The Economics Of International Business Economics Essay

The Economics Of International Business Economics Essay Myanmar was formerly known as Burma located in Southeast Asia Country. The country has been under military rule for 49 years since 1962 to 2011. It situated between India, Thailand, and China. Even though country located its strategic location, but Myanmar still is the poorest countries in Asia because with almost a third of its population estimated to be living in poverty (U.S State Department, 2012). In 1989, the authorities Burmese officially changed the country name from Burma to Myanmar. But in 2010, the Myanmar country became the Republic of the Union of Myanmar. After Myanmar independence from Britain, the country became one of a member in many international organizations such as the United Nations (UN), the Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO) (U.S State Department, 2012). As a leading multinational nutrition Nestlà © Company, before starting business in Myanmar, there are five elements should understanding their: a) Political Economy b) Economy Systems c) Legal System d) Culture e) Religion Political Economy Myanmar is a sovereign country and also is a specialist country which had different political compared to other country. Myanmar is a religious country because majority is Buddhism. However, the political system of Myanmar is different from other country. The political system of Myanmar can be dividing into three stages in the timeline from independence to the current. According to the timeline provided by BBC News Asia-Pacific (2012), Myanmar was independence at 1948 from Britain. During that time, the political of Myanmar is more toward to the democratic. Normally, they had general election on their country and the party who was wined in the general election will automatically practice the government and the leader will become the prime minister of the country. However, the practice of democratic political system did not last for a long time. According the timeline provided by BBC News Asia-Pacific (2012), the democratic political system only practice until 1962. During year 1962, Myanmar starts turn their political system from democratic to the military or totalitarianism. The first person who practices the military political system is Gen Ne Win and he abolishes the federal system and form the socialist or totalitarianism country. He had officially launched The Burmese Way to Socialism in 1962, which is meant the nationalizing the economy, that is, resources owned by government and only government have the power to govern the country in Myanmar. The socialism of the Myanmar had been continues for more than 48 years. During the socialism, Myanmar had become a sovereign and military country. The economy of the Myanmar is worst and only had limited range for economy to grow. The main reason of Myanmars economy became worst is Myanmar switched the political system from socialism to the right-wing totalitarianism. After the military take over the country, Myanmar is started slow down their economy even turn the economy back to last economy section with the slow grow. Myanmar decrease their trade with others country and started limit the economy activities in the country. Besides that, the governments also try to take over the economy activities and control all the trade so that there is limited freedom for their citizen or business. In addition, according to the report from Asia Report N °231(2012), Myanmar is related to the country that has similar political system and economy system, such as China, Thailand, and Vietnam. Myan mar is strongly related to those countries because they believed that work together with the countries that have similar political system and economic system will obtain more benefits. For this reason, the businessman from these three countries is very easy to start their business in Myanmar and will force less trouble during the business activity. However, not all of the business activity can be done in their country. The main reason is not because of the military or totalitarianism political system but is the religion. This is because the citizens in Myanmar, either army or politician are very respect to the Buddhism. Therefore, there are some business activity which is opposite the Buddhisms rule is not allowed to run in Myanmar. Furthermore, due to the strong religion faith, Myanmar trading with the others country decreased and more toward to self-economy system which is only produce enough goods for self country. Although Myanmar is rich in natural resources, but they did not u se their natural resources for international trade in order to boost-up their economy. During these few years, Myanmar is started changing their political system because they believed the military or totalitarianism does not provide benefits and human right for them. Besides that, the military political policy also make Myanmar became the poorest country in the world and unable to keep up with the development of its neighborhoods country like Thailand and Vietnam that is now developing faster and becoming very rich. In order to develop the country from poor to rich, Myanmar started regulates the democratic policy on year 2010 (BBC News Asia-Pacific, 2012). Myanmar try to convert their government from military to the civilian government because they believed the citizen play an important roles in the help of develop their country. After the democratic policy is regulated, Myanmar quickly organizes a general election in the country. According to the BBC News Asia-Pacific (2012), the Union and Development Party (USDP) won the election and the junta had said the election i s the process of transition from military rule to a civilian democracy. After the election, Aung San Suu Kyi who is taking part for forming the democracy government is been released from house arrest after a long time arrested by military government. The released of Aung San Suu Kyi can be determined as Myanmar start moved toward to human right country and can protect businessman when they are do their business activity in the country and had more chances for international trade done at Myanmar. The democracy political system is giving many benefits to Myanmar. The first of the benefits is the chair of ASEAN in 2014. According to Nehru and Endowment (2012), ASEAN sent a message to Myanmar, said Myanmar need to focus more on human rights and democracy in order to chair ASEAN in 2014. If Myanmar successful becomes a chair ASEAN, there will have many benefits for them. The first benefit is they can do their trade with others ASEAN country easily and organizing activities events at Myanmar and more people will know more about Myanmar. The second benefit is ASEAN is a free agent for advertisement because after joining the ASEAN, Myanmar wills easily attract the potential investor to invest their business to its country. Although Myanmar open more chances for other country for doing business in their country, there are still not enough to prove that Myanmar is a good place for doing the business. This is because Myanmar still had the limited on doing business in their country and the policy for protect the investment and business is still very weak and some is not really useful. Myanmar still does not had a good policy for the business section and some rules for the business is very tight and make the business less potential for development. Besides that, not all area of Myanmar is acceptable to the current government and immigrants citizen, some of the area still had the fight with the government so the safety of that area is negative. Furthermore, the costs of implementation the factory in Myanmar is very high because need pay more (bribe) Da loong u mean bribe? to the federal government and local government. Besides the costs, the process for getting approved of doing business in Myanmar is taking long time, so this will affect the profit and effectiveness of the company. According to the Asia Report N °231(2012), Myanmars political transition and economic reconstruction is interrelated. Asia Report N °231 (2012) also mentioned that there is hard for imagine a successful political transition unless the government ensure the economic stability and improvement of the development of the country and needed of the citizen. So, Myanmar is a very challenging country if start a business in the country although Myanmar had a rich on natural resources. When Myanmar compared to the United States, both country had different political system at the beginning but similar in these few year. Both of the country is democratic country whereas U.S. is stronger than Myanmar and more stable in the political situation when compare to Myanmar which is new to democratic. In economic system, United States is more effectiveness and better then Myanmar. This is because U.S. government had provided a lot of policy or art for the trade or business activity such as Free Trade Agreement (FTA), Asia Pacific Economic Cooperation (APEC), North American Free Trade Agreement (NAFTA), and others (Feinberg, 2003). For Myanmar, they only have few acts or policy to protect the trade and the business activity, so its risky and costly to invest the factory or business in Myanmar. However, there is a particular thing that the Myanmar had more advantages than United States, thats Myanmars resources rich than U.S, so when implement the factory in Myanmar, the cost f or the material will be cheaper and easily to get compared to United States. Therefore, there are had risk when implement business in Myanmar by the view of political economy. Economy Systems According to McEachern, there will have three key questions when come to economy: 1) what goods and services are to be produced? 2) How are they to be produced? 3) For whom are they to be produced? Economy systems can explain as the way that one country used to answer this three key questions. Every country in the world will under at least one type of economic systems. For this reason, to expand our business to Myanmar we must first know what economy system Myanmar under. The three basis types of economic systems that generally recognize by the economists are market economy, command economy and mixed economy (Hill, 2012). Now, lets discuss them one by one before we look at economy system of Myanmar. Traditional economy system In addition, there was an old economic system known as traditional economy system, society that under this system answers the three key questions according to their ancestors act, customs, rituals, beliefs and rituals. (Mxcastro, 2010) In short, they copy the ways that did by their previous generations. Traditional economy system was used in the past but now still will exist in the countries that are farm-based or rural. For an example, Native people of Brazils rain forest, the crops they planted, way to harvested, and the goods distributed to who were decided by their past generation and remains unchanged (Tucker, 2010). Therefore, this system decreased the rate of disputes among members but its restricted individual initiative, so will unable to produce advanced goods, new technology and then slow down the economic growth. So then, expand our business to the country that under traditional economy system is not recommended because a countrys practice may differ greatly from a countr y. Market Economy Furthermore, market economy is a system that allowed an individual to make decision of economic. In market economies, interaction of the force of supply and demand determines the prices and the prices are used to answers the 3 key questions. That is, what to produce is based on the popular trend and profitable, the producers will produce a product more when the demand for a product exceeds supply because the price of a product will rise and result in higher profit. The question of how to produce is depend on the producers choices, if the price and demand for a product is high, producers may use machine to produce in order to save the labor cost because machine can produce more in lower costs. The question of for whom they produce is based on the need or wants of the buyers and the price the buyers willing to accept. In addition, under pure market economies, intervention of government is absent. A pure market economy is also referred to as pure capitalism because both of the systems a re market answers the three key questions. Moreover, in pure market economy, mean of production is owned by private, buyers and sellers can make decision or choices as well as free trade for their deals. Also, according to Adam Smith, a countrys resources can be use efficiently and have better economic performance under market economy because its provided incentive for each individual to pursue his or her self-interest, known as invisible hand. However, pure economy system has some flaws such as people would suffer if without resources, stronger producers may eliminate the competition to monopolize the markets and people no incentive to produce public goods. Command Economy In command economy system, the three key questions are not answered by market force but government or people with central authority. In more specific, production, distribution, prices and others decision is controlled and regulated by government. In addition, state that under pure command economy owned all the business, there is no private ownership. Also, pure command economy emphasizes on collective goals more than individual goals, so sometime called communism or socialism. Furthermore, pure command economy also has some flaws such as resources do not use efficiently or wasted, absent from cost control, unable to meet the needs or wants of consumer because these resources owned by state, so people have no incentive to do so. Mixed Economy In mixed economy system, both market and government answers the three key questions, so this system involved both capitalism and communism. Government regulated only some of the markets in mixed economy system and resources in this system are owned by private ownership and public ownership. In addition, government normally take over the things is important to nation in this system such as provide national defense, birth cert recording, highway construction. Most of the people in the world will agree or accept these things to control by government. Also, government may take over the private firm that is failing if the private firm considered important to nations economic, for example, firm that have many employees, the government will take over the firm in order to prevent the increase of unemployment rate. Thus, mixed economy system provides the advantages of freedom without the need of government to give up its power. Myanmar Economy Systems Since year 1988, Myanmar has adopted the market-oriented economic (Aung, nd) with little government regulations which has replaced the centrally planned economy command economy. So that, the three key questions is answers by market force and each individual can make the economic decision. After adopted the market economy, the initial step that Myanmar takes is promoting and develops the private sector. Now in Myanmar, private activity has about 75%, mainly in light industry and agriculture and has about 25% of activity controlled by state, mainly in foreign trade, heavy industry and energy (WebWhacker, nd). Since Myanmar has adopted the market economy system which allows individuals to make economic decisions, so expand our business to Myanmar may be considered because as a multinational company, we has a lot of experiences of making economic decisions in many different country. Furthermore, foreign direct investment is allowed after Myanmar adopts the market economy system and the Union of Myanmar foreign investment law allows foreigner to fully owned company at there or can be joint venture with a state-owned enterprise, a private company or any Myanmar people, (DPS, 2006) so that we can easily set up our business at there. Moreover, in order to be line with the market economy, private individuals or enterprises are permitted by Ministry of Commerce to implement import and export business which was monopolized by the state in the past. (Aung, nd) For this reason, we can produce our goods at Myanmar with lower costs and export our goods to others country with higher prices. Also, others reason to expand business to Myanmar such as enough of labor force and low labor costs. Economic Condition Myanmar v United State United State Unit Myanmar Unit GDP (purchasing power parity) 15290.00 Billion USD 83.74 Billion USD GDP real growth rate 1.7 Percent 5.5 Percent GDP per capital (PPP) 49,000 US dollar 1,300 US dollar Labor Force 153.6 Million 32.53 Million Unemployment rate 9 Percent 5.5 Percent Exports 1497.00 Billion USD 8.21 Billion USD Imports 2,236 Billion USD 5.98 Billion USD Population 313.847465 Million 54.58465 Million Inflation rate 1.7 Percent 5.8 Percent Source: http://www.indexmundi.com/g/rank.html http://www.tradingeconomics.com/united-states/indicators Legal System In the past, Myanmar was reported having the worlds worst legal system for doing business. According to The Economics Time (2012), a British risk analysis group, Myanmar was offering the least legal protection for foreign companies. But during the recent reforms of Myanmar, new laws are enacted, and the legal practices are changing rapidly. Technical assistance and training which include investment and finance law reform, foreign exchange controls, and the simplification of trading are giving a hand for Myanmar to improve the legal system. The first legal act for foreigners investing in Myanmar are two types of foreign investment defined: 1) a sole proprietorship wholly owned by a foreign investor supplying 100% foreign capital, and 2) a joint venture in the form of either a partnership or limited company, in which the foreign capital invested must be a minimum of 35% of the total equity capital (Chandler Thong, 2012). Foreigners who interested to invest in Myanmar are required to invest through a local incorporate company which shareholders and directors are controlled by them, not through the use of local nominees. The invested company will be blacklisted if the Foreign Investment Law is not accorded. Besides that, foreigners are forbidden to buy land in Myanmar. The second are the relaxations of international sanctions. Investment in Myanmar was restricted by sanctions implemented by the United States, United Kingdom, European Union, Canada and Australia since year 1997. CITATION? In 2012, the sanctions are relaxed. CITATION? United States has authorizes the new investment in Myanmar, but subjected to certain requirements and limitations; United Kingdom has suspend the restrictions of some key industries and assets freeze on approximately 500 people; CITATION? European Union has lifted all the sanctions except the arms and equipment embargo; Canada has allows import, export, investment and financial transactions to Myanmar; and Australia has remove the travel bans on Myanmar citizens but weapon trading is still prohibited. Furthermore, general laws of doing business in Myanmar. The general business law of Myanmar must be complied by the foreign investors and also domestic investors. First is the Myanmar Companies Act (1914). CITATION? A Myanmar investor who wants to build a business through a limited company may register under this act, but foreign shareholder and foreign director is prohibited. Meanwhile, a foreign investor who wants to build a business in Myanmar through a locally incorporated limited company may register under the Myanmar Companies Act too, but the company must be incorporated under the Special Companies Act (1950) CITATION? and be approved by the Foreign Investment Law. In addition, Special Companies Act (1950) is an act that governs all companies in equity share capital. CITATION? Besides, the labor laws that existing in Myanmar which include: Employment and Training Act (1950), Employment Restriction Act (1959), Employment Statistics Act, (1948), Factories Act (1951), Labour Orga nization Law (2011), Leave and Holidays Act (1951), Minimum Wages Act, (1949), Oilfields Labour and Welfare Act (1951), Payment of Wages Act (1936), Social Security Act, (1954), Shops and Establishments Act (1951), Workmens Compensation Act (1923) and the new enacted law, Labor Dispute Settlement Law (2012) (QuickMBA, 2010). *****Please do citation and change the sequence for those law to avoid plagiarize.**** The laws above deal with all labor related problems like working hours, holidays, annual and sick leaves, wages and overtime, social welfare and more. Citation? Moreover, minimum wages are provided for workers in certain fields like agriculture and more. Comparing to the United States, this has a more stable legal system because Myanmar is more challenging and risky to be invested in but also provides a higher return than United States due to lesser competitions. Furthermore, Myanmar has seen to be a potential investment place with its improving legal system and few advantages like rich natural resources and young labor forces. Lastly, United States could be a safe place to invest, but if as a profit seeker, Myanmar could be a better choice to invest in. Culture Myanmar is a hundred ethnic groups country; each has their own distinctive cultural traditions. Many of the tribal groups have produced the excellent handicrafts, dancing and musical performances. Myanmar culture which is non-tribals has been significantly influenced by the Buddhism. The unique thing about Myanmar culture is that it is free from racial or sex discrimination from childbirth throughout their lifetime. Everyone is allowed to equal rights, opportunity and treatment whether at work or at court. Regarding the Myanmars history, in traditional Western societies, women played a stronger role than man. From early on they could have own property and were independent in economic activities. Myanmar women enjoy the same status with their male counterparts and do not necessarily have to keep their surnames (JourneyMart.com, 2001). For American, their culture is Western culture, which based on British culture with influences from other parts of Europe, the Native American peoples. American Culture is known around the world are the films, shows, and musical performances. Furthermore, the most popular cities in American culture are New York City, Los Angeles, Chicago, Florida, and Las Vegas (Frost, 2004) Food in Myanmar Basically, Burmese food is very appetizing such as blend of Chinese and Indian foods. The basic food of Myanmar is mainly rice and curry. Some of the curries are spicy and often served with salad, vegetable soup and fish paste cooked in various ways. Among the favorite food is mohinga (rice noodles with fish gravy) which is eaten at any time of the day. Another popular dish is ohn-no- khaukswe, which is a chicken curry based on coconut milk served with plain boiled rice or eggs noodles. Therefore, desserts that they commonly eaten include sanwin-ma-kin (Myanmar sweet cakes made of semolina, sugar, egg, butter and coconut), Myanmar-style banana cakes, and kyaukchaw such as sea weed jelly (JourneyMart.com, 2001). In Myanmar towns, Chinese restaurant can be easily found there. They serve Cantonese and Hokkienese style Chinese food. Indian food like kebabs and briyani are also popular among the Myanmar. European food is available only at restaurant in the hotels. Chettyar food is also popular among the Myanmar. For Myanmar country, meal usually incorporate soups and curries are often finished off with fresh fruit such as sugarcane juice. Thus, most restaurants will close by 10pm although some tea and coffee shops will still open. Language Burmese or Myanmar is the main language in Myanmar. However, English is widely spoken. The largest of the population are using this language, indeed there are so many ethnic groups in Myanmar, and it is difficult to amazing that the country has a number of other languages and dialects. Each country has its own dialect, the most common dialect in Myanmar are Kachin, Chin, Karen, and Shan dialects. The Karen is renowned for the custom of women wearing heavy brass coils around their necks, starting from the age of five. In fact, such ornamentation reveals them to be Padung, a sub-ethnic group of the Karen (Defense Language Institute Foreign Language Center, 2008). English also one of the languages that usually used in urban areas. Religion Myanmar is a primarily Buddhist country which the Buddhists stand for 80 percent of the population. Citation? Today, the most common form of Buddhism in Myanmar is Theravada Buddhism. Besides that, excluding Buddhism; there are other religions that have followers in Myanmar such as Christians, Muslims, Hindus and some Animists, but this entire four are minority religions (JourneyMart.com, 2001). Theravada Buddhism is the more traditional of the two major divisions within this religion, such as it believes itself to be closer to the original teachings of the Buddha. According to Woodward Hopfe (2009), for Theravada Buddhism people must achieve enlightenment for themselves without reliance on the gods. Religion plays an important role in a typical Myanmar Buddhists life that his or her routine cannot be separated from Buddhist rituals. There is also a Buddhist lent on Myanmar calendar which lasts for three months in the rainy season, from around July to October, during which fasting i s preserved, marriages and moving home is generally set off. However, in United States, the main religion is Christianity. Naturally, a religion that encompasses so many people contains a great variety of beliefs and practice. Christians share a common belief in the uniqueness of Jesus of Nazareth, that he in some way provided for the redemption of humankind by his death and was himself resurrected from dead (Woodward Hopfe, 2009). In Christianity, Roman Catholic is the largest denomination. When Myanmar compared to the United States, both country had different religion whereas Myanmar is more familiar in Buddhism, but United States their largest religion is Christianity. Conclusion In past decades, Myanmar was known as poorest country in Asia and many investors do not dare to step-in and start their business because they predict their business will not gain any profit, so they instead of choose neighborhood countries like Thailand, Vietnam, and China to expand the business. With the recently released of house arrest Aung San Suu Kyi, the country human right re-born again because Aung San Suu Kyi fight for human rights for the citizen, so this can give more opportunities to all foreign investor to do their business in Myanmar easily. As many investors rather choose neighborhood countries to expand the business, this proves that in Myanmar business environment have very few competitors to compete each others to gain for the purchasing power from the consumer. So, with fewer competitors in market, we can easily dominate the Myanmar market before other foreign investors does. Therefore, Myanmar is an ideal country to expand the business because due to the country rich in natural resources, low costs, and fewer competitors. As the goods produce in Myanmar and export to others country, or even to our home country it will gain profit in the shortest time. By comparing to United States, its require take lots of time to gain profit and cover back all the costs to produce the goods.