Concept of International Business Assignment

Questions

1. Cultural understanding is a key element of this situation.  Comment on the importance of this aspect of market entry and development, being sure to discuss the key elements of understanding and working effectively in Indonesia.

2. Using the Hofstede Framework, analyze the Indonesian culture with reference to concepts covered in the course materials.

3. CSR and business practices are another set of critical issues in this case.  Describe four CSR issues and explain how these issues can impact a company's international business activities. 

4. The Client, in order to develop its Market Entry Strategy fully, will be required to make an investment in Indonesia.  Explain each of the four means of incorporating risk into market entry strategies if The Client wanted to use an Adaptation Strategy.

5. The Client will benefit from trading with other countries in the region. Briefly describe the Association of Southeast Asian Nations (ASEAN) and discuss the benefits and drawbacks of regional integration.

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Introduction

In the present report, the discussion scope is based on this aspect in which a client company - Fortune 50 Technology Company ‏requires technical support to establish the strategy framework for penetration into Indonesia market. The description present in this report this is in the following order: first we will discuss about the cultural traits of local market, for successful work integration of the company to local environment, then we will analyse the Hofstede Framework to use the local culture as frame of reference for establishing the strategies. Down the line, the discussion will corporate social responsibility and the alignment of company's strategy with the guidelines and regulatory framework established by the local government. This will give a clear insight to the adaptation strategy for successful penetration and establishment of this new business in Indonesia. Finally, we will shed light on the regional integration of this company with neighbouring nations in this region. This include discussion of the advantage and disadvantage associated with trade integration. Lastly, this report will be concluded with a brief summary of the contents present.

1. Cultural understanding is a key element of this situation. Comment on the importance of this aspect of market entry and development, being sure to discuss the key elements of understanding and working effectively in Indonesia.

For any successful multinational firm, it is necessary to understand the difference between cultures of various nation. The internal business, organisation needs to consider the law, regulation and social norms of the foreign market, before introducing their product and service. In this regard, the mode of advertisement, promotional campaigns, human resource management and local branding strategies, should be designed in parallel to the local cultural context, where the product and services are planned for launching (Jones, 2018). Additionally, the working environment, motivational method and acknowledgement schemes may not be the same for employees in multinational operational units. For building a strong international business relationship it is necessary to consider the aspects of cultural difference existing between the foreign markets.

The present discussion is based on the concept of international business management issues, which is based on case analysis of company - Kaizer Consulting. The company offer support for critical advice and develop strategies to their clients for successful business in foreign market. This business approach of Kaizer is reflective in its partnership and negotiation activities with respect to the culture of target market. The case study describes about a client company (Fortune 50 technology firm), which plans to sell its product in the market of Indonesia and is seeking advice from Kaizer for development of business strategies. Indonesia is the world's fourth most populous country with a diverse cultural dynamics, strong enough to dominate their business behaviour. Having a wide range of population, it attracts foreign investments and offers low labour cost support for the manufacturing operations.

The first step in understanding the cultural aspect include building a stronger relationship with Indonesian to know about, their local customs requirements for the business conduct. Fortune 50 Technology Company should prioritise building relationship with local suppliers, dealers, networking points, and local stakeholders. Indonesia comprises of different traditions and customs and they feel proud of their cultural heritage (Caesar, 2016). Understanding this will eventually help the foreign company to understand the requirements of the local customs and can focus on their demand. The second step include, understanding the organisational behaviour and existing stereotypes. Indonesian mostly follows "Yes boss" phrase in their business activities. However, their 'yes' not necessarily defines the sign of confirmation or agreement rather, it is generally used to make happy, satisfy request and show admiration to the next party. For this reason, most of the foreign companies get the wrong idea of being the deal confirmed, and later on find themselves to be fooled. A one-time ‘yes' does not confirm consent of an Indonesian, thus it should always be double checked. Often in business cases they prefer to skip meeting or contact if they're not ready instead of denying or saying direct ‘no'. Accordingly, it is advisable to develop relationship in the first contact instead of putting sales as the prime objective, which should be discussed gradually with mutual agreement. The third requirement include, the necessity to adopt the customs regarding meeting and agreement dealings, with an Indonesian partner.

It is important to note that Indonesian do not like extensive eye contact, since they feel uncomfortable. Thus, it is better to confront them as less as possible. Finally, as a matter of fact the locals of the region are highly understanding and cooperative as long as the foreign companies do not degrade their cultural standards purposefully. Using these ideology it is effective to initiate communication to build network and identify the stakeholders for business engagement. Other factors include orientation of people to find cost effective products (cheaper, stylish, and reliable). Likewise, the deals with more profit margin tends to attract the local stakeholder to engage in the business process (Willar, Trigunarsyah & Coffey, 2016). These factors are important for the consideration of local attitude for integrating and initiating business purpose.

2. Using the Hofstede Framework, analyse the Indonesian culture with reference to concepts covered in the course materials.

Hofstede's framework is a benchmark developed by Professor Geert Hofstede for identifying six basic dimensions of cultural diversity. These six dimensions include: individualism, uncertainty avoidance, masculinity, power distance, long-term orientation and indulgence (Beugelsdijk, Kostova & Roth, 2017). According to this framework, culture is defined as the collective programming of an individual's mind to differentiate the member of one team from the others. To have a deep knowledge on Indonesia's Hofstede framework, Kaizer must invest intellectual for understanding and utilizing the benefits, taking reference of the contents available at website (www.hofstede-insights.com) (Hofstede Insights, 2019).

Power distance - This dimension defines the extent to which the less powerful member in a group accept. They also expect the power to be distributed unevenly. Individuals within the society differs in some way and have certain inequalities between them. However, the power dimension of Indonesia describes the outlook of its business culture to be aligned for contemporary issue such as inequalities. Based on the report (Saleem & Larimo, 2017), Indonesia holds a score of 78 which is its highest score among all other dimensions. The high power distance value of Indonesia indicates the business style for this nation, suggesting that leadership is directive, unequal right distribution between power holders and non-power holders, hierarchy dependent, and superiors are unreachable.

Individualism - The dimension describes the degree of interdependence of individuals on their family members. In an individualist society, it is supposed that people will look after themselves and their family members only (Horak, Arya & Ismail, 2018). On contrary, a collectivist society people behave as ‘in group' rather than focusing on only family, and take care of each other with loyalty. Indonesia scores only 14 and depicts itself as a collectivist society. For instance, the Indonesian children are highly committed to their parents and vice versa. They give more importance to family loyalty and prefer being in joint family.

Uncertainty avoidance - This dimension describes the extent to which the members of a group feel threatened from an unknown situation and try to avoid it. In this dimension Indonesia scores 48 and thus have low preference towards uncertainty avoidance. For example, when an Indonesian is upset they generally do not display it in their emotion on anger. They belief in maintaining harmony between workplace and personal life.

Masculinity - In this culture, the differentiation between task oriented and person oriented attitude can be clearly identified. The masculine society is more driven by success, achievement and competition. Indonesia scores 46 on masculinity dimension which is considered to be low in masculine. Indonesia mostly focus on status and outward appearance for achieving success instead of any material gain, which in turn limits its motivation towards success.

Indulgence - This dimension defines the weak or low control of people over their impulses and desires. Here Indonesia scored 38, which makes its culture as restraint. The local people do not prefer to spend leisure time and have a strong belief on tiny cynicism and pessimism.

Long-term orientation - The dimension describes the way of maintaining link with past while dealing with tough situations in present and future. In this dimension, Indonesia holds high score of 62. This indicates that Indonesian have pragmatic culture and they believe that truth is highly dependent on situation and time. Their culture believes in ‘save and invest', adaptable to change environment and determinant to achieve goal (Suharnomo, & Syahruramdhan, 2018).

3. CSR and business practices are another set of critical issues in this case. Describe four CSR issues and explain how these issues can impact a company's international business activities.

Corporate Social Responsibility (CSR) is the act of taking responsibility and incorporating it in routine business activities. The overall intention here is to upgrade social well-being and show contribution towards the betterment of community life. In the present business world, CSR is considered as a self-regulation on the company, with the objective to create positive impact on employees, customers, community, and environment through its activities. Implementing CSR in business activities helps to improve the company's value and reputation. In addition, it also solves social problem and build market reputation for the organisation. In context of international business, CSR provides a vision of ethical (social) responsibility of the investors and stakeholders (Kourula, Pisani & Kolk, 2017). In the present case study, the competitor of the client has selected the target market of Indonesia because there exists lenient enforcement of environmental protection laws as well as government corruption. According to the case analysis, it is learned that the activities of company, falls against the scope of the local regulatory guidelines and as a result of which, the company was defamed on social media. It is clear from this, the most of the company engage in CSR activities to improve reputation and gain legitimacy from stakeholders.

The four CSR issues and its impact on a company's international business activities includes:

Environmental issue - All business types have their carbon footprint, irrespective of its size, where the organisation holds responsibility for taking necessary measures and reducing the footprints for the betterment of society. For a company conducting international business activities, is under constant scrutiny to check the level of greenhouse gases. The company need to have a constant monitoring on its business activities, including machinery and use of energy resources. This also include the scope for reduction in the travel activity of corporate officials, since airline also contribute in carbon footprints (Kolk, 2016).

Ethical labour issue - Treating employees fairly and ethically is also a part of corporate social responsibility. However, if the company does not abide by this, it can create legal issues. Ignoring labour laws, insufficient wages, and risky working condition can lead to employee-employer confrontation through labour unions, and local parties. This issue not only bring negative image to the company but also hamper the economic condition due to break in business activities.

Supply chain responsibility - The CSR activities of suppliers have high impact on its operational, financial, and reputational success of the customers. However, if the company will maintain secrecy, violate human rights, and conduct corruption in the supply chain, it can break customers trust, resulting in business downfall (Pisani, Kourula, Kolk & Meijer, 2017).

Tax and local regulatory issue - While conducting international business activities, it is the sole responsibility of the company to lawfully pay the taxes, as it contributes to the finance of public and development of host country (in this case Indonesia). In contrary, if the company violates the government regulations, then there is risk for its finance as well as reputation in the local market.

4. The Client, in order to develop its Market Entry Strategy fully, will be required to make an investment in Indonesia. Explain each of the four means of incorporating risk into market entry strategies if the client wanted to use an Adaptation Strategy.

In the present scenario, Fortune 50 Technology Company is interested for the provision of making investment in Indonesia market, with the objective to develop its market entry strategy. While entering to the new market, the firm has to adopt the Indonesian cultural and demographic traits. Using the "Adaptation Strategy", the firm can gain universality in the marketing appeal according to the customers of the particular new market (Rao Nicholson & Khan, 2017). The following is the checklist of various risk incorporated during implementation of adaptation strategy:

Brand adaptation - In a brand adaptation strategy the company can change the band name according to the foreign language for the new geography area (Tsougkou, et al., 2017). It is required when the existing brand name is unknown or doesn't connect to the new target market. However, the brands logo, typography and packaging remain the same for being readily identifiable by the existing customers. In this case, there exists a risk of alienating the existing customers. Moreover, there always exist a pressure for a new brand to gain customers attention.

Product adaptation - In product adaptation strategy, the company can adopt the local practices and specific needs and incorporate those into specific product. This strategy will help in appealing the local sensibilities. In this case there are also certain risk for the client. For example, there are several local Indonesian companies who are well-known with the needs and requirements of the local people. They will prove to be the toughest competitor for the client. Moreover, there is also a risk of investment failure through customer rejection of the new product.

Price adaptation - In this adaptation strategy, the company should set the price of the product on the basis of geographical factors of Indonesia, instead of setting the company-wide price. However, there is risk of increase in operational price in Indonesia. This may occur due to various reasons like: increase in raw material cost, increase in labour cost or implementation of government tax. In this situation, the low selling price of the product can cause huge loss for the company.

Technology adaptation - Technology adaptation strategy is the practice in which the company implements of change new technology according to the requirement or unavailability in the new target market. Other than the positive aspect, there also exists risk for the company. It has to spend high initial amount in the R&D department for innovation of new technology. Moreover, if the technology becomes disruptive it also have a risk for leaving negative brand image for customers.

5. The Client will benefit from trading with other countries in the region. Briefly describe the Association of Southeast Asian Nations (ASEAN) and discuss the benefits and drawbacks of regional integration.

The Association of Southeast Asian Nations (ASEAN) was formed in the year 1967. The basic aim of creating this regional forum is to promote political cooperation, trade and economic expansion and social development of the associated nations (Collins, 2019). ASEAN complexities of five founding members which includes, Indonesia, the Philippines, Malaysia, Thailand and Singapore. At present, 10 member countries are present in the forum and the countries include, Vietnam, Myanmar, Cambodia, Lao and Brunei Darussalam. The total population of ASEAN is about 550 million and the total area is 4.5 million square kilometres. The present secretariat of ASEAN is located at Jakarta, Indonesia. In 1992, the 4th ASEAN Summit established the AFTA (ASEAN Free Trade Area) which aims at increasing the competitiveness of these ASEAN countries. The competitiveness of ASEAN has increased through opening trade and reduction of tariff and non-tariff barriers. Moreover, AFTA also supports local trade as well as manufacturing within these countries. In addition, it provides free trade environment and economic integration with foreign companies. Thus, with the availability of these benefits it will be much easier for the client to trade all over ASEAN countries (Abidin, Haseeb & Islam, 2016).

According to reports, ASEAN represents the third largest trading partner of Europe, having trade of goods for more than € 230 billion in 2017. The bilateral trade in service accounts € 78 billion in the year 2017. Its second largest trading partner is EU after China, which accounts for approximately 15 percent of its total trade. The major exports of EU to ASEAN are transport equipment, machinery, and chemical products (Wong, Cheng & Cheung, 2018). The ASEAN community compose of three major pillars, the economy community, the political - security community and the socio-cultural community. Each pillar consists of its own blueprint which has already been approved by the summit.

Regional integration is an approach through which different countries agree to remove the trade barriers between them. The trade barriers include quotas (limit of product to be imported), tariffs (taxes levied on import of products) and border restrictions. The NAFTA (North American free trade agreement) is one of the best example which describes the reduction of trade barriers between United States, Mexico and Canada.

Benefits of regional integration includes (Laursen, 2016):

• It allows maximization of efficiency welfare, which in turn provides independence during changing, crating or implementing the trade policies.

• It also motivates trade liberalization and results in market expansion. This eventually creates more employment opportunities for those people who prefer to move to other countries for higher salary.

• Regional integration also makes it easier to achieve consensus even for the small membership, unlike WTO (world trade organization)

• The regional integration also introduces global competitiveness under the effect of large market.

• In addition to increased economic output, it also helps in improving relationship with countries all over the world.
Drawbacks of regional integration are (Wong, et al., 2016):

• Some of the regional integration treaties create a common currency, for example, Euro. This leads to uncontrollable supply of currency of individual countries to meet the specific their economic condition and weakens their economy.

• Northern regional integration also leads to the cultural centralization, resulting in the loss of unique culture for the particular region.

• With the formation of regional integration treaties, the members are forced to give up some of their powers over the prime policies like trade, fiscal and monetary policies. This results in surrendering of certain degree of sovereignty in the name of regional integration.

• It generates the risk of developing trading blocs against the non-member countries.

• With regional integration a member country is forced to divert trading from non-member country to member country, despite of inefficiency in cost.

Conclusion

Understanding the cultural diversity is one of the primary requirement for penetration into foreign market. The present report summarises the key aspects regarding cultural traits, understanding the local features and integrating the regulatory framework in the scope of strategic development. The discussion is framed on the basis of objective to penetrate and establish the new business with integration and alignment of local customer' requirement and as a cultural analogy.

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