East Timor Political Situation - Business Strategy

Business Strategy

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East Timor political situation has enjoyed some considerable time of peace since the siege that had bedeviled the country for along time was declared officially over in May of 2008. This happened after the surviving rebel leader Salsinha and his fighters formally declared their surrender after an agreement had been reached to pay some form of compensation to the former guerillas. The general security situation of the country has been stable ever since following the actions of the rebel leader to preach peace. The economy of East Timor is still in the infancy stage and the country is rated among the poorest in the region of Asia-Pacific. Due to commercial exploitation of oil in the Timor Sea, the economy of East Timor has grown at very high rates. The past few years has seen the country's GDP grow at very high rates. The IMF forecast showed that the growth would be about 8.2 % in the year 2011 (Department of Foreign Affairs and Trade, n.d). There have also been indications that the government will embark on developing infrastructure to support the tourism sector and sustainable fishing industry. Currently there are barely any infrastructures that can support the economy for instance there are very poor roads in existence. The peace coupled with a promising growth in the economy has led many companies to consider coming and investing in the country. The report will give a possible diversification strategy that the firm can use to approach the venture and the advantages and disadvantages of the strategy chosen. Recommendations will be given on the way forward. The report will then identify the main obstacles and opportunities that the firm will face while entering the new market.

In the life of every company, there always arises the need to diversify their operations in order to retain their relative position in the market. In business, there are only four sure alternatives to business growth. They are market development, increasing a firms market penetration, the development of new products and finally through diversification. The Sandfords Group is in the process of choosing a route that will ensure increased survival in the market through the use of diversification of their portfolios. Diversification refers to a complete or partial change in the products or service that a company puts in the market which include moving away from the present method of production and the structure of the market. Diversification requires new employee and management skills, new methods and techniques of operations and new physical facilities (Hill & Jones, 2010).

Business the world over are diversifying for a number of reasons such as the distribution of risks, reinvestment of the profits, to utilize the productive capacity which the companies have in excess and also to cover for obsolete technology in the firm. Sandfords Group seeks to diversify to cash in on the new opportunities that exist in East Timor construction industry, redistribute the risks in the face of the financial crises of the current century. Since the merger, there have been excesses in the capacities of the companies and thus the need for the diversification. In the search for a diversification strategy, a business must consider the political and international trends. The situation in East Timor is nearing stability levels as had earlier been indicated in this report. The country also gets support from many world governments for example Australia which has worked so hard towards the stabilization of the country in terms of polity. The construction industry in East Timor is still very young and it is just beginning to recover from the ravaging wars of the last thirty decades. The firm is very strong and can compete fairly with the firms already present in the industry as its capital base was greatly boosted by the merger. The economy of the country also promises returns as it has been noted to be among the fastest growing in the world. From the trends it's clear that the company can diversify to realize its goals of increased profitability therefore a need to choose a strategy (Kenny, 2009.

The company can pursue lateral diversification as it intends to move from the confines of the tourism hotel industry where it currently operates to include operations in the construction industry. The lateral move would be necessary as it will help to cushion the company against such unforeseen issues such as recession and also helps to expand the tech-base of the company. Since the company intends to make the operations in East Timor independent from the larger company, lateral diversification will be the most appropriate strategy for the company. Lateral diversification is in line with all the objectives and goals that the company seeks to achieve. The lateral diversification is a sure way of improving the profit structure of the company. The Prime Minister of the East Timor did indicate that they wanted to embark on a massive reconstruction of the country (Department of Foreign Affairs and Trade, n.d).

Advantages of diversification include economies of scope for instance achieved through the coordination in the flow and access to knowledge between the diverse businesses under the company. Moreover, the firms can greatly reduce the risks that they face due to market changes as they will have larger and very broad bases that down turns in one area will have near negligible effects on the firms operations. Long term growth achievement are also ensured by the diversification as the profits or lack of it thereof in one area (Lau, 1993; Jahera, Lloyd & Page, 1987)

Diversification of this nature can sometimes result into some disadvantages. The first is diversification for the wrong purpose for instance diversification aimed at risk pooling by engaging in the operations of industries that have different business cycles can instead result in unprecedented losses. The reduction of the risks can be better carried out by the individual shareholders when they buy into the stocks of different companies. But for the case of companies, it can turn out to be costly with very little benefit. A case in point was the Kodak's lateral expansion in the 1980's. The company diversified into the health sector and computer hardware