Comparison of Attractiveness of Russia and Singapore for Australian Companies - Case Study Example

Globalization Group Report Name Course Tutor Date Globalization Group Report Executive Summary This report is documented to compare attractiveness of Russia and Singapore for Australian companies interested in developing their international markets. The report is done for Austrade to enable it advice and provide market intelligence to Australian companies that are intending to invest in these countries. The comparative assessment on attractiveness is conducted based on dimensions such as background of the two countries, comparative analysis of the attractiveness, Comparison for four PESTLE factors with empirical data, comparison for political, economical, legal and technological factors of the two countries. While comparing the countries in terms of PESTLE, it will evaluate them in form of benefits, risks and costs. Lastly, it will provide recommendations which it can communicate to companies aiming to invest in either Russia or Singapore. 1.0 Table of Contents Running Head: GLОBАLIZАTIОN GRОUР RЕРОRT 1 1 GLОBАLIZАTIОN GRОUР RЕРОRT 19 2 Globalization Group Report 2 Executive Summary 2 1.0 Table of Contents 3 2.0 Introduction 4 2.1 Background of the countries 4 2.2 Purpose of writing this report 6 3.0. Comparative analysis of the attractiveness 6 3.1 Comparison for political factors between Russia and Singapore 9 3.1.1 Benefits 9 3.1.2 Risks 10 3.1.2 Cost 11 3.2 Economic factors 11 3.2.1 Benefits 12 3.2.2 Risk 13 3.2.3 Costs 13 3.3 Comparison for legal factors between Russia and Singapore 13 3.3.1 Benefits 14 3.3.2 Risks 14 3.3.3 Cost 14 3.4 Comparison for technological factors between Russia and Singapore 14 4.4.1 Benefits 15 3.4.2 Risks 15 3.4.3 Costs 16 4.0 Recommendation to Austrade 16 5.0 Conclusion 17 6.0 References 17 2.0 Introduction Over the years, competition has increased greatly in Australia market due to increased in globalization and advancement in technology. Due to these external factors, many companies have since moved to Australian market making it more competitive than before. The situation has also forced Australian companies to look for the new target market to increase their brand awareness and profits. Therefore, Austrade is comparing Russia and Singapore to get the most attractive market for Australian companies. 2.1 Background of the countries Russia is a northern Eurasia nation and the largest nation is the world, expanding across Eastern Europe and northern Asia (Kum, 2011). RIA Novost (2013) contends that over the years, population has grown tremendously and now approximated to be 143 million. For business people, such population is good for a large customer base. Russia is chosen because it’s one of the largest economies in the world. In fact, it is ranked at position 9 in terms of GDP and 6th based on purchasing power parity by World Bank in 2014 (World Bank, 2014). Business can also be boosted by wide-ranging energy resources which can be used for production and lighting. Forbes (2013) reports the economy of Russia has continued to grow over the years, and registered nine year straight growth from 2000 to 2008. As the 21st century unfolds, though the country has had political stability, lately it has faced unstable foreign policy with the US and Ukraine. Another attractive aspect of this market is its continued growth of middle population from 8 million in 2000 to 105 million in 2013 (World Bank, 2014). Corruption is one of the biggest challenges which Russia and multinational companies faces today. The higher level of corruption takes place in business sectors as companies have to part with hidden tax (Tavernise, 2002). Singapore has also been selected because of its potential in terms of business. Singapore is a state in Southeast Asia with a population of 5.4 people (Department of Statistic Singapore, 2014). Out this number, nearly 2 million people are foreign nationals. This number may not be good for Australian company looking for cheap labour. In some sense, they will be forced to look for labor elsewhere. According to Furlund (2008, p.16), Singapore is attractive because it has moved from a third world country to second world and one of the first rising countries in terms of economic growth. As a country with one of the busiest port and a commercial hub it has attracted several businesses around the world (Mahtani, 2012). The economy of Singapore is one the business-friendly, freest, most innovative and competitive in the world. Together with New Zealand, Singapore is one of the least corrupt countries as ranked by Corruption Perceptions Index (Department of Statistic Singapore, 2014). It has low tax rates, advanced infrastructure and skilled workforce as shown in figure. Source: (Janus Corporate Solutions, 2009) 2.2 Purpose of writing this report Based on the background, the report will provide a wide comparison of the two countries. Companies are trying to invest with countries with low establishment costs and low risks so as to increase their benefits. Experts recommend that companies intending to get into new markets to assess the economic and political factors of that nation. As such, this report will compare the attractiveness of Russia and Singapore to enable firms to make an informed decision on entry strategy into a new markets, especially on resources needed in that market. 3.0. Comparative analysis of the attractiveness Comparative analysis is an indicator which can be used to compare and contrast various factors such as economy, economic freedom, transport infrastructure, politics, health care, business success, crime rate, corruption, agriculture and education among others. In this report, comparative analysis will be done on Russian and Singaporean market. Comparative analysis provides the companies in Australia the capability to make informed decision based on benefit, risks and cost on which country to invest it resource for better returns. Comparative analysis offers comparison and contrast between countries in terms of political, economical, social, legal and technological policies which support businesses. Comparative analysis based on countries’ analyses the growth of the gross domestic product, purchasing power parity and individual income level. In this comparison, PESTLE analysis involved to provide picture of political, economical, legal and technological advantage that Australian companies can enjoy in this market. This tool enables a company to align its internal core competencies with the external forces to ensure suitability of investing in a foreign country. The table below provides Political factors Russia Singapore -The country is unstable due to its weakening foreign policy with US and Ukraine over Crimea - Russian government is friendly to business but also regulates -Government is also hold communism ideologies and control business sectors and institutions -The country is stab le over the years. -Singaporean government is business-friendly has created on of the freest economies in the world. Operations of government alone contribute a considerable 22% stake to the country GDP. Economic -The economy globalized but to regulated to some extent - Russia is ranked 6th based purchasing power parity -The country is ranked as the largest producer of minerals and oil. - -Singapore is globalized and encourages and has over 700 foreign investment -Is ranked third based on purchasing power parity -Also has oil and other mineral but only comes after Russia Has a high income and its employees earns average monthly wage reaching $967 Number of middle class has increased from 8 million in 2000 to 105 million in 2013 -Depends in its local to provide labor -has high nominal GDP and ranks 9th by world Bank - encourages train transport -Singapore a high income population but also highest income inequalities - the number of middle income population has increased but below Russia Has low population and depends heavily on expatiates to provide labor. In fact they make 44 percent of the workforce. -Also has a high nominal GDP ranked 36th Singapore is an Island so the main transport is shop and motor boats Legal Has technicalities and complexity in law Technicalities in law have led to increase in corruption Has low tax and also hidden taxes created by corruption Most uses English common law -Strict laws has made Singapore corruption free country -Has low taxes making it haven for foreign investment Technology Has a highly developed technology after US since 19th century. Has no well defined laws that protect patents and intellectual property (have been accused of hacking US Government website) Permits US of technology in business but also regulates -is slowly developing its technology to match that of Russia and the US -has well defined laws in English common law on intellectual property and patents Encourages us of technology to gain competitive advantage 3.1 Comparison for political factors between Russia and Singapore 3.1.1 Benefits Even though Russia has been stable after World War Two, the country’s stability has been threatened by weakening foreign policies with other countries including Belgium, US, UK, Australia and Ukraine (Yoon, Krasnolutska & Choursina, 2014). Several times, Russia has invaded Ukraine to take control of Crimea making its several countries to condemn the act. Walker (2014) claims the situation led Russia to cut oil export to several countries in Europe and America. Such acts have made companies to be wary in investing because if the foreign policy with the parent country of the company weakens, their licenses may be withdrawn. On the other hand, Singapore has been stable over the years, a situation which has encouraged foreign companies to invest in the country (Tan, 2007). The foreign policy of Singapore is intended to maintain security and reduce business risks between its allies and in Southeast Asia as a whole. The basis for good foreign policy is to create political stability which could improve businesses in across boarders. Tan (2007) went ahead to claim that the government has created a business-friendly Singapore and made it one of the freest, competitive and innovative markets. Similarly, the Russian government has also created a business friendly atmosphere to encourage importation and exportation. In fact, Russia is the largest exporter of natural gas and oil. However, the country regulates its business to encourage young industries to prosper, and also promote various sectors of the economy to compete with the rest in the world (Gleason, 2009). 3.1.2 Risks According to Kosachev (2007), the weakening of foreign relationship, especially with various countries of the world signifies bleak future for foreign countries intending to invest in that country. Reducing the capacity of natural gas and oil being exported to other countries due to its difference with other countries show a sign for foreign investors. It portrays a situation where Russia could withdraw the license of companies from hostile countries. The process could lead to loss of company resource (Walker, 2014). In several instances, Russia is at conflict with Ukraine and war could erupt between them and Ukraine leading loss to of business, lives and property (Yoon Krasnolutska & Choursina, 2014). On the contrary, Singapore is very stable politically. This form of atmosphere has attracted many foreign companies in the country. Today there over 7000 foreign companies from the US, Europe and Japan in Singapore (Rodney, 2008). It may look encouraging, but is also risky in that it poses competition in the market. 3.1.2 Cost Forbes (2013) argues that in terms of cost of expansion into these two countries, Russia look more cheaper based cost of labour and natural resources. The population of Russia has grown over the years and can provide the needed labour. On the other hand, Singapore has a low population of 5.4 million with almost 2 million being foreign nationals. This means foreign invest must get expatriates to create the needed workforce (Department of Statistic Singapore, 2014). The same department posits that presently, 44% percent of Singaporean labour comes from non-nationals. Usually it is expensive to hire foreign labour diversity and low morale to work in the new environment. Corruption makes it costly to invest in Russia compared to Singapore. Gleason (2009, p.57) asserts that in Russia, Australia companies will have to part with hidden taxes and bribes to get licenses to set up a company. It is cheap and easy in Singapore because of business-friendly and corruption free environment. 3.2 Economic factors Both Russia and Singapore are considered as fastest rising economies (Czinkota et al, 2013). However, the level of growth over the years is far apart. While Russia is a first world country which established its economy after the Second World War, Singapore is a second world country which rose to its prominence in the 21st century. The Russian economy is projected to reach approximately $3.18 trillion in 2018 (Forbes, 2013). Nevertheless, Singapore has a better purchasing power parity compared to Russia. World Bank (2014) claims Russia is ranked 6th while Singapore is ranked third based on their purchasing power parity. An investor their would go for high purchasing power and potential market look in future because the first aim is always meeting the needs while getting profits. 3.2.1 Benefits Any Australian company willing to invest in foreign would benefit more in Russia than Singapore. This is because Russia has readily available natural resource including gas and oil compared to Singapore (World Bank. (2014). Russia is the largest exporter of natural gas and oil in the world. Such natural resources can be used as raw materials and also used in making electricity used to run the company. Russia has a high population, which can make a large customer base for a strong brand. Out of this population, the number of high income earners and middle class has increased from 8 percent in 2000 to 104 percent in 2013 (Forbes, 2013). Similarly, Singapore has a high number of middle income owners with no minimum wage. The concern is that it has a low population. Therefore, Australian company manufacturing in this country will be again be compelled to export its product to increase its profit. However, in both cases, companies are likely to enjoy low corporate and personal taxes. Actually, startups in Singapore get available incentives. Other benefits include tax exemption on the S$100,000 chargeable on income in the initial three consecutive financial years (Janus Corporate Solutions, 2009). 3.2.2 Risk The major risk of setting up a company in Russia is corruption. The corruption in this country often arise in terms of hidden taxes and bribe official charge to allow businesses in the country. Various reports point out Russia as one of the most corrupt nations in the globe (Kum, 2011). The higher the Corruption Perception Index is a concern for foreign investment. Compared to Russia, Singapore is free from corruption and has least cases of crime (Yue, 2013). The situation has attracted strong brands all over the world to invest here. 3.2.3 Costs Even though Russia is one the most established economies in the world, the cost of starting and carrying can prove too expensive to Australian companies. Whereas getting licenses in Russia takes 45 days, in Singapore it takes one month (Kum, 2011). In Russia, the process starts at the federal level and end in regional level. Government regulation restricts business in making more profits and even reaching its potential. Douglas & Craig (2011) affirm corruption that has been also encourages unfairness in business and increases cost of operations. 3.3 Comparison for legal factors between Russia and Singapore Doing business in Russia is still being hindered by heavy regulatory regimes, insufficient laws of intellectual property, conflicting use of laws and regulations, extreme government hindrance in business issues, lack of transparency and other market entry barriers. Foreign companies are regulated at region and federal level (Janus Corporate Solutions, 2009).. Contrarily, Singapore is a free nation with no business barriers to entry. There are also strong and strict laws protecting businesses and properties to ensure fairness in trade activities. 3.3.1 Benefits Australian companies investing in foreign countries are likely to benefit more in terms of legal action more in Singapore than in Russia. This is because Singapore has well defined laws on setting up companies and taxes compared to Russia. A survey conducted in 2008, Singapore global business executives, were ranked top regarding quality of judicial system in Asia (ABS-CBN, 2008) 3.3.2 Risks The property protection rights in Russia are weak and ineffective and the private sector is subject of intense government interference (Kum, 2011). The state does with aim to make public sector stronger than the private sector. In such instance, Australian companies are likely not to make the projected profits. This is so different in Singapore, where the state supports foreign business because its growth depends has been depending on it 3.3.3 Cost From the risks it is clear the setting up a company in Russia can be stressful and full of frustration from government interference. Lack of transparency and corruption mean that a company will experience high cost of operations. The law also restricts the company from making as the management had intended (Kum, 2011). In Singapore, government support is enough to ensure Australian companies rapidly establish itself and start conducting business. Also, when tax system is transparent, the company is able to plan on how to pay (Tavernise, 2002). 3.4 Comparison for technological factors between Russia and Singapore Telecommunications has played a vital role in the economic expansion of both Russia and Singapore. Particularly, the information technology industry is undergoing a fast market development. 4.4.1 Benefits Both countries have continuously used technology for research and development of products. Similarly, technology is not restricted and can be used in supply, production, and sales and marketing. However, Russian companies have made good use of technology since the era of enlightenment, hence has competitive advantage over Singapore (Kum, 2011). In a nutshell, Russia has a well developed information technology and competes against the technology giants like US. Singapore is still in the early stage of technology life cycle and its fastest growth could see many foreign companies benefiting (Rodney, 2008). 3.4.2 Risks Currently, it is still widespread to notice technology or intellectual property being stolen by the staff a foreign company operating in Russia or by the local competitor in Russia (Kum, 2011). There is also no well defined law which protects patents and intellectual property to protect individuals, companies or countries. In the recent past, Russia has been accused of hacking US government website. This means business of knowledge of foreign companies may not be safe in this country. Laws are however strict in Singapore and promote fair business activities. Rule of Law Index by World Justice Project placed Singapore amongst the top ten nations based on "Order and Security” category (Rodney, 2008). 3.4.3 Costs Since Russia has an established technology platform, installing technology into a new company may be considerably cheap compared to Singapore. Similarly, Russia has a history of technology and innovation in various fields such as energy, space technology and pharmaceuticals among others (Kum, 2011). For companies aiming to invest in Singapore will have to spend much money to outsource technology and also get skilled IT expert probably from other countries to run its technology (Burns, 2006). 4.0 Recommendation to Austrade At the moment the best country for Australian companies to invest is Singapore. As opposed to Russia, Singapore boasts of government stability, business friendly government, free corruption, incentive for start ups and well defined business law. Russia may have rich natural resources but when there is government interference and complexities in laws on property, conducting successful business become unachievable. Business environment is dynamic and changes rapidly; Russia may not be the best in conducting business due to corruption and government hindrance. However, government changes after every six years and the situation may change. The situation may also take place in Singapore. This is because as companies flock in Singapore, the competition is strongly and in future the government might just regulate its market. The executives of Australian companies must watch trends of politics and economic situation of Russia and Singapore to make decisive action in the future. Every company has unique strategies as well as entry strategies. Also, these countries have unique challenges. In one case joint may be the best while in other cases, exporting could be the best. Therefore, it is the company to review its external environmental aspects related with new locations and align them with its core competencies. He & Wei (2011) posit that while at it, internal factors like market segmentation, pricing, positioning, brand alignment, organizational resources and market significance has to be taken into consideration and weighed against external factors to realize organizational risk and value in the market selection. 5.0 Conclusion From the research, it is apparent that there are many opportunities in foreign countries for companies to pursue. However, there are also many challenges which companies are posed to face if risk assessment is not properly conducted. From this report, Australian companies are likely to do better in Singapore due to business-friendly atmosphere created by the government over the years. The government has created corruption-free environment, free economy, incentives for start-ups, low taxes and strict laws to create fairness in business. Unlike Russian market, which have experienced corruption, regulation and even weakening foreign policies. Companies aiming to be successful in Singapore must also align their internal strengths to match external environmental forces such as political, economical, legal and technological factors. 6.0 References ABS-CBN. (2008). Hong Kong has best judicial system in Asia: business survey, ABS-CBN News (Philippines), Agence France-Presse, Retrieved on November 7th 2014 from http://www.abs-cbnnews.com/world/09/15/08/hong-kong-has-best-judicial-system-asia- business-survey Burns, S. (2006). Singapore outlines gigabit broadband plans. V3.co.uk (London). Mahtani, S. (2012). Singapore No. 1 For Millionaires – Again. Wall Street Journal. Burton, J. (2006). Singapore economy grows 9.1% in first quarter. Financial Times (London). Czinkota, M.R., Ronkainen, I., Sutton-Brady, C., Beal, T & Stegemann, N. (2013). International Marketing: Asia Pacific Edition, 3rd Edition. New York: Cengage Learning. Douglas, SP. & Craig, CS. (2011). The role of context in assessing international marketing Opportunities. 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