Country Feasibility Report

Country Feasibility Report

Global Business

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Rory Carrigan, Amanda Chee, Ashante Han, Hayden Quinn

Contents

Executive Summary 2

1.0 Introduction 3

2.0 Company & Product Profile 3

3.0 Political Environment 3

3.1 Political stability 4

3.2 Country Risk 4

4.0 Economic Environment 4

4.1 Nominal GDP 4

4.4 Wages 5

5.0 Social Environment 6

5.1 Human Development Index 6

5.2 Population and growth 7

6.0 Business Environment 7

6.1 Infrastructure 7

6.1.1 Bangladesh 8

6.1.2 Cambodia 8

7.0 Country of Choice 9

8.0 Mode of Entry 9

8.1 Joint Venture 10

8.2 Wholly Owned Subsidiary 10

9.0 Conclusion 10

Appendix 11

Reference List 12

Executive Summary

This report discusses the countries advantages and disadvantages of Bangladesh and Cambodia for the purpose of the Lazybones expanding their manufacturing faculties into foreign countries. It will evaluate the micro-environment components including the political, economic, social, and business environments of each countries. As a result of this evaluation one country will be selected for manufacturing expansion. This will be followed by a discussion of two possible modes of entry into these countries, where once again one will be recommended for Lazybones to implement.

1.0  Introduction

The purpose of this report is to critically analyse two prospective countries to sanction international expansion, for the means of manufacturing Lazybones’ range of womens bedding and sleepwear. Through statistical analysis and review of political, economic, social, and business information from both Cambodia and Bangladesh, the best country for business expansion will be made evident. From this analysis, an appropriate mode of entry will be elected to enable a smooth implementation of a manufacturing facility.

2.0 Company & Product Profile

The Lazybones Company is an Australian owned manufacturing and distribution business established in 2000. Lazybones has grown from creating womens’ sleepwear to crafting speciality clothing and bed linen. Recognized as one of Australia’s premier sleepwear and bed linen companies, Lazybones currently has three national stores, with plans for international expansion. In order to meet anticipated growth and production demands, the establishment of an offshore manufacturing facility in either Cambodia or Bangladesh is being explored. The company focus on quality is paramount as is maintaining their ethical standard.

3.0 Political Environment

The political environment examines the legal setting of Cambodia and Bangladesh; it will include political stability, risk of doing business and taxation within each country. A stable legal environment is paramount for successful business expansion as it supports ethical behaviour and decision making. Ban Ki-Moon from United Nations (2012) a U.N. Secretary acknowledges that a weak political environment breeds corruption, which in turn, corrodes the ability of law institutions to promote human rights, maintain law and order, support economic growth and ensures the integrity of public institutions. The country of preference shall have a strong political environment, minimise the potential for corruption and promotes the concept of human rights, maintains law and order and supports economic growth and ensures the integrity of public institutions as acknowledged by the United Nations (2012).

3.1 Political stability

For evaluation, the political instability index which rates on a scale of 0 (no vulnerability) to 10 (highest vulnerability) predicts the level of unrest and dissatisfaction held towards a current government. According to the Economist Intelligence Unit (2013) (EIU), Cambodia and Bangladesh scored 8.0 and 7.5 respectively. Although both countries have similar scores, Bangladesh is currently more political stable. In view of both countries scoring so highly, the weighting of political stability as a factor in the selection process should be used with caution.

3.2 Country Risk

The risk of doing business can be measured through a variety of factors. In regards to Lazybones, the ease of doing business and corruption perception index (CPI) will give an indication of the risk. According to the International Finance Corporation (2013) ease of doing business report, of 185 countries, Bangladesh ranked 129th four places in front of Cambodia (refer to appendix 1). The evidence presented suggests the regulatory environment is less favourable when looking to do business, where simple business dealings may take longer. However in light of these findings it can be Bangladesh has the stronger regulatory environment promoting a lower level of corruption.

As corruption can corrode the ability of law institutions to promote human rights, maintain law and order, support economic growth and ensures the integrity of public institutions, it is an important factor to acknowledge. According to Transparency International (2013) of a score from 0 to 10, found that Bangladesh’s CPI rating was 2.7, .6 higher than that of Cambodia. Once more these scores are not ideal for conducting business, although it can be seen that Bangladesh still remains the country of choice.

4.0 Economic Environment

This part of the report details all the economic factors Lazy Bones needs to consider when deciding on a country to choose. The Economic environment section will be split off into Nominal GDP and Wages to determine factors like stability, cost and risk between Bangladesh and Cambodia.

4.1 Nominal GDP

To assess the stability or growth of an economy, measuring the individual country’s Nominal GDP indicates the performance and volatility of the economy. Nominal GDP is the value of all final goods and services that has been produced within a country (McTaggart, Findlay, Parkin 2013).

Figure 1. Show Nominal GDP growth per year for Bangladesh and Cambodia. Data sourced from World Bank (2013).

Figure 1 shows that Cambodia has more volatility within its economy, plummeting from a peak of 13% annual growth in 2005 to no growth in 2009. Bangladesh however has managed to keep a stable GDP growth rate of around 6%, even through the global financial crisis, indicating less volatility within its economy. Volatility can be an indication for high income inequality, high rate of poverty and a low growth for the long term (Centre for Global Development, n.d., p. 4) . It is in the best interest for Lazy Bones to select a country with low volatility which promotes long term growth and prosperity.

4.4 Wages

As Lazybones is looking to expand their manufacturing processes to a foreign country, it is important to know the industry wages in order to determine the cost of labour. As the cost of labour is a big centrepiece in any businesses budget, it should be considered with due consideration. According to the Institute for Global Labour and Human Rights (2010), both Bangladesh and Cambodia were two of the lowest paid countries in the world for garment manufacturing. Respectively their minimum wages were $US21 cents and $US24 cents, as a result of these low wages, western clothing brands such as Nike and Walmart have taking advantage of the low cost manufacturing labour

The hourly wages between the two countries is negligible, however through benefits the monthly wages of Cambodia is roughly twice the amount, or US$76 in comparison to Bangladesh’s monthly wage of US$38. Although it is difficult when comparing wages of these countries as recently within Bangladesh 1,116 manufacturing workers lost their lives, when the seven stories of the Rana Plaza building collapsed. Consequentially the Bangladesh Government is now being pushed towards improving working conditions as well as an increase to the hourly wage. This is a result of companies such as Walmart and other global giants looking to remove their manufacturing facilities which accumulates to Bangladesh’s export industry of US$19 billion. As a result of these recent events within Bangladesh, Cambodia’s working environment seems a more ethical decision as working conditions are more favourable. Although the yearly yield will be slightly less as a result of the increased labour wages, Lazybones will be able to maintain its ethical standard.

5.0 Social Environment

In order for Lazy bone’s to effectively manufacture their clothing, the social factors of Bangladesh and Cambodia must be examined. In order to help examine this effectively the social environment of each of the countries will be analysed. This analysis will involve factors such as the human development index and the population.

5.1 Human Development Index

An individual’s quality of life is detrimental to Lazybones as manufacturing entails hours of manual hard labour as it takes a “Hands on’’ approach. Human development index (HDI) aims to measure the quality of human life in a country, which is a composite of three measures on a scale of 0 to 1 (Hill, et al, 2011). These measures consist of life expectancy, education and average income (Hill, et al, 2011). Bangladesh and Cambodia scored relatively close on the HDI levels, Bangladesh at 0.515 and Cambodia scored 0.543 (United Nations Development Program, 2013). A low score on the HDI for both countries can be beneficial for Lazy Bones as both countries both have low incomes and education isn't necessary for manufacturing (refer to appendix 3). However, based on these results alone, Cambodia can be seen as the country with a better quality of life which can help maintain Lazybones ethical standard.

5.2 Population and growth

Population and growth looks at how well the population is developing. For Lazy Bone’s this is a significant topic of interest as Lazy bone’s strives for a family orientated work environment that strives on hard working employees (QUT Gateways, 2012). Bangladesh’s population calculates at 16 million and Cambodia’s population is 15 million (Central Intelligence Agency , 2013), both of which are comparatively close measurements. The majority of the population for both countries are under the age of 54years old, 56.4% in Bangladesh (Central Intelligence Agency , 2013) and 59.4% in Cambodia (Central Intelligence Agency , 2013). From the results we can concur that Cambodia has a higher rate of younger workers than Bangladesh, which is beneficial, as a younger work force can accommodate better to the labouring requirements within the manufacturing industry.

6.0 Business Environment

The business environment exemplifies the feasibility of introducing Lazybones into Bangladesh and Cambodia’s markets; it will convey an evaluation of the infrastructure presented by either countries and how it will ultimately impact Lazybones.

6.1 Infrastructure

Physical infrastructure signifies particular types of capital goods that serve the activities of many industries; this involves roads, bridges, railways, seaports, telecommunications, inland waterways, and energy supplies that all support production and marketing for industries within a country. By instituting more advanced developments in infrastructure it will predominately produce a positive influence on both economic and social developments, and directly affects a country’s economic growth potential and the aptitude of a business to engage effectively (Sum, 2008).

6.1.1 Bangladesh

According to Islam (2013), Bangladesh has one of Asia’s worst infrastructural facilities. Bangladesh is a country that contains a thousand rivers, thus most of its territory is frequently engulfed during the monsoon season. Owing to this reoccurring matter, it is immensely problematic and expensive to sustain modern transportation and communication networks. Ferries and riverboats that are commonly used for everyday transportation are relatively cheap, however are slow and inefficient. The Bangladeshi government generate more challenges and they provide very limited resources for constructing new infrastructures and also preserving the country’s existing ones. Sustaining a poor and inefficient infrastructure has ultimately destabilised the economic development of the country, although government action has commenced to address the problem systematically and channel investments regarding the expansion of its railroads, highways, seaports and airports. More recently, it has become apparent that with international assistance, the government has also started to revolutionize its telecommunications infrastructure and introduce the Internet (Encyclopedia of the Nations, 2012).

6.1.2 Cambodia

Similarly, due to years of civil war and conflict, it has resulted in Cambodia’s infrastructure becoming relatively weak. There are inadequate train systems that operate to the southern seaport of Kampong Saom and to the northwest of Poipet on the Thai border. However, plans to rehabilitate the railway to Poipet are under negotiation and to manufacture a new railway linking Phnom Penh and Ho Chi Minh City in Vietnam as part of the trans-Asia railway. These railways cover a span of 603 kilometres. Cambodia has 35,769 kilometres of highway, thus only 11.6% are paved. The ‘best’ road is located from the capital to the seaport of Kampong Saom. Many factories reside long the road owing to the efficient access to a primary Pacific seaport. Transportation to other secluded provinces is often done by plane. Cambodia contains 19 airports and has 3,700 kilometres of navigable waterways. In Cambodia’s agricultural sector waterwheels, which are the traditional forms of producing power, are still being used as majority of the population, particularly in rural areas are still deprived of electricity (Encyclopedia of the Nations, 2013).

6.2. Infrastructure and Lazybones

Cambodia and Bangladesh are predominately underdeveloped countries, which is evident owing to their lack of efficient infrastructure. If Lazybones opts to manufacture its products in Bangladesh, it may encounter various obstacles. As identified, due to unexpected weather conditions in Bangladesh, its infrastructure has inevitably deteriorated as funds to endure modern transportation and communication networks are scarce. As a result of sustaining an inefficient infrastructure it has also contributed to destabilise the economic development of the country. Therefore it could potentially have a negative influence on Lazybones, as it will deter it from engaging effectively in exporting its finished products. In comparison, although Cambodia’s infrastructure has become relatively weak owing to years of conflicts, there are plans to rehabilitate railways and manufacture new rail lines. It is also acknowledged that Cambodia’s roads have efficient access to the primary pacific seaport. In regards to Lazybones, this would mean sufficient access to transportation thus exporting within Cambodia, may appear to be more effective and sufficient.

7.0 Country of Choice

The factors of Bangladesh and Cambodia in regards to the political stability, economic environment, social environment and the business environment, have shown that Bangladesh is the best country for Lazybones to expand their manufacturing into. This decision is based upon the factors of political stability and the economic environment. As discussed within section 3.0 Bangladesh ranked higher in both areas of the political environment. Firstly Bangladesh scored .5 better then Cambodia, indicating a stronger political and legal system promoting less corruption. This assumption is supported by Bangladesh’s CPI rating of 2.7, .6 better then Cambodia’s score, indicating a lesser chance of corruption. Lastly out of 185 countries and when considering the ease of doing business, Bangladesh maintained its lead over Cambodia coming in at 129th, four places higher then Cambodia. The overall stability of Bangladesh is further supported by the economic environment discussed in section 4.0. Where the nominal growth rate of GDP for Bangladesh is seen to be a steady near to continuous rate, whereas Cambodia fluctuates indicating a riskier environment.