International Business and Politics
In the last several years, outsourcing has become an integral part for helping a firm to decrease their costs and improve productivity. However, depending upon the region, this could have an adverse effect on their bottom line results. In the case of the GE plant, there is intense competition between the Philippines and the Ukraine. To fully understand the benefits that the Ukraine has to offer requires focusing on: the business environment and actual firms that are located in the country. Together, these different elements will highlight the strengths of the Ukraine for foreign direct investors.
The Ukraine’s Business Environment
The Ukraine is focused on energy imports to meet the demand of businesses and households. In 2009, a dispute over the price of energy resulted in a temporary embargo from Russia. However, the country was able to resolve these disputes and now has a ten-year agreement in place. At the same time, the economy is vulnerable to shocks from the global economy. This is because the nation has tremendous amounts of natural resources that are used in the production of steel, manufactured goods and agriculture. Evidence of this can be seen with the overall rates of GDP growth from 2009 to 2011 (which is illustrated in the below table). (“Ukraine”)
Ukraine’s GDP Growth from 2009 to 2011
Year
Rate of Growth
2009
-14.8%
2010
4.1%
2011
5.1%
(“Ukraine”)
These figures are showing how the Ukraine’s economy is dependent upon changes that are occurring inside the global marketplace.
Moreover, the Ukraine has eliminated all imports / exports and business related taxes. This is designed to help fuel foreign direct investment. This means that firms that are looking to relocate to the region can reduce their costs of importing critical materials. The combination of these factors makes the country a popular location for many companies that are seeking to reduce their costs. (“Ukraine”)
Examples of Firms that have located to the Ukraine
The plant the GE is planning on opening is going to concentrate on alternative forms of energy. The Ukraine is good location because of the low costs, favorable tax structure and other players who have been establishing operations. As far as foreign direct investment is concerned, the country is currently home to the largest alternate energy related power plant in all of Europe (which is owned by Activ Solar). Moreover, it is projected that this market will realize consistent growth of 20% a year by 2020. The combination of the factors is showing how the Ukraine is the ideal environment for GE to construct this kind of plant. (“Ukraine’s Solar Energy Industry”)
Evidence of this can be seen with Activ Solar. This Australian-based firm; is the owner of one of the largest solar power plants in all of Europe. At the same time, they have tremendous operations producing components for the facility. This is allowing the firm to reduce their costs and become one of the largest players (for alternative energy). In the case of GE, this is an ideal location that will help the company to establish itself inside the sector. (“Ukraine’s Solar Energy Industry”)
The Ukraine vs. The Philippines Political Situation
In contrast to the Philippines, the government has been slow to respond in dealing with challenges such as improving infrastructure. At the same time, they are ineffective in collecting tax revenues and using them to benefit the nation. For many manufacturers, this is problematic as these kinds of challenges could hurt their operations. (“Philippines”) (“Ukraine’s Solar Energy Industry”)
Moreover, the county has higher duties and taxes in contrast with the Ukraine. Even though the Ukraine has it problems, most of these issues are being dealt with. This has helped to encourage the development of green industries and it is highlighting the benefits that GE will receive by locating a plant to the region. (“Philippines”) (“Ukraine’s Solar Energy Industry”)
Conclusion
Clearly, the Ukraine is the best location for GE to construct an alternative energy plant. This is because the country has a more favorable political situation, better tax policies and other firms who have been successful. These factors are highlighting its benefits in contrast with the Philippines. They are more unstable politically, as the nation needs to rebuild their infrastructure and reduce tax rates. This is why it is advisable for GE to build its facility in the Ukraine (which will help the company realize the true advantages that it has to offer).
References
“Philippines.” CIA, 2012. Web. 30 Sept. 2012
“Ukraine.” CIA, 2012. Web. 30 Sept. 2012
“Ukraine’s Solar Energy Industry.” Renewable Energy Eilat, 2011. Web. 30 Sept. 2012
MLA Format https://owl.english.purdue.edu/owl/resource/747/08/
