Expansion Potential of Triumph Motorcycles in China

In any business organization, the primary focus is placed on the enhancement of streamlined growth and operational effectiveness as well as increasing profitability. However, in order to achieve the short-term and the long-term goals, a corporation must critically consider the challenges, advantages, as well as disadvantages of opening or closing outlets in a region. For instance, the closure of a store or establishment of an outlet in a region can either bring immense losses or huge benefits depending on the consideration that managers give to labour, workforce interests and financial resources. Moreover, the procedure of identifying the outlets to close or strategic locations for expansion may be expensive and overwhelmingly difficult. Triumph motorcycles company directors are eyeing an expansion strategy of their business operations through identification of three possible nations that are viably positioned for optimal global success in their competitive industry. Therefore, this report will help to identify the best nation for the endeavour via the provision of information through the SMART model decision-making technique while focusing on the expansion potential in China, Argentina and Russia.

    China

            In this section, a focus on the Chinese market will be investigated through analysis of potential business growth factors that may promote expansion of the enterprise such as the technology, workforce and operational costs.

            Workforce and Demography

            A country’s demographics is a critical indicator of the availability of skilled workforce and labour which is evidently a critical factor in corporate expansion and movement of operations to new countries. Essentially, China is the most populous nation in the world with a documented growth rate of nearly 0.41 per cent.

Age

Percentage

Gender

0-14 years

17.15

Male 127,484,177

Female 109,113,241

15-24 years

12.78

Male 94,215,607

Female 82,050,623

25-54 years

48.51

Male 341,466,438

Female 73,441,177

55-64 years

10.75

Male 74,771,050

Female 73,441,177

65 years and over

10.81

Male 71,103,029

Female 77,995,969

            Table adopted from  (Lim and Cowling, 2016).

            From the table, the median age is approximately 37.4 years and the dependency ratio is at 37.7.  Also, there is an apparent source of the ready workforce since the greatest populations are aged between 25 to 54 years (Lim and Cowling, 2016 p. 90). With such a dependency ratio, there is a great attraction of local and foreign investors due to sustained economic growth. Such is contributed to by the low population of ageing people which translates to a high supply of both semi-skilled and skilled labour in the Chinese market (Bremmer, 2017 p. 42; Ding, 2017 p. 90).

            Cost of Operations

             In a foreign state, the cost of operations within an enterprise entails direct costs of personnel and premises as well as indirect expenses that bear significant effects on the bottom-line and productivity of a company. In China, a hostile foreign policy against the USA has elicited fear among US-allied companies in the country due to increments in the cost of operations. For instance, the introduction of mandatory Social Insurance Law among foreign corporations has serious cost implications among these companies since they are obligated to contribute towards China’s social insurance scheme (Bremmer, 2017 p. 42). Moreover, there has been an introduction of PRC state administration of taxes where corporations pay for construction duties as well as education and urban maintenance. Such developments have affected foreign investments tremendously through an augmented cost of operations. For example, government levies in maintenance and construction tax are put at 7 per cent, 5 per cent and 1 per cent in urban regions, towns and districts respectively. As a result, foreign companies bear increased expenses which makes it hard for foreign companies to penetrate the market and exploit the huge demand of Chinese people.

            Technology

            There have been progressive advancements of technology in Chinese enterprises which have led to growing acclaim of the high quality and expertise among global consumers as well as more positive recognition of items that are made in China (Wolff, 2007 p. 556). This development has been facilitated by the acclaimed commitment of the country towards technological improvements and the state’s cutting-edge innovation drives as well as the production of high-quality products and available indigenous brands (Tang and Popp, 2006 p. 198). Additionally, close to two-thirds of the Chinese institutions of higher learning have concentrated on training in technology and innovations while the government has continually commercialized developed technologies. Such incentives promote the opening of new enterprises in the country due to a higher guarantee of product quality.

Russia

            Workforce and Demography

            Russia is one of the most populous states in the world with a -0.08 per cent growth rate in its population. Additionally, the dependency ratio is at 43.5 while the median age of the population is 39.6 years.

Age

Percentage

Gender

0-14 years

17.12

Male 12,509,563

Female 11,843,254

15-24 years

9.46

Male 6,881,880

Female 6,572,191

25-54 years

44.71

Male 31,220,990

Female 32,375,489

55-64 years

14.44

Male 8,849,707

Female 11,693,131

65 years and over

14.28

Male 6,352,557

Female 13,958,757

            Table adopted from (Berman, 2013 p. 07).

            From the table, the population between the ages of 25 and 54 years constitute the highest population ratio hence there is a ready supply of the necessary workforce for both local and foreign companies (Berman, 2013 p. 07). Therefore, despite the high dependency ratio that indicates a slow economic growth rate, a low composition of the ageing population in Russia indicates a big productive population capable of supplying semiskilled and skilled labour to enterprises.

             Cost of operations

            Due to the recent deterioration of the Russian-USA relationship, there has been an introduction of a strong reform momentum in Russia which has increased the cost of setting up a USA-based company in the country. Disagreements during the Syrian crisis has driven upwards the cost of operation of US businesses in the country due to worsened international relations. For example, in the last few years, there has been an increment of regulatory restrictions targeted towards investments owned or operated by Americans (Ershova, 2017 p. 152). Consequently, there have been reports of regulatory amendment threats and unplanned inspections of foreign enterprises targeting established organizations which may change their administration from regional to federal and therefore affect the labelling requirements. Furthermore, the ripple effects of the recent economic crisis have forced the government to institute conservative state programs that partly disregard financial restructurings leading to a detrimental collapse of energy prices. Such developments have impacted negatively to foreign investments through undermining of the business environment and slowing opportunities for long-term growth. As a result, there has been a worsening state of revenue collection by the Russian administration which may take a while to recover. In this way, there has been a significant alteration of businesses run by multinational companies through effects on the operations and marketing undertakings on their brands. Accordingly, such government harassment and regulations on US-based companies have increased the cost and hardened setting up o foreign businesses in Russia.

            Technology

             After years of stagnation, Russia currently boasts of a substantial heritage of academic and innovational developments towards technological advancements (Golovanova, 2017 p. 29). The recent passing and implementation of supportive bills by the government have helped foster diversity and economic expansion by promoting technological dynamism which increases the productivity of both foreign and local companies. The number of scientific research institutions has also increased over the last few years. In a bid to build the emerging technologies profile, Russia has maintained dedication towards the development of nuclear, space and defence technologies. Furthermore, there has been a great pool of engineering and IT talents and skills which has been witnessed since late 1990’s and grown steadily thereafter. To increase innovations and discoveries there has also been a growth in internet connectivity due to policy incentives from the government. Moreover, good infrastructure opens up markets and encourage investments and foreign businesses.

Argentina

            Workforce and Demographic Information

Age

Percentage

Gender

0-14 years

24.59

Male 5,612,766

Female 5,278,857

15-24 years

15.28

Male 3,460,276

Female 3,307,227

25-54 years

39.38

Male 8,707,818

Female 8,733,370

55-64 years

9.13

Male 1,963,923

Female 2,081,796

65 years and over

11.62

Male 2,159,811

Female 2,987,449

            Table adopted from (Alzúa, Gasparini and Haimovich, 2015).

            From the table, the median age is approximately 31.7 years, the dependency ratio is 56.5 while the growth rate is 0.91 per cent. Consequently, the country is capable of providing foreign companies with the needed skilled and semi-skilled workforce due to a high population of people between the ages of 25 to 54 years. However, the high dependency ratio in Argentina is likely to affect the progress and economic growth in the long-term. Also, the ageing population is low which indicates the presence of large numbers of young and highly productive people in Argentina who are considerably capable of supplying the necessary semi-skilled and skilled labour required in the market by the foreign investment corporations (Alzúa, Gasparini and Haimovich, 2015 p. 1823).

            Cost of Operating Business

            In Argentina, the government has been keen on encouraging foreign investments through the implementation of policies that are aimed at fostering economic growth (Thomas, Fressoli and Becerra, 2012 p. 580). However, the high corporate tax of 35 per cent limits the profitability of businesses in the country thus hindering foreign investments in the country (Ramirez, 2015 p.22). Furthermore, the high taxes which are imposed on businesses are higher than in most countries including the US and are attributable to the slow economic expansion of 0.4% as well as minimal foreign investments in the country.

             Technology

            Over the last one decade, Argentina has lagged behind in technology as compared to the developed nations such as USA and Russia (Thorn, 2005 p.05). However, in an endeavour to develop a high tech country, the government has embarked on immense support to technological and engineering developments through education and research(Gras and Hernandez, 2016 p. 677). This endeavour has led to notable increases in economic expansion over the recent years due to advancements in technological

 innovations and continued support towards scientific developments. Therefore, Argentina presents a globally lucrative and attractive investment destination for foreigners mainly from America and Europe.

Country Selected

            Based on case evaluation of the three countries using the SMART model, it is prudent for Triumph Motorcycles directors to favourably consider expanding their business operations to China. Evidently, China has a lower dependency ratio of 37.37 per cent accompanied by a higher number of working population as compared to the other two countries. This means that there will be a higher availability of labour as well as well as relatively lower costs of operation as compared to Russia or Argentina. Moreover, the high corporate tax levied upon enterprises in Argentina are prohibitive to business ventures as compared to the relatively lower Chinese rates. Also, whereas operating a foreign enterprise in Russia would be cheaper than China, the rising diplomatic hostilities between the country and the US has led to harassment of US-based companies would be unfavourable for business. Furthermore, China has had phenomenal technological advancements that have occasioned world renowned transformations in science due to immense investments of the Chinese government through funding and incentives aimed at supporting the growth of science and innovation while promoting business undertakings.

Conclusion

            In conclusion, the consideration by Triumph Motorcycles directors should favour the opening of outlets in China due to the availability of advantages such as low operational costs and cheap labour as compared to expanding to Argentina or Russia. Moreover, the technology available in China is more developed than in other countries which is an added advantage in promoting numerous opportunities for growth of the business.

References

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