1.Apply the extended version of Porter’s National Diamond (PND) model to the of Myanmar’s mobile phones industry.
2.Based on your research and analysis of the country’s institutional environment, discuss the advantages and limitations of using Foreign Direct Investment (FDI) as an entry strategy for Myanmar’s mobile phones industry. You need to provide clear recommendations.
3.Discuss TWO key management issues identified from your analysis (Part 1 and Part 2) that should be taken into account before starting operations in Myanmar’s mobile phones industry.
Globalisation is the concept that helps the companies to conduct their business activities across the globe. Foreign direct investment is the mode that is used by the companies to enter the foreign land in order to set up their businesses. Myanmar is one of the countries which falls under the category of under-developed economy but has the potential to develop in future. As far as the mobile industry of the country is considered, it has been analysed that it is facing tough competition and Chinese players are fighting for the share. This report argues about mobile phone industry in Myanmar with the help of porter’s national diamond model. This discussion follows with the explanation of FDI that s foreign direct investment in the country. It focuses on analysing the attractiveness and limitation for FDI in Myanmar. The later part of the report discuses about the management issues that the foreign company may face if enter this country.
Michael porter is the one who has developed a model called Porter’s National Diamond model. The purpose of developing this model is to examine the competitive environment of any of the particular industry. The analysis conducted by this tool helps the companies to frame their strategies as per the market conditions. Analysing the relative strength of the market helps the firm to develop a competitive edge by implementing the relevant strategies (Gsma.com., 2018). There are four elements that are being discussed in order to analyse the market as per this model APPENDIX 1. These four factors involve:
Firm strategy and rivalry: This is the element of the model that includes the discussion of the strategies of the companies that allow them to be organised and managed. It also discusses about the pressure that the organisations face in the industry due to competition.
Factors input conditions: This is the element that discuss about the various resources. It has been analysed that the basic resources that are available in the country are natural resources and the advanced resources are human resources, research capabilities.
Related and supporting industry: this is the factor that discusses about the supporting and the related industries that act as the suppliers and provide the materials for making innovations. These are the industries that provide inputs and participate in making up gradation of the process.
Demand conditions: this is the element that deals with the demands of the products in the market and the various market conditions that help the companies to develop competitive advantage over others.
Porter’s National Diamond model application on mobile phone industry of Myanmar:
Firm strategy and rivalry: Myanmar is the county that is enjoying a massive growth in the sector of internet, mobile communication and usage of social media. This suggests that a new market potential is developing in the country for the companies that operates in these industries. The country is observed to be experiencing a digital shift and this digital shift leads to change in the demands of the customers in the market. It has been analysed that 50% of the growth has been experienced by Myanmar mobile phone industry (Fischer, 2016). Myanmar is considered as the fourth place to have net additions in the mobile phone subscribers. The country has trailed the nearby countries like India and China in this. The telecommunication industry of Myanmar has experienced and intense change. The survey has been conducted which suggests that 42.2% of the total mobile users in Myanmar are the customers of Huawei and rest other prefers to buy some other phones such as Oppo, Lenovo, Xiaomi, iPhone, sony etc. as per this analysis. It has been identified that the users prefer to buy the phones that are of low prices and Chinese mobiles are getting success in the Myanmar market. The rivalry is amongst the Chinese players in the country.
It is very important to understand the nature of the consumers and their choices to use the mobile phones. The figure suggests the options available in front of the consumer to use the smartphones and the number of users that use mobile phones. APPENDIX 2
Demand conditions: Myanmar is the country with great versatility. People have different references to buy the products as per the gender and their ages. Chinese brands of the mobile phones are fighting for the market share because they are in demand. The communication sector of Myanmar is evolving gradually. Many of the international brands have competed for the license in the country and two of the brands such as Telenor and Ooredoo have got the same. They joined the market which was earlier facing the monopoly of the local company that is Myanmar Post and telecommunication. In the year of 2015, the AIM cards that are sold in the country were 30m. This suggests that the increase was of 518%.
When the mobile industry is considered, telecom is the first associated name that comes into mind. This is because there is no use of the phone if there are no network connections. As far as the telecom sector of Myanmar is considered. It has been analysed that MTP is the company that has the monopoly in the country. Some of the new players are also entering but the MTP still have highest subscribers. After awarding the licenses to the two foreign competitors such as Telenor and Ooredoo, the prices of SIM cards have been observed to be reduced by time. As more and more SIM are sold in the market thus creating the demands for the mobile phone shipments from outside (Techinasia.com,2018). APPENDIX 3
Factor input conditions: in this section, the resource availability of the country is discussed. In terms of resources, it has been analysed that the country is giving cheap labour which is attracting more and more foreign investors to start their operations in the country but the lack in infrastructural facilities restrict them to do so. Myanmar is very unusual but a market with great potential for business to invest (Solarin & Shahbaz, 2015). It is an underdeveloped economy with fastest growing resources. This nation of Asia provides abundant of natural resources and is close to the market of around billions of people. it has been analysed that if Myanmar will grow with this pace in the aspect of labour productivity then it will receive only 4% of the growth in coming years but the country has the potential to grow by 8% and this require the country to make their labour more effective by enhancing the productivity rate. The labour is cheap but the rate of productivity is still very low. The rate needs to be increased to 7% from 2.7% (McKinsey & Company., 2018). APPENDIX 4
However, with the short Telco liberalization history, massive growth in a short time and endemic situation (hot weather and Monsoon), the influx of mobile device replacement with consuming power of Myanmar people will happen continuously in Myanmar. This is one of positive overview for mobile market in the next couple of years. However, this endemic trend will change shortly and follow other countries trend soon
Modes of entry are the concept that deals with selecting the most effective and feasible way to enter the foreign country in order to start the business operations there. This is the very crucial decision for any business and can vary as per the foreign country conditions. It is not necessary that the company will en each and every foreign country with similar mode thus it is dependent on the country’s environment and feasibility. As far as these modes are considered, FDI that is foreign direct investment is the most effective and the most common way to enter the foreign country. It is considered as the mode that provides benefits to the host country as well as the foreign country.it is the mode where the investment of the business in the foreign county can be determined by the economic growth of the country and the stability of the country in other terms such as market and politics. Myanmar is considered as the place where FDI is supported by its government (Taguchi & Lar, 2015). This is because Myanmar is an underdeveloped economy and requires the foreign business to invest in their country so that they can earn foreign currency. There are various objectives of FDI in Myanmar. Some of them are:
Attractiveness of FDI in Myanmar:
Foreign Direct Investment in Myanmar increased by 656.28 USD Million in April of 2017. Foreign Direct Investment in Myanmar averaged 580.58 USD Million from 2012 until 2017, reaching an all-time high of 3821.91 USD Million in March of 2016 and a record low of 3.14 USD Million in June of 2016 (Tradingeconomics.com., 2018). APPENDIX 5
Even though Myanmar is underdeveloped economy but still manages to attract the foreign companies or the countries to make investment in mynamar.it has been analysed that after the National League of Democracy government took the office, the country has made approval to around $11.2 billion foreign investment. The figures suggest that the country has the room for making the improvement and attracting the companies from the foreign countries to invest their capital in Myanmar (Fumagalli, 2017). One of the major aspects that are attracting the FDI in the country is conduction of MIC meetings twice a month. This strategy helps the company to approve an review more and more foreign proposals. The changes that were made in the Burma company act and the release of the new law are also the reasons for attracting more and more companies. when any of the business decide to make investment in the foreign country, they look for some of the aspects such as how much time it takes to get the approval and to start the business and the number if procedures to undergo (Ho & Chua, 2016). As far as Myanmar is confided, the new law supports the online registrations of the business which is way faster process than earlier. Apart from all these things, the availability of the natural resources in the county is also the major reason for attracting the companies. The location of Myanmar is so perfect that this provides the great and high potential market for the foreign companies to serve. The countries like Bangladesh, China, India etc. are nearby countries. Labour cost is attractiveness for the foreign investors. This is because the country provides very low labour thus the companies try to set their operations and manufacturing part here in Myanmar.
It has been analysed that Myanmar is attracting many countries and their companies to set up their operations in Myanmar but there are many limitations and barriers for FDI in Myanmar. Some of them are discussed below:
Policy barriers: whenever a country enters the new land, it is required by the country business to understand the policies of the foreign country (Gelb, Calabrese & Tang, 2017). Thus, these policies cannot be similar across the borders so they act as the barriers for the businesses to set up in foreign land. Same is the case with Myanmar. There are various such policies that are not much stable in the country such as Fiscal policy, monetary policy, tax rates etc.
Administrative policies:
These are the policies that deal with the submission of the business proposal to the country and getting the approval for the same. As far as Myanmar is considered, it has been analysed that even if the country has changed its policies and made it online but still there are series of procedures needs to be followed by the foreign countries before setting up their business in their country. This makes it difficult for them to enter the country (Ftijournal.com., 2017).
Infrastructure policies:
As discussed earlier that infrastructure facilities at the country are not very much feasible and thus it is required by the government of the country to make the relevant changes so that FDI can be enhanced in the country (Time., 2017). This is because it is the major challenge that the company can face. The infrastructure of the country does not support the business activities and thus it is required by the government of the country to make investment in this sector so that FDI can be improved.
Recommendations:
As per the analysis, there are several recommendations that have been made regarding the improvement of the Myanmar condition attract more and more countries or invest in Myanmar. Some of the recommendations are given below:
Coupling digital technology: Myanmar is observed to be taking the advantage of the digitalization era that is the country is experiencing. The mobile and internet connections are becoming extremely reasonable in the market. Coupling these tools to the fullest can help the country to attain a more advanced stage of development, but this requires the government to implement a great technological infrastructure where the country is lacking.
Shift towards manufacturing industry: most of the countries are shifting their practices and dependency on manufacturing industries but Myanmar is experiencing a very less shift and more of the earning dependency of the country is on agriculture. Today, the country’s manufacturing sector is small in total terms—less than half the size of Vietnam’s—but it has the potential to be Myanmar’s largest by 2030.
Preparing for urbanization: it has been analyzed that most of the population of Myanmar lives in rural area of the country. However, the scenario is changing gradually. The share of population in urban areas can be increased by 25% till 2030 but this again requires the attention of government to invest in infrastructure facilities.
Connecting to the world: Myanmar must consider the best way of reconnecting to the global economy through investment, trade, and flows of people. The nation potentially needs more than $170 billion of foreign capital to meet its overall investment requirement of $650 billion and should develop a targeted strategy to attract it. As far as the trade volume of the country is considered, it has been analyzed that it is very low and unsystematic. Myanmar can enhance its trade opportunities by educating the labor, enhancing their skills and knowledge transfer.
To implement that schema, Myanmar’s government is likely to entail more ability and may consider setting up a delivery unit dedicated to solving problems and driving the application of change. The nation’s businesses could consider their opportunities in different markets, quickly reach international quality standards, and explore foreign corporations. International companies must move fast, be prepared to commit to Myanmar for the long term, and consider partnerships with local firms. It is very much required to invest in the right sector so that Myanmar can improve its quality of the business environment that serves the foreign companies with best facilities.
It has been analysed that FDI is the very important decision and thus it is required by the countries to take the decision widely. The countries have to look for the various environment of the country in order to make investment there. In case of mobile phone industry, it’s required by the business to analyse the overall market so that better decisions can be made. In Myanmar, the mobile phone industry is fighting a tough competition and it has been identified that Chinese brands are in top of this fight (Sjöholm, 2016). Not only the competition of the industry affect the new business investment but the nature of the market and resources availability at the country are also the factors that drives FDI in the country. Managing the business in Myanmar is not that easy and the major reason that has been identified is its economy and the unstable of political aspects. Flowing is the brief discussion of some of the management issues:
Labour and infrastructure issues: in terms of labour, it has been analysed that the labour available in the country of Myanmar is very cheap. This attracts many of the foreign firms to enter this country and set up their business here but what about the productivity?
The figure shows the labour productivity of the country (Quirke, 2018). APPENDIX 6
It has been analysed that the labour class of the country is unskilled in nature. If the mobile industry is considered, it is the industry that requires the labour to have the technological and technical knowledge of the devices and the processes of manufacturing. Only performing the task is not enough but having the competitive edge in innovation is necessary to fight such a tough competition (Chandran & Tang, 2013). It has been estimated that around 60 million people lives here and out of those 46 million falls under the category of working get. But the unemployment arte of the country is 40% which is quite high. The tie when the worlds GDP have experienced the growth of 3%, Myanmar GDP has experienced the grot of only 1.3%. This is really a shocking experience by the country. One of the areas that have been found for this was low labour productivity. Reliance of the country economy on agriculture can be the reason for this. As the labour is engaged in agricultural activities they are not feasible for earning in the manufacturing industries.
Out of a population of 60 million however, only 4% of Myanmar’s citizens are regarded as a consumer class. Myanmar households, spend over 70% of their income on basic necessities, leaving very little to be saved. Prior to China’s economic opening in 1985, Chinese households spent 62% on basic necessities. Since then, this number has fallen to 27% of income, showing the potential that awaits economic openings and foreign investment in Myanmar (Quirke, 2018).
In terms of infrastructure also, the country is facing so much of issues. It is very difficult for the country that is entering Myanmar to manage the infrastructural issues.
The figure clearly describes that the country has to make investment in the infrastructural aspects so that it can attract the FDI (Britcham.org.sg, 2018). APPENDIX 7
Political instability: this is another reason that restricts the foreign players to enter the country. Political instability in the country has become the major management issues these days for the foreign businesses in Myanmar. Some of the political issues such as employment standards, land grabbing, child labour etc. affect the management of the business in the country (Kingsbury, 2014). Government alone is not watching these aspects of the country but the interference o ministry of defence is creating a grit trouble. For so many years, the country was under the rule of defence and this has made the environment worse. The conditions like poverty and corruption has ceased country. Bribery is the very common practice that can be seen and it is required by the foreign firm to enter and bribe the officer to make their set up in this country. These things affect the management of the foreign companies who do have the clear idea about these practices (Odaka, 2015).
The overall discussion suggests that there are some flaws in the country in order to invest for the business but it also have the potential to generate lot of revenue in terms of manufacturing. The country has the potential to develop but the government of the country has to pave their way in a right direction by making investments in infrastructure and bringing stability to their political environment.
Conclusion:
The inference of the report suggests that Myanmar is the country with high potential of growth in manufacturing and other sector such as mobile phone and internet. Myanmar is the county that is enjoying a massive growth in the sector of internet, mobile communication and usage of social media. This suggests that a new market potential is developing in the country for the companies that operates in these industries. The country is observed to be experiencing a digital shift and this digital shift leads to change in the demands of the customers in the market. It has been analysed that 50% of the growth has been experienced by Myanmar mobile phone industry. The foreign countries find it a potential place to set up their business the mode of entry called FDI. It is considered as the mode that provides benefits to the host country as well as the foreign country. It has been analysed that after the National League of Democracy government took the office, the country has made approval to around $11.2 billion foreign investment. It has been analysed that Myanmar is attracting many countries and their companies to set up their operations in Myanmar but there are many limitations and barriers for FDI in Myanmar. Some of the limitation is related to its administration and political policies. It is recommended that the government of the county has to make investment in its infrastructure and made the political environment stable along with educating its labour. This is because the labour productivity of the country is very low. Managing the business in Myanmar is not that easy and the major reasons that has been observed its economy and the unstable of political aspects.
References:
Britcham.org.sg.(2018). The Opportunities and Risks of Investing in Myanmar. Retrieved 29 January 2018, from https://www.britcham.org.sg/static-pages/o47-feature-opportunities-risks-investing-in-myanmar
Chandran, V. G. R., & Tang, C. F. (2013). The impacts of transport energy consumption, foreign direct investment and income on CO 2 emissions in ASEAN-5 economies. Renewable and Sustainable Energy Reviews, 24, 445-453.
Fischer, P. (2016). Foreign direct investment in Russia: a strategy for industrial recovery. Springer.
Ftijournal.com. (2017). Myanmar: Opportunities and Challenges for Businesses.. Retrieved 31 December 2017, from https://www.ftijournal.com/article/myanmar-opportunities-and-challenges-for-businesses
Fumagalli, M. (2017). The Making of a Global Economic Player? An Appraisal of South Korea’s Role in Myanmar.
Gelb, S., Calabrese, L., & Tang, X. (2017). FOREIGN DIRECT INVESTMENT AND ECONOMIC TRANSFORMATION IN MYANMAR.
Gsma.com. (2018). Mobile phones, internet and gender in Myanmar. Retrieved 29 January 2018, from https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/02/Mobile-phones-internet-and-gender-in-Myanmar.pdf
Ho, E. L. E., & Chua, L. J. (2016). Law and ‘race’in the citizenship spaces of Myanmar: spatial strategies and the political subjectivity of the Burmese Chinese. Ethnic and Racial Studies, 39(5), 896-916.
Kingsbury, D. (2014). Political transition in Myanmar: prospects and problems. Asian Politics & Policy, 6(3), 351-373.
McKinsey & Company. (2018). Myanmar’s moment: Unique opportunities, major challenges Retrieved 29 January 2018, from https://www.mckinsey.com/global-themes/asia-pacific/myanmars-moment
Odaka, K. (Ed.). (2015). The Myanmar Economy: Its Past, Present and Prospects. Springer.
Quirke, S. (2018). Making Money On Myanmar. Seeking Alpha. Retrieved 29 January 2018, from https://seekingalpha.com/article/1508442-making-money-on-myanmar
Sjöholm, F. (2016). Foreign direct investment and value added in Indonesia. School of Economics and Management, 47(1), 35-63.
Solarin, S. A., & Shahbaz, M. (2015). Natural gas consumption and economic growth: The role of foreign direct investment, capital formation and trade openness in Malaysia. Renewable and sustainable energy reviews, 42, 835-845.
Taguchi, H., & Lar, N. (2015). FDI, industrial upgrading and economic corridor in Myanmar.
Techinasia.com (2018). Tech in Asia – Connecting Asia’s startup ecosystem. . Retrieved 29 January 2018, from https://www.techinasia.com/myanmar-mobile-market-grow-5-million-units-5-years
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