Cost reduction is the process of increasing revenue of a business while maintaining the volume of production or sales. It also means evaluating a framework to ensure there are no unnecessary expenses or gateways of unnecessary costs. Firms are now adapting various cost reduction practices to increase their profits or redirect the money saved to other useful places.
Ways of reducing costs
Comparative evaluation or assessment is an essential means of reducing costs. This means checking on the finest raw materials or inputs from different suppliers and comparing the prices. One chooses the lowest prices offered while there is value. It is necessary to ensure people do not purchase materials from the cheapest authority if they are of the lowest quality.
A complete overview of a firm needs to be carried out to eliminate any unnecessary employees or departments. Merging can also be done here. This ensures combining departments that stand out similar tasks into one unit. This reduces costs of hiring unnecessary labor.
Apart from merging other practices like rebranding may be used to replenish customers trust. This will increase the clientele base building products to be sold more than before. The process above will reduce the cost of maintaining low moving products through storing.
Discount is the process of attaining a bargain or a price lower than the originally quoted price. When obtaining material from suppliers, a company needs to seek for discount. This ensures that funds intent ended to get a set number of materials can get more or because it is less than 100 % of the intended budget.
Machines are an essential part of processing the end product, if they wear out, it will lead to increased costs. Therefore, machines need regular check up and repair. For example, an unserviceable machine will requires more fuel to produce a set number of items. When serviced, it can produce the same number of items with less than the original fuel consumption.
Whole sale buying of goods from suppliers or bulk buying also reduces costs. When suppliers supply one with items in small numbers, additional costs come up. An excellent example here is when one needs repeated delivery to attain a large number of products. Each delivery will cost more than a large single delivery of all products at once.
Incorporating new ideas in affirm are also a cost reduction practice. For example, current trends depict that one needs to use limited production in order to make the item more prestigious, and of higher value, a few people have the commodity.
Automation is the process of running things by the use of a machine. It is also a fantastic way to cut costs. People to carry out minor tasks are no longer needed. Working hours and number of staff significantly reduces. Staff, unlike machines, needs salaries and commissions as payment. Machines carry out their work instead.
Use of professional advice to manage costs can prove to cut costs in a firm. Qualified individuals holding MBAs and other Bachelors degrees in the related fields can be effective. They can properly determine where hidden costs arise through auditing and evaluation.
Constant review of a company cuts costs. For example, checking the past equilibrium point against the current equilibrium point, is necessary to ensure that supply goes hand in hand with demand. In the event of surplus production, a company may be forced to sell their products at reduced costs in case the product is perishable.
Since the 2008 economic crisis, the status of the US economy has been undesirable. From this period, the US economy has failed to record any meaningful growth or development. Although there were expectations that the economy would recover after the financial meltdown, the status has not improved.
As Foroohar (1) observes, the Obama administration was about to begin registering growth before discouraging data began streaming in. To begin with, the increase in GDP was far below the expected levels, as future forecasts did not show any sign of improvement. Worse still, the housing report revealed that prices were declining to levels that have never been witnessed.
In addition, consumer spending was declining. When consumer spending falls, the manufacturing sector is negatively affected. Overall, unemployment rates are also likely to increase, as job creation falls below the expected levels.
Despite the idea that the American corporations have huge resources, they are not ready to use them to hire new workers locally. This implies that the American economy has to look for alternative ways of addressing the unemployment problem that seems to rise each passing day.
The idea that economic growth does not match earlier forecasts serves to underscore the belief that the economy has a long way to go before getting out of the recessionary state. The unemployment concern is serious since there is a group of workers who cannot find work to do (Foroohar 1).
The US economy has also been affected by poor policies. As an illustration, the Federal policy of raising money supply partly contributed to increasing inflation. This was possible as a big percentage of the money was channeled to the stock markets, an aspect that proved beneficial to the rich class of the population.
However, unlike what happened in 2008, the US is likely to find it difficult securing support from the rest of the world, especially from Europe and China. This view is held since Europe is facing a debt crisis while China may be unprepared to engage the US in the same way as it did in 2008 (Foroohar 2).
The American economy has undergone a number of changes in the recent times. By way of illustration, several people residing outside the US are able to handle jobs that were previously reserved for the Americans.
In addition, the developments made in technology allow companies to carry on their activities without the need to hire more people or by reducing the number of workers (Foroohar 2). This state has definitely played a big role in undermining hopes of the unemployed people in the United States.
Based on the above discussion, the US faces a major concern about the need to avert a double dip in the economy. The focus on a double dip is necessary since the economy is yet to recover from the effects of the previous crisis. However, if the economy does not slide back, fears persist that the problems associated with recessionary effects are likely to continue.
Consequently, economic growth and unemployment would worsen and lead to a snowball effect within the economy. If a second dip occurs, it is expected that the US economy would need five more years to bounce back. During the dip, GDP growth rate and consumer demand would fall thereby worsening an already bad situation.
This point illustrates the idea that the US is no longer able to recover from economic slowdowns as fast as it used to do in the past (Foroohar 2). Another element that characterizes the US economy based on this point gravitates around the time required for an economic recovery. Initially, the US economy would take around six months to recover from economic shocks. This aspect has changed since it now takes roughly five years.
The use of economic stimulus to jumpstart the countrys economy each time it experiences credit crunches, seems to be assuming previously un-witnessed significance. Earlier on, as the Obama administration took power, economic stimulus packages were extended. This trend is likely to continue if the economy slides into another recession.
Although such a move is not a bad one, chances are that it may create a money bubble. This view held since, the move holds the potential of lowering interest rates. As such, homeowners are able to refinance mortgages easily. However, this may not be achieved, as job cuts compound the situation. Hence, the real estate market may not benefit from the use of economic stimulus packages (Foroohar 2).
Companies in the United States are exploiting workers. This is based on the revelation in the article that workers are earning less compared to what they were earning during the recession time. It is alleged that companies understand what the unemployment situation is and they are taking full advantage to exploit labor as it is in excess supply (Foroohar 3).
Emerging markets such as China, Brazil and others are contributing to the problems that are facing the American economy. As the article establishes, many firms would rarely consider investing in new business or research centers in the US since alternative markets are more attractive because less expenses are incurred.
This explains why wages continue to decline in the US while job opportunities become scarce. Based on this discovery, it seems that globalization has negatively affected the growth rate of the American economy (Foroohar 3).
American mobility has gone down. Earlier on, it was thought that creating jobs would persuade people to move. Contrary to this view, people are no longer willing to move. This is partly attributable to the changing family and career dynamics. As these aspects change, people begin ranking independence highly. Additionally, women are now earning more and thus, they are unwilling to be moved around by their spouses (Foroohar 3).
Another issue being experienced in the American economy is structural unemployment. The article points out that the skills available in the labor pool do not match with the jobs on offer. If an economy pursues advancement, it is necessary to align labor production to industry requirements.
Without such an alignment, the economy faces a difficult challenge, as a mismatch in skills does not support economic development (Foroohar 3).
Apart from an alarming rate of total unemployment in the US, the youth unemployment trends are worrying. It is clear in the article that a group of workers faces a danger of permanent relegation from the job market.
The sad aspect centers on the likely consequences of such unemployment statistics on the American society. Youth unemployment stands at twenty-four percent. Worse still, even if this group was to secure jobs, it would earn twenty percent less than what other groups do earn (Foroohar 4).
Works Cited
Foroohar, Rana. What U.S. Economic Recovery? Five Destructive Myths. 2011. Web. 19 October 2011.
When someone hears of the term Black market , the mind certainly clicks to something illegal. This perception is undoubtedly true because black market refers to the illegal selling and buying of goods and services. In many countries, this form of business has taken complete reign of the economy as in most cases; the tycoons and the middle class individuals are the ones who are involved. Though different from the free market, the gap between the private (black market) and the public (free market) is wanting because the former seems to be in control. The saddening outcome is the fact that, the burgeoning of the black market affects the economy as well because these private business owners who evade the paying of taxes.
Schlosser, a bestselling author and a well renowned journalist, in his book, Reefer madness- sex, drugs and cheap labor in the American market takes us through a series of things that happen beneath the famous America. According to Schlosser, a large percentage of the American population consists of those people involved in deals that are against the government laws. This is a clear indication that the government has failed in its firm reinforcement of the rules and regulations that control people in America. He specifically looks at selected areas of interest which include use of illegal drugs (marijuana), pornography and the presence of illegal immigrants. Having written the book A Fast Food Nation which was looking at America as a country that wants good things in a quick way by comparing it to a hamburger, Schlosser has come out as a critical and investigative writer. In these two books, it is clear that he has done a comprehensive research on the American country because what he actually points out is what really goes on in the underworld economy.
He looks at America as a two faced country by examining the presence of the two kind of markets; the black market and the free market. The mainstream and the underground America make the country in whole and ignorance of the underground world is hypocritical. The American people cannot deny the fact that they love to smoke Marijuana and as long as one is over 12 years, you must have smoked it at least once in your life time. Despite this, Marijuana is treated as an illegal drug like heroin and cocaine. According to statistics of the American history rated for 5 years, no person has ever been reported dead due to its intake. This is indeed ironic. Therefore, reefer is the major concern of Schlossers argument over the illegal drugs consumed in America. The controversy brought out is the idea that the minority and poor consumers are the ones who end up being jailed, yet, there are many middle class individuals who cannot do without consumption of marijuana.
According to the law, reefer is prohibited. However, people especially addicts are slaves of the drug thus would do anything to have it. The court sentence for taking Marijuana in America is life imprisonment which is contrary to a person who has committed murder whose sentence is usually prone to release on parole. Mark Young, an Indiana, was accused of having sold 700 pounds of Marijuana and the prosecution recommended that he should serve a life sentence behind bars. Looking at this critically, it is inhumane for one to be condemned to a life sentence without being granted parole for taking drugs whilst a person convicted of murder is jailed for 11 years and 4 months (Schlosser 28).
The second subject that he looks at is the use of illegal immigrant workers. The business of getting migrants to work for Americans with big plantations has remained a thorny issue. In most cases, the immigrant workers are mistreated by being underpaid. However, push factors from their countries of origin ensures that they keep on increasing. The illegal business has been perfected in California and the laborers are Mexicans who prefer the wages they get there than being in their own country and suffering all their lives. Schlosser comes across a young man aged 18 years called Francisco who works for 12 hours a day, squats everyday on the ground to sleep in a 5-by-7 foot shack just to save $800 in four months in order to send the money to his family back in Mexico. Another exploitation that the illegal immigrants undergo is the lifetime indebtedness that they end up in after what the Americans term as sharecropping is imposed on them.
The poor laborers end up incurring the costs of the risks involved in planting because they are responsible for hiring the workers and making sure the crops are in good condition. Most of the crops harvested are of high value, with strawberries being the most harvested crop as much as planting them puts one at risk incurring losses as they can easily be washed away by heavy rains. To avoid a likelihood of too high losses, strawberry owners results to underpaying the laborers and imposing on them the idea of sharecropping. This is another form of inhumanity since those involved in this business oppress innocent beings and despite all these, no authoritative measures are taken against such brutal acts. The hunger for free labor makes American to ignore injustices which brings up the question, is it really fair for the worlds economic giant to have some of the most mistreated workers?
Finally, there is the issue of pornography that Schlosser critically examines. Using an example of a former bookseller who discovered that people bought a lot of sex magazines, Reuben Sturnam started the pornography industry by building an empire specifically for the booming business. The main problem with him was the fact that he evaded paying of taxes and therefore, he became a wanted man and he took people in circles including Richard Rosfelder, an investigator. When he was finally caught, he was taken to a prison with minimum security but later died. This is ironic in relation to a society which is expected to abhor immorality and yet the main reason for them imprisoning Sturman was because of the issue of not paying tax and not the illegal practice of sex (Schlosser 324).
Although it is true that Schlosser tries to bring the underworld activities among Americans, arguments in relation to the black market are insufficient because there are many illegal affairs that happen underneath America like human trafficking and trading in more dangerous drugs than marijuana such as cocaine. His general look at the private market is inclined to the issue of inhumanity in America. The hunger for cheap labor is also as a result of inhuman tendencies in America. Then, looking at the conviction of Sturman due to the evasion of tax is a clear indication that Americans value money more than humanity.
Works Cited
Schlosser, Eric. Reefer Madness: Sex, Drugs, and Cheap Labor in the American Black Market. California: Houghton Mifflin Harcourt. 2004. Print.
Entering new markets, especially foreign markets, requires organisations to exercise much caution. While organisations can develop strategies to cope with entry changes that are related to their internal structures, dealing with macro environmental factors in a foreign nation is incredibly problematic. This situation underlines the importance of development of an appropriate entry strategy that ensures that an organisation makes use of the existing knowledge and experience of operating in foreign nations. Such strategies include opting for franchising and licensing before focusing on full ownership arrangements.
In fact, all business operate within an environment, which directly or indirectly affects the way in which they function (Holt and Quelch 69). This claim implies how successful colonisation of new markets in the Middle East calls all organisations seeking to establish businesses in this region of the world that is characterised by political instabilities to consider the impacts of various macro environments within the selected locations.
Whether an organisation specialises in offering services or selling products, the aim of colonising new markets is to increase profitability levels, and hence the competitive advantage of the organisation in question. Any factor that may make this goal unrealisable becomes a major hindrance while engaging in business in foreign nations new markets. Indeed, an organisation can only invest in a foreign nation after calculating the possible risks and determining the possibilities of developing risk mitigation strategies with success (Yardley 219). While the strategic location of the Middle East nations is attractive for international organisations seeking to expand their business portfolios to grow their profitability, considering risks, especially the ones posed by political instability in the region, cannot be ignored. Nevertheless, other attractive factors such as availability of cheap youthful labour in the region together with legislative changes can encourage and boost investment.
Considering the challenges and opportunities in the Middle Eastern markets, investors in the international arena possess the freedom to make choices on whether not to invest in the region. They can also opt to invest in the region by deciding on the nations, which present fewer risks to their operations and/or which present high probabilities of success upon entering the markets. These decisions require availability of frameworks, information, and insights that are critical in developing effective entry and growth strategies (Yardley 221). This plan is particularly important for markets that are characterised by political turbulence and changing social developments. This paper aims at providing such frameworks and insights to organisations that consider exploiting the Middle Eastern markets through a detailed analysis of Tim Rogmans case study on entry strategies for Middle Eastern markets.
Situational Analysis
Venturing into new markets requires an analysis of the likely risks that prevail in specific markets of interest. Tim Rogmans case study presents the dynamics of the Middle Eastern markets through a discussion of the various changes occurring in the Middle East bazaar in terms of the changes in trends. The main trends, alternatively referred as megatrends by Rogman, include political unsteadiness and upgrading of commercial regulations, large wealth of energy resources that are necessary to boost production, regional integration, the emerging influx of participation of women in development, and maturation of the labour force in the Middle East. The demographic characteristics of the region and shift towards value consumption, turning towards east, and the rising multinationals in the Middle East (Rogman Para.8-10) also constitute important trends for organisations seeking to establish business operations in the region to consider.
Another important situation for consideration while making decisions to enter the Middle East markets by foreign investors is location. In making such decisions, Rogman identifies lack of reliable region wise data on market value statistics (Para.13) as a major challenge, which compels organisations to rely on fragmented macro level data that is collected by companies for their own specific uses. Even after identification of attractive business locations, Rogman maintains that the consideration of other factors such as infrastructural developments, taxation, and differences between thresholds of political risks in different Middle East regions is important.
New markets often present challenges in terms of aligning organisations culture to the local tastes and preferences, attitudes, and beliefs. For this reason, Rogman identifies the various options for entry modes as important situations that foreign investors need to consider while arriving at a decision to invest in the Middle East markets. Possible entry modes that may work in the markets are franchising, exporting, and joint ventures such as mergers and acquisitions (Rogman Para.17). Nevertheless, each of these modes is suitable for different extents and depending on different situations. Upon identification of the most suitable method for entry, the last conditions that are worth putting into consideration while entering Middle Eastern markets include the knowledge of the challenges of establishing and implementing the modes (Rogman Para. 20-23).
Problem Identification and Objectives
From the discussion of the above situational analysis section, an investor seeking to introduce new products and services in the Middle East markets encounters a myriad of challenges whose proactive resolution is problematic due to lack of sufficient data. This situation may hinder the efforts to develop a reliable marketing plan. In market planning, countless issues are considered with reference to decisions on products that are offered in the market for sale, the place where they are to be sold, pricing, and even promotion techniques. This requires heavy input of facts on consumption patterns on a given market.
Rogman confirms the scarcity or non-inexistence of the data for developing markets such as those of the Middle East. How can organisations arrive at decisions on how to re-engineer their products to meet mass appeal for consumers in the Middle East?
For instance, in market planning, when attempting to place a new product, an organisation must evaluate the capacity of a new product to meet the need of the consumers. The claim here is that goods and services offered for sale must deliver utmost good to consumers. For instance, foreign investors seeking to offer financial products and services in the Middle East need to understand the reception of contemporary financial systems in comparison with Muslim financial systems for them to participate competitively in financial organisations that are established in the Middle East regions.
Even though Middle East regions present attractive markets for foreign multinational corporations, political risks that are presented by instabilities in countries such as Syria, Iraq, Iran, and the conflict between Israel and Palestine are major problems that may make an organisation susceptible to risks that may lead to financial failures. With these problems, it becomes important to provide a framework for entry modes to mitigate the impacts of the problems on business success. In this extent, analysis of the Tim Rogmans case study is instrumental.
Challenges, Issues, and Limitations
Different research strategies have different strengths and limitations. Case studies present an effective research methodology where the focus in on answering questions such as why and how. While contemplating on the requirements of the groups research, the major issues revolved around what was exactly required out of the analysis of the case study. However, the group resolved these issues by unanimously contending that the main objective upon analysis of the case study was to provide information on how organisation can penetrate the Middle Eastern market amid its political volatility challenges and the emerging social and economic trends.
The case study was found important in terms of successful achievement of the groups task since case studies are important where research aims to provide descriptions of phenomena, develop theory, and test theory (Darke, Shanks, and Broadbent 274). This concern corresponds to the purpose of the current case analysis report.
In the analysis of the case study, generalisation challenges were a major concern to the group members. Case studies suffer from generation flaws in terms of concept development, theory generation, the drawing of specific implications, and rich insight development (Walsham 9). Amid this challenge, the focus of the strategy is to explain and understand the case while providing a description of the Middle East markets entry challenges and opportunities. Common themes and attitudes among the group members emerged, thus reducing challenges in arriving at individualised generalisations. Another limitation of deployment of the case study in arriving at the deductions made in the research that is of great concern to the group members is rigor in research.
Case studies have been criticised for lack of research rigor (Yin 71). In fact, various challenges make case studies research lose rigor such as influence of researchers on the analysis and the processes for data collection (Darke et al. 279). However, in our research, the case study is already developed. In fact, no member of the group is permitted to engage in manipulation of the case study whatsoever to suit any individualised motives or affiliations. Thus, the only source of inaccurateness is in the inferences made using the information provided in the case study. This situation may emanate from the analysis process. Considering how case studies are important research methodologies for applied fields such as marketing, education, and administration among others, the use of the case study to offer recommendations on how organisations can penetrate the Middle East markets remains satisfactory.
Strategy or Framework
Drawing from the discussion of the challenges, issues, and limitations section, the use of case studies in the generation of information to apply to different market segments within a broad market block such as that of the Middle East is problematic. This observation is especially important since mega factors, which may influence business operations such as political instability, do not apply homogeneously within all Middle East regions.
However, Tim Rogmans article forms an important case study depending on the research strategy and research design adopted in this research. Perhaps because a case study focuses on a single unit, a single instance, the issue of generalisation looms larger here than with other types of qualitative research (Stake 447). However, through analysis of a specific case study, much precise information can be availed on the given issue or specific situation. This assertion forms the main aim of conducting the analysis of the article by Tim Rogmans on entry strategies for Middle Eastern markets.
Rigor, reliability, and validity in the use of case studies in research remain major challenges in research strategy. These problems are mitigated by drawing literature on entry strategies for volatile and risky markets in the analysis process of the case study. Specifically, issues of conformity to services and products offered with the prevailing attitude and practice within a given market are incorporated within the process of analysis. Since an analysis of the possible considerable factors on the development of products and services that are offered in the Middle Eastern markets to comply with the beliefs and tastes of the regions consumers may not be feasible in a research that is constrained by time, only financial services and general products are considered.
The research strategy then synthesises trends, location, entry modes, establishment of entry modes, and the implementation of the entry mode for Middle East markets as provided by Tim Rogman in the context of the existing literature on new market colonisation.
Analysis
Forecasting and Measuring Demand for Organisations
Upon identification of the potential new markets, organisations seeking to establish their business in such markets focus on estimating both the current and future markets potential. This highlights the necessity for market demand forecasting and measuring in the Middle Eastern markets. It helps in the development of effective methods of targeting and management brands in the new markets. In fact, Overly optimistic estimates of current or future demand can result in costly overcapacity or excess inventories (Frank 308). On the other hand, underestimation translates into missing profitable opportunities through lost sales.
While planning to enter the Middle Eastern markets, the current demand and future demand forms two essential factors that organisations must put into consideration. The current demand is estimated through total market demand, actual sales, demand within specific areas, and the markets shares for organisations in a specific industry that a particular company seeks to establish itself. Total market demand of products and/or services involves the overall volume anticipated to be placed in the market successfully for a given group of consumers within a particular geographical region for a certain period of time and through the adoption of particular marketing mixes.
In the Middle Eastern Markets or any other market, various factors act as the determinants of the capacity of an organisation to market its products and services with success. For instance, the financial market demand in the Middle Eastern markets is influenced by economic conditions, political risks, and other environmental factors.
In any market, organisations encounter the problems of identifying territories that will account for the best sales through allocation of marketing financial budgets with optimal success. They need to estimate the market potential of different cities, provinces, and countries (Barnett 29). This factor is perhaps incredibly important for Middle Eastern markets upon considering that different regions have different levels of risks and impediments to business success. Sustainability highlights the importance of selecting business locations by considering the capacity of organisations to mitigate different risks. Market-built-up approach and market-factors index approach are important techniques in enhancing effective forecasting and measuring of the demand in the Middle Eastern markets by organisations seeking to exploit various business opportunities in the region.
In the new markets, organisations also endeavour to estimate and forecast their market shares together with actual sales. This factor calls for identification of competitors and/or estimation of organisations sales levels. Industries trade associations often collect and publish total industry sales, although not individual company sales (Frank 309). This provides platforms for evaluation of organisational performance compared to the overall industry. Unfortunately, as Rogman reveals, this data may not be available in developing markets such as Middle Eastern markets. Companies must then conduct their own studies to gather data that enables them to conduct estimations and forecasting of their market share and actual sales.
Advantages or Disadvantages of an Organisation that provides a Good against an Organisation that provides a Service when entering the Middle Eastern Market
Marketing strategies act as imperative mechanisms of entering any new markets. Customers not only buy a product or pay for a service but also pay for the brand image. Brand image is a perception of customers when they see a brand reflected by brand associations in their mind (Keller 27). These associations are multidimensional and dependent on the cultural context and beliefs of the target market. They contain a myriad of attitudes or dimensions, which are emotionally instigated in relation to customers perceptions on the brand quality and the degree to which the brand satisfies the needs of customers. Kotler, Adam, and Denise note the relevance of creating services or product brand images in any new market (136). They claim, From customers overall picture of their experiences, brand image is important because it creates the customers cognitive, emotional, and behavioural responses as an outcome (Kotler, Adam, and Denise 136). This suggests that successful marketing of both products and services in a new market requires the availability of consumer data.
Analysis of consumer behaviours data can help to provide information on psychographic and demographic patterns of consumptions of products and services in a new market. Data on a reliable market can be hard to obtain in countries where the collection of statistics by government agencies is ongoing (Rogman Para.13) while discussing the challenges that investors encounter when establishing the best location in the Middle Eastern markets. This implies that whether an organisation specialises in offering services or products in the Middle Eastern markets, availability of data to inform the best strategies of positioning a product or service presents disadvantages.
Macro environmental factors that influence the success of an organisation in a new market are not selective on whether an organisation specialises in offering services or products for sale. In fact, a number of factors, which operate internally or externally to an organisation, influence the decisions made by a new organisation that seeks to invest in the Middle Eastern markets. From the PEST EL organisational analysis approach, these factors include political, economic, social, technological, environmental, and legal factors (Kotler, Adam and Denise105). Legal and political environments affect the operations of the company via taxing policies. An organisation must pay taxes from its profits. In the Middle Eastern markets most Gulf countries operate a no tax policy, which makes them look attractive at first sight (Rogman Para.15).
This rule does not advantage service or product-selling organisations, with segregation suggesting that advantages or disadvantages in establishing business operation equally affect organisations that specialise in offering services or products in the Middle Eastern markets.
The management of an organisation must comply with environmental regulations, tariffs, and employment laws that are established within various nations where the company intends to establish outlet stores. The main challenge for any company establishing new operations in the Middle Eastern markets is that these policies may be different in different nations. Thus, whether engaged in the service sector or in offering products for sale in the Middle Eastern markets, organisations control over these policies in an effort to have harmonised financial budgeting systems presents disadvantages.
From the above assertions, Middle Eastern markets may not have different advantages or disadvantages in marketing products or services. However, the nature of marketing strategies for services or products may portray contradictory advantages or disadvantages. Marketing a service is different from marketing a product because in addition to the usual traits of products, services lack ownership, are intangible, inseparable, and have heterogeneity (Rust, Zeithaml and Lemon 113). Consequently, to realise results in attempting to establish good customer relationships, appropriate service marketing mix must be deployed. The service marketing mix includes physical evidence, people, and process.
Physical presence prescribes the characteristics of the place of the service being offered. The deployment of these aspects in building and managing customer relations is realised through ensuring that an organisation is distinguished clearly from probable and existing competitors. Unlike marketing products where an organisation may decide to offer the products through partnering with an organisation that has built good customer relationship and loyalties, offering service will require an organisation to create unique service brand through its established infrastructure, people, and processes.
In the fresh markets, people can evaluate and/or compare the utility of a product with other products that are offered by other organisations with ease. The utility attributes for a product such as taste, quality, and quantity may be easier to quantify. On the other hand, while marketing serves the goal of re-engineering services to comply with the existing cultural and religious beliefs and teachings, it may be interpreted with suspicion. This disadvantage may afflict organisations that seek to offer financial services in the Middle Eastern markets. For instance, business activities and conducts of parties in businesses are legitimate only within the confines of the teachings of the Holy Quran as the basis of Shariah law (El-Galfy 949).
In contrast with the conventional systems, Shariah takes control over any business undertakings conducted by Muslims to ensure free and fair market. For instance, Islamic financial systems are guided by various rules that are derived from Shariah law such as avoidance of riba and Qard (El-Galfy 949).
Qard encompasses a financial package used in Islamic banking in lending systems, which are interest-free with no extra increment. The repayment includes the loan plus bank expenses done at once or in part in the future. In the conduct of the permissible types of sale, the involved parties cooperate to avoid unacceptable practices such as riba and gharar (Abdul 57). Consumers may be suspicious on the purpose of altering financial services offered by foreign investors in the financial sector, thus creating more difficulties in marketing of the services compared to products in Middle Eastern markets. However, it is important to note that Islamic principles with regard to trade equally apply even in business relationships involving exchange of products for value. In these sense, product-selling organisations also suffer from similar challenges that are experienced by service sector organisation such as those seeking to exploit financial service sector in the Middle Eastern markets.
Marketing Environment for in Middle Eastern Markets
Marketing environment for an organisation has a collection of external and internal factors, which influence the capacity of an organisation to establish successful relationships with its target clients. These factors operate at either macro or micro levels. Micro- environmental factors refer to all forces that closely influence the company while directly affecting the organisations relationships (Yardley 226). Major micro-environmental factors include company suppliers, intermediaries deployed in marketing, the employees for an organisation, the company itself, and the public within the market environment in which the organisation operates.
These factors are internal to organisations. Hence, organisations have the capacity to control them in any market. This suggests that even if they are important in the analysis of the marketing environment for organisations seeking to invest in the Middle Eastern Markets, they may not cause excessive panic on the success of an organisation in the market compared to the factors that are external to it. Factors that influence the marketing environment for an organisation externally are collectively termed as macro-environmental factors or PESTLE factors.
As stated before, there are various macro-environmental factors affecting marketing function for an organisation in a new market or an already established market. These factors are political, economic, social, technological, legal, environmental, and demographic factors (Kotler, Adam and Denise105). Demographic factors imply the characteristics of the market population including density, occupation, race, location, and age. Studying these factors helps to determine the consumption characteristics in a given market. Demography also includes aspects such as geographic shifts, changes in workforce characteristics, and diversities occupying a specific area.
Demographically, Middle Eastern markets are characterised by immense changes in the workforce environment. Despite various challenges in alteration of the perception of non-incorporation of women in the workforce through the culture for confining women to domestic chores, the Middle Eastern regions have experienced a boom of increased enrolment of women in institutions of higher learning together with their absorption in the workforce. This suggests that an organisation seeking to invest in Middle Eastern markets should consider the rising potential and buying power among women in the development of its marketing strategies that should be divided along gender demographic factors. The population in the Middle Eastern market block is anticipated to grow by over 80 percent over the next four decades (Rogman Para.9).
The influx of young people into the labour market is also incredibly high. Hence, organisations seeking to invest in the region must consider developing products and services that potentially attract the high consumption among the youths. High population means high consumption rates of products and services within a given market segment. This translates to high sales levels, which create the necessity of incorporating strategies for enhancing large placement for products and services in the marketing plan for any organisation that looks forward to invest in the Middle Eastern markets.
Political factors are important in the analysis of marketing environment for organisations that wish to invest in a new market as they help to reveal the degree of political risk in the financial performance of an organisation. The Middle Eastern markets have political volatilities that are fuelled by conflicts such as the Israel-Palestine conflict, Syrian conflict, and the instabilities in Iraq and Iran among other regions (Rogman Para.3). It important to note that different nations plays active and passive roles in resolution of these conflicts. Where the public or even a given target market segment opposes the roles played by a given nation in the political conflicts within their nation, multinational organisations that are established within negatively received nations face higher challenges. Such challenges may include boycotts for purchasing products and services that are offered in the Middle Eastern marketplace by such multinationals.
The operational economic environmental factors denote issues such as competition and influx of new brands by the existing competitors. In the Middle Eastern markets, foreign multi-nationals operating in various industries are encountering intense competition from local organisations, which are also expanding at international platforms.
Such industries include airlines with organisations such as Emirates and Qatar airways that are rapidly expanding together with the logistics industry, with Aramex and DP World taking central platforms in the global logistical markets. Other industries where foreign multinationals are experiencing intense competition from local organisations are tourism (Jumeirah), telecommunications (Etisalat, Orascom), petrochemicals (SABIC), as well as in finance and construction (Rogman Para.10). Local organisations have a competitive advantage. They do not encounter legacy problems. This ensures quick adoption of the best practices that are embraced by population in the Middle Eastern markets.
Lack of significant legacy challenges ensures that local multinational organisations in the Middle Eastern markets have the advantage of low cost labour, low taxes, and a favourable location for transport, tourism, and energy-intensive industries (Rogman Para.10). All these advantages are important in ensuring that organisations are economically competitive. Availability of energy resources, regional integration, and turning towards east are important factors that may enhance economic competitiveness of foreign multinational organisations seeking to invest in the region.
Apart from political and environmental macro-environment factors, legal, technological, and social factors also affect the marketing environment in the Middle Eastern markets. Shift towards value-based consumption is perhaps one of the most important social factors that may affect the success of an organisation in the Middle Eastern markets. Middle Eastern customers are progressively buying based on their principles and philosophies, thus bringing fast expansion in Islamic markets (Rogman Para.8). This implies that social beliefs form important factors that determine consumption patterns in the region.
While foreign investors may have well-developed technologies to enhance their penetration in the Middle Eastern markets, legal factors may influence their degree of success. For instance, most Middle Eastern regions run under the rule of no tax policy. At glance, this looks like a major advantage while operating in the Middle Eastern market. However, Investors need to do a careful analysis of the total cost of running a business, including rent, various license fees, import duties, and telecommunications (Rogman Para.14). This advice is perhaps important by considering that the cost of telecommunication in some Gulf region nations supersedes the rental cost for business premises.
Role of Corporate Culture in Competitive Advantage
An organisation has to adopt values and beliefs that are shared by all people and its business associates. This strategy helps the harmonisation of goals, objectives, and mission of an organisation in its different operating units. The constituents of an organisational philosophy define the organisational culture. This suggests that organisational corporate culture binds all components and sub-components of an organisation to form one harmonious system that has common goals and objectives amid constituting different components, which are capable of building and maintaining an organisations competitive advantage.
Corporate culture can create a competitive advantage or difficult challenges for organisations entering the Middle Eastern markets. Challenges may arise in situations where organisations do not alter their organisational culture to meet the needs, beliefs, tastes, and preferences of the Middle Eastern Market population. For instance, in the Middle Eastern markets, the application Shariah law to regulate business relationship determines the permissible and non-permissible form of trade. Generally, future and forward markets are not permissible. Islamic exchange systems have different rules that are applicable to these two markets. The rules prevent unnecessary gains or acts of taking money away from other people (Abdul 121).
Where the corporate culture supports hedging in financial markets, such an organisation will definitely suffer from a low competitive advantage. Important hedging instruments involve interest rate swap and profit rate swap (Zahan and Kenett 60). Although the instruments are available under both the conventional and Islamic system, their permissibility is based on different legal principles. In the Islamic system, the principle entails the application of Shariah. While it is widely used in conventional financial systems, interest rate swap in the Islamic system leads to the violation of Gharar, riba, and the Maisir Shariah laws that guide the operation of the Islamic banking system.
Although cooperate cultures support to conventional financial systems may make foreign investors in the Middle Eastern financial markets encounter critical challenges, re-engineering the culture to comply with Islamic financial systems may help induce and/or grow an organisations competitive advantage. In fact, corporate culture acts as the determinant of the capacity of a foreign nation seeking to invest in the Middle Eastern markets to differentiate and promote its brand.
With the onset of two-way forms of communication such as social media, an organisation that plans to build its competitive advantage around its corporate culture needs to get the correct culture in a given market right from the beginning. When one client identifies a single aspect in the organisations corporate culture that fails to comply with the beliefs and values of a certain group of the target market, social media provides a platform for viral spreading of a complaint. This suggests that building reputable brands in the Middle Eastern markets depends on the ability to establish cohesive corporate culture that is consistent with the values, perceptions, and beliefs of the target markets population in the region.
Can IMC assist?
Similar to any other market in the global market place arena, the Middle Eastern markets have an influx of products and services from which customers choose. Choosing a product depends on various factors, especially psychographic factors. Where an organisation establishing business in the Middle Eastern markets has a reputation of its services or products not complying with values, beliefs, and preferences of the Middle Eastern populations, chances are that this trait may influence buying decisions even though it may have altered its corporate culture to meet these requirements. To mitigate this challenge, integrated marketing campaign (IMC) is of great importance.
Through IMC, marketers can clearly and effectively communicate their brands story and messaging across several communication channels to create brand awareness (Boundless Para. 5). Consequently, building a cooperate culture for effective integrated communication that clears all doubts and suspicion in all market segments encompasses a major step towards maintaining competitive advantage of an organisation that is establishing new businesses in the Middle Eastern markets.
Conclusion and Recommendation
Establishing a new business in a new market presents several challenges to foreign investors. As revealed in the paper, many of the challenges are akin to the existing macro-environmental variables as opposed to micro-environmental variables. These variables make the Middle Eastern markets vary across nations in terms of threshold of risks accruing from challenges such as political instabilities and differences in demographic characteristics of their target market segments. Consequently, any organisation with a strategic objective of expanding into the Middle Eastern markets needs to consider various macro-environmental factors in arriving at location decisions.
While selecting the location of the business in the Middle Eastern markets, consideration of several issues is recommended for foreign investors. Assessment and analysis of various economic, institutional, and more importantly, political environments are necessary. Organisations seeking to invest in the Middle Eastern markets should only engage in calculated risks. To achieve this endeavour, it is recommended that they conduct reviews for various ratings of different risk factors together with how they influence the business of an organisation. However, to make informed decisions, companies need to collect data for use specifically in conducting their own assessments of risks that can influence negatively certain types of projects that they intend to initiate. In the case of Erbil in Iraq, such analysis may reveal that such challenges may provide opportunities for success even though operating in highly politically unstable environment is inappropriate.
For multinational businesses that plan to establish their business presence in the Middle Eastern markets, they cannot fail to consider issues such as life quality and the established institutional infrastructures to augment their decisions. All organisations largely rely on employees and managers to execute businesses on the behalf of the owners (shareholders). To encourage them to make decisions on relocating to new workplaces in new markets such as the Middle Eastern markets, quality of life stands as an important factor for consideration.
Factors such as the presence of international schools near localities (or in the vicinities of a location of an organisations office) and/or safety in regions with high political engagement of the public are crucial in this end. Another important aspect entails the availability of a talent pool to conduct sophisticated chores for organisations within the new market. Where this factor is important in influencing the location of an organisation in the Middle Eastern markets such as organisations in the IT sector, the Middle Eastern markets are attractive. This recommendation is made upon the realisation of the fact that there exists a large talent pool of young people joining labour markets in the region to provide cheap and highly technologically informed labour.
A few checks are important to ensure a positive reception of an organisation seeking to invest in the Middle Eastern markets. One of the issues is the corporate culture. Teachings of the Shariah law guide trade and business relationships. Organisations must then alter their business culture such as charging interests (riba) just like in the case of conventional financial systems. Future and forward markets are also not allowed. Hence, foreign investors are only recommended to deploy spot markets in their exchange of goods and services within the Middle Eastern markets. They must also be prepared to face intense competition from Middle Eastern multinational corporations such as Qatar airways and Fly Emirates in the case of the airline industry. A possible way of entering these markets is through strategic partnerships and mergers with these organisations since they also have legacy advantages in relation to foreign multinational businesses.
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According to Marx, there are some levels of significance attached to the length of each working day. In fact, the power and quantity of labor should normally be purchased and consequently traded at a price that matches its worth or value. The final value derived from a product accrues from labor power. The value results from the time taken to make a product.
However, it is true that the quantity of labor force that is required to offer subsistence is hardly equivalent to the duration of each working day. The time taken to complete task and create value is more than the required workforce time. This is what translates into surplus labor as Marx claims. Therefore, the length of each workday ought to be considered as a variable quantity that adjusts in accordance with the quantity of excess labor force.
The period used in every workday can however just fluctuate within definite confines. From the capitalist systems nature, there will always be certain levels of surplus labor. Whereas this surplus labor may approach zero limits, it cannot be an absolute zero in as much as real limits do not exist. The employees maximum working days are constrained or limited by both the moral constraints as well as the physical limitations, including the necessitation to accomplish other duties.
Thus, with respect to the length of working days, capitalists appear to derive some mutual benefits when they compel the labor force to toil an extra mile to generate additional product value. This implies that, all capitalists will normally materialize as capital embodied. The essence of capitalists will just resemble the capital soul, and it will not assume any other attribute.
Regardless of being aware of the needs of each labor force, capitalist are less concerned about the benefits derived by workforce when they extend the span of time worked every day. Capital has a distinctive attribute. Its drive is to compel the production means to absorb excess quantities of labor force to produce surplus values. Capitalists will hence strive to derive the highest possible returns or benefits from the labor force use-values.
The labor forces have their personal observations as regards to the length of time they should carry out their tasks. For instance, the power or energy used by workers is unlike that which accrues from other services or products. Indeed, the power generated from labor can be used to create value in products and services.
From the perspective of labor force, the demands made by capitalists reveal the excessive use of workers power. For instance, entrepreneurs may potentially exploit loads of workforce energy in a single day. Nonetheless, the same labor force might take approximately four to five days in order to reinstate the consumed energy.
The capitalists use labor-power and spoil the same labor. To be honest, if capitalists were workers, they might not be able to employ five days worth of their workforce energy in a single day, and just pay themselves only a single days worth. Therefore, just as capitalists demand product values, the labor force should be reimbursed based on the generated commodities value. This necessitates that the length of each working day should be a factor to be considered when paying the labor force.
Why Harvey sees the workday time-span tension as class struggle
In the work of Marx, the central subject relates to class tension whereby class conflict defines the history. The present time is not an exception of this. In fact, in the contemporary era, class conflicts are described by the stress present amid employees and entrepreneurs. Class struggle emerges because of the asymmetry amid the exchange values of workforce power and the derived user values.
The strongest class in the struggle is that of the capitalists. That is, the time span for each workday is a factor that should be considered when paying workers. Nevertheless, the capitalists use their class to define and exert extra force when implementing what they think the labor force should be paid.
Whereas capitalists are the strongest class, they are not just given superior bargaining command against the workers. Most societal organizations including chattel bylaws were defined to support and protect the desires of capitalists. The production mode is made to look as if it belongs to the capitalists economic system.
These modes of production continuously support capitalists to an extent that they destroy the essence of the workforce. Despite the surplus value generated by labor force after working for longer hours, it is difficult to find that the capitalists are behaving differently. The amount given to workforce as a representation of their efforts remains the same, hence causing tensions amongst these two groups.
Gaining surplus values and improving products worth are the desires and essence of the capitalists. All capitalists realize these goals via exploiting the workforce through failing to offer them the recommended payments for the complete value package on what has been produced.
As a result, there is a structural struggle involving capitalists and labor force given that capitalists are compelled to exploit to survive. Any system that belongs to the capitalists necessitates the exploitation of the workforce. There are measures taken to reduce the hardships faced by employees.
These include welfare and minimum remuneration packages. Nevertheless, these measures are just assumed as financial aid. In reality, the financial aids are not meant to cover the time taken to generate surplus value. It is hard to change what capitalists think or believe, and so is it the case with the labor force.
Microeconomics is a branch of economics that studies supply and demand with regard factors that determine the prices and output of various products. It studies how businesses determine the prices of products and the quantity of products to supply in the market. Supply and demand determine the pricing of products by businesses. High demand and low supply lead to high prices and vice versa.
The article Hong Kong Baby Formula Smugglers Drain Milk Supply, City Takes Action as Citizens Appeal to U.S. for Help discusses a situation that occurred in Hong Kong in 2013 that affected the supply, demand, and price of baby milk formulas. The article was written by Grace Li and appeared on the Huffington Post newspaper. The article discusses the effect of certain policies in China on the demand, supply, and prices of baby milk formulas in Hong Kong. According to Li, the government of Hong Kong had reduced the size of luggage that an individual could carry on a train from 32 to 23 kilograms (Li, 2013).
This measure aimed to curb baby milk smuggling from Hong Kong to China. A commuter could only carry two cans of milk from Hong Kong to China by train (Li, 2013). Demand for Hong Kong baby milk increased after scandals hit the milk market in China. In 2008, a baby milk formula known as melamine milk powder attracted widespread criticism due to low quality. More than 300,000 Chinese babies fell sick after consuming the milk (Li, 2013).
According to Li (2013), this incident led to a surge in demand for baby milk from Hong Kong because of its high quality. Chinese civilians flocked Hong Kong to buy baby milk. This caused a rise in demand for baby milk and a subsequent rise in price. Baby milk supply was low because demand was very high. An analyst at China Market Research Group argued that consumers flocked Hong Kong because they did not trust Chinese milk products (Li, 2013). On the other hand, Chinese had high import taxes that made business difficult. Therefore, residents travelled to Hong Kong, bought baby milk tax free, and transported it to China where they sold it at high prices (Li, 2013).
Smuggling of baby milk into China caused shortage that led to high prevalence of malnutrition among babies in Hong Kong. The people of Hong Kong sought help from the president of the United States because their government had failed to resolve the issue. The situation was made worse by the varied ideologies of China and Hong Kong. The communist ideologies of China did not match the Capitalist ideologies of Hong Kong. This led to differences in policies. For instance, China had stringent import tax policies while Hong Kong had flexible tax policies that lured Chinese civilians. The author demonstrates the effects of the shortage on the price of milk. A brand of baby milk that cost $33.52 in Honk Kong went for $41.97 in China (Li, 2013).
Residents of Hong Kong were complaining because smuggling of baby milk formulas had caused a decrease in supply. Decrease in supply led to a surge in the price of baby milk. Owing to the shortage, some business owners only sold milk to people who bought it for their babies (Li, 2013). This measure was aimed at eradicating smuggling. Chinese residents also bought milk from other countries like Europe and Australia.
The article discusses the effect of smuggling on supply, demand, and price of baby milk in Hong Kong. Stringent import tax policies and low quality of baby milk prompted people to buy milk from Hong Kong. This led to a surge in demand and price of milk. Low supply and high demand led to an increase in milk price.
Reference
Li, G. (2013). Hong Kong Baby Formula Smugglers Drain Milk Supply, City Takes Action as Citizens Appeal to U.S. for Help. Web.
Bailouts are a pressing problem for the entire financial world today, and will continue to affect financial sectors adversely. However, it is crucial to analyze what would happen if current European bailouts were completely removed from the equation. Many Euro zone leaders have asserted that in order to give Greece a second bailout, the country needs to demonstrate that it will reform its economy.
The rest of the Euro zone seems to be unprepared for a Greek default as a number of banks have bonds and other financial instruments that are tied to Greece (Morris, 2011). Nonetheless, the odds are very much against this country because it has already been shown that very little else can be done in order to restructure its economy.
Providing it with more funds to service other debts can be likened to a person who is stuck in a gigantic bucket and is trying to get out by reaching for the handle. Some experts claim that defaulting is inevitable for Greece (Isidore, 2011).
If this is to occur, the Euro zone and the rest of the world would have to pay dearly for this. It would threaten the strength of the Euro and more member countries will consider dismissal of Greek from the EU as a plausible option (Dobby, 2011). The only problem with this option is that currently, there are no mechanisms in place to deal with the exit of a member state.
Furthermore, this would create a ripple effect in which the Union would consider ousting weak members (Lilico, 2011). Greece is not the only country that is at risk of defaulting- Ireland, Italy and Spain are still on the list of weak economies in the EU. If more countries are expelled, the very existence of the Union will be threatened, yet this is a concept that member countries have been working on for decades.
A Greek default would mean huge losses for a number of financial stakeholders. Some investors who hold Greek bonds would not recover their investments. This would cause other investors in Spain, Portugal, Italy, Ireland, and Spain to flee from those debts as well. Banks in the rest of the Euro zone would be adversely affected. This would spread out to other countries of the world that partner with the EU (Isidore, 2011).
The default could trigger a series of other defaults throughout the rest of the European Union. This would be prompted by the lack of leadership from countries such as Germany, which have already washed their hands off the debt crisis issue (Sanati, 2011).
If this were to occur, the European Union would plunge into another recession because the common currency would be devalued. Of course, this would affect the US economy, which would probably fall into a double dip recession (Isidore, 2011).
It is clear that stresses of the EUs financial system will create a ripple effect in the rest of the economic market. The United States would be particularly affected because its exports would be weaker, there would be substantially lower credit and the financial conditions in the country would become even tighter (Gouliamaki, 2011).
The current economic problems of the EU call for a change in the Unions economic policy approach. If the Union hopes to survive through the economic crises of its weaker partners, then it needs to have a strong leader such as Germany. The country would offer a unified voice and would strike a balance between the economy and politics.
If no strong leader emerges, the EU might loose Greece alongside Spain, Ireland, Portugal and Italy as member countries. Political elites in the EU are unlikely to sit by and watch this happen (Sanati, 2011). They have a lot to loose if the Union starts to disintegrate. The defaulting crisis is a quagmire that is yet to be fixed. Its repercussions have an adverse effect in the EU and will definitely affect the rest of the world.
References
Dobby, C. (2011). What happens if Greece defaults? Financial Post. Web.
Bahrain, just like any other financial center, provides an environment where domestic and international trade is conducted on large scale. The Bankers Society of Bahrain (BSB) (n.d.) states that Bahrain has been known to be a strategic trading point between the East and the West.
Additionally, Bahrain trading history dates back to the Dilmun Civilization (BSB, n.d.). This is more than 4,000 years ago. Moreover, Bahrain is one of the most recognized financial centers in the Middle East. Bahrain is ranked 38th by the World Bank on the ease of doing business (World Bank, 2012).
As a financial center, some of its major strengths include use of English, sound economic and financial policies and strategic location (United States Department of Commerce (USDC), 2012). On the other hand, some of Bahrain major weaknesses include confusing labour laws, bureaucracy and some incidents of corruption within the government (USDC, 2012). This paper provides an insight into Bahrain as developing financial centre.
Meaning of a Financial Center
According to the businessdictionary.com (n.d.), a financial center is a city or a place within a city that has a lot of financial institutions. In addition, a financial center can be defined as a place with a world class commercial and communication infrastructure (businessdictionary.com, n.d.).
Furthermore, a financial center can be a place where domestic and international trade is conducted on large scale (businessdictionary.com, n.d.). Financial centers also tend to have favourable time zones , are situated on traditional trade routes and have the highest concentration of a regions or a countrys wealth (Security Industries Association (SIA), n.d.).The need to cater for an increasing global market and the availability of mobile pool of capital are some of the reason as to why financial centers are in existence (SIA, n.d.).
However, financial centers face the same level of competition as corporations and investors they attract. For that reason, investors tend to run their businesses in areas where costs are low, procedures are streamlined and the law protects investments (SIA, n.d.). Therefore, for a financial center to be successful, it must fulfill above requirements.
World-class financial centers provide an investor with necessary business environments (SIA, n.d.). SIA (n.d.) also adds that these environments provide conditions under which financial skills and innovation thrive.
Subsequently, customer needs are efficiently catered for through market driven forces. Studies conducted on the various financial centers also show that these centers share some key characteristics. However, five characteristics stand out from the rest (SIA, n.d.). Firstly, a world-class financial center must have a stable and open economic and political system.
Therefore, most financial centers are from countries that embrace democracy, have an open and fair financial market, encourage free flow of capital and have a convertible currency. Secondly, a financial centers legal, regulatory and tax regime must be fair, transparent, efficient and reasonable. Thirdly, its labour force must be skilled and flexible. Fourthly, the language used in a financial center must be familiar to most people. Lastly, a financial centers physical infrastructure must be of high quality.
Reasons and Objectives for the Establishment of Bahrain Financial Center
Bahrain is one of the leading financial centers in the Middle East. To start with, this financial center has efficient regulatory policies. Bahrain, therefore, is a popular place for foreign investment. Bahrain sought to become a financial center in order to reduce its reliance on oil (USDC, 2012). Additionally, due to its small size, Bahrain has focused on becoming an area where exceptional services are offered. For that reason, Bahrain is a hub for quality services.
Bahrain was also transformed into a financial center in order to offer investors a cost-effective business environment. Therefore, Bahrain became a financial center in order to increase the ease of doing business. For that reason, the government of Bahrain strives to boost foreign direct investment (USDC, 2012). Bahrain was also the first country to recognize the need to diversify the economy in the gulf region (BSB, n.d.).
This financial centers greatest asset is its ability to maintain high levels of financial and economic management in challenging times. This is one of the greatest assets of Bahrain. For that reason, Bahrain deserves respect and recognition. Other regional financial centers have continuously provided stiff competition for investors.
Nonetheless, Bahrain is one of the financial centers to beat in this region. According to Bahrain Economic Development Board (BEDB) (n.d.), in the Middle East region, Bahrain is believed to be among the best regulated financial centers. Additionally, for more than forty years, Bahrain has been the regions financial capital (BEDB, n.d.). Currently, 27.6% of Bahrains gross domestic product is made up of financial services (BEDB, n.d.). Moreover, most Bahraini nationals are experts in financial matters.
For that reason, 67% of the 14,000 people employed in the financial industry are Bahraini citizens (BEDB, n.d.). The financial sector is also supervised by a pool of professionals from the Central Bank of Bahrain. In terms of regulation, originality, license management, non-discriminatory treatment and efficiency in operations, the Central Bank of Bahrain is the most successful in the Arab world (BEDB, n.d.).
This financial center is, hence, in safe hands. In addition, the award given to Bahrain by the Global investor Magazine came when the global economy was weakening (BEDB, n.d.). Therefore, Bahrain showed that it is ready for its new role as a world or regional financial centre. An ambitious financial center must withstand major financial crisis and shocks. This is exactly what Bahrain did during this period when the world was on the verge of a recession.
Pros and Cons of Bahrain in Becoming a World or Regional Financial Centre
A number of factors favor the establishment of Bahrain as a world or regional financial center. The business culture in Bahrain is about a century old (USDC, 2012). This culture prepares the ground for businesses and visitors. The government of Bahrain has also liberalized Bahrains economy (USDC, 2012).
This means that no industry is under government control. Ernst and Young (2012) state that the government of Bahrain is the majority owner of industries connected with infrastructure. Examples of these industries include oil, gas and aluminum. However, most industries are being privatized.
Therefore, all industries are now open to foreign investors (Ernst and Young, 2012). For instance, in 2006, government of Bahrain privatized electricity production and transferred control of parastatals to a quasi-independent holding company (USDC, 2012). This reaffirmed Bahrains commitment in running profitable businesses. Moreover, foreign companies receive the same incentives as companies from Bahrain (Ernst and Young, 2012).
Additionally, Bahrains commercial and legal laws are consistent with international standards. Commercial laws are also reviewed from time to time to accommodate any changes made internationally (Ernst and Young, 2012). For that reason, Bahrain should be an emerging market of choice for many businesses regardless of their place of origin. Ernst and Young (2012) also add that companies operating in Bahrain are required to present their financial reports using internationally accepted Standards.
In addition, Bahrains modern laws provide favourable environments for doing business. Some of the best laws include labour and commercial laws (USDC, 2012). For instance, expatriates can change jobs more easily in Bahrain than in most countries in the Gulf region. This brings about flexibility in the labour market. Workers also have the right to join unions to fight for better terms. In addition, there are laws that protect foreign workers from abuse (USDC, 2012).
According to the USDC (2012), Bahrains gross domestic product (GDP) has been on the rise. Recent reports indicate that Bahrains has enjoyed an economic growth of between four to five percent yearly. In 2010, Bahrains GDP stood at $21.3 billion (USDC, 2012).
Moreover, Bahrain has been able to maintain price inflation at low levels (USDC, 2012). For that reason, this financial centers currency has remained stable. This is an added advantage to Bahrain as a financial center. English is also spoken widely in Bahrain. This makes easier for most people to express themselves.
However, a few factors discourage investors from investing in Bahrain. For instance, there are no clear differences between the government and the private sector. As a result, there has been conflict of interest (USDC, 2012). The USDC (2012) also adds that the tendering process has not been transparent enough in some cases.
In other cases, the government has been found to favour certain business men (USDC, 2012). This act disadvantages other competitors who are not highly connected with government officials. In addition, foreign investors who do not have local partners are discriminated upon.
There are also few incidents of bureaucracy and poor coordination among ministries (USDC, 2012). Moreover, the government of Bahrain forces a company to employ a certain number of Bahrain citizens (USDC, 2012). Failure to do leads to a fine. Furthermore, the government of Bahrain intentionally makes it difficult for foreign firms to secure work permits and visas for foreign employees (USDC, 2012). This forces these companies to employ Bahraini citizens.
As a result, the firms produce goods and service of low quality. In addition, these firms lack the required experts in various fields. In some cases, companies are forced to relocate from Bahrain. Finally, a few months ago Bahrain was on the international media for the wrong reasons. Bahraini citizen were protesting due to political and economic injustices. Such scenes kept investors away from Bahrain. However, Bahrain has been able to overcome these unrests (Albawaba, 2011)
Degree of Success and Future Prospects
Bahrain is recognized by its prowess in financial management. This makes the central bank of Bahrain one of the most respected financial institutions in the Middle East (Albawaba, 2011). Apart from being the first country to indentify the need to diversify the economy, Bahrain was the first country to discover oil in the Gulf region in the modern era (BSB, n.d.).
Bahrains transportation and communication are also in standards that attract and foster investments (USDC, 2012). Likewise, other types of infrastructure are of standards that encourage business development. Therefore, any form of investment will survive in Bahrain.
Compared to eighty three economies, Bahrain is ranked 38th by the World Bank on the ease of doing business (World Bank, 2012). This makes it the 4th best economy in the Middle East. The World Bank report also places Bahrain on 82nd and 126th position on ease of starting a business and getting credit respectively.
Additionally, this financial center is ranked 7th in dealing with construction permits, 18th in paying taxes , 25th in resolving insolvency, 30th in registering property and 49th in trading across borders. Furthermore, Bahrain is ranked 79th in protecting investors, 49th in accessing electricity and 115th in enforcing contracts. This shows that Bahrain fairs well as compared to other countries where doing business is not a complicated matter.
Bahrain has experience a steady increase in the number of financial institutions. Despite fluctuations in oil prices, these institutions have continued to post profits and positive growth (BSB, n.d.). In March 2006, the International Monetary Fund Financial Sector Assessment Programme (FSAP) conducted a review of the financial sector in Bahrain (BSB, n.d.).
The results of this review indicated that Bahrains financial regulations were modern and effective. In the same year, Fitch Ratings changed Bahrains credit outlook from stable to positive (BSB, n.d.). This rating meant that the world recognized Bahrains financial and economic strength. In 2010, The Global investor Magazine named Bahrain as the best financial center (BEDB, 2010).
The Global investor Magazine is a publication associated with the Euromoney (BEDB, 2010). For that reason, this award cannot be disputed. The award was given to Bahrain because of providing excellent financial services for a long time. Additionally, the award recognized the good work done by the Central Bank of Bahrain. This reward, hence, portrayed Bahrains leadership in the financial sector.
Bahrain has also been able to establish a transparent business environment (Albawaba, 2011). Its laws are non-discriminatory and the tendering process is not questionable in most cases. Moreover, Bahrain overcame recent unrest brought about by bad economic policies (Albawaba, 2011). This showed that Bahrain has the capability to offer instant solutions to any situation that threatens to disrupt its economic progress.
Bahrain faces stiff competition from other financial centers such as Dubai and Qatar. Therefore, to increase its competitiveness, Bahrain targets to improve six economic sectors (USDC, 2012).These sectors include tourism, health care, information and communication technology, education and training, business service and financial services (USDC, 2012).
Moreover, one of the growing sectors in Bahrain is Islamic banking (Albawaba, 2011). Although Islamic banking has been associated with the Middle East for a long time, Western countries are adopting it. This is something that Bahrain can present to foreign investors who want to diversify.
Conclusion
Throughout history Bahrain has been known to be a strategic trading point between the East and the West (BSD, n.d.). Therefore, Bahrain is one of the most renowned financial centers in the Middle East.
Bahrain future as an economic center looks bright. Bahrains economic and financial policies have laid a solid foundation for future investments. Additionally, to increase its competitiveness, Bahrain has prioritized six sectors. These are the sectors that Bahrain wants to improve in order to consolidate its position as a world and regional financial center (USDC, 2012).
The law of value of a commodity refers to the total number of person-hours used in order to produce a particular good or service, under the normal working conditions, with the provision of the necessary equipment or machinery. This also takes into account the work force input, the raw materials and the tear and wear of the machinery used in production. Surplus labor is also that labor that was not a necessary input in production.
Karl Marx argued that the amount of input in the production of goods or services should be equivalent to the amount of monetary returns. Therefore, the amount of person-hours used in production and delivery of these commodities determines the value of a good or service. Marx continues to argue that capital originated from trade with the aim of making a profit. The labor ought to be equally distributed, and so were the profits from the labor.
Simulating this in the economy where approximately two percent of the population control about ninety-five percent of the nations wealth, clearly demonstrates Marxs argument. They insisted that all employees within a company should get an equal share of the company proceeds generated monthly. This would ensure fairness and equal distribution of resources across the entire staff and, therefore, act as an incentive for everybody to work harder and together to achieve more.
Marx had a profound understanding of how capitalism cripples its own societal foundation. He anticipated a change in the current economy and the way of life. His conclusion was that capitalism would push the middle class into a situation comparable to the shaky existence of the hard-pressed workers during his time.
Currently, the growth and build up of fulfilling careers are no longer a focus point for the minority alone, but rather a broader group. People have revolutionized from struggling month-to-month and living on insecure wages.
They have devised a way of cushioning themselves from economic shakeups in terms of savings, owning a house and even a decent pension, which enables them to plan their lives without fear. The wealth spread across working class, and the vastness of democracy, everybody can remain middle class with contentment.
The argument that labor is the sole creator of wealth was obstructed by the existing system of unequal exchanges, where the owners of the economic power and advantage appropriated part of the labor. According to Marx, the development dialectic started from man and nature where man was initially an integral part of nature.
Man being a dynamic being had the distinctive capability of struggling with and against nature of ultimately transforming nature for his own purpose. The clue to the labor conditions shift lay in the successive modes of production, which was characterized by division of labor, technical forms and different forms of social relations of production between human beings and classes.
This historical conception applied to a particular economic system and approached the matter form an angle of production conditions. They included ownership or nonownership of the production means, and the respective effects of these factors upon the behavior of social classes. Marx placed labor as a human, productive activity and made it the foundation of explanation for the exchange significance.
Theoretically, it is hard to comprehend the Karl Max law of value since he did not take into account issues like market trends, consumer spending, fluctuating value of currency, financial securities and public finance. Several pinholes from the labor theory emerge in the regulation rule between value of goods and services sold and the cost of production in general.
It attempts to identify the causes of the relationship between the law of value and economy, which only regards to labor as the actual tool of commodity value. It only involves the value obtained from the production and delivery of the goods or services including their trade value.
All the same, each of Marxs theories brings out a different dimension of the social reality of the contemporary world. There are systematic connections among the three dimensions, where domination and exploitation are interlinked. It is irrefutable, however, that a group of individuals remains privileged by both systems. The logic in this is that in the contemporary world, the inequalities seen in the economy currently suggest that there is exploitation of some individuals.
The large proportion of the wealth created flows to a small, privileged group, which implies domination on the society by a small segment of the society commonly referred to as the ruling elite. Marx described this situation as alienation, which in the contemporary society shows a growing sense of lack of value.
It is true that capitalism relies on free labor and freedom of assets and a system of free exchange. The question of exploitation is, therefore, apparent in the privilege of ownership and production means, which gives the owners chance to set the wages at a level that permits the creation of profits and the laborer has no control over that.
Turkey is one of the fastest growing emerging markets with immense business opportunities. However, it has numerous risks that should be addressed. This paper will analyze the risks that are associated with investing in Turkey.
Economic Risks
First, economic growth has declined from 9.2% in 2010 to 3.3% in 2013 (World Bank, 2014). This decline is mainly attributed to the countrys reliance on export earnings, which reduced due to poor economic performance in the Eurozone. Economic growth is not expected to exceed 4% in the medium-term. Thus, growth in corporate profits will be limited if economic growth remains low.
Second, Turkey depends on volatile external capital, which includes short-term loans and non-resident deposits (KPMG, 2013). The persistence of the European crisis is likely to hinder access to external funding. This poses high liquidity risks to the countrys financial system in terms of limited access to credit.
Finally, Turkeys inflation rate has remained above 6% since 2012 (World Bank, 2014). High inflation will reduce purchasing power, thereby reducing demand for various products. Moreover, the cost of borrowing will increase as commercial banks raise lending interest rates to avoid losing the value of their money.
Political Risks
First, the conflict between the government and the Kurdistan Workers Party (PKK) is a threat to political stability. If PKK continues to use violence, business activities are likely to be disrupted, thereby causing losses to investors. Second, the regulatory framework in Turkey is weak. Key regulatory agencies such as the BRSA and the EMRA, which regulate the banking industry and the energy sector respectively, are being controlled by their respective ministries (KPMG, 2013). This denies the regulators independence by exposing them to political influence. Third, the level of corruption in Turkey is high (KPMG, 2013). This increases the cost of doing business since investors have to bribe government officials to obtain basic services such as business registration. Finally, Turkey is not likely to get access to the EU market as a member country due to its poor democracy and strained relationship with Syria. This will deny local companies the opportunity to serve the lucrative EU market.
Social Risks
High unemployment rate and rising inequality in income distribution are likely to cause social unrest (KPMG, 2013). Moreover, aggregate demand and economic growth will reduce in future if unemployment rate remains high. Another social risk is the difficulty in finding senior personnel with high experience. This forces foreign companies to incur high costs by employing expats.
Horizon and Future Expectations
Economic growth is expected to improve in the long-run since the government is already implementing an expansionary fiscal policy (KPMG, 2013). Access to external capital is also expected to improve in the medium-term as the European Central Bank and the US Federal Reserve Bank continue to pursue expansionary monetary policies. Since the government is increasing its expenditure to spur economic growth, inflation rate is expected to remain high in the medium-term. The threat to political stability is also likely to remain high since the government and the PKK are yet to resolve their differences.
Conclusion
The main risks associated with investing in Turkey include declining economic growth and dependence on external capital. Moreover, the regulatory framework is weak and political tensions are likely to increase. These risks are expected to reduce in the long-run.
References
KPMG. (2013). Investing in Turkey. Istanbul, Turkey: KPMG. Web.