Part 1: Porter’s National Diamond Analysis
Apply the extended version of Porter’s National Diamond (PND) model to the of Myanmar’s mobile phones industry.
Part 2: Market Entry Strategy
Based on your research and analysis of the country’s institutional environment, discuss the advantages and limitations of using Foreign Direct Investment (FDI) as an entry strategy for Myanmar’s mobile phones industry. You need to provide clear recommendations.
Part 3: Contemporary Management Issues
Discuss TWO key management issues identified from your analysis (Part 1 and Part 2) that should be taken into account before starting operations in Myanmar’s mobile phones industry.
Porter’s National Diamond Model
Myanmar is the country that is at the fourth ranks in terms of using highest number of mobile phones in the world. Thus, it is the country that is experiencing a high competition in this industry and also attracting many mobile phones manufacturers to enter and set up their business here. For conducting the business in Myanmar, it is required to understand the situations and market conditions along with attractiveness of the industry in the country. For analysing such factors, Porter’s diamond mode has been used in this report to find out the degree of attractiveness of mobile phone industry in Myanmar. This report also focuses on discussion of favourable model of entry of businesses in Myanmar that is foreign direct investment. The advantages and limitations are discussed to use this method of entry in Myanmar by any of the mobile phone company. The last part of the report focuses on management issues that can be faced by the new company in order to invest in Myanmar for business.
Porter’s National Diamond Model:
Porter’s National diamond model is the economic model that was developed by Michael Porter. This is the tool that has been used to analyse the competitive environment of the industry (Appendix 1). This analysis helps the companies working in the industry to get the information about the market conditions and the relative strength of the market. This also results in explanation of the industry’s attractiveness in the particular region (Kingsbury, 2014). This model involves the analysis of 4 major factors.
- Firm Strategy and Rivalry
- Factor Conditions
- Related and Supporting Industries
- Factor Input Conditions.
Application of Porter’s National Diamond model on mobile phone industry of Myanmar:
Firm strategy and rivalry:
Myanmar is the country with enormous growth in internet penetration, adoption of mobile phones and usage of social media (Ho & Chua, 2016). This resulted in opening up of the new market in these industries. It has been analysed that the consumer market in Myanmar has faced a great developmental stage and thus experiencing a change in their demands. Enhancement in the demands of the consumer market and a digital shift leads to the development of the digital and mobile market. In the year of 2013, the penetration rate of mobile phone was 50%. 80% of the mobile users are using smartphones in Myanmar. As per the survey, it has been analysed that 42.2% of the mobile phone users are Huawei owners and the number follows with 25.6% and 6.7% for iPhone and Sony respectively. It has been analysed that the sales of brands like Oppo, Lenovo, Xiaomi, etc. are increasing in the country (Taguchi & Lar, 2015). This depicts the nature of the market of the country; the people prefer to buy the products that are not so high in prices. As far as the consumer behaviour is considered, it has been analysed that most of the preferences of mobile phones in the country are based on the gender and age of the people. As per the trends in the market, the manufacturers of the mobile devices have customized their products in consideration with the market choices and demands of the country. As per the analysis, it has been concluded that there is tough rivalry amongst the Chinese players in the market because the consumer have the preferred choice of Chinese mobile sets.
Application of Porter’s National Diamond model on Mobile Phone Industry of Myanmar
Factor conditions: it is the condition that is related to the demands of the products and also deals with the nature of the buyers towards the innovation and quality of the products. It has been analysed that the Myanmar market is very versatile in nature and people have different choices as per their gender and age. It has been analysed that most of Chinese brands like Huawei, Lenovo etc. are performing great in the country and their business are at success. Thus the competition is also very high in such brands (Fumagalli, 2017). The Myanmar mobile market is one of the toughest markets in the world. Since the Myanmar is considered as the last developing market with relatively short history as well as potentiality of the market, much expertise considers the market as a lucrative one. Recently even Telco’s such as MPT launched their own mobile devices in the market. The market is changing dramatically in these days. More brands and products will be available in the market. However, consumer behaviours showed that the market is stabilized while mobile penetration is keep growing. More customized and consumer oriented brand name products demand is keep growing in the market. And AS (after service) is one of the important factors for the mobile users in the vernacular environments of Myanmar.
Related and supporting industries: It is the section that talks about the related industries that supports the functioning of a particular industry. No industry can work alone; they need support from the other industries for raw materials and other services that needs to be used to complete the process of manufacturing and distribution. As far as the related industries of mobile phone industry are considered, the most important industry that closely works with the mobile phone industry is telecom industry (Odaka, 2015). There are many global companies of telecom industry such as Alcatel, Ericsson, Huawei, ZTE etc. that are also serving in Myanmar and supporting the mobile industry of the country. Presence of so many competitive players helps in developing the competitive environment in the industry and thus makes it attractive.
Factor Input Conditions: Myanmar is the country where the factor conditions are very much moderate and not favorable. As far as the labor cost of the country is considered, it is fairly low but the other condition like the infrastructure of the country, electricity rate etc. are not favorable at all. Thus, it has been analysed that it is difficult to enter the country and the country cannot have the enough resources to support the international business. Myanmar has seen enormous progress in internet diffusion, mobile phone acceptance and social media practice in the past few years, encouraged by rapid opening up of its market. The consumer market in Myanmar has basically evaded the development stages seen in other economies and moved straight to digital and mobile, making the company a possibly interesting test bed for internet-enabled businesses. 80% of the Myanmar’s population were the customers of the smartphones in the initial times. A boom in sales of low-cost Android smartphones from China quickly followed. The Myanmar mobile market will be stabilized and saturated in the future. And, we assume that the phone product life cycle is one of the key factors in Myanmar due to vernacular environments. Recently many advanced countries' smartphone life cycle extended. In the long term overview, Myanmar's smartphone product life cycle will follow that of other countries'. However, with the short telco liberalization history, massive growth in a short time and endemic situation (hot weather and Monsoon), the influx of mobile device replacement with consuming power of Myanmar people will happen continuously in Myanmar. This is one of positive overview for mobile market in the next couple of years. However, this endemic trend will change shortly and follow other countries trend soon.
Mode of Entry
Mode of entry:
When any of the company decides to enter the international market, it is required by the company to select the entry mode that will be used to the market of the international country. This mode of entry selection should be done very carefully as per the situations and environmental conditions of the parent country and the host country. Foreign direct investment is one of the most important modes of entry that is used by many companies to enter the new market of the international land (Sjöholm, 2016). Foreign direct investment is a very crucial model that helps in developing the economic conditions of the country. The intensity a degree of investment that the company can make is the determinant of stable economic growth of the country. As far as Myanmar is considered, it has been analysed that the government of the country is boosting the foreign direct investment in the country since 1988. The objectives of foreign direct investment in Myanmar are:
- Embracing market oriented system I the country in order to allocate the resources.
- Encouraging private investment and entrepreneurial activities of the country.
- Exposure of foreign investment to the economy of the country in order to expands its businesses.
- Updating the technology
- Development of employment opportunities for the local people.
Limitations of FDI:
It has been analysed that FDI is one of the most crucial method to enter the international market but at the same time has many limitations. This is because of the barriers to use the FDI method in the country. Some of the barriers or the limitations of using FDI as the mode of entry are:
- Administrative barriers:
As far as the administrative barriers are concerned, the barriers are related to the submission of the investment proposal in the country. Most of the less developing countries has long official procedures to pass that investment proposal thus it a very time consuming process. These process are not transparent in nature thus it becomes difficult to analyse the issue in the proposal if it gets rejected. This may also create the situation of bribes and corruption.
- Policy barriers:
This is one of the major causes that need to be considered by the foreign investors before thinking of investing in Myanmar. Some of the policies like Fiscal policy, monetary policy, tax rates etc. needs to be favourable in order to attract the foreign investors to invest in the country.
- Infrastructure barriers: This is also one of the categories that affect the FDI investment of the country. The infrastructure barriers in Myanmar results in increasing costs of the foreign investors and thus it may restrict the investors to invest in the country. Thus, the government of Myanmar has to more their infrastructure (Gelb, Calabrese & Tang, 2017). The infrastructure of Myanmar is not at all feasible to support the development of the industries and urbanization of the population. It has been analysed that the country has to make some of the investment in its infrastructure so that it can achieve at least 8% of growth per year. Most of the investment needs to be made in the sector of real estate but the scope is also there in other industries such as water treatment, power plants, roads etc.
Advantages and attractiveness of FDI in Myanmar:
The major strength of Myanmar is availability of natural gases, oil, precious stones etc. in terms of location as well, Myanmar is very much fortunate to be located at the crossroad between Bangladesh, India, China, Thailand, Laos etc. which is huge potential market for conducting business. In has been predicted that most of the world’s population who falls under the category of consumer class will be living in the countries that are five hours flight from Myanmar. Myanmar is getting push and support from many of the countries in terms of economic. Most of the foreign embassies have been opened in the country. The labour cost at the country is also very low and thus the investment at this place can help the foreign countries to gain higher profits.
Advantages and Limitations of FDI in Myanmar
Myanmar has to make efforts in attracting the FDI from the foreign countries because it is very beneficial for the country itself. Any of the FDI strategy can initiate in the country only after having the clear understanding of the competitive strength of the country. DICA is the organisation in Myanmar needs to consider some of the factors so that the country can become more attractive in terms of FDI by the foreign companies (Fischer, 2016). They need to create the culture that supports the customer focus approach and also help the foreign countries to manage the workforce easily. Business friendly environment is also very important to be developed so that more and more foreign countries can be attracted to invest in the country. Spending on infrastructure is also very important consideration. If the country get success in developing and improving its infrastructure that it would be helpful for the country in attracting the foreign investors. The poor infrastructure of the country is restricting the deals of the foreign countries and Myanmar. It has been analysed that it takes around 6 months to register any company to make FDI in Myanmar and thus it becomes cumbersome for the investors. Reducing this time also helps in making the relations better.
When any of the foreign countries try to invest in the international country, it is required them to know about the country’s cultural and other dimension so that the model of entry and other strategies of management can be developed. As per the analysis of the country in the mobile phone industry, it has been analyzed that there are many issues that a foreign country may face many terms if the country wants to enter into Myanmar mobile phone industry. As far as conducting business activities is concerned, it has been analyzed that it is required to understand the clear environment of the country. Two of the management issues that have been found for the country to enter the mobile phone industry of Myanmar are:
Cultural management and unskilled labor: As far as the culture is concerned, it has been analyzed that Myanmar is the country with very unique culture (Time, 2017). In terms of power distance, the country scored very low that means the business at this place highly appreciate equality and does not allow the management that supports power distance. The management or the hierarchy in the organization is usually flat and thus it is important to distribute the power equally amongst the employees working at Myanmar industries. Any of the country who wants to enter this country has to manage the business as per the conditions and business environment of most of the companies of Myanmar (Solarin & Shahbaz, 2015). As far as the labor class of the country is considered, it has been analyze that the labor is readily available and very cheap but is only available in manufacturing industries. As in case of mobile phone industries, the manufacturing also requires techniques and technological knowledge which is lacked by the labor of Myanmar. When any of the company from outside the Myanmar invest in this country for their business, it is required them to train the unskilled labor of Myanmar otherwise the labor also needs to be imported in Myanmar from outside. This again increases the cost and management for the foreign company. The labor productivity is comparatively low in Myanmar than the employment rate of the country and this result in relatively weak performance in per capita GDP. The data suggests that there 50% of the total population is working which is comparatively high from the neighboring countries where 45% of the people are working. While it is not possible to verify the accuracy of these employment data, this relatively high employment rate appears to be rational given that most households face economic pressure to participate in the workforce and given the high proportion of the population that is working in farming. However, labour productivity is very low. As far as the average contribution is considered, it has been analysed that a worker of Myanmar contributes $1500 for the country every year which is comparatively very low with the countries nearby. (Appendix 2)
Political instability and corruption: It is one of the major issues that restrict the business to invest in Myanmar. This is because it makes it difficult for the business to manage the business activities in the country (Ftijournal.com, 2017). As far as political environment is concerned, Child labour, employment standards, land grabbing concerns etc. is some of the issues that obstructs the management of business in Myanmar. One of the major reasons is Ministry of defence and its interference in the business activities. The military of the country is very much involved in the economy of the country and the related aspects. Other than this, corruption is also a great issue for the business in Myanmar. More than five year, the country was under the rule of military and military was so much involved in the economic and business affairs of the country. This lead to different issues for the business and management such as poverty and plagued by corruption. Many reforms have been conducted in order to sweep out the corruption from the place but it has not done nay miracle in such case. More than 3000 firms in the country has found to be caught under the circle of corruption in the country and also becomes sever obstacles for the foreign firm to enter the market and manage their businesses here. Most of the companies when have entered in this country have suggested that they have bribed the offices and organisational to register their firms in the country and this has later proved to be an obstacle for them to conduct the business activities in this country because they have to undergo the bribery process now and then.
It has been analysed from the management issues discussion that the country of Myanmar is not that much favourable to conduct the business in mobile industry in terms of mobile phone industry as per the business environment is concerned. But, if the technological growth is concerned, the country is initiating the step to develop the technological infrastructure of the country and thus it may prove beneficial to conduct the business in near future.
The report concludes that Myanmar is the country with enormous growth in internet penetration, adoption of mobile phones and usage of social media. This resulted in opening up of the new market in these industries. It has been analysed that the consumer market in Myanmar has faced a great developmental stage and thus experiencing a change in their demands. The Porter’s Diamond Model suggests that Myanmar market is very versatile in nature and people have different choices as per their gender and age. It has been analysed that most of Chinese brands like Huawei, Lenovo etc. are performing great in the country and their business are at success. As far as FDI as the model of entry is concerned, it has been analysed that it is the most effective model that can be favourable for the foreign countries to set up their business in Myanmar. There are many advantages to enter this country by FDI such low labour, technological and economic growth, scope of business revenue etc. but along with their there are certain barriers that needs to be overcome in order to invest in Myanmar such as administrative barriers that deals with appraisal of the investment proposal, policy barriers that deals with tax and monetary policy etc. due to the unique business environmental and some of the political issues, the companies which enter the country has to face some management issues such as political instability and unskilled labour that increase the cost of setting up the business for the foreign country.
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