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How American Conduct International Business?
The paper discusses the question of how America conducts international business around the world. The paper pays special attention to the category of the American economy which provides opportunities for leading this type of compound of the political field of the country. The research provides some general background of the issue, shows the most significant causes, constitutive essence, and main consequences of international trade, and also provides insight into the reasons for the USA and China collaboration in this sphere.
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The research has been conducted with the help of the most recent literature in the field. Providing a critical analysis of the business issues and aspects in question, the paper shows the advantages, benefits, and essential shortcomings of the process of conducting business in America and provides a clear answer to the question of how leadership works in the sphere of US business. Such an approach helps evaluate the crucial business models which the USA is exposed to.
The United States is the largest economy in the world and has been a global leader for the past 100 years. The development of various types of businesses in the context of maintaining the stability of the economy is very important for the US government. Americans possess a unique entrepreneurial spirit that requires several factors to prosper, including the economic system being reliable, laws being clear and enforceable, and businesses receiving preferential treatment. For these reasons, entrepreneurs from all over the world want to start a business in the United States. These aspects make it interesting to research the essence of the US way of business conduct. Additionally, the economic factors of the process as well as the cultural, financial, and political ones are of significance when determining the essential particularities of how Americans engage in business and what approaches they use while conducting it. Therefore, the paper claims that the process of conducting business is a procedure that has been simplified for Americans to a great extent to help the native population succeed in this field.
The Essence of International Business Dealing with Americans
In the ranking of ease of doing business, the United States takes fourth place in the world. According to Rugman and Collinson (2009), registration of enterprises in the United States, in keeping with the ratings of 2009, consists of six procedures that take an average of five days. This is significantly more in comparison with the countries taking better places in the ranking.
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Despite this, the US leads in the sub-ratings “investor protection” and “Loans.” These interesting aspects of the business conduct in the USA determine the choice of this country for investigation. Additionally, the extensive research conducted on the field of business in the USA determine the need for critical analysis of the situation. This approach is to be accompanied by social, economic, and political environment analyses. The most profitable industries in the United States, according to estimations of a financial company Sageworks, are legal services, rental, and leasing of equipment, oil and gas industry, medicine (including dental services, ambulatory software), as well as funeral services (Rugman & Collinson, 2009).
In the USA, there are a number of available programs to assist budding entrepreneurs. According to Dunning (2013), these programs are designed for environmentally friendly businesses, home businesses, internet businesses, self-employment, as well as for business, which is started by representatives of national minorities (particularly, Native Americans), veterans, and women. However, today a successful American businessman should not stop at the activities limited by their home country. At a certain stage, it leads to a stop in development and even degradation. It is interesting to grow, develop, and move to the west and to the east.
Today, international business is the most profitable and desirable. To prove this fact, it is significant to analyze how international companies work. According to Dunning (2013), American companies produce computers and mobile phones in Chinese facilities, while the documentation is made up in India and printed in Vietnam. With the help of Italian transport companies, these computers are delivered through Germany to other countries in the world. These complex operations are needed above all because they are reliable and secure.
Today, to stand firmly on the platform of success, a businessman must be a part of international cooperation. It is well known that the countries that provide the most favorable conditions for business are positioned high in the ranking of the most economically developed countries. Fortunately, Americans have a lot of conditions for international business. According to Rugman and Collinson (2009), in America, there is no exchange control. It means that United States citizens can move freely in most countries of the world, as well as open bank accounts in most banks. The US government does not care how many accounts its nationals have in any bank in the world and where they are open as long as they were reported in the annual tax reports.
In the US, customs regulations are simplified in all matters. Most of the products have no customs value and the level of service of customs brokers has remained on top for a long time. In order to create an international business, an American does not need to possess any additional permissions. The business can always work effectively.
In cooperation with European companies, new opportunities are offered. According to Rugman and Collinson (2009), the company, which does business success not only in Europe, will be eagerly offered to become their dealer in the United States. Such companies present their full support to dealers.
In the discussion of the paper written by Dunning (2013), the Minister of Labor in the first Clinton administration asked the question: “Who are we?” The author argues that the definition of companies such as American, British, or Japanese on the sole ground that they originated in these countries and have their headquarters there misleads politicians and analysts. The role of international business grows, and companies open new industrial, commercial, and research centers in other countries. In many companies, the number of foreign workers exceeds that of the domestic ones, but sales and profits obtained abroad are more significant than in the native country. In this regard, Table 1 shows major American companies, most of which operate in foreign countries.
Table 1. The globalization of US companies (% of transactions accounted for the other countries) (Dunning, 2013).
Hence, Dunning (2013) argues that there is, in fact, no nationality, and thus the government should appreciate this fact and compel companies regardless of their origin to invest in the human resource development of the state. This idea is very important. According to Rugman and Collinson (2009), international business provides enormous opportunities in addition to significant risks and poses new challenges for corporations and their leadership. Some problems are quite common in nature: how to organize a company and how to navigate the economy in the political circumstance of a foreign country.
What Are the Advantages of International Investments?
Domestic enterprises have a competitive advantage at home. This means that a very strong incentive is needed to make a company do business abroad.
Possible Competitive Advantages of Foreign Companies
Due to the lower costs of production, large multinational corporations have an advantage over the more modest-sized local companies. In addition, companies can exploit their superiority in knowledge or technical expertise. The advantage of knowledge explains how companies stay competitive in foreign countries. This explains the fact is why they make the decision to invest in these countries.
Another important motive for investing abroad is the desire to reduce production costs. Without foreign investments, it is often not possible to provide guaranteed access to cheap raw materials. The desire to reduce costs explains the need for opening overseas offices and production facilities to serve local customers. According to Dunning (2013), sometimes companies venture to overseas investment under the influence of grants offered by foreign governments. To attract technologies, jobs, and hard currency to the country, many countries offer tax and/or customs privileges or preferential loans to foreign companies. Finally, direct investment abroad is attractive to companies seeking to diversify their sources of income.
Negative Aspects of Foreign Investments
Overseas operations generate additional difficulties. In considering the forecast cash flows and risk adjustment, it is important to remember the presence of a number of potential difficulties. First, the company is perceived as foreign, causing hostility on the part of groups of consumers, competing national companies, and government officials.
They often treat foreign parent companies with distrust. Local interest groups perceive these companies as outsiders. According to Dunning (2013), such an attitude is purely delusional. Second, if all foreign operations are very far from the headquarters, it complicates the collection and transmission of information, control, and management. Third, in the implementation of organizational development and personnel policy, cultural differences must be considered. Fourth, financial planning and policies should be subject to a new set of tax laws and legal restrictions. In addition to this, the operations have to be conducted in foreign currency, which increases the uncertainty of the cash flows and becomes the new essential component of risk. Finally, the company operates in an alien political environment. Failure to understand this medium and its laws can result in severe penalties, including conflicts with the laws of their own country.
Political Risks and Production
The impacts of events in the field of political risk may be different, so managers should be prepared for the kinds of events that can have an impact on their industry, company or project. According to Zerk (2006), revolutionary movements and terrorism bring the greatest economic damage. For instance, in December 1977, GTE signed a contract with the Iranian government on the development of telecommunications for the amount of more than $500 million (Zerk, 2006). Under the contract, $94 million were paid in advance in the form of letters of credit, commonly used in the Middle East as a guarantee of the performance of the contract (Zerk, 2006). The company, accustomed to trusting the government of Iran, has not defined the cases in which Iran can implement letters of credit and had no insurance.
According to Zerk (2006), the source of political risk can be not only the revolution, coups, and terrorist attacks, but also changes in legislation. The company, enlisting the promises of the government to protect the production and investment in Iran, built a tire plant, the largest in the area of Europe and the Far East. However, in the middle of the 1970s, Iran’s government prematurely abandoned the protectionist measures in favor of two competitors, so that the American company had to move from a three-shift operation to a single eight-hour shift.
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The change of government? as a result of the election, a coup or revolution ? can have economic consequences and, in turn, lead to changes in policy towards foreign investors. For instance, changes in the political and economic ideology threaten expropriation of most or even all of the property owned by foreign companies. For instance, during the civil war in Angola in 1975, the Gulf Oil Corporation was able to agree with the ruling Marxist party on a very favorable business environment/ In 1973, Dow Chemical was able to return to Chile after the government of Salvador Allende was toppled.
Collecting and analyzing information is necessary to anticipate changes in government policies or conduct of other important groups in the country where the company operates. There are other ways to reduce risk. The prevalence of strikes in different countries varies. If a country is characterized by frequent strikes, a company can choose capital- intensive technologies that reduce the need for labor or resort to employment policies to reduce the risk of strikes.
According to Zerk (2006), a major US electronics company with a powerful plant in the UK, where unions are very strong, hires only those who are not members of trade unions. To achieve this special situation, the company introduced a very generous bonus system and maintains a friendly atmosphere in relations between managers and staff. This policy leads to additional costs but reduces the risk of strikes. The company does not experience losses from strikes and enjoys greater flexibility in payment and compensation systems for long service. Finally, the political risk may take the form of state intervention in property relations and in the investment process. Typically, strengthening government interventions and a change in attitudes towards foreign investments are preceded by significant economic and political events.
Companies involved in international business should know the factors that influence the exchange rate, operations risks, and ways to manage these risks or mitigate them. The exchange risk affects the ability of companies to withstand foreign competition. When the exchange rate grows, and products become more expensive, prices are set in a particular currency. Therefore, the strengthening of the dollar is not profitable to American companies, which are engaged in export or compete with foreign companies importing goods to the USA. A remarkable example of competition is between companies Caterpillar and Komatsu, including the fact that their long-term competition is carefully documented in the press and by a number of studies. In the 1960s, Komatsu embarked on a long-term plan, the goal of which was to catch up and then overtake the Caterpillar company that was a leader of heavy engineering. The plan could be successfully implemented as long as Caterpillar did not actively change its approach.
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Caterpillar Company was engaged in the improvement of its production base in the United States. Rather than join a number of American manufacturers in the conversion of production facilities to countries with cheap labor, such as Mexico and the Pacific Rim countries, Caterpillar company sought to ensure the competitiveness of its US plants. The so-called program “Plant with future” was made for this. The program included a complete overhaul of the production in the United States: the installation of automatic production lines, ordering assembly plants, etc. But then all the results of this company were threatened. The exchange risk that hit Caterpillar is very difficult to manage.
Organization of Transnational Companies
Transnational corporations face a number of additional difficulties. Percy Barnevik, ABB’s CEO and one of the most respected heads of international corporations, formulated three contradictory objectives that global companies have to solve: to be global and local; to be large and small, and to be centralized and decentralized (Dunning, 2013).
The meaning of Barnevik’s idea is that, while decisions are made on the local level, the company must have opportunities and freedom to operate anywhere in the world. Consumers are attracted by cheap prices, which can only be provided by mass production. To achieve these savings, it is necessary to centralize certain functions and implement them in all departments of the company’s advanced production techniques and management. It is important to delegate authority, which is only possible in a decentralized organization.
USA – China: Business of Eagle and Dragon
China is the largest market for suppliers of cars, mobile phones, and equipment, as well as the largest purchaser of aircraft, the second-largest computer market in the world, and the largest state lender. China has also become the largest buyer of US government debt. According to Kose and Yi (2006), virtually all US corporations established their businesses in China. In terms of investment in China, the United States is ranked second, ceding only to Japan. The US economic policy towards China is based on two principles.
First, the United States seeks to integrate China into the global economy, hoping that it will lead to the beginning of fundamental economic and political reforms in the country. This, in turn, impact Asia and the world positively. Second, Washington tries to facilitate the access of American investors and exporters to the Chinese market.
Over the last three decades the US? China’s economic relations have strengthened considerably. The volume of bilateral trade has grown from $ 2 billion in 1979 to 459 billion (Kose & Yi, 2016). According to Kose and Yi (2006), for the United States, China is the second (after the EU) largest trading partner, the third (after the EU and Canada) export market, and the largest source of imports. In 2016, the amount of foreign capital of the eastern state reached the 116 billion dollar mark. Part of these 13,5 billion dollars aimed at the development of the US business projects: 4 billion dollars ? the US manufacturing industry, 2,24 billion dollars? leasing, 1,23? the sphere of maintenance and research. Thus, about 97 transactions were concluded between the United States and China over the current financial period. It is worth noting that the percentage of investments in China for the year 2016 also increased by 4,5%.
Ten Reasons to Invest in Enterprise in China for an American
The US companies began to cooperate with China long ago. Over time, more and more businessmen began to think about opening their own production facilities in China. The forecast for the next 5 years is positive enough in the US business field. The election has passed, and voters chose Trump as their President. According to the new president’s promises, the business aspect will be developed to a great extent, providing entrepreneurs with more benefits to stimulate better development of the country’s economy. Hence, it is possible to state the most important reasons to invest in a business in the USA and answer the question of why would somebody invest in US businesses or like to start one in the country.
Attractive Investment Climate within the Country
For many years, China has ranked first in terms of attracting foreign direct investment among developing countries. Over the years, a lot of entrepreneurs from around the world were convinced that it is possible to relatively quickly to create and organize a vertically? integrated enterprise in the free economic zone and know that the money invested would be profitable.
China’s Economy is the Largest Economy in the World
Last year, the International Monetary Fund confirmed that China passed the US GDP converted into US dollars at purchasing power parity. Thus, China’s economy has become the largest in the world. However, this does not mean that China has become the richest country. GDP per capita is still significantly inferior to that of the USA.
China Offers Public Programs that Support Small and Medium Businesses
Support for small and medium businesses is one of the priority programs of China. In addition, exporters are waiting for additional grants in the amount of 3?5% of the value of production and preferential tax treatment.
Despite the rise in purchasing power and the pace of development of the national economy, the cost of labor in China is still relatively low. This factor has attracted investors and businessmen from around the world for a long time. The work of Chinese workers has to be strictly controlled. Particular attention should be paid to quality control because Chinese views on defective products are frequently different from the European ones.
Low Cost of Raw Materials
According to Kose and Yi (2006), investors from around the world are interested in China as a production and resource base. Interestingly, the search for cheap raw materials still remains an urgent problem for the United States. That is why the organization of production in China allows for solving this problem.
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The Good Geographical Location in China for International Business
Services, such as DHL and FedEx, enable delivering small consignments of goods from China very cheaply. In fact, goods are delivered quickly and customs clearance takes less than one day if all documents are filled out correctly.
Expanding of Products Distribution
By establishing production in China, the company changes the geography of the market and can no longer limit itself. It makes no sense to carry raw materials from China, process them, and then sell the finished product in Europe or the United States if it is possible to avoid unnecessary costs of transportation and logistics and organize delivery directly from Chinese factories.
The Growth of China’s Domestic Consumption
China is a two billion sales market. China’s domestic consumption is growing along with the economy as a whole. According to Kose and Yi (2006), despite the fact that China’s economy is export-oriented, private consumption in the country for the past twenty years has been growing at a rate of at least15% per year. This is mainly due to the stable non-inflationary growth of the Chinese economy. Hence, the biggest market in the world should not be ignored.
Easy Company Registration
For comparison, in Hong Kong, the company can be registered via the Internet, and most of the time can be dedicated to the creation of a quality product and finding customers instead of attempts to grasp the subtleties of the paperwork.
Possibility to Enter the International Market and to Build an International Business
Due to its geographical location, resource base, and government programs aimed at attracting foreign capital, China has become an ideal platform for international business.
The USA can boast the best conditions for doing business in the world. If someone closes their business project in this country, it was probably not due to the complexities of doing business, but the lacking entrepreneurial skills of that person. The US government monitors the stability of the economy, justice, and the legal framework, creating opportunities for the realization of entrepreneurial ideas. The US government has been developing the most profitable program for the conduct of international trade for many years. Customs, tax authorities, the banking system, as well as other state authorities actively participated in the development of the program and did their utmost for the business prosperity, replenishing the state budget at the same time.
Meanwhile, China summarizes the financial year, which was revealing in terms of the establishment of financial relations with the United States of America. According to the data that was revealed by the representatives of the Ministry of Commerce of China, over the period of the past 10 months, China’s foreign direct investment, the non-financial sector increased by 53,3% as compared with the same period last year. Finally, having investigated the business environment in the country, I would personally invest in the business field of the USA because it seems to be attractive, fruitful, and beneficial.
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