Establishing International Business: Key Factors And Supply Chain Management Essay.

Assignment brief

1. Identify and explain the key economic factors that should be considered before investing in or expanding a construction business in a foreign country.
   
   
2. Discuss the importance of effective supply chain management on the economic performance of firms in the Australian construction industry that seek to expand their operations overseas.

It has been some time since you were first approached for advice by Coastwide. Since then, Coastwide has successfully commenced engineering construction work on infrastructure projects in Brisbane and Melbourne. Its success and growth has allowed the company to hire more employees. Strategically, Coastwide has chosen to hire more employees from the Asia-Pacific region as it is now considering expanding its engineering construction business into other countries in that region. Before considering overseas expansion further, Coastwide wants to be certain of the challenges, risks, and opportunities that exist in doing business in other countries. Coastwide asks for your advice on the following:

1. Using the economic factors you identified in Part A1 as a framework, compare two different countries in the Asia-Pacific region which Coastwide may target for international growth.

2. Identify specific opportunities for Coastwide’s engineering construction business in those countries.

3. Provide your opinion and recommendation as to which country offers the better opportunities for Coastwide’s international growth.
   
   
4. Advise Coastwide on the various business models that it can use to conduct business in the chosen foreign country and recommend the most appropriate business model for Coastwide.

5. Conduct a risk assessment for Coastwide’s expansion into the chosen country and identify strategies for Coastwide to minimise its risks.
   
   
6. Identify and explain 3 innovations that Coastwide can adopt to give it a competitive advantage in the new country.

Theoretical Application

In this paper, emphasis shall be put on the examination of the key variables while undertaking investment decisions in a construction business. The paper will also discuss what entails successful chain management among other important aspects and there after draw a logical conclusion. Coast wide should consider a number factor when choosing which country to open a new business or make an expansion within the Asian-Pacific region. The Asian-Pacific region consists of various countries. Some of these countries are Australia, Japan, Mongolia, China, Chile, Sri Lanka, South Korea, Nauru, and other countries.

Investing in a construction business

Economic factors considered before expanding or investing in a construction business with in a foreign country

One of the factors understands the different prevailing cultures existing within the country where a construction business is to be established. These cultural differences are key factors in determining whether the construction business would be successful or not (Brian 2015). Understanding the existing cultures will give a chance to the business to compete favorably with the existing local businesses through meeting the desired value of services and products within the local markets. Understanding the different cultures consists of identifying the languages, time zones as well as the type of services demanded.

The other factor to be considered understands the regulatory and legal barriers within the identified country. Understanding these legal barriers would help the construction company to identify whether there goals are achievable within these barriers (Kent 2013). Some of these regulatory and legal barriers include treaties and duties within the country, employment and labor laws, tax laws on services and products, trademark resolutions, dispute resolutions, customs laws, currency repatriation limitations, export and import laws, distributor/producer liability provisions, and many other regulations.

The other factor is the business case, this comprises of carrying out a number of studies to identify whether the expansion of construction business is worthy and favorable to the enterprise. It consists of carrying out a feasible financial study to analyze whether the movement won’t cause a financial bankruptcy, a study on market structure within the pending countries, as well as study on trademark and intellectual property protection within the countries (Brian 2015).

The other factor is putting into consideration the foreign government business considerations through analyzing some crucial aspects within the countries. Some of these aspects include; the exchange rates of currencies, material and resource access within the countries, transportation and communication networks in the countries, the occurring business protection policies within the countries, the employment and immigration laws, affordable capital access, Assistance programs to businesses by the government, and many other policies. These factors are essential for establishing foreign business and should be applied by companies seeking expansion.

Successful Supply chain management (SCM) within the construction industry

Successful Supply chain management (SCM) within the construction industry is very useful since it’s crucial in improving the performance of the company (Assignar 2017). The performance of the company should be improved because the construction industry is very vital in economic and social activities of the country (Aloini, D., Dulmin, R., Mininno, V., Ponticelli  2012).Supply chain is defined as network of firms or organizations that participate, through downstream or upstream linkages, in varying activities and processes producing value in customer services and goods.

Part B: Report

Supply chain is also identified as a system consisting of production facilities, material supplies, distribution services, and customer links (Meng 2010).  The construction industry consists of three kinds of supply chain. These are: Support chain involving provision of expertise, equipment, and materials facilitating construction, human resource construction supply chain which involves labor supply, and lastly the primary supply chain that consists of deliverance of materials incorporated to final products used in construction. The benefits of the supply chain management in construction are;

Supply chain Management within the construction industry achieves more than mere product planning and flow of information; it helps in synchronization and connecting of processes of inter-related institutions or organizations for example suppliers, customers, and producers. This makes it vital while establishing foreign marketing (Deraman, R., Salleh, H., Beksin, A.M., Alashwal, A.M., Abdullahi 2012).

Proper supply chain management provides a state of application of modern communication and transportation technologies by the organization within the construction industry and also investigates how this communication will influence relationship between the different team members as well as the stakeholders within the industry. Proper Supply Chain management is a very great opportunity within the construction industry because it helps in reducing time and cost, therefore improving profitability for the organization (Eriksson 2010). The principles for better Supply Chain Management are considered to be having a great strength that integrates and smoothens the construction processes. For that reason this makes foreign expansion for the organization possible.

Proper supply chain management is also helpful to an organization seeking expansion to foreign countries in the way that it will be used by the different stakeholders such as the clients and suppliers in accessing and identifying the weaknesses, threats, opportunities and strength within the chain of distribution thus being useful in quality and efficient production.

Coastwide should consider a number factor when choosing which country to open a new business or make an expansion within the Asian-Pacific region. The Asian-Pacific region consists of various countries. Some of these countries are Australia, Japan, Mongolia, China, Chile, Sri Lanka, South Korea, Nauru, and other countries.

This report will consider only two of these countries as Coastwide is targeting its international growth (Santander TradePortal 2018). The countries to be considered are China and Thailand. The economic key frame work used in comparison will consist of: Taxes on companies, foreign policy on foreign business, exchange rates, employment and immigration laws, and others.

Comparison between the two countries

The two considered countries are China and Thailand.

Comparing the corporate tax of the companies, Thailand has the lowest corporate Tax compared to china. The corporate tax rate for Thailand is 20% and the corporate tax in china on companies is 25% (Santander TradePortal 2018).

The graph showing corporate tax on companies in Thailand (Trading Economics 2018)

The graph showing corporate tax on companies in China (Trading Economics 2018)

China has a favorable foreign Investment that can favor establishment of foreign companies. According to 2018 World report of Investment which was published by UNCTAD (United Nations 2018), Republic of China was graded as second largest recipient of FDI next to United States and followed by Hong Kong. The foreign Investment in China grows steadily from year of 2016 and increased in 2017 from an amount of $133 billion to an amount of $136billion. These growths of foreign companies in china are favored by the deployment of trade liberalization plans, the rapid technological development, and formation of free trade (World Bank Group 2018). China government has policies for achieving a better geographical investment spread thus causing an increase in the FDI. The Chinese ministry of commerce released a statement in early 2018 stating that around 35,652 companies that are foreign funded were setup in china in the year of 2017(Santander TradePortal 2018). The many foreign companies in china originate from Hong Kong, Japan, USA, and others.

For a number of years, Thailand had faced a serious decline in the FDI flows following its poor foreign policy (Bank of Thailand 2018). According to the World Investment Report of 2018 by UNCTAD (United Nations 2018), the country has just received of recent a serious FDI making it one of the main FDI destinations within the region. It is estimated that their FDI multiplied by a figure of 3.7 between the year of 2016 and 2017, this helped the state to reach 7.6 billion dollars. The recovery of the FDI occurred because of an increase in Investment by the European Union states as well as inflows from japan and ASEAN countries (Bank of Thailand 2018). In the year of 2018, the FDI stock increased by a percentage of 15 from 2017 and thus making the country to reach 219 billion which occupies 50.7% GDP. The main Investor countries in Thailand are Singapore and Japan owning almost half of the country’s FDI. Other countries investing in the country are Germany, Netherlands, Taiwan, Mauritius, and Taiwan. The major Investments are in Manufacturing, Insurance, real estates, and banking (Global Finance 2017).  

Considering the two companies in relation to the existing foreign policy, China stands a better chance compared to Thailand. Numerous companies are starting up in china as compared to Thailand.

The exchange rate also influences foreign business, fluctuating foreign rates within a country possibly cause a bigger negative impact because it becomes very difficult for the organization to make changes in costs of productions always when there are currency fluctuations (Global Finance 2017).  . Higher exchange rates could possibly cause low revenue to the business. Lower rates on foreign exchange may not affect deeply the cost of productions of the organization (Bank of Thailand 2018). Therefore, it’s very useful for the construction firm to vividly consider exchange rates in terms of dollars when making a choice for the foreign country to invest in. According to the current existing statistic in the world, there are 6.87 Chinese Yuan in 1 United States dollar (Santander TradePortal 2018). Similarly there are 32.78 Thai Baht in 1 United States dollar. Therefore china stands at a better chance than Thailand in terms of Foreign exchange rate expressed in dollar form. This signifies that a lot of Thai Baht can buy less dollars compared to what Chinese Yuan can buy.

Besides the Foreign exchange and other factors, China also has more labour force compared to Thailand since china is one of the most populated countries in the world. Currently it is estimated to be having a population of 1,416,123,576 people making it the most populated country in the world therefore having the cheapest labour. Thailand has a population of 69,211,723 people which is far less than China's population.

Considering both countries, they all have favorable population where China possesses an estimate of 1.6 billion people and Thailand has a population of 69.3 million people. This population would be useful in providing cheap labor for the construction company. It’s also useful in provision of a strong market base thus increasing and raising revenue for the organization. These companies besides population size, they possesses good relationship with their neighboring countries for example Japan, South Korea, Chile, Australia, and others giving a company a change to freely carryout trade without stiff restrictions.

The exchange rates in both countries are very favorable to Coastwide, the current exchange rates for china is 6.87 Yuan being equivalent to 1 United States dollar and Thailand's 32.78 Thai Baht being equivalent to 1 dollar favoring the company to carry out its expansion within these countries(Santander TradePortal 2018). The construction company should utilize the chance of the favorable foreign policy climate within these countries. These countries favor establishment of foreign companies where they charge less tax on these companies.

Depending on the given statistics during the comparisons of the two countries, it was discovered that China has the most favorable foreign investment policy, highest population size favorable a larger market base, and the smallest foreign exchange rate expressed in dollar. Nevertheless, it has a higher corporate tax on business than Thailand but this does not make Thailand to stand a chance.  Therefore, according to the statistics and there analysis, it’s better for Coastwide to establish its expansions in China rather than Thailand.

A business model refers to a rationale or principle applied by a given organization in creating, delivering, and capturing value, in the cultural, social, economic or other contexts. There are numerous business models adopted by different organizations so as to raise revenue and cause extra innovativeness within the business (Baden-Fuller 2010).

Some of the business model from the many existing models that could be possibly adopted by this construction business firm are; "Bricks and clicks Business model" which involves the integration of both online (clicks) and offline (bricks) presences (Magretta 2010). In this model, a chain store gives consumers a chance to give order of products online and later pick up these orders from the local store. Another business model that could be used is "cutting out the middleman business model" which involves the deliberate removal of all intermediaries within the supply chain (Gohari 2014). Through the "Cutting out the middleman model”, all traditional channels that are used in distribution are removed and companies deal directly with the consumers directly such as through using the internet.

The other possible model is “direct sales business model” which involves the use of a retail location that is fixed to offer goods or services directly to the buyers (Mullins & Komisar 2009). Through this business model, sales are conducted by party plan, personal contacts, and definitely one-to-one demonstrations. The other business model that could be possibly applied is the "Collective business model”, this is applied by business organizations, systems that constitute of a large number of tradespersons, professionals, and businesses which are related in field so as to come together to share information, pool of resources or provision of other benefits to the members (Geissdoerfer, M.; Savaget, P.; Evans 2017).

Among the four business models; "Collective business model", "Bricks and Clicks business model", "Cutting out the middleman", and "Direct sales business model"; it advisable for CoastWind to apply the “Bricks and Clicks model” because it’s faster since orders are mostly done by the clients online where one can access internet wherever (Rappa 2010). The different local stores can be located at any state or place where picking of the orders is to be made.

While conducting expansion into a foreign country, there are possible risks that are most likely to affect Coastwide Corporation in its production. Some of these risks include stiff competition from the existing companies (Erglund&Sandström 2013).

While carrying out an effective and simple risk management process by the organization, these five risk management processes are undertaken to curb all the possible risks during the establishment of the company (Antonio and Barbra 2013).

The first step is to identify, recognize, describe, and uncover all the possible risks that would cause an impact on the process of establishment of the company. There are various techniques undertaken when discovering the different business risks.  During this step, it’s where a Business risk register is formulated or prepared.

 The second step is analyzing the identified business risks. After the identification of the business risks, it’s advisable to determine their likelihood as well as their consequence. It’s through this step where the risk nature and together with its potential effects on business objectives and goals are understood. The acquired information is included in the business Risk register.

The other step is ranking or evaluating the risks. The different identified risks by the business organization are ranked through following their risk magnitude. Risk magnitude is obtained as a combination of consequences and likelihood of the business risk. In this step, decisions are made depending to whether the risk is serious or acceptable to be given treatment. The different risk rankings are also included to the business risk register.

The next step in risk management is treating the business risks. Treating business risk at times is known as the Risk Response planning. Highly ranked risks are assessed and a plan to modify or treat them so as to achieve levels that are acceptable is setup. In this step, the different risk mitigation strategies are created as well as the contingency and preventive plans. The treatment measures for the most ranked risks or risks that are very serious are added to the business risk register.

 The final step when assessing your business risks is reviewing and monitoring the business risks. This is conducted through using the business risk register so as to keep track, monitor, and review the different existing risks. Risks are about uncertainty; therefore if a framework is placed around uncertainty then the project will be de-risked.

The company should involve in online marketing. Online marketing involves the use of internet to carry out the sale of goods and services and this could give the company chance to reach a wider market base. While carrying out online advertisement, there reduced costs of advertisement but increased sales to the general public (Massa & Tucci 2014).  

The company should invest in Architecture that is sensational to the public. This architecture should be unique and should give the company a new definition and brand different from the rest of the companies.

The company should apply wearable technology which is a key essential in promoting safety to the workers in the industry and in the field

Conclusion

Investment decisions are critically significant towards the success of any venture both in the short and long run period. Rational investors focus on effectively analyzing the environment to effectively identify the social, political and economic factors that are important towards business success. The failure to effectively identify the environmental variables may be detrimental towards the overall business success both in the short and long run period. Therefore for the case of Coast Wind Company, it should make a right decision when making choice of the country to invest in.  The failure for the company to identify virgin areas suitable for investment may affect the overall profit levels both in the short and long run period. The countries considered in this business report are China and Thailand. This is because these countries have a favorable foreign policy, good population, and other attributes which can favor foreign investment. Among these countries, China was selected because it was more favorable than Thailand. The report also represented the different business models that could possibly be applied where “brick and click business model” was chosen because of its fastness. Risk assessment procedures were explained which identified what CoastWind should do to overcome business risks.

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