Explain the international business environment of countries HG operates in. Focus on China, Germany and the United kingdom and how this affects HG. Describe the following aspects:
* Economic value;
* Imports and exports;
* Balance of trade;
* Availability of skilled labor;
value; China’s economy has grown by 9.7% annually, ranking first in gross outputs for the first time. According to the data from the World Bank, China’s GDP surpassed that of Britain in 2006, becoming the fourth biggest economy in the world and accounting for 20% of global economy. In 2010, because of the difference on economic growth rate for many years, China’s economic output surpassed that of Japan, becoming the global second biggest economy. According to the predictions economists and Goldman Sachs, in the coming 20 years China’s annual economic growth rate will maintain about 7%. Around 2030, China’s economic output will pass the US and will be the world leader. The Chinese foreign cargo volume of trade has increased suddenly from 20,640 million US dollars in 1978 to 2,561,630 million US dollars in 2008. The top income tax rate is 45 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a real estate tax. The overall tax burden is equal to 17.5 percent of total domestic income. Government spending has been expanding, with central government spending now equivalent to 23 percent of GDP; off-budget obligations are extensive. Reported central government debt has increased to 33.8 percent of GDP.
Imports and exports; China surpassed Germany to become the world largest export country. According to Li Gang, a researcher of the research institute of international trade and economic cooperation; China’s gross trade volume, including
cargo trade and service trade, will amount to about 5300 billion US dollars by 2020, with about 4300 billion US dollars on cargo trade and approximate 1000 billion US dollars on service trade. By that time, China’s cargo trade export amount will be about 2400 billion US dollars, ranking the first in the world. The import amount will amount to about 1900 billion US dollars, ranking the second in the world.
In 2010, China exports totaled $1.581trillion trillion, up from $1.429 trillion in 2008. It’s main exports are electrical goods and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment.
In 2010, China imports totaled $1.327 billion, up from $1.131 trillion in 2008. It’s main imports are electrical components and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics and organic chemicals.
Balance of trade; China reported a trade surplus equivalent to 26.7 Billion USD in August of 2012. Historically, from 1986 until 2012, China Balance of Trade averaged 6.2 Billion USD reaching an all time high of 40.1 Billion USD in November of 2008 and a record low of -66.0 Billion USD in December of 1989. Export growth has continued to be a major component supporting China’s rapid economic growth. Exports of goods and services constitute 39.7% of GDP. China major exports are: office machines & data processing equipment, telecommunications equipment, electrical machinery and apparel & clothing. China imports mainly commodities: iron and steel, oil and mineral fuels; machinery and equipment, plastics, optical and medical equipment and organic chemicals. Its main trading partners are: European Union, The United States, Japan, Hong Kong and South Korea.China Balance of Trade
China Balance of Trade
Availability of skilled labor; China’s having the largest available labor pool in the world, but there is a shortage of skilled and experienced workers. Basically, China is a country with an very large amount of unskilled labor. Because of the low skill level in Chinese employees, it fits for these workers to find jobs in simple services that don’t require a lot of knowledge or training.
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Economic value; Germany is the largest economy in the European Union. Germany economy could manage to have a GDP of $2.182 trillion in 2012 Even in the recession marred years, the German economy managed to stay stable as the world sixth largest country in terms of GDP. The GDP per person has been strong as well. In 2011, the per capita GDP was $34,200. In 2008, the per capita GDP was slightly higher at $35,900 and $35,500 in 2010. But the unemployment rate grew from 7.8% to 8.2% in 2009. This may be caused by factors ranging from an industrial slow down to lesser imports for productivity. The top income tax rate is 47.5 percent. The federal corporate tax rate is 15.8 percent (15 percent plus a 5.5 percent solidarity tax), but trade taxes raise the effective top rate to roughly 33 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 37 percent of GDP. Government spending is equivalent to 47.5 percent of GDP, and it has been widening, with public debt reaching 84 percent of GDP.
Imports and exports; One of the strongest demand for German’s commodities is automobiles. In 2009, Germany produced 5.2 million vehicles, and was the world’s fourth largest producer and largest exporter of automobiles. Germany automobile companies also dominate 90 percent of the top tier automobile market, which boasted brands such as Mercedes-Benz and Porsche.
Total value of exports: US$1.337 trillion
Primary exports – commodities: machinery, vehicles, chemicals, metals, manufactures, foodstuffs, textiles
Total value of imports: US$1.12 trillion
Primary imports – commodities: machinery, vehicles, chemicals, foodstuffs, textiles.
Balance of trade; Germany reported a trade surplus equivalent to 17.9 Billion EUR in June of 2012. Historically, from 1971 until 2012, Germany Balance of Trade averaged 5.6 Billion EUR reaching an all time high of 20.1 Billion EUR in June of 2008 and a record low of -0.5 Billion EUR in January of 1981. German economy is heavily export-oriented (the world’s biggest exporter), with exports accounting for more than one-third of national output. Its principal exports are: motor vehicles, machinery, chemical products, electrical devices and telecommunications technology. German’s principal imports are motor vehicles, chemical products, machinery, oil and gas and computers. European Union makes 60 percent of the total trade. Other major partners are: U.S. China and Russia.
Germany Balance of Trade
Availability of skilled labor; It benefits from a large pool of talented work force that has enabled Germany to dominate the vehicles, machinery, chemicals and household equipment vertical across the globe. It is this strong and productive work force that enabled Germany to face recession with a resilient face
Economic value; Struggling to get away from the severe economic slowdown of the past three years, the British economy continues to underperform, with an average annual growth of less than 1 percent over the past five years. The dramatic state expansion that had taken place in reaction to the financial turmoil has slowed. Significant reforms are still needed to place the economy on a solid path of recovery, with prospects complicated further by the ongoing European sovereign debt crisis. Restoring the soundness of public finances remains the most critical issue and will require a sustained commitment to downsizing government spending. The budget deficit has been over 7 percent of GDP in recent years, and public debt has risen to over 70 percent of total domestic output.
The top income tax rate is 50 percent, and the top corporate tax rate has been reduced to 26 percent. Other taxes include a value-added tax (VAT) and an environmental tax. The overall tax burden amounts to 34.3 percent of total domestic income. Government spending has risen to a level equivalent to 51.2 percent of GDP. The budget has a deficit of over 7 percent of GDP, and public debt has climbed to 75.5 percent of total domestic output.
Imports and exports; Since the beginning of 2011, UK’s monthly trade deficit has hit record levels of more than £4 billion per month. The monthly deficit in the UK for 2011 is also exceeding the previous record level of £3.5 billion per month reached in 2007.
Total value of exports: US$405.6 billion.
Primary exports – commodities: manufactured goods, fuels, chemicals; food, beverages, tobacco.
Total value of imports: US$546.5 billion
Primary imports – commodities: manufactured goods, machinery, fuels; foodstuffs
Balance of trade; The United Kingdom reported a trade deficit equivalent to 1.5 Billion GBP in July of 2012. Historically, from 1955 until 2012, the United Kingdom Balance of Trade averaged -1175.9 Million GBP reaching an all time high of 2946.0 Million GBP in March of 1981 and a record low of -6067.0 Million GBP in August of 2005. The United Kingdom is the world’s fifth-largest trading nation, highly dependent on foreign trade. It must import almost all its copper, ferrous metals, lead, zinc, rubber, and raw cotton and about one-third of its food. The United Kingdom’s exports manufactured items like telecommunications equipment, automobiles, automatic data processing equipment, medicinal and pharmaceutical products and aircraft. Its main trading partners are European Union countries, The United States, China and Japan.
United Kingdom Balance of Trade
Availability of skilled labor; The labor regime remains repressive, although the labor law introduced in 2008 allows employees more contractual rights. (couldn’t find a lot of information about UK’s skilled labor)
Describe how the following mechanisms regulate international trade:
* The work of the WTO in international trade;
* Quotas and Tariffs;
* The legislation on product safety and reliability;
The work of the WTO in international trade;
The WTO facilitates the implementation, administration and operation and further the objectives of multinational trade agreements and they also provide the framework for the implementation, administration and operation of the other trade agreements.
The WTO provides the forum for negotiations among its Members concerning their multinational trade relations.
The WTO may also provide a forum for further negotiations among its Members concerning their multinational trade relations and a framework for the implementation of the results of these negotiations.
The WTO administers the understanding on rules and procedures governing the settlement of disputes referred to as the Dispute Settlement Understanding or DSU
The WTO administers the Trade Policy Review Mechanism referred to as the TPRM
With a view to achieving greater coherence in global economic policy-making: the WTO cooperates appropriate with the International Monetary Fund and with the International Bank for reconstruction and development and its affiliated agencies.
Quotas and Tariffs;
A tariff is a fee, not a tax on imports or exports in and out of a country. There are three situations in which governments often impose tariffs:
To protect fledgling domestic industries from foreign competition.
To protect aging and inefficient domestic industries from foreign competition.
To protect domestic producers from dumping by foreign companies or governments. Dumping occurs when a foreign company charges a price in the domestic market which is “too low”. In most instances “too low” is generally understood to be a price which is lower in a foreign market than the price in the domestic market. In other instances “too low” means a price which is below cost, so the producer is losing money.
A quota is a limit on the quantity of a good that can be produced abroad and sold domestically, a quota raises the domestic price above the world price. Why governments impose quotas: Because the quota raises the domestic price above the world price, domestic sellers are better off, and domestic buyers are worse off. In addition, the license holders are better off because they make a profit from buying at the world price and selling at the higher domestic price. So import quotas decrease consumer remaining while increasing producer remaining and license-holder remaining.
While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial, and so to be most commonly promoted by domestic firms facing competition from foreign imports. Domestic firms benefit with higher sales, greater profits, and more income to resource owners. But by increasing domestic prices and restricting accessing to imports, foreign trade policies tend to be harmful to domestic consumers.
The legislation on product safety and reliability;
Other than to protect the consumers of certain products, product safety also protects manufacturers. Product safety refers to the production, distribution, and sale of products that from various perspectives are either potentially unsafe or inherently unsafe to consumer use. The unsafe product can be defined as design defect, miss presentation as to use, insufficient warning as to potential danger and hazard of the product. There are also community rules governing liability for defective products. So if you have been harmed by a defective product, the producer, the importer and, in certain circumstances, the supplier may be liable for damage caused because the product did not offer the safety which may reasonably be expected.
Since product safety and product liability are inseparable, implementing product safety help manufacturers to avoid and prevent unnecessary legal matters, product recalls and also provide product safety information to consumers. product safety also acts as a confident builder for consumers. When consumers shops for items and products, they would most certainly prefer a product that has been proven safe and of good quality.
Present a PEST analyses on both the Netherlands and China
The Netherlands
Political
The Netherlands is a constitutional monarchy since 1815 and a parliamentary democracy since 1848. The Dutch monarch has no real political power from the representative side head of state Queen Beatrix, from the executive side the person uniting the divided parliamentary politics.
The Netherlands is usually governed by an alliance of different political parties. The prime minister comes from the party which won the most seats in the elections and forms the new government with his party and co-operating parties. These days the Dutch government has become a little more stable since the last 2 years. Dutch constitution guarantee freedom of the press, as is free speech. Moreover, journalists don’t present flagrant news in the light of tabloid sensationalism. But government limits press freedom establishing rules especially regarding country’s secret service.
The Netherlands joined monetary union on January 1st 1999. The European Central Bank controls the monetary policy and sets interest rates in the euro zone. The Netherlands is a member of the euro zone. The Inflation level between 2008 and 2011 has been relatively low, averaging 2% and is expected to stay low at about 1.5% in the coming years.
Refinancing rate was raised by 25 basis points eight times to 4 % since December 2005. Due to recent financial turmoil intervention rates have risen very rapidly to 4.7 %. Since 2010 these rates remain unchanged and likely to continue to do so in 2011.
Economical
The Netherlands has one of the most advanced economies in the world, which is modern and diversified, with institutional strengths in the sphere of legal framework and impregnability of property rights.
Exports and imports account more than 60 % of nominal GDP. Strategic geographic position and a small size of its domestic market play a key role on the world arena and by attracting foreign investments. The Netherlands showed significant economic performance and GDP growth in the nineties. The economy’s main focus is export commodities. Dutch trade mainly comprises chemical products, fossil fuels and agricultural products, machinery and transport equipment. Exports contributed 70 % of GDP in 2000 in comparison with 58.3 % of GDP in 1996. In 2001 the rate of GDP decreased sharply and the economy didn’t see growth improvements at all in 2002-2003. Cyclical shock was caused by lower rates of export growth as part of the global economic slowdown. 2006 however, showed a promising 3% growth, which steadily accelerated to 3.5 % in 2007. The economy still grew 2 % in 2008, but due to global financial crisis the economic activity had been shrinking; exports and imports dropped rapidly in 2009, by 8.4 % and 8.9 %.
Social
The Netherlands is a country where native population is nearly 81%. Dutch society is tolerant to the homosexuality but undergo Islamic conflict. This country also is well-known for the most comprehensive system of social security in the EU. It is also one of the world’s most densely populated nations. As in many European countries, there is the tendency of growing 65s population that lead to greater demands on the welfare system.
Social structure of The Netherlands
* Population: 16,715,999
* Age structure: 0-14 years: 17.4%
15-64 years: 67.7%
65 years and over: 14.9%
* Median age: total: 40.4 years
male: 39.6 years
female: 41.2 years
* Population growth rate: 0.412%
Around 68% of its population is aged between 15 and 65. A short term risk Netherlands faces is the very low birth rate. Declining working population and low rate of migrant inflow. The social care sector has some difficulties in immigration sphere. Government officials maintain that there is no demand for migrant labour in the social care sector, and hence there is wide field of activity for low-skilled labour.
Nearly a half (42%) of Netherlands citizens are atheists but Muslims are the main problem for the country. There is no evidence which suggests strict religious regulations in this country. In general, religious restrictions risk hence remains very low but government should continue improve situation regarding Islamic groups.
The Netherlands is located in the center of Europe and provides a strategic location to run international businesses with global market leaders. Rotterdam is one of the world’s largest seaports and Schiphol Airport is considered as one of the busiest hubs in Europe.
The Netherlands is ranked as one of the most wired countries in the world, because of dynamic communications, e-commerce boom and outsourcing, but although the quality of transport and high speed Internet, cable communications network is fantabulous, the railway and road density thousand citizens is relatively low. Total government spending on rail, harbor, road and airport infrastructure improvements is one of top priorities and this plan is estimated to cost a total of €37 billion.
Technological
The road infrastructure is well developed, but the network has expanded slowly. The Dutch government, because of environmental concerns, pulls out all measures to discourage the use of private vehicles, cars and motorcycles by introducing higher taxes on gasoline and by encouraging its citizens to choose non-pollution vehicles, like bicycles. The Dutch implemented a kilometer tax on road vehicle usage, because of the risk of environment pollution, which will charge car drivers for speed limits and vehicles fuel efficiency because of environmental considerations.
China
Political
The government type of China is a Nominally Marxist-Leninist
single-party state. The People’s Republic of China is a single-party state governed by the Communist Party of China. China has been independent since the end of World War 2 on 1 October 1949 (People’s Republic of China. China is governed by President Hujintao and the Prime Minister of China is Wenjiabau. International business have developed very fast in China and today, China is becoming increasingly integrated with other parts of the world and opened up to a whole range of cross- border economic activities. Managing an international business in China is not an easy task and it brings challenges. The prime challenge for those interested in doing business in China is to achieve their strategic objectives of cost reduction, local differentiation and the strengthening of core competencies in their specific functional areas and business activities.
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China is the formal member of World Trade Organization (WTO) since 2001 and from the date, China enjoyed all the rights the WTO gives to other members and fully participates in WTO activities. China’s entry will also benefit its national economy, as well as encourage global economic growth and the improvement of the multilateral trade system. WTO membership opens up China’s market for more international trades and investment and opens up the world economy for China’s exports.
Economical
China is one of the most advanced economical countries in the world and is growing to be the expected number 1 in the world. The GDP of China is $11.316 trillion. The GDP growth of China is 9.5% The net. Income of a person in a year is $8,394. The Unemployment Rate of China is 6.1%. The inflation rate of China is 3.2% and the population below poverty line is an estimated 10% The labor force: 815.3million. It consists out of agriculture: 10.2%, industry 46.9%, services 43%.
Exports: $1.581 trillion. It’s main exports are electrical goods and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment.
Imports: $1.327 trillion. It’s main imports are electrical components and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics and organic chemicals.
Social
The official language of the People’s Republic of China is Putonghua (Mandarin). The population of China is so great that Mandarin is spoken by over fourteen percent of the people in the world. China is a very diverse place with large variations in culture, language, customs and economic levels. The economic landscape is particularly diverse. The major cities such as Beijing, Guangzhou and Shanghai are modern and comparatively wealthy. However, about 50% of Chinese still live in rural areas even though only 10% of China’s land is arable. More than half the total population, some 800 million rural residents, still farm with manual labor or draft animals. Government estimates for 2005 reported that 90 million people lived on under ¥924 a year and 26 million were under the official poverty line of ¥668 a year. Generally the southern and eastern coastal regions are more wealthy while inland areas, the far west, north and the southwest are much less developed.
* Population: 1,336,718,015
* Age structure: 0-14 years: 17.6%
15-64 years: 73.6%
65 years and over: 8.9%
* Median age: total: 35.5 years
male: 34.9 years
female: 36.2 years
* Population growth rate: 0.481%
China has been experiencing labor strikes among its workers and in response has made minimum monthly wage increases to assist in the workers stabilization. Significant increases in certain territories have been reported to be as much as 13%. With the average worker receiving more in pay, the levels of disposable income will also increase, more to the benefit of Pfizer. China also has experiences little fluctuation in its unemployment rate and it is projected that in the next five years, little change will be noted.
Technological
Some technological info about China:
Internet users: 500 million.
Internet hosts: 15.251 million.
China’s Telecom alone serves 55 million broad band subscribers.
China developed the world’s fastest supercomputer; the Tianhe-1A developed in 2010. China has been pioneering the deployment of pebble bed nuclear reactors, which run cooler and safer than conventional nuclear reactors. In 2011, China unveiled a prototype train capable of reaching speeds of 500km/h, the first ultra-high-speed train developed by its domestic railway industry.
Describe how the monetary environment affects businesses that operate internationally.
Monetary environment
An international monetary system can be seen as a set of conventions, rules and policy instruments as well as the economic, institutional and political environment which means the delivery of two global public goods: an international currency and external stability.
Public goods
1. International currency or currencies allows private and public sector agents of different countries to interact in international economic and ¬nancial activity by using them as a means of payment or a unit of value.
2. The second global public good external stability means a global condition of cross ccountry real and ¬nancial links for example current account and asset and liability positions which an agent can hold.
Protection
The IMF (International Monetary Fund) does regional surveillance and reports their ¬ndings in Regional Economic Outlooks. Regional surveillance is very important as it represents the oversight of developments within a region as in¬‚uenced by the activity of its individual economies, but it also promotes the understanding of the economic and ¬nancial interactions between that region and the rest of the world.
IMF surveillance activities now make an effort to judge all policies of a country that in¬‚uence external stability. The IMF has recently set up a unit for euro area surveillance, which shows awareness of the importance of the region.
Risk
A company can be exposed to market risk from fluctuations in foreign currency exchange rates and interest rates, which could affect its financial position, results of operations and cash flows. The company can manage its exposure to market risk through its regular operating and financing activities and when deemed appropriate, through the use of derivative financial instruments. The company can use derivative financial instruments as risk management tools and not only for trading purposes, and does not maintain such instruments that may expose the company to significant market risk.
The company may use foreign currency purchased options, primarily yen and sometimes foreign exchange contracts to minimize the impact of a significant strengthening of the U.S. dollar on foreign currency fused transactions. Gains or losses on these instruments substantially offset losses or gains on the assets, liabilities and transactions being hedged (any technique designed to reduce or eliminate financial risk). Then management does not fore see or expect any significant changes in foreign currency exposure in the near future.
Why would HG choose to operate internationally?
There could be a lot of reasons for HG to trade internationally
To:
* Lower taxation
* Enhance domestic competitiveness
* Increase sales and profits
* Gain a global market share
* Reduce dependence on existing markets
* Exploit international trade technology
* Reduce dependence on existing markets
* Exploit international trade technology
* Cost reduction
* Extend sales potential of existing products
* Stabilize seasonal market fluctuations
* Increase growth
* Enhance potential for expansion of your business
* Sell excess production
* Maintain cost competitiveness in your domestic market
The downsides of international trading can be
* You may need to wait for long-term gains
* Hire staff to launch international trading
* Modify your product or packaging
* Develop new promotional material
* Added administrative costs
• Dedicate personnel for traveling
* Wait longer for payments
* Apply for additional financing
* Deal with special licenses and regulations
* Growth
One of the most used reasons for businesses to trade internationally is to grow, by expanding their business in to a new country, it will allow HG to target new and more people and try and be as successful as they were elsewhere.
* Greater variety of goods
International trade brings in different varieties of a particular product from different destinations. This gives HG the opportunity to present new products to a new destination.
* Cost reduction
HG can try to adopt better methods of production to keep costs down in order to remain competitive. Businesses that can produce a product at the lowest possible cost will be able to gain a larger share in the market. This will help standards of the product to increase and consumers will have a good quality product to consume.
Explain the business strategy used by a business operating internationally
Transnational Strategy
A transnational strategy would in my opinion be the most fitting strategy to comply with HG.
A business using the transnational strategy seeks to facilitate the flow of people, ideas, and goods among regions. A business chosen for this strategy believes that it has increasing relevance with the rapid growth of globalization. They contend that it does not make sense to link specific nation state boundaries with for instance migratory workforces, globalized corporations, global money flow, global information flow, and global scientific cooperation.
The key philosophy of a transnational organization is adaptation to all environmental situations and achieving flexibility by capitalizing on knowledge flows and two-way communication throughout the organization. The principal characteristic of a transnational strategy is the differentiated contributions by all its units to integrated worldwide operations. As one of its other characteristics, a joint innovation by headquarters and by some of the overseas units leads to the development of relatively standardized and yet flexible products and services that can capture several local markets. Decision making and knowledge generation are distributed among the units of a transnational organization.
Structure follows strategy implying that a transnational strategy must have an appropriate structure in order to implement the strategy. A transnational company often enter into strategic alliances with its customers, suppliers, and other business partners to save time and capital. As long-term partnerships, these alliances may bring to the firm specialized competencies, relatively stable and sophisticated market outlets that help in honing its products and services, or stable and flexible supply sources. This may result in a virtual corporation, consisting of several independent firms that collaborate to bring products or services to the market.
A transnational model represents a compromise between local autonomy and centralized decision making. The organization seeks a balance between the pressures for global integration and the pressures for local responsiveness. It achieves this balance by pursuing a distributed strategy which is a hybrid of the centralized and decentralized strategies. Under the transnational model, a multinational corporation’s assets and capabilities are dispersed according to the most beneficial location for a specific activity. Simulta
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