EC221 International Business New Market Entry Strategy

•Compare and contrast the different modes of entry that firms use to enter foreign markets

•Recognise the pros and cons of each mode of entry

•Understand the meaning and importance of FDI

•Recognize current FDI trends in the world economy

Answer:

Introduction

Investment in business enables the organisation to fulfil the business objectives and increase the level of profitability. The present report deals with the evaluation of the options and the strategies of investment in the Smartphone industry. The story would shed light on here different aspects, and they are the mode of entries that would be effective for entering the smartphone industry, The political and the legal factors related to entry and investment would also be discussed in this case. The third section includes the ethics in the international business and the ways it needs to be maintained.

Mode of Entry

The smartphone industry is growing significantly in the world with the increased usage of the internet. Nearly, 1.5 billion smartphones are sold in the year 2016. 81.7% of the smartphones which are sold in the market which have an Android operating system. The sales of the smartphone are different in the different countries of the world. It has been seen that 28% of the population in the world owns a smartphone in 2016 which is expected to reach 37% by 2020(Businesswire.com, 2018). The developed countries of the world make the maximum use of the mobile phones. The three biggest smartphones selling organizations in the world are Apple, Samsung and Huawei.  

Burpitt and Rondinelli (2000)commented that the mode of entry mode implies a critical strategic decision that faces the organization's expansion in the international market. Method of entry in the global business includes equity, non-equity and contractual. Different entry modes include exporting, licensing, franchising, joint venture and acquisition. However, the selection of the entry modes depends on resource requirement, capability factors, possible future returns and the risks factors. The method of entry which has been selected in this case is the Merger and Acquisition (M&A).  Presently, the world economy has entered the third phase of the M&A that can increase the number of the deals to rise(The Economist, 2018).  

Merger and acquisition are considered to be an essential mode of entry for the smartphone industry because of the following advantages:

1. Securing resources, brands and technologies and guaranteeing the supply of raw materials. This has increased the access to the intellectual property and thereby make a high profile investment. This would be effective in case of smartphone industry as a share of the technology is useful and also securing of resources (Greve and Man Zhang, 2017).
2. M&A also helps in the accessing of the new market and enable the growth and the development of the brands.
3. Acquiring and the merging the competitor can help to overcome excess the competitors in the market. This help to gain the pricing power and may contribute to allocate the surplus capital (Zhang et al. 2015).

The disadvantages of the merger and acquisition are listed below:

1. The most significant problem of M&A is that the employees of the small merging may lose their jobs and this can affect the organizational culture.
2. Companies can encounter difficulties related to internal competition (Zhang et al. 2015).

The risks which are associated with the Merger & acquisition are:

1. Cross-border transaction often  hampers the organization culture and the aspects, and this can affect the performance of the employees (Zhang et al. 2015).
2. In some instances, it has been seen that M&A is far less confident in attaining growth that attaining the cost savings.

Political and Legal Factors

Political factors  

Political risks is a type of the risks that are related to investors, corporations and the government that is bound to affect the business growth of a given economic situation. The government of the foreign country can prohibit the trade that affects sales of the company's product in the market. Moreover, the government of the country can prevent the merchant ships, and this hampers the sales of the products (Bekaert et al. 2016). The government can also increase the taxes which can hinder the prices of the products. For instance, any smartphone company of USA merges with that of the small smartphone company in the UK then the cost of the product would increase if the government raises the taxation and this can increase the amount of the product. Corruption is an important factor that affects the merger and acquisition. The business can be changed due to increased corruption in the market. The developed nation like the UK, USA, and the different European companies have limited corruption. Hence, the merger and the acquisition in the less developed country of the world are effective. However, when merging with the least developed and the corrupted state often affects the performance of the organization (Shenkar et al. 2014).

In the smartphone industry, the companies encounter different competition related to technology and price. Hence, increased corruption and rise in taxation and also excessive interference of the government can affect the business. In addition to this, the stability of the political environment is also needed to ensure the merger of the foreign companies is done effectively.

Legal Factors

Running in the international business in the different international jurisdiction is an exciting and influencing behaviour, but the merging and the acquisition firm can engage in legal issues. While making a merger or acquiring any foreign companies, one needs to be aware of the laws and the policies and abide by the domestic rules and the regulations (Picciotto, 2017).

Maintaining a worldwide business implies you will utilize staff in various areas. Business laws vary significantly from regions to regions and are generally connected entirely by the nearby specialists. Ensuring you conform to all pertinent wage, wellbeing and security and other lawful prerequisites is an absolute necessity for the best possible task of your business.

Corruption is as yet an outstanding issue in the vast majority of the nations on the planet. While working together globally, you will see that each State has different traditions in regards to the manner in which business is finished. In such a way, it frequently gives the idea that specific instalments or presents are requested that all together cultivate the advancement of your business in the local region (Picciotto, 2017).

Another vital issue for international merger and the acquisition is the regard for the vital contrast between legal frameworks. There are for the most part two lawful administrations – the Civil law and the Common law frameworks. The UK and USA are delegates of the precedent-based law culture, where the legitimate point of reference is the primary factor. Mainland Europe is the centre of the Civil law nations, where necessary lawful guidelines are the essential wellspring of law (Deresky, 2017).

For the smartphone industry, it is crucial to be aware of the legal issues that can hamper the entire process of the merger and acquisition. The legal issues can hamper the entire business and reduce the sales and the customer awareness in this case.

Ethics in international business

While carrying out international trade, one needs to be aware of the ethics. Kumar and Steinmann (2015)commented that ethics should be combined with the skills and professionalism for increasing the sustainable development. In international merger and acquisition, following the business ethics are crucial as this can hamper the cultural sentiments and the work culture which in turn create an impact on the performance of the organization. The United Nations has an organization that has developed an International Labour organization that ensure that ethics are followed in the international business by providing that the employees are well-treated in the organization. ILO delivers the upholding of the cultural diversity as international organization employs people from different culture and background.

Maintenance of sustainability encourages the sustainable growth and the development of the business. The Foreign Corrupt Practices Act (FCPA) developed in the year 1977 helps to promote ethical activities in the international market by preventing questionable practices which were developed by the western companies of the world. Several American companies were seen to give bribes to the foreign officials for wrongly and illegally gaining business from the foreign governments.  Bribing is a dominant unethical practice that has been prevented by FCPA (Cavusgil et al. 2014).

However, the main flaw of the Foreign Corrupt Practices Act was that it did not implement global business morals in any uniform way. Just organizations working in America were liable to the Foreign Corrupt Practices Act; numerous different organizations would at present reward remote authorities keeping in mind the end goal to acquire a business, and hence, would have an out of line advantage against American organizations. Accordingly, America looked for the formation of the Organization of Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Cavusgil et al. 2014).

Conclusion

The present report provided an overview of the critical aspects of the probable investment in the foreign nations. The first section discusses the mode of entry for the smartphone industry. Merger and acquisition have been selected in this case as it helps in the securing of the resources and the technologies. The second section focuses on the evaluation of the political and the legal factors that affects the international business. The political and the legal scenario varies based on countries, and the players in the smartphone industry need to be aware of the situation. Moreover, the report also explores the ethics in the business world.    

References

Bekaert, G., Harvey, C.R., Lundblad, C.T. and Siegel, S., (2016). Political risk and international valuation. Journal of Corporate Finance, 37, pp.1-23.

Burpitt, W.J. and Rondinelli, D.A., (2000). Small firms' motivations for exporting: To earn and learn?. Journal of Small Business Management, 38(4), p.1.

Businesswire.com. (2018). Global Smartphone Market 2017-2021: Market Analysis and Geographic Segmentation by Technavio. [online] Available at: https://www.businesswire.com/news/home/20170725005585/en/Global-Smartphone-Market-2017-2021-Market-Analysis-Geographic [Accessed 17 Aug. 2018].

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., (2014). International business. Pearson Australia.

Deresky, H., (2017). International management: Managing across borders and cultures. Pearson Education India.

Greve, H.R. and Man Zhang, C., (2017). Institutional logics and power sources: Merger and acquisition decisions. Academy of Management Journal, 60(2), pp.671-694.

Kumar, B.N. and Steinmann, H. eds., (2015). Ethics in international management (Vol. 84). Walter de Gruyter GmbH & Co KG.

Picciotto, S., (2017). Rights, responsibilities and regulation of international business. In Globalization and International Investment (pp. 177-198). London: Routledge.

Shenkar, O., Luo, Y. and Chi, T., (2014). International business. London: Routledge.

The Economist. (2018). Schumpeter. [online] Available at: https://www.economist.com/blogs/schumpeter [Accessed 17 Aug. 2018].

Zhang, J., Ahammad, M.F., Tarba, S., Cooper, C.L., Glaister, K.W. and Wang, J., (2015). The effect of leadership style on talent retention during merger and acquisition integration: Evidence from China. The International Journal of Human Resource Management, 26(7), pp.1021-1050.