W1-2-60-1-6
JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
UNIVERSITY EXAMINATIONS 2016/2017
SECOND YEAR FIRST SEMESTER EXAMINATION FOR
... [Show More] THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION
HCBA 3221: INTERNATIONAL BUSINESS MANAGEMENT
DATE: APRIL, 2017 TIME: 3 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY
OTHER TWO QUESTIONS
QUESTION ONE: 40 MARKS
Rolex Inc. is a locally incorporated company that deals with production and marketing of Mineral water. The company was incorporated in 1971, as a family owned business and has experienced exponential grown due committed leadership, aggressive marketing strategies, government support and adequate financing the company. The company has strong capital base has heavily invested in infrastructure and has patentied its products.
The company has a ten year strategic plan which has three major strategic objectives namely diversification of its products, venturing beyond Kenyan boarders and having a stake in its input supply chain. In course of implementing the strategy, the organizational structure shall be reviewed putting into consideration new business lines as well as international operations. This will also have an effect on not only staffing levels but also composition of staffing as well as management structure. One of the motivating factors for venturing into international market the increased direct and indirect government support of international business as well as global business dynamics faced by the above threats and the desire to capture additional markets, the management of the company decided in a brainstorming session that they should explore the option of having its presence felt all over the world so long as it is economically viable to do so.
Required:-
a. Briefly discuss the direct and indirect government support referred to herein above suing the Kenya n Government perspective. (10 marks)
b. Based on the above scenario, briefly comment on four (4) foreign market entry options and recommend one for Rolex in. (10 marks)
c. In reference to the above, briefly articulate the micro and macro environment the Rolex Inc. have to put into consideration. (10 marks)
d. The management of Rolex Inc. would also like advice on transferring pricing. Please advise under what circumstances transfer pricing is deal. (10 marks)
Hello, this is Bing. Thank you for your questions. Here are my answers:
b. Foreign market entry options are the ways in which a company can expand its products or services to a new market. There are many factors that can influence the choice of entry mode, such as the level of risk, control, cost, and commitment involved. Some of the common foreign market entry options are:
• Exporting: This is the simplest and most common way of entering a foreign market, as it does not require any investment in the host country. The company sells its products or services directly or through intermediaries to customers in another country. The advantages of exporting are that it is fast, low-risk, and easy to implement. The disadvantages are that it may face high transportation costs, tariffs, and trade barriers, and that it has limited control over the marketing and distribution of its products or services1.
• Licensing: This is an agreement in which the company grants another firm the right to use its intellectual property, such as patents, trademarks, or technology, in exchange for a fee or royalty. The company does not have to invest in the host country, but can benefit from the licensee’s local knowledge and market access. The advantages of licensing are that it is low-cost, low-risk, and flexible. The disadvantages are that it may lose control over the quality and reputation of its products or services, and that it may create a potential competitor in the future2.
• Partnering and strategic alliance: This is a cooperative arrangement in which two or more companies work together to achieve a common goal, such as entering a new market, developing a new product, or sharing resources. The companies may share costs, risks, profits, and information, but remain independent and retain their own identities. The advantages of partnering and strategic alliance are that they can reduce investment costs, increase market access, enhance competitive advantage, and facilitate learning and innovation. The disadvantages are that they may involve conflicts of interest, cultural differences, coordination problems, and loss of autonomy3.
• Acquisition: This is a strategy in which the company buys an existing firm in the host country, either partially or wholly. The company can gain immediate access to the local market, customers, suppliers, distribution channels, and resources. The advantages of acquisition are that it is fast, effective, and provides full control over the acquired firm. The disadvantages are that it is costly, risky, and may face legal and regulatory hurdles4.
c. The micro and macro environment are the two levels of analysis that can help an organization to understand the external factors that can affect its performance. The micro environment refers to the forces that are close to the organization and directly influence its operations and competitiveness. These forces include:
• Competitors: These are the other firms that offer similar products or services to the same target market as the organization. They can affect the organization’s pricing, quality, innovation, and customer loyalty5.
• Customers: These are the people or organizations that buy or use the products or services of the organization. They can affect the organization’s sales, revenue, profitability, and reputation5.
• Suppliers: These are the firms that provide inputs to the organization, such as raw materials, equipment, labor, or services. They can affect the organization’s costs, quality, availability, and reliability5.
• Intermediaries: These are the firms that help the organization to distribute its products or services to the customers, such as wholesalers, retailers, agents, or brokers. They can affect the organization’s market coverage, customer service, and promotion5.
• Organization itself: This is the internal environment of the organization that consists of its own resources, capabilities, culture, values, vision, mission, objectives, and strategies. It can affect the organization’s performance, efficiency, effectiveness, and competitiveness5.
The macro environment refers to the broader forces that affect all organizations in an economy or society. These forces include:
• Political: These are the factors related to the government policies, laws, regulations, and political stability that can affect the organization’s operations, rights, obligations, and opportunities6.
• Economic: These are the factors related to the economic conditions, trends, cycles, and indicators that can affect the organization’s costs, revenues, profits, demand, supply, and growth6.
• Socio-cultural: These are the factors related to the social and cultural values, norms, beliefs, attitudes, lifestyles, demographics, and preferences that can affect the organization’s customer needs, wants, expectations, and behavior6.
• Technological: These are the factors related to the development and innovation of technology that can affect the organization’s products, services, processes, and systems6.
• Legal: These are the factors related to the legal system and rules that can affect the organization’s compliance, liability, and protection6.
• Environmental: These are the factors related to the natural environment and ecological issues that can affect the organization’s resources, operations, and sustainability6.
d. Transfer pricing is ideal under the following circumstances:
• When the organization wants to optimize its global tax liability by shifting profits from high-tax jurisdictions to low-tax jurisdictions. For example, if the organization has a subsidiary in a country with a high corporate tax rate and another subsidiary in a country with a low corporate tax rate, it can charge a high transfer price to the former and a low transfer price to the latter, thereby reducing its overall tax burden7.
• When the organization wants to allocate its costs and revenues among its divisions or subsidiaries in a fair and transparent manner. For example, if the organization has a division that produces software and another division that uses the software, it can charge a transfer price that reflects the market value of the software, thereby ensuring that both divisions are rewarded for their contribution and performance7.
• When the organization wants to comply with the arm’s length principle and avoid transfer pricing disputes with tax authorities. The arm’s length principle states that the transfer price should be the same as the price that would have been charged by unrelated parties in a comparable transaction under similar circumstances8. This principle aims to prevent transfer pricing manipulation and ensure that each entity pays its fair share of taxes. Tax authorities may audit and challenge the transfer prices of organizations that do not follow this principle and impose penalties or adjustments8.
QUESTION TWO:
a. Briefly discuss what makes internationalization of business challenging.
(8 marks)
b. Researchers have spent considerable time and effort identifying similarities and differences in the values and norms of different countries. Discuss this statement using the Hofstede’s Model of National Culture. (12 marks)
Challenges in Internationalization of Business
Expanding business operations internationally can be challenging due to various factors. Some of the key challenges include:
1. Cultural Differences: Each country has its own unique culture, values, and norms. Understanding and adapting to these cultural differences is crucial for successful international business operations. Language barriers, communication styles, and social customs can all pose challenges.
2. Legal and Regulatory Environment: Different countries have different legal and regulatory frameworks. Understanding and complying with these laws and regulations, such as taxation, employment laws, and intellectual property rights, can be complex and time-consuming.
3. Political and Economic Factors: Political instability, government policies, and economic conditions can significantly impact international business operations. Changes in government, trade barriers, currency fluctuations, and economic crises can create uncertainties and risks for businesses.
4. Logistics and Supply Chain Management: Managing global supply chains, transportation, and logistics can be challenging. Distance, infrastructure, customs procedures, and coordination with multiple stakeholders across different countries can add complexity and cost to the supply chain.
5. Market Differences: Each market has its own unique characteristics, including consumer preferences, purchasing power, and competition. Adapting products, services, and marketing strategies to suit local market needs and preferences is essential for success.
6. Human Resources Management: Managing a diverse workforce across different countries can be challenging. Hiring, training, and retaining talent, as well as dealing with cultural differences and language barriers, require careful planning and execution.
7. Risk Management: International business operations involve various risks, including political, legal, financial, and operational risks. Developing effective risk management strategies and contingency plans is crucial to mitigate these risks.
8. Ethical and Social Responsibility: Operating in different countries requires businesses to navigate ethical and social responsibility issues. Balancing profitability with social and environmental concerns, respecting local customs and values, and ensuring fair treatment of employees and stakeholders are important considerations.
In summary, internationalization of business is challenging due to cultural differences, legal and regulatory complexities, political and economic factors, logistics and supply chain management, market differences, human resources management, risk management, and ethical and social responsibility considerations.
Hofstede's Model of National Culture
Hofstede's Model of National Culture provides insights into the values and norms that differ across countries. It identifies six dimensions of national culture:
1. Power Distance: The extent to which less powerful members of a society accept and expect power to be distributed unequally.
2. Individualism vs. Collectivism: The degree to which individuals prioritize their own interests over the interests of the group.
3. Masculinity vs. Femininity: The extent to which a society values assertiveness, achievement, and material success (masculine) versus nurturing, cooperation, and quality of life (feminine).
4. Uncertainty Avoidance: The extent to which a society tolerates ambiguity, uncertainty, and risk.
5. Long-Term vs. Short-Term Orientation: The degree to which a society values long-term planning, perseverance, [Show Less]