Escolar Documentos
Profissional Documentos
Cultura Documentos
2
3.6.3 Imports------------------------------------------------------------------------------34
3.6.4 Future trends------------------------------------------------------------------------35
3.6.5 US Imports--------------------------------------------------------------------------36
4 Additional considerations .........................................................................................37
4.1 Regionalism/ integration....................................................................................37
4.2 E commerce........................................................................................................38
4.3 International terrorism........................................................................................39
5 Conclusion.................................................................................................................40
6 List of references.......................................................................................................42
7 Appendices: List of Tables........................................................................................44
8 Appendices: List of Figures......................................................................................47
1 Introduction
Adorn is a furniture manufacturer that is producers to clients specifications. It utilises
highly automated processes development and production of its products,
3
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.
2 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
4
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.
2.1 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)
5
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.
2.2.2 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.
6
http://www.nationmaster.com/country/us-united-states/eco-economy)
The United States
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.
governments ability to stop spending in regards to economy bail outs.
3.1 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.
7
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
8
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."
9
privately owned. (Similarly, 14 percent of foreign assets owned by the United States
were official, and 86 percent were private.)
10
Figure 2: Enforcing Contracts – Global Rank
(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile
United States, The World Bank: Washington)
11
3.1.1.7 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.
12
3.1.2.2 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)
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.
13
3.1.2.4 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).
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.
3.1.2.6 Inflation
From the figure 4, it can be noticed that inflation is consistent over the past 25 years.
14
3.1.2.7 U.S, Taxes
Table 5: U.S, Taxes
(Source: Nationmaster.com (nd): American Economic Stats,
http://www.nationmaster.com/country/us-united-states)
15
Table 6: Government spending
(Source: Simmons (2009): How Congress Is Spending Your Money,
http://www.federalbudget.com/,)
16
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.
Counties with high rating generally have high growth rates (with the exception of
China), so the fact that the U.S. rates at number six bodes well for future economic
outlook of the country.
17
3.1.3 Socio – cultural environment
3.1.3.1 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 52’007’297 19.39%
English
Spanish 32’252’890 12.03%
Chinese 1’550’547 0.57%
18
3.1.3.3 Population
Table 9: U.S. Population
(Source: Nationmaster.com (nd): Population,
http://www.nationmaster.com/country/us-united-states)
The above figures show very stable population with regards to birth and death rates,
which is the norm for a developed country.
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.
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.
21
3.1.4.3 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)
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.
22
3.1.4.4 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)
These figures show the U.S. as have a developed infrastructure with a vibrant
economy.
23
3.1.4.5 Availability of skilled workforce
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)
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.
24
3.1.5 Other
25
(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.
3.2.1 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
26
• Ease of developing products for U.S. market requirements by utilising current
expertise and resources
3.2.2 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.
3.2.3 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
3.2.4 Threats
• China entraining the American market
• China offering retail franchises to the American market
• War on terrorism
• Raising taxes
27
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.
28
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.
29
3.3.4 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.
3.3.5 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.
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
30
3.3.7 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.
32
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.
3.5 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.
33
3.6 Trends within the United States furniture industry
3.6.1 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.
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.
3.6.3 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 $11 billion — a
fifty-fold increase in 13 years.
34
Figure 9: Wooden house hold furniture imports
(Source: Schuler & Lawser (2007): The U.S. Furniture Industry: Yesterday
and Today … Will There Be a Tomorrow?, www.wooddigest.com)
Table 19: U.S. Imports of furniture, household items, baskets by country in U.S.
thousand Dollars.
(Source: Nationmaster.com (2004): U.S. imports of furniture, household items,
baskets (most recent) by country,
http://www.nationmaster.com/graph/eco_tra_wit_us_us_imp_of_fur_hou_ite_bas-
imports-furniture-household-items-baskets)
The figures show China ($ 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).
36
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.
4 Additional considerations
37
These regional treaties could be beneficial for Adorn once it has set up operations
within the U.S. and will require further analysis.
4.2 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.
38
4.3 International terrorism
Table 20: U.S. Terrorism Stats.
(Source: Nationmaster.com (nd): American Terrorism Stats,
http://www.nationmaster.com/country/us-united-states)
39
• 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.
5 Conclusion
In conclusion my reasoning to expand into the U.S. market 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.
are well developed and will assist Adorn with expansion into that market
40
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.
41
6 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
42
National Tax Services, Inc (2009): Treaties,
http://www.unclefed.com/ForTaxProfs/Treaties/index.html, 28 July 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
43
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
World Bank (2008): Doing Business 2009– Country Profile for the United States
Report, Washington, The world bank
44
(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
45
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)
___________________________________________________________Page 22
47
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
48