Alumina Limited - Macro-Economic and Geopolitical Forces Affecting the Countries - Case Study Example

Alumina Limited By Student’s Name Course Professors Institution Executive summary Alumina Limited is an Australian company involve in mining, aluminum and bauxite and smelting the products. The company should consider investing in China and Finland due to the opportunities these countries offer. Both countries have favorable macro-environments and geopolitical factors that make them suitable investment destinations. Of the two, China is the best investment destination. Introduction Alumina Limited is an Australian limited company. The company is dual listed on the New York and Australian stock exchanges. The company was formed in 2003 following its separation from Western Mining Corporation. Currently, it is ranked among the 100 companies by market capitalization on the ASX (Alumina Limited, 2016). The company operates as a holding company holding 40% share in Alcoa World Alumina and Chemicals (AWAC). 60% of the shears are held by its partner Alcoa, which runs the operations of the venture. AWAC extracts aluminum oxide, bauxites and smelts pure aluminum. It commands 17% of the world alumina market AWAC has operation interest in Australia, Guinea, Spain, Brazil, Jamaica, Texas, and Suriname. Alumina Limited should consider expanding to China and Finland. The following is an analysis of the expansion opportunities in the two countries Macro-economic and geopolitical forces affecting the countries PESTEL analysis (China) Legal factor Legal factors involve laws governing the country. Labor law is one of the major influential legal factors in China. It protects employees’ labor benefits such as standard working hours, all penalties and overtime minimum payment. An employer will, therefore, choose to own a factory in China because of the low cost of labor compared to other countries (Aburaki, 2013). The Government of China has set up laws to encourage investments from foreign companies. These laws protect the legitimate rights and interests of both overseas and domestic investors and guarantee foreign-funded enterprises have independent operation rights. The competitive regulation law has also led to many companies investing their businesses in China. Environment factors Pollution and environmental degradation in China due to many industries is a threat in the country. External factors such as climate and weather changes also have an impact on industries such as farming, insurance, and tourism. Unlike other countries onward protection of their products, China cannot amend the environmental factor on its own. Therefore, it depends on other external factors such as tariffs and quota (Aburaki, 2013). The Environmental Performance Index, which ranks a countries performance on environmental issues ranked China in 18th place in Asia. The environmental health in China is at 40.07% due to the air pollution emitted from the industry factories. Technology factors Technology is rapidly changing throughout the world. Technology innovation has led to increased productivity in China, and more companies are choosing China as the perfect country for their production plants. Advanced technology comes along with benefits such as improved infrastructure, advanced manufacturing processes, and new research (Jayaraman, 2009). Technological advancement has improved and encouraged recycling in the country. Technology is also responsible for reduced costs of production of Chinese firms. Social factor China is known for overpopulation which causes economic crises such as lack of water, food and other basic amenities. To control the overpopulation problem, the Government of China has introduced a one child campaign in every family. China’s economic growth is rapidly growing so is the living standard of Chinese citizens (Jayaraman, 2009). The government is investing in the education sector. Many individuals will acquire education and therefore increase employment opportunities for the citizens. Besides, due to increased direct foreign investment, China has grown economically. Political factors The political structure of China is a socialist republic exercised by the Communist Party of China. According to the nationality law, Chinese citizens should not hold a multiple citizenships, and it is difficult to obtain nationality of China. China continues a well diplomatic relationship with other foreign countries encouraging foreign investments from other countries. China participates in International organizations such as WTO, Group of 77 among others. However, China recently faced some territorial disputes in the South China Sea. The dispute puts China on edge as every other state on the coastline wants to maintain full ownership rights of the seas’ resources and islands. Economic factors Economic factors influence the overall business environment. China’s economic growth is rapidly growing due to its relationship with foreign countries leading to productivity growth and investment. China average annual growth is 6% and in the next 20 years, China will become a high-income nation following its revolution. Being one of ASEAN members, it helps in reducing tariffs and barriers within the country. Europe, Japan, Hong Kong and United States are the top trading partners of China. The government of China is also investing in education and technology development, and it is growing towards urbanization. China implements basic taxes such as income and business tax. 46 countries cooperating with China have signed up the double taxation agreement. Finland PESTEL Analysis Political aspects Finland being a parliamentary state, conducts a semi-presidential parliamentary system having the headquarters in Helsinki. Furthermore, there are local governments situated in 342 municipalities where every citizen exercises their right of voting in both metropolitan elections and the European Union Elections (International Business Publications, 2007). Their president, Martti Athisaari 2008 was awarded the Nobel Peace Prize. It had Finland confirmed as a cooperative nation. The award is an inspiration to the country, its image, and reputation of political stability. Moreover, it has contributed to more confidence on foreign investors and in the long run profits to the nation. Political hazards encompass stability government, government challenges on monetary policies, governments’ efficiency in bureaucracy and appropriateness, international relations ineffectiveness and legal systems unreliability (Bureau of Economic and Business Affairs, 2015). Shows political hazards in Finland are low since the European Central Bank reduced the interest rates for the country, which have in turn improve the economy performance in the country. In addition, conducting of fiscal policy will enable the economy to raise hence avoiding huge deficits thus lowering political risk. Economic Factors Economic risks can be evaluated through the weaknesses in a state’s economy. Government finances, international dealings, prospects for growth and stability of the country may affect investors. Economically, Finland is supported by its manufacturing industry, and its exports, it also produces high-tech products mostly mobile phones and is marked as one of the main high-tech producers of the world (Ministry of Foreign Affairs of Finland, 2010). The slowdown of the global economy made parts of Europe including Finland to suffer economy contraction. The demand for Finish exports dropped leading to low profitability, which has affected the local businesses and the investors as well (US Commercial Service, 2014). Of all the risks through Europe, Finland’s economic risk is still low compared to other industrial nations. Social Factors Finland’s social security is highly recognized around the world. The residents are guaranteed of civilized living surroundings. Recently, social security has been cut down, but it is still considered the most complete social security in the globe. Healthcare platforms cover the whole nation’s inhabitants, which is mostly decentralized and of greatest caliber on earth. Health services are frequently provided by both the administration and the public sector which are financed through universal taxation. Municipalities handle all the financial responsibilities encompassing “municipal health services,” hence making it easier for residents to receive treatment when needed. Education systems are also well defined. The administration prepares a sustainable bursary to guarantee free education for school going children. The administration provides all the school materials including new facilities, meals and transportation. In addition, all teachers must and require a master’s degree. The Finish government focuses on investing in its people as the best option and learning is the best engine for economic growth. Investing lumps of money on education and research fosters faster innovation and edge-cutting developments, thus enhancing competitiveness. Technological Factors Finland is the technologic leader in Europe. It is best known for its product, Nokia. It is also a multinational recruitment center and labs erection. In the present days the administration partners with local entrepreneurs to produce clean technology. It also upholds good relation amid public and private backing. Two-thirds of the R&D funding is provided by the private sector and a third from the public (US Commercial Service, 2014). Finland management is highly regarded, and a lot of funding for development is directed to technology. Environment factors Finland is very well known in conserving of the environment and provides good examples in the protection of nature. Technologic skills raging and detailing environment is Finland’s asset in conserving environment hence tough environment protection policies. They put more effort on maintaining and sustaining natural resources. Legal Factor Finland constitution has it that it is every ones right to have their case heard in court without delays. Its court is divided into two general and administrative courts. General court handles social and unlawful cases while administrative court focuses on regulating proceedings of administration and litigations amid persons and the government, this two are the high courts in Finland. The laws impose no restrictions on alien investment (International Business Publications, 2007). They also apply employment laws on all employments in the country. Employment contracts act regulates the employees-employers relationships. Development of the trade and business polices in the countries The two countries have well-developed business and trade policies that heavily impact on doing business in the country. The police have been for a long time. Since the 1970s, the Chinese developed policies and laws aimed at encouraging foreign investment. In 2001, it joined the World Trade Organization and started shaping its police alongside the requirement of WTO. The country has achieved a lot of foreign investment and is now one of the most attractive economies in the world. Finland has also continuously developed and improved its policies in order to encourage both local and foreign investments. It policies have also adopted influence from the WTO and further the EU Short-and long-term policy threats and opportunities in the countries Threats and opportunities in China The Chinese policy has various long-term and short-term impacts on doing business in the country. These-effect can be classified either as threats of opportunities. First, the country’s fiscal, trade and minatory policy support foreign investment and thus provide enormous opportunities to investors. Chinese policies create a lot of opportunities for both local and foreign firms. Local and foreigners can invest on their own or they can form joint ventures (comprising of foreigners and locals). The local laws are also modeled alongside those of the WTO. As result, the policies improve the ease of doing business (Richard, 2016). Many Chinese policies favor local operators. The policies permit banks to loan large amount of money to local entrepreneurs and business as well as ensure that these local firms succeed. Also, most of the laws are ambiguous and put foreign investors at a disadvantage, yet support local firms ((Richard, 2016). Furthermore, there are taxation policies that waiver duty to promote local firms giving local firms a tax advantage over the foreign investors. The country has policies that encourage FDI in various parts of the country which is an opportunity for the foreign investors (Richard, 2016). The policy provides incentives in terms of subside. However, this opportunity comes with some risks since the areas chosen for investment are normal limited to coastal regions. Threats and opportunities in Finland Finnish policies also present a number of threats and opportunities. The police encourage foreign investment in the country. However, there various tax policy the make investing in the country attractive to foreigners. For example the policies demand taxation of transfer of a firm from Finnish ownership to foreign ownership. The taxes are low compared to other EU members; however, the taxes mostly favor EU members. The country indiscriminately extends tax holiday to both foreign and local-owned firms. It supports both sets of investors within its boundaries. Transfer of funds into and from the country is easy. Also, it is easy to trade securities on the exchange. However, many laundering is illegal, and banks participating in preventing the activity. They report any suspicious activities. There is no forced localization police in the country. Thus, foreign investors do not have to use local inputs for their products. They also do not need to use local labor or technology. Finnish trade policies remove all cross-border barriers, lowered and remove some tariffs. The policies, which are also modeled alongside the WTO policies aim at encouraging business in the country. Conclusion The two countries offer divers opportunities for Alumina to expand its global operation. Both countries offer incentives in terms of tax cuts for foreign investors. They provide subsidies among other incentive for various foreign investment ventures. Both country have challenge and risk that prose enormous hurdles for foreign investors. Of the two countries China provide the best opportunity for foreign investors. Alumina should consider investing in China over Finland for the following reasons: 1. Large Labor force The large Chinese population will provide the company with a large labor resource and the company will have low labor costs. This will result in large profit margins. 2. Favorable Policies Alumina should consider investing in China due to the favorable polices which increase the profitability of foreign investors. Alumina should consider going into partnership with a local investors in order to gain from the incentives that local investors receive such as large bank loans. There are also subsidies for foreign direct investment that Alumina would benefit from by investing in specific locations within China. 3. Large Market The Chinese large population provides a large ready market for aluminum products. Therefore, investing in the county mean that Aluminum will be able exponentially increase its profits. 4. Technological Advancements China has enormous technological advancements that would make Alumina industrial processes less costly and more efficient. Reference Aburaki, K. 2013, China’s Competiveness: Myths, Reality, and Lessons from the United States and Japan: Analyses and Policy implications. A report of the CSIS Hills Program on Governance. Alumina Limited. 2016, Accessed on 18 April 2016 Bureau of Economic and Business Affair. 2015, Investment Climate Statement – Finland, Accessed 18 April 2016 < http://www.state.gov/e/eb/rls/othr/ics/2015/241562.htm> International Business Publications, U. 2007, Finland mineral & mining sector investment and business guide. [S.l.], Intl Business Pubns Usa. Jayaraman, K. 2009, Doing business in China: A risk analysis. Journal of Emerging Knowledge on Emerging Markets. 1(1), 55-63. Ministry of Foreign Affairs of Finland. 2010, Trade Policy, Accessed on 18 April 2016 http://www.finlandmission.ch/public/default.aspx?nodeid=35478&contentlan=2&culture=en-US> Richard, K. 2016, The China Market: Opportunities and Risks, Accessed 18 April 2016 Read More