Paper Example on Triumph Motorcycle Ltd International Expansion Plan After Brexit

Introduction

Triumph Motorcycles Ltd is among the leading global manufacturers of motorcycles and accessories. The company's revenues were estimated to be PS498.5 million in 2017 (Lee, 2017). Being the top British manufacturer Triumph has to take into account the effects of BREXIT on currencies, cost increases and regulations and how the various segments of their businesses will be impacted. The nature of BREXIT talks reveals that each side will take advantage of by ensuring they use last-minute leverage concessions (McNamee & Kokkinogeni, 2018). Therefore, waiting for the perfect information may prove to be risky as adjusting a company's supply chain, or operations procedure can take more than a year depending on the internal and external constraints. Multinational corporations should, therefore, be analyzing and planning for the possible scenarios to ensure the uncertainty of BREXIT and potentially threatening impacts for the organization after implementation are avoided. The move by Triumph motorcycles to determine a perfect international market between China, Argentina and Russia can help in minimizing the financial, operational and increasing the overall value proposition of the company both before and after BREXIT. This report analyzes the relevant data, assumptions, business frameworks, and theories of international market selection which inform the priority location for Triumph Motorcycles Ltd among the three nations.

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Theoretical Framework

In the selection of international markets analysis of the potential areas of expansion is vital to organizations to determine the best possibility out of many choices. Therefore, the trend of selecting the best international market is based on the criterion of evaluating various factors. Based on the elements analyzed, the favorite market is selected. Kontinen & Ojala, (2012), establishes that companies seek markets that have similar language, political system and culture, level of industrial development, and level of education to limit uncertainties to the success of their operations. Between the options selected by Triumph Motorcycles Ltd the differences in above-mentioned factors vary to a great extent. For example, Argentina's culture has close similarities to the UK than China. However, the Chinese economic potential outweighs Argentina's. Therefore, a combination of various factors ha to be taken into account to determine the best international market.

The variety of possibilities can be determined through the screening method which analyzes the information about each market after which the less favorable markets are eliminated. According to Casas (2008), the screening method helps eliminate unfavorable options through an analysis of easily accessed, equal and comparable data such as derivative indicators various macroeconomic indicators, or other ratios associated with the company's operations.

Decision Making Process Using the Screening Method

The decision-making process entails the elimination of the less attractive markets after screening based on the following factors:

• Economic potential such as lower levels of citizens incomes.
• Unstable political climate
• A cultural environment such as language barriers, lower educational and cultural levels, and religious barriers
• Foreign trade policies such as tax barriers and protectionism practices
• Technological factors such as low levels of employee qualification and production technologies

According to Hollensen (2008), marketers have developed various indexes vital in analyzing the risk factors associated with potential opportunities. The common index used in this study is the Business Environment Risk Index (BERI) to compare the similarities in operational conditions (availed in the UK) for Triumph motorcycles in China, Argentina, and Russia. The following are the critical factors analyzed by BERI index.

Political Stability

Russia has shifted to an authoritarian regime led by President Vladimir Putin. The government is accused of seeking legitimacy through foreign policies, populist appeals and managed elections with the aim of augmenting Russia's geopolitical influence (Index of Economic freedom, 2018). The political stand of Russia has led to the imposition of sanctions by various European nations. The same goes to the centralized authority system practiced in China under Communist Party General Secretary Xi Jinping. The political system in China has resulted in internal political enemies (Index of Economic freedom, 2018). Argentinian president Mauricio Macri is in pursuit of reformist agendas and has managed to reintegrate the nation internationally. However, he also faces numerous obstructions from the opposition-controlled Congress (Index of Economic freedom, 2018).

Economic Growth and Environmental Fitness

The decades of social and economic stagnation of the Soviet Union still affects Russia. The poorly implemented system of controlling financial systems plus sanctions imposed due to the illegal occupation of eastern Ukraine and annexation of Crimea has stagnated the potential growth of Russia (Economic Index, 2018). Russia's GDP is estimated at $3.8 trillion which is slightly higher than the UK. However, the five-year compound growth and per capita of the country are lower.

China is the world's biggest economy at $21.3 trillion GDP and a 5-year compound annual growth of 7.3%; however, its per capita remains below the world's average (Index of Economic freedom, 2018). Argentina's political and economic instability led to its drop from the world's wealthiest nations to having a GDP of $874.1 billion and a -0.2% 5-year compound annual growth (Index of Economic freedom, 2018).

Currency Convertibility

Currency convertibility makes it easier for citizens and international firms to trade, move capital internationally and invest. Argentina, Russia, and China do not allow the use of freely convertible currency even alongside their nation's currency. Therefore, the financial freedom in both countries is limited (Lucas Vincent Holding Limited, 2016).

Productivity

Russia. The productivity in Russia has been irregular over the past years. In 2017 the productivity of Russia increased by 1.5 percent following a decline of 0.3 in 2016. From 2003 to 2017 Russia's productivity is averaged at 3.15 percent (Trading Economics, 2018).

Figure 1: Russia Productivity from Trading Economics (2018).

China. The Chinese economy has been on a constant rise with the latest being an increase in labor costs from 104.6 to 104.8 in the third quarter of 2018 (Trading Economics, 2018). The increase in labor costs depicts higher productivity assuming there is sufficient demand in the labor market (Mertsina & Janes, 2012).

Figure 2: China Labor costs from Trading Economics (2018).

Argentina. The labor productivity of Argentina has been on a constant rise and fall since 2011. In December 2017 Argentina's productivity improved by 1.64 % YoY from the previous drop of 1.74 %. From December 1992 to December 2017 Argentina's averages at 1.6% (CEIC, 2017)

Figure 3: Annual productivity of Argentina from CEIC, (2017).

Short and Long-Term Loans

Short and long-term credits are two distinct elements of the BERI index. However, in this research, it is assumed that the strength of credit reporting per nation caters for both short and long-term loans. The loans depict the effectiveness of bankruptcy laws in facilitating lending (World Bank Group). Having secured transactions means that lenders are willing to provide loans as there is a guarantee that they can collect their debts or repossess the collateral without complications. Russia has the highest regulation rate of 80% meaning potential customers of Triumph motorcycles Ltd can acquire loans from lending institutions with ease when they need to boost their purchases. The higher percentage also means that Triumph motorcycles Ltd can acquire long-term loans quickly and in a less costly manner to facilitate their operations. China has a lending rate of 60% followed by Argentina at 55% (World Bank Group).

Balance of Payments

The balance of payments of financial accounts regarding Foreign Direct Investments (FDI) depicts a favorable business environment. Nations with a higher FDI means the government has allowed investments thus a lenient environment for a multinational. The FDI of Argentina was estimated at 11.517 USD billion in Dec 2017. Russia had a Balance of payment FDI of 2.6 USD billion in Jun 2018 while China's increased to 52.7 USD billion (CEIC, 2017).

Attitude Towards the Foreign Investor and Profits

Both Russia and China are strong states regarding global capitalism. However, the two have entirely failed to adopt the "Washington Consensus" which aims at allowing free trade, limited government regulation, freely floating currencies, and privatization of state-owned industries (Rutland, 2009). These models established by the Russian and Chinese markets limits the possibilities of entrance by Triumph Motorcycles Ltd. However, the union ideologies towards multinationals in Argentina have continued to shift over time due to the acceptance of international help in cases of emergencies (Guillen, 2000). Therefore, Argentina has lesser attitudes towards foreign investments compared to both the Russian and Chinese markets.

Nationalization

Most multinationals in China have communist party committees that access compliance with regulations especially as the government strives to invest in state-owned firms and control private ones (Balding, 2018). Just like China, Russia is also on the verge of nationalizing most of the private sector. Such controls limit the earnings of investment companies such as Triumph motorcycles Ltd as they stand to lose due to capital controls (DiChristopher, 2015). Nationalization practices in Argentina are limited with few domestic companies being controlled by the government (World Bank Group). Regulatory practices against private ventures have also increased in Argentina; however, the level of government interference is lower than in China and Russia.

Monetary Inflation

According to World Bank data, the rates of inflation in China at 2.0% are slightly favorable when compared to Russia (7.0%). Argentina has the worst monetary inflation rates among the three at 58.4%. The higher the inflation rates, the higher the costs of doing business in a particular country by Triumph motorcycles ltd.

Enforceability of Contracts

Enforcing contracts indicator measures a nations ability to resolve commercial disputes through a through a local court providing quality and efficient judicial processes (World Bank Group). Nations with a higher contract enforceability index offer an ideal environment for business. As of May 2018 the contract enforceability index of Russia, China and Argentina were 72.66, 78.97, and 55.66% respectively (World Bank Group). The latter depicts that China offers the best chance of solving business conflicts than the rest.

Local Management and Partner

First time entrance requires the assistance of local management and partnerships or an organization for success in foreign markets. Argentina offers the least possibilities of acquiring domestic partnerships due to its limited investments in Automobile and assembly industry. China and Russia are both highly industrialized nations. However, the vast use of motorcycles in China increases the potential of finding experienced local partners.

Bureaucratic Delays

Bureaucratic delays entail regulations and red tape that makes it hard to start and run a business. The regulation may involve government pressure to fix prices, slow service in areas controlled such as electricity, gasoline, and water (World Bank Group). These procedures increase the number of days on...