Economic paper

The Real Economy in the Long Run Report

Many different factors influence organizations that relocate to foreign countries. Learning Team D has composed a report detailing each of these factors for the Coach Company, a manufacturer of women’s handbags, transferring to the country of Cambodia. The team analyzed factors that included Cambodia's productivity, policies, macroeconomic variables, and unemployment rates. There is also an important emphasis on the risks that the organization will face and how they can be mitigated.

Determining Factors of Productivity

There are essentially five factors that affect the economic growth of a country. The first factor is the country's resources both human and natural. Human resources are the quality and quantity of the population. While natural resources are resources provide by nature and are either on or under the land. Cambodia is known for large expanses of land, forest, and water. Another factor is capital formation, which can also be part of the natural resources as it includes land but it also includes machinery, power, transportation, and communication. Lastly technological development and social/political factors, which make up some of the most important factors, as they are the most sought after when companies are expanding. It is important that the countries technology is available and the customs, traditions and government are in position to encourage growth.

According to the Asian Productivity Organization Cambodia has enjoyed rapid growth in the last decade. “Cambodia made a strong, consistent move from a traditional to a modern economic structure, and thus Cambodians enjoyed rapid growth in the last decade. Furthermore, to cope with the effects of globalization, productivity and quality development in both the public and private sectors is deemed to be a contributor to economic growth and poverty reduction. Political stability in Cambodia has opened up a window of opportunities for social and economic development after a decade of political instability and insecurity as well as economic and social chaos.” (Sieng Hong)

Influence of Productivity Growth

The country of Cambodia has passed legislation that is focused on improving foreign business relations and growth. In 1993, Cambodia created a constitution that was the foundation in the development of a national economic market structure. The economic structure has been improved through new law developments. A 2010 Anti-Corruption law was passed in order to better regulate organizational ethics during growth. Huge benefits were realized when the country decided to join the Association of Southeast Asian Nations (ASEAN) and World Trade Organization (WTO). Cambodia's membership in these two organizations has advanced both local and international cooperation that contribute directly to the country's economic growth.

The country's future challenges are based around growing and maintaining a skilled workforce to handle the ever-increasing market development. In order to get ahead of a deficiency of educated and skilled workers, legislators will need to enact policy that helps students pay for and receive higher education. These types of policy can be controversial and create a rift in the population of even a well-developed nation such as the United States. Caution will need to be taken in any further policy development to ensure all advancements in human rights and working conditions are sustained.

Cambodia’s Financial System and Macroeconomic Variables

Each country has its own financial system that is made up of institutions coordinating one individual’s investment with another person’s savings. With and average GDP growth rate of 6%, Cambodia is currently in a period of economic growth. During a period of growth, it is imperative that the banking systems continue to evolve and gain trust from investors throughout the world. According to "Asian Development Bank" (2012), “Cambodians share a vision of a prosperous future that includes access to decent employment and the good living standards that come from economic development. The strategy of the government is to lead, manage, and coordinate in order to achieve this vision, especially with regard to helping Cambodia to compete regionally and globally.” (Financial Sector Development Strategy 2011–2020). In an effort to further stimulate the economy, the Cambodian Government has offered incentives and eliminated price controls. As a result of the government’s involvement, there has been growth in the manufacturing sector of Cambodia. Dependent upon imports such as consumer products and oil, Cambodia’s growth in manufacturing enables them to actively participate in world trade and become a leading market for producing items such as Coach handbags. As a developing country, Cambodia offers great potential for economic growth with an ample yet inexpensive workforce.

Reducing the Risk of Relocating

Coach relocation is associated with a lot of risks which can have an adverse impact on the operations and financials of the company. Unforeseen costs, human resource loss, damaging customer relations, and suppliers can have significant consequences on the company’s relocation. An incorrectly planned relocation can cause temporary or permanent damage on Coach Handbags. Therefore, to minimize these risks, a comprehensive and detailed strategy must be developed, managed and coordinated well (Christersson & Rothe, 2012).

The first step that should be considered in this strategy is planning through a corporate team. The senior management should be assigned the plans control. Coach should also consider hiring a professional consultant to give advice or manage the relocation process. Timing and scheduling are critical in this strategy where co-dependent relocation tasks must be monitored. In the relocation process appropriate communication between personnel, customers and suppliers must also be ensured. Effective communication will facilitate cooperation and decisions support. The employees will need morale, and retention and suppliers will require notification for future supply chain coordination (Altman, 1991). On the other hand, Coach Handbag customers will need to be aware of the company’s move and severing ties. They may also need to accelerate their credit payments.

An inventory buildup before relocation will ensure the organizations does not lose sales due to production delays that may arise. The corporation should consider the potential constraints in the context of its working capital. The company can also consider running parallel operations in its original location for awhile before it’s new site is well established (Christersson & Rothe, 2012). This would provide cover for relocation challenges. Finally, a budgeted cost will ensure Coach is prepared for the potential productivity loss and increased costs.

Current and Projected Unemployment

The current and projected unemployment over the next five years in Cambodia will appear to look different. The unemployment rate in Cambodia is projected to be 0.12 percent by the end of this quarter, according to Trading Economics global macro models and analyst’s expectations. In the long run, the Cambodia unemployment rate is projected to average around 0.21 percent in 2020, according to econometric models ("Cambodia Unemployment Rate," 2016). Currently, the unemployment rate in Cambodia showed an increased of 0.50 percent in 2015 from 0.10 percent in 2014. Unemployment Rate in Cambodia averaged 1.14 percent from 1994 until 2015, exceeding an all time high of 5.30 percent in 1998 and a record low of 0.10 percent in 2009. Unemployment Rate in Cambodia is reported by the National Institute of Statistics, Cambodia ("Cambodia Unemployment Rate," 2016). In Cambodia, the unemployment rate measures the number of people actively looking for a job as a percentage of the labor force. According to the National Institute of Statistics, Cambodia there will be a decrease in unemployment rate over the next five years.

Conclusion

References

Altman, Y. (1991). Relocation of Companies: The Human Resource Perspective. Journal of Managerial Psychology Vol 6 Iss: 1, 12-16.

Asian Development Bank. (2012). Retrieved from http://adb.org/sites/default/files/pub/2012/financial-sector-development-strategy-2011-2020.pdf

Cambodia Unemployment Rate. (2016). Retrieved from http://www.tradingeconomics.com/cambodia/unemployment-rate/forecast

Christersson, M., & Rothe, P. (2012). Impacts of organizational relocation: A Conceptual Framework. Journal of Corporate Real Estate Vol. 14 Iss: 4, 226-243.

Mankiw, N.G. (2012). Principles of Macroeconomics (7th ed.). Stamford, CT: Cengage Learning.

Sieng Hong, C. (n.d.). APO: Asian Productivity Organization. Retrieved August 14, 2016, from

http://www.apo-tokyo.org/productivity/110_prod.htm