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Executive Summary The following report is providing a overview of the furniture manufacturing company Adorn expanding its sales operations into a foreign country and the consequences of such a decision. The assignment covers: The decision to go global and how to Adorn should choose which country to expand its operations into. Discussed are such aspects as G. D. P. and demographic trends The U. S. A. is the proposed country to expand into. With this, data was gathered from many different sources to analyse the country and trends of the U. S. economy. Analytical tools such as P. E. S. T. , S. W. O. T. nd Porters Diamond Model are used to better understand the environment with in the U. S. and how Adorn needs to adapt to those markets. Also the ease of doing business with in the U. S. with regards to the relative ease of setting up and doing business within the U. S. , compared to other countries. The furniture industry and its future is discussed in depth with regards to local manufacturing industry, imports and consumer changing perceptions within the United States. Finally considerations such as regionalism, e commerce and international terrorism and the impact on global expansion Contents Page 1Introduction4 1. Reasoning for considering Globalisation of Adorn4 2Analysis of Globalisation4 2. 1GDP5 2. 2Demographic Trends6 2. 2. 1Population6 2. 2. 2Culture6 2. 3Proposed Country6 3The United States7 3. 1P. E. S. T. 8 3. 1. 1Political – legal environment8 3. 1. 2Economic environment12 3. 1. 3Socio – cultural environment18 3. 1. 4Technological environment21 3. 1. 5Other25 3. 2S. W. O. T. of setting up operations within US26 3. 2. 1Strengths26 3. 2. 2Weaknesses27 3. 2. 3Opportunities27 3. 2. 4Threats27 3. 3National competitive advantage27 3. 3. 1Factor endowments28 3. 3. 2Demand conditions29 3. 3. 3Related support industries29 3. 3. Corporate strategy, structure and Rivalry30 3. 3. 5Other influences30 3. 3. 6Concerns regarding this model30 3. 3. 7Conclusion of the Diamond Model31 3. 4Demographic trends31 3. 4. 1U. S. Workforce32 3. 4. 2US Education33 3. 5Treaties33 3. 6Trends within the United States furniture industry34 3. 6. 1Change in perceptions:34 3. 6. 2Economic changes within the furniture industry34 3. 6. 3Imports34 3. 6. 4Future trends35 3. 6. 5US Imports36 4Additional considerations37 4. 1Regionalism/ integration37 4. 2E commerce38 4. 3International terrorism39 5Conclusion40 6List of references42 7Appendices: List of Tables44 8Appendices: List of Figures47
Introduction Adorn is a furniture manufacturer that is producers to clients specifications. It utilises highly automated processes development and production of its products, Adorn’s core competencies and competitive advantage include high automation of manufacturing processes, producing specialised and well designed furniture for the user in practicality and style. 1 Reasoning for considering Globalisation of Adorn With the current global economic recession it would be advisable to enter foreign markets with the intention of sustaining or increasing the organisations profits through increasing the company’s market base and sales.
Taking a more proactive stance to the slowdown in demand would be following in Nissan South Africa’s successful approach of increasing sales through globalisation. As reported by Ndundu Sithole (2009); “”Nissan South Africa will boost production and expects to increase its local market share despite a domestic and global economic slowdown, managing director Mike Whitfield said. Local car sales have been in negative territory in the past 18 months, falling by 30. 1 percent in March, and the global slump has slashed vehicle exports. Nissan S. A. expects new product lines to boost output to about 40,000 units from 28,000 in 2008.
He said the company was exploring further production opportunities in countries such as Angola and Nigeria. “Our market share came up to around 7. 5 percent last year on the back of some lack of products in certain key segments. This year we expect to be just over 8 percent… which means we are in a growth phase. ” Thousands of jobs are on the line in the automotive industry and vehicle manufacturers and car parts producers have approached the government for loans. Whitfield said Nissan S. A. had escaped the worst, but was not unscathed and has shed 180 jobs. “”
Globalisation could be attained through the company’s comparative advantage of low cost and high automation combined with a well planned and implemented strategy. Analysis of Globalisation There would be negative aspects to globalisation, so a detailed analysis of the proposal needs to be undertaken. First, a country needs to be identified as best suited for our expansion plans. For this we would look at potential geographical regions that have our target market within and the amount of potential clientele within these regions which logically would give the greatest potential of return for ever resource invested.
These locations which would be identified as having: • Highly developed education and infrastructure allowing growth of business in the country. • High manufacturing input costs, with high labour costs and/or limited raw materials which would assist in local competition in the region being easily competed against. • Also a country that has with low import costs and barriers. Trade treaties with our domestic market, South Africa which would assist in dropping costs of doing business with the country while improving opportunities with in the new country. High Gross Domestic Product and high capita individuals which would relate to potential clients that could afford buying our products. • Fairly stable currency, that is stronger than the South African Rand so to offer more leverage to assist in keeping the costs of to market low. 1 GDP Table 1: World Top Ten Richest Countries by GDP in US Dollars (Source: Suite101. com Media Inc (2009): Richest Countries by GDP and the Poorest Country, http://gross-national-product. suite101. com/artical. cfm/richest_countries_by_gdp_and the_poorest_county) |World Top Ten Richest Countries by GDP in US Dollars | | |GDP |GDP Per Head |PPP | |1 |United States Of America |14’839 Billion |48’400 |48’400 | |2 |Japan |5’388 Billion |42’310 |35’710 | |3 |China |4’818 Billion |3’600 |6’830 | |4 |Germany |3’440 Billion |41’550 |36’100 | |5 |France |2’734 Billion |43’910 |35’750 | |6 |United Kingdom |2’442 Billion |39’470 |36’820 | |7 |Italy |2’334 Billion |40’150 |32’210 | |8 |Russia |1’680 Billion |11’880 |16’300 | |9 |Spain |1’581 Billion |34’540 |32’120 | |10 |Canada |1468 Billion |43’860 |40’540 | 2 Demographic Trends 1 Population
Adorn would require a country that has a large domestic market with the ability to purchase our organisation product offerings is preferred, so high Gross Domestic Product combined with a high Gross Domestic Product Per Head is preferred. 2 Culture Language: Being a more westernised business culture with limited globalisation experience, a national economy with English as a domestic language would be more advantageous to Adorn. So an English speaking/understanding market with western influence would be the easiest market to penetrate with regards to culture. However it is important to note that this may not offer the bests returns on investment but is the least risky option due to our lack of expertise in globalisation dealing with different international cultures. 3 Proposed Country
So taking the above into consideration, a strategy to expand into a first world/developed country that would have a stable political environment and the market to offer the company substantial growth with limited risk, would be best suited for our organisation. Considering that many developed countries have experienced large economic slow downs in current recession, it would be advantageous to develop strategies to capitalise on their economic upswing so to maximise the organisations profits. From this general overview it would be beneficial to focus on large markets where Adorns products have the largest potential for profits, such as the United States. The United States Table 2: The United States Economy (Source: Nationmaster. com (nd): American Economic Stats, http://www. nationmaster. om/country/us-united-states/eco-economy) |The United States | | | | | |Big Mac Index |$ 3. 15 |5th of 65 | |Debt ; Equity |$ 12’250 billion |1st of 136 | |Distribution of family income > Gini |45 |4th of 43 | |Index | | | |Economic Freedom |3. 2 |7th of 156 | |Economic Importance |197. |1st of 25 | |Exports |$ 1’148 billion |3rd of 189 | |GDP |$ 14’839 Billion |1st of 203 | |GDP Real growth rate |2% |167th of 198 | |Income category |High Income | | |Income distribution > richest 10% |30. 5% |54th of 178 | |Poputlation below poverty line |12% |41st of 48 | |Public Debt |60. 8% of GDP |25th of 121 | |Technological Achievement |0. 3 |2nd of 68 | As reflected above in table 2, the United States (U. S. ) is one of the wealthiest countries, with poverty at 12% of population. With debt to GDP is 60% in and one could assume that with the national bail outs by the United States government to Corporate America in an attempt to limit the effects of the recession that this percentage is going to increase this percentage while taxes are going to increase in the population. With all this said the global recession will affect the world not just the U. S. alone. But there are in recent months a increasing vocalised concern regarding the future value of the American dollar and the U. S. overnments ability to stop spending in regards to economy bail outs. 1 P. E. S. T. P. E. S. T. is an external environment analysis of risks and opportunities that are present which may have an effect on the organisation. It stands for political, environment, social and technological, and every one of these aspects is analysis separately. 1 Political – legal environment 1 Form of government Democracy: The U. S. has a de facto two-party system; the Democratic Party generally represents liberal ideals, while the Republican Party commonly represents conservative ideals. According to a 2007 poll by Associate Press, 35% of Americans identified as moderate, 36% as “conservative” and 25% as “liberal. Political ideology a)American Liberalism Ideals stand for the preservation and extension of human, social and civil rights as well as the government b)American Conservatism They aim to protect traditional values (especially on social issues) while promoting the concept of small government. c)Moderates 2 Stability of government The United States has enjoyed 135 years of political stability since the end of the Civil War (The Good News, 2009). 3 Social unrest, political strife and insurgency [pic] Figure 1: Bleak Employment Outlook (Source: The New York Times (2009): Bleak Employment Outlook, http://www. nytimes. com/2009/02/15/business/15global. html) N. D.
Schwartz (2009) stated in the New York Times on 15 February 2009, with the economic down swing, there are large threats of social unrest around the world with the increased unemployment levels and that United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism. Chossudovsky (nd) notes a number of ways the U. S. government is using its national resources to improve security national in preparation for any threats of terrorism and social unrest with in the country. The outgoing administration (Bush prudency) has laid the groundwork.
Various pieces of “anti-terrorist” legislation (including the Patriot Acts) and presidential directives have been put in place since 2001, largely using the pretext of the “Global War on Terrorism. ” 4 Government attitude towards foreign firms Ott (nd) mentions the following; at the end of 1990, about 16 percent of foreign assets in the United States were owned by foreign governments, while 84 percent were privately owned. (Similarly, 14 percent of foreign assets owned by the United States were official, and 86 percent were private. ) 5 Legal tradition and the effectiveness of legal system Current population supporting the government shows that there is a healthy democracy at work with a strong constitution.
Burnham (2006) states the following, “The law of the United States was originally largely derived from the common law system of English law, which was in force at the time of the Revolutionary War. However, the supreme law of the land, under the Constitution’s Supremacy Clause, is the United States Constitution, as well as laws enacted by Congress, and treaties to which the U. S. is a party. The Constitution forms the basis for federal laws under the federal constitution in the United States; it circumscribes the boundaries of the jurisdiction of federal law along with the laws in the fifty U. S. states and in the territories. ” This reflects a developed legal system and infrastructure that has not been threatened since the American Revolution in the late 1700’s. Labour law
United states rates at 22 out of 100 in the Employment Laws Index of the World Bank (2004), which takes the regulation of hiring, regulation in firing and the regulation in employment conditions, and results in the higher the score the more the nation regulates employment Laws affecting business firms Is not detached from any other first countries law on how a company needs to operate within its society. However some requirements such as labels, warning etc. need to be investigated in more detail as these laws do change from state to state, so to ensure that Adorn will meet those specific legal requirements. [pic] Figure 2: Enforcing Contracts – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington) 6 Other considerations
One consideration that needs to be mentioned is the current recession and causes there of, that have pushed for reform in most financial industries regarding regulation and responsible accounting. These changes will affect organisations within the whole economy both directly and indirectly. One such effect would be an increased in administration costs of doing business but this will also improve the economic stability in the long term. This coupled with stability of the government supports the following conclusion that the county has a stable democratic system and there would be little chance of this stable democratic system changing in the near future.
Discussing (in more detail) the political composition (including parties and there specific effects on the political stand of the U. S) goes beyond the limitations of this report. 7 Managing political risk An open democratic system is present with in the United States but the need to have close ties to influential people within government would be beneficial for Adorn. 2 Economic environment 1 Literacy level [pic] Figure 3: Literacy Rates (Source: Wikipedia (2008): United Nations Human Development Literacy Rates, http://en. wikipedia. org/wiki/File:World_literacy_map_UNHD_2007_2008. png) According to the United Nations Development Program Human Development Report 2007/2008, the United States has a literacy rate of 99%. 2 Foreign policy
Table 3: The United States Favourability Rating (Source: Pew Research Centre Project (2009): Pew Global Attitudes Project: Confidence in Obama Lifts U. S. Image Around the World, http://pewglobal. org/reports/display. php? ReportID=264) [pic] Pew Research Centre Project (2009) states that as in most countries where opinions of the United States have improved foreign policy and that Obama’s election led them to have a more favourable view of the United States. 3 Money and fiscal policy The U. S. Diplomatic Mission to Germany (2008) Stated That United States government also manages the overall pace of economic activity, seeking to maintain high levels of employment and stable prices.
It has two main tools for achieving these objectives: fiscal policy, through which it determines the appropriate level of taxes and spending; and monetary policy, through which it manages the supply of money. The Federal Reserve, the independent U. S. central bank, manages the money supply and use of credit (monetary policy), while the president and Congress adjust federal spending and taxes (fiscal policy). 4 Nature of competition Majority of the competition in the U. S. is privatised. The U. S. has a large open market with many buyers and sellers that have large number of firms with even larger number products (Homogeneous) to choose from (Monopolistic Competition). 5 Currency convertibility
Table 4: US dollar to ZAR for Time period: 26/07/2008 to 01/08/2009 (Source: OANDA Corporation (2009): FXHistory – Historical Currency Exchange Rates, http://www. oanda. com/convert/fxhistory ) |Average (372 days): |9. 04688 (Rand to one U. S. Dollar) | |High |11. 85060 (Rand to one U. S. Dollar) | |Low |7. 15560 (Rand to one U. S. Dollar) | The U. S. dollar is still considered a main benchmark for global currency, so is easily tradable.
Again it is necessary to mention that the excessive loans the government has made for the economic bail out will have negative effects on the economy but the country had a high gross domestic product so is could theoretically load substantial amounts before large changes will be seen in the debt to GDP figures. 6 Inflation [pic] Figure 4: U. S. Consumer Price Index January 1914 to March 2009 (Source: U. S. Department of Labour (2009): History of inflation in the US from Jan 1914 – Mar 2009, ftp://ftp. bls. gov/pub/special. requests/cpi/cpiai. txt) From the figure 4, it can be noticed that inflation is consistent over the past 25 years. 7 U. S, Taxes Table 5: U. S, Taxes (Source: Nationmaster. com (nd): American Economic Stats, http://www. nationmaster. com/country/us-united-states) [pic] Table 6: Government spending (Source: Simmons (2009): How Congress Is Spending Your Money, http://www. federalbudget. com/,) [pic]
The taxes that will affect the company will be determined by economic treaties in place between South Africa and the U. S. , so further analysis in this regard is required. Banescu (2009), states that businesses in the United Stated (across all industries) pay from 35% to 41. 6% of their income in taxes. The 41. 6% maximum tax rate is scheduled to rise to 46. 2% in 2010 when President Obama’s promised tax increases are implemented. 8 Economic freedom Economic Freedom is the absence of government coercion or constraint on production, distribution or consumption of goods and services by the national economy. Table 7: Economic freedom is rated within the top ten nations (Source: Nationmaster. com (nd): Economic Freedom, http://www. nationmaster. com/country ) Rank |Country |Rating | | | | | |1 |Hong Kong |3. 55 | |2 |Singapore |3. 5 | |3 |Luxembourg |3. 3 | |3 |New Zealand |3. 3 | |5 |Ireland |3. 5 | |6 |United States |3. 2 | |6 |Denmark |3. 2 | |6 |Estonia |3. 2 | |9 |Australia |3. 15 | |9 |United Kingdom |3. 15 | Counties with high rating generally have high growth rates (with the exception of China), so the fact that the U. S. ates at number six bodes well for future economic outlook of the country. 3 Socio – cultural environment 1 Language Table 8: Top Languages spoken in the United States (Source: American Community Survey (2005): United States – Languages, http://www. mla. org/cgi-shl/docstudio/docs. pl? map_data_results) | |Age 5+ |% | |English |216’078’959 |80. 6% | |All Languages other than English |52’007’297 |19. 9% | |Spanish |32’252’890 |12. 03% | |Chinese |1’550’547 |0. 57% | 2 Religious beliefs According to a U. S. Religious Landscape Survey done in 2007 by the Pew Forum on Religion & Public Life, Christianity has 78. 4% representation followed by No religion at 16. 1%, and then by Judaism at 1. 7%. 3 Population Table 9: U. S. Population (Source: Nationmaster. com (nd): Population, http://www. nationmaster. com/country/us-united-states) [pic] [pic] [pic] [pic] [pic] [pic] [pic]
The above figures show very stable population with regards to birth and death rates, which is the norm for a developed country. Table 10: U. S. labour Statistics. (Source: Nationmaster. com (nd): American Labour Stats, http://www. nationmaster. com/country/us-united-states) [pic] The unions represent only 13% of the population as reflected by table 10 with the level of unemployment at 5% which means that labour and social influence in the market is subdued and will not greatly affect the future companies operations in the U. S. 4 Technological environment 1 Government spending on research and development Table 11: Research and development spending as portion of countries GDP. Source: World Bank (2002): Research and development spending (most Recent) By Country, http://www. nationmaster. com/red/graph/eco_res_and_dev_spe-economy-research-and-development-spending&b_map=1) [pic][pic] The U. S. is rated at number seventh in the above table showing that it is one of the top countries spending on Research and development, which shows that the country is investing large amounts in their economic future. 2 Legal regime for patent protection Beck & Tysver (2008) states that the importance of granting monopolies for new inventions has been recognized in the United States since the adoption of the U. S. Constitution. In Article I, section 8, the U. S. Constitution: ‘Congress shall have power . . .
To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. ‘ Patents are governed by the Patent Act (35 U. S. Code), which established the United States Patent and Trademark Office (the USPTO, http://www. uspto. gov/). This illustrates the U. S. Commitment to property rights and protection. 3 Energy availability Table 12: Electricity Production by Country. (Source: Nationmaster. com (nd): Electricity Production (most recent) by Country, http://www. nationmaster. com/graph/ene_ele_pro-energy-electricity-production) [pic] The table shows the U. S. as top electricity producer, which could mean several things: • The largest first world country has to produce most electricity for its population. It may have enough energy for future growth and expansion, this is an assumption but when considering that there has been no major energy crises in recent times (excluding corporate scandals) it would be a reasonable assumption to com to. 4 Transport infrastructure Table 13: Transport, Million Tons per year, per Kilometre. (Source: Nationmaster. com (nd): Air transport, freight – million tons per km (most Recent by Country, http://www. nationmaster. com/graph/tra_air_tra_fre_mil_ton_per_km-freight-million-tons-per-km) [pic] These figures show the U. S. as have a developed infrastructure with a vibrant economy. 5 Availability of skilled workforce Table 14: Countries with tertiary education as percentage of total population. (Source: Nationmaster. om (nd): Labour force with tertiary education as percentage of total (most recent) by country, http://www. nationmaster. com/graph/lab_for_wit_ter_edu_of_tot-labor-force-tertiary-education-total) [pic] The figures show that the U. S. has large amounts of skilled labour with in its population, which will assist in future expansion as the human resources are available. 5 Other [pic] Figure 5: Ease of doing business – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington) [pic] Figure 6: Starting a Business – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington) [pic]
Figure 7: Trading Across Boarders – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington) All the three figures above show the ease of doing business with in the U. S. as compared to other countries in the world. 2 S. W. O. T. of setting up operations within US A S. W. O. T. analysis is a tool used in management and strategy formulation. Strengths (S) and weaknesses (W) are internal factors. While opportunities (O) and threats (T) are external factors which a company cannot directly control, they derive from competitive dynamics of the market/industry/from P. E. S. T. factors. 1 Strengths Culturally close to domestic culture, so easily to identity with • Low cost of production in South Africa • Exchange rates in comparison to the US Dollar is advantageous as it off sets costs of getting the products to market • Ease of developing products for U. S. market requirements by utilising current expertise and resources 2 Weaknesses • Capital investment to penetrate into the market effectively through advertising and promotions • Capital investment required to setup operations with in the United States. • Knowledge and experience of the market entering. • Time needed to establish organisation with in the market • Necessary links with in the U. S. economy to establish a business network with clientele and suppliers. Current infrastructure to capitalise on the increased demand which cannot currently be determined with accuracy. 3 Opportunities • Growth potential with large customer base • Large retail base to utilise with in the economy to assist with distribution and penetration within the country • Deteriorating local manufacturing industry • Change in consumers perceptions regarding furniture as a commodity 4 Threats • China entraining the American market • China offering retail franchises to the American market • War on terrorism • Raising taxes 3 National competitive advantage [pic] Figure 8: Diamond Model (Source: Porter (1990): The Competitive Advantage Of Nations, Macmillan: London)
Porter (1990) identifies a ‘diamond’ of four interrelated areas within a nation that assist that country to be more competitive in international markets. 1 Factor endowments Advanced specialists with good technical know how Resources can be ‘home grown’ and ‘specialised’, by having provision of education, universities, excellent telecommunication etc which is partly dependent on the governments willingness to invest in these areas over long periods of time. Table 15: Broadband Access by Country. (Source: Nationmaster. com (nd): Broadband access (most recent) by country, http://www. nationmaster. com/graph/int_bro_acc-internet-broadband-access) [pic] Education levels
As reflected in Table 14: Countries with tertiary education as percentage of total population, the United States has focused on developing its skilled labour force. 2 Demand conditions Highly sophisticated and demanding customers in a domestic market drive up innovation and quality of countries products Furniture is becoming a commodity resulting in a shift from local manufactured product to more imported products cheaper products. As discussed in further detail in future trends, point 3. 6 within this report. 3 Related support industries Internationally competitive suppliers are critical for international success. Table 16: Imports of Goods and Services by Country. (Source: Nationmaster. om (nd): Imports of Goods and services in current U. S. Dollars (most recent) by country, http://www. nationmaster. com/graph) [pic] 4 Corporate strategy, structure and Rivalry Fierce national competition drives innovation, which drives down costs and help develop new methods of competition Competition coming from international suppliers into the U. S. economy, is putting the local manufacturing industries into a correction phase, forcing them to either: • Focus on more niche markets where more sustainable higher prices can be charged. • Or become retailers or distributors of products that they have manufactured in other countries and imported for U. S. consumption. 5 Other influences The role of government – Investment, regulations, etc. which affect the above factors. An example is the increase regulations on funds moving internationally (due to the war on terror) would have an effect on the economy and the speed at which it grows. • Role of chance events – Which shift competitive advantage in unpredictable ways, such as war, inventions etc. We could look at the increase in the governments expenditures on national security, the war on terror, the bail out packages for corporate America during the recession, all of which is increasing taxes resulting in lower disposable income for individuals, which will have an effect on theirs spending habits.
If Adorn cannot position its self correctly for being affordable and offering desired benefits then the effectiveness of entering this market would be diluted and may risk the investment. 6 Concerns regarding this model Some concerns amongst others • Chance may be used to explain many critical events. • Multinational influence in total ignored in this model. • Some multinational companies home country have no relevance to their competitive advantage or organisational strategy or their success So taking this into consideration, this model can only be used to highlight concerns with in a specific county and cannot be used in isolation when analysing a specific country 7 Conclusion of the Diamond Model
The country offers good infrastructure with a sustainable base of clientele and human resources for future company expansion within the United States. No negative trends can be identified that would cause a major concern for those entering the domestic market except for other imports from other countries into the United States. 4 Demographic trends • Education will stay high as higher education will become norm to becoming more marketable individuals with in the economy • Increase in population through immigration • Population will decrease through birth and death rates of population • Increasing age of population 2 U. S. Workforce Table 17: U. S. Labour Stats. (Source: Nationmaster. com (nd): American Labour Stats, http://www. nationmaster. com/country/us-united-states) [pic]
Unemployment is at 5%, reflecting a highly economic active country, which will have little risk of social unrest or having an over burdened social welfare within the economy, such as high social grants compared to employment levels within the country. 3 U. S. Education Table 18: U. S. Education Stats. (Source: Nationmaster. com (nd): American Education Stats, http://www. nationmaster. com/country/us-united-states) [pic] The above table shows a highly literate and educated country which not only gives suggestions of sustainable labour resources but also the potential of a large consumer base for Adorns products. 5 Treaties According to National Tax Services (2009), the following treaties are to be in place between the U. S. and S. A. • South Africa, Republic of, Convention, Effective Date: January 1, 1998 The Convention between the United States of America and the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, signed at Cape Town on February 17, 1997. • Technical Explanation, Effective Date: January 1, 1998 Department of the Treasury Technical Explanation of the Convention between the United States of America and the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains. A List of Treaties and Other International Agreements of the United States in Force on January 1, 2009 made up of a 481 page document which needs to be closely analysed to determine opportunities that may be beneficial to Adorn. 6 Trends within the United States furniture industry 1 Change in perceptions:
Schuler & Lawser (2007) stated that like many mass-produced consumer goods, household furniture has become more of a commodity and is sold on price. Customers are now becoming more interested in furniture that looks good and appears to be a good value. Customers have moved away from the perception of furniture as a long-term investment, as something to pass on to their children or to keep as an antique. 2 Economic changes within the furniture industry Schuler & Lawser (2007) goes on to say many U. S. furniture manufacturers are choosing to have their furniture made in China and other low-cost countries rather than produce their own products. This has allowed offshore furniture competitors to increase their penetration into U. S. and world markets.
The (American) furniture industry, excluding the kitchen cabinet sector, lost 108,000 jobs or 21 percent of its workforce between 1997 and 2005. 3 Imports Schuler & Lawser (2007) also mentions that between 1992 and 2005, imports of all furniture products (including household, institutional and office furniture, but excluding kitchen cabinets) increased from $4. 1 billion to $23. 65 billion in 2005, an increase of almost $20 billion or 477 percent. During this period, imports from China increased from $208 million to $10. 8 billion, an increase of almost $11 billion — a fifty-fold increase in 13 years. [pic] Figure 9: Wooden house hold furniture imports (Source: Schuler & Lawser (2007): The U. S. Furniture Industry: Yesterday and Today … Will There Be a Tomorrow? , www. ooddigest. com) 4 Future trends 1 Economic future trends • High tax rates will put a burden on countries growth. • Income per capita will remain high • Competition will increase for a share of the consumer’s wallet. • Imports will continue to increase as the U. S. moves away from manufacturing their own products. • With the larger impact on importing manufactured goods their will issues with Gross Domestic Product and current account, which will negatively affect the stability of U. S. dollar. This would affect the extent the country could subsidise the money out flow from imports that the nation buys, with additional exports and/or investments. Environmental trends will put emphasis on ethical purchases with regards to consideration for the environment which in turn will affect the importers of products to the United States. 5 US Imports Table 19: U. S. Imports of furniture, household items, baskets by country in U. S. thousand Dollars. (Source: Nationmaster. com (2004): U. S. imports of furniture, household items, baskets (most recent) by country, http://www. nationmaster. com/graph/eco_tra_wit_us_us_imp_of_fur_hou_ite_bas-imports-furniture-household-items-baskets) [pic] The figures show China ($ 9’709’205’000) is by far the greatest importer of these specific goods into America three times higher than the next biggest which is Canada ($ 3’172’390’000). 1 Future trends with relation to furniture industry
Schuler & Lawser (2007) noted the following trends taking place with in the furniture industry with in the United States, the consumer is spending less and less on furniture as it is viewed more and more as a commodity and now there is increasing competition for the consumer’s dollar from electronics, home entertainment, travel, leisure products etc. Because of the current emphasis on price, profit margins for United States’ furniture manufacturers are very low, while the costs of manufacturing inputs continue to rise. This has led to a significant decline in plant and equipment investments. Many United States furniture manufacturers are choosing outsource their production to other low-cost countries.
This has allowed offshore furniture competitors to increase their penetration into the United States market, resulting in the United State manufactures focusing on becoming wholesalers and/or retailers. Schuler & Lawser (2007) continues to suggest that as offshore manufacturers gain more experience from supplying the United States furniture manufacturers, they will learn enough to go direct to retailers, or through their own retail distribution outlets. This trend has already started as most of the larger Chinese furniture manufacturers sell direct to retailers and some have started offering retail franchises with in the United States. This trend will become more entrenched as the population will start saving more while restraining their spending habits following the current economic slow down and future uncertainty.
Another imported point to be mentioned is that the Chinese are moving their products closer to the end user and cutting out the middle man, undoubtedly this would increase their profits substantially, even posing a threat of further price reductions to the end user. This coupled with the impact of China having distribution channels that will allow access to markets with regards to any product, could pose a substantial risk to any company in the U. S. market. Additional considerations 1 Regionalism/ integration The U. S. has regional treaties with the African Union, Southern African Democratic Countries and the European Union. The U. S. also participates in the North Americas treaty between Mexico, Panama and Canada.
These regional treaties could be beneficial for Adorn once it has set up operations within the U. S. and will require further analysis. 2 E commerce Increased usage of e commerce which in turn increases opportunities and efficiencies within industries even allowing new industries to evolve and take over older outdated industries. This is assisting in reducing costs and improving speed of certain processes for companies. An example of this is video conferencing in reducing air fairs and travelling time for company employees. E commerce also allows for efficient market penetration through more adaptive, modes of communication and commerce with a wider market base.
With the aid of tools which include everything from electronic presentations to electronic mail that can be sent anywhere reducing geographical boundaries. This is also affecting the traditional concepts product and service marketing such as packaging and location of company offerings. With this new technology come more informed customers, which understand the product offerings within the market more, keeping companies on their toes with regards to product and services that the promote. All of which can be specially manipulated to assist the company in achieving its strategic goals, sometimes even assisting in reducing the cost of globalisation.
An example of this would be Amazon where it has a presence in ever country and can distribute anywhere in the world utilising the courier services. 3 International terrorism Table 20: U. S. Terrorism Stats. (Source: Nationmaster. com (nd): American Terrorism Stats, http://www. nationmaster. com/country/us-united-states) [pic] Terrorism puts stain on immigration control, global financing, infrastructure risks, personal security risks and nuclear power plants and energy generation. Economic risks include: • Capital stock – human and physical stock is reduced • Induced higher levels of uncertainty which reduces economic activity within the region. Promotes increase in counter terrorism expenditures undermining any economic stability within the region. • The direct negative impact on specific industries such as tourism. • Reduced foreign direct investment and increases outward flow of investments • Increased immigration controls that a slows down the movement of human resources between counties • The reduction of global financing, slowing global growth and opportunities. • Maintenance and repair costs on infrastructure • Risk to and around nuclear power plants and energy generation. So threats, risks and security considerations should also be taken into account when evaluating a country for global expansion. Conclusion In conclusion my reasoning to expand into the U. S. arket includes: • Highly developed education and infrastructure allowing growth of business in the country. • High manufacturing input costs, with high labour costs and/or limited raw materials which keep local competitors at a disadvantage. • Also the U. S. country that has with low import costs and barriers, even trade treaties with our domestic market, South Africa which would assist in dropping costs of doing business with the country while improving opportunities with in the U. S. • The U. S. has a high gross domestic product and high capita individuals which would relate to potential clients that could afford buying our products. This equates into opportunity. • The high levels of education also mean that human resources with in the U. S. re well developed and will assist Adorn with expansion into that market With the aid of technology to achieve the strategy Have technology assist in reducing costs of doing business and having operations within two countries, reduce complexities and improve communication within the company in to the market place. Utilise technologies to develop and manage effective Enterprise Resource Planning which would include everything from stock and inventory controls to customer databases. The end goal would be to improve speed and efficiencies of business processes, including decision making process and follow through by management. Critical success factors include: Price
Adorn’s price to market will be of considerable importance to success penetration within the U. S. market, which I believe Adorn are in the position to offer. Speed With China positioning itself within the U. S. economy, it would mean that the time to start with inroads to that market would need to be now before China is too dominant in the U. S. market. Adorn can utilise the future economic upswing of the U. S. economy to increase the companies growth momentum and improve the returns of the investment. List of references American Community Survey (2005): United States – Languages, http://www. mla. org/cgi-shl/docstudio/docs. pl? map_data_results. htm, 01 August 2009 Banescu, C. (2009): U. S.
Companies Pay the Highest Taxes in the World, http://chrisbanescu. com/blog/2009/03/03/us-companies-pay-the-highest-taxes-in-the-world. htm, 01 August 2009 Burnham, W. (2006): Introduction to the Law and Legal System of the United States, http://www. uscourts. gov, 01 August 2009 Chossudovsky, M. (nd): Preparing for Civil Unrest in America Legislation to Establish Internment Camps on US Military Bases, http://www. globalresearch. ca/index. php? context=va&aid=12793, 01 August 2009. The Good News Magazine (2009): Political Stability, http://www. gnmagazine. org/issues/gn32/politicalstability. htm, 01 August 2009 IPOS public affairs (2007): Party Affiliation and Ideology, http://www. bipartisandisorder. rg/wp-content/uploads/2007/06/ap-ipsos-thompson. pdf , 01 August 2009 Lever, R. (2009): Richest Countries by GDP and the Poorest Country, http://gross-national-product. suite101. com/artical. cfm/richest_countries_by_gdp_and the_poorest_county. html. 26 July 2009 Milpark Business School, (2009): Managerial Environment, Johannesburg: Milpark Business School. N. D. Schwartz (2009), Bleak Employment Outlook, http://www. nytimes. com/2009/02/15/business/15global. html, 01 August 2009 Nationmaster. com (nd): Economic Freedom, http://www. nationmaster. com/country. htm, 01 August 2009 National Tax Services, Inc (2009): Treaties, http://www. unclefed. om/ForTaxProfs/Treaties/index. html, 28 July 2009 OANDA Corporation (2009): FXHistory – Historical Currency Exchange Rates, http://www. oanda. com/convert/fxhistory, 01 August 2009 Ott, M. (nd): Foreign Investment in the United States, http://www. econlib. org/library/Enc1/ForeignInvestmentintheUnitedStates. html, 01 August 2009. Pew Research Centre Project (2009): Pew Global Attitudes Project – Confidence in Obama Lifts U. S. Image around the World report, http://pewglobal. org/reports/display. php? ReportID=264, 01 August 2009 Pew Research Centre Project (2007): U. S. Religious Landscape Survey, http://pewglobal. org/reports. html, 01 August 2009 Porter, M. E. 1990): The Competitive Advantage Of Nations, Macmillan: London Schuler, A. & Lawser, S. (2007): The U. S. Furniture Industry – Yesterday and Today … Will There Be a Tomorrow? , www. wooddigest. com, 01 August 2009 Schwartz, N. D. (2009): Job Losses Pose a Threat to Stability Worldwide, http://www. nytimes. com/2009/02/15/business/15global. html? _r=1, 01 August 2009 Sithole, N. (2009): Nissan SA defies markets, http://www. moneyweb. co. za/mw/view/mw/en/page295023? oid=285752, 27 July 2009 S. W. O. T Analysis, http://www. 12manage. com/methods_swot_analysis. html 2 August 2009 Tysver, D. A. (2008): Patients, http://www. bitlaw. com/patent/index. html, 02 August 2009
United Nations Development Program (2008): United Nations Development Program Human Development Report 2007/2008, http://en. wikipedia. org/wiki/File:World_literacy_map_UNHD_2007_2008. png, 01 August 2009 U. S. Department of Labor (2009): History of inflation in the US from Jan 1914 – Mar 2009, ftp://ftp. bls. gov/pub/special. requests/cpi/cpiai. txt. 01 August 2009 The U. S. Diplomatic Mission to Germany (2008): Economy Policy, http://usa. usembassy. de/economy-policy. htm, 01 August 2009 U. S. Government (2009): Treaties, http://www. state. gov/s/l/treaty/treaties/2009/index. htm, 01 August 2009 Wikipedia (nd): Political ideologies in the United States, http://en. wikipedia. org/wiki/Political_ideologies_in_the_United_States, 01 August 2009
World Bank (2008): Doing Business 2009– Country Profile for the United States Report, Washington, The world bank Appendices: List of Tables Table 1: World Top Ten Richest Countries by GDP in US Dollars (Source: Suite101. com Media Inc (2009): Richest Countries by GDP and the Poorest Country, http://gross-national-product. suite101. com/artical. cfm/richest_countries_by_gdp_and the_poorest_county)_________________________________Page 5 Table 2: The United States Economy (Source: Nationmaster. com (nd): American Economic Stats, http://www. nationmaster. com/country/us-united-states/eco-economy)_____Page 7 Table 3: The United States Favourability Rating (Source: Pew Research Centre Project (2009): Pew Global Attitudes Project: Confidence in Obama Lifts U.
S. Image around the World, http://pewglobal. org/reports/display. php? ReportID=264)_______________Page 13 Table 4: US dollar to ZAR for Time period: 26/07/2008 to 01/08/2009 (Source: OANDA Corporation (2009): FXHistory – Historical Currency Exchange Rates, http://www. oanda. com/convert/fxhistory )_____________________Page 14 Table 5: U. S, Taxes (Source: Nationmaster. com (nd): American Economic Stats, http://www. nationmaster. com/country/us-united-states)_______________Page 15 Table 6: Government spending (Source: Simmons (2009): How Congress Is Spending Your Money, http://www. federalbudget. com/,)_________________________________Page 16
Table 7: Economic freedom is rated within the top ten nations (Source: Nationmaster. com (nd): Economic Freedom, http://www. nationmaster. com/country )___________________________Page 17 Table 8: Top Languages spoken in the United States (Source: American Community Survey (2005): United States – Languages, http://www. mla. org/cgi-shl/docstudio/docs. pl? map_data_results)_______Page 18 Table 9: U. S. Population (Source: Nationmaster. com (nd): Population, http://www. nationmaster. com/country/us-united-states)_______________Page 19 Table 10: U. S. labour Statistics. (Source: Nationmaster. com (nd): American Labour Stats, http://www. nationmaster. com/country/us-united-states)_______________Page 20
Table 11: Research and development spending as portion of countries GDP. (Source: World Bank (2002): Research and development spending (most Recent) By Country, http://www. nationmaster. com/red/graph/eco_res_and_dev_spe-economy-research-and-development-spending&b_map=1)___________________________Page 21 Table 12: Electricity Production by Country. (Source: Nationmaster. com (nd): Electricity Production (most recent) by Country, http://www. nationmaster. com/graph/ene_ele_pro-energy-electricity-production) ___________________________________________________________P age 22 Table 13: Transport, Million Tons per year, per Kilometre. (Source: Nationmaster. om (nd): Air transport, freight – million tons per km (most Recent By Country, http://www. nationmaster. com/graph/tra_air_tra_fre_mil_ton_per_km-freight-million-tons-per-km)________________________________________________Page 23 Table 14: Countries with tertiary education as percentage of total population. (Source: Nationmaster. com (nd): Labour force with tertiary education as percentage of total (most recent) by country, http://www. nationmaster. com/graph/lab_for_wit_ter_edu_of_tot-labor-force-tertiary-education-total)_____________________________________________Page 24 Table 15: Broadband Access by Country. (Source: Nationmaster. com (nd): Broadband access (most recent) by country, http://www. nationmaster. om/graph/int_bro_acc-internet-broadband-access) __________________________________________________________Pa ge 28 Table 16: Imports of Goods and Services by Country. (Source: Nationmaster. com (nd): Imports of Goods and services in current U. S. Dollars (most recent) by country, http://www. nationmaster. com/graph)____________________________Page 29 Table 17: U. S. Labour Stats. (Source: Nationmaster. com (nd): American Labour Stats, http://www. nationmaster. com/country/us-united-states)_____________Page 32 Table 18: U. S. Education Stats. (Source: Nationmaster. com (nd): American Education Stats, http://www. nationmaster. com/country/us-united-states)_____________Page 33 Table 19: U. S.
Imports of furniture, household items, baskets by country. (Source: Nationmaster. com (2004): U. S. imports of furniture, household items, baskets (most recent) by country, http://www. nationmaster. com/graph/eco_tra_wit_us_us_imp_of_fur_hou_ite_bas-imports-furniture-household-items-baskets)_________________________Page 36 Table 20: U. S. Terrorism Stats. (Source: Nationmaster. com (nd): American Terrorism Stats, http://www. nationmaster. com/country/us-united-states)________________Page 39 Appendices: List of Figures Figure 1: Bleak Employment Outlook (Source: The New York Times (2009): Bleak Employment Outlook, http://www. nytimes. com/2009/02/15/business/15global. tml) 01 August 2009 10h03_______________________________________________________ Page 9 Figure 2: Enforcing Contracts – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington)_______________________Page 11 Figure 3: Literacy Rates (Source: Wikipedia (2008): Literacy Rates, http://en. wikipedia. org/wiki/File:World_literacy_map_UNHD_2007_2008. png) ____________________________________________________________ Page 12 Figure 4: U. S. Consumer Price Index January 1914 to March 2009 (Source: U. S. Department of Labour (2009): History of inflation in the US from Jan 1914 – Mar 2009, ftp://ftp. bls. gov/pub/special. requests/cpi/cpiai. txt)______Page 14
Figure 5: Ease of doing business – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington)________________________Page 25 Figure 6: Starting a Business – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington)________________________Page 25 Figure 7: Trading Across Boarders – Global Rank (Source: The World Bank (2008): Doing Business Report 2009 – Country Profile United States, The World Bank: Washington)_________________________Page 26 Figure 8: Diamond Model (Source: Porter (1990): The Competitive Advantage Of Nations, Macmillan: