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Introduction
There are many reasons why firms may decide to expand overseas whether through acquisitions or any other means of expansion. However, the major goal is growth and expansion (Usunier & Lee 2009, p.213).
Therefore, it is essential for the company before opening its subsidiaries abroad to have a clear and workable strategy that will increase its capability of achieving the required goal. Global expansion of companies are driven by factors such as growth and development, technology, resources innovation and reduced production cost in terms of labor and general operations.
This research paper will be examining the major reasons why companies such as the mobile operators in Latin America will be willing to open some of its branches in marketplaces such as India. Moreover, the paper will explore some of the factors that drive this mobile operating company to set up a subsidiary in India and some of the implications of marketing mix applied when entering the new market.
The reasons the mobile phone operator would want to locate to India
Firms have many reasons for entering the international market, but the most important is their willingness to expand (Deresky 2011, p. 112). In some cases, companies enter into the international market for growth. Most of the companies believe that introducing their products into the new markets will enable them increase their client base, sales as well as the revenue (Deresky 2011).
According to Gillespie et al (2010, p.43), increased revenue enable firms to expand and develop capabilities that provide competitive advantage within their respective environment. As the company develops networks outside their nationals, they gain more resources, competencies and techniques that increase their competitiveness in that new market (Ahlstrom & Garry 2009, p.89).
These could be the major drivers for mobile phone operator in Latin America to open its new branches in the new and emerging markets such as India. However, these reasons are driving all the companies to any place where they can readily get market for their products. Specifically, mobile operators in Latin America would be willing to locate their businesses in India because the country in all respects promises a better future for the industry. Besides its ever growing population, the larger percentage of the population consists of the younger generation. This demographic segment is the major consumer of the mobile services.
Moreover, the statistics indicate that India consumes almost 60% of mobile services in the world. What this means is that India is a promising market for the mobile services and the market is increasingly growing. It is estimated that the market for mobile services will grow by over ten percent in the next decade.
Furthermore, few companies have opened up their operations in India making the country to be one of the greener pastures for mobile operation companies. Even though Latin America is also emerging market, the Indian market is large and less saturated.
Since the domestic market is saturated with both domestic and foreign manufacturing companies and has become more competitive, it is important that the company internationalize so as to increase its market share which will ultimately increase its revenue (Doole & Lowe 2008).
India promises low cost operations in terms of labor and other services. Moreover, the incentives being offered by the government further reduces the cost of operations in India. The firm also enters the Indian market through acquisitions thereby reducing the set up costs as well as original legal financial obligations that would have increased the cost of operations.
The other major reason is the general world economic climate. The changes in the economic climate where developed countries are no longer attractive markets for mobile phone operations due to saturation caused by major multi-nationals, companies intending to go international move to middle income and emerging markets (Boone & Kurtz 2011, p.132).
Most of the emerging economies are looking for foreign investment as an incentive for economic growth. In these countries, foreign investments are expected to create employment, generate export sales, transfer technology and spur the growth of local industry and development (Ebner, 2011, p.189). Therefore it is more attractive and profitable for these companies to expand in these markets.
The other reason why the Latin American mobile company has chosen the Indian market is because of low protectionist policy. The Indian government has in the recent past opened its market to foreign investment removing almost all barriers to the entry of foreign investors.
Moreover, the incentives provided by the Indian government in form of capital to all businesses irrespective of its origin are attractive. The recent research indicates that emerging economies that have adopted limited protectionist policies and trade regulations have attracted major foreign investments.
Ebner (2011, p.317) asserts that the major world capital is flying towards those emerging economies with less trade regulations, political stability and less sovereign debt. In all these respects, the Indian market is open with little trade regulations in key sectors or industries. In addition, India is generally stable and has little foreign debt.
Assessment indicates that there is stability in both economic and political climate in India. The political and socio-economic assessment is essential in determining the risks of any potential investment (Moran et al, 2010, p.415). Unlike in the past, Asia is becoming more stable politically and socially hence viable for any business expansion.
The factors that influence the transfer of business to go international
Financing capabilities
It is essential that companies consider their financial capability before going off-shore (Brigham & Daves 2009, p.332). It is also important that the company tests its financial models and revenue targets to ensure that the offshore activities are fully funded. While conducting the financial analysis, the company must take into account factors such as the interest rates, unfavorable market conditions and currency deflations of the country they are about to operate in (Brigham & Daves 2009).
Furthermore, the company must look into options of raising finance through the global expansion including accessibility to bank loans or interbank loans as well as other emerging financing institutions such as Islamic finance (Jalan 2004, p.94). How the company manages its financial resources will determine its success in the off-shore market. This calls for proper testing of financial models to determine if the company can achieve the required debt to equity ratio that can service the desired debt levels if the results are not achieved.
Tax regime of the foreign country
Besides political and financial considerations, the Indian tax regime is appealing. The government did away with numerous tax regimes such as withholding taxes, state based taxes, consumption taxes and value added taxes on capital goods. Moreover, duty on imported goods has considerably been waived by the government making it easier and cheaper for the company to import raw materials from other countries.
This in turn lowers the cost of production (Jalan 2004, p.98). Generally the Indian regulatory framework creates a safe and sound environment for efficient corporate governance across all sectors within the industry. Also, the regulatory frameworks neither stifle entrepreneurial freedom nor discriminate against foreign investments or investors.
Legal system
The legal system regulating business activities in India is effective. The system protects both commercial interests of the business and the consumers. Moreover the legal system, though civil like any other emerging economy, is easily understable and makes it easier to enforce some of the commercial agreement more so on the planned acquisitions.
Also the laws have set measures on how firms are supposed to conduct themselves thereby reducing destructive competitions among firms. In addition the standard measures are clearly defined and within the international requirements.
Furthermore the patent and copy right laws are almost similar to that of Latin America and draws from international regulations. As Jovanović (2006, p.135) indicated, the legal system within which a business expands is essential in all aspects from litigation, arbitration and mediation to the regulation of development in technology. Moreover the labor laws regulate the employment issues. As a matter of fact the labor laws within the Indian market have recently been repealed to cub the workers unrest that dogged the country in the past.
Innovation and incentives
The company is committed in maintaining an environment that is supportive of innovation. This is the only way it can drive its future growth. The aim of the company is to decentralize the company innovation processes to its subsidiaries and even to areas it wants to set up businesses. The Indian environment is supportive of innovation more so in the mobile phone industry. Moreover the company is looking forward to set India as its research and development hub in the Asia region.
India will be the strategic location for future expansion of the company in the region. According to Craig & Douglas (2005, p.177), conducting research within the fast growing and emerging markets will be the driving force of the company through tapping new pool of innovation and market leading talent into the company. These will in turn put the company in a better competitive advantage than new entrant into the market (Czinkota & Ronkainen 2007).
Infrastructure
The Indian mobile phone operation infrastructure has already been developed and is capable of supporting the company expansion. Most importantly, the country’s communication network system is mature. Given the important role the communication plays in the business operations, India offers efficient, effective and reliable communication system. India has an efficient and effective telephone and mobile networks as well as data delivery systems that are supportive for any business operations.
According to Kotler & Armstrong (2009, p.254) firms considering operating in the foreign country must consider whether the attributes that have made them successful in their countries can be leveraged to spur their growth in the foreign country. Moreover they have to consider whether the movement of employees, products and raw materials can easily be achieved (Hollensen 2010, p.112).
In other words, the company must find out whether the foreign country possesses adequate social and commercial infrastructures to support the movement of products and expertise (Hall 1990, p.312). In this case however, Indian market is big enough to support production. Moreover, the utilities and information system as well as financial services within the country are accessible.
Cultural compatibility
For the company to achieve faster growth and develop international foot print, it must create a diverse workforce that reflects the country market (Browaeys & Price 2008). The company must take into consideration the country cultural customs that may have a diverse influence on its operations.
In other words, the company must recognize and appreciate the cultural diversity in managing their businesses so as to create competitive advantage (Hofstede et al 2010, p.192). Taking advantage of cultural diversity means that the company is capable of making quick decisions while ensuring that they clearly understand the local operations and customs.
In essence, increasing the level of tolerance, understanding the ethnic and cultural diversity as well as breaking the language barriers in the foreign countries are essential for the growth and development of the company. Among the most highly ranked cultural factors when doing business internationally is the international experience of the workforce (Keegan & Green 2011). Therefore, the company moved into the foreign market because of the presence of management workforce with international experience.
The local workforce
The company is moving off-shore due to the availability of the workers with international experience. In fact, the Asian market has highly qualified employees with international experience. This will save the company the cost of transferring its employees to the offshore locations.
Getting the right local employees at the right location provides the company with an important competitive advantage. Moreover, the quality of the workforce is the determining factor for the company’s success in the new location. Kotabe & Helsen (2008, p.143) assert that companies looking at the work force with the global lenses are in most cases driven by local talent shortages and reduced costs of such talents abroad.
Though the company is attracted by the rich talent in the East Asian market, still it must consider other factors such as the education level as well as the experience of the prospective employees. In addition, the company will have to consider training cost together with terms and conditions of employment.
However, the terms and conditions of the labor force will be determined by the country regulatory framework as well as the customs and practices of the local people. Therefore, the company will take advantage of the cheap local expatriate to drive its growth and development in the off-shore market.
The SWOT analysis
The SWOT analysis for company entails its strengths, weaknesses, opportunities and threats. This is summarized as below.
Conclusion
Currently, firms look for off-shore option for expansions and increased revenue generation. Although such ambitions look lucrative, they take businesses some efforts and commitments in terms of resources to achieve. The benefits that the firms aspire to gain from Internationalization of its operations includes increased sales and revenue as well as reduced cost as a result of cheap labor in off-shore markets.
Moreover the company also benefits from the available technological innovations combined with rich talents in the foreign market. Internationalization is driven by factors that are more related to business opportunities emerging from foreign markets especially those which are growing economically. For the telecommunication firm, expanding operations to India seem to be the best decision as the Latin and Asian economic share some market characteristics.
References
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