Possible Consequences Of Political Instability On Business Operations And Market Entry Strategies In China

Political Instability and Its Effects on Business Operations in the Coffee Sector

1 As a political risk analyst, you have been asked to prepare a short report detailing the possible consequences to business operations of a multi-national enterprise (MNE) working in the coffee sector in a politically-unstable country in Latin America. Your clients wish to know the possible effects of expropriation, confiscation, or domestication of their business. You should explain what each of these actions might comprise, and suggest potential counter-measures that your client could adopt to pre-empt this occurrence, or ameliorate the situation should action be taken against you.

2 The following are three British companies hoping to internationalise their operations into China:

i) a retail bank (specialising in short-term loans to agriculturalists)

ii) a manufacturer of high quality mobile homes / camper vans

iii) a designer / manufacturer of top-of-the-range branded clothing

As they operate in different industry sectors, each company is likely to favour a different method of market entry. Discuss the relative merits of possible means of market entry for ONE of the above companies and then decide which is the most appropriate. Justify your choice.

3 It is universally recognised that performance management is critical to the success of organisations operating in a global context. There are a number of conventional techniques. Critically analyse such approaches as well as alternative methods.

4 Critically evaluate the key concepts of VRIO and distinctive capabilities for achievement of sustainable competitive advantage. Use relevant examples from manufacturing and service firms to discuss how their resources help in achieving competitive advantage. Using VRIO, explain whether competitive advantage of those firms is sustainable or not.

5 In a global and diverse work environment, the phenomenon of ‘groupthink’, which is about over-cohesiveness in teams/groups, may be seen as a positive occurrence than a problem.
Discuss the phenomenon of ‘groupthink’ whilst considering the globalised environment and diversity of the workforce.

1: Coffee has become the most expensive and valuable commodity in the international trade. In Latin America in the 20th century there was political instability which hampered the Multinational Enterprises (MNE) of the coffee sector. The political instability along with the adverse climatic condition in Latin America, adversely affected the coffee production. Another reason for the fall in the production of coffee by 20% of the production of coffee in the year can also be contributed to the Hemileia Vastatrix which is a coffee rust fungus. The coffee sector has significant influence on the political, economic and social structure of the countries. For example the troubling and political instability that led to the fall in production by 25%. The fall in production created a situation of excess demand in the economy which leads to the increase in the price of the coffee. The MNE of coffee sector have no other option but to raise the price to survive in the market. The impact of the high prices for the farmers is covered up by the low production in most of the countries (King et al., 2009). Coffee has been a source for social and rural development. The crisis in the coffee sector causes the social imbalance, migration from rural to urban areas and finally causes political instability.  The war in the country can cause the destruction of the coffee plantation which will affect the production of the coffee as attributed to the political instability in the country. This political instability results in the deterioration of the high quality coffee beans and an increase in the operating cost. The political instability impact the ability of the purchase of the coffee (Moran, 2004). Due to the expensive sale of coffee beans consumers generally tend to shift their preferences and substitutes coffee. Thus, this enables the MNEs to change the coffee product line due to the frequent substitutability, customer alienation and fluctuations in the gross margins. Political instability can be attributed to be government induced which is called political risks. There are three types of political risk such as expropriation, confiscation and domestication (Lam, 2011).

Market Entry Strategies for British Companies in China

Expropriation- it is the involuntary transfer of property from a private company to the host country along with the compensation. The MNE of the coffee sector can participate in expropriation at the time of crisis where they would acquire the risk to transfer which will generate fund for the owners (Meulen, 2010).

Confiscation- This is slightly different from the expropriation where the transfer of the property takes place from the private firm to the government without compensation. This situation creates a risk scenario for the foreign firms as the firms do not receive any fund from the government.

Domestication- It provides the government with a control over the foreign investments. Here the ownership transfer is partial where the companies give priority to the local production and gain large share of the profit. This type of risk has the opportunity to negatively affect the foreign market activities (Lin, 2000).

Some of the measures that can be adopted to counter the situation of the coffee industry are

Adopting and promoting responsible policies of production of coffee to combat the situation.

Providing finance to the coffee producers so that they can regulate the marketing process.

Supporting the diversification of the efforts that the producing countries are offered through the incorporation of markets in the high income countries.

The company can reduce the risk by increasing the human capital formation, productive efficiency and sustainable development in the coffee producing countries .

2: There are four different methods of generic methods of internalization of markets. In this case the three British companies which wants to internationalize in China.

The first four methods of internalization and market entry strategies in China are:

Direct Export- In this case the British companies will take orders from the international customers and delivers the product to the destination county which is in this case is China .

Selling through agents- in this case the company can sell its product through distribution or agency contract along with one and more intermediaries. Distributors in this case purchase stock of the company and sell the products satisfying the local demand.

Opening an overseas operation- This involves the physical setting of the business in the target market which is China in this case.

Joint Venture- The business in this case can acquire another existing business that functions in the target market. Joint venture can also take the form of opening new business in partnership with the local business .

China is famous for classifying foreign investment under encouraged, restricted and prohibited which depends upon the sector of operation.

The first company is the retail bank that specializes in loaning out to agriculturalists. The retail banking falls under the restricted foreign investment in China that has policies that will impose restriction and impair sustainable development in China (Bain.com, 2015). The banks in China have policy imposed on them that Banks cannot be owned more than 25% by the foreign countries or banks. So to enter the banking industry which is restricted multinationals from the Britain must enter the market as Joint Venture or other local partnership. A joint venture is the process through which the business parties agree to develop a new business entity. The advantage of the Joint Venture is that it enters a market which already has presence and expertise in the existing market scenario. But this type of market entry is quite risky as it is necessary for the investor to analyze the market with reasonable alternatives. There is always a chance that the investor may expand business in a wrong market (Dai and Yuan, 2013).

The direct exporting type of market entry is not possible for the retail banking as there remains a risk of non-payment. The retail banking is a service sector for providing loans for the agriculturalists which must aim to commence a direct physical contact with the customers. The banking facilities cannot be exported to other countries (Markman and Phan, 2011). On the other hand the Selling through the agents also do not seem feasible as retail banking deals in delivery of monetary loans to the agriculturalists, presence of a middle man which involve potential loss of profit margin. The last type of market entry is the opening up of the overseas operation in China but it also involves high cost and investment and incurs high risk. Thus, it is recommended for the entry of the retail banking company in the form of joint venture in China.

3: Performance management is the important aspect of an organization where there is provision for the managers to assess and evaluate the measure of an employee’s performance in order to analyze the situation where the employees met the organizational goals. One of the first techniques to measure the performance of the employees, the company must set performance standards (Aguinis, 2009). The conventional techniques of performance:

Performance Review meetings- in this case the meetings between the employees and the manager aim to reflect each employees’ performance, evaluate performance objectives and the guidance that is required for the development of the employee’s performance.

Performance objectives – in this case the objectives are set through which the skills and abilities of the employees are explored.

Personal Development Plans- in this case a plan is prepared where the needs and the progress of the employees’ performance with objectives and potential outcomes are discussed .

The alternative methods of performance management are explored here:

Graphic Rating Scales- in this graphical rating scale the performance of the employees are assessed based on production oriented work. In this case rating scale includes list of job duties, performance standards and measurement of performance using ratings from 1 to 5. This method includes preparation before the commencement of the measurement. One benefit of this type of performance management technique is the swift and rapid measurement which is beneficial for those supervisors who have to manage large departments with huge labour force.

Management by Objectives (MBOs)- this technique of performance management is used for assessing the performance of the employees who are in the supervisory or managerial positions within the company. This technique first explores the employee goals and then the manager frames the list of resources that are used to attain those goals. The next step of the MBOs is to prepare a timeline for the achievement of the goals. The evaluation period also includes the quarterly or period meeting between the employees and the managers so that the progress of each employees are discussed and if necessary the goals are reset for the employees who might require more time and resources for the achievement of those goals. Thus, the measurement is finally inferred using the process of achieving the goals within the stipulated time period. This type of techniques is labour some as it requires a lot of practice, time and assessment process for the success of this type of performance management.

Forced Ranking- this method of performance management gained importance during the reign of GE’s former CEO Jack Welch. He stated that the performance can be assessed by dividing the workforce into three categories of employees. the top performers include the 20% of the labour force, the average performers include 70% and the low performers comprise of about 10% of the workforce. The employees’ achievements are assessed against their peers are measured in this case through the forced ranking methods. In this technique the analysis is not done by comparing the current performance with the previous performance of the employees. This helps to create a competitive work environment.

4: The VRIO framework is an important part of the strategic management of the firm. The strategy of the firm is mainly to set a vision statement, abide by the organizational objectives, commence internal and external analysis, make strategic choices and implement them. With the above criterion the company expects to gain competitive advantage within the market in which it operates (Cardeal, 2012). VRIO is the internal analysis in which the evaluation of a company is done through the resources and capabilities of the company itself. It is in the form of a question framework that can be asked in order to acquire competitive potential.

The Question of VALUE- The question here focuses on the ability of the firm that can be used to exploit or neutralize the external threat with the help of the resources.

The Question of RARITY- The question emphasizes on the control of the resource which are scarce and to manage the scarce resources in an efficient way.

The Question of IMITABILITY- The question here focuses on the issue of replication or imitation and asks whether there is any cost disadvantages when the resources and the capabilities are imitated by the firm.

The Question of ORGANIZATION- The question asked here is whether the firm is organized and is ready for the exploitation of the resources and the capabilities (Kim, Lee and Shin, 2015).

The sustainable competitive advantage can be achieved through the following framework.

	Reputation of the company	Product	Research & Development
Resource and capability	Resource	Resource	Capability
Value	Yes	Yes	Yes
Rarity	Yes	Yes	Yes
Difficult to imitate	Yes	Yes	Yes
Organized	Yes	Yes	Yes

The competitive advantage of Intel is referred to as the manufacturing monster develop product at a faster rate than anyone else. Intel provides the market segmentation for the delivery of the products like notebooks, desktops and laptops to the target market. The company gains competitive advantage through the vertical integration. It does not engage in outsourcing of the research and development but Intel invests $7 Billion on manufacturing plants to install latest process technology through which it can gain competitive advantage. Also by attaining quality, protecting ideas and meeting deadlines competitive advantage can be achieved (Lin et al., 2012).

The above framework explores the competitive advantage structure where the company has got reputation, product exploration and research and development criterions matching the VRIO framework.

From the above framework of sustainable competitive advantage, it can be seen that if the entire criterions are met then through the VRIO analysis the sustainability can be attained.

5: Groupthink is a psychological event that happens within a group of individuals where the motive of the discussion started with the harmony and conformity but it finally ended in an irrational decision making conclusion. In this system the group members gives effort to reduce the conflict and attain a consensus decision but ignoring the critical evaluation of the alternative decisions. The Groupthink phenomenon causes loss of individual’s creativity, uniqueness and independent thinking. For the commencement of the groupthink testable there are eight symptoms of groupthink.

Overestimation of the groups in the form of power and morality where there is optimism and risk taking along with the questions regarding the morality of the group.

Closed-mindedness is indicated by the rational warnings which challenge the mentality of the group members and the stereotyping of those group members who are opposed to the notion of the discussion.

Uniformity can be in the form of pressure derived from the other group members that pressurizes the other members to attain uniformity in the form of self censorship, illusions of unanimity and mind guards.

In this regard Janis has identified three antecedent conditions regarding groupthink which are high group cohesiveness, structural faults and situational context. Out of the three the high degree of cohesiveness is regarded as the most important antecedent to generate group think. But it normally does not imply that the high degree of cohesiveness imply the generation of groupthink. Suppose that there is dissent in the group members when in spite of high cohesiveness there can be no groupthink. Thus, it is evident from the fact that the high cohesion is ensured to generate groupthink only when the other antecedents is present. In this case the situational context is more than the structural faults in order to generate group think.

The groupthink is considered to be positive rather than negative. Among the different advantages include the presence of the preventive factor that enables a group to coincide with a conclusive decision, for example, blind voting ensures conclusive decision, also the general group problem solving model is a process through which the group tries to achieve the outcome, identify the gap and generate ideas by brainstorming. Another advantage of the groupthink is the meeting the decision making quickly through the avoidance of arguments. This promotes the diversity in the workforce as globalization has integrated workforce from different religious, cultural background that had the potentiality to generate conflict which can be solved using the groupthink process.

Certain disadvantages are also identified for the groupthink which includes the decision inefficacy which increases the conflict, Information suppression in order to avoid the conflict and arguments most of the group members try to suppress relevant information, opinion inelasticity and increase in the peer pressure to come to the consensus about the argument within a group. Thus, when most of the people are considering the negative side of the groupthink, there are other possibilities that the positive side of the groupthink when considered can be beneficially for the group.

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