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Tiger Pump is a medium sized manufacturing company, which is located in a south East Asia. It was established in 1992. It sells industrial pump which are used to transfer liquids from one geographical location to another or from one part of an industrial plant to another. These pumps are mainly powered by compressed air and some are hydraulically driven.
In order to maintain greater control over its foreign operation and seek out growth opportunities, tiger pump decided to set up six different manufacturing companies in a overseas market. Tiger pump does not just intend to market overseas but they also plan to set up manufacturing plant in overseas market .
Tiger pump is a small and domestic company. It is very difficult to set up six companies at different overseas place. It creates a many types of problems within the organization. Tiger pump has not much more experience of international business because it never tried to sell its products outside its domestic market. Tiger pump is only well known in Domestic National market.
Tiger pump might face problem which are as under
1)It is really large step for the company because company does not have an experience of a international market competitors and it has not much more money to invest for a huge plan.
2) It might be create financing problems without any joint venture partner because there is a need to invest lot of money to build a plant, to supply a raw material, water, electricity, to recruit intelligent staff, to buy a new machineries and production resources etc.
3) Experienced staff- To handle six plants at six different places, most six powerful people must be involved because it is very difficult to handle all plant by one person at a one time. It is also very difficult to find well experienced engineer staff in a different countries and it will cost in a foreign currency to advertise for vacancies, set up interview process, selection of right ability person. Also it will create a issue about the position of the employee at a starting time of the company.
4) PRODUCTION RESOURCES-Production is converting raw materials to finished products. It involves a number of factors to be able to produce the goods and services that fulfils our needs
Therefore, it talks about the different factors of production used to be able to come up with the finished goods which include labor, land and capital as the basic. Some times company does not get production recourses at a time. suppliers will not provide a labor material as accordance to need and company have to buy those stuff from another market at very high rate will create a money problem and also tight situation for the business handler.
5) When company goes to exchang of goods and services or both, between two or more partners from different countries create a trade barriers.When import of goods are less and price of that imported product raise, the demand of product will decrease.
6) Strategic Market Objectives
First of all it is necessary to see who are the main competitors of the company. To stay in the market company have to face national or International competitors. Strategy is also play an important role in a company's growth. Strategy of the company should might be focus on winning additional market share, overtaking key competitors on product quality or customer service or product innovation, achieving lower overall costs than rivals, boosting the company's reputation with customers, winning a stronger foothold in international markets, exercising technological leadership, gaining a sustainable competitive advantage, and capturing attractive growth opportunities.
Company may face these types of problem:
A bigger market share
Quicker design-to-market times than rivals
Higher product quality than rivals
Lower costs relative to key competitors
Broader or more attractive product line than rivals
A stronger reputation with customers than rivals
Superior customer service
Recognition as a leader in technology and/or product innovation
Wider geographic coverage than rivals
Higher levels of customer satisfaction than rivals
7) Financial problems
To reach at company's mission/vision and to achive profit, company need a more investment.
Company might face some Financial problems include such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation.Â Financial risks have probably never been more acute. It is quite risky for a tiger pump to handle Capital reserves, credit portfolios, investment policies and capital and debt profiles
8) Fraud Risks
Strategy is become a fraud when cash is tight. Some employees become more opportunistic - and external hackers more resourceful. They find security lax in areas of the business that used to be better resourced â€¦ and they strike. Some employees work very hard and more hours than other employee. It will create a little dangerous situation about salaries if all employees get a same pay.It seems over optimistic management of the company.
POTENTIAL ADVANTAGE OF HAVING LOCAL BUSINESS
Instead of one complex and dynamic market, Tiger pump
Is going to be divided in relatively small enterprise. It will be easy to manage six small companies then large international company. Small company's management make very fast, responsive and autonomies decision making and very fact paced if needs to be.
Gaining acess to a wider network
Tiger pump is going to six different place and it will crete a wider network in a market.Â When network effect is present, the value of a product or service increases as more people use it. network effect is the effect that one user of aÂ goodÂ orÂ serviceÂ has on theÂ valueÂ of that product to other people
The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positiveÂ externalityÂ because a user may purchase their phone without intending to create value for other users, but does so in any case.
In the marketplace, the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward satisfaction of consumers as well as investors. Buyers and sellers do not coerceÂ each other, in the sense that they obtain each other's property rights without the use of physical force, threat of physical force, or fraud, nor are they coerced by a third partyÂ
As per polycentric approach it gives hope for profit maximization through flexibility because local employee can react quickly to market needs which are pricing, production, product life cycle, and political activity.
It gives entity recognisation and status to the each countries.It promotes a competitive spirit, creativity, participation and motivation of all level of staff and manager in general. local people being trained to occupy managerial, financial and technical positions within the company. The host country will earn benefits from the transfer of capital, technology and management skills.
People develop the ability to respond to change, to pre-empt change and ultimately to lead change. The ability to accept, learn and adapt to new technology and make the most of the opportunities it presents.People develop Team working, Leadership, Interpersonal, Customer orientation, Cultural Awareness, Networking, Problem-solving / intellectual, Company-specific, Technical skills / knowledge, Understanding commercial goals of the company skills.
It improves financial control over the company and gives sharpen responsibility and accountability to individual company handler.
It will reduce the overload of one huge company by a six small company.It will give better financial control and business management grip to the tiger pump.
When political action will affect the position and value of the company is called "political Risk". It may be arise from a national government which interfere with or prevent business transaction or change the terms of agreement of business or divide partially business.
When Domestic company goes to invest money in abroad, that another country will restrict the freedom of that multinational new company .The government of that country want to encourage the development and growth of commerce and industry, but it might also have a overtake fear of multinational company which set up a subsidiary in their country.
Overseas transactions are simply more complex versions of Tiger pump because of domestic operations. Political factors make these transactions more complex for Tiger pump.
political risk is a particular problem in international business and finance where different countries are operate to different regulatory and ethical standards.
Types of political risk include government takeovers of property, operating restrictions, and agitation that damage the company's performance. Such problems can be caused by changing opinions of political leadership, civil disorder, and changes in external relations
If government tries to prevent the exploitation of its country by multinational, it may take various measures.
Government can limit the import market that multinational company can not export its product in another country and company have to sell those product again in the domestic market.
Also government could make import much mpre expensive by custom duties charged on goods. And it becomes more competitive domestic production.
Sometimes government put ban on trade with a certain foreign nation or on a sale or transfer of a product.They put quantitative restriction on import.to restrict import countries may impose monetary and exchange control on curriecy-regulation or law that limits the foreign curriency to purchase foreign goods.
CHANGE OF GOVERNMENT
change of Government, First, and a greater One risk arises from unfulfilled promises of a government that may get thrown out of the window, without any trace,. Second risk arises from the possibility of a conscious change of policies by a new ruling group that can be detrimental to business.
It arise when the appropriate government authority fails to transfer (or allow the transfer to) a buyer's qualifying local currency
Company face a political risk, whenever a government prevents a private sector debtor from repaying its obligations. Second, it occurs when the foreign government is itself a debtor and defaults on its own obligations due to its own volition. Third, political risk is present when a government repossesses the assets of a private entity (sometimes referred to as "confIscation," or "expropriation").
Other examples of political risks
Include imposition of new controls (such as trade restrictions, exchange limitations or monetary
Controls), and war, revolution or insurrection.
Sometimes government could insist a minimum share holding in companies by resident. Resident could not buy more share of that multinational company and it would force a multinational company to offer some of the equity in a subsidiary to investors in the country where the subsidiary operates.
Dealing with political risk
Managing risk became one of the most important functions of a multinational company
Unlike economic or financial variables, political risk is more difficult to quantify.
There are different types of strategy that multinational company can adopt to mitigate the effect of political risk.
one of the better solutions is to purchase political risk insurance. Multinational companies can go to one of the many organizations that specialize in selling political riskÂ insurance and purchase a policy that would compensate them if an adverse eventÂ occurred.Â Because premium rates depend on the country, the industry, the number of risks insured and other factors, the cost of doing business in one country may vary considerably compared to another.Â
Political insurance is usedÂ to cover damage to property, such as buildings or equipment, in countries where a conflict is ongoing, terrorist attacks are considered a majorÂ risk, or where theÂ riskÂ of violence is high due toÂ politicalÂ instability. WarÂ riskÂ insuranceÂ can also provide compensation for injuries, disabilities, or deaths suffered by personnel as well asÂ risksÂ such as kidnapping for ransom.
Negotiation with host government
The main purpose of Negotiation is to get a concession agreement. It achieves by Keeping larger Inventory, Work more closely with local suppliers, Access to host country capital markets, particularly for long term borrowing, Give a Permission for 100% foreign ownership versus required local ownership (joint venture) participation, Price controls, if any, applicable to sales in the host-country markets, Requirements for local sourcing versus import of raw materials and components, Permission to use expatriate managerial and technical personnel, and to bring them and their personal possessions into the country free of exorbitant charges or import duties, Provision for planned divestment, should such be required, indicating how the going concern will be valued and to whom it will be sold.
Tiger pump have to adopt a strategy to strike a balance between contracting out and local recourse. To increase an investment and to increase potential losses, company have to produce raw material directly instead of export those material from outside the country. If company produce their own product then there is no more chance to tariff or non tariff barrier risk on import or export of the sale.Althogh it is better to develop key part of the production process or distribution channel at every place where tiger pump industry locate. Companies should plan against such political risks by adapting security procedures and security plans that allow for emergency decision-making and special operating procedures.
To obtain profit by a management, Best way is to try to use joint ventures or ceding control methods to local investors.
Practices of Tiger pump company going overseas, a company must conduct its international business practices not only in accordance with the law but also in accordance with the highest standards of ethical conduct and fair dealing.
There is no absolute certainty that risk mitigation strategies will be effective. They must be reviewed constantly and adjusted to meet changing circumstances. It is inevitable that there will be changes in international risk scenarios and careful attention to such changes will result in maximum ability for effective response.