essentials of global management

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Essentials of Global

Management

C A T E X H A U S T I N V E S T S A B R O A D

School: School of Business Management and Economics

Degree: MSc International Marketing

Total Words: 2051



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1. µCOUNTRY ATTRACTIVENESS ANALYSIS¶ AND µENTRY MODE¶

FOR INVESTMENTS IN THAILAND

Catexhaust GMBH, for opening a new plant in Thailand in order to supply

VAG (Volkswagen, Audi Group), has to take into consideration several

factors. First, we examine Thailand¶s attractiveness in order to evaluate

whether the market has a high, moderate or low attractiveness level. After the

evaluation, and if necessary, the appropriate µentry mode¶ is being suggested.

As Thailand has enjoyed a special commercial relationship for 175 years

under the Treaty of Amity and Commerce (BUYUSA.GOV, 2010), it can be

concluded that the entry to automobile components suppliers is appealing butquite competitive. Catexhaust has already been supplying powerful

automobile manufacturers in Germany, so one possible way of increasing

sales is to acquire companies in foreign countries - especially those hosting

Catexhaust¶s clients - thus providing a major advantage to Catexhaust. More

specific:

When assessing market opportunities in Thailand, graph 1.1 shows that the

macroeconomic indicators (GDP annual growth rate) reveal an emerging

market attractive for investments, even though there is no steady fluctuation

after January 2008. The automotive industry has become very competitive

over the last years and evolved as being the number one manufactur ing

industry in Thailand (BUYUSA.GOV, 2010). This fact, in addition to Thailand¶s

unsteady fluctuation rate of FDI (graph 1.2), makes it the last years a

moderate attractive market to invest in (Tyndall, 2008).

From the industry opportunities perspective, when assessing Thailand and

looking at the intensity of rivalry, it can be concluded that there is a large

number of automotive part and component manufacturers (there are already

over 12 different car brands with plants in, and around, Bangkok) (ConGlobo

GmbH Wollerau, 2006:30). Catexhaust¶s major advantage compared to its

competitors in this context is that VAG is a retained customer in Europe.



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There are also 4 main factors which can be taken into consideration when

analysing Thailand¶s industry opportunities. These are: geographical location,

government policies, infrastructure and human resources.

Thailand provides easy access to regional markets , due to its location.

Furthermore being part of the free trade area ASEAN, 'auto parts exported to

ASEAN nations are currently subject to a tariff of less than 5%, and the tariff

will be eliminated entirely in 2010' (Business-in-Asia, 2009).

The government of Thailand has been giving opportunities to foreign

suppliers, interested in and willing to enter this market. But Thailand¶s

unstable political situation provides another agenda (Business-in-Asia, 2009).

There is a continued political turmoil, which has lately leaded to an internal

violence eruption (Business Monitor International, 2010). These risks might

scratch Thailand¶s attractiveness to foreign investors, who may decide to

deposit their capital in more stable competing regions. Furthermore Thailand

provides a well established infrastructure with modernized transportation

facilities (BOI, 2010).

Another important factor is human resources in Thailand. They are a low-cost

labour, this referring to the labour outside Bangkok, where the cost is reduced

by 25% when compared to Bangkok, although they are not the lowest around

South Asia (BOI, 2010). But on the other hand the facility costs are very

competitive as there are hundreds of plants (BOI, 2010).

Taking into consideration all of the above, the attractiveness of an investment

in Thailand is moderate (Tyndall, 2008). The most profitable entry mode for

Catexhaust in Thailand market is to acquire an existing business. An

acquisition has high potential to generate profit and it is the quickest way to

obtain a mature business. There are a lot of advantages if entering this

market this way, but there are also a few drawbacks which will be also

examined.



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Speaking of advantages, an acquisition in Thailand has three ma jor points in

its favor (Hill, 2009):

Lower risk

Less management training

Lower asset costs.

It is usually cheaper to acquire assets by buying an existing business than it is

by building a new one. If Catexhaust bought another existing business then it

would have immediate availability in resources. Acquiring already developed

competencies is time and money saving. Another advantage of this entry

mode is that Catexhaust would be able to build its presence in the foreign

target market quicker and would also be able to pre-empt its competitors. For this to happen, Catexhaust needs a successful acquisition. For an acquisition

to be successful four parameters should be taken into consideration.

Firstly, the acquiring firm should check the known revenue and profit stream

of the acquired. It should never overpay for the target. Second parameter to

be checked is the incompatibility of the two firms¶ culture. In this case, this is a

critical parameter because of the distance between the German and

Southern-Asian culture. A clash would seem highly possible. Thirdly, high

level of management attrition should be avoided in any case and finally it is

important that operations of the two firms integrate (Hill, 2009).



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2.Indonesia¶s attractiveness analysis as VAG also manufactures there.

As we have already collected the basic information and analysed Thailand¶s

attractiveness, the Indonesian market must be examined and analysed aswell, as VAG also manufactures there, in order to decide which location is

more profitable for Catexhaust to invest in.

While growing indicators make Thailand very attractive but quite competitive

to foreign investors, Indonesia is Southeast Asia¶s largest economy in total

and has delivered consistent high annual growth, exceeding GDP growth of

5.2% in 2010, followed by an estimated growth of 5.3% in 2011 (Business

Monitor International, 2010; BUYUSA.GOV, 2010). It is the fourth biggest

growing consumer market worldwide. According to the table 2.1 the GDP per

person growth rate exceeds that of its ASEAN neighbors (BUYUSA.GOV,

2010). Also Indonesia is as signatory to the ASEAN Free Trade

Area agreement as Thailand (Business Monitor International, 2010).

By examining the industry opportunities, Indonesia¶s business environment is

quite challenging. When we are looking at the intensity of rivalry , Indonesia

has a large number of automotive part and component manufacturers which

are hosted in the country and are supplying over than 17 auto manufacturers,

including VAG (Budiman, 2008). According to the table 2.2 the car¶s

production fluctuation in both countries is unstable; however Indonesia¶s

growth rate in car production is greater than in Thailand¶s. Furthermore,

Indonesia¶s car production forecast is to rise 51% this year (AntaraNews,

2010) while Thailand¶s is to rise by merely 10% (Global Intelligence Alliance,

2010). Given Indonesia¶s economic growth and manufacturers ' production

plans, both domestic sales and output are likely to reach 1 million vehicles in

2015 (Global Intelligence Alliance, 2010). Deals with major Indonesian-hosted

players in the automotive industry could follow an aggressive entry in this

competitive auto market. Widening the perspective, Indonesia could be the

base for supplying other regional markets, such as Thailand.



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There are also 4 positive main resources which enhance Catexhaust¶s

potential to open a plant in Indonesia;

Geography

Labour-cost

Democratically environment

Devaluation of the rupiah

First of all, Indonesia¶s geographical position outweighs Thailand¶s. Indonesia

is the world's largest archipelago (BOI, 2010). It is located on the world¶s

major trade routes (BUYUSA.GOV, 2010). In the case of Catexhaust which

strives to invest successfully and profitably in its new plant in order to supply

Indonesia¶s domestic market and to expand its presence to neighbour regions

in the future, the geography of Indonesia offers an excellent possibility.

Indonesia also boasts of one of the lowest manufacturing wages in Asia.

Indonesians are respected as being highly committed and well skilled

workforce. µLow wages should help Indonesia¶s industrial recovery and rising

employment, especially in the Greater Jakarta area, and is a key factor to

sustain urbanization in the long term. (AdvisorAnalystViews, 2010). Catexhaust

could seize this advantage and could profit in the long-term if investing near outside Jakarta.

Furthermore, Indonesia is also the world's third largest democracy, with a

thriving open economy. µAutomobile production in Indonesia is expected to

grow rapidly in the next several years, as the government is preparing tax

incentives and manufacturers are raising output capacity¶ (Business Monitor

International, 2010). The new tax measures will focus on the new low ± cost

and fuel- efficient vehicles that will be placed in the market (Global

Intelligence Alliance, 2010).

Aside from the favourable geography position and the low labour -cost

according to the graph 2.3 there is a significant depreciation of Indonesian¶s

Rupiah against Euro, making European exports relatively more expensive. As

a consequence, this rate gives Germany¶s Catexhaust the advantage of



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investing in a cheap market for providing the local Indonesian-hosted auto

manufacture firms.

Despite the benefits there are some important business environment risks in

this country which have to be mentioned in order awareness to be raised.

First of all, terrorism will remain a threat for Indonesia and the infrastructure is

still quite poor. Furthermore, the effectiveness of state institutions is defected

by demoralization and bureaucracy (Business Monitor International, 2010)

Considering all the above and taking into consideration that Indonesia and

Germany have traditionally good relations based on trust , Catexhaust should

in my opinion invest in opening a plant in Indonesia .



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3. Reconciling cultural differences for effective management.

It is a common belief that every global firm in order to be operated effectively,

has to rely on its workforce. For that reason, we must take under serious

consideration the factor of culture¶s differentiation between the employees,

which can be proved really significant for the management of a firm like this.

For instance, Catexhaust, which is willing to open a new plant in a different

continent, should be aware of the "new" national culture that is going to deal

with.

First of all, Catexhaust has to examine how all the previous leaderships had

managed to resolve difficulties referring to culture¶s variation. Furthermore, a

very important factor to be examined, is the µ¶silent languages¶¶ differences

(Lasserre, 2007). According to Hall, as cited in Lasserre (2007), µcultures

differ in the way they communicate through non -verbal means or µ¶silent

languages¶¶. Specifically, there are six different µ¶silent languages¶¶: time,

space, materials goods, friendships, agreements and context (Lasserre,

2007). For instance, the way that Germans define "time" is completely

different than Indonesians: The first, follow all the deadline s and try always to

be on time, whereas for Indonesian time is more µfluid¶ and the deadlines are

more flexible. (Lasserre, 2007)

Generally, Germans belong in a "high social distances culture", where you

always have to keep a safe distance when you talk with someone and kissing

(as a way of greeting) is not so common (Lasserre, 2007). Instead, Indonesia

belongs in a µlow social distance culture¶, and it is common for them in

conversations, to stay very close to you but touching is something you have to

avoid as it is common only among friends (Lasserre, 2007). Indonesians are

more friendly and love to share feelings, than Germans who are characterized

as "cold" because it takes longer for them, to warm up to people they don'tknow.

Moreover, we can spot one more difference in the "arguments" field. In

Germany, when they agree or disagree with something, they usually do it in

writing, but Indonesians have 12 different ways to say µno¶ and many times the

word µyes¶ is for them another way to say µNO¶. Mostly in Asian countries, the



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way that people interact with each other depends on the character. On the

other hand, in Western Europe and especially in German, people interact in a

more straight and severe way. Nevertheless, a differentiation in a business

environment, in terms of culture, most of the times is positive and brings

creativity. In our case, Catexhaust is a perfect example of Germany¶s

behavior to be competitive and in combination with Indonesian¶s co -operate

character, could bring great results in the effectiveness of the firm. According

to Hofstede¶s survey, as cited in Hill (2009), Indonesians score higher than

Germans in power and distance and very low in individualism, they usually

integrate in groups but both score closely in masculinity and uncertainty

avoidance.

To sum up, to avoid any cultural clash, the German managers have to focus

more on public relationships than on rules which in Indonesia can easily

change. They have to use a collectivism behavior approach, as Indonesians

interact mainly as groups. And most of all, they must keep in mind that

bridging every gap inside their firm using any possible way, can help both

sides collaborate and make profit, succeeding their primal goals. And then we

can say that their firm is operated effectively.



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APPE IX:

p 1.1

S : i E i .

Grap 1.2

S : P .



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Table 2.1

Thailand GDP - real growth rate

Year GDP - real growth rate Rank Percent Change Date of Information

2003 5.20 % 34 2002 est.

2004 6.70 % 31 28.85 % 2003 est.

2005 6.10 % 46 -8.96 % 2004 est.

2006 4.50 % 107 -26.23 % 2005 est.

2007 4.80 % 110 6.67 % 2006 est.

2008 4.80 % 117 0.00 % 2007 est.

2009 2.60 % 141 -45.83 % 2008 est.

2010 -2.20 % 151 -184.62 % 2009 est.

Source: IndexMundi (2010).

Indonesia GDP - real growth rate

Year GDP - real growth rate Rank Percent Change Date of Information

2003 3.50 % 83 2002 est.

2004 4.10 % 75 17.14 % 2003 est.

2005 4.90 % 87 19.51 % 2004 est.

2006 5.60 % 77 14.29 % 2005 est.

2007 5.50 % 82 -1.79 % 2006 est.

2008 6.30 % 71 14.55 % 2007 est.

2009 6.10 % 58 -3.17 % 2008 est.

2010 4.50 % 36 -26.23 % 2009 est.

Source: IndexMundi (2010).



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S : I i .

abl 2.2

P I S A I S I S

ry ars mm rcial

icl s al

%

change

I i , , , . %

il , , , , . %



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2 0 0 7 P R O D U C T I O N S T A T I S T I C S

Country CarsCommercial

VehiclesTotal

%

change

Indonesia 309,208 102,430 411,638 38.6%

Thailand 315,444 971,902 1,287,346 7.8%


Country Cars

Commercial

Vehicles Total

Total

Change

Indonesia 256,285 40,777 297,062 -40,7%

Thailand 298,819 895,607 1,194,426 6,1%


Country CarsCommercial

VehiclesTotal

Total

Change

Indonesia 233,492 261,059 500,710 22.6%

Thailand 277,603 847,713 1,122,712 21.0%

Source: OICA (2007).



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Gra h 2.3

Source: Exchange- Rates (2010).



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