Opportunity and Risk Assessment - Coursework Example

Insert Your Name Here Title: Opportunity and Risk Assessment Date: 24th March 2010 Introduction For a company that is performing well, expansion is usually the best way to increase the revenue. Venturing into different countries allows foreign investors to enjoy various benefits that come along with expansion. These include tax waivers and relief for the first few years the company starts its business. Considering economies of scale, a company could save billions of shillings if they are exempted from tax payment for a period of time. This is because such privileges add to the cost efficiency of the company and therefore shipping of plant and equipment as well as raw materials becomes affordable. Australian Mechanical Engineering Company is planning to expand its operational boundaries in England and China. This is a great move and it is likely to cause a great surge upwards in the company’s revenue. China is known to have a population of over one billion people and the backbone of the economy is business. Most of the people in business always monitor their efficiency levels. The “Evolute” is a product whose main aim is to save water therefore most of the Chinese businessmen will consider installing it in the houses, buildings and business premises to reduce water wastage. On the other hand, people in England are very conscious of their spending and they are always open to new ways of reducing their bills which consume most of their hard earned income. Introducing the “Evolute” which is a once for all cost that will reduce the water bills forever, is an idea that is likely to be embraced easily. The Australian Mechanical Engineering Company stands a great chance of moving their product with ease. However, there are a number of factors to consider in terms of risk and opportunities as well as business legislation in both destinations. Focus on the destinations I. Business Opportunity in England England is considered as one of the most stable markets in the world. It has a mixed economy where a company has a chance to determine its prices but at some point there checks and balances to prevent consumer exploitation and monopolies. Although the supply and demand also control the prices, the market is fair (Great Britain Parliament et.al 2009). The currency used in England is arguably among the greatest currencies in the world facing competition from the Swiss Franc which has dominated the chart for a while. Since the Australian currency might be exchanging for a lower price to the pound, England poses a greener location for an investment since the Australian Mechanical Engineering Company can adjust the price slightly upwards to match the competition in the region. This could translate into greater profit since at the lower selling price, the company stills makes a sustainable profit. England’s capital London is known to be a hub of manufacturing industry and tourism is also a considerable revenue producer in the region. This is an indicator that there could be very many businesses that could be willing to invest in the “Evolute” to cut the water consumption costs in the region. Licensing in England is a very creative approach to business since it exposes the company management to the managerial authorities which gives the Australian Mechanical Engineering Company directors a chance to negotiate for relief and exemptions as well as grace periods as the business kicks off. II. Business Opportunity in China China is the greatest growing economy in the world (World Bank 2008). This gives the Australian Mechanical Engineering Company a chance to excel together with the economic growth. However, China has put a restriction on foreign investment and therefore any company that wishes to extend their business boundaries to the country has to form a joint venture. The Australian Mechanical Engineering Company is aware of this and that is why they have cleared stipulated that they want a joint venture in the country. This is an advantage since when the company partners with the Chinese natives, they are likely to handle economic challenges easily since the local party has experience with the economy and therefore they can handle that bit. This will also enable the company to run its business according to legislation since the Chinese partners’ will guide the company on legal matters. A joint venture in China will help in creating an easier marketing network for the product, “Evolute” since the local partners know about the efficient and most effective methods of marketing and distribution. The company might also decide to start assembling the product in China where the cost of manufacture is cheap due to the availability of labor resource from the great population. Since there are no price controls in China, the small and medium scale businesses are always at an advantage since they can set their prices as they deem equitably profitable and sustainable. Investing in China will also diversify the operations of the Australian Mechanical Engineering Company and this will give the management the necessary skills to trade in a vigorous economy. It will also expose the company to a large consumer portfolio and therefore chances of profitability are very high as the Chinese business people purchase the product to increase water efficiency. Risk Assessment 1. China Political China enjoys a cool political climate which is the reason why most of the people are focused on entrepreneurship. The only notable political hitch is the misunderstanding of governing policies that arises between the Dalai Lama and the current president of China, Mr. Hu Jin Tao. However, that does not affect the business operations in the country since it is more of a religious conflict. Cultural environment The Chinese cultural environment is rather interesting with a great population preferring to preserve their culture and at the same time, they want to experiment the arising trends and foreign culture. Preserving ancient culture could be a hindrance to pushing a foreign product and therefore the company should think of assembling their products in the country so that the locals can promote the locally products and buy the “Evolute” without hiccups. Foreign direct investment rules China has strict rules on foreign direct investments and this poses a great risk to foreign investors since they have to form a joint venture with the Chinese for them to be allowed to operate in China. Forming a joint venture with the Chinese natives means that the natives have to feature in management structure of any foreign company. It is a risk since they also have to co-own the company and decision making will also have to consider their opinions and vote (Gibbons 1996). This might cause flaws in the company production since the Chinese locals might copy the idea and implement it therefore double-crossing the company. The management should therefore come up with systems like nondisclosure and contracts binding all members of management from leaking information (Yan 2000). Economic conditions The Chinese economy grows fast and this works well for the company. However, when an economy is too dynamic and there is no price controls, competitors might take advantage and decide to lower prices extremely to phase out other companies. In case of an inflation attack, the economy might not have adequate systems to sustain them at a time when consumers are only buying the most necessary products (Casanova et.al). 2. England Political England has always had a cool political temperature mostly because the government is monarchial and most of the representatives are chosen by the people and therefore the citizens exercise democracy. The Australian Mechanical Engineering Company does not need to worry about the political status of England while investing. Cultural environment Most of the English people are quite conservative when it comes to cultural conservation. However, the dynamic changes that are occurring in the environment call for urgent measures to save the existing resources and therefore, regardless of their conservative nature, they can still manage to purchase a product that they are sure that it will help them save their resources. Foreign direct investment rules The risk of foreign direct investment in England is mainly in the taxation bit. Foreign investment is always welcome since it adds to the GNP of the economy. However, if there are imports and exports that are made, the taxation rates might be crippling for a foreign investor. Tax returns for a foreign company could also be high. Economic conditions England is recovering from the Credit crunch that had crippled most parts of Europe for the better part of 2008 and 2009. The people who profited during this period are mostly realtors and credit institutions since the realtors had lots of foreclosures and forfeited mortgage houses sold o them while credit institutions were the only source of income for the citizens. It might take sometime for the product to start moving and this might delay profitability. However, since the economy is slowly recuperating, it could be a great chance for the company to kick off and get used to the poor but stable economic conditions before it starts regaining with time (OECD 2009). In conclusion, China has a dynamic economy that is too vigorous and a large consumer base that could offer a wide market for the product. On the other hand, England’s economy is recovering from a crippling economic blow and the tax rates might be too hefty for a starting business. There are chances for profitability since the Pound is a stronger currency. The best thing is that in both locations, people are focused on efficiency which is a key performance indicator for the product being introduced. References: 1. OECD Publishing 2009, OECD Economic Surveys: United Kingdom 2009 OECD Publishing United Kingdom 2. World Bank Group 2008, World Development Report 2009: Reshaping Economic Geography World Bank Publications, 3. Sheana Tambourgi, Irene Casanova, Viktoria Ivarsson, Stéphane Oertel, Global Risks 2009 World Economic Forum 4. Great Britain. Parliament, House of Commons, Treasury Committee 2009, Budget 2009: Oral and written evidence The Stationery Office, 5. Yanni Yan 2000, International joint ventures in China: ownership, control and performance Studies on the Chinese economy Palgrave Macmillan, 6. Russell Gibbons 1996, Joint ventures in China: a guide for the foreign investor Palgrave Macmillan Australia, Read More