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Discuss about the International Business for Australian Aboriginal Fabrics.
The current business scenario demands aggressive business strategies from the organizations. This is due to the reason that the contemporary business situation is much more complex in nature and it is important for the business organizations to initiate more risky measures in gain competitive advantages in the market. One of these strategies is entering in the foreign countries (Johanson and Mattsson 2015). However, there are some organizations that enter the foreign countries to tap the market, while some others are entering in order to get the benefit of lower cost of resources. This process is known as off shoring (Ellram 2013). Majority of the business organizations from the western countries are entering in the Asian countries in order to gain the lower cost of operation in these countries. Thus, with the cost of operation gets lowered, these organizations are gaining more competitiveness.
M&S is the largest manufacturer and producer of Australian aboriginal fabrics. Currently they are having their manufacturing facility in Australia. However, with the increase in the competition, they are facing the need of reducing their cost of production in order to gain more profitability. It is identified that Thailand will be the ideal target country for their off shoring facility. There are number of factors, which will help M&S in having favorable business environment in the country.
This report will discuss about these factors in Thailand to be faced by M&S. These factors will be discussed from different perspectives. In addition, the challenges to be faced by them in operating in Thailand will also be discussed in this report.
Thailand is one of the leading economies in the South East Asian regions. They are currently ranked at 21st in terms of population in the world. Moreover, Thailand is currently having constitutional monarchy type of government systems. One of the major competitive advantages to be gained by M&S in operating in Thailand is conveniences of transportation with Australia. Moreover, M&S will also be able tap the market potentiality of South Asian market by having their manufacturing facility in Thailand (Elinoff 2014). With the recent development in the business policies and structures of the government in terms of the foreign investments, it is will be easier for M&S to operate in the country. Thailand is also one of the major manufacturers and exporters of textiles and garments in the world with having favorable business environment and infrastructure for this particular sector.
Political environment
The political environment of Thailand is moderate in nature due to the risk and high probability of military coup in the civilian government. However, in the current time, the government of the Thailand is initiating different business friendly rules and regulations in order to attract foreign investments in the country. In addition, Thailand is the key member of ASEAN bloc and thus they are having positive and strategic relationship with the major economies in the region (Jones 2016). Thailand is also having majorly positive relationship with the major economies around the world. This will help M&S in having effective trading policies with different countries.
According to the report by global competitive index, Thailand is currently ranked at 47 in terms of impact of rules and regulations on foreign direct investments (Www3.weforum.org 2018). Thus, it can be concluded that Thailand is having less complex structure and impact of rules is less in foreign direct investments. Thus, it will help M&S to have favorable environment for their investments in Thailand. Global competitive index also shows that Thailand is having the ranking of 36 in terms of number of procedures to start a new business. This is denoting that Thailand is having less legal complexities for the investing business organizations. M&S will find less difficulty in starting their business operation in Thailand. However, apart from these advantages, there will be some sort of challenges to be faced by M&S in operating in Thailand. One of the major challenges will be the instability of the government (Kuhonta and Sinpeng 2014). According to the report of world economic forum, the most problematic factor in doing business in Thailand is government instability (Www3.weforum.org 2018). Thailand is having history of military coup and junta governments. Thus, M&S will have the risk of government instability in their business operation in Thailand.
Another major challenge that is to be faced by M&S in operating in Thailand is inefficient government policies. According to the reports, bureaucracy in the government system is one of the major challenges for the business organizations operating in Thailand. This will cause adverse implications on the business effectiveness of M&S.
As discussed earlier, Thailand is 21st country in the world in terms of population. Thus, the source of human resources is also more and it will help the investing business organizations in having favorable and cheap source of human resources. According to the report of world economic forum, Thailand is having the ranking of 36 in relation to the cooperation between labor and employer (Www3.weforum.org 2018). Thus, this ranking is denoting that internal organizational environment maintained in Thailand is favorable. This will also ensure that M&S will have favorable business operation in Thailand. Moreover, it is also stated that Thailand is having the ranking of 40 in terms of capacity in retaining talent. Thus, it can be concluded that M&S will have the advantage to have the access to the top talents for their business along with having to face less risk in terms of losing talents.
Socio-cultural environment
Another major advantage that can be gained by M&S in entering in Thailand is the availability of suitable human resources for their business. This is due to the reason that the Thailand is a global hub of textile manufacturing and major section of the employees is already trained in this sector. Thus, it will be easier for M&S to get the access to the trained human resources. Thus, it can be concluded that manufacturing facility in Thailand will ensure that M&S will have access to the cheap and trained employees. However, on the other hand, there are some challenges also to be faced by M&S in their operation in Thailand. One of the major challenges is the inefficient capacity to innovate. According to the report of global competitive index, Thailand is having the limitation of innovating capacity. Thus, M&S may have to face the issue of limitation in innovation (Www3.weforum.org 2018). However, it will have less impact on the business operation of M&S due to the reason that they will only have the manufacturing facility in Thailand and will transfer their existing technologies from their home country.
Currently, Thailand is standing at 20th position in terms of the gross domestic product in the world. Thus, it is denoting that Thailand is having the favorable economical environment in the country (Anuchitworawong and Thampanishvong 2015). One of the major economical advantages that will be gained by M&S in operating in Thailand is the tax benefits offered by the government in investing in the country. This will further reduce the cost of production for M&S in Thailand. Another advantage for them will be the country credit rating. According to the reports, Thailand is having the ranking of 46 in terms of country credit rating and it shows that investments in Thailand will be less risky affair for M&S. They can also be ensured about the return of investments from their business operation in the country. Thailand is having the ranking of 19 in terms of exports in the world market (Www3.weforum.org 2018). Thus, it is denoting that M&S will have favorable business environment and infrastructure in exporting their goods from their manufacturing facility in Thailand.
However, on the other hand, there are number of challenges that also to be faced by M&S in terms of their economical environment. One of the major challenges will be the poor ranking of Thailand in terms of impact of trade tariffs (Diez 2014). Thus, this will have adverse impact on the business operation of M&S due to the reason that M&S will mainly trade their goods from the manufacturing facility in Thailand and thus having higher rate of tariff will increase the cost of production for them (Www3.weforum.org 2018). Access to finance will be another major challenge that will be faced by M&S in their operation in Thailand. This factor is identified as one of the major problematic factors in doing business in Thailand. Thus, M&S may face the issue of having the seamless flow of capital in their manufacturing facility in Thailand.
Economical environment
In terms of the ethical aspects, there will be number of positive and negative factors to be faced by M&S in operating in Thailand. According to the report of transparency international, Thailand is having the ranking of 96 in the global corruption index (www.transparency.org 2018). Thus, this ranking is much lower and it denotes that Thailand is having unethical business environment in the country. It can also be concluded that M&S will have the issue of corruption in operating in Thailand. According to the global competitiveness index also, corruption is reported to be one of the most problematic factors in doing business in Thailand. It is also being stated that poor work ethic in national work force is also termed as the major problematic factor in Thailand (LeBaron 2013). Thus, the challenge of corruption is one of the major challenges to be faced by M&S in Thailand.
It is also reported that Thailand is having the ranking of 71 in terms of favoritism in government decisions (Www3.weforum.org 2018). This is also one of the major ethical issues to be faced by M&S in operating in Thailand. Ranking in ethical behavior of the firms is also lower for Thailand currently standing at 86. Thus, in an average, ethical business principles are less maintained by the business organizations in Thailand.
- It recommended that M&S should initiate the joint venture strategy of entry mode in entering in Thailand. This is due to the reason that in the earlier sections, it is identified that country credit rating of Thailand is good but the political system is instable in nature. Thus, having direct investment in the country will have more risk and capital involved for M&S. Initiation of the joint venture with the partnership of a local player will help M&S to have less investments in the country along with having the opportunity of sourcing domestic resources more effectively.
- It is also being recommended that M&S should set their manufacturing facility in the special economic zones of Thailand in order to have tax benefits. This is due to the fact that government of Thailand is having different special economic zones in their backward regions where setting up the facility will attract added tax benefits and incentives. This will ensure that M&S will have further reduction in their cost of manufacturing.
- It is also recommended that M&S should only transfer the technology to Thailand rather having the research and development in Thailand. This is due to the reason that Thailand is having lower ranking in terms of innovation capacity. Thus, M&S should have their research and development in Australia and manufacturing facility in Thailand. This will ensure that M&S will be able to gain the competitive advantages from both their home and host countries.
Conclusion
Thus, it is concluded that M&S is having wide array of opportunities in setting up their manufacturing facilities in Thailand. This report analyzed the positive and negative factors to be faced by M&S in operating in Thailand from different perspectives. It is identified that the major challenge that will be faced by M&S in Thailand is the unethical business environment along with having instable political structure. On the other hand, in Thailand, M&S will gain the access to the cheap and trained human resources. This report also discussed that having the manufacturing facility in Thailand will ensure that M&S will have easier way to export their products in different countries especially in the Asian regions. Thus, the business potentiality will also get increased by this. A few recommended steps are being discussed in this report, which will help M&S in having the most from the facilities in Thailand.
Reference
Anuchitworawong, C. and Thampanishvong, K., 2015. Determinants of foreign direct investment in Thailand: Does natural disaster matter?. International Journal of Disaster Risk Reduction, 14, pp.312-321.
Díez, F.J., 2014. The asymmetric effects of tariffs on intra-firm trade and offshoring decisions. Journal of International Economics, 93(1), pp.76-91.
Elinoff, E., 2014. Sufficient citizens: moderation and the politics of sustainable development in Thailand. PoLAR: Political and Legal Anthropology Review, 37(1), pp.89-108.
Ellram, L.M., 2013. Offshoring, reshoring and the manufacturing location decision. Journal of Supply Chain Management, 49(2), pp.3-5.
Johanson, J. and Mattsson, L.G., 2015. Internationalisation in industrial systems—a network approach. In Knowledge, Networks and Power (pp. 111-132). Palgrave Macmillan, London.
Jones, L., 2016. Explaining the failure of the ASEAN economic community: the primacy of domestic political economy. The Pacific Review, 29(5), pp.647-670.
Kuhonta, E.M. and Sinpeng, A., 2014. Democratic regression in Thailand: The ambivalent role of civil society and political institutions. Contemporary Southeast Asia: A Journal of International and Strategic Affairs, 36(3), pp.333-355.
LeBaron, G., 2013. Subcontracting Is Not Illegal, but Is It Unethical: Business Ethics, Force Labor, and Economic Success. Brown J. World Aff., 20, p.237.
www.transparency.org. (2018). www.transparency.org. [online] Available at: https://www.transparency.org/news/feature/corruption_perceptions_index_2017 [Accessed 30 Apr. 2018].
Www3.weforum.org. (2018). Www3.weforum.org. [online] Available at: https://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf [Accessed 27 Apr. 2018].
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