Costco Wholesale Corporation Costco in India Company Essay

  • Length: 5 pages
  • Sources: 5
  • Subject: Business
  • Type: Essay
  • Paper: #35810569

Excerpt from Essay :

Costco Wholesale Corporation (Costco) in India

Company overview

Costco Wholesale Corporation started operations in 1983 in Seattle, Washington. The company is essentially engaged with the operation of membership warehouses in Canada, United States, Mexico, Puerto Rico, Canada, the United Kingdom, Japan, Australia, and via majority owned subsidiaries in Korea and Taiwan. The company's normal stock is trading on the NASDAQ Global Select Market under the image COST (Marchetti & Roy, 2009).

The company is the fifth biggest retailer globally known for its warehouse club model, which could overtake Wal-Mart in its pursuit to establish footsteps in the developing markets. The Washington-based Corporation owns a global chain of over 504 warehouses accessible as national and local brands offering prices lower than traditional retail or wholesale outlets. It competes with the wholesale entity, Sam's Club owned by Wal-Mart in the U.S. (Kim & Mauborgne, 2010).

This study examines the present retail situation in India and assesses the benefits and threats of FDI in India. This study covers strategies that Costco can adopt to minimize foreign exchange risks in India. The entire paper is dependent upon descriptive arguments, analytical logic, and information, developed through the understandings from different books, research papers, reports, online databases, and journals.

The challenges and advantages of FDI for the MNE in India

The modifying structure and scale of retail can critically affect numerous commercial ventures in the short-term -- the retail business itself. In the long-term, spillover impacts might be felt in different businesses. The development of retailing has the possibility to effect the performance of interlinked segments, such as production of customer merchandise and horticulture-based businesses. The potential profits of permitting passage by large discount retail networks on minimizing inflation, enhancing dissemination, and warehousing innovations are also addressed in this study. This is possible by analyzing discoveries from various studies examining the impacts of Costco entering the Indian market (Marchetti & Roy, 2009).

The major effect of FDI on human capital in India seems to be indirect, not occurring primarily on the exertions of the company. This happens rather from government policies looking to draw in FDI by means of improved human capital. When people are employed by MNE subsidiaries, their human capital may be improved further through training and on-the-job learning (Krugman & Wells, 2013). These subsidiaries might have a positive impact on enhanced human capital in different sectors with which they create business connections like suppliers. Such upgrades have significant impacts because few workers become enterprisers when labor moves across different firms. The issue of human capital advancement is usually identified with other broad issues of development.

Human capital is a vital part of the enabling environment in any nation. Specifically, a minimum level of training must be achieved. Investment in education and human capital is critical in making an empowering environment for FDI. Realizing a certain base level of education achievement is principal to a nation's capability. This helps in luring FDI and maximizing the human capital overflows from the presence of foreign enterprises. The minimum education level varies between sectors and consistent with different aspects of the host nation's enabling atmosphere. Education in itself is unrealistic to make a nation attract foreign investors. Where a noteworthy "information gap" is permitted to endure between foreign entry and the host country, no large overflows will be expected (Madaan, 2009).

As nations advance and approach industrialized country status, internal FDI helps their further coordination into the worldwide economy. This is achieved through causing and boosting flows of foreign trade. Clearly, numerous elements are at play. They incorporate worldwide systems of related ventures and an expanding imperativeness of foreign subsidiaries in MNEs sales, marketing and distribution strategies (Kim & Mauborgne, 2010). This expedites an imperative approach determination. In this case, India will influence Costco's capability and participation in critical exporting and importing activities. This means that host countries like India may also think about a strategy of openness to globalization to be crucial in the quest to profit from FDI. By confining imports from new MNEs, India successfully curtails Costco's capability to lure foreign direct investment. India could think about a method of pulling in FDI through raising the measure of the important market by seeking after policies of regional trade integration and liberalization.

The capacity of FDI to help improving export capacities hinges on upon setting. Zones of export processing may be an instrument for closer incorporation into global exchange. However, they tend to be costly. India's capacity to utilize FDI as a means of increasing exports relies upon the context. The clearest cases of FDI boosting exports are discovered where internal investment helps India make use of its resource endowment (Marchetti & Roy, 2009).

The principal challenge is competition stemming from the unorganized Indian sector. Traditional retailing has been created in India for numerous hundreds of years. It is portrayed by minor, family-owned operations. As a result, such organizations are exceptionally of low-margin managed by owners with negligible costs and real estate. Getting clients to switch their buying away from little neighborhood outlets and towards extensive scale retailers may be a serious challenge for Costco (Krugman & Wells, 2013). The experience of extensive Indian retailers such as Big Bazaar shows that it is without a doubt conceivable. Anecdotal proof of customers who come back from such shops shows that the wholesale industry attracts satisfactory sales. Indian customers are usually observant about this (Mukherjee & Patel, 2010).

Another imperative challenge that Costco could face relates with their human resources. Building an integrated and successful global production framework is the most formidable challenge independent from any other. Achieving this via successful mergers and acquisition has proven to be another serious challenge. It puts respectable demands on their human resources, specifically on their managerial capacity and skills. Additionally, the scale of the challenge is moderately greater for rising market MNEs such as Costco. Internationalizing regularly at an early phase in their development, they will have minimal chances to develop such capacities and skills (Marchetti & Roy, 2009). Developing markets MNEs that have attempted FDI recently are more averse to have advanced capacity and skills in managing foreign associates and integrating acquisitions. This skills and expertise gap may be further exacerbated by an unwillingness, to contract non-national supervisors.

Determine the best way for your MNE to minimize foreign exchange risks

Foreign exchange risks could be minimized in numerous ways. In this case, Costco will focus on hedging the risk. Hedging refers to all activities adopted to amend the exposed positions of the company in multiple currencies or one currency. Costco will adopt internal hedging because of its relatively low costs (Madaan, 2009). Obviously, the current economic climate is unstable; this makes it reasonable for Costco to embrace price adjustments as an internal hedging strategy. The company can make price adjustments in various manners. First, since the Indian currency is losing values, the company might increase its prices for the sake of canceling the devaluation impacts. Secondly, Costco might increase the prices of exports. This might be somehow challenging because the company will be exposed to global competition. Finally, Costco could use export-billing currency in transferring profits from an affiliate to the other. This lowers or raises intergroup selling prices by adjusting the billing rates for profits to be reflected in hard currency. This approach has proven to be extremely aggressive.

How Costco can leverage government policies to maximize FDI profitability

Research findings demonstrate that the burden of costs increasing across supply chains falls disproportionately on small suppliers. Besides prices, small suppliers are coming under severe pressure from well-established stores. Observed retail practices in India might work against the interest of emerging MNEs such as Costco. Some retailers are selling products at lower prices than the market price. This tends to be beneficial to consumers. On the other hand, it exerts pressure on incumbent retailers. Similarly, it has a direct adverse impact on elderly consumers relying on local shops and low-income consumers (Marchetti & Roy, 2009).

This section recommends that Costco should source a percentage of produced items from the medium and small domestic enterprises. With a limitation of this sort, the opening up of the retail division to FDI could accordingly boost medium and small retailers in India (Krugman & Wells, 2013). In addition, extension in the retail sector could produce notable employment opportunities, particularly around semi-urban and rural youth. It is extremely challenging to anticipate the future of Costco in Indian retail segment. Costco must be careful about the apprehensions posted by the government and critics. This will attract positive impacts outweigh negative impacts and Costco coexist even when giant local retailers dominate the market.

Financial management, operations, marketing, and human resources need resulting from the proposed FDI

Securing internal investment when minimizing FDI streams and expanding rivalry for these streams is a critical challenge for emerging foreign companies. These are some of the financial management, operations, and marketing challenges facing Costco. A significant market share will only be obtained from markets in which Costco has little experience.…

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