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Business organizations often look for ways that enhance streamlining of operations and growth as well as rising the profitability. However, it is important to consider the advantages and challenges of opening up a company’s outlet in another region to ensure the corporation achieves both the long-term and short-term goals. Establishing a firm overseas can bring huge benefits when managers consider the financial resources, labor, and workforce interests. Nonetheless, selecting the most appropriate state for expansion can be overwhelming and expensive. Triumph motorcycle’s directors are seeking to expand the company’s business operations and therefore have identified three possible nations that could help it maintain success in the industry and globally. Consequently, the report will focus on providing information that will aid in identifying the most appropriate country for the expansion process between Argentina, China, and Russia through the SMART model decision technique.
Marks and Spencer should set goals that are Specific (defined to the least significant process), Measurable (can be evaluated for success), Achievable (has a high probability of success), Relevant (realistically within realms of success) and Time bound. The setting of SMART goals is only capable by ensuring that the factors of production, the human resources management and the supply chain is well managed and operational. Thus, in order to decide whether to leave operations in a country or not, the main factors to consider in developing SMART objectives is the cost of production, the available labor and technological advancements that affect tha production and supply.
Goal Setting: SMART goals
The continued production by Mark and Spencer is dependent on setting SMART goals. However, to ensure the company sets goals that will lead to success rather than closing its global stores, the company needs to consider the Porter’s Five Forces. The consideration of supply power as a force could be solved by using the distribution chain of existing companies to supply the products to the Marks and Spencer stores (Buckley & Ghauri, 2015). When examining buyer power, Marks and Spencer might consider retaining stores where the citizens of the country have a higher purchasing power, especially the developed nations.
Other considerations of the Porter’s five forces would be to possibly merge with local companies in the location of the stores so that the pressure of substitute products can reduce. As for competition which is an external factor, the company may consider closing stores in countries where the level of competition is very high and the cost of doing business is unsustainable (Indiatsy et al., 2014, p.79).
The Dunning’s Eclectic Paradigm Theory can only be used partially in the case of Marks and Spencer. Of the three advantages, the company could capitalize on the internalization advantages by subcontracting other local companies to produce its products. This will ensure that the cost of production is lower because local companies usually enjoy a better business environment as compared to foreign investors (Dunning, 2015, p.11). Since the products that Marks and Spencer produces and distributes are common, there is little comparative and ownership advantages that they enjoy.
The following paragraphs use the examples of three countries: Argentina, China and Russia as representative nations and use these nations to succinctly make SMART goals for the company. The other factors of production are explained to show how the SMART goals are reached at.
The section that follow will focus on the factors that have promoted business growth in China, which include cost of operation, workforce and technology.
i. Workforce and demography
The availability of labor and skilled workforce is an important factor to consider before moving operations to a foreign state. China has the world’s populous nation with a growth rate of 0.41 percent.
65 years and over
Table 1: A table showing the demographic characteristics for China.
The median age is 37.4 years with a dependency ratio of approximately 37.7.
From the table, it is apparent that the greatest population is between ages 25 and 54 years; hence the country can provide the needed workforce (Lim and Cowling, 2016, p. 36). With a dependency ratio of 37.7, it can sustain its economic growth thus attracting most foreign as well as local investors. The aging population is extremely low, which reveals that China has a huge productive population and therefore it is able to supply both skilled and semi-skilled labor in the market (Bremmer, 2017, p. 42; Ding, 2017, p. 90).
ii. Cost of operations
The cost of operating an enterprise in a foreign state not only entails the direct cost of space and personnel but also indirect expenses affecting the bottom line as well as productivity level. The recent state policies have generated fear among the US-based companies in China as they increase the cost of operation. One of the recent development that will affect foreign corporations is the Social Insurance Law, which mandates all foreign firms to contribute in China’s social insurance scheme (Gao et al., 2016, 294). Moreover, the state has instituted a new PRC State Administration of Taxes that requires corporations to pay urban and education maintenance as well as construction duties. These two major developments have augmented the cost of doing business, especially for the foreign investors. The government levies both the construction and maintenance tax at about 7 percent in urban regions while 5 percent in town and 1 percent in other districts. As a result, it is becoming expensive for the foreign companies as well as investors to penetrate the Chinese market and exploit the huge population of consumers.
With unrelenting efforts made by the Chinese enterprises to improve the technological advancement in the country, more consumers globally are recognizing the high quality and cutting-edge expertise of “Made-in-China” items. China has been one of the countries of the world committed in the technological race accompanied by the production of supreme products promoted by the state’s innovation drive as well as available indigenous brands (Tang and Popp, 2016, p. 198). Additionally, the Chinese government has been concentrating on commercialization of technology with nearly two-thirds of the higher learning institutions focusing on technologies and innovations. These are incentives that make the country more attractive to open up a business because product quality is guaranteed.
i. Workforce and demography
Russia has the world’s populous state with a growth rate of -0.08 percent and population.
65 years and over
Table 2: A table showing the demographic characteristics of Russia.
The median age is 39.6 years with a dependency ratio of approximately 43.5.
From the table, it is seeming that the highest population is between ages 25 and 54 years; hence the country can provide the required workforce for foreign as well as local companies (Berman 2013, p. 07). However, a dependency ratio of 43.5, shows that its economic growth is slow (Zamaraev et al., 2014, p. 15; Kuznetsova and Kos’min 2017, p. 362). The aging population is extremely low revealing that Russia has a huge productive population that can supply both skilled and semi-skilled labor in the market.
ii. Cost of operations
The cost of operating a US-based company in Russia has been high owing to the strong reform momentum instituted a few years ago after the relationship between the US and Russia deteriorated. The Syrian crisis has made the relationship between the two countries go from bad to worse and thus making the cost of operating a US business high in the recent years. For instance, the last few years the state has increased regulations to restrict foreign companies owned by American investors (Ershova, 2017, p.152). Besides, already established organizations have complained about unplanned inspections of their facilities, the threat of amending the regulations from regional to federal administration and abruptly changing labeling requirements.
Moreover, the recent economic crisis in Russia has contributed to the collapse of prices of energy thus forcing the government to adopt state programs that are more conservative at the expense of financial restructurings. The policies have undermined the business environment pushing away foreign investors and slowing the long-term growth opportunities. As a result, revenue collected by the state as well as private sector prospects have worsened over the past three years and will take time to recover. The environment created by the administration of Russia alters the way multinational companies operate in the country and undertake marketing of their brands. Accordingly, these regulations and government harassment of US-based companies have made it extremely hard and costly to start a business in Russia.
The country still has a valuable heritage of innovation and academic that focus on technological development after years of stagnation (Golovanova and Bekaeva, 2017, p. 29). The government has been implementing and passing bills that support, diversify and foster economic expansion through technological dynamism and increasing productivity of both local and foreign companies. The number of micro and small institutions engaged in scientific research has risen over the last few years. Russia has maintained a good position in sectors such as space, nuclear and defense dedicated to building a new technology profile. In the late 1990s and early 2000s, the country witnessed steady growth of IT, which became Russia’s core sectors to accommodate a pool of engineering skills and talents. IT and the Internet have grown rapidly over the last five decades owing to the government’s policy to encourage innovation and new discovery in the field of science. Moreover, Russia has improved and highly developed infrastructure that permits accessibility to markets, which encourage investors and investments.
i. Workforce and demographic information
65 years and over
Table 3: A table showing the demographic characteristics for Argentina
The median age is 31.7 years with a dependency ratio of approximately 56.5 and a population growth of 0.91 percent. The highest population is between ages 25 and 54 years; hence the country can provide the required workforce for foreign companies. However, it has a high dependency ratio, which may affect the economic growth and progress in the long-term. The aging population is extremely low revealing that Argentina has a vast productive population and therefore can supply both skilled and semi-skilled labor in the market for foreign corporations (Alzúa, Gasparini & Haimovich, 2015, p. 1823).
ii. Cost of operating business
The government has been implementing policies that encourage foreign investments to improve the economic growth (Thomas, Fressoli and Becerra 2012, p. 580). However, the corporate tax rate is 35 percent, which is higher than even the US, this development hinders the ability of foreign entrepreneurs to open up business in the country (Ramirez 2015, p. 22). The slow expansion of the economy (0.4%) is attributable to the high taxes imposed on business thus chasing away investors.
Argentina has been lagging behind in technology for the past one decade (Thorn 2005, p. 05). However, the government has commenced the support for scientific development that will make the country become one of the high-tech nations in the world (Gras and Hernández 2016, p. 677). Noteworthy is that in the recent years the country has witnessed increased economic expansion owing to the advancement in technology and innovation through the support of the government. Therefore, it is one of the countries that is rapidly attracting investors globally especially from Europe and Americans.
SMART Model Decisions
Based on the SMART model decision technique used in evaluating the three countries, it will be appropriate if Triumph Motorcycle’s directors can consider expanding its business operation in China. China has higher working population than the other two countries accompanied by lower dependency ratio of approximately 37.7%. The implication of higher working population is that the company will get ready labor at a relatively cheaper cost compared to Argentina and Russia. Moreover, the cost of operating a foreign company seems relatively lower in China as compared to Argentina, which imposes a corporate tax of 35%. Even though operating a foreign company would be cheaper in Russia, the recent clash between the US and the country has made the Russian government retaliate by harassing the US-based companies. China has one of the technological advancement goals that has witnessed the transformation of the field of science. Moreover, the Chinese government has invested massive funds to support the growth of innovation and other aspects of science, which is an added advantage for the business undertaking.
In conclusion, the directors of Marks and Spencer should consider opening a branch in China where they will enjoy cheap labor, low cost of business operation compared to Russia and Argentina. Additionally, the level of technological development is high when compared to the other nations, which will offer the company numerous opportunities to grow their business. Thus, the decision to operate in China rather than Russia or Argentina is a SMART one; as it is specified to the country, measurable in terms of higher profits and reduced costs of doing business, achievable as such businesses already exist and they show a level of success, realistic as all the factors have been accounted for and are relevant, and the time to make the decision is in the present when the country I stable and the economy is steadily growing.
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