Challenges of Expansion to a Foreign Location

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h197917

Economics

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Purpose of Assignment

This week students will review and revise their Week 3 Research Analysis for Business Signature Assignment based on economic analysis and the feedback provided by their facilitator. Students will also expand their Week 3 analyses to evaluate the challenges of expanding their chosen company's production to a foreign market.

About Your Signature Assignment

This signature assignment is designed to align with specific program student learning outcome(s) in your program. Program Student Learning Outcomes are broad statements that describe what students should know and be able to do upon completion of their degree. The signature assignments might be graded with an automated rubric that allows the University to collect data that can be aggregated across a location or college/school and used for program improvements.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

Revise your Week 3 assignment, Research Analysis for Business, using the feedback provided by your facilitator. This Week 6 report should only include one conclusion, so you will need to rewrite the conclusion you included in your Week 3 assignment, Research Analysis for Business.

Select a foreign market in which to expand your chosen product. If you wish, you may use one of the countries your team analyzed in their Week 5 Comparative and Absolute Advantage Assignment.

Prepare a minimum1,750-word report addressing the points listed below. The use of tables and/or charts to display economic data over the time period discussed is highly encouraged, you may submit any economic data in Microsoft® Excel® format in a separate file. You may use the U.S. Department of Labor's Bureau of Labor Statistics (BLS), U.S. Dept. of Commerce's Bureau of Economic Analysis (BEA), the Federal Reserve of St. Louis's FRED data, the CIA World Fact Book, World Bank data, and World Trade Organization, or other appropriate sources you might find on the Internet or in the University Library. The new sections of your report should:

  • Evaluate current global economic conditions and their effects on macroeconomic indicators in your selected country. Provide forecasts for population growth, gross domestic product (GDP) growth, GDP per capita growth, export growth, and sales growth.
  • Evaluate any competitors' existing production in the chosen country.
  • Assess sales forecasts in the selected country by using the Federal Reserve of St. Louis's FRED data, the CIA World Fact Book, World Bank data, World Trade Organization, or other appropriate sources you might find on the Internet or in the University Library.
  • Categorize the type of economy that exists in your selected country as closed, mixed, or market. What is the difference between these types of economies and how might this affect your expansion?
  • Assess how your chosen country's current credit market conditions, especially interest rates and the availability of financing, affect demand for your product or service and your planning or operating decision for your production in that country.
  • Analyze the role of the selected country's central bank on that country's economy.
  • Compare the availability, education, and job skills of the work force in the selected country. Discuss any additional challenges of international production, such as political stability, availability of government financing or other incentives, threat of capital controls, and exchange rate risks.
  • Explain any additional supply chain challenges you anticipate if attempting to make your product in your chosen country and selling the product in other countries.
  • Based on the data gathered and analysis performed for this report write a conclusion in which you:
    • Create business strategies, including price and non-price strategies, based on your market structure to ensure the market share and potential market expansions and explore global opportunities for your business in a dynamic business environment and provide recommendations.
    • Develop a recommendation for how the firm can manage its future production by synthesizing the macroeconomic and microeconomic data presented.
    • Propose how the firm's position within the market and among its competitors will allow it to take your recommended action.
    • Recommend strategies for the firm to sustain its success going forward by evaluating the findings from demand trends, price elasticity, current stage of the business cycle, and government.
    • Recommend any comparative advantages your company will have over competitors currently operating in that country, and defend your position, either for or against, expanding your company's production into your chosen country based on your research.

Integrate with the Week 3 Individual Assignment, and incorporate corrections and suggestions from the instructor's feedback. The final report should be a minimum of 2,800 words.

Cite a minimum of three peer reviewed sources not including the textbook.

Include all peer-reviewed references and government economic data sources/references from Week 3.

Format your assignment consistent with APA guidelines.

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Research Analysis for Business Research Analysis for Business Research Analysis for Business The Amazon Company is one of the publicly traded companies in America. The organization is one of the giant electronic commerce and cloud computing firm in the world, with its headquarters in Seattle, Washington. The organization sells a wide variety of goods 1 Research Analysis for Business 2 including, audiobook downloads, mp3 downloads, software, games, electronics, cloth ware, furniture, and jewelry, consumer electrical products among others (Update, 2017). This paper seeks to present a critical analysis of the economic data and business data relating to the company and explain how the company can enhance its success through the application of core economic principles. Market Structure The Amazon Company operates in an oligopoly market structure. In this type market, there exists a limited number of large firms operating in the market. In addition, the market features differentiated products, however, at times, the products may be identical. Lastly, there exists various barriers to market entry, something that limits entry of other firms. The above characteristics reflect the type of market that Amazon operates in. There exists a limited number of firms within the market, with the only main competitor being e-Bay. There also exists some differentiation between the firms operating in this market with regards to fees, payment, and even customer engagement. There are always high barriers to entry in e-commerce platforms due to factors such economy of scale, reputation effects as well as switching costs. Current Market Share Currently, the Amazon is the current market leader in the overall e-commerce industry. In the year 2017, the Amazon accounts for more than 43% of all online sales in the United States (www.demoup.com). In the previous year, the company owned 38% of the total online sales in the United States online sales market (www.demoup.com). This shows that the company is increasing its market share to becoming the world leading online sales platform. Research Analysis for Business 3 Source from: Amazon Market share in the United States (Molla, 2017) Barriers to Entry As noted previously, there exist several barriers to market entry in the online sales business. Perhaps, one of the most critical barriers to market entry is reputation. Large online selling companies such as Amazon and eBay have a good reputation among different customers and customer groups worldwide. With such reputation, it is inherently difficult to enter the market. Another barrier to market entry is economies of scale. Given that the two companies serve a large customer base, they often enjoy economies of scale when they purchase goods for resale. This helps keep the product prices down, enabling them to attract more customers, making such market unsuitable for small firms (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). The final barrier to market entry is high switching costs. It would be costly for a customer to switch off markets because of factors such as customer satisfaction, customer engagement, as well as limited competition. Competitors Amazon.com competes with auction site eBay; media game –changer Netflix and Time Warner Cable. In the other hand it competes in the electronics with brick and mortar rivals Research Analysis for Business 4 including Best Buy, Family Dollar, PCM, VIP Shop Holdings, JD Com, Wayfair, and Zulily. Trends in Macroeconomic Indicators Business Cycle and GDP Looking at the recent trends in the economy, the United States economy could be classified in the early contraction phase, which often coincides with the middle bear phase with regards to the stock market cycle. The rationale for this early contraction phase is that the United States economy has experienced economic slowdown over the last past years. The economy is also experiencing a slow growth with regards to GDP. Current evidence suggests that the United States GDP growth is below 2%. A bearish US stock market is almost evident whereby investors are selling in a panic, and a majority of them looking for safety stocks. Inflation and Unemployment Rates The rate of inflation in the United States for the last past 12 months, as per the consumer price index, stands at 2%. This inflation rate has reduced by 0.2 % from the previous year (Blanchard, 2016). Source from: Rate of Inflation in the United States over the last past years, as measured by CPI (Blanchard, 2016) Research Analysis for Business 5 The United States unemployment rate stands at 4.1 in November 2017. Overall, current evidence suggests that the unemployment rate in the United States is reducing from 4.7 in January 2017, to 4.1 in November 2017. In 2016, the rate of unemployment stood at 5%, and 6.6% in the year 2015 (Blanchard, 2016). Source from: Unemployment rates in the US over the years (Blanchard, 2016) Federal Funds Rate and Interest Rates The Federal fund rate often implies the interest rates that banks charge each other in order to lend The Federal Funds target rate has remained almost constant since the year 2008 denotes that the rate has remained between 0.00-0.25% in the year 2008-2015 (Blanchard, 2016). Over the last past years, the Fed has lowered the Federal Funds rate to stimulate economic growth due to the economic slowdown experienced over the last past few years. The chart below shows that relationship between the S&P 500 and interest rates. Research Analysis for Business 6 Period S&P 500 Interest rates Dec 2015 0.25 0.5 Dec 2016 0.5 0.75 July 2017 1 1.25 Demand Trends Online Market Industry and its impacts Overall, recent trends in the overall industry show a possibility of growth across all ecommerce sectors. The graph shows that the demand for all products is increasing rapidly over the last past 3-4 years. The demand also shows s tremendous growth in demand over the recent past yearly quarters. Source from: Total e-commerce sales per product (Demoup, 2016) Research Analysis for Business 7 Source from: U.S Quarterly e-commerce sales and growth (Smart Insights, 2017) Given that demand for all products seems to be increasing over the years, one can conclude that the overall e-commerce will experience tremendous growth in some years to come. It is also evident that all sectors/products within the e-commerce business will experience growth over the few coming years (www.smartinsights.com). Amazon, being one of the e-commerce business is also likely to experience growth over the coming years. Price Elasticity of Demand for Amazon Given that Amazon operates in an oligopoly market structure (differentiated products, fewer large sellers), it will adopt a price elasticity of demand that will be kinked. The figure below explains this price elasticity. Research Analysis for Business 8 According to this model, if the Amazon firm decides to increase the prices for its products, the products will become uncompetitive; something that means that their demand will fall. This way, increasing price would result in a reduction in revenue generated. On the contrary, if the company chooses to reduce the prices of its goods, it would gain a significant market share in the short run. However, in the long run, the company is likely to experience diminished profits because other firms would reduce their prices too. Effects of Variable and Fixed Costs Overall, both fixed costs and variable costs affect the operations and profitability of the business. However, given that the fixed costs are essential in the normal operation of the business, there is little that the company can do to minimize and optimize such costs. However, the company can look for ways to minimize/optimize variable costs to achieve efficiency in its business operations. Conclusion Overall, the company cannot rely on pricing strategies because increasing the prices for its products or reducing the prices would result in a potential reduction in profits in the long run. However, the company may choose to invest in enhancing customer satisfaction, to maintain its customer base and consequently its profits. The company needs to market its products Research Analysis for Business 9 thoroughly, not only to attract new customers but also achieve growth. The company also needs to diversify its products and operations to tap new markets and consequently enhance its profitability. As far as managing its future production is concerned, again, the firm needs to diversify its products as well as expand its market to tap external markets. With the current business cycle in the United States, the company could benefit from other economies that are doing well, in case it chooses to expand its operations in such economies (www.recode.net). Given that the firm competes favorably in the market with regards to its customers, and given that there is potential demand for products in the overall e-commerce industry, there is critical need to diversify and expand; to enhance its competitiveness as well as its position as the market leader. In expanding to new markets, the organization needs to pay particular attention to government policies and regulations. Important to note, failure to play along with existing authorities might adversely affect the firm’s operations in foreign markets. In addition, the firm needs to find mechanisms to cut down on various variable costs, to enhance its effectiveness and efficiency. Research Analysis for Business 10 References Blanchard, O. (2016). The United States Economy: Where to from Here? The Phillips Curve: Back to the'60s?. The American Economic Review, 106(5), 31-34. Gunasekaran, A., Marri, H. B., McGaughey, R. E., & Nebhwani, M. D. (2002). E-commerce and its impact on operations management. International journal of production economics, 75(1), 185-197. Demoup. (2016, July 5). 6 New E-commerce Trends Shaping the Future of Online Retail Video Commerce Blog. Retrieved from https://www.demoup.com/blog/six-newecommerce-trends-shaping-the-future-online-retail/ Update, E. C. I. M. A. (2017). April 2017. Smart Insights. (2017, June 7). Top E-commerce Trends to inform your 2017 marketing strategy. Retrieved from https://www.smartinsights.com/ecommerce/ecommercestrategy/top-ecommerce-trends-inform-2017-marketing-strategy/ Molla, R. (2017, October 24). Amazon could be responsible for nearly half of U.S. e-commerce sales in 2017. Retrieved from https://www.recode.net/2017/10/24/16534100/amazonmarket-share-ebay-walmart-apple-ecommerce-sales-2017
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Running Head: RESEARCH ANALYSIS FOR BUSINESS

Research analysis for business
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Date:

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RESEARCH ANALYSIS FOR BUSINESS

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Research analysis for business
The world economic outlook contains analysis and projections which are an essential
element of International Monetary Fund’s ongoing surveillance of making laws regarding
economic development in its member countries as well as worldwide commercial systems.
Due to the financial crisis that erupted in Asian countries in the mid-1997, assets values, as
well as currency, has been adversely affected due to their pre-crisis levels. Countries such as
Thailand, Korea, and Indonesia, have experienced drying up of private as well as foreign
finance, leading to a massive depreciation in currency and a tremendous decline in the price
of assets, causing a decrease in demand of domestic products that can only be improved
through the increase of net export. In Philippines and Malaysia, Similar forces have lowered
the growth expectations, leading to a sharp decline in import demand. The Gross Domestic
Product is more likely to decline in Indonesia due to uncertainties regarding the course of
laws which hinders a decisive change in financial markets (Radelet & Sachs, 1998).
Due to financial crisis experienced in Indonesia, Korea, Malaysia, and the Philippines,
increased poverty followed suit. Inflation rose, and in response to the crisis, the policy
regarding macroeconomic, was restricted, to restore domestic stability. However, the
magnitude of the disaster was immense. The law regarding monetary was aimed at stabilizing
the rate of exchange of respective currencies that quickly lost value due to a decline of capital
from the region (Agyeman, et al, 2003).
Countries such as Indonesia emerging markets outlook were altered due to the
spillover and contagion effect. The decline in the presence of foreign financial support an
increase in interest, contributed to external borrowing, fall in the prices of market stock and
tightened laws, to reduce vulnerability to changes that are disruptive in the market
sentiments. This disruption leads to weak growth. Adverse effects were moderate with the

RESEARCH ANALYSIS FOR BUSINESS

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stable growth. However, factors such as sharper slowdown due to the crisis were envisaged
through weak prices of commodities such as oil. For developing countries who are the net
importer of oil products, they benefit tremendously from the trade however for the net
exporter they experience an adverse effect on the expansion and current account as well as
fiscal position which is crucial (Radelet & Sachs, 1998).
Indonesia’s advanced economy sharply deteriorated; due to homegrown problems
such as weakness in its financial sector, lousy loan problems, delays in structural changes
implementations which reinvigorate the economy as well as significant withdrawals in fiscal
stimulus. Indonesia’s, further interventions were needed to bring growth despite the
implementation of measures to address problems of a financial crisis, and supplementing the
demand domestically due to economic decline. United States, Canada and United Kingdom’s
rich domestic demand conditions, facilitates the adjustment of the present account position
needed in Indonesia’s emerging market due to a sharp decline in capital inflow. The
adjustment process in Indonesia’s market reduced in terms net exports as well as an
experienced reduction in direct foreign investment. The financial investment redirection to
markets helped lower the interest rates on the one hand, and on the other, the terms of gains
in the trade helped in supporting the demand domestically (Radelet & Sachs, 1998).
In response to the economic condition on the financial crisis that affected
macroeconomics. Income and employment creation such as public work programmes,
microcredit as well as small and medium enterprise programmes such as unemployment
insurance schemes were introduced, leading to boost in the income lost that led to financial
crisis. Jobs were created, and infrastructure was expanded in Indonesia, due to public works
programmes implemented. However, given the nature of the job offered such as heavy
construction, women and the elderly were not able to participate in such activities. The

RESEARCH ANALYSIS FOR BUSINESS

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programmes were also located in Indonesia’s rural area and never attracted individuals and
people from urban areas who lost their jobs informal sectors. The programmes duration was
also short leading to joblessness (Agyeman, et al., 2003).
Indonesian women with low education levels greatly benefited from microcredit
programmes, and as a result, they were able to finance activities that would generate their
income within a short period. However, these microcredits failed to reach those people who
were most affected by lack of finance including those unemployed living in formal urban
areas. Those unemployed people living in urban areas were unable to form microcredit
groups since the credits were used by the recipients to finance consumption rather than
investments that are productive and reflective in barriers to necessary and essential
requirements (Agyeman, et al., 2003).
Evaluation is a part of project cycle consisting of identification preparation, appraisal
and assessment, implementation and last assessment was done to improve future work and
accountability (Food And Agriculture Organisation Of The United Nations, 1985). Regarding
Indonesia’s evaluation of competitor on the existing product, the United States, purchased
from Indonesia some reserved mushrooms which brought about questions regarding the
current antidumping duty orders which were likely to cause revocation. The revocation of
Antidumping duty orders Indonesia’s mushroom caused continuous dumping recurrence.
Determination on duty absorption was made from commerce with respect to the sales. The
margins of weighted average dumping occurred after anti-dumping duty orders were revoked.
With anti-dumping rules in place, trade issued various scope determinations regarding certain
preserved mushrooms from Indonesia entering the United States, hence affecting Indonesia’s
market competing against Chile, India, and China (Commission, U.S. International Trade,
1998).

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Regarding Indonesia’s qualitative assessment of financial sector on sales forecast,
Indonesia’s bank financial review based the evaluation of the banks risk on the stress test.
The stress test whereby comparison was made with other Asian countries after trend analysis
was carried out to determine lending growth, liquidity, maturity as well as mismatches
involving both domestic and foreign currencies. Close monitors were performed, on the
performance of bank shares on the market capital and then stress assessment was conducted
for the deterioration of the quality of the loan, the rate of exchange and the changes on
interest rates (Worrell, 2004).
Assessment of Indonesia’s sales forecast shifted to a more prominent approach which
included rural energy development, which initially developed as rural electrification. The
rural energy development placed a high priority in ambitious rural electrification which was
much focused at reducing imbalances in economic spheres as well as reducing social
disparities between the urban as well as rural areas through equal distribution of electricity.
According to ACE (2000), 83% of the Indonesian villages that is 62000 had received power
by the end of 1999. However, the vast size and weak Indonesian structures made it very
expensive to reach most communities using the greed programs which was centralized. In
response to this, the Indonesian government reduced its target of village’s electrification by
lowering is the target, which makes 3000 communities not to receive electricity by the end of
2019. However, the areas that were said not to have received power by 2019 were targeted
for decentralized electricity generation programs which involved the use of renewable energy
technology to make use of sunlight, biomass, wind, hydropower, and locally available
resources.
Due to economic nationalism, Indonesia was compelled by the globalization and
recession to open its market to liberalize its economy. However, due to political reasons,

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certain barriers to liberalization existed, and the role of the state in the economy remained
significant. A proper mixture of state and private sector participation in the economy led to
Indonesia’s economic development. Indonesia adopted an idea which was properly blended
in secret as well as states participation in the economy which reflected the tension between
the necessity of liberalization and modernization of the economy as well as a considerable
tendency towards economic nationalism. The modernization and liberalism led to the mixture
in financial systems between the market and Indonesia’s driven economy; however, the roles
in the market and economy never changed. After Indonesia got its independence, the private
sectors operated freely, as the public policies gained momentum (Grabowsky & Grossheim,
1997).
A mixed market economy refers to the mixture of individually owned enterprise
systems economies which are planned together. Private enterprise systems and planned
economies in a diverse market economy adopt different approaches to operate their savings.
The market economy is a type of economy that runs in industries. Market economy invites
competition and private investment into sectors previously operated as government
monopolies. In a mixed market economy, the proportion of private and public enterprise
varies widely. Most countries have changed companies managed by government and
privatized them. The government may privatize state-owned industry to raise funds and
improve the economy by cutting costs and running the operations more efficiently (Kurtz &
Boone, 2008).
Mixed market economy, relies upon liberal market with free and open contractual
agreements, robust and independent industries as well as efficient financial systems which
emphasized on macroeconomic management. Closed market economies refer to a type of
economy which typifies substantial involvement of a country’s direct role in organizing

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economic activities and controlling it. The nation may also set the framework by making
rules and regulations that guide the operation of the business and commerce (Thompson,
2005).
The market economy methodology has an impact on the market economy in that it
changes business by determining the duty rate. The changes may have mixed results such as
eliminating states duty rate which reduces the duty level for companies that are not assigned
personal determined rates. Combined economy the people in public enterprises often limits
the possibilities of consumption among citizens, due to their outputs which is very costly
(Freeman, 1989).
Regarding the assessment of how Indonesia's current credit market conditions,
especially interest rates and the availability of financing, affecting demand for product or
services, there was an increase in production of various commodities. On the other hand,
lower production influenced by the changes in the rate of price as well as the domestic terms
of trades. The higher local prices emanating from the decline in currency value led to
increased production of the commodities, which was right for necessary and essential
products for which its value received for output, increased tremendously, surpassing the
prices paid for the inputs (Bolling, 2000).
In Indonesia, trade was adversely affected due to the import prices which rose due to
depreciation in the value of the currency. Firms expanded their activities, due to increased
cost. The lower priced and poor quality of Vietnam rice became an alternative supply source,
and cotton from Thailand and Korea was substituted with polyester. The high quality of cattle
skins and hide was replaced with low-quality skin and hides, hence affecting Indonesia’s
textile industries (Bolling, 2000).

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In examining Indonesia’s Central bank, the bank played a significant role in the
country’s economy as it provided a framework where all states could engage in long-term
investment such as lending. The Central bank also imposed restrictions on significant aspects
such as ...


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