International Marketing Management - Research Paper Example

? Introduction: The purpose of this paper is to understand the trading simplex between United s and China, the country of choice for this paper.The idea is to define the scenario as it stands i.e. the historical facts and figures with regards to the trading activities between the two countries, and then try to identify the reasons that the said patterns have been ascertained. Research Process: The process followed for the creation of this research paper was simple; primarily the figures relevant to the trading activities were ascertained and subsequently secondary sources of literature review were perused in order to understand the reasons behind the said patterns. Most of the literature review is secondary and the trading figures are availed from both the people’s republic of China and the USA. International Trade: China’s Trade with the United States From the Figure given below, with either belong to the Chinese or the US, the US runs a trade deficit with the Chinese, however, there is a marked difference between the two figures that are reported by each country as the Chinese report a trade surplus of $114 billion in 2005 whereas the United States state that this figure is $201 billion, about 76.32% times higher than the one reported by their Chinese counterparts. There is also a marked disparity between the span of time which has seen the US report a trade deficit against the Chinese as they claim it to be since 1983 whereas the Chinese only report the trade surplus to have originated from 1993 onwards. It is also important to note that not only is the size of the trade deficit that is being run by the U.S. against the Chinese exorbitant, but there is another facet that is equally important in the grander analysis i.e. the inordinate imbalance that lies between the imports from China and the exports to China by the US. Taking 2005 as the base year, the Japanese exported about 0.4 times the amount that they exported to the US while the Canadians and the Mexicans also reported figures of 1.3 times and 1.4 times respectively. As compared to these, the Chinese exported a whopping 5.8 times the value of goods to the US as compared to the value of goods that they imported making it abundantly clear that the Chinese is not a destination of choice for US exported products. (Lum et al, 2007) Figure 1: U.S. Exports to China From the table 1 given below, it can be seen that from the top twenty exports from the US to the Chinese in 2005, the items rated the top five include (in no specific order) transport equipment, metalliferous ores, general industrial machinery, electrical machinery and oil seeds and fruits. The exports of the oil seeds and fruits and metalliferous ores have expanded over a period of six years, beginning from 1999, by 6 times and 12 times respectively. This clearly indicates that the Chinese requirement for the agricultural commodities as well as the raw materials has expanded in line with that of the need for office machines and general industrial machinery. Over the span of the five years starting from 2000 to 2005, textile fibers has expanded the most amongst all the items exported from the US to China, having supplanted itself by about 969%. China’s top ten imports from all around the world (in no particular order) in 2005 were: organic chemicals, optical and medical instruments, mineral fuels, vehicles, iron ores, copper articles, plastics, iron and steel, machinery, and electrical machinery. (Lum et al, 2007) U.S. Imports from China From the Figure given below, it can be seen that from the list of the top 20 items that are imported by the US from the Chinese, in dollar amount, in no particular order include: Miscellaneous manufactured articles Furniture and bedding Electrical machinery Telecommunications and sound equipment Apparel and accessories Office machines and automatic data processing machines It is a significant fact to note that the value of the US imported item under the umbrella of office and data processing machines, is alone estimated at a dollar value of $42.2 billion, which itself exceeds the total dollar figure of the US exports to China i.e. $41.8 billion, for the year of 2005. Despite the fact that the value of US imports in the areas mentioned above have increased over the years, the most noteworthy increases have come in the sectors that come under the umbrella of advanced technologies like general industrial machinery which has increased by 234%, office and data processing CRS-19 machines, increasing by a percentage of 284% between 2000 and 2005 and telecommunications and sound equipment; seeing a rise of 245% during the same period. (Lum et al, 2007) Table 1: Figure 2: This section of the paper will try to identify some of the reasons behind the trading patterns that have been overseen earlier. Differences in Business Culture: Leadership When a strategy is created, leadership in the U.S and China takes a different perspective especially with regards to the decision making process. In the US, the HR and CLO personnel have a significant input in the decision structuring and corporate leadership whereas leadership in China is determined more so by the actual technical staff with these actors providing strategic support rather than central decision making. (Walker, 2009) Business Inter-relation: A senior HR manager once commented that getting performance reports from business managers was almost impossible in China highlighting the level of disconnect that does exist in China business between the HR/learning segment and other management. (Walker, 2009) Productivity: Business managers in China feel that individual output has must greater critical and practical significance as opposed to the performance that managers derive from their sub-ordinates and what generally the upper levels of the business hierarchy derive from the lower levels of the hierarchy. Even though this strategy is applicable in the short run; this does seem to suggest that or people development is not strongly linked to sustained organizational performance in the businesses operating in China. (Walker, 2009) Differences in Body Languages Interactions for businesses are dissimilar i.e. In China, a man must offer his hand first and can only shake it with a women. Business cards are exchanged with both hands etc. Practices in America are must more casual in comparison. (Calhoun, 2002) Historical Differences U.S is an immigrant country whereas in contract, China is a relatively united country. (Calhoun, 2002) Comparative advantages of China: China and the U.S are not exactly similar when it comes to societal cultures and norms. In addition, Chinese manufacturing practices are also dissimilar to those that take place in the U.S, therefore, there is more chance that internationalization might lead to a loss of comparative advantage in the view of the researcher rather than augment any production factors. However, the burgeoning Chinese economy, consistent room for improvement and growth and manufacturing technology are major comparative advantages for this business. In addition, globalization and cultural assimilation is bringing the world closer and closer together which is why a formerly disparate food item such as pizza is now widely accepted and devoured in China. Hence, this investment seems a very prudent and pragmatic step towards expansion. (Eden et al, 2001) Evaluation of the business environment: Power Distance Index (PDI) that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. China sits quite high on the PD index. (Hofstede, 2009) Individualism (IDV) on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. Productivity is based more on individual; however, work groups are collective so here China sits towards the middle of the index. (Hofstede, 2009) Masculinity (MAS) versus its opposite, femininity refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. China sits quite high on this index. (Hofstede, 2009) Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search for Truth. China sits quite high on this index. (Hofstede, 2009) Long-Term Orientation (LTO) versus short-term orientation: Chinese work is usually geared towards short term goals; hence, China sits quite low on this index. (Hofstede, 2009) Source: http://www.geert-hofstede.com/ Note: This is a sample graph; this is not a representative of the current case. Potential trade barriers: U.S. trade official Franklin Lavin said: "There are an enormous number of market-access barriers, impediments that make it more difficult for U.S. business operating in the market," (The New York Times, 2007) Now, the major anti-competitive practices that are related to these processes of integration include: Monopolization of markets Rigid organizational structure, having much the same shortcomings as the socialist economy Monopoly on intermediate components leads to a throwaway society It is abundantly clear why the monopolization of the markets would come as an anti-competitive practice as we already understand the immense polarity between the two concepts of competitiveness and a monopoly. Due to the rigid organization structure, infrastructural costs would inflate and product switching costs would be immense due which there would be barriers to entry which would prevent new firms from entering the markets. Finally, monopolizing intermediate components of a product all the supplier, through the process of price gouging which basically a term that derives disapproval or contempt for the seller who is pricing much higher than is considered reasonable or fair, to lead people to a throwaway society i.e. A human society strongly influenced by consumerism. The term describes a critical view of over-consumption and excessive production of short-lived or disposable items. (Hodgson, 1998) Social factors affecting trade: The purpose of this briefing is to understand the implications for any company of adopting different modes of admission, of goods as well as presence, into the Chinese market. The basis of the argument will be established on the concept of ‘internationalization’; the researcher will try to discover the difficulties in internationalization, which in turn would apply to the empirical case of the The USn company as well. First, the researcher has to describe the basis of their respective argument. Now, at any point in time and under any circumstances, a resource can be beneficial, harmful or neutral. (Anand et al, 2002) Now, any resource is considered to be beneficial when it becomes a point of advantage for a firm over its competitors, thus enabling revenue creation (Calhoun, 2002). In order to maintain this advantage, the resource must have a high intrinsic value, must not be common and should have no close substitutes at all. Normally, there are only a few resources in a firm that act as a source of competitive advantage. In corroboration to this, a resource is considered harmful if it moves the firm away fro its advantages and diminishes the ability of revenue generation in the firm. Interior inflexibilities of a firm are an example of disadvantageous resources and these disadvantageous resources are created in a very small amount of time. Third, a resource is considered neutral when it is neither advantageous nor disadvantageous to the firm; however, they are of immense importance in the running of the firm. (Chao, 2001) Now, resources can be allocated into to two sets: Firm specific resources Common pool of resources Resources can only be considered firm specific if only the central firm is able to use them whereas common pool of resources are those resources which are available for use to any number of firm. Many consider them to be the inputs in the process of production. (Eden et al, 2001) These two basic concepts which have been described above form the basis of the development of six theoretically different classes of problems in the process of internationalization. Now, the first concept defined by the researcher i.e. relationship to advantage gives rise to three sets of problems: Decrease in comparative advantage of resources when they are relocated into a new country The new generation of disadvantages in the instance of transfer of resources into a new country. Paucity of neutral resources in the instance of firms lacking in neutral resources which are essential for operations in the new country. The second concept of asset specificity leads to the breakdown of each of the problems that have been mentioned above into two separate categories i.e. whether the problems are related to a single firm or a general pool of firms who perform in the same in industry. Now, the researcher will look at each of the problem in more detail and try to understand whether the problem is due to internationalization or not. Loss of an advantage: Any benefit that resources provide to an organization is relative to the organization’s competitors and industry of existence. Now, the environment in a new country will naturally be different from the firm’s country of origin largely due to differences in the natural features i.e. topography or weather conditions, or in the features of its people or organizations working in the country i.e. type of government, industry, common religion, national language, general level of wealth and most importantly culture. When the competition and the consumer base is different across different countries, then a resource which brought comparative advantage to a firm in one country might in turn not be so beneficial, in fact become harmful to that firm’s operations in another country. This loss can be specific to firm or a set of firms in the same industry. Creation of a disadvantage: Previously, the researcher has determined that relocation to a new country might render any resource of a firm unable to provide the same comparative advantage to the firm as it was before, however, there are also instances whereby based on the same set of reasons as the ones demarcated in the precious discussion, a resource might not just stop providing benefit but in fact become harmful for a firm when it is moved to a new location. This loss again can be specific to firm or a set of firms in the same industry. Paucity of neutral resources: Till now, the researcher has only shed light upon those cases where the researcher can experience changes in the effects of resources from a transfer from the country of origin to the country of relocation will take place. However, due to the difference in countries, some resources cannot be relocated to the new country for use in the production process. (Khanna et al, 2005) New resources which were not used in the previous production processes might have to be employed in the new location of production. Now, the paucity of these said resources will have a dampening effect on the operations of the international country with regards to the competing firms already present in the area since assortment of these resources will create expenses which will not be incurred by the competitors. Now, the researcher can determine two sets of problems that can occur due to a paucity of these neutral resources. The first set is met when a firm is in need of a greater allocation of resources over the ones that it already has in its portfolio, in a bid to expand the scale of operations in dissimilar trading circumstances and within the streamlines of dissimilar organizations. The second set of problems is usually related to the entry of a not just a single but a group of similar type of firms entering into a new country whereby the potential customers in the new market for these firms and the firms themselves are afflicted by a dearth of neutral resources that are essential in order to make use of the products provided by these new set of creators. (Cuervo et al, 2007) China and the US are not exactly similar when it comes to societal cultures and norms. In addition, Chinese manufacturing practices are also dissimilar to those that take place in the US, therefore, there is more chance that internationalization might lead to a loss of comparative advantage in the view of the researcher rather than augment any production factors. Therefore, the prudent decision would be to hold off this plan of entry for some period of time till factors of production are ascertained which are similar to both modes of production. Bibliography: 1. Calhoun, M. A. (2002). “Unpacking liability of foreignness: Identifying culturally driven external and internal sources of liability for the foreign subsidiary.” Journal of International Management 8: 301-321. 2. Eden, L., Miller, S. (2001). “Opening the black box: Multinationals and the cost of doing business abroad.” Academy of Management Proceedings, 2001: C1-6. 3. Hodgson, G.M. (1998). Competence and contract in the theory of the firm. Journal of Economic Behavior and Organization, 35: 179-201. 4. Hofstede, Geert (2009) ‘Geert Hofstede™ Cultural Dimensions’ Available at http://www.geert-hofstede.com/ [Retrieved September 2, 2009] 5. The New York Times (2007) ‘'Enormous number' of trade barriers in China, U.S. official says’ Published: Thursday, March 29, 2007 6. Walker, Jason (2009) ‘Corporate Learning: Differences Between the US and China’, China Business Success Stories 7. Anand, J., and Delios, A. (2002). “Absolute and relative resources as determinants of international acquisitions.” Strategic Management Journal, 23: 119-134. 8. Chao, P. (2001). “The moderating effects of country of assembly, country of parts, and country of design on hybrid product evaluations.” Journal of Advertising, 30: 67-81. 9. Khanna, T., Palepu, K.G., and Sinha, J. (2005). “Strategies that fit emerging markets.” Harvard Business Review, 83(6): 63-76. 10. Lum, Thomas and Nanto, Dick K. (2007). “China’s Trade with the United States and the World” Specialist in Industry and Trade Foreign Affairs, Defense, and Trade Division Read More