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Russia’ and South Korea International Business Report (Assessment)

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Updated: Jun 27th, 2020

Introduction

Companies join overseas markets in order to cushion their sales and revenues from the adverse effects of intense competition in their domestic markets. Nonetheless, international markets have unique characteristics and challenges, which must be addressed through appropriate internationalization strategies. This paper analyzes Russia and South Korea as potential international markets for a Bahraini company that sells organic dates and related products such as jam and cookies. The analysis will focus on the social, economic, and cultural elements of Russia and South Korea. Additionally, it will shed light on the market entry strategy that should be adopted for each of the markets.

Russia

Economy

Russia is one of the largest developing countries with high economic growth. Following the collapse of the Soviet Union in 1991, Russia shifted from a planned to a market-based economy. The economic transformation involved privatization of state-owned corporations and the opening up the economy for international trade. The main industries in the country include manufacturing, services, automobiles, and agriculture. Moreover, Russia exports commodities such as oil, natural gas, and metals. By 2011, Russia was the largest oil and gas producer in the world (Drobyshevsky, Lugovey, & Astafieva, 2013, pp. 5-25).

In the last decade, Russia’s economy grew at an average rate of 7%. Consequently, the disposable income of its citizens doubled and the middle class expanded significantly. The country recovered from the 2008-2009 global economic crisis towards the end of 2009. High oil prices have enabled the country’s GDP to grow at an average rate of 4.1% since 2010 (Drobyshevsky, Lugovey, & Astafieva, 2013, pp. 5-25). In 2012, the country had a GDP per capita of $17,700. Additionally, its unemployment rate reduced from 6.6% in 2011 to 6.2% in 2012. Similarly, the country’s inflation rate reduced from 8.4% in 2011 to 5.3% in 2012 (Drobyshevsky, Lugovey, & Astafieva, 2013, pp. 5-25).

In 2012, Russia joined the world trade organization (WTO) in order to attract foreign direct investment and to access international markets. Nonetheless, trade restrictions in the form of tariff and non-tariff barriers still exist. Moreover, its legal system is still weak and corruption is high.

Social

Russia has a population of approximately 142 million people (Rzhevsky, 2012, p. 79). The population consists of 170 ethnic groups, which include native Russians, Ukrainians, and Bashkirs among others. Nearly 75% of Russians live in cities and large urban areas in the country (Rzhevsky, 2012, p. 81). Unlike most developing countries, the population living below the poverty line in Russia is less than 12%. Additionally, only 6.2% of the country’s labor force is unemployed. The middle class with an annual income of up to $39,000 constitutes approximately 48% of the country’s population (Drobyshevsky, Lugovey, & Astafieva, 2013, pp. 5-25).

Consequently, consumerism in Russia is higher than in most developing countries. The government of Russia provides free and compulsory education and pays part of the country’s health care costs. Thus, the literacy level in the country is 99%, whereas the health status of the citizens is better than that of other developing countries.

Cultural

Russian is the dominant and official language in the country. Nonetheless, there are over 80 languages, which are spoken by ethnic minorities. The main religions in the country include Orthodox Christianity and Islam (Rzhevsky, 2012, p. 93). Communal mentality is still dominant in Russia despite the abolition of socialism in 1991. Thus, the family is the most important social unit in the country. Most Russians prefer organic food because they are aware of the health risks associated with processed food. Additionally, tea is a special beverage in Russian culture. Personal relationships are very important among Russian business people because it helps them to retain customers and to secure business deals. Additionally, patience and trust are important because negotiations in Russia usually take a very long time.

Justification for Choosing Russia

Russia can be a good market due to the following reasons. First, it has a large middle class with a high purchasing power. Thus, demand for jam and dates is likely to be high. Second, Russia’s low inflation means that the prices of inputs for producing jam and cookies are low, thereby reducing production costs. The resulting reduction in the prices of jam and cookies will improve their demand in the country. Finally, the citizens’ preference for organic food will boost the demand for organic dates and high-quality jam. Additionally, the Russians’ tea culture is likely to encourage the consumption of cookies and jam.

South Korea

Economic

South Korea is one of the largest economies in the world and the fastest growing member of the OECD. The country achieved rapid economic development through an export-oriented strategy, which it followed for the last four decades. The country’s key industries include electronics, manufacturing, automobiles, and services (Zang & Baimbridge, 2013, pp. 361-372). South Korea is a leading producer of household electronics, computers, and high-tech equipment.

Following economic decline “during the 1997-1998 Asian financial crisis, South Korea’s government implemented economic reforms such as allowing imports and foreign investments” (Zang & Baimbridge, 2013, pp. 361-372). Consequently, the country achieved an average economic growth rate of 6% between 1999 and 2007. Increase in exports, low-interest rates and implementation of expansionary fiscal policy enabled the country to recover from the 2008/2009 global economic down. In the last three years, the country achieved an average GDP growth rate of 4.2% (Zang & Baimbridge, 2013, pp. 361-372). South Korea’s GDP per capita increased from $31,700 in 2011 to $32,400 in 2012, whereas its unemployment rate was less than 4%.

South Korea has a low corruption rate and a strong legal system that protects property rights. The country’s regulatory efficiency is characterized by high business, labor, and monetary freedom. Additionally, the country has very few tariffs and non-tariff barriers to trade

Social

South Korea has a population of approximately 48.8 million people. Over half of the population lives in the capital city and other large urban areas. The standard of living in South Korea is similar to that in most developed countries. In particular, the country has a very large middle class with a per capita income in excess of $32,000. The middle class is associated with high consumerism, with most households spending more than they earn. Nonetheless, 15% of the population still lives in poverty (Zang & Baimbridge, 2013, pp. 361-372). The government provides free education and nearly 75% of the citizens have at least secondary education. Additionally, the government provides social safety net programs, which include unemployment benefit, health insurance, and pension schemes.

Cultural

South Korea is a homogeneous society with a very small Chinese ethnic minority. Korean is the official language and is spoken by nearly everyone in the country. Approximately 46% of Koreans have no religious affiliations, whereas Christians and Buddhists account for 51% of the population (Brown, 2006, p. 75). The remaining 3% of the population are Muslims. South Koreans eat a variety of food, which mainly includes beef, vegetables, and fruits.

South Korean cultural values and customs are based on Confucianism. Thus, South Koreans value close family ties and group interest supersede that of the individual. Koreans value self-pride and saving face. In business, South Koreans form personal relationships through informal meetings in which strangers are introduced through third parties. South Koreans also use indirect communication style and their negotiations can take longer than planned.

Justification

South Korea is likely to be a good market due to the following reasons. First, the country has a large population with a high purchasing power. In this regard, most Koreans are able to afford jam, dates, and cookies. Second, the lack of tariff barriers to trade will improve the competitiveness of Bahrain’s dates, jam, and cookies. Third, Koreans’ preference for vegetables and fruits is likely to encourage consumption of dates and jam. Thus, the demand for these products is likely to be high in South Korea. Finally, high regulatory efficiency promotes fair competition in the organic food industry, thereby reducing the threat of intense competitive rivalry between foreign and local firms in the sector.

Market Entry Strategy

Russia

Foreign direct investment (FDI) is a suitable entry strategy for the Russian market. This strategy involves establishing or acquiring production and sales facilities in a foreign market (Menipaz & Menipaz, 2011, p. 119). FDI is suitable because Russia uses tariff and non-tariff barriers to discourage imports from other countries. In this regard, exporting dates, jam, and cookies to Russia will be expensive due to high import duties.

This will increase the prices of these products, thereby lowering their demand in Russia. Moreover, Russia has a weak legal system, which discourages the formation of joint ventures. Concisely, corruption and inadequate protection of property rights make it difficult to enforce joint venture agreements. Nonetheless, the country has high sales potential, which will facilitate a quick recovery of the FDI costs.

FDI is beneficial because it enables producers to maintain full control of their operations and products. Thus, they can easily modify their products to suit customer needs. Additionally, FDI enables producers to gain knowledge of the local market by interacting directly with the customers (Menipaz & Menipaz, 2011, p. 125). Concisely, direct interactions with customers enable producers to understand market needs. This improves the possibility of satisfying customers’ needs. Nonetheless, FDI requires a lot of financial resources, which might not be available. In addition, establishing new production plants and distribution channels can take a long time.

South Korea

The suitable entry strategy for the South Korean market is a joint venture. This strategy involves entering a contractual agreement with a local firm concerning product development, sales, sharing of resources, and distribution of profits (Menipaz & Menipaz, 2011, p. 146). In particular, entering South Korea through a joint venture will involve forming a partnership with a local business in the market.

A joint venture is suitable due to the following reasons. First, it will enable the Bahraini company to share risks with its South Korean counterpart. This will enable the Bahraini company to avoid running out of business in the event of a loss or any unforeseeable risk. Second, a joint venture facilitates the sharing of resources between businesses (Menipaz & Menipaz, 2011, p. 163). In this regard, the Bahraini company will be able to access the technology and financial resources of its South Korean counterpart.

This will reduce the overall cost of joining and operating in the new market. Third, a joint venture will enable the Bahraini company to utilize the distribution channel of its partner, as well as, to serve its existing customers. Thus, the Bahraini company’s products will be able to penetrate the market easily. Finally, South Korean firms are likely to have adequate knowledge about the market. Thus, forming a joint venture with one of them facilitates access to knowledge about the local market. A joint venture is likely to succeed in South Korea because the country has a strong legal system, which protects property rights and upholds the rule of law. This reduces the possibility of breaching a joint venture contract or agreement.

Conclusion

The aim of this paper was to analyze Russia and South Korea as potential international markets for a Bahraini company that sells dates, jam, and cookies. The two markets are suitable because they have large populations with high purchasing power. Russia’s tea culture and its citizens’ preference for organic food are likely to increase the demand for dates, jam, and cookies. Similarly, South Koreans’ preference for vegetables and fruits is likely to boost the demand for dates and jam. Russia and South Korea can be joined through foreign direct investment and a joint venture deal respectively.

References

Brown, J. (2006). China, Japan, Korea: Culture and customs. New York: McGraw-Hill. Web.

Drobyshevsky, S., Lugovey, O., & Astafieva, E. (2013). Factors of economic growth in Russia’s regions. Moscow: Gaidar Institute for Economic Policy. Web.

Menipaz, E., & Menipaz, A. (2011). International business: Theory and practice. New York: McGraw-Hill. Web.

Rzhevsky, N. (2012). The Cambridge companion to modern Russian culture. Cambridge: Cambridge University Presss. Web.

Zang, W., & Baimbridge, M. (2013). Exports, imports and economic growth in South Korea and Japan. Applied Economics, 44(3), 361-372. Web.

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