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Microsoft - Government Regulations Pertaining Overseas Investments, Positive and Negative Aspects of Investment - Case Study Example

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The study "Microsoft - Government Regulations Pertaining Overseas Investments, Positive and Negative Aspects of Investment" describes the wide geography of the presence of Microsoft offices and technical support centers in Europe, which has become an impetus for local IT industries and the entire environment for foreign investment…
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Microsoft - Government Regulations Pertaining Overseas Investments, Positive and Negative Aspects of Investment
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MICROSOFT CORPORATION Microsoft Corporation (MS) is an American multinational computer based corporation with a presence in over 100 countries globally with 79, 000 employees and annual revenues of a whooping US $ 50 billion as of the end of the 2007 financial year (Microsoft, 2008). This company was founded by Mr. Bill Gates in the year 1975. By 1985, a lot of growth had taken place, and many products were in the market as a result of its introduction. From humble beginnings, Microsoft has emerged to be a giant corporation. Microsoft has been actively involved in several foreign investments ventures. The main headquarter of Microsoft Corporation is in Redmond, Washington, USA. The company develops, manufactures, licenses, and supports a wide range of software products for computing devices. This finds a wide range of application in the computer and electronic industry. Its best selling products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. These are software solutions are in great use in the desktop computer market; with market share estimates as high as 90% or more as of 2003 for Microsoft Office and 2006 for Microsoft Windows. The company has greatly excelled as if this was not enough, One of Bill Gates key visions is "to get a workstation running our software onto every desk and eventually in every home" given time and resources, this is achievable. The company released an initial public offering (IPO) in the stock market. This came many years after Bill personally owned the company and did all the managerial duties. The shares performed well. Due to the ensuing rise of the stock price, The Company has made four billionaires and an estimated 12,000 millionaires from Microsoft employees. Steve Ballmer joined the company on June 11, 1980, and later succeeded Bill Gates as CEO. This brought a fresh blood which is a recipe for growth. Microsoft rose from a small player to surprisingly, one of the major software vendors in the home computer industry. The company expanded then into new markets with the release of new products like the Microsoft Mouse in 1983, as well as a publishing division named Microsoft Press. The company has expanded to other markets within and without the USA. This is as a result of its foreign investment strategies. Some of the countries that the company has moved in include Japan, Turkey and India. With time Microsoft exists in almost all the countries in the world. (Microsoft 2008). This is through introduction of new enterprises and through acquisitions. Some few examples will be encountered with time. FOREIGN INVESTMENTS BY MICROSOFT The Federal Reserve chairman notes that foreign investment regulations are forever tough. However this is a huddle that any progressive firm must overcome. (Associated press 2007). As much as Microsoft invests in its own business, it has also set a powerful base in the stock markets of various countries. Microsoft denotes that if a company doesn’t own funds of this type, they are missing the boat. And theyre missing it if they dont own enough of them. The classic asset-allocation model, which is heaviest on domestic stocks, is obsolete when the dollar is not sound. Microsoft is migrating toward an outright majority of foreign equity holdings, with plenty of emerging markets. It has shares in many markets throughout the world, these including London Stocks market, USA, Canada among others. Apart from investing in these stock markets, Microsoft has also developed their own branches in these countries. This makes correspondence easy in development at local level beneficial. Microsoft has also majored in mergers and acquisitions as one way of expanding its overseas investment. This strategy is like a sword which cuts on two edges. This is because it helps to fight competition and also maximize on the profits received. A more recent example is the speculated merger between Microsoft and Yahoo. This collision was meant to finish Google business, and hence have Microsoft monopolize the market. GOVERNMENT REGULATIONS PERTAINING OVERSEAS INVESTMENTS Before a company invests in any foreign country, many factors have to be considered. These range from government policies to internal regulations of the host company. Mr. Brewer (1993) identifies the "numerous and diverse" types of government policies. These are regulations that might affect foreign direct investments (FDI), either directly or indirectly. Most of the Laws and regulations pertaining foreign investment enterprises can be explained as the total of legal norms formulated by a country to readjust the economic relations of foreign investment in the Process of establishment, alteration, termination and management control. These policies are explicitly instituted to benefit either the host country or company. A country can decide to create tariff cancellation to foreign investors so as to attract them. For example when USA was a capital-importing country, it had all kinds of provision to ensure that foreigners invest in the country but do not control its economy. An examination of the historical experiences reveals a lot of amazing information. A number of today’s developed countries the USA, the UK, France, Germany, Finland, Ireland, Japan, Korea, and Taiwan, shows that they have all regulated, often severely, foreign investment when it was in their national interest. This suggests that an investment agreement in the WTO is likely to hamper, rather than help, the development of the developing countries. Countries in the world are in various levels of development. For the developing ones, their main desire is always to grow. Their foreign investment strategies also reveal this. However this remains this way until they get threatened of being controlled by the foreign company. Formal mechanisms included foreign exchange control and regulations against foreign investment in sensitive sectors like defense or cultural industries. At the informal level, hosting countries used mechanisms like the SOEs, restrictions on take-over, and “undertakings” and “voluntary restrictions” by TNCs in order to restrict foreign investment and impose performance requirements. No uniform strategy can be emphasised. The exact strategies that were used varied across countries, and in various regions. These policies range from the very welcoming strategy of Ireland to the very restrictive strategy of Finland, Japan, Korea, and the 19th-century USA in certain sectors (especially finance and navigation). However, one commonality between them is that they took a strategic approach, rather than a uniformly welcoming or uniformly restrictive one, to the issue of foreign investment regulation. This meant that different sectors could be subject to different policies even at the same point in time. For example, while welcoming and subsidising FDI in labour-intensive manufacturing sectors, Korea and Taiwan in the 1960s and the 1970s strictly restricted FDI in other industries. Also, over time, with changes in their economic structure and external conditions, their policy stances changed. For example, Korea had a relatively open policy towards FDI in the car industry, but when it decided in the mid-1970s to develop its own car industry, it started putting heavy restrictions on FDI in the industry. Microsoft always checks whether the host country will provide domestic funding or not. As a big company Microsoft always comes with a full package of capital to do its investment. Some countries always dictate the site of location of foreign investments. Microsoft follows an open market policy, whereby they choose the site of investment with the desired client inflow. In cases where a country has specific targets, like rural location of industries, sites are dictated. Such policies end up benefiting the country of investment, while the foreign investors is put disadvantaged. Political stability is another basic requirement to any foreign investor. Microsoft has benefited a lot by observing this. This ensures safety of the infrastructure owned by Microsoft and its employees. Some countries have with time taken ownership of all foreign companies. An example is Zambia, where by all whites were sent out of the country and their assets taken over by the locals MICROSOFT IN ROMANIA. 2007 saw Bill Gates inaugurate a technical support center in Bucharest, Romania. This followed Romania’s accession to the EU, which was a boost the Romania’s IT industry and in general, the entire foreign investment environment. Bill Gates anticipated that the center will be instrumental in the resolution of problems for Microsoft’s Europe based clients. The Romanian office was to act as point of contact between Microsoft and the local clients. This center was expected up to 600 specialists, who would be the main assistance providers to clients in the larger part of Europe. This includes programmers, engineers, web designers, accountants, system designers and legal officers. This could be attributed to Bucharest strategic geographical location, availability of the highly skilled labor and the presence of a wide array of foreign languages. Tax policies are another key factor to consider before any investment. Romania implements a low tax policy for foreign investment enterprises and implements preferential tax policies in the industries and regions where investment is encouraged by the state. Microsoft is greatly encouraged. At present, taxes for foreign investment enterprises and foreign individuals’ business income tax, Personal income tax, turnover tax (value-added tax, Consumption tax and business tax included), tariff, land increment tax, resource tax and urban real estate tax are profitable. In addition, it is sometimes difficult to identify clearly the dates of introduction or termination of the policies. In this regard, Romania has in the recent past altered its laws to wade computer piracy as Romania’s past was characterized by wide spread piracy of software due to lack of access to the originals. It was ironical that this social vice led to the creation of a relationship the younger generation Romania and Microsoft. The opening of the IT center had several advantages such as the creation of jobs and the boost of the local IT sector thus assist Romania in its move towards the computer age (Associated Press, 2007). The government has been in the frontline in the attraction of foreign investors by making alterations to the laws. A country can make such sacrifices because of the many advantages that come with such investments. These include increase in tax revenue, creation of more jobs for its citizens, increase in science and technology levels in the country among others. Many ways were used by Romania to attract investors. This included the use of incentives and the lowering of costs of doing business in Romania. There has also been a major overhaul of the country’s infrastructure with the aim of decongesting the streets of Bucharest. MICROSOFT IN TURKEY. In 1993, Microsoft opened its doors to the Turkish public with a mere staff of six. This is a sharp contrast to the 300 employees it currently has. Microsoft MEA, which is Middle East and North Africa covers 79 countries and is also located in Turkey. The main idea of Microsoft’s investment in Turkey was to provide end to end solutions for corporate level companies. This was expected to boost efficiency and competitive advantage through the use of IT base solutions. There was an expected wide spread use of technology by SME’s with a direction of harmonizing the European Union procedures of these involved companies. The Turkish government is making a deliberate move towards using technology in the economies growth. Since its inception in Turkey, Microsoft has lead to the evolution of the efficiency of operation and has led to the creation of approximately 99, 000 jobs. It was established that for every $1 turnover generated by Microsoft Turkey, a $20 value added turnover is recorded by the Microsoft business partners. Microsoft Turkey has been quite the phenomenal success and as of 2007, it has been under observation as one of the top five companies with the highest potential globally. (Invest, 2008). The table below summarizes the performance ratings for Department of foreign investment of Turkey as result of its policies. Strategic Goal Results Achieved for FY 2006 Significantly Below Target Below Target On Target Above Target Significantly Above Target Number of Results 0 3 12 5 0 20 Percent of Total 0% 15% 60% 25% 0% 100% POSITIVE ASPECTS OF OVERSEAS INVESTMENT Large increase in the economic value is a basic advantage realized in overseas investment Another advantage is the international marketing that a firm secures. This helps to expand the customer base. Microsoft enjoys large market capability. A large population and high consumer power, which sets it at 1/9 of the world retail volume. Last but also important is that Microsoft contains a vast development potential power because of this. NEGATIVE ASPECTS The cons of foreign direct investment are most visible in cases where the industry could have national secrets. The defense sector could be at risk if it allows FDI. Foreign policies may be enforced that do not go down well with domestic employees. Foreign investors in some cases exploit workers in poor countries and initiating a "race to the bottom" in environmental and labor standards. Countries like Singapore, China, Chile and Ireland demonstrate how foreign direct investment (FDI) can exploit - with its transfer of technical and organizational innovations and best practices stimulate rapid growth in incomes for all members of society. When international capital flows faster, there’s evidence that the poor in developing countries suffer the most. REFERNCES. Associated Press (2007). Bill Gates inaugurates European Microsoft Support Center in Romania. Last retrieved for the World Wide Web on 25th April, 2008 from http://209.85.173.104/search?q=cache:fxGcHFgW9mgJ:www.iht.com/articles/ap/2007/02/01/business/EU-FIN-Romania-Microsoft-Gates.php+microsoft+foreign+investments&hl=en&ct=clnk&cd=2&client=opera Invest (2008). Microsoft Turkey. Last retrieved for the World Wide Web on 25th April, 2008 from http://209.85.173.104/search?q=cache:AiRUrDM_GpUJ:www.invest.gov.tr/SuccessStories.aspx%3FID%3D25+microsoft+turkey&hl=en&ct=clnk&cd=5&client=opera Microsoft (2008). Microsoft’s Annual Revenue Surpasses $50 Billion. Last retrieved for the World Wide Web on 25th April, 2008 from http://www.microsoft.com/msft/earnings/FY07/earn_rel_q4_07.mspx Read More
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