In order to conduct the operations of a business in an efficient and effective manner in a foreign country, it is necessary to take into account the benefits the country in question offers as well as the challenges a business is most likely to experience.
This paper analyzes the advantages and disadvantages of Brazil and Singapore as business destinations for AutoZone Inc which is seeking to acquire businesses in either of the two countries in line with its expansion plans. A combined analysis of the two countries is made for both the advantages and disadvantages and a recommendation for the country which offers a better opportunity for AutoZone Inc is also given.
Today’s technological advancements have lessened the local scale of business operations. In effect, they have resulted in the creation of a global arena over which transactions are carried out promptly and with simplicity through the process of globalization. Therefore if a company is planning to expand operations globally, rigorous market and environmental research needs to be carried out to determine its feasibility.
MSN Money rates AutoZone Inc as the top automotive spares and accessories retailer in the USA (2010, para.1). AutoZone Inc plans to expand operations to Brazil and Singapore.
It has sought to explore acquisition as a mode of entry into these markets, its advantages and disadvantages and the accruing risks. Acquisition as a method of globalizing business transactions entails buying out and restructuring an existing company in the target market (often at an inflated price) (Wang, 2009, p1).
According to the US Department of State website (2010, para. 4), Brazil is the most populous nation in Latin America and fifth world wide. It has experienced a period of economic boom having come through periods of massive inflation.
Currently, the GDP per capita is over US $8, 000. It has a favorable open business environment with friendly business policies.
The Business Anti Corruption Portal website ranks Brazil as among the top investment site an investor will prefer ( 2010, para 1). In light of this, AutoZone Inc’s best investment decision is to invest in Brazil. Benefits accruable to this choice are listed below
AutoZone is set to benefit from reduced operating risks with uncomplicated establishment of operating advantages (Wang, 2009, p. 240). An acquisition exempts the investor from the risks associated with start up investments for example, lack of ready market, security and unfavorable policies.
Assuming AutoZone buys out a small automobile spares dealer; its resources will be focused on expanding the already existent market, improving the quality of products and services on offer to existent customers.
Labor wise, it will facilitate the company’s exemption from oppressive labor laws, for example, in Brazil the law requires that foreign firms should recruit locals and adhere to minimum wage requirements.
Such rules are limiting since they hinder a company’s staffing capabilities for example, where the available labor does not meet the company’s needs. Secondly, there is a potential of increasing the company’s profitability in the event that it is cheaper to acquire labor in Brazil than it is in the USA (sourcingmag.com, 2010).
The populace In Brazil is characteristic of high avoidance and uncertainty (AutoZone, n.d, p.6). They prefer sticking to their old company as opposed to moving on to new ones. In this case, a newly established company in Brazil is likely to experience staffing problems. Acquisitions involve already existent businesses with most cases retaining the staff which minimizes inherent risks associated with avoidance and uncertainty and retain skill and expertise.
The geographical location of Brazil eases access to the US. Therefore transport is at simplified and costs reduced. Sourcingmag.com (2010) labels Brazil as a complicated market place given its near-shore location. This also opens up a lee way for accessing other markets.
Currently, there is a sudden pitch in technological investments in Brazil. Fried (2008) says that AutoZone Inc, being a technology related dealer can take advantage of such opportunities for growth in Brazil. This involves buying out budding companies in that field and restructuring them according to its mission and vision.
Startup costs for acquisitions are low as it readjustment of the previously existent firms to match the buyer’s specifications. Since this new firm is not alien to the environment and the Brazilians nature of high avoidance and uncertainty, it is easier for business to pick up.
Over the years, Brazil has managed to regain economic and financial stability. AutoZone Inc stands to benefit operating in a stable economic environment. Likely benefits attributable to economic stability include wide space for expansion, stable prices and stable markets.
Brazil has a well developed infrastructure that facilitates business operations with ease. The infrastructure includes near efficient transport, communication. The financial infrastructure facilitates easy credit acquisition to fund business expansions.
The highly avoidance and uncertainty avoiding Brazilians tend to operate in a communal model. Consider cases of unproductive workers, there is a likelihood of cover ups for non-performing colleagues in the spirit of togetherness. Workers can also collude to defraud the company which may push it out of the market.
Acquisitions often result to creation of large organizations. The Brazilian tax laws do not favor large companies and businesses. This may lead to closures and market exit (AutoZone, n.d, p.2). The federal system structure incorporates many regulatory agencies which are likely to create room for corruption from civil servants (Business Anti Corruption Portal, 2010, para 3).
The political environment is one of the most important considerations for internationalizing business operations. Having the necessary infrastructure and resource endowments alone do not guarantee business success especially if the country is not stabile politically. Brazil is highly unstable politically. This posses a major threat to the operations of Auto Zone Inc. Such political instability has devastating effects on the country’s economy activities.
Brazilian Labor Laws are to a large extent stringent and this may hinder recruitment of skilled labor. Even though the company plans to acquire an already existing business, it will need to hire more employees in the long run and as such these constraints may not work in its favor. High levels of bureaucracy and corruption present are unfavorable to business operations as limit business productivity.
Singapore is a one of the best economically stable countries to invest in. It has highly investor friendly rules coupled with an interference-free market. However, it has a contracted automobile industry which is limiting to AutoZone Inc‘s expansion as the needs for repairs are lower.
On the other hand, there is a high potential for growth in the bicycle and motorbike industries (AutoZone country profiles Analysis, n.d p.6 para 3). It opens to foreign investments. All businesses in Singapore are liable to taxation and regulation. (Countries of the World, 2010, para 1)
Singapore is a core shipping hub owing to its strategic location. This makes it favorable for international companies willing to operate within its boundaries, This also opens up other opportunities in bordering nations thereby creating room for growth (AutoZone Country profiles, p3 para 2)
It is relatively easy to acquire a business in Singapore. This arises from the fact that there are few rules regulating new businesses. This means it’s relatively easier for AutoZone to acquire a new enterprise as a starting point.
In Singapore, the automotive market is highly contracted, that is, the ratio of automobiles is too low. This interprets to a small auto industry. For instance, for every 1,000 people, there are only 109 personal cars (Countries of the World, 2010, para.1). This is counterproductive for AutoZone as this spells low sales in Singapore.
Singaporeans are risk takers by nature. This will work to the ruin of the firm in the event of an acquisition. As a result of workers instability, the firm may need to re-hire. These are undue costs that can be avoided with secure labor.
The threat of money laundering is real in Singapore. This can lead to loss of income for the company and can ultimately drive a company out of business. For example, in the event that it enters into large contracts and illegal money is used to settle the contracts.
Combined Advantage Analysis
AutoZone Inc stands to gain in the event of acquisitions either in Brazil or Singapore. First, automobile spares have no relative substitutes. In this case, the industry partakers are at an advantage as there are unnatural barriers to market entry.
This means the company will have exclusive business opportunities and indirect monopolistic control. As a monopoly, AutoZone has an opportunity to make supernormal profits. This monopolistic market setting also crates room its own expansion, that is, through provision of efficient services, it can curve out a lasting niche in the market. This will make it harder for future market entrants.
Combined Disadvantage Analysis
The presence of many dealers in the market directs that companies will compete on price. Therefore, firms with large economies of scale can drive others out of the market through dumping.
Risks of Acquisition
One of the risks posed by acquisitions is loss of identity (brand identity). In some cases mergers may result in loss of brand name for a company for example, through acquisition of inferior companies.
Acquisitions may lead to loss of income arising from hastily planned acquisitions normally without thorough surveys and research to ascertain its feasibility and viability in target market.
Failures to survey government regulations and requirements regarding business acquisitions may later impact on the business through government interferences.
The effect of globalization is here with us. There is a unique potential harbored in globalization. AutoZone Inc, by adopting and implementing this globalization policy, will be opening up a new business page. With its large population and a vibrant economy, Brazil has a better prospect for growth. The options available are for AutoZone Inc‘s to grow
In spite of being smaller physically and economically, Singapore is more promising economically. This is supported by the technological spurt presently being experienced and the fact that automobiles are a vital part of technology and as such, the industry is poised to expand too.
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MSN Money. (2010). AutoZone to release third quarter earnings.
Sourcingmag.com (2010). Brazil as an outsourcing destination.
Wang, Aiwei. (2009). the choice of market entry mode: cross-border M&A or greenfield investment. International journal of business management. Vol. 4, No.5, pp.239-245. Chengdu, China: Southwestern University of finance and economics.