SMRT Corporation Limited (SMRT) is a Singapore based multinational company, which operates as a multi-modal public transport business. Its transport network comprises of mass rapid transit and light rail systems that serve as a platform of connection for its taxi and bus operations (SMRT Corp Ltd 2014, p. 1). In terms of its operating system, the company provides rail services, public bust transport, taxi services that enables its customers to acquire services in the form of taxi rentals, taxi hires and leasing commercial spaces. Furthermore, the company also engages in the sales and management of media spaces, engineering, and marketing and e-commerce activities (SMRT Corp Ltd 2014, p. 1). In these activities, the company provides consultancy, leasing of fiber optic cables, project management services and rail engineering services. Additional services that the Singapore based multinational company include charter hire services, maintenance and repair services, and investments holding and support services (SMRT Corp Ltd 2014, p. 1).
The main objective of this report is to assess the expansion initiative by SMRT into Thailand. This will be through an assessment of different environmental aspects that define the ability of the company to invest and operate in Thailand. Furthermore, the report will also assess the expansion initiatives in relation the four risks of internationalization. In terms of environmental analysis, the report will focus on SWOT analysis of the company. Furthermore, the report will also focus on the entry strategies that the SMRT can use in expanding its operations into Thailand. These strategies will be aimed at ensuring that the company improves in terms of its market share, customer base, and competitive advantage. The report will also provide an in depth assessments of the implementation of the entry strategy in ways that guarantees success to the business.
These entail situations where elements of cultural miscommunication interfere with the ability of businesses to undertake essential stapes in realization of business objectives on the international platform. Cross-cultural differences are inclusive of language barrier, existing societal norms, and values (Paul 2011, p. 225). The official language of communication in Thailand is Thai. This may prove to be challenging for SMRT considering that the transport sector requires constant communication with customers. One of the possible remedies that would enable SMRT to ensure success in terms of integrating its services into the Thai market would be by embracing simple English, which is a commonly spoken language among business people (Cherunilam 2010, p. 268).
The prevailing culture among the Thai plays an essential role influencing the nature and success of business dealings. Despite high-level tolerance to different behavior among the Thai, politeness and respect are considered as some of the most essential aspects. In terms of religious beliefs in Thailand, about 94% of Thai citizens adhere to the principles of Buddhism, which require that they minimize tendencies towards conflicts and respect the authority (Paul 2011, p. 227). Along cross-cultural lines, Thailand serves as one of the best destinations for the expansion initiatives envisioned by SMRT in the country due to the relative peace arising from cultural norms and values (Paul 2011, p. 226).
These political risks may adversely affect growth and development of a company in terms of aligning its operations to satisfy the intended objectives of the company and realization of profits (Cherunilam 2010, p. 269). The possibility of realizing these developments are one dependent on the political, economic, and legal environment prevailing in a foreign country. When Thailand is evaluated in terms of country risks, it is important to note that the government has often operated on the belief that an open, laissez fair economy would provide an environments which attracts foreign investors into the country (Currie 2011, p. 70). Through the initiatives of the board of investment (BOI), the government of Thailand uses six essential sectors as priority areas in the development of the country. One of the areas is the promotion of foreign investments in ways that improve on the levels of national competitiveness by encouraging initiative such as innovation, research and development, value creation and the improvement of the service sector (Currie 2011, p. 66). The government also encourages foreign investments aimed at investing in areas that promote energy saving and environmentally friendly activities. The promotion of special economic development goals are ways of creating economic connectivity among countries in the Asian region (Currie 2011, p. 66).
When the country is assessed with regard to the risks of restrictions or prohibitions of foreign investments in certain areas of business, it is possible to note that Thailand does not have any international sanctions, as a member of the World Trade Organization. Thailand has been able to demonstrate its commitment towards reduction and elimination of tariffs on different products considered essential in benefiting international businesses operating within the country (Currie 2011, p. 66).
Politically, Thailand is ruled by a military government which sized political power through a coup d’ etat in 2014. Despite the secure authority of the military government, that country is relatively under tension arising from decades of political unrest (Simpson 2014, p. 55). The tension together with the volatile political history of the country necessitates the creation of some form of unrest in terms of the ability of the government to create a politically peaceful environment for international businesses to ensure successful operations (Simpson 2014, p. 55).
These entail the financial risks that can be incurred when a country is faced by adverse variations in its exchange rates. The risk of currency fluctuations especially for international businesses is that it has the ability of reducing the value of firm assets. Furthermore, the growing interconnectedness between countries means that any form of inflation in one country has the risk of affecting growth of other national economies. According to the 2014 forecast on the Inflation rate in Thailand by the Bank of Thailand, the country was at 2.2%. The highest inflation rate the country has experienced since 2011 was the 3.8% inflation rate in 2011. In terms of financial performance, eh country has a relatively stronger currency (Currie 2011, p. 70).
Despite the general welcoming of investors to Thailand, the country also exercises certain sectors that the government through its legal privileges has been able to subject to equity restrictions. Furthermore, the country also provides regional tax incentives to foreign investors. For instance, in Thailand, incorporated international companies that provide managerial, technical and support services are provided with tax privileges such as ten-year tax exemptions on corporate income tax (Simpson 2014, p. 55).
This refers to the potential loss that a company is environed to experience due to poor management or execution of strategies. These include activities such as failure by the management to make effective decision in areas such as pricing of products or services and in the selection of effective business partners (Simpson 2014, p. 57). In Thailand, this is considered a risk because of the prevailing rules, cabinet policies, and regulations, which are governed by the Foreign Business Act of 1999 (FBA). According to this Act, other than the acquisition of an operating license from the ministry in charge, Thais must own about 40% of the company. An addition about two-fifth of the managing directors should be Thai nationals in foreign companies (Simpson 2014, p. 58). The involvement of the Thais in matters of management is both advantageous and disadvantageous to foreign businesses seeking to expand into Thailand. In terms of the advantages, the business will offer relevant and tailor made gods and services which meet the interests of the citizens in Thailand. In addition, it will also act a source of employments to the citizens of Thailand and a source of revenue to the government of Thai hence enabling effective economic development. In terms of the disadvantages, it will be relatively difficult for a foreign company to exercise control in terms of the realization of its objectives because the Thai nationals will be part of the decision making process. Government interference may also affect the ability of the business to realize its commercial goals (Paul 2011, p. 227).
SMRT has proved to be a reliable company in the provision of effective transport marketing and technological services in Singapore. This is especially with regard to the highly regulated rail and road transport. In Singapore, bust and train fares are under high regulation of the Public Transport Council (PTC). The company has also been able to experience success terms of profits in the highly competitive transport sector in Singapore. This is an indication of a reputable and highly reliable brand (SMRT Corp Ltd 2014, p. 15).
The operations of the company are results of decisions made by a highly qualified and experienced board of directors and management. This has enabled the company to be a leader in the rails transport within Singapore and the development the development of expansionist in the neighboring Thailand (SMRT Corp Ltd 2014, p. 15).
The company operates in a labor-intensive transport sector, which is highly susceptible to changes in wage cost, and this may affect the ability of the company to realize its organizational objectives (SMRT Corp Ltd 2014, p. 15).
The regulation of fares charged on customers by the different authorities in Singapore and in countries such as Thailand threatens the success of the business on the international platform.
An additional weakness is that the transport sector is defined by the availability of fuel energy whose fluctuations in terms of process affect the ability of the company to realize its intended objectives on local and international markets (SMRT Corp Ltd 2014, p. 15).
The development of standardized road and rail infrastructure provides the company with an opportunity of engaging in additional investments across the Asian region. Existing foreign investment polices in Thailand, which allow foreign investors into the country provides the business with a platform of expanding its business initiatives into Thailand. Existing partnership opportunities in neighboring countries such as Thailand provide a platform for the development of road and rail infrastructure, which are integral for growth, and development of SMRT across the international borders (SMRT Corp Ltd 2014, p. 15).
The highly regulated transport sector in Thailand and Singapore creates an assumption that it is possible for the company to lose its license to operate any of its services. Relatively heavy fines imposed by the regulating authorities where there are service lapses especially in the rail industry threaten the success of the business. There are relatively higher costs to be incurred for the company to realize minimum service standards. Political instability in Thailand threatens the ability of the business to realize success due to unpredictable business environment (SMRT Corp Ltd 2014, p. 15).
SMRT considers Thailand as an international market with the potential of ensuring that the company experiences improved profit margin, market share and customer base in the transport, networking and marketing industry. Thailand is an emerging and newly industrialized market and this makes it one of the best destinations for the service industry. In terms of entry into the market, licensing provides one of the best alternatives with limited degree of risks. Licensing will provide SMRT with an opportunity of protecting its legally acquired assets which as integral in the establishment of a competitive advantage in the market (Arnold 2003, p. 2). For instance, SMRT is considered a successful brand in Singapore due to is ability to provide efficient transport, marketing and networking services in a highly regulated environment. By licensing its brand name to transport, marketing and networking companies in Thailand, SMRT will develop a low intensity approach of entering the Thai market. This will also provide a more effective way of engaging in the development of Thai economy through an integration and alignment of its services to those existing in the county.
Through a licensing arrangement, it will be possible for the company to allow different trains, and taxi services to acquire the brand name of the company in ways that will be tailor made to suite the local taste and preferences of that target customers (Arnold 2003, p. 2). This is often with regard to the minimization of the possibility of losing customers or experiencing reduction in its profit margin or failure to realize the intended goal. The role of the local licensee is to design the services in ways, which accommodates the interests of the licensing company (Ehrmann 2013, p. 86). Through licensing, the company will therefore have created a platform of channeling its interests and desires into a foreign country using already established partners in the target market. Licensing is therefore a less complicated and high beneficial approach towards the realization of company objectives in a foreign market (Arnold 2003, p. 2).
An additional advantage to this approach towards entering the market is that despite the relatively low level of local involvement as necessitated by the international company, the business is essentially local since its assumes the shape of the already existing business despite operating in a foreign brand name(Arnold 2003, p. 2). This means that barriers to importation such as tariffs and regulations are not applicable to such a business. It also enhances the position of the company with regard to the requirements of the marketing mix. According to the element of place in marketing mix, strategic location of a business will determine its ability to attract and retain customers (Ehrmann 2013, p. 87). Already existing businesses in Thailand will provide SMRT with an effective platform of identifying high traffic areas since they have an understanding of the local demographics in different regions in Thailand.
In terms of the benefits acquired by the creation of partnerships across international borders, the decision by SMRT to enter Thailand through licensing will also improve on the ability of the Thai businesses in the service industry to operate in accordance with the international standards. This is because SMRT, being the international licensing company will provide the licensee with that patent rights and expertise of the activities that define the operation of the company (Thai et al 2014, p. 75). In return, the licensees will be charged with the responsbility of providing the services to the target market in Thailand, marketing these services, pay for the royalties and fees charged on the licensor. In Thailand, the decision by international companies to expand their businesses into the country through licensing is considered beneficial because it improves on the technological and human resource capacity of the country. This is because the licensing company will only enter a market in which it seeks to improve on the existing services as a way of improving on its competitive advantage.
Despite the perceived advantages of this approach to entering a foreign market, licensing is disadvantageous because it allows for relatively low levels of marketing controls hence increasing the risk that it may create future local competitors in the target market. The excellence of SMRT in the transport, networking and marketing sectors is in its ability to provide highly effective services to their customers (Thai et al 2014, p. 75). By licensing the business to operate in Thailand through local businesses, SMRT will be potentially at the risk of losing the market if the licensees break away from the agreements and begin offering similar services in accordance with the standards of the company. This is considered as an inevitable action because the international licenser has an obligation of demonstrating to the licensees the superior nature of its services for it to be operational in the target international market. This makes it important to note that the decision by SMRT to enter into Thai market through licensing will be based on the existence of a continuous stream of innovations in the service sector to ensure that it maintains its competitive advantage internationally.
SMRT is a Singapore based business seeking to expand its services into Thailand. The business seeks to use licensing as an approach that will enable a low intensity and less involving approach into the introduction of its services in Thailand. When an existing international company uses licensing as an entry mode into a foreign market the main objective is often to improve in matters of income generational and grow the business through an international licensing agreement it will be possible for a foreign company such as SMRT to provide services in the Thai market for a specific term. The initial step will be for SMRT to submit an application as a way of obtaining permission from the Board of Investments and other authorities concerned. In Thailand, it will take about two months from the date of submission for the outcome of the application to be known. During the process of waiting for application, SMRT will have the responsbility of aligning its activities in accordance with the existing rules and regulations of licensing in Thailand. This will involves a determination of the selected businesses in the country that would be partners with SMRT in different areas of target. In addition, the application will also contain a declaration of wealth of both the licensor and the licensees. This is a way that the Thai government will be able to ascertain the levels of transparency and accountability of the businesses in terms of delivery of effective services to the target market (Thai et al 2014, p. 76).
In the process of acquiring the license, the licensee will be considered as a representative of the licensor in the foreign country. This means that the former will be in charge of implementing the business objectives of the latter while adhering to the prevailing laws and regulations of the host country (Ehrmann 2013, p. 87). In addition, the process of identifying the best licensees will be based on their levels of expertise in the Thai transport, marketing and networking market. Additional aspects to consider would include the level of integration of the potential licensors into the target market. This is considered important because it will provide the licensing company with the potential of utilizing the economy of Thailand (The Government of the Grand Duchy of Luxembourg 2013, p. 10). The level of integration of the licensee into the Thai economy will also play act as an essential determinant of the potential market share and customer base that SMRT envisions to acquire through its operations in the country.
In terms of the organizational structure of the licensee, it will be important to note that the identified businesses will operate in accordance with their existing structures. However, the licensees will be required to incorporate representatives from the licensing company as a technique of ensuring that their activities are in agreement with those of the foreign company (The Government of the Grand Duchy of Luxembourg 2013, p. 10).
In terms of the identification of strategic locations for the business, other approaches such to entering the Thai market such as direct investments would require additional expenses in matters related to the establishment of the business in a new location. However, through licensing it will be easier for the business to tailor its services in ways that meet the desires of the customers (Thai et al 2014, p. 78). One of the difficulties in the implementation of the licensing entry approach into the Thai market will be in the difficulty of transferring tactical knowledge from both parties in the business. This explains why it will be important to constitute a panel of experts drawn from SMRT and from the licensees as a way of facilitating negotiations on matters of transfer price. In addition, through such a panel it will also be easier for the company to engage in effective monitoring of transfer outcomes.
SMRT Corporation Limited (SMRT) is a Singapore based multinational company, which provides transport services in rail and road sectors. SMRT also engages in the sales and management of media spaces, engineering, and marketing and e-commerce activities. In terms of the company’s environmental analysis, it has already established itself as a reputable company in terms of the provision of effective services. The company is however threatened by the fluctuation fuel process but recognizes growth opportunities on the international scene. Thailand serves as an important destination for the company with regard to the availability of laws that allows foreign companies to invest in the country. In terms of entry into the Thai transport, marketing and networking market, licensing will provide SMRT with an opportunity of protecting its legally acquired assets which as integral in the establishment of a competitive advantage in the market. For instance, SMRT is considered a successful brand in Singapore due to is ability to provide efficient transport, marketing and networking services in a highly regulated environment.
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