Entry Into Foreign Market
Doing business on your own soil is challenging in itself, let alone in a foreign market. Initially a firm is at a disadvantage due to the liability of foreignness (Peng, 2011). The differences in regulations, languages, cultures, norms, and currency can make simple business transactions very daunting. A firm must do intensive research when embarking on conducting business in the foreign market. They must conduct value chain analysis, external environment analysis and answer the question, “Do we have the capabilities to successfully manage business in a foreign country?” The best practice for a company contemplating expansion into a foreign market is to learn about the culture, norms, religious beliefs, currency exchange and their way of life.
Most cases having a local citizen to mediate or teach the company about the culture provide an easier transition and aids in gaining the trust of the local people. Establishing trust or a working relationship with the local people is the first step in becoming successful in a foreign market.
Cameron International Corporation
Cameron International Corporation began as Cooper Cameron Corporation in Delaware in 1994. In 2006 the company officially changed its name to Cameron International Corporation (MarketLine, 2012). Cameron International is a supplier of flow control equipment for oil, gas and process industries around the world. The company operates in 300 locations in 50 different countries. Cameron International has done well in the international market. They certainly have the means and capabilities to be successful in any FDI provided the risks are not too great.
There are several risk factors that must be determined before a firm can successfully perform business in the foreign market. Myanmar is rich in resources and a business could prosper if they manage their business effectively. The institutional factors which include the formal (laws, regulations and rules) and informal (norms, cultures and ethics) institutions should be researched thoroughly in Myanmar, to establish a framework for strategic planning.
There are five key business risks associated with doing business in Myanmar: lack of democracy and continued human rights abuses, lack of regulatory and legal protections, child labor, forced labor and environmental risks (Maplecroft, 2012). Based upon these risks a firm would suffer the biggest risk of all, tarnishing their reputation. A company that does business with a country that violates the civil liberties of their people could be detrimental to their future opportunities. The risk involved with doing business in Myanmar seems to outweigh the benefits at this current time.
VRIO framework analysis focuses on the resource and capabilities of a firm to determine if the prospective business will give them the competitive advantage. VRIO is broken down into four sections: value, rarity, imitability, and organization.
Only value-adding resources or capabilities can lead to a firm gaining the competitive advantage (Peng, 2013). Myanmar is rich in oil and gas and they are strategically located between China and India. An entry into this market would allow Cameron International to exploit an opportunity to create value.
Just having a valuable resource or capability may not be enough to gain the advantage. A rare resource or capability that is not common in the industry could be the vital component to gain that competitive advantage over the competitors. In the case of Myanmar the location makes it a rare resource.
A company’s rare or valuable resources can create a competitive advantage only if it is not easily duplicated by their competitors. A company has tangible or intangible resources of which the tangible resources can be relatively easy to duplicate.
A company may have the resources and capabilities to add value in the market. They may also have a capability or resource that is rare and not easy imitated by their competitors. If they do not have their business properly organized to utilize those functions effectively and efficiently, they may soon fail. Organization is the one area, in a business, that ties it all together and makes or breaks a company. Cameron International is a well organized company with a strong customer backlog guaranteeing future business (MarketLine, 2012). Cameron also has a much diversified customer base which insulates them from any risks of downturn in a specific industry.
Myanmar is a country in transition. They have been isolated and under military rule for a long time. There is still corruption and human rights issues throughout the country. Cameron International Corporation should gain as much information as possible about the country before attempting to do business. Myanmar is in a very delicate state going from a once shutoff civilization to an almost free-for-all position with foreign investors. International human rights standards will be one of the most pressing issues to avoid exploitation of the local population. The cross-cultural exchanges, developments and rise of democratic institutions should lift the Burmese people out of poverty, but care should be taken to ensure the cultural norms stay intact.
Myanmar has very strict guidelines for businesses to conduct FDI in their country. A company should know the laws and regulations of the country they want to conduct business in. Considering the transitional stage Myanmar is currently in, it may be a profitable business venture to join forces with another partner. Myanmar requires at least 35% of the joint venture capital and minimum investment of $500,000 (Invest Myanmar, 2012). This risk could be a deterrent for a company to embark on a business plan in Myanmar but the potential gain in profits may make the risk worthwhile.
Cameron International Corporation recently established a successful joint venture with Schlumberger Limited. Through their collaboration they formed a company known as OneSubsea to manufacture and develop products, systems, and services for the subsea oil and gas market (MarketLine, 2012). 5. Under the new Myanmar’s Foreign Investment Laws, Notification 11/2013 states that the exploration and production of oil (up to 1,000 feet) must be accomplished by Myanmar citizens (KPMG, 2013). In order for the joint venture to be successful, it must incorporate the local work force. Training the local workers will not only benefit the companies, it will provide an economic boost to the local economy.
Myanmar has been isolated from the world economy for a very long time. Much of their economy is based on resources and they lack technology. Despite the population and abundant natural resources, Myanmar is very underdeveloped. A firm that is considering business in Myanmar should account for increased costs in daily operating expenses.
Myanmar has released new regulations under their foreign investment laws on January 31, 2013 (KPMG, 2013).Companies must conform to the laws and regulations Myanmar has established for foreign investment (Invest Myanmar, 2012). In order for Cameron International to successful navigates through the regulations and legal part of business in Myanmar they should ensure their anti-corruption protocols are up to date. They should also work with the U.S. Embassy in Myanmar as well as the State Department in Washington, D.C. for any assistance required during appropriate circumstances.
Transportation and electricity are very expensive in Myanmar. Due to the isolation advanced technology is very limited which makes the availability scarce and expensive. These areas are vital for a business to run efficiently. The country is very leery of businesses that take from the economy. A strategy would be to develop processes that not only create a profit for the company, but also gives back to the local community. Providing jobs and valuable resources would improve the economy and community.
Only 7% of Myanmar’s work force is in the industry business (CIA World Fact book, 2013). Even though processes are being improved for the workers, the environment is uncertain and typically unregulated. Forced and child labor exists in this emerging economy. Human rights violations have affected many U.S. based industries that have expanded their business into the global environment. Cameron International Corporation should ensure strict compliance to business ethics and social responsibility. Their business should adhere to fair labor practices for the workers as if they were operating in the United States. Learning the cultures of the country would be a pivotal step to ensuring it not only profits them but it provides benefits for the local community.
The recent business sanctions being removed from Myanmar have created a surge in companies flocking to Myanmar to capitalize on the new prospects of making huge profits. Myanmar is an emerging economy lacking in advanced technology in need of business to grow. Their current economic condition, due to years of military rule, has limited their business prospects to importing only. The strategic location and nature of the industry create a potentially profitable environment for Cameron International Corporation.
In the business industry more risk could transpire to more profit, but it could also be the down fall of a company. A business venture in Myanmar requires a company to exercise due diligence and caution. In order for a firm to be successful in Foreign Direct Investment, knowledge is power. The firm must know their capabilities and the environment they plan on operating in. The first mover in business is not always successful; sometimes the second mover gains the success by learning how the first mover failed. Cameron International Corporation can be successful doing business in Myanmar, if they develop and comprehensive strategic plan effectively utilizing all available resources.