BUSN 427GLOBAL ISSUES IN BUSINESS

DeVry University

Global Business Opportunities Project:Afghanistan

Prepared by: Brian Baughman

June 18, 2003

TABLE of CONTENTS1

Module PageI. Cover Page 1

II. Table of Contents2

Module 1: IDENTIFYING GLOBAL BUSINESS OPPORTUNITIES3 – 6

Module 2: ANALYZING INTERNATIONAL COMPETITORS6 – 7

Module 3: ASSESSING THE ECONOMIC-GEOGRAPHIC ENVIRONMENT7 – 9

Module 4: ASSESSING THE SOCIAL – CULTURAL ENVIRONMENT9 - 10

Module 5: ASSESSING THE POLITICAL-LEGAL ENVIRONMENT10 - 11

Module 6: SELECTING A GLOBAL COMPANY STRUCTURE 11 - 12

Module 7: FINANCING SOURCES FOR GLOBAL BUSINESS OPERATIONS 12 - 14

Module 8: A GLOBAL MANAGEMENT INFORMATION SYSTEM14 - 15

Module 9: HUMAN RESOURCES for GLOBAL BUSINESS ACTIVITIES15 - 16

Module 10: MANAGING INTERNATIONAL FINANCIAL AND BUSINESS RISKS17 - 19

Module 11: PRODUCT AND TARGET MARKET PLANNING 20

Module 12: DESIGNING A GLOBAL DISTRIBUTION STRATEGY20 - 21

Module 13: PLANNING A GLOBAL PROMOTION STRATEGY 21

Module 14: SELECTING AN INTERNATIONAL PRICING STRATEGY 22 - 26

Module 15: DETERMINING ORGANIZATIONAL FINANCIAL RESULTS26 - 27

Module 16: MEASURING INTERNATIONAL BUSINESS SUCCESS27

Works Cited28

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Module 1: IDENTIFYING GLOBAL BUSINESS OPPORTUNITIES

Global Business Opportunities

We are the ACME Construction Co., a major US-based corporation with an interest in expanding our operations abroad. We have enjoyed 85 years of successful operations completing major projects for private, corporate, and government organizations in all 50 states. Our core business consists of large scale building and transportation construction.

Potential MarketsWhile several major projects are available to bid across the US at this time, our

company seeks to expand its operations abroad by tapping into the infrastructure reconstruction currently taking place in some Middle Eastern countries. Unfortunately, many of the companies of scale which are native to the region control entry because of the relatively expensive start-up costs associated with heavy equipment, administrative tasks, and human resources activities. Despite this factor, and the current global recession, opportunities do exist for any organization willing to take risks in unsecured regions of the world. Currently, two countries present an immediate opportunity due greatly in part to the recent “War on Terror”; Iraq and Afghanistan. While there are still dangerous factions at play in the region, a significant security presence is indefinitely stationed in the populated regions to ensure stability. In Afghanistan alone, $4.5 billion dollars has been deposited to a trust with the World Bank, to be administered for the rebuilding of that country’s Government, Information and Transportation infrastructures. In Iraq, an American provisional government will be securing the country’s oil reserves and performing governmental responsibilities until a democracy can be formed locally, and oil proceeds will be used to finance major rebuilding projects.

Absolute and Comparative Advantages Currently, neither Iraq nor Afghanistan has a comparative or absolute advantage in

the area of reconstruction services. While both countries possess the raw materials and natural resources required for the process, neither has the capacity, technology, or productive processes possessed by many corporations located in advanced western nations. Although, it stands to reason that through the process of rebuilding with the assistance of an advanced entity, that other local entities will eventually become competitive in this regard.

Business Opportunity Analysis 3

Of the two nations selected as potential business expansion targets, we believe Afghanistan to be the most attractive in terms of security and financial risk.

However, the task of establishing an operations base in that country will not be easy. The FY 2003 Congressional Budget Justification report states,

“Estimates suggest that over 50% of the population live in absolute poverty, with average life expectancy only 46 years. Afghans experience exceptionally high levels of malnutrition and maternal and child mortality, and up to 7.5 million Afghans are estimated to be dependent on external food aid. Unemployment is 50% or higher, and the illiteracy rate is as high as 70%. With virtually all key institutions destroyed, the recovery and reconstruction of Afghanistan will require a concerted and financially significant, multiyear, national and multi-donor effort.”(USAID 1)

While the seriousness of the current crisis will mean an abundant source of inexpensive unskilled labor, finding management personnel from within the local community may prove to be a difficult task. In terms of its economy, Afghanistan has been a predominantly agricultural society with this sector responsible for 60% of its GNP. The remaining 40% is divided evenly between Industry (20%) and Services (20%). Export commodities include; opium, fruits and nuts, hand-woven carpets, wool, cotton, hides and pelts, precious and semi-precious gems. Import commodities include; capital goods, food and petroleum products; most consumer goods. Trading partners include; Pakistan 19%, Japan 16%, Kenya 9%, South Korea 7%, India 6%, Turkmenistan 6% (1999). (CIA 1)

Despite the grim economic climate the nation is currently living with, the entire world is behind the effort to rebuild and renew the country of Afghanistan, and the entire process is taking shape under the direction of the UN, IMF, and World Bank. This is an important

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factor in solidifying the opportunity in Afghanistan as it assures entrants they will be paid for their participatory efforts in the rebuilding process. Projects are managed and bid through the World Bank, and awarded contracts will be paid through the World Bank as negotiated under international contract law. Rebuilding funds have already been placed into an established trust for this purpose.

S.W.O.T Analysis We believe our core strengths lie in the areas of civil, structural, mechanical,

electrical and environmental engineering; program management; planning; environmental sciences; information services; economics; policy and management analysis; and construction management and support. These same strengths have been the driving force of our success on the North American continent, and we believe them to be successfully transferable abroad.

Perhaps our weakest link lies in our relative lack of experience working within the specific region. We will overcome this weak link by entering into limited partnerships projects with IKUB Construction, Louis Berger, and Bearing Point; all companies already performing services and doing business within the region.

As mentioned in the previous paragraph, we feel that one of the greatest opportunities available to us is one of developing new business relationships with others who are already working within the region and elsewhere abroad. This is may only be possible due to the nature of the circumstances in the region. Afghanistan’s infrastructure is completely destroyed. There aren’t enough companies willing to work in the region to satisfy the overwhelming demand that exists presently. Therefore, we will seize this opportunity for productive partnering and establish our presence in the region, while gaining the necessary experience to capitalize on future opportunities.

While the circumstances do not pose a competitive threat at this time, a greater threat does exist; one of further violence and conflict. To effectively neutralize this threat, we will be securing special media and intelligence services to assist us in establishing our base of operations, and to assist us in becoming a trusted institution within the fabric of local society. We will also carry the expense of terrorist insurance against potential attacks, a cost built into every potential new contract that we bid. Another difficult hurdle will involve establishing a supply line to ensure adequate food, water, communications, and supplies to projects. While some of this can be achieved locally, other items may require cargo shipments by air and/or land.

Action Plan Currently, major rebuilding is taking place in and around the major cities of Kandahar

and Kabul in Afghanistan. Contracts are open to bid through the United States Agency for International Development. Current open contracts include Highway and Road construction and repair, home building, and public school construction and repair. Our “mission” will be to establish a presence in the region for future commercial ventures via the contract rebuilding process during a 5 to 10 year period. As conditions warrant, our strategic goals

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will be re-evaluated and corrected to meet the economic and political environment. We will transfer enough core management, engineering, and administrative resources to accommodate three major projects simultaneously, and we hope to recruit additional management resources from within the country to expand that number to five or more major projects simultaneously. Our focus will be to bid and secure new construction contracts as part of the cooperative rebuilding of the country’s infrastructures.

Module 2: ANALYZING INTERNATIONAL COMPETITORS

Potential CompetitorsPresently, there are five companies working cooperatively in the reconstruction effort in Afghanistan; Louis Berger, Alcatel, Bearing Point, DHL, and IKUB Construction. Of those five companies, only two pose a long term competitive threat; The Louis Berger Group and IKUB Construction. The remaining three are working primarily in communications and consulting capacities, and pose no immediate or long term threat to our market segments. Currently, neither IKUB nor Berger has the capacity to bid all of the available projects in the region, and our first contact with these organizations regarding their experience in the region has resulted in a cooperative mutual understanding. We look forward to “being on the same team” while accomplishing the global goal of rebuilding the Afghani infrastructure. We also look forward to expanding our roles and capacities into other countries of the region such as Iraq, at a later date, and wish to continue our cooperative relationship there as well.

Competitive AdvantagesWe feel that we maintain a competitive advantage over local entities in the region for many reasons. First of all, while Afghanistan may possess an adequate level of “factor endowment” related to raw materials and available construction labor, it lacks the infrastructure and capital assets necessary to rebuild. Also, while other nations have been given equal share of access to new construction through the World Bank, “demand conditions” are such that more work is available than current bidding entities can accomplish. This abundance of work provides the perfect opportunity for those business entities seeking to enter foreign markets. The 2003 report, “Afghanistan Transitional Support Strategy Executive Summary”, published by the World Bank states,

“Capacity constraints and lack of qualified government staff continue to pose risks to the implementation of

reconstruction programs.” Our depth and experience in project management combined with our capital assets

and technical methodology allow us to be an attractive entry into the newly forming Afghan construction Market. (Zhang) While our international experience may be lacking, our strategic relationships with Berger and IKUB are enabling us to avoid critical issues that could be damaging to our entry attempts in the region.

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International StrategiesOur approach to the Afghan construction market will be based on an International

business strategy. Given the conditions under which this opportunity presents itself, we see transferring core competencies as a critical key to the control and success of any long-term stay. However, as Afghanistan becomes a more stable business environment, this strategy will be re-evaluated to determine if a more cost-effective approach is warranted.

The Action PlanOne of the benefits of excessive demand is the ability to develop cooperative

partnerships with firms working in the same market. It is our intention to meet and discuss the business environment in the region with others presently working in the region. There is more than enough work to satisfy all takers; therefore these cooperative relationships are both possible and desirable.

Module 3: ASSESSING THE ECONOMIC-GEOGRAPHIC ENVIRONMENT

Geographic Influences

Afghanistan is a landlocked nation bordering Iran to the east, Pakistan to the South and West, a small northeastern border with China, and the nations of Turkmenistan, Uzbekistan, and Tajikistan to the north. The nation of Afghanistan is slightly smaller than

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the state of Texas, with slightly more than 50% of its area rugged mountain terrain. The remaining 50% consists of plains in the north and southwest. While the mountains may present a problem to some businesses, we find them a natural barrier to potential security concerns. The climate is arid to semi-arid, with cold winters and hot summers, and potable water is a concern in the region as water supplies are limited. However, a water infrastructure is being reconstructed and water for building purposes can be found with little difficulty. The areas natural resources are adequate to supply a major construction initiative with the exception of lumber, as deforestation is presently occurring. Much of the remaining forests are being cut down for fuel and building materials. (CIA 2)

Major Products and IndustriesAfghanistan has a respectable wealth of natural resources including; natural gas,

petroleum, coal, copper, chromites, talc, barites, sulfur, lead, zinc, iron ore, salt, and precious and semiprecious stones. Adequate supplies to support the rebuilding process throughout the targeted area.

Current Economic ConditionsThe current economic condition of Afghanistan is bleak. Gross domestic product has

fallen substantially over the past 20 years because of the loss of labor and capital and the disruption of trade and transport; severe drought added to the nation's difficulties in 1998-2001. The majority of the population continues to suffer from insufficient food, clothing, housing, and medical care, problems exacerbated by military operations and political uncertainties. GDP has fallen to a PPP of $21 Billion (2000 est.), and a per capita PPP of $800 (2000 est.), while inflation remains a serious problem. While this may project an undesirable business environment, we see it as just the opposite. Companies who move to assist in the rebuilding process will have a mid- and long – term advantage over competitor’s future attempts to enter the region. (CIA 3)

InfrastructureMuch of Afghanistan’s infrastructure was destroyed during the past 20 years of

turmoil, which provides the basis for the opportunity at hand. Following the US-led coalition war that led to the defeat of the Taliban in November 2001 and the formulation of the Afghan Interim Authority (AIA) resulting from the December 2001 Bonn Agreement, International efforts to rebuild Afghanistan were addressed at the Tokyo Donors Conference for Afghan Reconstruction in January 2002, when $4.5 billion was collected for a trust fund to be administered by the World Bank. Priority areas for reconstruction include the construction of education, health, and sanitation facilities, enhancement of administrative capacity, the development of the agricultural sector, and the rebuilding of road, energy, and telecommunication links. (CIA 4)

The Action PlanIt will be necessary to establish potable water sources; construct or provide

temporary housing for transferees; establish provisions re-supply line within the region;

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negotiate contracts with materials suppliers to provide raw materials, gas, and oil; and provide for state or military security services to ensure the safety of the work areas.

Module 4: ASSESSING THE SOCIAL – CULTURAL ENVIRONMENT

Demographic Trends Some of the demographic data are discouraging. During the past twenty years of war and oppressive rule, the quality of life has declined severely. The population of the country stands at about 28 million, with 42% ages 0 – 14 years of age, 55% ages 15 - 64 years of age, and 2.8% age 65 and older. The population growth rate is a modest 3.4 % including returning refugees who fled during previous conflicts, and the infant mortality rate is an astonishing 14.48%. An average 5.72 children are born per woman in the country, and the average life expectancy at birth is an extremely low 46.6 years of age. On a positive note, the HIV/AIDS population rate is below 0.01%. Another disturbing factor in Afghanistan is the literacy rate. Only 51% of the male population over age 15 can read and write, and only 21% of females. The average literacy rate for Afghanistan is a low 36%. (CIA 5)

Cultural AnalysisCultural characteristics further threaten the economic viability of successful business

within the region. There are three major ethnic groups; Pashtun at 44%, Tajik at 25%, and Hazara at 10%. In addition, there are many more minor ethnic groups such as Uzbek at 8%, and Aimaks, Turkmen, Baloch, and others which comprise 13% of the population. In and of itself, this would not be a serious problem; however, there are 3 major languages and 30 minor languages spoken by these groups throughout the entire region. In most major cities, Dari (Afghan Persian) is the spoken dialect with 50% of the total population, and Pashtun makes up the remaining majority with 35%.

Social InstitutionsIt is important to remember that the population of Afghanistan is primarily Islamic in

faith, and has been shielded by the governing body from western influence for a long, long time. Needless to say, religion plays a large role in the Afghan culture. However, this trend is rapidly changing as the Afghan people taste the flavor of freedom, and as many of the Afghan refugees return to tell the story of life in developed and developing nations. Strong family ties, deep religious beliefs, and a predominantly male oriented social structure must all be considered as part of the business equation.

Informal Trade BarriersDespite the aforementioned social conditions, the greatest barrier to conducting

business in Afghanistan is the looming security problems with imbedded radical fundamentalists who have fled to outlying areas where they patiently wait to attack the new government and its people. Lines of supply, and work crews in rural areas are particularly vulnerable to sudden attacks unless security is provided to detour them.

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The Action PlanSeveral local management and administrative personnel will be hired to conduct

work crews and maintain a local visible presence. All company logos and documentation will be printed in the two predominant dialects, and extra measures will be taken in cooperation with troops stationed in the region to provide security during projects implementation.

Module 5: ASSESSING THE POLITICAL-LEGAL ENVIRONMENT

Government and Politics The new Afghan national government is known as the Loya Jirga, which is a

democratic council comprised of tribe leaders from throughout the country, all serving under an elected head of state. The government has prepared a national budget and development framework to guide the country's reconstruction, and there are signs of economic recovery. The current government, while faced with serious security issues from the remnants of deposed groups, is working closely with the United States and other UN member nations, and the World Bank to reconstruct Afghanistan and provide a stable social, political, and economic environment. The current government, while struggling with capacity issues, welcomes all who seek to assist them in the process. Additionally, the cooperative administrative approach with the US, UN and WB make the economic feasibility or participating worth the security risks involved.

Formal Trade BarriersThe TISA passed an Investment Law in July 2002 with considerable tax holidays and

other incentives to encourage domestic and foreign investment.A significant international effort to reconstruct Afghanistan is currently underway, led by the United States and other international donors. Short-term opportunities for U.S. firms will be largely linked to the donor reconstruction effort, and U.S. firms are advised to work closely with international financial institutions such as the World Bank and the Asian Development Bank to access such opportunities. Limited Afghan purchasing power will hinder large scale U.S. exports to this country for the foreseeable future, although there will be niche markets for specific products. The absence of a banking system, proper telecommunications, and a functioning legal system make this a difficult market, but one with substantial opportunities for U.S. business. Business infrastructure, while virtually nonexistent in Afghanistan, is improving on a weekly basis. As a signal of U.S. interest in restoring trade ties with Afghanistan, in May 2002 President George W. Bush reinstated normal trade relations tariff treatment to Afghan products. At this time, there are no bilateral investment or trade treaties in place between the United States and Afghanistan. (EXPORT 1)

Promoting Global Business

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The assistance effort of the World Bank, the US, Japan, and other UN nations has created an environment primed for promoting global business. However, security concerns are still limiting the number of businesses willing to operate in the region.

Intellectual PropertyLimited government capacity and infrastructure present risks to intellectual property

which is a major concern to most businesses; however, the construction market is not particularly subject to this type of risk, and this threat is not considered an issue at this time.

Tax ImplicationsAs is the case with any capital investment, all funds put forward to expand our

business will be tax exempt from a US perspective. In addition, The TISA has recently passed a new investment law allowing, among other things, 100% foreign ownership, full transferability of profits outside of the country, international dispute resolution mechanisms, and stream-lined investment licensing procedures. The Afghan government has also discussed privatization of state industry and the development of oil, gas, and precious and semi-precious stones to attract foreign investors. (EXPORT 2)

Module 6: SELECTING A GLOBAL COMPANY STRUCTURE

Strategic Planning ACME Construction, Inc. seeks to provide reconstruction services to the country of

Afghanistan through joint cooperation with the World Bank and the US Department of State. It is our desire to employ local imported and domestic economic resources to achieve this goal. It is also our desire to maintain a permanent presence in the region to capitalize on the long-term growth opportunities of that country.

Entry ModesEntry will be gained through negotiations with the US State Department, the World

Bank, and the appropriate Afghan administrative bodies as part of the reconstruction process of that country transportations systems and infrastructure.

Organizational StructureIn order to maintain control over costs, and to ensure the viability of our first

extension into a host market, we will remain largely centralized with all proposals and bids processed cooperatively with the extension entity. Future stability and growth in the market may call for a review of the structure in the long-term, but for now business approval decisions and major purchases will be approved through a central corporate entity.

Strategic AllianceAs mentioned earlier in this feasibility proposal, we will make every effort to partner

with local vendors, local suppliers, and competitive entities in the region. Our primary 11

competition includes Louis Berger and IKUB Construction, and it is our intention to develop close working relationships to overcome the supply and distribution issues prone to the region. The lack of capacity in the region makes the concept of partnering relationships and co-ops very attractive.

The Action PlanOur business operations into the region will remain an extension of our central US

operations until which time the social, political, and economic stability of Afghanistan is realized. Our mission statement is to provide the Afghanistan government, the commercial sector, and the Afghani people quality major construction services at competitive market prices, while providing critical community support by providing jobs and acting responsibly within the environment. Our objectives are to establish a long-term presence in the region through participating in the country’s rebuilding process. Specifically, our primary construction interests will be in transportation construction of roads, highways, and bridges; government administrative building construction; and civil services or environmental construction services. We will continue with this plan as a 5 – year commitment, and re-evaluate as conditions change within the region. We will establish a central base of operations within Kabul, which will house our engineering, finance, administrative, project management, and primary communications resources. The “secured” operations facility will be located within the city limits, and we will deploy armed guards, security fencing, and day-night video surveillance to neutralize potential threats. The facility will provide maintenance and storage capabilities for heavy equipment and supply-line storage, in addition to adequate living quarters for our expatriates in the region.

Module 7: FINANCING SOURCES FOR GLOBAL BUSINESS OPERATIONS

Global Information NeedsStart – up costs will include the following items:

Land and Facility for field office operations and storage Heavy Equipment Leases and Transportation Establish Data and Communications Systems

Armed security services Relocation of core management personnel

Relocation Incentives Temporary and permanent housing accommodations

Travel Visas / Travel / Expenses/ Leases Licensing Fees (local)

Human Resources Administration Standard Benefits Package

Publishing and Administrative Costs12

High-Risk Insurance Unforeseen Costs

Global Information SourcesAll contract payments will be negotiated in US dollars, and paid out in US dollars.

Local personnel wages and supplier payments will be paid at a fixed negotiated rate in local currency per contracted forward exchange rates. The current exchange rate for the Afghani to US dollars is 43 to 1. This rate is a pegged rate that has remained stable since 2002.

Financing SourcesACME Construction will finance its own start-up through capital reinvestment funding,

while contract payouts occur per World Bank procedural guidelines. Should additional financing be required, domestic US sources will be tapped for long-term / low interest capital investment purposes.

Break Even Analysis

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FY 2004 FY 2005 FY 2006$589,820 $616,362 $644,098$138,000 $144,210 $150,699$750,000 $300,000 $300,000$50,000 $60,000 $60,000$305,564 $224,114 $230,960$728,000 $760,760 $794,994

$1,850,000 $1,933,250 $2,020,246$48,000 $50,160 $52,417$33,700 $35,217 $36,801$122,250 $127,751 $133,500$147,691 $154,337 $161,2824,763,025 4,977,361 5,201,342

FY 2004 FY 2005 FY 2006$245,000 $256,025 $267,546$128,000 $133,760 $139,779$202,000 $211,090 $220,589

$1,500,000 $1,717,500 $1,966,538$4,200,000 $4,809,000 $5,506,305

$0 $0 $0$6,275,000 $7,127,375 $8,100,757

FY 2004 FY 2005 FY 2006$4,763,025 $4,977,361 $5,201,342$6,275,000 $7,127,375 $8,100,757$1,511,975 $2,150,014 $2,899,415

Break Even Analysis(projected 3 years)

Expatriate Expense

Business Expense

A CM E CONSTRUCTION COM PA NY

Gross Profit CalculationBusiness ExpenseBusiness Revenue

Gross Profit (Loss)

World Bank ContractsUnforseen Revenue

Total Business Revenue

Construction ManagementEngineering ServicesConsulting Services

USAID Contracts

Business Revenues

Outside ServicesUnforseen Expense

Total Business Expense

Security ServicesCapital Equipment (lease)

Repairs & MaintenanceExpenses

Salaries and Wages

Property & New ConstructionMedia & IntelligenceHigh-risk Insurance

Action PlanBusiness plan will be fully documented, bid packages will be selected, and the bid

process will be initiated through the World Bank. Capital investment funds will be allocated per strategic planning and finance.

Module 8: A GLOBAL MANAGEMENT INFORMATION SYSTEM

Communications in Afghanistan are difficult, and in some places outside of Kabul, non-existent. During the anarchic period of the 1980s and1990s, the nation’s phone lines were excavated by fighters digging trenches and often stripped for copper by scavengers. There are just 12,000 functioning telephones in Kabul, a city of nearly two million. In September 2002, the Ministry of Communications issued a tender for a second wireless license. (EXPORT 3)

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For this reason, we will establish bi-directional microwave communications connection via satellite. Thrane & Thrane of Denmark will be our Inmarsat satellite provider.

(THRANE)Periodic (daily) batch updates will be transmitted from the node located at our

operations location in Afghanistan to our enterprise switch located at our corporate headquarters on the US east coast.

Existing company design, planning, and accounting software will be transferred with the core management staff to our extension operations headquarters. New computer and satellite communications equipment will be installed. Normal infrastructure communications system, both hardwire and wireless will be installed when they become available, but data communications will use microwave satellite communications technology. Technical personnel will be part of the core management team relocated to the new operations, and all procedural efficiencies will be established per existing company specs. New operations will be linked to the network through our enterprise switch. Job-based accounting software will be used to plan and track all data associated with ongoing projects.

Module 9: HUMAN RESOURCES for GLOBAL BUSINESS ACTIVITIES

StaffingThe primary staffing method used on initial inception will be a bilingual ethnocentric

staffing approach. We have chosen this method for three reasons; 1) because we believe that the host country lacks qualified individuals to fill senior management positions, 2) to

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maintain a unified corporate culture, and 3) to create value by transferring core competencies to the new entity.

Training and DevelopmentThe managers selected to lead this new division of the company are individuals who

have previous personal or family ties in the region, have tenure with our organization, and are well versed in company policy. Therefore, training will primarily be focused on minimizing security risks, establishing supply lines, and items related to the current sociopolitical environment present at current in the region. Additionally, it will be or goal to identify potential management talent among the local population in order to reduce any national or ethnic animosity, and to ensure smooth execution of work from a human resources point of view.

Performance AppraisalPerformance appraisals will be administered by the local chain of command and

reviewed prior to administration by the central office in the US. Standard company appraisal policy will apply, as it is our goal to create consistency regardless of location. We feel that our diversity based approach transcends ethnic and cultural boundaries, as it was designed to accomplish just that.

CompensationWe understand that it is a great sacrifice for our core competencies group to relocate

to this region as the quality of life is dramatically lower than what they are currently used to in the United States. Therefore, each willing member will be given a standard incentives package which will be administered annually throughout their 5-year relocation agreement. It is our sincere desire that key management positions can be filled from within the region upon reaching the five year milestone. If we are unable to accomplish this goal, extensions and/or permanent relocations may be considered and negotiated with the existing core staff.

Action PlanHuman resources in cooperation with the senior management staff will immediately

begin identifying those individuals within our organization who are qualified and willing to assist in this start-up endeavor. Expatriate relocation and incentives packages will be designed for approval prior to presentation. All company policy manuals and design software will be published in the two predominant languages in the region. A timeline will be developed for visiting the region, and performing the staffing administrative functions necessary to form work crews. A staff of HR representatives will be meeting with human resources executives and staff from IKUB Construction and Louis Berger who will assist them in planning their activities in the region. Assistance will also be provided during the hiring process once the new operations facility is complete. In addition, standard pay structures for all positions in the new branch will be developed at a level sure to attract quality skilled labor from within the region. In light of our cooperative relationship with IKUB and Louis Berger, we will avoid aggressive tactics that might otherwise lure skilled labor from these companies.

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Module 10: MANAGING INTERNATIONAL FINANCIAL AND BUSINESS RISKS

Economic and Financial RisksFortunately, this endeavor carries little risk in terms of currency values related to the

region, the projects, or any debt secured to assist our entry into the region. The World Bank is the primary trustee in charge of the bid awards and payment processes, and contract bid and payment are executed in US dollars. The Afghani dollar is currently pegged to the US dollar at a fixed rate, and inflation has stabilized in the region. The country of Afghanistan is now working under the financial guidelines put forth by the IMF in cooperation with the US and World Bank to promote economic stability and to build confidence with potential investing entities. On February 26, 2003, the Islamic State of Afghanistan (Afghanistan) settled its overdue financial obligations to the International Monetary Fund (IMF). With the settlement of these arrears, which totaled SDR 8.1 million (about US$11.1 million), Afghanistan is now current on all its financial obligations to the IMF.The IMF has provided extensive policy advice and technical assistance to the Afghan authorities since January 2002. The technical assistance has focused on fiscal, monetary, and statistical areas with an emphasis on capacity building in the Ministry of Finance, Da Afghanistan Bank, and the Central Statistical Office. Progress has been made in a number of key areas, including improving fiscal management and, more recently, the successful introduction of a new national currency. The IMF expects to continue working closely with the Afghan authorities. (IMF 1)

Social and Cultural RisksIt is clearly understood that Afghanistan is a predominantly Islamic-based culture. Observance of prayer time and religious obligations are certainly important to consider with this endeavor. However, we see the dedication and integrity of the Islamic community as an asset rather than an issue to be addressed. Our presence in the region will be one of strict professionalism, and bringing western values or cultural attributes to the region is NOT one or our goals in this process. Even with this in mind, there are risks in the region. Afghanistan is a country where 20 years of war and oppressive rule have completely destroyed the infrastructure. While U.S. and coalition forces defeated the Taliban in recent years, dangerous factions still exist within the country. As of March 3, 2003, factional infighting and criminal activity continued to affect humanitarian operations throughout the country, which has led to the suspension of various United Nations (U.N.) missions. (USAID 2)

Political and Legal RisksThe government of Afghanistan is still in the process of stabilizing, and has the

support and backing of the UN, the US, and other nation states throughout the world. Two of Its greatest challenges are capacity in administering its basic functions due to the lack of

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national infrastructure, and hostile remnants of the previous regime that have retreated to remote areas.

The command of the International Security Assistance Force (ISAF), which provides security in Kabul, changed hands on February 10 when Germany and the Netherlands formally took over the leadership from Turkey.Coalition forces, in cooperation with the Transitional Islamic State of Afghanistan (TISA) established the first Provincial Reconstruction Team (PRT) in Gardez, Paktia Province on February 2. The PRT will strengthen the presence of the central government, improve security, and facilitate the delivery of reconstruction assistance. The team plans to move toward the east and position from Baghlan to Badakshan. Similar teams will be established in other major Afghan cities over the next several months.

As a result of the increase in security concerns in Afghanistan, the U.N. Security Coordinator is preparing a national security incident database that will contain factual information on security occurrences in every region. The database will allow for a quantitative assessment of the security situation in the country. Already one international NGO has suspended operations in parts of southern Afghanistan due to security concerns.

Attacks on Coalition forces continued along the eastern border of Pakistan, especially in Kunar and Nangahar Provinces. In addition, besides the Coalition operations, the poppy eradication campaign and the mix of inter-factional politics and ethnic divisions has increased volatility in the east

Crime is also on the rise throughout the country and night travel has been discouraged in the central area of the country. Some remote areas are experiencing an increase in road banditry after dark, and missions have been advised to remain vigilant in Badghis. Particularly worrisome are the reports of robberies and attacks on international non-governmental organizations (NGOs) and U.N. agencies. For example, thieves broke into a U.N. agency's office in Kabul two times, stealing a large amount of equipment. Also explosive devices were launched at an international NGO on February 18 in Kunduz City and a U.N. agency in Jalalabad in March 2003. The following map indicates the area under the protection of U.N. security assistance personnel and special security forces.

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Risk Management TechniquesRisk management will be approached in three ways; 1) all local heavy equipment,

signage, and marketing will be reflective of the local state and culture (no American insignias will be displayed, nor will any advertising associate our local presence with the parent division in the U.S.), 2) we will carry high-risk insurance to cover any loss due to possible aggression by militant factions, 3) all local office, storage and maintenance facilities will be heavily secured, and 4) all worksites will be accompanied by UN security peacekeepers, state militia, or special security personnel.

Module 11: PRODUCT AND TARGET MARKET PLANNING19

Product ConceptThe product concept is a simple one, to provide engineering services, project management services, and new construction services in order to assist in the infrastructure rebuilding of the country of Afghanistan.

Product Life CycleThe product life cycle is of little effect in this scenario as the rebuilding process promises to continue into the long-term strategic future.

Branding and PackagingBranding and packaging are a major concern in this business scenario, as we are determined NOT to advertise that we are a foreign entity from a western nation. It is imperative that every effort is made to establish this division as a local entity in everyway.

Target MarketThe primary target market for the mid-term will be the World Bank infrastructure rebuilding programs. However, as other private or public projects become available, we will be interested in securing them. The World Bank uses a process called ICB (International Competitive Bidding) to award contracts to perspective NGO (Non-governmental Organizations). In order to become eligible to bid these contracts, a business perspective must be submitted for review, and a background check is performed on the interested NGO. Once approved, the bid packages become available to the interested NGO. As commercial and private investment becomes more attractive and available, we will turn our interests to bidding and securing government and private sector contracts through discrete contact. Afghanistan is not ready for the commercial marketing techniques as they apply to the developed nations of the world, and we do not want to make a target of our operations in the region. (World Bank)

Module 12: DESIGNING A GLOBAL DISTRIBUTION STRATEGY

Infrastructure AnalysisDistribution will be difficult primarily due to the hostilities that plague remote area in the region, and poor infrastructure. However, once a primary base of operations is established, most supplies including food, equipment, safety supplies, and other necessary supplies can be delivered via airlift into one of the regions major runways. Fuel and potable water are attainable in the region, and temporary concrete facilities can be easily setup and maintained.

Distribution Barriers

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Distribution barriers include the hostile entities, the Pakistani border, the Hindu Kush Mountains and possible heavy snows during the winters. In addition, many of the state’s major highways have deteriorated and many bridges have been damaged or destroyed. It is important to remember that this is the reason we are locating operations in the area, as there is much work to be done.

International IntermediariesInternational intermediaries include the US State Department, USAID, the U.N., the IMF, the World Bank, and several other NGO groups operating in the area to administer aid and help with rebuilding the infrastructure.

Distribution ChannelThe distribution channel only affects our ability to re-supply our projects, and maintain enough fuel, water, food, and other necessities required to operate in the region. These will be sufficiently investigated and satisfied moving forward.

Module 13: PLANNING A GLOBAL PROMOTION STRATEGY

Promotional GoalsMaintaining a quiet presence in the region is of the utmost importance to our success in the region. Our relationship with the U.S. Department of State, USAID, the World Bank, and the interim governing body is sufficient to accomplish our goals. However, when the region has further stabilized and economic growth in the private sectors becomes apparent, a strategy to compete for business will be developed. For now, the less visible our organization is the better!

Business EnvironmentAfghanistan is the one of the poorest countries in the world, and it relies primarily on it agricultural and livestock resources for income. However, as more business entities enter the region, additional jobs will provide income in markets other than the aforementioned.

Media PlanThere is no plan to draw media attention. In fact, it is our desire to avoid media attention until which time that all aggressive “anti-American / anti-western” forces in the region have been removed.

Promotional StrategyAs we will not be promoting our business at this time, we will only make ourselves sufficiently known to the trustees of the infrastructure and rebuilding process.

Module 14: SELECTING AN INTERNATIONAL PRICING STRATEGY

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The Economic Environment

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(IMF 2)Economic Environment

In reviewing Afghanistan’s recent economic performance, confidence is “high” among all involved that the country and its leading representatives are serious about changing the country’s past and building a prosperous future. While the country’s purchasing power is still dangerously low, economists are very optimistic about sustained stable growth well into the future.

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Cost AnalysisIn bidding our first contract, we will use information gathered on location in the

region to determine competitive wage rates. Many of our anticipated costs are easily estimated through supply chain research, but competitive wage information is not documented. If possible, we will attain this information from our partners in the region.

Demand AnalysisAt this time, a demand analysis is not forthcoming or necessary for our purposes in

the region as we will be focusing our efforts on World Bank and USAID sanctioned projects. As the economic and social infrastructures stabilize, market trends for construction will normalize and develop measurable patterns.

Competitor AnalysisWhile we have completed our competitor analysis, information regarding awarded bids, and pricing strategy are still incomplete. However, it is our desire to acquire this information through our developing relationships with IKUB Construction and The Louis Berger Group.

Module 15: DETERMINING ORGANIZATIONAL FINANCIAL RESULTS

Revenue SourcesRevenue sources have been identified and estimated as indicated by the following chart.

FY 2004 FY 2005 FY 2006$245,000 $256,025 $267,546$128,000 $133,760 $139,779$202,000 $211,090 $220,589

$1,500,000 $1,717,500 $1,966,538$4,200,000 $4,809,000 $5,506,305

$0 $0 $0$6,275,000 $7,127,375 $8,100,757

World Bank ContractsUnforseen Revenue

Total Business Revenue

Construction ManagementEngineering ServicesConsulting Services

USAID Contracts

Business Revenues

Operating CostsOperational costs have been identified and estimated as indicated by the following chart.

FY 2004 FY 2005 FY 2006$844,820 $882,837 $922,565$50,000 $50,000 $50,000$168,964 $186,567 $194,513$728,000 $760,760 $794,994

$1,850,000 $1,933,250 $2,020,246$48,000 $50,160 $52,417

$0 $35,217 $36,801$122,250 $127,751 $133,500

$0 $0 $03,812,034 3,983,576 4,162,836

Operating ExpenseSalaries and WagesMedia & IntelligenceHigh-risk InsuranceSecurity Services

Capital Equipment (lease)Repairs & Maintenance

ExpensesOutside Services

Unforseen ExpenseTotal Operating Expense

Start Up Costs

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Start-up costs have been identified and estimated as indicated by the following chart.

FY 2004$138,000

$1,275,000$100,000$33,700$49,494

1,596,194Unforseen ExpenseTotal Start-Up Expense

Start-Up Expense

Expenses

Expatriate ExpenseProperty & New Construction

Media & Intelligence

ProfitabilityProfitability has been identified and estimated as indicated by the following chart.

FY 2004 FY 2005 FY 2006$5,821,857 $6,083,840 $6,357,613$6,275,000 $7,481,840 $8,930,869$453,143 $1,398,000 $2,573,255

Net Profit CalculationBusiness ExpenseBusiness Revenue

Gross Profit (Loss)

Module 16: MEASURING INTERNATIONAL BUSINESS SUCCESS

Financial GainsWhile our company will realize a net gain from operations on World Bank rebuilding

projects, our primary interest lies beyond the rebuilding process and in future government and private sector projects.

Economic BenefitsWe believe that the economic benefits will be realized by our organization and the

host nation. The unemployment rate in Afghanistan is currently 50%. It is our desire to provide gainful employment to the local population, thereby raising the standard of living within the region.

Social BenefitsAs in any society, the provision of jobs and the increase in income and tax base raise

the standard of living. This begins a cycle of improvement that makes the area attractive to both consumers and businesses alike. It is our desire to contribute to this process by providing new jobs at above average wage rates.

Social CostsIt would be naïve to say that our western values and business practices would not

have an affect on society in the region. With greater prosperity comes greater temptation, and society will need to keep pace with these changes to control crime and provide social order. However, in a region such as this, things can’t get much worse than they currently are. Therefore, we believe that our presents will be a benefit carrying little social cost.

Works Cited27

CIA 1. Central Intelligence Agency. World Factbook 2002. Central Intelligence Agency. 6-May-23, http://www.odci.gov/cia/publications/factbook/geos/af.html#Econ, (2) (3) (4) (5)

EXPORT 1. U.S. Embassy. Doing Business In Afghanistan, Country Commercial Overview for Afghanistan, Fall 2002. U.S. Department of State. 18-Jun-03, http://www.export.gov/afghanistan/pdf/acco-fall2002.pdf (2) (3)

IMF 1. IMF External Relations Department. Arrears Clearance by Islamic State of Afghanistan. International Monetary Fund. 18-Jun-03, http://www.imf.org/external/np/sec/pr/2003/pr0323.htm

IMF 2. IMF Washington DC. Islamic State of Afghanistan: Report on Recent Economic Developments and Prospects, and the Role of the Fund in the Reconstruction Process. International Monetary Fund. 18-Jun-03, http://www.imf.org/external/pubs/ft/scr/2002/cr02219.pdf

THRANE. Thrane & Thrane. Mobile Satellite Communication Worldwide Coverage Map. Thrane & Thrane. 18-Jun-03, http://www.tt.dk/company/images/inmarsat_coverage.pdf

USAID 1. Bureau for Asia and the Near East. Afghanistan Breifing. The United States Agency for International Development. 6-May-23, http://www.usaid.gov/regions/ane/newpages/one_pagers/afgha.htm

USAID 2. Bernd McConnell. Afghanistan – Complex Emergency Situation Report #4 (FY2003) March 13, 2003. The United States Agency for International Development. 18-Jun-03, http://www.usaid.gov/hum_response/ofda/publications/situation_reports/FY2003/afghanistan_ce/afghanistan_ce_sr04_fy2003.html

ZHANG, SHENGMAN. Afghanistan Transitional Support Strategy Executive Summary. World Bank Organization. 6-May-23,http://lnweb18.worldbank.org/sar/sa.nsf/Attachments/TSS2Text/$File/Text.pdf

WORLD BANK. Abdul Raouf Zia. Projects and Business Opportunities. The World Bank Group. 18-Jun-03, http://lnweb18.worldbank.org/sar/sa.nsf/91e66bec154b73d5852567e6007090ae/5992a4d06aad2b3b85256b9d0058737b?OpenDocument

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