasons /20 Moderator NATIONS UNIVERSITYGUYANAAUSTRALIAN INSTITUTE OF BUSINESS-MBA GLOBALIZATION OF ENTERPRISE-715 GEASSIGNMENT Comparing a nd contrasting 2 countries for inter terra firmaal magnification into by local anesthetic fit out company Denmor Garment Manufacturers. Assignment You are the manager of a line of descent (in your countrified or region) that is thinking of going global. Compare and contrast twain assorted overseas trades for the international expansion of your railway line, covering a consideration of 1 Political economy issues Cultural issues 3 entrance strategy 4 strategical all toldiances Start your assignment with a very brief description of the entrepreneurial business that you are writing about. This business flush toilet be your own business or one that you are familiar with, or it can be a hypothetical one establish on an amalgam of several businesses of which you are aware. Conclude the assignment with whether the business should go to one or the other of the twain countries, or none, or some(prenominal). The total number of words should be 2500 words.For penalties re garding exceeding the word limit, please refer to AIB Style Guide. For guidance on how to write an assignment, please refer to AIB Assignment Guide. Please note, the word count does not complicate your cover page, an abstract, table of contents, list of references or appendices. Thus you can place any supporting material that exceeds this word limit into appendices. However, a reader should not have to look at an appendix to know about the briny thrust of the points you are making in your assignment.So make sure all your main points are in the body of your report and refer there to the appendices that will support the points you are making in the body of your report, because the reader may not look at the appendices otherwise. Abstract In the last quarter of the 20th century to present day the world economy has become more than merged and interdependent than ever before, with businesses both large and weakened expanding beyond their traditional local markets as barriers to wo rld mickle came down and technology advanced resulting in significantly disgrace communication and tran pleasureation costs.This phenomenal change in the international environment in which business is conducted has resulted in increased levels of abroad take away investment by companies from sticked countries in lesser developed economies such as the Third universe as economic benefits were desire through the globalisation of production as well as markets. (Hill 2011, p. 5)With the benefits universe widely seen to outweigh the disadvantages smaller companies are looking at for the arrangements internationally that would best serve their interests of growth and expansion with companies from lesser developed countries now also looking to capitalize as well by creating synergies at the basic level by expanding their market horizons overseas, abrupt first and expanding as claim and relationships develop. This shift in the world economy towards greater integration and interde pendence is one way of describing Globalization (Hill 2011, p. ). Globalization can be seen as the increase of functional integration between internationally dispersed economic activities, which is quite recent, as opposed to the older phenomenon of Internationalization which refers to the geographical spread of economic activities crossways borders and oceans which started in the 17th century when the colonial powers started dividing up continents in the New World in search of raw materials and markets (Devaraja 2011).In Guyana, the more established companies have been seeking avenues to expand their markets overseas through exports and by establishing lower level strategic adhesions. Hardly any local company has sought to globalize its production to increase its positivity. For any company looking to embark on international venture the interdependent political, economic and legal systems of the target commonwealth along with its underlying cultural fabric must be examined an d analyzed in detail before any investment is make (Hill 2011, p. 45).In Guyana, a small English speaking, third world country in South America, the more established manufacturing companies have been seeking avenues to expand their markets first through exports and also by establishing lower level strategic alliances overseas. Denmor Garment Manufacturers (DGM) is one such SME within the apparel industry in Guyana that has benefited from the effects of Globalization by having contracts to manufacture unique(predicate) designs from companies owning major brand names in the USA (which are looking to lower their production costs) as well as by exporting in a flash to major retailers overseas.Table of Contents Page. 1. 0 Introduction 9 2. 0 Denmor Garment Manufacturers 9 3. 0 Current Situation with DGM 10 3. 0 The challenge of international expansion 11 4. 0 Political and Economy Issues 12 5. 0 Cultural Issues 15 6. 0 Entry Strategies 16 7. 0 Conclusion 17 Bibliography 18 1. 0 Introd uction The aim of this research is to analyze the voltage of two countries short listed as possible candidates for the further international expansion of DGM.These two options are reviewed in the sentiment of the main issues that have to be taken into account when considering business expansion into foreign markets viz Political economy issues, Cultural issues, Entry strategy and Strategic alliances with the state of affairs in both countries existence compared and contrasted with a decision being arrived at as to whether to expand into one, both or none of the two countries. It would be impossible to look at all aspects of the Socio-Economic, Cultural and Political landscape of the countries being considered therefore only the reas most say-so to have an impact on DGMs venture are considered in the context of the nature of its business and the products on offer. Denmor Garment Manufacturers (DGM) Location 7, 8, 9 Coldigen Industrial Estate, due east Coast Demerara, Guyana. DGM is a private company in Guyana which commenced operations in 1997 and currently employs 1000 persons of which 97 % are women. Denmor has the capacity to respond to orders of up to 50,000 oodles of garments per month, and can produce up to 15 different styles at the same time.Approximately 75 percent of Denmors activities involve full production (where the manufacturer manages all aspects except design), demonstrating an ability to carry out value-added manufacturing activities and supply- compass precaution. 100 percent of its products are exported, with its customers including some of the worlds leading brands and department stores, including Russell Athletic, Victorias Secret, capital of France Accessories, Van Heusen, JC Penny and Wal-Mart. (Goinvest n. d) 2. 0 Current Situation with DGMAs it is DGM is presently a small part of a buyer driven value chain environment where the large retailers, marketers and brand name manufacturers have established a diverse decentralized netw ork of production in third world and underdeveloped countries and are leveraging at the design and retail stages (Devaraja 2011). Having had a fair degree of success from its operations and acquired considerable know-how from its alliances DGM is looking to expand its market base and production capacity but is constrained locally by the limited supply of labour for any stark naked factory and weak local demand for brink wear and sport uniforms.The key processes of DGMs operation are very labour intensive involving the cutting of fabric and making of components by sewing appliance and assembling into final product, this requires a getup-skilled to skilled level of labour. The challenge facing DGM is to remain a competitive player and to be able to increase profitability either by getting a bigger bite of the value chain from the companies overseas (expanding more into full production),developing its own brands or by securing new large brand name manufacturer customers and order s.It is therefore important that DGM look to increase its factory capacity while at the same time safekeeping costs down thereby increasing attractiveness to buyers. Faced with a limited labour supply and a high cost of energy and sometimes erratic power supply for sewing machines and air-conditioned factories it has become critical that DGM seriously consider the alternative of moving overseas. After much consideration DGMs management has concluded that the area with greatest growth potential would be to expand using its own designs and brands.DGM has acquired significant expertise in the production of high end female underwear and in athletic uniforms from producing Victorias Secret products and Russell Athletic brand uniforms for the US NBA and is confident that it can tap into the supply chain for fabrics and using its own design team produce a new line of female underwear, beachwear and generic soccer uniforms that would have a higher quality and a remote cheaper price, howeve r in Guyana it is constrained by weak local demand and labour supply. . 0 The challenge of international expansion Like any other firm contemplating international trade is faced with three strategic decisions about which countries to enter, when to enter and at what scale the entry would be. Consideration would have to be presumptuousness to potential opportunities as well as areas of risk which must be closemouthedly analysed (Hill 2011).The countries selected for consideration would first be compared and contrasted with their distinct political, economic and cultural realities being looked at then options relating to possible entry strategy (ies) will considered along with strategic alliances that may be advantageous or required The two countries being considered for expansion into are brazil and Trinidad. Before these two countries would have been brought up for further consideration they would have been on a longer list of potential candidates he rest of which would have been eliminated with brazil-nut tree and Trinidad meeting the basic criteria of having a significantly larger population than Guyana, they are both developing countries (better off economically than Guyana), with a free market system in place, manageable national debt and single digit lump rates and both countries are geographically close by. A decision has been made that once the two options are found to be acceptable then entry into that market will be made within six months. Map of South America and Southern Caribbean Islands showing brazil nut, Guyana and Trinidad & Tobago. Source www. worldatlas. comPolitical economy issues brazil nut and Trinidad are both democracies, having had free and fair elections for the former(prenominal) two decades. Both countries currently have female presidents. Brazil is a Federal majority rule consisting of twenty-six states the smallest of which is out-of-the-way(prenominal) larger than Trinidad which is a twin island republic with a sister isla nd Tobago. Both countries can be considered politically stable with the most recent incidence of serious turmoil being twenty two years ago when Trinidad had a failed coup with members of the Jamaat al Muslimeem trying to seize power. Individualism is respected in both countries but more so in Trinidad.Indicator Brazil Trinidad Size 3,287,357 square miles 1,980 square miles Population 197 million (2011 est. ) 1. 3 million (2011 est. ) Government Federative Republic Democratic Republic Legal System Brazil is a former colony of Portugal. The Brazilian legal system is based on Civil Law. Former British colony. The legal and judicial system is based on English common law and practice. ECONOMIC Brazil Trinidad GDP GDP USD $2. 45 trillion Brazil is the sixth largest economy in the world. USD $ 24. 63 billion GDP per Capita USD $4,803 USD $16,699GNI per Capita USD $11,500 USD $24,940 Exchange rate BRL 1. 00= GYD $100. 00 TT $1. 00 = GYD $30. 00 Inflation 5. 24 % 5. 4% Reserves US$ 349. 708 billion US$ 9. 692 billion Debt as a % of GDP 65. 1% 37. 3% Unemployment 6% 5. 5% Source Communicaid and Central Intelligence Agency World Fact book and www. tradingeconomics. com The data presented indicates that both Brazil and Trinidad are about as politically stable as Guyana with both countries being economically better off. However in Brazil there is a greater divide between rich and poor and a higher level of crime relative to Guyana and Trinidad.Both Brazil and Trinidad are currently experiencing low levels of inflation and unemployment Brazil unthe likes of Trinidad has a tax on financial transactions Brazil is far more bureaucratic when it comes to starting a business winning up to six months to get all the paperwork done whereas in Trinidad it is considerably easier and should only take one to two months. In Brazil getting certain(a) legal permissions for establishing a business expedited may require the payment of bribes. There are no limits to repatriation o f registered capital and no taxes on profits repatriated from both countries.DGM would have to consider the higher level of bureaucracy in Brazil when it comes to getting things started (which creates opportunities for bribes to be extorted) as compared to Trinidad. A business class visa is required for commit and doing business in Brazil with a minimum level of investment being USD $50,000 being required. A Guyanese can transact and conduct business in Trinidad without a visa however a work permit would be required. In Brazil it may be necessary to hire a middleman (despachante) to navigate the maze of bureaucracy. (CIA World fact book 2012, Communicaid 2012).On the key issue of protection of property rights both Brazil and Trinidad have legal pabulum for the protection of real assets and intellectual property rights, both countries having signed international agreements, however, the judiciary in Brazil is inefficient and subject to political as well as economic influence with p iracy of copyright material being fairly widespread. Brazil presents a higher degree of risk due to lower levels of property rights protection. Trinidad unlike Brazil is a member of CARICOM just like Guyana which allows free trade among members. There is a free trade zone in Manaus in Brazil.Taxation in Brazil is extremely complex and not as uniform as in Trinidad. Cost of labour in both Trinidad and Brazil is higher than in Guyana but is more available. Cost of energy is cheaper in both countries relative to Guyana. (CIA World fact book 2012, Communicaid 2012). Politically and economically there are fewer challenges for DGM to expand to Trinidad as compared to Brazil, however with inflation levels and unemployment levels being almost equal and exchange rates being stable there is still a degree of attractiveness to expand to Brazil if ways around the red tape can be achieved.CULTURAL ISSUES Cultural differences can present a variety of problems when looking to conduct business in f oreign markets from language barriers, employee behaviour and work ethic to strategic planning, it is therefore essential that entrepreneurs familiarise themselves with more than just the laws governing a society and obtain an understanding of the underlying values,norms and mores so as to be able to discern what is different and what is the same, what is acceptable and what peradventure considered taboo or disrespectful. (Hill 2011)Trinidad is an English speaking Caribbean country with a diverse multi ethnic society that has fused relatively well into a distinct Trini burnish with a mix of East Indian, African, European and American influences, religion is mainly Christian, Hinduism and Islam. Carnival is celebrated annually with Soca and Calypso music, elaborate costumes and floats, parades and beach parties over a one week period. Trinidad like Brazil is very nationalistic and proud of their country and its national symbols and flag colours. Trinidad is also a soccer crazy nati on but not to the extreme as Brazil.There is a strong American influence in the way business is conducted in Trinidad which is very much homogeneous with the way meetings and other business dealings are conducted in Guyana however it is somewhat different in Brazil. Brazil is Portuguese speaking with a far larger population who are predominantly Roman Catholic, however just like Trinidad there is an annual Carnival and a strong soccer and beach culture since Brazil has some of the most attractive beaches on South Americas Eastern Atlantic coastline and year round sunny weather.There are more cultural issues to be considered by DGM in looking to expand to Brazil than Trinidad (CIA World fact book 2012, US Commercial Service-US Department of profession 2012). Brazilians do not like to discuss business during lunch whereas that would be ok in Trinidad, coffee drinking is a ritual in Brazil whereas having a semi formal meeting over beers or whiskey is normal in Trinidad. There are a f ew extend signals acceptable in Guyana and Trinidad like the OK that would be considered insulting in Brazil (Communicaid Group Ltd 2012).It would therefore be a bit more challenging from a cultural perspective for DGM to do business in Brazil as compared to Trinidad. Both countries have a well developed tourism industry with visitors from the US and Europe looking for differentiated products with unique designs, fabrics and colour. Although both countries presently have female presidents, males dominate business as such initial business meetings should be male led, but with DGM trading in the female apparel industry including a female during negotiations would be wise.Entry Strategy Having made a decision to expand to another country the management would need to consider all the risks and decide on the timing, mode and scale of entry to be adopted (Hill, 2011). In entering a foreign market there are six modes of entry that a firm can consider each with advantages and disadvantages ranging from Exporting, Turnkey contracts,Licensing,Joint Ventures to Wholly Owned Subsidiary. (Hill 2011,p. 32) Brazil presents a more challenging environment both politically, economically and culturally but DGM should not rule out expansion into the Brazilian marketplace since the sheer size of it of its population and proximity to Guyana offers immense potential, however, at this time DGM should look at exporting finished products by finding a wholesale distributor with a wide network of resellers to export beachwear to and also seek to market team uniforms directly to soccer teams especially in the lower divisions and have a local representative do meetings and collect sizes and measurements etc. ith delivery being done through this intermediary but with payments being remitted by bank transfers directly to DGM. By going the export route to Brazil import tariffs would be an additional cost as opposed to having a factory in the Manaus free trade zone, as such DGM should gauge the acceptance of its offerings and then look to develop strategic alliances at the manufacturing level later on if market conditions indicate the potential for higher profitability. DGM should be prudent in its business arrangements and look to desexualize transactions using letters of credit until levels of trust are established.In Trinidad DGM should look to develop a articulation venture with a suitable partner who has excess warehousing space suitable for establishing a garment factory thereby reduction the level of capital investment required, register its brands in Trinidad, establish a small scale factory and produce both beachwear and soccer and other sport uniforms in Trinidad and market both to the local Trinidad market and export to the distributors in Brazil and further afield. Strategic alliances would also be needed to market products across Trinidad as such a partner with appropriate channels already in place would be useful at the entry phase.A strategic alliance with a business in an unrelated industry that has excess building space would be preferred to one that is in the same industry with relieve labour and machine capacity due to the risk of having that partner appropriating designs and customers. Timing of these two ventures is important, however with the slow pace at which negotiations and business dealings run in Brazil it may be prudent to start interim talks with potential distributors at the same time as getting the joint venture arrangement and factory setup in Trinidad.Products would be differentiated in both markets according to designs and colors, more revealing beachwear is acceptable in Brazil and labeling would have to be in Portuguese as such a multi-domestic approach would be necessary with products being made specifically for each of the two markets with a slight overlap. This strategy should not be too costly given that the slight differences between products do not require different skills and machines and the desig ns for the Brazilian market would require less material but have the same selling price.Conclusion The beach and athletic wear segment of the apparel market is already established in both countries, as such there is no first mover advantage to be gained, however DGM is confident that it can secure a niche by supplying an overall better quality product (stitchwork,design,fabric) at a far lower price. Brazil which has the largest potential market has relatively more political economy and cultural barriers which increase the levels of risk and possibility for failure so DGM should be cautious when expanding into this market.Trinidad on the other hand has much more political economy and cultural similarities with Guyana and this would allow for easier entry, allowing DGM to be more aggressive, which could end up solving the production capacity problems for DGM to meet the pass judgment new demand when the export channels into Brazil open up which would in turn satisfy the present need for a wider market base. If both of these expansions come to fruition DGM can expect growth in demand and profitability over the long term with economic benefits accruing to each of the three countries. BibliographyCIA World fact book, Trinidad 2012, viewed 1 October 2012, https//www. cia. gov/library/publications/the-world-factbook/geos/td. html CIA World fact book, Brazil 2012, viewed 1 October 2012, Communicaid Group Ltd. 2012, Doing Business in Brazil- Brazilian Social and Business nuance UK, London, viewed 30 September 2012 http//www. communicaid. com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20Brazil. pdf. Devaraja, Dr. T. S 2011, Indian Textile and Garment Industry-An Overview, University of Mysore, viewed 30 September 2012 http//sibresearch. rg/uploads/2/7/9/9/2799227/working_paper_-_dr_devaraja. pdf Goinvest 2012, Denmor Garment Manufacturers Competing in the Global Garment Industry, viewed 29 September 2012 http//www. goinvest. gov. gy/manuf acturing. html Hill, CWL 2010, Global Business Today, 7th edn, McGraw Hill, Boston US Commercial Service-US Department of Commerce 2012, Doing Business In Trinidad and Tobago A Country Commercial Guide for U. S. Companies, viewed 1 October 2012, http//trinidad. usembassy. gov/uploads/images/bLR3mH7MwdrEvCke0jB6Tw/CCG2006. pdf End of Assignment.