PESTEL analysis and diamond theory of Cambodia

September 13, 2017 Commerce

As a consequence of a world-wide competition being planetary is going more of import for the companies. One good cause for the endless competition harmonizing to Daniels & A ; Radebaugh ( 1998 ) is that the planetary market is non big plenty for all the companies. Anderson et Al ( 1998 ) argue that the internationalization is being more of import due to borderless universe.

Harmonizing to Daniels and Radebaugh ( 1998 ) , there are several grounds for administrations to come in the planetary market today. The really first ground for traveling planetary is to spread out gross revenues. Gross saless dependent on two major factors: consumer ‘s involvement in goods and services and the willingness or ability to purchase those merchandises. If there ‘s a lucifer of those two factors outside their place state, companies can acquire higher sale traveling planetary. Second factor is to get resources, when there is deficiency or unequal resource in the place state ; companies tend to travel into planetary sphere where they can seek out resources which can besides assist them cut down cost and acquiring competitory advantage. Third but non the least is for understating the hazard, diversifying beginnings of gross revenues and providers by operating in different states and different concern rhythms, helps concerns to cut down swings in gross revenues and net income. Gross saless ever decrease or do n’t turn much in a state that is in recession and gross revenues additions in one that is economically spread outing. Example of Nestle in early 2000 shows that their gross revenues was sulky in Western Europe and United States but the growing in Asian, Eastern European and Latin American market was rather fast.

Bing in Apparel Industry of USA, it is really indispensable to make some research and survey for happening out which state to choose or which state is much better for the industry to run swimmingly and can give good returns. There are two known environmental factors which can impact the company, Internal and External. Internal environmental factor, to some extent can be controlled by the company being a internal one whereas the external environmental factors ca n’t be controlled by the company itself. Such factors under external environment are Political, Economic, Socio-Cultural, Technological and Legal. So before choosing any state, it is necessary for carry oning survey on the assorted external environmental factors that may impact the company or can do negative impact. We have been proposed two different states Turkey and Cambodia, where the Apparel Industry wants to spread out its footmark. In order to acquire a clear image for choosing the best state that is much suited for enlargement, PESTLE analysis and Diamond Analysis are more helpful strategic direction tools we have that provides utile model to analyse the environmental force per unit area on concern.

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PEST Analysis of Cambodia

POLITICAL & A ; LEGAL: Cambodia is one the developing states of South East Asia, holding constitutional monarchy with a multi party democracy and an elective authorities. No party got the proper bulk in the elections held in July 2008, therefore formed a alliance authorities. The fundamental law written in 1993 helped the state for a stable political environment in comparing of past decennaries of war and internal discord. Diplomatic dealingss with most states have been established including the US. Cambodia has a rank of most major international administrations like UN, ASEAN, ADB, IMF, The World Bank and WTO. US-Cambodian bilateral dealingss have been deepened and broadened in past old ages. US has helped the state about $ 62 million through assorted USAID mission public assistance plans.

Economic: Cambodia has a GDP ( 2009 ) of $ 10.8 billion, Per Capita GDP ( 2009 ) of $ 731 and rising prices ( 2009 ) of 4.5 % . Garment, Textile and shoe fabrication, rice milling, baccy, piscaries and fishing, wood and wood merchandises, cement, gum elastic, documents and nutrient processing are major industrial sector of the state which hold 21.7 % of GDP ( 2009 est. ) . State has been able to export deserving $ 3.9 billion in 2009 to its major spouses like US, UK, Germany, Singapore, Japan etc. and has imported fuel, coffin nail, vehicles, consumer goods, machinery deserving $ 5.4 billion ( 2009 ) .Sound macroeconomic policies, political stableness, regional economic growing and authorities openness ( 100 % portion keeping FDIs allowed ) towards the investing has attracted turning figure of investors, due to which FDI has increased 12 crease since 2004. Garment and touristry are the key industry which drove the state ‘s economic system holding sustainable 10 % growing during 2004-2007. In 2009 during planetary recession, it was near nothing, but is considered that it will derive the impulse once more in 2010. Infrastructure are non equal, nevertheless route webs are bettering quickly. Corruptness and deficiency of legal protection for investors are the two chief grounds which may halter economic chance and fight.

Socio-Cultural: Population of Cambodia ( 2008 nose count ) is 13.4 million and 95 % of those have faith in Theravada Buddhism and rest Islam, Christian etc. State is a mixture of 90 % Cambodians, 5 % Vietnamese, 1 % Chinese and others 4 % cultural groups. Cambodia has a literacy rate ( 2007 ) of 75.1 % and Khmer is a first linguistic communication spoken by 95 % of population and English is increasing as a 2nd linguistic communication. Cambodians chiefly eat rice and fish and they are known for silk and cotton weaving, Ag work, Ag and gold jewelry and basketry. Garment industries largely comprise of female employees and the labor cost is really low $ 50 – 80 per month ( NPRS PRF article ) . Turkey has the labour force ( 2003 est ) of 7 million. Police and judicial systems are believed to be corrupt.

Technology: Cambodia is manner behind in their technological sector. As most of the FDIs have entered the state, they have besides brought their ain engineering with them, so possibility of spill-over of the technological cognition to the state can be seen.

PEST Analysis of Turkey

Political & A ; Legal: Turkey is a big and republic state holding democratic, secular and parliamentary authorities system. Its first fundamental law was written in 1982 and was amended in 1987, 1995, 2001 and 2007. Referendum of October 2007 has made president more strong and powerful and the president is elected straight by voting. The political relations and authorities of Turkey is considered to be stable.

Economic: Turkey has a GDP ( 2009 est. ) of $ 608 billion and GDP per capita ( 2009 est. ) of $ 8,456. Inflation rate ( 2009 November ) is 5.53 % . Turkey had exported ( 2009 September ) of $ 73.1 billion which comprises of fabrics & A ; apparel industry, machinery, electronics, motor vehicles etc. and imported ( 2009 September ) worth $ 99.9 billion of crude oil, machinery, vehicles, electronics, Fe, steel, plastic and cherished metals. Turkey ‘s economic system is traveling from agricultural & A ; industrial to big and globalised services sector. It has opened its economic system in 1980s and besides signed imposts brotherhood understanding with the European Union in 1995, and Turkey is besides working hard to acquire the rank in EU. Alternatively of economic downswing, high unemployment rate and high rising prices during 1990s, in the twelvemonth 2001 it started retrieving faster since so with an norm of 6 % per twelvemonth due to the aid and support from IMF and The World Bank. Turkey ‘s economic system has already attracted $ 18.3 billion net FDIs in 2008. However there are several differences with the investors sing high revenue enhancement, it has a figure of bilateral investing and revenue enhancement pacts as good with many states including the US, which has guaranteed free repatriation of capital in exchangeable currencies and extinguish dual dealing.

Socio-Cultural: Turkey has a population of 76.8 million. Turkish, Kurdish are the major cultural groups of which 99 % are Muslims and remainder of them are Christian, Bahai and Jewish. Peoples in Turkey speak Turkish, Kurdish, Arabic, Armenian and Greek and has a work force of 24.4 million and 70 % of the population live in urban countries of the state. Turkish jurisprudence prohibits the labor of kid under 15 old ages of age, nevertheless if they are 13 & A ; 14 and are enrolled in school can make light and portion clip work.

Technological: Turkey has assorted research establishments and administration which are focused on R & A ; D along with many ancient Technical universities which is profiting the state in promotion of engineering such as telephone lines, nomadic phones, wireless Stationss, telecasting Stationss and Internet. Turkey is celebrated for its telecommunication development.

Possible Impact of the environmental factors

PEST analysis reveals that there lie some similarities and some differences in each of the environmental factors of both the states. We may analyze that politically at the minute both Cambodia and Turkey have stable authoritiess even if they had force and perturbations in the political state of affairs of the state in the yesteryear. Both the states have maintained good relationship with the United States and have besides invested a batch in both states. Both have unfastened economic system leting other states to come and make concern in their state utilizing their available resources such as land labor etc. Having a stable and sound political environment is ever a blessing for both the host and the place state for get downing any concern.

Economic analysis reveals that Turkey is manner in front than Cambodia. GDP of Turkey is 60 times bigger than Cambodia, which means there is a sound economic environment for making concern. If we have a expression on the exports and imports sector, Turkey is making reasonably good. From the dress industry ‘s point of position, in both the states, Garment and Textile industries are booming since long clip and hold aided the economic system of both the states with positive consequence. As we can see that the figure of FDIs in Cambodia have increased really dramatically ( 12 fold since 2004 ) in really short clip, it may be due to the ground Cambodia due has a really low cost labor. Besides, Turkey has been able to pull a batch of FDIs in their state. Turkey has signed imposts brotherhood with EU and besides has bilateral pacts with US, it may assist Apparel industry to hold much competitory advantage. Having sound and stable economic system is really much helpful for any concern who wants to spread out and in these standards both states have 50-50 opportunities of choice.

Socially and culturally, both the states are really different. Cambodia is considered as a Buddhist state and Turkey has 99 % population of Muslim faith. Peoples in Turkey are much educated or have higher literacy rate than Cambodia.

Technological environment has besides got much difference in both the states. Turkey in comparing to Cambodia is much advanced. In Cambodia, the FDIs which have started their operation are reassigning their technological cognition to the state, whereas Turkey has developed much in telecommunication and fabric industry. Turkey used to import the textile machinery from Germany, but late they have begun fabricating on its ain from little to medium sized companies involved in fabrication. Harmonizing to German Engineering Federation Textiles Machinery Association, German fabric machinery exports had gone down by 62 % in 2008 as compared with 2007. So, we can see the development in engineering in Turkey is much more than Cambodia.

Porter ‘s Diamond Theory:

We can utilize the Diamond theoretical account of Michael Porter to measure the viability of both the states. Classical theories of international trade and concern propose that comparative advantage prevarication in the factor gifts that any state has got. Those factor gifts include, Land, Natural resources, labor and the size of local population. Porter argued that a state creates new advanced factor gifts such as skilled labor, a strong engineering and cognition base, authorities support and the civilization. Porter ‘s diamond theoretical account consists of four major facets 1 ) Factor Conditions 2 ) Demand Conditions 3 ) Related and back uping Industries and 4 ) houses scheme, construction and competition which creates competitory advantage amongst the states and now there are two extra variables 1 ) Government and 2 ) opportunity besides act upon the system.

Factor of status: It represents the place of factor of production, input which is necessary to vie in any industries, which are Land, Labour, Capital, Infrastructure, Natural resources etc. Appleyard and Field ( 2001 ) argue that all the classical theories in trade remainder on the factors of production for illustration Adam Smith ‘s absolute advantage, David Recardo ‘s Comparative advantage and Hechesher-Ohlin theorem etc. If we compare Cambodia and Turkey, Turkey has the competitory advantage over Cambodia due to these factors of productions discussed supra. Turkey is a big state, have immense population, immense work force ( unskilled and semiskilled ) , good substructure and more capital than Cambodia, so Turkey additions the high precedence for any concern willing to travel planetary.

Demand Condition: It represents the demand status for the industry ‘s merchandises or services in the local and planetary market. As it is revealed through PEST analysis, that both the states are making reasonably good in fabric and garment industry, pulling and promoting the investors to come and put because there is a immense demand of this industry worldwide, because of the inexpensive labor in Cambodia and Location factor of Turkey. Both states are different in making demand conditions. Turkey has got immense potency than Cambodia.

Related and Supporting industries: Third determiner of national advantage in an industry is to hold providers and related industries which can give the industry a competitory advantage. If local back uping industries are competitory, any concern can bask the cost effectivity. Scaning both the states, we can happen out that, Cambodia has least back uping industries than of Turkey. Turkey is developing and has many textile machinery makers presently, if concern demands, they do n’t hold to look outside the state and besides they can salvage much cost over it which gives some competitory advantage of low cost leading in comparing to the states where concerns have to import the machinery at higher cost and revenue enhancements.

Firm ‘s Strategy, Structure and Rivalry: As this factor clearly says that, scheme of concerns runing in the state, its construction and the competition or competition amongst them creates competitory advantage of the state. While making PEST, we saw the tendency of FDIs traveling to both the state is really much increasing, therefore, this factor is turning. Assorted international houses runing there are learning the states how they do concern back place, which is adding something to the state. Both the states are larning from the investors. The immense attractive force in the garment, fabric and dress industry has besides increased competition among the concerns, which is considered good because it increases force per unit area to better and introduce on what they are making, which helps state to acquire advantage. We can happen out that Turkey is dominant in this factor than Cambodia.

Government and Opportunity: Opportunity events are developed in the period of clip by new inventions, new engineerings, positive political developments and displacements in foreign demand, where any state can capitalize utilizing this opportunity to acquire the competitory advantage amongst the state. Government on the other manus is besides every bit of import to be considered because it can better or take away from the national advantage due to the policies which may act upon ( negative and positive ) on each of the determiners of diamond theoretical account discussed supra. In the instance of Cambodia and Turkey, both the state ‘s authorities are interested in pulling more FDIs in their state and have opened their economic system which we can see in the GDP growing rate of both states reflect it and can compare the two states which one is more attractive.

Market entry manner for foreign concern:

Making determination of how to come in the market or the state for concern is so important and can hold important impact on the concern. There are assorted manners of entry into international selling such as the Internet ( usage of cyberspace or e-commerce ) , Exporting ( direct sale of domestically produced goods ) , Contracting, Licensing, International Agents and Distributors ( usage of distributers for selling goods ) , Strategic Alliances ( fall ining manus with the rival ) , Joint Ventures, Amalgamations and Acquisitions, FDIs etc. Some of them are discussed below and we will analyze which manner will be much suited for our dress industry to come in both Cambodia and Turkey.

Licensing: This entry manner permits a company in the mark company for utilizing its engineering, trade name, expertness, where the administration charges a fee or royalty for that usage. Licensor has to put really small, but it has got a immense potency of supplying really big return on investing. Licensing includes franchising, prison guard contracts and contract fabrication. We can hold illustrations of franchising scheme applied McDonald ‘s eating house, Coffee Republic and Dominos Pizza come ining into the mark state.

Joint Ventures: In this entry mode foreign concern selects a local concern and invests some portions in it. Making so, both the houses portion the hazard and the wagess while making concern, their engineering and the authorities ordinances and other legal duties imposed in the state. In some states there is a legal demand to hold local spouse to make concern by any foreign company with limited figure of portions.

Foreign Direct Investment: In FDI, concern has the direct ownership of installations in the mark state. They open entirely new subordinate ( Greenfield investing ) or they can utilize Merger and Acquisition scheme. In this they have to reassign their resources such as capital, engineering and the skilled forces. In this sort of entry manner, concern has a high grade of control in the operations.

Best entry manner:

Kampuchea:

As we did the PEST and Diamond analysis of the state, we can see assorted factors that may impact the operation of the concern. Kampuchean authorities are flexible plenty to acquire the foreign concern to come and get down up a concern and the foreign and local dress and fabric industry are besides booming in the state due to the low cost labor available in the state. For Cambodia, we can hold a licensing manner of entry ; because there are still many things need to be improved in the state such as labour accomplishments, authorities financial and pecuniary policy, substructure and engineering. If the concern adopts the licensing entry scheme, concern will hold less hazard due to assorted factors like, linguistic communication job, exchange rate hazard, labour duties, and authorities ordinances.

Turkey:

For Turkey, we can suggest the FDI signifier of entry in the market. Alternatively of opening a entirely new subordinate, company can believe of geting or unifying with the local house already established and making considerable concern, which will assist the company to derive the bing clients, market, endowment of the company. As we have seen the tendency of FDI traveling to Turkey, which has increased enormously in the recent old ages, because of the less hazard and the market is turning tremendously in comparing to the neighbouring states and the demand for dresss and fabrics produced in Turkey is besides rather high so the company will non hold to put much of their clip to make the environment as it is already created. Government is besides flexible plenty for the FDIs and the political stableness will assist, pool of skilled labour handiness will besides assist cut downing cost of reassigning the cognition from US to Turkey where as it is rather high in instance of Cambodia.

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