Investment of the company
This report gives the results into the investigation pertaining to the desire to increase overseas investment of the company, specifically Europe. Expansion is the key to creating a strong and dynamic organization, and the company’s chief executive officer has noticed the need to this. This is possible by setting up subsidiary branches in favorable European countries. 1. 2 Purposes of Report The purposes of this report are to: – Describe the procedure used to gather the information. – Describe the European countries that would be most favorable for the planned expansion.
– Describe what products would be best suited for the host country’s market. – What form the planned investment should take [which entry mode the investment should take. ] – Find out about any regulations at the national or European level that will help or hinder the expansion plans into the host country. – Identify cultural and institutional differences between the host and home countries. – To find out means and ways that will give a workable mix between the cultural and institutional differences to avoid conflict.
– To establish the type of control strategies that would maximize the likelihood of the parent company achieving its major objectives. 1. 3 Scope
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1. 4 Plan of development This report has been divided into four main sections. The Introduction is followed by the Conclusions and Recommendations. These are followed by the results of the investigations. 2. PROCEDURE USED TO GATHER INFORMATION The writer gathered the information for this investigation by: a. Visiting websites of the countries of interest in order to learn more about them. b. Consulting with embassies of these countries in order to learn about regulations and rules relating to foreign investments in the countries.
This also gives insight into the economic state of the countries, the strength of weakness of their respective currencies and future expectations in the trade and commerce sectors of the economies. This also gives insight into the labor laws, employee remuneration, and other related matters. c. Reading related literature that will give insights into current market trends in the identified countries and previous experiences of foreign investors in the host countries. d. Carrying out market research in the host countries. This is done by assigning agents who establish the current consumer trends and identify existing gaps in the market.
The agents can be relatives and friends living in the host countries. e. Stock markets of the targeted countries. They were especially helpful in determining the value of investments and the trends in the market. f. Interviewing citizens of the targeted countries living in the home country in order to get first hand, nonprofessional information about the host country’s attitude towards foreigners, their customs, and traditions. 3. CONCLUSIONS The writer has drawn the following conclusions from the findings. 3. 1 The most favorable host countries
-The most favorable host countries would largely be in Eastern Europe, as these are the new emerging markets in the region. A developed nation with a ready market would also be a good candidate. The target is the middle lower class and the upper lower class, who desire good food that will not cause a dent to their already strained pockets. The country should be politically stable and should have a sufficient labor force. 3. 2 The most favorable products Products that promote health and positive eating habits are on high demand. This is due to increasing poor eating habits and continuing and alarming daily rise of obesity levels in the world.
The situation is accelerated by the fast food culture. Health conscious people are willing to buy tasty, healthy food but at budget friendly prices. – 3. 3 Preferred entry mode into the market The best entry mode would be one that incorporates the local community from the start. The firm should avoid an entry mode that would insinuate bullish tendencies. 3. 4 Cultural and institutional differences in the countries Cultural and institutional differences are present. These should not be a cause of weakness but a means in which to diversify the institution’s outlook, experiences and image.
These differences give the institution an international outlook. 3. 5 Control strategies that would help to maximize returns Control strategies to maximize returns must be in accordance with the host country’s rules and regulations concerning employees’ treatment, labor laws, and trade and commerce practices. The control measures should in no way flaunt the existing laws of the land and they should be employee friendly. 3. 6 Regulations at the European level or national level that hinder or help the expansion plans There are regulations at both the national and European level.
Some support and aide foreign investment while others, especially at the European level, tend to create barriers that often seem inhibiting to foreign investors. The investment option and practices should be conducted in a manner that works with the existing rules and regulations, instead of against them. 4. RECOMMENDATIONS As a result of the findings and the conclusions, the writer recommends the following: 4. 1 Most favorable host countries Countries in Eastern Europe that were earlier difficult to penetrate and are now opened up to foreign investment are untapped and would be good for investment.
Examples would be Romania and Bulgaria. The U. K, a developed market, would also be an option as it has an open, ready market for quality products. 4. 2 Most favorable products 4. 2. 1 A restaurant chain offering quality, healthy food at budget friendly prices would be well received by the market. 4. 2. 2 Healthy juices, yoghurts, and dried fruits would also be well received in the market. The range can also include children friendly flavors. The products would be nutritious and tasty at the same time, encouraging consumption. 4. 3 Preferred entry mode into the market
The most preferred mode into the market would be through foreign branching. The host country would require the branches to be domesticated, that is to have some local managers in middle and upper level positions. (Pearce and Robinson, 1997, p. 124) This would promote local participation in the affairs of the company. The company would get a more localized feel, which creates a sense of identification with the local people. 4. 4 Approach towards the cultural and institutional differences -One of the major cultural differences between some of the host and home countries is the language barrier.
Romanians speak Romanian while Bulgarians speak Bulgarian. Since the home country’s major language is English, communication would be a bit impaired. The company can bridge this gap by employing locals who have learned or are willing to learn English as a second language. Workers from the home company who are working in the foreign branch can undertake lessons in the language spoken in the host country. This would however not be a problem in the U. K as English is the national language. – In Romania and Bulgaria, there is still the difficulty in adjusting from a socialist economy to a market economy.
The two countries have a communist history, which differs from the home country that has a foundation built on capitalism. Reforms by the respective governments to encourage foreign investments by opening up the markets are bearing fruit. – After the collapse of the communist era, corruption in Romania and Bulgaria soared. This is mostly manifested through institutional corruption, in law enforcement and the treatment of ethnic minorities. This can be dealt with by instilling strong discipline and work ethic in the workers and effecting severe punishment for engaging in corrupt practices.
The company should avoid association with corrupt individuals. Employees and associates should be ‘clean’. – Geographical separation that makes the home country and the host country face different environments. Employees from the home country relocating to the host country need a positive attitude and the desire to achieve the organization’s goals. 4. 5 Approach towards the regulations existing at the national or European level All the host countries are members of the European Union. The European Union follows a protectionist policy, especially with agricultural products.
The European Union also operates policies such as a common currency [the Euro] which may really not reflect how the country’s true currency is performing. The member countries of the European Union trade together and have a common market. This, at large may influence how a country relates to one them. 4. 6 Control Strategies that would help maximize returns – Giving attention to details. Keep the foreign branches as close in standards as the home branches as possible. – Spend enough time training workers to the required standards and levels of efficiency.
– Take time to learn and integrate the host country’s way of life and the company’s way of doing things to promote cohesion and to avoid conflicts of interests. – Promote the use of the available local resources as opposed to importing from the home country to reduce costs and increase returns. – Employ middle level and lower level management from the local labor force to give the company a ‘domesticated’ touch. This will appeal to more local customers. 5 . RESULTS OF THE INVESTIGATION OF PLANNED EUROPEAN EXPANSION 5, 1 Description of the countries of choice 5. 1. 1. Bulgaria
-Bulgaria is a former member of the United Social Soviet Republic. It is a country in southeastern Europe. Bulgaria lies on the eastern side of the Balkan Peninsula, a historical crossroads between Europe and Asia. To the north of Bulgaria is Romania and to the east is the Black sea. Greece and Turkey lie to the south, and Serbia and Montenegro and Former Yugoslav Republic of Macedonia lie to the west. Sofia is Bulgaria’s capital and its largest city. Bulgaria is a land of mountains, rivers, and rolling plains. – The country has a population of about 7. 5 million (2005 estimate), 70% living in the urban areas and 30% in the rural areas.
The Bulgarian people are diverse in ethnicity, with the majority being Bulgarian with a percentage of 85. 7%. The official language is Bulgarian. However, Bulgarian students are increasingly learning English as a second language. The predominant religion is Bulgarian Orthodox. The Bulgarian people are affable and friendly. Strangers are welcome as long as respect for their much-valued customs is observed. -The share of the workforce employed in the service sector of the economy is 46% (2001 estimate) with the rest of the population employed in other sectors of the economy.
The unemployment rate is 17.6 %( 2002 estimate) from the total population. -The country’s gross domestic product is 19. 9 billion U. S dollars (2003). Its major trading partners include Germany, Russia, France, and Greece. Most of the income is from the services sector of the economy. -Bulgarians standards of living dropped after the collapse of the Soviet Union. People are poorer, but they still need healthy and quality products. – The infrastructure in the country is fairly well developed, with the percentage of paved as a total of all roads being 92 %( 2002). Most of the electricity supply is from the thermal sources.
-The country’s transition from a socialist to a market economy has not been easy. However, since April 2001, the party in power has enacted positive reforms that have won accolades from western countries. These include reforms regarding foreign investment. The government has really encouraged it. 5. 2. 2 Romania Romania, a country in southeastern Europe, occupies the northeastern part of the Balkan Peninsula. Romania, also a former member of the now collapsed USSR, is a land of historical villages and castles, fertile plains, and majestic mountains. Bucharest is Romania’s capital its largest city.
Romania has a population of about 22. 3 million (2005 estimate), with 54% residing in the urban areas and 46% in the rural areas. 89% of this population is Romanian by ethnicity with 70% affiliated to the Orthodox [Romanian] church. The official language of the land is Romanian. The Romanians are a proud people who revel in their strong cultural heritage. However, they remain very friendly and approachable. – The country’s gross domestic product in U. S dollars is 57 billion. Most of it being from the services sector of the economy. Unemployment rate is 8.
4 % and most of its trading partners include Italy, Germany, Russia, and France. Infrastructure is fairly well developed with the paved roads being 50%. -Like Bulgaria, after the collapse of the USSR its standards of living drastically dropped. The people would be responsive to quality products that do not dent the pocket. 5. 2. 2 The United Kingdom -This is a constitutional monarch in northwestern Europe, officially the United Kingdom of Great Britain and Northern Ireland. The capital is London, situated near the tip of England, the most populous and largest of the island of Great Britain. –
The country, in U.S dollars has a GDP of 1. 8 trillion (2003) and an unemployment level of 5. 1 %( 2002). Despite it being one of the most developed nations in the world, one of the worst features of the current class situation in Britain is the existence of a permanent underclass. These people survive on welfare and live in the run down neighborhoods of cities such as Glasgow, Liverpool, and Leeds. The growing rates of lifestyle related diseases have not spared this class. They are concerned about their health, but their measly income will not make it possible for them to indulge in slightly costly healthy foods.
There is therefore the existing gap to provide healthy but pocket friendly food and solutions to these people. 5. 2 The most favorable products -With the increase of lifestyle related diseases, for example diabetes, there is an existing market for products that promote a healthy lifestyle. Unhealthy eating habits have been linked to life-threatening diseases. This is further stimulated by the fast food culture where the food is usually high in cholesterol and saturated fat. A chain of restaurants that offer healthy, nutritious, and tasty food with interesting cuisine at a pocket friendly price would be well received.
The world is growing more and more health conscious as the reality of an unhealthy lifestyle – The respective countries have a strong agricultural base, therefore agricultural products for the restaurants and the other health products would be easy and inexpensive to acquire. 5. 3 The cultural and institutional differences between the host and the home country There are plenty of existing differences. The two Eastern European countries speak different languages from the home country [Romanian and Bulgarian]. The cuisine in all the countries is also different from the home country’s cuisine.
-The two Eastern European countries have corruption deeply rooted in their institutions. This came after the collapse of the USSR, when a few people decided to benefit at the expense of others. 5. 4 Control Strategies that would help maximize returns Colgate is a New York City based company that manufactures toothpaste; toothbrushes etc and operate in 75 countries. According to Colgate’s CEO Reuben Mark, taken from the company’s 1992 annual report, the objective of the organization is the continuous alignment of Colgate people and business processes with vision, values, and strategies to become the best.
This should be therefore one of the ways to ensure that the goals set are achieved. -The mission statement of a global corporation must reflect the firm’s intention of securing its survival through dimensions that that extend beyond growth and profitability.
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