The Accelerated MBA Program – Since the time of its inception, MBA degrees have held a lot of weight in the profile of a job applicant. In fact, even seasoned professionals understand the value of an MBA and the number of career prospects that the degree would open up. Many professionals contemplate the amount of time and money they would require and whether the decision to take a career break and join an MBA program is worth it.
At times, they come up short on both time and money. However, to help students who find themselves lacking in both these regards, many top universities have begun to offer Accelerated MBA programs in their curriculum.
If you are one of those who are determined to pursue an MBA but feel that an accelerated program might be a better option, this article will answer your questions regarding the program.
Regular MBA versus Accelerated MBA
Many professionals realize the significance of an MBA and the doors of opportunities it opens for them. There are many, who are still apprehensive, primarily about the time that they need to take off from work to both, prepare for and pursue a typical MBA degree.
Many business schools have recognized this concern and have come up with an innovative solution: the accelerated MBA programs. The criteria upon which you can decide which is better for you boils down to your career goals and undergraduate experience.
Both of these programs will require you to learn the same subjects. After your graduation is over, your workplace would treat both the accelerated MBA degree and the regular MBA degree the same. While the regular MBA degree usually is a two-years-long program, the Accelerated MBA degree would take twelve to fifteen months to complete.
The curriculum is delivered in a strict manner, the class schedule is kept tight, and you might not get any time off from your studies. The workload increases because of the restricted time and no difference in the course material. Most colleges will have a difference in the cost of both programs too.
Why choose an accelerated MBA program?
There is no shying away from the fact that a student will be more burdened with coursework in an Accelerated MBA program as opposed to the regular program. However, there are a few upsides to this program too.
Many surveys have disclosed that the one-year program piqued the interest of students mainly because they could enter the workforce faster and with the same knowledge as that dispensed by the regular MBA programs. Another great reason is this course saves the students both time and money.
I should add that the right candidate for the accelerated program should have extensive business experience. Networking at your business school is a minuscule part of your day-to-day, but it will draw herculean results. Students do not get time to foster relationships with peers and professors due to the tight schedule and they do not have time for summer internships either. This is why the accelerated program is mostly preferred by working professionals.
Schools offering accelerated MBA programs?
Recently, one-year programs were popular only in Europe. However, with time and progress the USA and other countries have also caught up with the trend. Few business schools that offer one-year courses include INSEAD, London Business School, The University of Chicago Booth School of Business, Johnson Graduate School of Management Cornell to name a few.
Criteria for application
An accelerated MBA requires you to have an academic background in business or economics. In case you do not have such a background, you must take courses in finance, statistics and other topics before they apply.
Several schools offer alternative programs for students from other fields. For instance, Suffolk University allows attorneys to get credit for work done in law school. Working professionals can check their prospective courses and get an accelerated business degree through alternate means.
Chicago Booth opened an accelerated course for its undergraduate students. The program is an addition to an already established Chicago Booth scholars’ program. If an undergrad student in the third or fourth year is accepted into this program, they may take up to six business courses in their undergrad studies itself, which would later count towards an MBA.
The one-year MBA program is not considered ideal for someone looking for a career change or to change their industry since students miss out on summer internships. However, it is an excellent choice for someone who wants to climb up the hierarchical ladder in their industry. However, if you are looking for a traditional MBA experience, you may prefer a regular MBA program of two years.
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Ethical Decision Making In Business – The daily running of a business entails various ethical issues and considerations. Every business organization must understand different business ethics and ethical approaches to make rational decisions in diverse situations. This paper explores business ethics and values by considering three scenarios where ethical dilemmas exist, with the situations calling for ethical decision making.
In the first instance, the manager is forced to fire 500 employees to save the business, which employs over 100,000 people, from bankruptcy. The manager employs the five ethical approaches, which include utilitarian, rights, common good, fairness and justice, and virtue approach. In the NHS case study, the institute must decide whether to approve beta interferon drug based on its proved clinical efficacy only or to consider its cost effectiveness since the drug costs up to £10,000 per patient per year.
Finally, BDL Company has a policy of not hiring people over 50 years old as it considers young people to be more productive since ageing is known to diminish a person’s cognitive functioning, especially in speed. However, this policy is challenge by the provisions of the Age Discrimination in Employment Act, which prohibits employers from practicing age-related discrimination. The three scenarios exhibit challenging ethical dilemmas that require a careful application of ethical approaches and theories.
Ethical Decision Making Considerations and Values
There are various ethical considerations and values that impact the daily running of a business. As a result, it is important for organizations to understand different business ethics and ethical approaches to make rational decisions in diverse situations.
For instance, the manager in the first case below is required to fire 500 employees to save the business that employs over 100,000 people from bankruptcy. In the process, the management has to consider such issues as acting for the common good, which means firing the few to save the majority while still observing their rights to truth, justice, and fairness.
In the NHS case study, the body must decide whether to approve beta interferon drug based on its proved clinical efficacy only or to consider its cost effectiveness since the drug costs up to £10,000 per patient per year. Finally, BDL Company does not hire people over 50 years old since ageing has been shown to significantly reduce performance in cognitive tasks. However, the Age Discrimination in Employment Act prohibits employers from practicing age-related discrimination, which makes the firm appear to be acting against the law.
Firing Some Employees to Save Company from Bankruptcy
The manager’s actions can be explained using the five approaches to ethical decision making, which are utilitarian, rights, fairness and justice, common good, and virtue approaches. To begin with, the utilitarian approach requires that an ethical action should be the one that promotes the greatest good and least harm to the affected parties (Velasquez et al.).
In the scenario under analysis, firing the 500 employees to save the company can be seen as ethical since the collapse of the firm would harm over 100,000 employees, the business owners, the suppliers, and other stakeholders.
Additionally, the manager applies the rights approach in dealing with the fired workers. The approach states that people have the right to truth, privacy, not to be harmed, and self determination among others (Velasquez et al.). By informing them on time and writing them recommendation letters, the manager ensures that the rights of the employees are respected.
The fairness and justice approach might be challenging to determine in this situation since the criteria used to decide the employees to fire is not explained, thus making it hard to determine whether discrimination or favoritism are used. However, the common good approach is evident since retrenching the 500 helps save the firm and the many people depending on its survival.
The principle dictates that ethical actions are those that promote the welfare of everyone, and the manager not only safeguard the interests of the organization but also of the fired employees (Velasquez et al.).
Finally, the manager applies the virtue approach in his dealing with the retrenched staff. Virtue model demands that one acts according to certain ideals, such as compassion, love, honesty, fairness, and integrity among others (Velasquez et al.). The manager not only explains apologetically the reasons for the firing, but he also writes recommendation letters to the affected workers to assist them in finding new jobs.
These approaches have contributed differently to the organization’s overall benefits. For instance, the utilitarian approach has a considerably high impact on the firm’s survival since it directly supports the downsizing of the labor force. Secondly, the common good approach considers the actions that most benefit the larger community and, thus, supports the firing of some to save the majority from negative effects of a collapsed firm.
Moreover, the rights approach benefits both the organization and the dismissed employees. Whereas the workers have the right as humans to be treated as ends and not means, the company also retains its right as an entity to either hire or fire depending on prevailing situations. However, fairness and justice approach seems to be more beneficial to the employees; if the company acted fairly in choosing the workers to discharge, the main effects would be on the employees by shielding them from unfair dismissal.
Similarly, virtue approach seems to be applied by the manager to safeguard the interests of the employees more than those of the company. Nevertheless, even the approaches that seem to benefit the workers more than the firm are still significant for the organization, By making the former feel contented with the decision, the company avoids negative outcomes such as lawsuits.
Clinical and Cost Effectiveness in New Drug Approval
In reference to the case study, the NHS approval of a new drug should be based on both its clinical and cost effectiveness. For instance, whereas the new multiple sclerosis drug – beta interferon – has demonstrated effectiveness in alleviating the effects of the disease, it is significantly costly at £10,000 per person per year (Fisher and Lovell 64).
Cohen and Reynolds define cost effectiveness as the value of a new medication in regard to the increased health benefits it brings in comparison to the increase in cost (2119). The purpose of cost effective analysis is to promote rational decision making for both the clinicians and policymakers. Without this practice, any new drug that proves to be effective in causing the intended outcome would be approved even if its cost were far too high when balanced against the supposed benefits.
Therefore, the National Institute for Clinical Excellence (NICE) is right in prioritizing cost effectiveness and the creation of an economic model that will enable the relevant parties to understand the costs and benefits of the medication (Fisher and Lovell 64). Although the need to have the treatment is so crucial for the MS patients, it is equally important for the relevant agencies to make the analysis to understand fully how much the drug will benefit them clinically and the costs involved.
The cost effectiveness criterion for approving the new drug focuses on consequentialism approach to ethical decision making. Consequentialist or teleological ethics are based on the assumption that the consequences of an action determine whether it is good or bad (Fisher and Lovell 124). Therefore, decisions that lead to good outcomes are to be considered ethical.
In the case study, approving the new drug for free availability on the NHS without considering its cost effectiveness would have some considerable consequences. If the drug’s high cost is not proportional to the benefits to the patients, the users would run the risk of paying so heavily for less significant clinical benefits. The chief executive of NICE emphasizes the critical importance of evidence-based guidance in regard to the medicine’s cost effectiveness and considers delay in approving it to be in the best interest of MS patients (Fisher and Lovell 65).
In doing so, the institute appears to be considering the consequences of the final decision to the patients of MS who must bear the high costs of the new drug. Therefore, the use of cost effectiveness as a criterion by the NHS for the approval of new drugs is based on the consequentialist approach.
The delay by the NHS to give its final decision concerning the approval of beta interferon demonstrates an issue of ethical decision making. The ethical issue arises from the consideration that the drug has been shown to be effective in controlling the symptoms of MS, but it is also so costly, thus raising the question of cost effectiveness (Fisher and Lovell 64).
The institute must determine the best cause of action given that the patients have the right to access the medicine, while the organization is mandated with the responsibility of ensuring the users get the best deal when benefits are weighted against costs. In fact, the appraisal committee had initially indicated that the drug would require a considerable reduction in price to attain cost effectiveness (Fisher and Lovell 65).
Since the institute promised to make transparent the process of creating its economic model with the results being made public for scrutiny and comment from the interested parties, it could be assumed to be acting with the best interest to the patients under consideration. Therefore, the delay by the NHS in giving a final verdict is based on the need to make the most ethical decision.
Excluding Those above 50 Years Old from Employment
BDL’s policy of excluding those above 50 years old from employment may be taken to be discriminative. In fact, the U.S. has the Age Discrimination in Employment Act (ADEA) that was signed into law in 1967 and prohibits employers from showing favoritism on the basis of age (Neumark 1).
Whereas the act had initially set the limit at 65 years, thereby prohibiting age-related discrimination for people between 40 and 65 years of age, the limit was eventually removed (Neumark 1). Therefore, in the U.S., no employer is supposed to base their decision concerning a job applicant on the basis of their actual or assumed age since mandatory employment was eliminated for all ages.
In the UK, the majority of citizens also view age-related decisions by employers as discrimination, with the concept of ageism emerging as a common term (Loretto et al. 281- 282). Most employees and job seekers view ageism as equal to any other form of favoritism and express their desire to have legislative protection introduced in the law to curb the practice among employers.
Although the concept of age discrimination took long to enter scientific and popular discourse in the UK, increased lobbying could make it to be cemented in law, thus prohibiting employers from practicing ageism in their workplaces. In the 1990s, Britain experienced rising concerns over age discrimination due to an increase in early exit from the labor market for older workers (Lorettto 280). Nevertheless, the UK showed considerable reluctance in formulating laws to protect workers and potential employees from ageism.
However, BDL Company may defend their policy using the rights approach. As an entity, the firm has a right to decide how it runs its business, including hiring and firing. Although this approach appears to be focused on individual’s rights to self-determination and respect for their choices, the owners of BDL may consider themselves as individuals constituting a single entity that has the right to determine who is fit to work for them in line with their mission, vision, and objectives (Velasquez et al.).
Moreover, the firm could argue that their policy is for the good of the business since past studies have established that age affects various cognitive functions, especially speed processing. According to Murman, normal aging leads to significant reduction in performance on various cognitive tasks that require a person to process and transform information quickly (111). These functions include working memory and process speed among others. Since BDL is a shoe making company, most workers must be involved in tasks requiring considering cognitive functioning, which older people might lack.
Eckert et al. affirm the effects of age on cognition, with their findings on brain changes indicating that “a frontal pattern of gray matter and white matter variation were uniquely related to age-related declines in processing speed…” (1). Therefore, it is evident that people above 50 years may not be as productive as young adults, which might explain BDL’s decision not to hire them.
To sum up, there are various ethical considerations and values that impact the daily running of a business. An entity must be conversant with various business ethics and ethical approaches to deal with various situations and make rational decisions. For instance, in the case of the company that needs to fire 500 employees to save the business from bankruptcy, the management has to consider such issues as acting for the common good, which means firing the few to save the majority while still observing their rights to truth, justice, and fairness.
Similarly, ethical issues arise where NHS must decide whether to approval beta interferon based on its proved clinical efficacy only or to consider its cost effectiveness as well. In the end, the institute considers the lack of cost effectiveness as a major factor.
Finally, BDL Company has to contend with the issue of hiring people over 50 years old, considering that ADEA prohibits employers from practicing age-related discrimination, while science has established that ageing reduces performance in cognitive functions significantly. Although the firm’s policy may be seen as discriminatory, it has the right to run its operations to its best interests.
Cohen, David J, and Matthew R. Reynolds. “Interpreting the Results of Cost-Effectiveness Studies.” Journal of the American College of Cardiology, vol. 52, no. 25, 2008, pp. 2119-26.
Eckert, Mark A., et al. ‘Age-Related Changes in Processing Speed: Unique Contributions of Cerebellar and Prefrontal Cortex.” Frontiers in Human Neuroscience, vol. 4, Art. 10, 2010, pp. 1-14.
Fisher, Colin, and Alan Lovell. Business Ethics and Values: Individual, Corporate and International Perspectives. 2nd ed., Pearson Education Limited, 2006.
Loretto, Wendy, et al. “Ageism and Employment: Controversies, Ambiguities and Younger People’s Perceptions.” Ageing and Society, vol. 20, 2000, pp. 279-302.
Murman, Daniel L. “The Impact of Age on Cognition.” Seminars in Hearing, vol. 36, no. 3, 2015, pp. 111-21.
Neumark, David. “The Age Discrimination in Employment Act and the Challenge of Population Aging.” NBER Working Paper Series 14317, National Bureau of Economic Research, 2008.
Velasquez, Manuel, et al. “Thinking Ethically.” Markkula Center for Applied Ethics.
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Balance of Payments and Multinational Corporations
Balance of Payments – Over the last two decades, the world economy has been changed to an extent on which the nations are interconnected with each other in terms of commerce and financial relationship. This circumstance is popularly known as globalization (Vinals, 2004). This interconnection not only helps to exchange goods or service but also force to keep account of financial payment between two countries (Dabrowski, 2006). This record is known as balance of payment. Generally, a multinational corporation has a strong relationship with the balance of payment between two countries (Stein, 1984). The multinational corporation may be affected positively or negatively in the host or home country by the balance of payment (Wilamoski and Tinkler, 1999). The positive relation between MNCs and Balance of Payment creates many opportunities for the multinational corporation. A manager of multinational company must take necessary steps to grab those nice opportunities.
What is Balance of Payment?
Balance of payment is a process of keeping record of transaction of a country with the rest of the word. It includes not only payment for goods and services but also all others payment over the border (Chamberlin, 2009). According the Sloman John, Balance of payment is an account that contains all monetary transaction of a country with the other countries of the world (1998). The transactions contain exports, import, incoming payment and transfer of finance. The balance of payment is usually evaluated based on certain period such as year. It is also calculated on a single currency, normally US dollar (Mcbride, 2007).
Sources of money are considered positive and deployed of funds is negative items. According to Investopedia, the balance of payment generally should be zero to be optimum (2013). However, it does not happen most of the time. The balance of payment is normally surplus or deficit for maximum country. A surplus balance of payment is said to be exist when the incoming payment is higher than total transfer. On the other hand, a deficit balance of payment is said to be exist when the transfer payment is higher than the incoming payment.
What is Multinational Corporations or MNCs?
A multinational corporations or MNCs, also known as Multinational enterprise (MNE), is a company that operates is business or produce and sale product in more than one country (Daniels, Radebaugh and Sulivan, 2001). According to Van De Kuil, a multinational corporation follows the internationalized philosophy and operates its business both home and host country (2008).
He also added that to be a multinational corporation, a company must have the assets and facilities outside the border of national country. The host country, home country and the multinational company get benefits from a multinational trade (Kokko, 2006). The host country gets higher tax or vat, the home country get foreign currency and the multinational company get profit. Here is some example of well-known multinational company Honda, Toyota, Google, HSBC, Wal-Mart, Samsung and chevron etc.
Relevance of Balance of Payments to Multinational Corporation
There is a strong relationship between the balance of payment and Multinational Corporation. A multinational corporation helps both host and home country to increase their balance of payment. In the contrary, the balance of payment situation of a country impact the operation of a multinational corporation by changing the rules and regulation based on country specific needs (Ker and Yeates, 2013). Let us look the relevance of balance of payment to Multinational Corporation in terms of different situation.
Relevance Based on “Direct impact”
A country in which a multinational company is located tends to be get higher balance of payment. It experiences capital inflow when a multinational company get started with a certain fee. It also gets funds or money from the portion of profit of that Multinational Company (Shoo, 2005). On the other hand, the multinational company helps to improve the balance of payment of home country. The home country gets funds when the MNC make profit and return the money to the home country.
Relevance Based on “Regulatory Relation”
Another positive or negative relation between balance of payment and the MNCs is regulatory relationship. The balance of payment represents the foreign reserve of a country. The trade policy of a country changes with the changes on balance of payment position. If a country has negative balance of payment, it tries to hold the money by encouraging more export than import (Hale, 2013). It also tries to get more tax or VAT from the normal sources. This tighten money policy affects the business flow of multinational companies. They have to give more tax to the government. The sales volume of MNCs may rise because the local producer is busy to export in other countries. The MNCs can be the market leader. It may not happen all time.
The rules and regulation may be strict for both domestic and multinational companies. On the other hand, if a country more reserve or balance of payment, it tries to deployed money. It encourages import than import or it invests money to another country as FDI or foreign direct investment. It may reduce the tax burden for MNCs (Bhusnurmath, 2011). By this way, the MNC can get maximum profit. The host country may be benefited from this policy by getting portion of profit when it will get back to it.
Relevance Based on “Measurement Challenge”
The MNC puts a measurement challenge of balance of payment for both home and host country. The goal of a Multinational company is to maximize the profit in after tax all over the world. To do this, they allocate resources, make mixing price system and make extra bill. These conducts is very difficult to measure for the regulatory bodies (Landefeld, Moulton, and Whichard, 2008). There are some good reasons behind this; the resources of production are not same in all countries and the price too. Therefore, it is very tough to evaluate the perfect amount of balance of payment. The mix price is also difficult to detect. Therefore, the proper amount of payment is in question in all countries due the inappropriate recording of MNCs transactions.
Relevance Based on “Foreign Exchange”
The balance of payment is a better indicator of country’s financial status. It helps to evaluate the foreign exchange rate of a country. This exchange rate has direct or indirect effect to the multinational corporation (Wang, 2005). When a currency of a country is strong, the import will cheaper and the export will less competitive. This situation puts pressure to the MNCs to adjust the situation. At that price of goods tends to be cheaper so that the multinational corporation must adjust their price level. Again, when the exchange rate of a country is weaker, the import will expensive and export will high competitive because of inflation. This situation makes higher price level within the country and the MNC have to adjust their price in a high level.
Relevance Based on “Asset Reserve”
The balance of payment also consists of asset such as gold reserve. The higher gold reserve means country has higher trade surplus and thus the higher money supply. This tends to create inflation within the country. Therefore, the MNCs can make higher profit by raising their price level. Conversely, when there is a trade deficit means low assets reserve. This makes the price lower because there is a low money supply. Therefore, the MNCs must adjust their prices level to cope up with host country’s policy.
Relevance Based on “Decision Making”
The balance of payment statistics is very important for all kinds of decision makers. The authority of a country looks carefully the flow of balance of payment. The balance of payment generally is a great indicator of future exchange rate of a country. This put pressure to the monetary authority to take necessary steps to control the money supply. Again, the balance of payment indicates the proper amount of assets reserve for a country. This makes concern for the fiscal authority. They should determine the trade policy, VAT, income taxes and the policy for the multinational corporation. Therefore, we can say, balance of payment accounts are closely related to the overall saving, investment and price policy of a country.
Relevance Based on “Business Policy”
The MNCs are also a good user of balance of payment statistics. They must assess the balance of payment both host and home country for their business policy. The policy of a MNC much depends on the balance of payments flow because change in balance of payment also changes the rules and regulations. When a multinational company try to start their business in another country, they must assess the domestic balance of payment. Because the domestic balance of payment, indicate the permission. If the host country has surplus balance of payment, the MNC can start their operation.
Conversely, if the balance of payment is in deficit position the MNC may not get the foreign investment permission. Again, the MNC must assess the host country’s balance of payment. If the host country has already huge surplus balance of payment, it may not give permission to a new MNC because it tries to invest their money not get money. Conversely, if the balance of payment is in deficit position in the host country, they may welcome new money flow to their country. Thus, the balance of payment position in host and home country affect the decision of business start up. The MNC should also asses the foreign exchange rate position in home and host country.
The weaker currency in home country means the multinational company have to pay more to start their business in another country. Conversely, if the exchange rate is weaker in host country, the Multinational Corporation can start their business cheaply in the host country. Balance of payments also influence the interest rate because of high bank reserve, the MNC also have to consider the interest rate in the host country. The higher the interest rate means the higher business cost for MNC in the host country.
Changes in Balance of Payment and Management Actions
What is change in balance of payment?
Balance of Payments should be equal in all time. However, in reality, it does not happen. The balance of payment is continuously fluctuating all time. This is called disequilibrium of balance of payment. According to TR Jain, disequilibrium payment is a situation when the balance of payment fluctuates from zero (2008). Another author Cherunilam argues that a country’s balance of payment is disequilibrium when there is surplus or benefit (2010). There are three types of changes in balance of payment favourable, unfavourable and balance. Favourable balance of payment means surplus balance of payment. Unfavourable balance of payment means deficit balance of payment. Balance in BOP means equal incoming fund and outgoing funds.
Causes of Changes in Balance of Payments
There are various causes of change in balance of payment. From them, Raj Kumar, author of international economics pointed out three main reasons such as economic, political and natural (2008). He said that if a country is in developing position it must be in deficit balance of payment. The reasons behind economic cause are huge economic development in infrastructure, inflation or deflation, cyclical fluctuation and changes in foreign exchange rates. Again, the reasons behind political cause in balance of payment are political instability and international relations. The natural consequences such as earthquakes, hurricane and others are the reason for natural cause in balance of payment.
Result of Changes in Balance of Payment
The changes in balance of payment may affect positively or negatively to the economy. Here are some Results of changes in Balance of payment:
Positive effects of Changes in BOP increase the creditability of a country. Conversely, Negative changes in BOP lower the international creditability.
Positive changes decrease the foreign dependency in terms of financial help. Conversely, Deficit changes in BOP increase the foreign economic dependency.
Surplus changes increase the foreign exchange reserve. Conversely, Negative changes in BOP deplete the foreign exchange reserve.
Reserve of gold is increase in the case of surplus balance of payment. Conversely, the reserve of gold decreases and goes away in negative BOP situation.
Negative balance of payment hampers the economic development. Conversely, positive balance of payment improves the economic condition.
Surplus balance of payment increases the global market leadership for the home multinational company. Conversely, Deficit balance of payment hampers to get global market leadership position.
Opportunities for MNCs Revealed by Changes in Balance of Payments
The changes in balance of payment position affects positively and negatively for a country’s economy. As the MNCs are one of the important parts of economy, it also gets affected due to changes in balance of payment. Here are some opportunities for MNCs revealed by the changes in balance of Payments.
Business Growth: A multinational company can get business growth advantages in both home and host country. If the home country has surplus balance of payment, the authority approves MNC to start their business internationally. It means they do not mind in capital outflow from the nation as they have surplus funds to invest. On the other hand, a MNC can expand their business to a host country if they have negative balance of payment. They must try to grab money from the other national to increase their business infrastructure. For this reason, MNC is the best way to get finance.
Low start-up cost: A multinational company can start their operation cheaply in host country due to changes in balance of payment. If the host country has deficit balance of payment, they must encourage funds flow from MNC with low regulations and cost. Again, if the home country has high balance of payment, they allow MNC to start its business with lower fees.
Tax benefits: An MNC can also get tax benefits both home and host country due to fluctuation of balance of payment. The home country encourages FDI when it has surplus balance of payment. For this reason, the tax tends to be lower than deficit BOP to encourage foreign direct investment. Again, in the host country the MNC gets lower tax benefit due to deficit balance of payment (Robert, Dunn and Mutti, 2009). The MNC can also get the lower tax benefit, when the country tries to increase their export and reduce import.
Exchange rate benefits: The fluctuation of exchange rate is highly related to balance of payment. This exchange rate or balance of payment affects the operation cost positively or negatively to a multinational corporation. The MNC pay less if the home country has higher balance of payment or strong exchange rate. Here, they get exchange rate benefits due to weak currency in host country. This strong exchange rate also reduces the resources costs in the host country. Moreover, the MNC can get bill paying benefits due to change in balance of payment system.
Low cost of operation: A multinational corporation can experience low cost of operation due changes in balance of payment in both home and host country. It can get factors of production such as land, labour, machinery and others tools at low prices where the balance of payment is lower. Because, lower balance of payment indicates high rate of unemployment in the host country.
Higher Sales: A multinational corporation can increase their sales due to impact the balance of payment in the host countries. When a country experience lower balance of payment, it tries to increase the export and reduce import to get higher balance of payment. To do this, the country should ensure high production unit. The domestic producer may unable to cope up this policy. Therefore, the MNC get the opportunity to sales more during the recovery situation in balance of payment.
Higher Profit: A multinational corporation can make higher profit due to changes in balance of payment. As we discuss earlier MNC can sale higher volume in the host country in the recovery situation. By this, it can make higher profit because higher sales means higher profit (Deresky, 2009). On the other hand, the MNC can make higher profit if the currency of host country is devaluated. For example, European MNC operates its business in US. If the US dollar is weaker than Euro, the European countries will get higher value of money when they convert the money into their own currency.
Measures to exploit opportunities revolved by changes in Balance of Payments
As a MNC operates internationally, it must cope up with the changes on balance of payment in both home and host country. The manager of MNC should be careful to grab every opportunity provided by the BOP. The management measures have been given below:
Seek for growth: A manager of Multinational Corporation should always seek for business growth in home, host or any other country. To seek the business growth opportunity the MNC have to assess the balance of payment position. If the balance of payment is favourable, the manager should grab the opportunity for growth.
Alert all time: The manager should be alert all time to grab the best opportunity for business. As there are various obstacles for a multinational business, the manager have to overcome the obstacle by grabbing the best available opportunity.
Acquire new technology: New technology is very important for a business to get the competitive advantages. A company can implement a new technology to track the balance of payment related data to know the future trend of exchange rate, business cost and tax rate.
Hire business analyst: The manager can hire a business analyst to analyze the balance of payment data and recommend the best opportunity. The analyst also may responsible for making quick and instant decision regarding balance of payment trend.
Implementing short and long-term strategy: The manager can implement a short and long-term strategy for grabbing the opportunity of balance of payment. The short-term strategy may be for less than one year and the long-term strategy may be for above the one year. In addition, this strategy should include the yearly business strategy.
Due to high impact of globalization, every country must engage business internationally through Multinational Corporation. The multinational corporation contribute in the economy of related party’s as well whole world. This report describes that there is a strong relevance of balance of payment to Multinational Corporation. They are related to each other’s in terms of direct impact, regulatory relation, assets measurement, foreign exchange, business policy and decision-making.
This report also describes that the changes in balance of payment creates some opportunities for MNC such as business growth, low start up cost, exchange rate, higher sales and higher profit benefit. Moreover, this report suggests that a manager of a company should take some important measures such as implementing new technology, higher business professional and hiring business analyst to grab the best available opportunity revealed by changes in the balance of payments.
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Porter’s National Diamond Analysis and Strategy – A Must Read For Business Management Students
Title: Porter’s National Diamond Analysis. Porter has undeniably enhanced understanding of competitive advantage with his published studies in The Competitive Advantage of Nations (1990) and On Competition (1998), among others. His analytical framework, called the ‘diamond’ captures the major determinates of competitive advantage of international business (Porter, 1990). Influencing the major determinates are chance and government.
Although Porter has focused his studies on developing or newly developed nations, the principles may be applied to developing nations, as demonstrated by Ainslie et al (2005). The core question was whether the principles would apply to lesser developed countries such as the island nations in the South Africa and particularly South African food retail industry. In this study we will discuss the Porter’s National Diamond analysis (PND), two key management issues and the market entry strategy in the selected county South African business environment to draw a clear conclusion and future recommendations to the top management of the food retail industry.
In this study Porter’s diamond analysis will discuss, which attempts to identify the sources of international competitive advantage, may be applied to lesser developed island nations of the South Africa. Porter (1990, 675) stated that the Porter’s National Diamond framework may be applied to lesser developed countries (LDC) where they tend to have a competitive advantage in industries. In these countries like South Africa, the basic advantage factors are cheap labour, abundant natural resources, and location advantages which increase their ability for export businesses.
Exports are sensitive to world market prices, leaving LDCs exposed to exchange rate and resource cost swings. This problem is intensified when an LDC faces the protectionist policies of the developed nations. Developed nations place trade restrictions on most of what an LDC does well: textiles and agriculture. By lifting tariff and non-tariff barriers on these sectors through the implementation of regional and multilateral trade agreements lesser developed countries may have the opportunity to develop competitive advantages in certain industries (Ezeala-Harrison 2005).
Porter (1990) has rendered a major service to the global community in identifying many of the explanatory variables of competitive advantage, which has shaped a new assumption to understand why a country’s success, but in some other industries. His analytical framework, known as the “diamond”, shoots the main determinant factors of competitive advantage. This framework includes demand conditions, factor conditions, support and related industries, corporate strategy, structure, and competition. Through a review of literature, the competitive advantage on production was evaluated by investigating the existence of clusters using Porter’s National Diamond theory.
Porter (1990) found the answer to why a nation achieves achievement in a specific industry in the course of four broad characteristics a nation possesses. These attributes shape the home business setting by which domestic firms participate to support or obstruct the establishment of competitive advantage. The four broad attributes, or what Porter defined as the determinants of nation advantage, include: demand conditions, factor conditions, support and related industries, company strategy, firm structure, and industry rivalry.
The four determinants work both as a system and individually to create the environment in which a South Africa’s food retail firms are created and compete to gain and sustain competitive advantage. Besides the four attributes of nation advantage, Porter (1990) incorporated the functions performed by the state and probability as issues affecting the proper functioning of the nation attributes.
The complete framework developed by Porter was presented in Figure 1. Porter termed the framework the diamond due to the obvious shape of the four determinants that it is a vibrant arrangement in which all fundamentals interrelate and strengthen every other factor. These systemic surroundings make it difficult to imitate the precise arrangement of the business in a different country. In view of the fact that the diamond is a jointly strengthening scheme, the effect of single determinant is dependent on the condition of the other determinants.
Aiginger (2006) explained that having one favourable determinant in an industry it will not lead to a competitive advantage unless other determinants can be created to respond. Advantages in one determinant may create or have a positive effect on other determinants. Nations are most likely to succeed in an industry where the determinants or the diamond is the most positive. To gain a complete understanding of the functionality of the diamond, each determinant was examined, as well as the factors influencing the determinants and the functioning of the diamond as a system.
Porter’s Diamond Framework
Wall et al (2008)
have termed the resources or inputs necessary to produce a product or service
as factors of production, which include land, labour, capital, infrastructure, and
natural resources. Porter (1990) divided factors of production into two basic
distinctions, “the first involved basic and advance factors, where basic
factors include natural resources, weather, position, skilled and semi-skilled labour,
and capital of debt (p. 89). Porter (1990) examined that advance factors,
including contemporary digital data communication infrastructure, such as a
university graduate engineers and computer scientists with high academic
qualifications, a complex subject and university research institutions (p. 77).
South African food retail is endowed with basic factors or they require very little investment to create. These factors tend to be insignificant to the African national competitive advantage or they prove to be unsustainable. Advanced and sophisticated features are more important for company’s economic benefits in that they are scarcer due to their creation demanding huge and continued investments in human and physical capital.
While advanced factors are often built upon basic factors, innovation requires advanced factors that are imperative to the design and creation of products and processes. The second distinction among factors of production is developed on specificity, which Porter broke down into generalized and specialized factors. Factors such as the thoroughfare system, the supply of debt capital, motivated employees with college education or pool are also included in generalized factors. These factors can be utilized in many different industries. Specialized factors occupy barely skilled workers, road and rail network with precise assets, and information basis in meticulous areas (Porter, 1990, p. 78).
(1990) asserted three significant characteristics of requirements, composition,
the dimension and prototype of growth, and the internationalization of home
demand, where the latter two are dependent upon composition of home demand. The
composition of home demand dictates “how firms perceive, interpret, and respond
to buyer needs” (Porter, p. 86). Home demand has important influence on economic
benefit, more so than international demand as its proximity, both physical and
cultural, makes it easier and quicker to monitor and recognize the buyer’s
immediate needs and preferences.
The composition and quality of the domestic demand, relates to a certain extent than amount influential on competitive advantage. More complex and demanding buyers, the greater the pressure, product quality, features and services of local businesses, as well as enterprises able to anticipate the needs of the buyer, in order to meet the high standard terms and conditions. The scale and pattern of growth in domestic demand, with the ingredients, can strengthen its competitive advantage – outlined in Porter’s National Diamond.
Porter (1990) believes that several features of this property include: (a) the size of the domestic demand, it is able to take advantage of economies of scale, and (B) of the independent buyer “stimulus entry and speculation in the business reduce the apparent risk market enterprises will be shut down and limit the bargaining power of the dominant buyer, all profits (94), (c) the growth rate of domestic demand, which will lead to greater investment and technological growth, (d) anticipating buyers needs earlier than foreign rivals, and (e) saturation of the home market to create strong pressures to thrust along prices, bring in new description, develop merchandise presentation, and supply other inducements for buyers to reinstate new versions of old products.
This can happen when African domestic
consumers are mobile and travel to other nations to demand the products from
their home market, or when home consumers are multinational corporations with
operations in other nations. Another mechanism of internationalization is “when
domestic needs and desires get transmitted to or inculcated in foreign buyers”
(Porter, p. 98). This can occur when foreign travellers use the domestic
products or services and take the demand home.
Related and supporting industries
The presence of supplier industries and other related industries in a nation is an important determinant of creation and sustainability of competitive advantage. Porter (1998) stated that internationally competitive domestic suppliers create advantages in other industries in several ways. The competitive related and supporting industries can share common technologies, inputs, distribution channels, skills, customers, and even complementary products, to foster technological spillovers and exchange of information that can spur innovation and upgrading, and ultimately lead to competitive advantage.
According to Ketels (2006), the distribution of business knowledge would to spread between the business companies, human resources because they can be shared educational and research organisations. When internationally successful related industries are present in a nation, they can create demand for a complementary product. Porter referred to this as a “pull through effect” (1990, p. 106).
These complementary products provided by firms in the same nation may be more cost effective since the firms are used to dealing with their own rather than foreign firms. Lastly, firms from related industries may feel threatened by new firms wishing to enter the industry putting pressure on existing firms to improve their own competitive advantage.
Firm strategy, structure, and rivalry
Porter’s fourth determinant of
competitive advantage included the strategies and structures in which organisations
are created, planned and managed, in addition the environment of home rivalry
(1990). Porter insisted that the objectives, planning, and methods of organising
industries differ extensively between nations, but distinct patterns emerge within
nations. The argument was made that a good fit should exist between an
industry’s sources of competitive advantage and its structure, and the
strategies, structures, and practices favoured by the national environment.
Government and chance
As shown in Figure 1, the
government and chance are added to the diamond to complete the system. They are
not determinants of national competitive advantage, but do play a vital role in
influencing the four determinants. The government can influence and be
influenced by each of the determinants, both positively and negatively, which
is represented by the arrows pointing both ways (Porter, 1990). Each of the determinants
is affected in different manners. The Government’s education policies and
subsidies also affect factors conditions. Set of standards and regulations will
affect demand conditions and related supporting industries.
A firm’s strategy, structure, and
rivalry can be affected by the government’s involvement in capital market
regulations, tax policies, and antitrust laws. Porter (1990) viewed the
appropriate role of government as one of reinforcing the determinants of
national advantage instead of attempting to create the advantage itself. The
role of government is viewed differently as nation’s progress through
successive stages of competitive development. During the early stages of
development, especially relevant for developing nations, the government has the
greatest direct influence on national advantage. Factor creation is a vital
role for the government at this stage to encourage savings, accumulation of
capital, and develop infrastructure and technology.
As a nation develops, the
government must shift to an indirect role, always aware of its influence on the
diamond. The tools used in the early stages of development now become
counterproductive, so the government’s role is to create an environment where
firms are the innovators, and the government is the “facilitator, signaller,
and prodder” (Porter, p. 672).
Chance, also lying outside of Porter’s National Diamond, plays an important role in influencing competitive advantage. Some illustrations of chance events include development and innovation, oil shocks, major changes in world financial markets, and wars. Chance events may alter the diamond by creating forces that reshape an industry’s structure and allow for discontinuities that shift an industries competitive advantage.
When we start talking about management issues within the South African food retail industry, there are some very basic internal as well as issues which are increasing the impacts of management at internal level. There are a large number of contemporary issues in South African food retail industry; however, here we will discuss the flowing two among them.
Crisis process is a threat for the current situation and future of a business, it is very clear that administrative and organisational structure will require a significant change. During the crises, organisational stress reaches the top level. On the one hand try to find suitable solutions to resolve the crisis, on the other hand, the tension created by uncertainty and running time pressures negatively influence the management structure of enterprises.
Business managers have to try minimizing damages with precaution actions. To do this the first way is to make a series of organisational and administrative structure changes. Crisis requires rapid reactions, for this reason business structure is developed to provide quick decision. Standard decision-making methods are insufficient to resolve the crisis; these force managers for new decision-making methods. The important thing is to adapt personally to new environment (Basuroye t al 2003)
this adoption instead of keeping current values South African food retail
industry has to accept new values. Accurate collection of information,
communication, which cannot be easily settled up well, and psycho-social status
of employees are changing the organisations atmosphere. The atmosphere which is
changed will effect significantly communication, motivation, organisational
justice and moral, such as organisational trust and organisational citizenship
(Stone & Ranchhod 2006).
issue which may increase the negative effects of crisis is an absence of proper
plan for dealing with crisis, which has to include customers, competitors,
vendors, partners, and credit agencies, various internal and external
environmental factors. South African food retail industry must have crisis
plan, in case they can face the reduction of mobility and flexibility.
are also some external issues besides the internal issues. Biggest external
issue is change in income of company and rapid price changes. The increase in
costs will automatically come with preventions such as: reduce the number of
employees, reduce the social benefits for employees and loading more work to
the existing workers. New law and regulations can also increase effects of it.
The new taxes, increasing social security contributions, to collapse of the
credit facilities, the new customs legislation can also affect business
dramatically (Boatwright et al 2007).
Business managers or owners fail to follow international business changes and
when they cannot keep pace with global developments or the country’s economic
situation, it can increase negative impacts. If managers of South African food
retail industry would not establish an early warning system by making the
internal and external business environment analysis, they can face it as an
another issue in their industry (Siggel 2006).
international market entry strategy is becoming gradually more important to the
success of new products. The time interval between the launch of the two
important issues of related to international market entry strategy are
undeveloped international launch window of time (the focus of the country’s
national launch of the product) and the sequence.
An important decision relating to international market entry strategy is the decision on the timing of entry into international markets. Two international entry timing strategies are commonly practiced (Chandrasekaran, Deepa, and Gerard, 2008). A waterfall or sequential release strategy is one in which the new product enters multiple countries sequentially. A sprinkler or simultaneous strategy, in contrast, involves almost simultaneous entry into multiple countries- Porter’s National Diamond.
Bin and Andrew (2008) use a competitive game theory framework to examine
simultaneous and sequential strategies and show that sequential entry strategy
is appropriate if (1) the product has a very long life cycle, (2) the foreign
market is small, not innovative, and characterized by a slow growth rate, and
(3) competitors in the foreign market are week.
empirical evidence for the success of each of these strategies is mixed. For
example, Chandrasekaran, Deepa, and Gerard (2008) find that the takeoff of a
new product category in one country increases the probability of takeoffs in
other countries, suggesting a sequential release strategy is preferable to a
simultaneous release strategy. Duan, Bin and Andrew, (2008) examine
international market entry strategies in terms of market scope and the speed of
rollout. They find that late mover brands that sequentially enter many large
international markets show greater marketing spending efficacy through
marketing spillover effect.
market entry is one of the most important strategic decisions for firms.
Managers should consider cross-country spillover effect when they decide
country sequence. Firms can increase overall performance in foreign countries,
so enhance return on investment by taking advantage of these spillover effects.
A firm should launch its products first into countries that are culturally
closer to its home country and countries that are more open. Managers also need
to consider factors such as potential adopters’ familiarity with the new
product and cultural fit of the product with the country when deciding the
order of country in the international launch sequence. They need to carefully
consider the determinants of country sequence because they affect product
performance in foreign countries (World
Economic Forum, 2008).
To conclude we can say that international
business strategy is critical to the success of some products in several
industries. Departing from Porter’s approach allowed focusing on the possible
affects the regional trade agreement had on clustering. Porter’s (1990) viewing
of international competitiveness of industries through the diamond framework
seems to hold for the lesser developed nations like South African nations.
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