Graphcore's Expansion into Southeast Asian Markets Assignment Sample

This in-depth analysis examines Graphcore's potential modes of entry, activities, and strategies to navigate the region's nuances.

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Introduction of Managing International Business Assignment

Graphcore is an AI chipmaker company situated in Bristol, UK. It was founded by S. Knowles and S. Toon in 2016. Recently the company started to expand its market in Southeast Asian countries. To expand its business, the company hires many engineers for assisting the deployment of customers in the Southeast Asian countries. The company has already established its “Southeast Asia hub” in Singapore. The main objective of the company is to assist their customers over ASEAN’s rapidly developing economies viz. Singapore, Indonesia, Malaysia, Thailand and Vietnam. The company has already gotten success in the markets of South Korea, China and Japan. In this essay, Graphcore’s interest to enter in the markets of two countries Indonesia and Thailand have been discussed. To enter in these markets, various factors need to be considered in order to expand its market. The company enhances its technologies in order to compete with other companies. It has built a 7 nanometer “intelligence processing unit (IPU)” with 1472 cores with the help of TSMC, which has the ability to run almost 9000 free “parallel program threads”. With this advanced AI chipset, they are looking forward to expanding their business in Indonesia and Thailand due to the recent trend of business globalization.

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Discussion and analysis

Understanding the key issues in international business activity

Due to globalization, the UK-based AI chipset making company Graphcore is also trying to expand its business market in Southeast Asian countries. To expand the business in the international market, several factors need to be considered which can affect the business activity. Those factors are as follow:

Cultural differences

Different countries have different cultures. To perform international business, cultural differences are one of the important factors. There are huge cultural differences among Indonesia, Thailand and the UK. The cultural factors consist of foods, education, traditions, social norms, arts and holidays. For a company it is important to give importance to its customers’ cultural values. The major difference between the western and eastern cultures is that western cultures are more democratic than eastern cultures which have a hierarchical structure. In the UK, the work time is flexible whereas in Indonesia and Thailand punctuality in the workplace is of the utmost importance. All these factors have to be kept in mind before starting business with Southeast Asian countries.

Global team management

To transform a domestic business into an international business, the company needs numerous global employees from various regions (Welch et al. 2020). The main purpose of these international employees is to manage the trade in their respective countries. So it is a challenging factor to manage all the international employees around the world. The challenges which come first when working with them as a team are language barriers, time zones, cultural differences and the difference in the technology reliance and access levels. Due to the language barriers, important messages often get lost due to translation of various languages. Time-zone also creates problems in communication as the common “awake” time is very less. This makes the decision-making very slow.

Nuances of International relations, politics and policy

The laws, politics, relationships and policies between countries have a great role in international business. For trading globally, the businesses must follow international news as it is necessary to decide with which country they can trade. The business must trade with closely related countries. The actions of various political leaders of a country, changes in the commercial laws, implementations of taxes, labor laws etc. can affect the international market of the business. As these factors can be changed at any time, the company needs to prepare with a strategic plan to overcome hurdles.

Language barriers

Language barriers are one of the common challenges for every international business. For an international business, it is important to value their trading country’s languages. The company must use the exporting country’s native language in their product. Also for every customer country, the company needs to hire their native individuals as their employees in order to maintain the business uninterruptedly. Communication with these international employees becomes problematic due to the various native languages.

Exchange of currency and rate of inflation

The value of currency is one of the important factors as the value of the dollar is different with every country’s currency. It affects the rate of the products which a country imports from outside (Shamim et al. 2020). The rate of exchange is the comparative value between the currencies of two countries. Along with the currency exchange, another important factor is the country’s inflation rate. If it increases over and over every year then it affects the trading between the countries. This inflation rate also affects the labor cost and production cost of the company.

Evaluation of factors

Currently the Graphcore Company is trying to enter into the markets of Southeast Asian countries. Among the potential markets Indonesia is the foremost country in ASEAN region who adopt the AI followed by Thailand. There are different factors that have an influential role in the business of Graphcore. The factors are as follows:

Political

World’s third largest democratic country, Indonesia has the largest economy among Southeast Asian countries (Tien, 2019). The political factors that affect the company’s business are as follow:

  • The country is stated as “flawed democracy”. The political stability of the country is very weak.
  • Various taxation policies are present in the country such as land tax, excise law, income tax, sales tax, value added tax and regional tax.
  • The country is one of the earliest members of “ASEAN Free Trade Area Trade Agreement” along with some other trade agreements. The EU has a FTA with the country and it is in a strategic partnership with the UK.
  • Tariffs - These are the taxes that are applicable on imported products. Specific tariffs are imposed as “fixed charge” and “ad valorem tariffs” are on the basis of the percentage of a value. Governments often imposed “ad valorem tariffs” to the company in order to raise the revenues.
  • VER and import quotas - The VER and import quotas restrict the import amount of a country.
  • Currency controls - Conversion of a currency into other currency is often restricted by the government to control the imports (Shaban, 2019). The government can also direct the rate of exchange to restrain imports at a high level.
  • Subsidies - Various types of subsidies are given to the company in the form of low-interest loans or tax breaks. But these subsidies are very rare.
  • Requirements local content - The Company is looking for the local contents where it can produce or assemble the products locally. For this reason, they need the assistance of local firms of the exporting country.
  • Administrative policies - Different governmental bureaucratic processes and policies discourage imports by creating difficulties and consuming time in making operations or entry.

Economic

  • The current interest rate of Indonesia has been increased by 0.5%, from 4.25% to 4.75%. There is a chance of increasing the interest rate by 6% in 2023 followed by 4.75% in 2024. This will enhance the increase of the exchange rate.
  • Indonesia’s yearly inflation rate as of October, 2022 is 5.71% which is a slight fall from September’s inflation rate which was 5.95% (Ratten et al. 2020). This caused an internal price hike in the country.
  • The country’s unemployment rate is now 5.86% in Q3, 2022 which is lower than the same quarter of previous year which was 6.49. The increased employment rate helps to boost the country’s economy as well as attracts the foreign companies.
  • Indonesia has the largest economy among all the countries in the Southeast Asia region. The GDP of the country is growing slowly. In 2022, the country’s GDP increases by 0.6% to reach $330,477 million.
  • The recent exchange rate is somewhat decreasing. Recently the country’s exchange value against 1 USD is 15400 IDR. This affects the price of imported products.

Cultural

  • The country has the world's 3.51% population according to World Meters, 2022. The current population of the country is near 27.64 crores. The population of the country is continuously increasing and in this year, it increased by 0.64% from 2021. This increasing population helps in the sales of the foreign companies.
  • The consumers are welcoming digitalization in the post-covid period. They show more interest in e-payment technology in their daily life. Many e-commerce industries have grown rapidly during the global lockdown period. In recent times, groceries, medical items and FMCG products are available in various digital platforms.
  • To increase literacy Indonesia made compulsory education up to 9th standard which is free of cost. This action helps to build an educated workforce in the country. The average income of the people is 788 USD.
  • From a religious perspective, Indonesia is a Muslims-dominated country. The second largest religion is Christianity. The Muslim-dominated population influence the consumer behavior on the basis of their religious belief such as they usually follows the Qu’ran which mainly focuses on exorbitant, niggardliness, moderation and waste.
  • Country’s native people maintain a peaceful environment in the workplace and try to avoid any clashes. The relationships between the co-workers are also very good.

Ethical

  • There are friendly relationships among the people of the country though the majority of them is Muslims.
  • The customers require a good quality of service from the company.
  • The people do not allow any types of nepotism or favoritism.
  • Country’s people give importance to environmental responsibility.

Legal

  • The country’s government imposes various laws related to business, such as priorities for “Better Harnessing Competition Policy” in the “Transport Sector”, “prohibition of anticompetitive agreements”, “and prohibition of abuse of dominance”, “preventive anti-competitive mergers” and some other competition laws.
  • Tax rate of corporation income in the country is 25% (Luthans and Doh, 2018). Although there are some concessions in the tax especially for older companies and for small to medium companies.
  • The country is one of the earliest members of “ASEAN Free Trade Area Trade Agreement” along with some other trade agreements. The EU has a FTA with the country and it is in a strategic partnership with the UK.

“The theory of Mercantilism” of Graphcore

“The theory of Mercantilism” is one of the core international business theories. This theory describes how the government regulates of the foreign trade to produce wealth as well as strengthen the country’s power. The country’s power and wealth is directly related to the exports and rising trades. The UK-based company Graphcore is now focusing on expanding their business in Indonesia and Thailand. Their advanced technologies help the company to trade with many foreign countries. Their advanced AI chipset helps in the digital markets of Indonesia and Thailand (Nambisan et al. 2019). These countries adopted the digitalization process during the post-covid period. To enhance the digital service, artificial intelligence is required. To supply the AI based chipsets, Graphcore Company has the chance to trade with these nations. This will help the company to increase both its and the nation’s wealth as well as power. As more foreign currencies come into the exporting country, the importing countries eventually lose their wealth and partially the power. This can strengthen the country as well as the company.

Responses to external influences

There are various factors present that influence the business of the Graphcore Company externally. These factors include economical, governmental, social, technological and “competitive forces”. These factors cannot be controlled by the company. To make these factors favorable for the company, Graphcore needs to prepare a strategic plan by forecasting and monitoring the changes. The external influences which are responsible for the company’s trading behavior are as follow:

  • Political and regulatory influence - Various political influences such as the internal political conflict, rapid changes in the taxation policies, constant pressure from the government to the foreign companies and the financial status affects the market entrance of Graphicore in Thailand and Indonesia.
  • Economic influence - The interest rates are continuously increasing in Indonesia which cause an increase in the exchange rate (Kolk and Rivera-Santos, 2018). The country is now flourishing financially due to decline in inflation rate and increase in country’s GDP. This helps Graphcore to come into the digital market of the country as the people of the country have the capabilities of purchasing their technologies. Though the higher interest rates affect the price of the foreign goods, the company’s monopoly market will help them to gain more profit. The rate of unemployment is now decreasing slowly which results in the increase of the employment rate. This can reduce the country’s poverty level as well as decrease the burden of debts and economic challenges and this eventually enhances the business market of Indonesia. The exchange rate of Thailand is very low. Lower inflation rate, interest rates and the increasing GDP help the country to make them stronger financially (George and Paul, 2020). This helps the foreign companies like Graphicore to enter into their digital market as there is a huge customer potential due to the high GDP of Thailand.
  • Competitive influence- During the global pandemic situation, many technological companies rose in the market which now have a very good market in Indonesia as well as in Thailand. In Indonesia, various companies who offer AI technologies such as Neoteric, Postindustria, mTraction Enterprise, Tongan etc. can give a tough competition to the foreign company Graphicore. In Thailand, the local companies such as PolarBear100X, iApp Technology Co. Ltd., Eatlab, Manatal etc. can give a tough competition to Graphicore. These competitive markets can affect the sales of Graphicore’s products.
  • Technological influence - During the post-covid period, the whole world focuses on using digital technologies. These high effects of digitalization put a great impact on Graphicore’s trade (Cuervo-Cazurra et al. 2020). To make better digital services, the role of the AI is very important. Graphicore with its advanced AI chipsets easily fulfills the needs of the technologically weaker countries like Indonesia and Thailand.
  • Social and culturalinfluence - The country’s population is dominated by Muslims. It affects the buying behavior of the country. Most of the people of Indonesia strictly follow the rules of the Quran which affect the Graphicore to build their products according to their choices. In Thailand, most of the people follow Buddhism. They always look for the products which are not violent. Hence, to expand Graphicore’s market in Thailand, they need to produce their products according to their requirements.
  • Demographic influence - Indonesia is one of the highly populated countries. It contains the world's 3.51% population. The increasing population of the country raises the customer base of the country which attracts Graphicore (Ahlstrom et al. 2020). As the employment rate of the population is now increasing slowly the chance of purchasing Graphicore’s product is rising. The average income of 788 USD helps the country to fight the poverty level which creates the business interests of many foreign companies and Graphicore is one of them. Thailand has a lower population than Indonesia. The fertility rate affects their population. But the average income of the people is 2904 USD which is very higher than Indonesia’s average income. This factor opens the chance of entering foreign companies in their nation. Due to their high average income the poverty level of Thailand is becoming very low that helps Graphicore to enter in their market.
  • Legal influence - Various types of commercial laws have been implemented by the government of Indonesia. The government tries to control the business of Graphicore in their territory (Blackburne and Buckley, 2019). This affects the business of Graphicore in Indonesia. They have charged a 25% commercial tax to their foreign companies. In Thailand, international traders are not allowed to engage in any commercial activities. With proper permission, an alien business can trade uninterruptedly in the country.

Graphcore’s potential modes of entry into new market

Graphicore has many options to enter in the Indonesian market. The company can directly export their products to the country though this will lower the company’s profit as the government takes a huge tax for importing. Another way to enter into the market is to merge with local firms to control the country’s business market from the outside of the company.

There are various potential modes of entry into the market of Thailand. As there is a prohibition of foreigners to do trades directly, one of the most effective ways is to go for partnership with the local distributors or local agents who have the access of potential Thai customers (Acosta et al. 2018). They can clear the way and quicken the entry into the market with their well-developed distribution networks along with the relationships with chief business as well as government officials. Apart from that, Graphicore can merge with the local companies to build a new company who can perform the businesses in the Thai market. Another mode of entry in the Thai market is by amalgamating with other companies in the same sector to control the small companies.

Activities of Graphcore

Graphicore is one of the latest companies who produces AI chipsets. The company has advanced technologies in the markets of AI. The company’s IPU-POD series demonstrates the “near-linear scalability” (Beugelsdijk et al. 2020). This is one of the best competitors of the NVIDIA Company. They have a great market in the UK as well as in the Asian countries such as South Korea, Japan and China. The company also associates with South Korea’s famous company Korea Telecom to improve and expand the market. They give assistance to their customers with their intelligent and advanced AI chipsets.

Conclusion

The UK-based AI chipset company Graphicore is one of the leading businesses in AI technology. The company has a vision to expand the business among the Southeast Asian countries for which they have established a “Southeast Asia hub” in Singapore. Recently the company is trying to enter the markets of Indonesia and Thailand. There are various factors which regulate the entry of the company. Various political, economic, social, cultural and legal factors influence the market entry of the Graphicore. In post-covid time, due to the effect of digitalization all the nations are trying to enhance their digital services for which they need advanced technologies. Graphico with its advanced AI chipsets can serve the needs of these countries in the digital field.

Reference list

Journals

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