IBS210 Principles Of International Business

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IBS210 Principles Of International Business

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IBS210 Principles Of International Business

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Course Code: IBS210
University: University Of The Sunshine Coast

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Country: Australia

Question:

Analyse the political, economic, legal, technological, social-cultural and general business environments of each of the countries provided. Use tables/graphics where appropriate to highlight your key points. However, remember that a discussion in paragraph form must follow the presentation of any tables/graphs.
It is important that you apply appropriate theoretical frameworks. The CAGE model or the PESTLE approach are appropriate frameworks to use here. Ensure that in-text referencing is correctly utilised.

Answer:

Introduction
In order to sustain in the competitive business market, it is important for business organisations to expand their business in host countries. This report emphasises on the role of an international business manager of a medium sized snack food company of Australia named Kettle (Snackbrand Australia, 2017). The new product of the company is a new range of corn chips that will be launched in low-cost developing countries. After thorough market research, India and China are selected as the two low-cost developing countries for international market expansion. The primary aim of the international business manager is to produce and distribute the new product of the company in the international location. Therefore, PESTLE analysis of both the countries has been conducted for both the countries and justified the selection of the chosen country based on the analysis.
Analysis of Indian Market
India categorised as low cost developing country by World Bank
 According to the World Bank report, India is classified as a low cost developing country due to the present economic status of the country. In the reports, World Bank have removed the tag of developing the country for India rather than considering as a low cost developing country (Somvanshi, 2017). However, in some reports of the World Bank, India is termed as developing country. The gross income of India is low if compared to other countries. According to the World Development Indicators, India lacks development in genres such as the time required to start a business, tax revenue collected by the government, nationally protected areas, improved sanitation facility, production of electricity and labour force participation force (Businesstoday.in, 2017). Lack of development in the above-mentioned areas for India is hampering the overall economy of the country thereby, making it low cost developing country. For example, the time required to start a business in India is 29 days whereas it is 20 days globally. Moreover, the world average of the sanitation facility is 68% whereas in India it is just around 40%. Based on GNI per capital, economic vulnerability and human capital, India is considered as a low cost developing country (Firstpost, 2017). However, the Indian Government is facilitating the establishment of new business from international companies to increase the economy of the country in order to enforce required development.
(Somvanshi, 2017)
Current business market in India
The government of India is currently facilitating and encouraging new business opportunities and establishment in India. It is considered as an optimistically growing economy with overall growth in the business sector and investment. With the new initiative and effort of the Indian Prime Minister, the manufacturing sector has improved extensively. The aim of the government is to turn India into a global hub for design, manufacturing and destination for investment. This emphasises on creating a friendly and stable environment for foreign investment by developing the manufacturing the manufacturing sector. Different countries have expressed their interest in investing in India in sectors such as food processing, construction, roads, highways and pharmaceuticals along with other (Government of India, 2017). This will create additional jobs for the low-income section people of India thereby, increasing the overall economy of the country.
PESTLE Analysis of Indian Market

PESTLE

Factors

P- Political

· Growing political emphasis and pressure on manufacturing sector
· Friendly policies, ideologies and interests
· Developed taxation system
· Reduced rate of interests

E- Economical

· Stable Indian economy
· Reduction in industrial licensing
· Global partnership
· Increased in domestic sales

S- Social

· Growth in the demand for fast food
· Increase in household income
· Increase additional job opportunities

T- Technological

· Product development
· Improved technology
· Maintaining supply chain management
· Use of internet for increasing sales

L-Legal

· Increase in minimum wage
· Implementing discrimination and disability Acts
· Ensuring safety at workplace

E- Environmental

· Affecting the air quality
· Affecting noise controls and waste control and disposal
· Proper waste disposal

 The PESTLE analysis of the Indian market gives a brief idea about the political, economical, social, technological, legal and environmental aspects. India is one of the largest democracies of the world that is operated by the federal government and is influenced by governmental policies and political interests (Hayes 2012). The current market for business facilitates the growth of manufacturing sector in India in order to promote growth in the economy of the country. The government has a friendly tax system in terms of income tax, service tax and sales tax. Make in India program aims towards the growth of the manufacturing sector by 12-14% per year thereby, increasing the global competitiveness (International Journal of Business Quantitative Economics and Applied Management Research, 2017). Moreover, the government of India has granted concessions in terms of reduced rate of interests. Reports suggest that India is having one of the stable economies facilitating the growth of business (Dixit and Ghosh 2013). Therefore, the stable economy of the country attracts the foreign investors for expanding their business and business organisations need to reorganise their traditional sales process. The stability in the Indian economy is influencing foreign business organisations to establish partnerships and joint ventures for growth. The Indian economy has grown by 8.5% per year and the manufacturing sector has grown 8-10% in the past few years. The economic stability of the country contributes up to 4% of India’s GDP (Khan 2012).
As commented by Coale and Hoover (2015), the lifestyle of the Indian population has changed drastically over the years. As a result, the changing trends and lifestyle influence the social aspect of the country. The young population of India prefers fast foods and snacks thereby, providing an increased scope of food manufacturing in India. 1.2 billion People forms the workforce of India, however, the considerable population is comprised of old people. The opening of new business by foreign business organisation creates new job opportunities for the Indian population thereby, increasing and stabilising their household income.
India is the growing sector of technological advancements that has helped to shape the manufacturing sector extensively (Kumaraswamy et al. 2012). Use of improved and advanced technology in the manufacturing industry makes the entire process cost-effective and saves time. Therefore, the product is advanced and according to the demand of the customers. According to Stadtler (2015), supply chain management is managed easily and accurately due to technological advancements. According to the legal system, the government has imposed laws of increased daily wage, safety at workplace and discrimination and disability Act to provide equal opportunities for the labours. As mentioned by Radhi, Fikry and Sharples (2013), urbanisation and industrialisation affect the environment adversely in terms of air quality, the noise quality and waste disposal. Therefore, the government has imposed laws in terms of maintaining the environmental standards in the manufacturing sector.
Analysis of Chinese Market
China categorised as low cost developing country by World Bank
 Apart from India, the World Bank also considers China as a low-cost developing country. In spite of huge advancements and opportunities, China lacks in certain features that indirectly hinders their economic growth. Corruptions in China’s politics along with increased differences between the income of the rich and poor section of the society and environment degradation are some of the significant reasons (Phys.org, 2017). China has huge labour and resources that can help other countries to expand their business. However, an economy of the poor section of China is getting worse in spite of growing economy. The World Bank has been tracking the economic growth since years and has mentioned that roughly 870 million people live with a daily wage of less than $1.90 (Geopolitical Futures, 2017).
(Geopolitical Futures, 2017)
Reports suggest that the poor of China are getting poorer and the rich are getting richer in China. Therefore, the wealth gap in China is increasing in spite of extensive economic growth in China. The inequality in the income of the various sections of the society is increasing. The distribution of the income among the rural people is a severe issue as they are facing difficulty in maintaining the momentum of growth. As a result, the rural section of the society is lacking proper sanitation; use of electricity is restricted, hygienic living environment and earning livelihood less than the minimum wage. The difference in the income in the urban and rural China is distinct thereby, making it as a low cost developing country (BBC News, 2017).
(BBC News, 2017)
Current business market in China
Reports suggest that China has lost the number one position of Foreign Direct Investment (FDI) to Hong Kong and the United States. Therefore, the Chinese government has incorporated latest changes in the policies and laws to facilitate foreign investment for the growth of the country. China will emphasise on liberalisation on different industrial sectors to attract the foreign investors. This will help the manufacturing sector by providing opportunities for foreign companies to establish partnerships or joint ventures with China. The foreign companies will be able to enjoy friendly policies to enhance their business (En.portal.santandertrade.com, 2017). As a result, China is emphasised in strengthening their effort to introduce more foreign investors by building law-based environment for business. This provided opportunities for the foreign investors to develop the economy of the country. According to the Ministry of Commerce of China, the foreign investment has increased by 3.9% since the government has emphasised on increasing foreign investment (Chinadaily.com.cn, 2017).   
PESTLE Analysis of Chinese Market

PESTLE

Factors

P- Political

· Easy to invest
· Low taxes on imports and exports
· Largest Foreign Direct Investment
· Stable political environment

E- Economical

· Probability of urban and rural growth
· Higher rate of savings
· Extremely low labour cost
· Increasing GDP of the country

S- Social

· Literacy rate above 90%
· Workforce age ranges between 15-60 is around 70%
· Low rate of employment among the rural population
· Abundant skilled workers

T- Technological

· Highly technologically advanced
· Technology is relatively cheaper
· Distribution through the internet
· Majority of the population have access to the internet

L-Legal

· Law supporting foreign investors
· Liberal tax regime

E- Environmental

· Increasing population
· Decreasing natural resources
· Highest emitter of greenhouse gases
· Scarcity of water

The PESTLE analysis of Chinese market signified the political liberalisation of the Chinese government that makes it easier for the foreign investor for investment. Reports suggest that China is the largest Foreign Direct Investment thereby, providing greater opportunities for foreign investors. The stable political framework of China provides a friendly business environment attract the foreign investors. As mentioned by Anyanwu (2012), the increasing GDP of the country is an advantage of for the foreign investors. In spite of the huge growth, China has still opportunities for growth in both rural and urban sections of the society. This is because the rural has resources and knowledge for development whereas the urban population has labour and lack of employment. The labour cost of China is extremely low that suggests that China cheap labour can be beneficial for foreign investors.
 The literacy rate of the Chinese population is more than 90% thereby, providing ample scope for foreign investors Amighini, Rabellotti and Sanfilippo (2013). The age of the labours ranges between 15-60% making them all dedicated and efficient towards work. China has abundant skilled workers, however, the rate of employment among the rural population is distinctive low compared to the urban population. Therefore, this attracts the foreign investors, as there is a scope of employment. China is one of the countries with extensive technological advancement where the majority of the people has access to internet facilities. Moreover, as technology is comparatively cheaper, the scope of distribution through the internet is immense. For example, if a new product is launched, information about it can be spread quickly and easily through the internet. Laws such as Law on Chinese-Foreign Equity Joint Ventures, Law on Chinese-Foreign Contractual Joint Ventures, and law on Wholly Foreign-Owned Enterprises facilitate the foreign investors to establish their business in China. Moreover, China also has loose tax regimes. However, from the environmental aspect increasing population, decreasing natural resources, the highest emitter of greenhouse gases and scarcity of water discourages the participation of foreign investors.
Justification for Selecting China as the manufacturing country
According to the PESTLE analysis of both the countries, China is a better option for expanding the manufacturing base of Kettle, a medium sized Australian snack food company. The most significant reason for selecting China is the extremely low labour cost of the country. The cheap labour cost of China is beneficial for the foreign investors, as they have to pay relatively less amount to the labours. Moreover, the high rate of unemployment among the rural population is also a reason for selecting China. China is one of the largest manufacturing powers due to cheap labour cost. Therefore, setting up the manufacturing base in China is beneficial for both the parties. Moreover, the liberal and stable governmental contribution has made China the largest foreign Direct Investor.
Conclusion
In this report, a medium sized Australian snack food company named Kettle is expanding the company’s manufacturing base in China. World Bank considers China as a low-cost developing company due to an extremely poor condition in the rural society. After thorough PESTLE analysis of both the countries, Kettle has selected China due to extremely cheap labour cost and increased rate of unemployment in China.
Recommendations
However, the cheap labour cost of China is going to end as the government is emphasising in increasing the labour cost and daily wage of the country. This will increase the participation of the rural people and enhance their living standard. Moreover, the PESTLE analysis showed urbanisation and industrialisation adversely affects the environment. Therefore, while setting up the manufacturing base or the industry of Kettle, the company needs to consider the environmental aspects and implement the environmental policies to promote a healthy environment.
References
Amighini, A., Rabellotti, R. and Sanfilippo, M., 2013. China’s outward FDI: An industry-level analysis of host-country determinants. Frontiers of Economics in China, 8(3), pp.309-336.
Anyanwu, J.C., 2012. Why does foreign direct investment go where it goes?: new evidence from African countries. Annals of Economics and Finance, 13(2), pp.425-462.
BBC News. (2017). Inequality in China: Rural poverty persists as urban wealth balloons – BBC News. [online] Available at: https://www.bbc.com/news/business-13945072 [Accessed 5 Jun. 2017].
Businesstoday.in. (2017). India now a ‘lower-middle-income’ economy for World Bank. [online] Available at: https://www.businesstoday.in/current/economy-politics/india-now-a-lower-middle-income-economy-for-world-bank/story/233363.html [Accessed 5 Jun. 2017].
Chinadaily.com.cn. (2017). China to encourage more foreign investment in 2017. [online] Available at: https://www.chinadaily.com.cn/business/2016-12/17/content_27697359.htm [Accessed 5 Jun. 2017].
Coale, A.J. and Hoover, E.M., 2015. Population growth and economic development. Princeton University Press.
Dixit, R. and Ghosh, M., 2013. Financial Inclusion for Inclusive Growth of India a Study of Indian States. International Journal of Business Management & Research (IJBMR), 3(1), pp.147-156.
En.portal.santandertrade.com. (2017). Foreign investment in China – Santandertrade.com. [online] Available at: https://en.portal.santandertrade.com/establish-overseas/china/foreign-investment [Accessed 5 Jun. 2017].
Firstpost. (2017). India is not a developing, but a`lower-middle-income’ economy, says World Bank. [online] Available at: https://www.firstpost.com/business/india-is-not-a-developing-but-alower-middle-income-economy-says-world-bank-2815134.html [Accessed 5 Jun. 2017].
Geopolitical Futures. (2017). China Is Still Really Poor – Geopolitical Futures. [online] Available at: https://geopoliticalfutures.com/china-is-still-really-poor/ [Accessed 5 Jun. 2017].
Government of India. (2017). A Business Opportunity for All Investors. [online] Available at: https://india.gov.in/spotlight/business-opportunity-all-investors-0 [Accessed 5 Jun. 2017].
Hayes, J., 2012. Securitization, social identity, and democratic security: Nixon, India, and the ties that bind. International Organization, 66(01), pp.63-93.
International Journal of Business Quantitative Economics and Applied Management Research. (2017). “MAKE IN INDIA: PROSPECTS AND CHALLENGES”. [online] Available at: https://ijbemr.com/wp-content/uploads/2016/02/MAKE-IN-INDIA-by-Rosy-NRJBE.pdf [Accessed 5 Jun. 2017].
Khan, H.R., 2012. Outward Indian FDI–recent trends & emerging issues. address delivered by Shri. Harun R Khan, Deputy Governor, Reserve Bank of India at the Bombay Chamber of Commerce & Industry, Mumbai on March, 2, p.2012.
Kumaraswamy, A., Mudambi, R., Saranga, H. and Tripathy, A., 2012. Catch-up strategies in the Indian auto components industry: Domestic firms’ responses to market liberalization. Journal of International Business Studies, 43(4), pp.368-395.
Phys.org. (2017). China’s economic growth could help other developing countries. [online] Available at: https://phys.org/news/2017-03-china-economic-growth-countries.html [Accessed 5 Jun. 2017].
Radhi, H., Fikry, F. and Sharples, S., 2013. Impacts of urbanisation on the thermal behaviour of new built up environments: A scoping study of the urban heat island in Bahrain. Landscape and Urban Planning, 113, pp.47-61.
Snackbrand Australia. (2017). Kettle. [online] Available at: https://snackbrands.com.au/KettlePopcorn.aspx [Accessed 5 Jun. 2017].
Somvanshi, K. (2017). World Bank to change classification of countries; India will now be called ‘lower-middle income’. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/news/economy/indicators/world-bank-to-change-classification-of-countries-india-will-now-be-called-lower-middle-income/articleshow/52512636.cms [Accessed 5 Jun. 2017].
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

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