Global Managerial Economics Paper
Name
Professor
Subject
Date
Global Managerial Economics
The small and medium-sized enterprises (SMEs) form a crucial part of the U.S. economy. The SMEs create the most jobs in the country; they target the ordinary Americans for employment thus making them a very important component of the economy. Without the SMEs, the economy will bleed millions of jobs, adversely affecting the economy. This is the reasoning behind the drive by President Obama to give this sector newly acquired impetus and promote it to create more jobs for Americans and grow the economy. The target of the National Export Initiative (NEI) is to boost the export capacity of the SMEs in the U.S. by supporting them; the administration reasons that this will result in the creation …show more content…
of two million jobs. The intention is good, but the challenge lie in the operationalization of the policy and ensuring it works in the actual market (Audretsch, 100). The international market and the export market is often dominated by the big corporations with many resources to invest; this makes them strong and gives them the ability to compete with the big corporations that are players in the international market. The SMEs from the U.S. lack, the resources, know how, and the experience to compete with the established world trade players from the Europe Union, China, and India. This is where the Export Promotion Cabinet steps in to help the U.S. SMEs succeed in the competitive export market (Audretsch, 101).
The cabinet should take action to remove both foreign and domestic barriers that curtail the SMEs players in the country to participate in the export market. Such barriers give the larger corporations the edge in the market and make it difficult for the SMEs to compete on a level playing field. Some of these barriers include (Mauro and Shah, 23):
Domestic Barriers SMEs have difficulties accessing both trade finance and working capital. This challenge prevents them from financing purchases by foreign companies that might be interested; this means that external buyers prefer suppliers that can extend credit. The support from banks and financial institutions is not good; this makes it hard for the SMEs to obtain the finances they badly need to grow the businesses and expand their operations to include exports. This is the case especially since most of the SMEs are startups and lack enough collateral, banks consider than higher risk compared to the larger corporations (Mauro and Shah, 35). The community banks that might be willing to support the SMEs often lack familiarity with exporting and what it entails.
The U.S government regulation poses another challenge to the SMEs prospects of participating in the export market. The process that is involved for a firm to be allowed to make exports is lengthy and cumbersome and involves much paperwork; the process is also costly, taking it out of reach for the SMEs. It is difficult to obtain visas that are crucial in the export business; to bring in potential customers or partners to view the local operations of the firm, or to bring in employees for training. This makes it hard for the SMEs to grow in the business. The tariffs charged on imported intermediate input goods that might be needed by the SMEs for their production are prohibitive (Mauro and Shah, 76).
Other domestic barriers include high-transport costs. Port bottlenecks when trying to export and container shortages. The lack of economies of scale within the SMEs limits their export potential. Foreign Barriers
Foreign government regulations play a big role in discouraging SMEs export form the U.S. The various certification, quality, labeling, and design requirements from country to country make it costly for the SMEs to cope financially and, therefore, unable to support their export endeavors. The protection of intellectual property (IP) is not adequate, and so is the enforcement of the IP laws in the international market; the SMEs thus lose their competitive edge against the larger organizations. Other challenges include the lengthy and opaque customs processes, high foreign import tariffs, restrictive quotas, bans also affect the SMEs. Costly sanitary and phytosanitary (SPS) also discourage the SMEs from participating in exports (Mauro and Shah, 56).
The knowledge of the foreign markets is limited; this means the SMEs cannot locate and analyze the foreign markets; the SMEs, therefore, lack the advantage of knowing the potential customers and knowing their needs before they design their products to fit the market. The SMEs are also unable to contact their potential overseas customers. The problem of language and cultural barriers also comes to play; as a result, the SMEs are unable to market effectively and understand the traditions of their target markets (Mauro and Shah, 100).
Strategies to Overcome these Challenges
The SMEs operators and owners should be made aware of the government programs that have been put in place to aid the SMEs to make the move into the export business and compete favorably. Some of these programs include the U.S. Small Business Administration, Export and Import Bank, the U.S. Department of Commerce, the U.S. Department of Agriculture and other government agencies. The Export and Import Bank plays a crucial role in the economy; it supports U.S. firms to export their goods abroad. It will, therefore, be crucial for the SMEs since it will support them financially in collaboration with other financial firms. Furthermore, the cabinet will aim to support the SMEs financially, it will seek to change the attitude of the financial sector towards SMEs as high risk and view them as partners that if supported will develop profitable relationships.
The government should remove or reduce the financial and administrative regulations that are curtailing the SMEs efforts to move into the export business. For example, the government can reduce the import tariffs it charges on the inputs, to enable them to obtain these intermediate inputs to produce their finished products (Masato, 123).
Seek a competitive exchange rate. The relative price of commodities is the biggest hindrance of exports. The government through the cabinet can make efforts to ensure the dollar is not overvalued with respect to currencies in Asia including those of Taiwan, China, Singapore, and Hong Kong. This puts the SMEs from the U.S. at a disadvantage to those firms form this region. The government should seek policies with the international community that will allow the SMEs to thrive. The tariffs that the exports are charged should be addressed through Free Trade Agreements and other bilateral trade agreements that will ensure the SMEs are protected (Masato, 126).
The domestic consumers should support the SMEs by purchasing their goods locally; this will give them a basis to build on before they start the export business. The SMEs operators should be trained on the international market. The export business is unique and different from the local markets; it will, therefore, be helpful to the SME operators to be trained on the legal requirements and other specifications needed for them to operate in the international market. Information such as the tariffs charged goods, the packaging, labeling, and design specifications; these vary from country to country. This training is especially crucial for the first-time exporters, they need to understand what is required of them, and how their firms are supposed to conduct themselves in the international market, the rules of engagement with other firms in the market and their legal obligations (Masato, 154).
The SMEs involve the ordinary Americans in business, supporting this sector will translate to the creation of millions of jobs for them and also growing the economy. The increase in exports from the U.S. will give the GDP of the country a big boost. The service industry will receive a massive boost since more Americans will have disposable income to spend.
Trade missions can be sent abroad to create awareness of the firms in the U.S and their potential; this will attract investors and new businesses into the U.S., therefore, winning support for the SMEs. This will also focus the international investor and trade community on the U.S. SMEs sector and take the focus from the larger firms. This will stand the SMEs in good stead going forward. The missions abroad should target the upcoming markets like China, Brazil, India, and also the European Union. The upcoming markets are a good target since they have the fastest growing middle class and thus a growing demand for goods and services (Masato, 171).
The small business I am thinking about is the export of cell phone technology and applications together with innovative gadgets to run them. The first challenge this SME will face will be the massive competition it will face in the market from the established and larger multinational companies like Samsung and Apple. To surmount this challenge, the company has to produce goods that standout, goods that solve problems in society, and that will, therefore, strike a rapport with the customers and give it an edge over the other global giant corporations.
The ensuing economic conditions in the market do not favor SMEs, the tariffs charged to import the raw materials and pre-products for the production of the intended software and gadgets are punitive and favor the larger corporations. The exchange rate also does not help the SMEs; the fact that some of the Asian economies undervalue their currencies in relation to the U.S. dollar means that the SMEs do not get good value for their investments. It makes exporting goods costly and most importantly drives the prices of the goods produced through the roof and makes them unattractive in the market (McCormack, 117).
The industry is volatile; there are constant changes in technology with cutting edge innovation taking place. The SMEs need to be innovative in their production of goods. They should compensate what they lack in resources, with innovation to keep pace with then big multinational companies that have all the resources they need to dominate the market. They also have the advantage of a known brand; the upcoming SMEs lack this advantage and, therefore, must create their brand and market niche.
Government regulation is another challenge. The stringent regulations that are applied before an organization is allowed to export goods out of the U.S. for examples are stringent and do not help the SMEs. The lack of know-how about the international market dynamics is also a limiting factor for SMEs entering the market. They need training and awareness creation to ensure they are aware of the requirements and obligations before they venture into international trade. The government should help them all the way by providing missions to the potential international target markets like China and India to create awareness among the international business community to recognize the potential of American SMEs as potential partners in business. This will create an environment that will enable the SMEs to slot into the international trade seamlessly (Gerald, 100).
The fiscal policy and monetary policy adopted by the government of the U.S does not support the SMEs, prior to the National Export Initiative by the Obama administration, the fiscal and monetary policy seemed to favor the larger corporations at the expense of the SMEs. The local financial institutions do not work with the MEs since they consider them a higher risk and prefer to work with the larger companies that have enough leverage.
The owners of the businesses should carefully analyze these challenges before making a decision on whether to expand to international business or not. In this case, the business will face stiff competition from established global brands that have a significant market share already. The operating fiscal and monetary environment in the country is getting better with the NEI that aims to support the SMEs efforts to enter the export business. The international exchange rates and tariffs also have to be considered.
The United States government should help these businesses to make this move to the exports business; this is because the growth of the SME sector in the U.S. will result in the massive growth of employment among ordinary Americans. An increase of revenue from taxes and increased foreign exchange due to exports will lead directly to the growth of the gross domestic product (GDP) and the economy in general. The government would therefore, support the expansion of the business not only because it is good for the community but also because it augurs well with economic growth (U.S. international Trade Commission, 210).
The government should therefore, support the SMEs as they grow in the communities by providing a favorable environment for them to thrive. For instance, the government can lower the tariffs charged on the goods that they export, as this will enable them to offer competitive prices in the market up against the multinationals. The government can also support the SMEs by entering into bilateral agreements and free trade agreements (FTAs) that will encourage free movement of goods with minimal tariff and customs charges. This will encourage the growth of the SMEs and will enable them to make a bold decision to participate in international trade.
Risk Table (1)
Risk
Importer
Exporter
L/M/S
How to Overcome It.
Economic conditions
High tariffs
High-exchange rate
Overvaluation of the U.S. dollar
High tariffs
Lack of government support
Strong Free trade agreements on tariffs and exchange rates
Bilateral agreements between the U.S. and partners
Fluctuations in industry Fluctuations are common Fluctuations are common Medium Innovativeness in the market.
Research of the market needs
Competition
Competition from the larger firms within the U.S. and multinationals Competition from the larger firms within the U.S. and multinationals Strong Support from the federal government and the Export and Import Bank
Technological change Constant technological changes Constant technological changes Strong Set up a robust R&D department that will ensure the firm keeps up with the technological changes.
Change in preferences Changes in preferences are limited Changes in preferences are limited Least N/A
Costs and expenses High High Strong Government subsidies
Lowering of tariffs both locally and in the destination nations when exported
Regulations
Stringent Stringent Strong Relaxation of the import and export regulations to allow free operation of the SMEs
Expropriation
Minimal Minimal Least The federal and state governments should work together to ensure there are laws that protect the property of the SMEs
Interest rates High High Strong Lowering of interest rates by local financial institutions like the Ex-Imp Bank.
Government monetary policy Not friendly Not friendly Medium The government must come up with policies that will allow the SMEs to carry out exports without the stringent regulations.
Government fiscal policy Fair Fair Least The government still needs to come up with policies to ensure the fiscal policy supports the SMEs
Internal and external wars Affects some source countries Affects some destination countries Strong The government has to give the exporters and importers enough warning of the situation in such countries to enable them to make informed decisions
Difference in culture and religion Big differences Big differences Strong Educating the local business people on the existing cultural and religious differences and how to conduct themselves in areas like these.
Ownership of factories and property Allowed Allowed Least N/A
Human resource restrictions Low Low Least N/A
Intellectual property Protection of IP is poor Protection of IP is poor Strong Improve the legislation on IP protection, and adopt an international approach towards protection of IP
Discrimination
Low Low Least N/A
Red tape and corruption Minimal Minimal Least The authorities and the regulatory bodies should be ready and have adequate capacity to deal with corruption cases if and when they arise.
Blockage of funds or capital accounts Rampant Rampant Strong The federal authorities should work with the partners of the US to eliminate the problem of blockage of capital accounts and funds.
Change in government Minimal Minimal Least N/A
Part II
Some of the reasons that might cause the company to move its manufacturing outside of the country to markets like China, India, or Brazil include the lack of expert-labor in some of the areas of the manufacturing in the company. The use of in-house expertise might not be as effective as desired, and so the company resorts to outsource some of its manufacturing to a firm with expertise and, therefore, better place to deliver good quality products. The availability of cheap labor is another attractive factor that drives companies to outsourcing some of their activities to other companies and out of the country. Prime examples are China, India, and other countries in Southeast Asia like Vietnam and Malaysia; these provide skilled labor to the companies, and thus lowering their costs of production and increasing their profit margins. The ability and feasibility to focus on other activities in the company once some of these activities have been outsourced attractive, such focus will enable the firm to concentrate on some of its core activities, and this will lead to improved performance (McCormack, 145).
Benefits of Outsourcing
Outsourcing some of the activities of the company to other firms will ensure that the firm gets expertise and skilled staff that it could not obtain in-house. Training staff to carry out manufacturing and the various aspects that are related with it is costly and, therefore, will not be attractive to the firm. The prospect of moving production activities to another firm which specializes in the production will ensure that the production process is taken care of by a skilled staff with expertise and experience to get the job done. The cost is also significantly lower as compared to when the company carries it out. There is also the freedom to make the destination of the outsourcing; for example, if a company outsources to China or India, it will get readily available, cheap skilled labor, which will significantly lower the cost of production (Masato, 123).
The outsourcing of some of the activities of the company will enable the company to concentrate on the core process rather than the supporting ones.
Outsourcing gives the outside company the mandate to carry out the production of a product, for example, but the mother company owns the brand. Therefore, after production, the products are taken back to the mother company for packaging and branding before they hit the markets. The company, therefore, ensures quality products are produced, and it can concentrate on the value addition, packaging, and marketing of the products to ensure it captures the imagination of the potential customer base and, therefore, gets a good market share (Masato, 126).
Outsourcing also allows risk sharing between the client and the outsourcing company. Outsourcing enables the company to shift some responsibility to the outsourced vendor. The contract agreement between the client and the vendor means that they both have some level of responsibility. The sharing of responsibility comes in handy in cases where there are mishaps, or accidents, the damages are shared between the vendor and the clients. This gives the client the confidence to seek outsourcing partners to work with without fears.
The recruitment costs and operational costs as well are significantly reduced. Outsourcing avoids the need to hire staff in-house; hence the recruitment and operational costs are pushed to the vendor and the company does not incur these costs. This is one of the main …show more content…
advantages of offshoring.
Disadvantages of Outsourcing
Outsourcing risks exposure of the confidential data and information that is held dear by the client. This happens, for example, when an organization outsources payroll, HR, and recruitment services; it increases the risk of exposure of confidential company information that the clients might not be willing to expose.
If the company does not choose the right partner in business, it might lead to disagreements on time frames and delivery schedules down the line. Other issues might include substandard quality of goods produced that are below the expectations of the client. Inappropriate categorization of responsibilities is also another issue that can arise between the client and the vendor (Audretsch, 167).
Hidden costs can result from a partnership between the client and vendor. Although outsourcing allows companies to save costs, sometimes there are hidden costs that are involved when signing the contracts across international regulations that might prove too costly for the client in the long run.
Sometimes the vendors might take more than one contracts from different firms, this implies that the vendor will be divided into attention, and this might result in poor work due to congestion of work or a stretched workforce (Audretsch, 168).
Part III
Immigrants come to the U.S to look for opportunities that are either not available in their native countries or are available, but they cannot access them due to political conditions.
The ensuing economic conditions might not enable them to utilize these opportunities. As a result, the immigrants often take the jobs that are available and are comfortable with the pay that is offered. They are, therefore, willing to work for a wage that is lower than those workers that were born in the United States who will demand better wages for their services. Immigration, therefore, has the effect of lowering wages in the country. The presence of cheap labor is helpful to businesses in the country. This is especially so for the small and medium-sized enterprises, most of which are at startups and, therefore, would not be willing to spend large sums of money in acquiring labor services. The SMEs can, therefore, hire enough labor they need and increase their output at favorable costs. The output of the country increases with immigration. Hiring of immigrants also gives the businesses a new perspective of different cultures. It enables the companies to study their culture and language, and this would help in case of when the company expands to these areas for new markets. These immigrant employees would be pivotal in such efforts (Giovanni,
122).
Immigrants hiring helps diversify the workforce of the business. Especially in times as today when hiring is scrutinized, hiring immigrants might give the business a clean bill of health when it comes to discrimination. A diverse workforce gives the company and its staff a broad perspective of the world and gives them different ideas of doing things and thus promoting invention and innovation among the working staff.
Immigration can help fill the job vacancies and skill gaps that exist in the country. Some of the immigrants are highly trained and talented, and when they come to the U.S, they add value and bring their expertise in various fields which can only be beneficial to the U.S. Such skills can bring innovation and inventions that are crucial to the development of the country and the sustaining of the economic growth and prosperity of the nation.
Immigration can plug the problem of an ageing population. Immigrants are often comprised of young, energetic young men and women who are willing to work to earn a living. Immigration, therefore, gives the economy an injection of youth exuberance and desire to work that can boost the economy and plug the gap left by the ageing population that can no longer work. The young working immigrants contribute to the economy by paying taxes; this is beneficial to the government that needs the revenue to carry out various projects to promote economic growth. The young immigrants can also fill the pension gap by their contributions (Lewell, Jarrett, and Duffield, 200).
The host nation is enriched with cultural diversity. The U.S., for example, is comprised of a population that is culturally diverse but still can live together and coexist. The diversity in the population means there is diversity in thinking and doing things. This brings much energy and innovation into the country giving it an edge in the global markets. Innovations drive the growth of the economy and the development of the country in general.
Immigration has its own disadvantages; there is a depression of wages, and this causes the Native American to have to take jobs at lower wages since they are competing with immigrants for these jobs. Exploitation of immigrants may occur. Language and cultural barrier make it difficult for immigrants to settle. Some immigrants might be criminals such as drug dealers or terrorists. Laws in the U.S that are geared towards curbing immigration might be an issue for the immigrants.
There is a political divide in the country about the status of immigrants. Some believe that the U.S is made up of immigrants and so immigration has always been part of the country 's fabric during another point out to the socioeconomic negative effects of immigration in the U.S and support the curbing of immigration. This issue was strong after the financial crisis of 2008, with the U.S economy in recession, bleeding jobs, some Americans feel the immigrants are part of the problem, and that they are the reason they lack employment (Lewell, Jarrett, and Duffield, 202).
The Dream Act is meant to provide a mechanism through which young people who have grown up in the U.S and graduated from high school can obtain citizenship without depending on their parents. So the kind can gain citizenship even though their parents are undocumented.
Works Cited
Abe, Masato. Policy guidebook for SME development in Asia and the Pacific / [authors, Masato Abe, Michael Troilo, J.S. Juneja, Sailendra Narain]. Bangkok, Thailand: United Nations ESCAP, 2012. Print.
Audretsch, David B. SMEs in the age of globalization. Cheltenham: Edward Elgar Pub., 2003. Print.
Gunter, Lewell F., Joseph C. Jarrett, and James A. Duffield. "Effect of U.S. Immigration Reform on Labor-Intensive Agricultural Commodities." American Journal of Agricultural Economics 74.4 (1992): 897. Print.
Lorenzo, Mauro, and Apoorva Shah. Entrepreneurial philanthropy in the developing world a new face for America, a challenge to foreign aid. Washington, DC: American Enterprise Institute for Public Policy Research, 2007. Print.
McCormack, R. A. Manufacturing a better future for America. Washington, DC: Alliance for American Manufacturing; 2009. Print.
Peri, Giovanni. "The Effect Of Immigration On Productivity: Evidence From US States." Review of Economics and Statistics 4 (2011): 110223123708091. Print.
Susman, Gerald I.Small and medium-sized enterprises and the global economy. Northampton, MA: Elgar, 2007. Print.
U.S. International Trade Commission. Small and medium-sized enterprises overview of participation in U.S. exports. Washington, DC: U.S. International Trade Commission, 2010. Print.
Professor
Subject
Date
Global Managerial Economics
The small and medium-sized enterprises (SMEs) form a crucial part of the U.S. economy. The SMEs create the most jobs in the country; they target the ordinary Americans for employment thus making them a very important component of the economy. Without the SMEs, the economy will bleed millions of jobs, adversely affecting the economy. This is the reasoning behind the drive by President Obama to give this sector newly acquired impetus and promote it to create more jobs for Americans and grow the economy. The target of the National Export Initiative (NEI) is to boost the export capacity of the SMEs in the U.S. by supporting them; the administration reasons that this will result in the creation …show more content…
of two million jobs. The intention is good, but the challenge lie in the operationalization of the policy and ensuring it works in the actual market (Audretsch, 100). The international market and the export market is often dominated by the big corporations with many resources to invest; this makes them strong and gives them the ability to compete with the big corporations that are players in the international market. The SMEs from the U.S. lack, the resources, know how, and the experience to compete with the established world trade players from the Europe Union, China, and India. This is where the Export Promotion Cabinet steps in to help the U.S. SMEs succeed in the competitive export market (Audretsch, 101).
The cabinet should take action to remove both foreign and domestic barriers that curtail the SMEs players in the country to participate in the export market. Such barriers give the larger corporations the edge in the market and make it difficult for the SMEs to compete on a level playing field. Some of these barriers include (Mauro and Shah, 23):
Domestic Barriers SMEs have difficulties accessing both trade finance and working capital. This challenge prevents them from financing purchases by foreign companies that might be interested; this means that external buyers prefer suppliers that can extend credit. The support from banks and financial institutions is not good; this makes it hard for the SMEs to obtain the finances they badly need to grow the businesses and expand their operations to include exports. This is the case especially since most of the SMEs are startups and lack enough collateral, banks consider than higher risk compared to the larger corporations (Mauro and Shah, 35). The community banks that might be willing to support the SMEs often lack familiarity with exporting and what it entails.
The U.S government regulation poses another challenge to the SMEs prospects of participating in the export market. The process that is involved for a firm to be allowed to make exports is lengthy and cumbersome and involves much paperwork; the process is also costly, taking it out of reach for the SMEs. It is difficult to obtain visas that are crucial in the export business; to bring in potential customers or partners to view the local operations of the firm, or to bring in employees for training. This makes it hard for the SMEs to grow in the business. The tariffs charged on imported intermediate input goods that might be needed by the SMEs for their production are prohibitive (Mauro and Shah, 76).
Other domestic barriers include high-transport costs. Port bottlenecks when trying to export and container shortages. The lack of economies of scale within the SMEs limits their export potential. Foreign Barriers
Foreign government regulations play a big role in discouraging SMEs export form the U.S. The various certification, quality, labeling, and design requirements from country to country make it costly for the SMEs to cope financially and, therefore, unable to support their export endeavors. The protection of intellectual property (IP) is not adequate, and so is the enforcement of the IP laws in the international market; the SMEs thus lose their competitive edge against the larger organizations. Other challenges include the lengthy and opaque customs processes, high foreign import tariffs, restrictive quotas, bans also affect the SMEs. Costly sanitary and phytosanitary (SPS) also discourage the SMEs from participating in exports (Mauro and Shah, 56).
The knowledge of the foreign markets is limited; this means the SMEs cannot locate and analyze the foreign markets; the SMEs, therefore, lack the advantage of knowing the potential customers and knowing their needs before they design their products to fit the market. The SMEs are also unable to contact their potential overseas customers. The problem of language and cultural barriers also comes to play; as a result, the SMEs are unable to market effectively and understand the traditions of their target markets (Mauro and Shah, 100).
Strategies to Overcome these Challenges
The SMEs operators and owners should be made aware of the government programs that have been put in place to aid the SMEs to make the move into the export business and compete favorably. Some of these programs include the U.S. Small Business Administration, Export and Import Bank, the U.S. Department of Commerce, the U.S. Department of Agriculture and other government agencies. The Export and Import Bank plays a crucial role in the economy; it supports U.S. firms to export their goods abroad. It will, therefore, be crucial for the SMEs since it will support them financially in collaboration with other financial firms. Furthermore, the cabinet will aim to support the SMEs financially, it will seek to change the attitude of the financial sector towards SMEs as high risk and view them as partners that if supported will develop profitable relationships.
The government should remove or reduce the financial and administrative regulations that are curtailing the SMEs efforts to move into the export business. For example, the government can reduce the import tariffs it charges on the inputs, to enable them to obtain these intermediate inputs to produce their finished products (Masato, 123).
Seek a competitive exchange rate. The relative price of commodities is the biggest hindrance of exports. The government through the cabinet can make efforts to ensure the dollar is not overvalued with respect to currencies in Asia including those of Taiwan, China, Singapore, and Hong Kong. This puts the SMEs from the U.S. at a disadvantage to those firms form this region. The government should seek policies with the international community that will allow the SMEs to thrive. The tariffs that the exports are charged should be addressed through Free Trade Agreements and other bilateral trade agreements that will ensure the SMEs are protected (Masato, 126).
The domestic consumers should support the SMEs by purchasing their goods locally; this will give them a basis to build on before they start the export business. The SMEs operators should be trained on the international market. The export business is unique and different from the local markets; it will, therefore, be helpful to the SME operators to be trained on the legal requirements and other specifications needed for them to operate in the international market. Information such as the tariffs charged goods, the packaging, labeling, and design specifications; these vary from country to country. This training is especially crucial for the first-time exporters, they need to understand what is required of them, and how their firms are supposed to conduct themselves in the international market, the rules of engagement with other firms in the market and their legal obligations (Masato, 154).
The SMEs involve the ordinary Americans in business, supporting this sector will translate to the creation of millions of jobs for them and also growing the economy. The increase in exports from the U.S. will give the GDP of the country a big boost. The service industry will receive a massive boost since more Americans will have disposable income to spend.
Trade missions can be sent abroad to create awareness of the firms in the U.S and their potential; this will attract investors and new businesses into the U.S., therefore, winning support for the SMEs. This will also focus the international investor and trade community on the U.S. SMEs sector and take the focus from the larger firms. This will stand the SMEs in good stead going forward. The missions abroad should target the upcoming markets like China, Brazil, India, and also the European Union. The upcoming markets are a good target since they have the fastest growing middle class and thus a growing demand for goods and services (Masato, 171).
The small business I am thinking about is the export of cell phone technology and applications together with innovative gadgets to run them. The first challenge this SME will face will be the massive competition it will face in the market from the established and larger multinational companies like Samsung and Apple. To surmount this challenge, the company has to produce goods that standout, goods that solve problems in society, and that will, therefore, strike a rapport with the customers and give it an edge over the other global giant corporations.
The ensuing economic conditions in the market do not favor SMEs, the tariffs charged to import the raw materials and pre-products for the production of the intended software and gadgets are punitive and favor the larger corporations. The exchange rate also does not help the SMEs; the fact that some of the Asian economies undervalue their currencies in relation to the U.S. dollar means that the SMEs do not get good value for their investments. It makes exporting goods costly and most importantly drives the prices of the goods produced through the roof and makes them unattractive in the market (McCormack, 117).
The industry is volatile; there are constant changes in technology with cutting edge innovation taking place. The SMEs need to be innovative in their production of goods. They should compensate what they lack in resources, with innovation to keep pace with then big multinational companies that have all the resources they need to dominate the market. They also have the advantage of a known brand; the upcoming SMEs lack this advantage and, therefore, must create their brand and market niche.
Government regulation is another challenge. The stringent regulations that are applied before an organization is allowed to export goods out of the U.S. for examples are stringent and do not help the SMEs. The lack of know-how about the international market dynamics is also a limiting factor for SMEs entering the market. They need training and awareness creation to ensure they are aware of the requirements and obligations before they venture into international trade. The government should help them all the way by providing missions to the potential international target markets like China and India to create awareness among the international business community to recognize the potential of American SMEs as potential partners in business. This will create an environment that will enable the SMEs to slot into the international trade seamlessly (Gerald, 100).
The fiscal policy and monetary policy adopted by the government of the U.S does not support the SMEs, prior to the National Export Initiative by the Obama administration, the fiscal and monetary policy seemed to favor the larger corporations at the expense of the SMEs. The local financial institutions do not work with the MEs since they consider them a higher risk and prefer to work with the larger companies that have enough leverage.
The owners of the businesses should carefully analyze these challenges before making a decision on whether to expand to international business or not. In this case, the business will face stiff competition from established global brands that have a significant market share already. The operating fiscal and monetary environment in the country is getting better with the NEI that aims to support the SMEs efforts to enter the export business. The international exchange rates and tariffs also have to be considered.
The United States government should help these businesses to make this move to the exports business; this is because the growth of the SME sector in the U.S. will result in the massive growth of employment among ordinary Americans. An increase of revenue from taxes and increased foreign exchange due to exports will lead directly to the growth of the gross domestic product (GDP) and the economy in general. The government would therefore, support the expansion of the business not only because it is good for the community but also because it augurs well with economic growth (U.S. international Trade Commission, 210).
The government should therefore, support the SMEs as they grow in the communities by providing a favorable environment for them to thrive. For instance, the government can lower the tariffs charged on the goods that they export, as this will enable them to offer competitive prices in the market up against the multinationals. The government can also support the SMEs by entering into bilateral agreements and free trade agreements (FTAs) that will encourage free movement of goods with minimal tariff and customs charges. This will encourage the growth of the SMEs and will enable them to make a bold decision to participate in international trade.
Risk Table (1)
Risk
Importer
Exporter
L/M/S
How to Overcome It.
Economic conditions
High tariffs
High-exchange rate
Overvaluation of the U.S. dollar
High tariffs
Lack of government support
Strong Free trade agreements on tariffs and exchange rates
Bilateral agreements between the U.S. and partners
Fluctuations in industry Fluctuations are common Fluctuations are common Medium Innovativeness in the market.
Research of the market needs
Competition
Competition from the larger firms within the U.S. and multinationals Competition from the larger firms within the U.S. and multinationals Strong Support from the federal government and the Export and Import Bank
Technological change Constant technological changes Constant technological changes Strong Set up a robust R&D department that will ensure the firm keeps up with the technological changes.
Change in preferences Changes in preferences are limited Changes in preferences are limited Least N/A
Costs and expenses High High Strong Government subsidies
Lowering of tariffs both locally and in the destination nations when exported
Regulations
Stringent Stringent Strong Relaxation of the import and export regulations to allow free operation of the SMEs
Expropriation
Minimal Minimal Least The federal and state governments should work together to ensure there are laws that protect the property of the SMEs
Interest rates High High Strong Lowering of interest rates by local financial institutions like the Ex-Imp Bank.
Government monetary policy Not friendly Not friendly Medium The government must come up with policies that will allow the SMEs to carry out exports without the stringent regulations.
Government fiscal policy Fair Fair Least The government still needs to come up with policies to ensure the fiscal policy supports the SMEs
Internal and external wars Affects some source countries Affects some destination countries Strong The government has to give the exporters and importers enough warning of the situation in such countries to enable them to make informed decisions
Difference in culture and religion Big differences Big differences Strong Educating the local business people on the existing cultural and religious differences and how to conduct themselves in areas like these.
Ownership of factories and property Allowed Allowed Least N/A
Human resource restrictions Low Low Least N/A
Intellectual property Protection of IP is poor Protection of IP is poor Strong Improve the legislation on IP protection, and adopt an international approach towards protection of IP
Discrimination
Low Low Least N/A
Red tape and corruption Minimal Minimal Least The authorities and the regulatory bodies should be ready and have adequate capacity to deal with corruption cases if and when they arise.
Blockage of funds or capital accounts Rampant Rampant Strong The federal authorities should work with the partners of the US to eliminate the problem of blockage of capital accounts and funds.
Change in government Minimal Minimal Least N/A
Part II
Some of the reasons that might cause the company to move its manufacturing outside of the country to markets like China, India, or Brazil include the lack of expert-labor in some of the areas of the manufacturing in the company. The use of in-house expertise might not be as effective as desired, and so the company resorts to outsource some of its manufacturing to a firm with expertise and, therefore, better place to deliver good quality products. The availability of cheap labor is another attractive factor that drives companies to outsourcing some of their activities to other companies and out of the country. Prime examples are China, India, and other countries in Southeast Asia like Vietnam and Malaysia; these provide skilled labor to the companies, and thus lowering their costs of production and increasing their profit margins. The ability and feasibility to focus on other activities in the company once some of these activities have been outsourced attractive, such focus will enable the firm to concentrate on some of its core activities, and this will lead to improved performance (McCormack, 145).
Benefits of Outsourcing
Outsourcing some of the activities of the company to other firms will ensure that the firm gets expertise and skilled staff that it could not obtain in-house. Training staff to carry out manufacturing and the various aspects that are related with it is costly and, therefore, will not be attractive to the firm. The prospect of moving production activities to another firm which specializes in the production will ensure that the production process is taken care of by a skilled staff with expertise and experience to get the job done. The cost is also significantly lower as compared to when the company carries it out. There is also the freedom to make the destination of the outsourcing; for example, if a company outsources to China or India, it will get readily available, cheap skilled labor, which will significantly lower the cost of production (Masato, 123).
The outsourcing of some of the activities of the company will enable the company to concentrate on the core process rather than the supporting ones.
Outsourcing gives the outside company the mandate to carry out the production of a product, for example, but the mother company owns the brand. Therefore, after production, the products are taken back to the mother company for packaging and branding before they hit the markets. The company, therefore, ensures quality products are produced, and it can concentrate on the value addition, packaging, and marketing of the products to ensure it captures the imagination of the potential customer base and, therefore, gets a good market share (Masato, 126).
Outsourcing also allows risk sharing between the client and the outsourcing company. Outsourcing enables the company to shift some responsibility to the outsourced vendor. The contract agreement between the client and the vendor means that they both have some level of responsibility. The sharing of responsibility comes in handy in cases where there are mishaps, or accidents, the damages are shared between the vendor and the clients. This gives the client the confidence to seek outsourcing partners to work with without fears.
The recruitment costs and operational costs as well are significantly reduced. Outsourcing avoids the need to hire staff in-house; hence the recruitment and operational costs are pushed to the vendor and the company does not incur these costs. This is one of the main …show more content…
advantages of offshoring.
Disadvantages of Outsourcing
Outsourcing risks exposure of the confidential data and information that is held dear by the client. This happens, for example, when an organization outsources payroll, HR, and recruitment services; it increases the risk of exposure of confidential company information that the clients might not be willing to expose.
If the company does not choose the right partner in business, it might lead to disagreements on time frames and delivery schedules down the line. Other issues might include substandard quality of goods produced that are below the expectations of the client. Inappropriate categorization of responsibilities is also another issue that can arise between the client and the vendor (Audretsch, 167).
Hidden costs can result from a partnership between the client and vendor. Although outsourcing allows companies to save costs, sometimes there are hidden costs that are involved when signing the contracts across international regulations that might prove too costly for the client in the long run.
Sometimes the vendors might take more than one contracts from different firms, this implies that the vendor will be divided into attention, and this might result in poor work due to congestion of work or a stretched workforce (Audretsch, 168).
Part III
Immigrants come to the U.S to look for opportunities that are either not available in their native countries or are available, but they cannot access them due to political conditions.
The ensuing economic conditions might not enable them to utilize these opportunities. As a result, the immigrants often take the jobs that are available and are comfortable with the pay that is offered. They are, therefore, willing to work for a wage that is lower than those workers that were born in the United States who will demand better wages for their services. Immigration, therefore, has the effect of lowering wages in the country. The presence of cheap labor is helpful to businesses in the country. This is especially so for the small and medium-sized enterprises, most of which are at startups and, therefore, would not be willing to spend large sums of money in acquiring labor services. The SMEs can, therefore, hire enough labor they need and increase their output at favorable costs. The output of the country increases with immigration. Hiring of immigrants also gives the businesses a new perspective of different cultures. It enables the companies to study their culture and language, and this would help in case of when the company expands to these areas for new markets. These immigrant employees would be pivotal in such efforts (Giovanni,
122).
Immigrants hiring helps diversify the workforce of the business. Especially in times as today when hiring is scrutinized, hiring immigrants might give the business a clean bill of health when it comes to discrimination. A diverse workforce gives the company and its staff a broad perspective of the world and gives them different ideas of doing things and thus promoting invention and innovation among the working staff.
Immigration can help fill the job vacancies and skill gaps that exist in the country. Some of the immigrants are highly trained and talented, and when they come to the U.S, they add value and bring their expertise in various fields which can only be beneficial to the U.S. Such skills can bring innovation and inventions that are crucial to the development of the country and the sustaining of the economic growth and prosperity of the nation.
Immigration can plug the problem of an ageing population. Immigrants are often comprised of young, energetic young men and women who are willing to work to earn a living. Immigration, therefore, gives the economy an injection of youth exuberance and desire to work that can boost the economy and plug the gap left by the ageing population that can no longer work. The young working immigrants contribute to the economy by paying taxes; this is beneficial to the government that needs the revenue to carry out various projects to promote economic growth. The young immigrants can also fill the pension gap by their contributions (Lewell, Jarrett, and Duffield, 200).
The host nation is enriched with cultural diversity. The U.S., for example, is comprised of a population that is culturally diverse but still can live together and coexist. The diversity in the population means there is diversity in thinking and doing things. This brings much energy and innovation into the country giving it an edge in the global markets. Innovations drive the growth of the economy and the development of the country in general.
Immigration has its own disadvantages; there is a depression of wages, and this causes the Native American to have to take jobs at lower wages since they are competing with immigrants for these jobs. Exploitation of immigrants may occur. Language and cultural barrier make it difficult for immigrants to settle. Some immigrants might be criminals such as drug dealers or terrorists. Laws in the U.S that are geared towards curbing immigration might be an issue for the immigrants.
There is a political divide in the country about the status of immigrants. Some believe that the U.S is made up of immigrants and so immigration has always been part of the country 's fabric during another point out to the socioeconomic negative effects of immigration in the U.S and support the curbing of immigration. This issue was strong after the financial crisis of 2008, with the U.S economy in recession, bleeding jobs, some Americans feel the immigrants are part of the problem, and that they are the reason they lack employment (Lewell, Jarrett, and Duffield, 202).
The Dream Act is meant to provide a mechanism through which young people who have grown up in the U.S and graduated from high school can obtain citizenship without depending on their parents. So the kind can gain citizenship even though their parents are undocumented.
Works Cited
Abe, Masato. Policy guidebook for SME development in Asia and the Pacific / [authors, Masato Abe, Michael Troilo, J.S. Juneja, Sailendra Narain]. Bangkok, Thailand: United Nations ESCAP, 2012. Print.
Audretsch, David B. SMEs in the age of globalization. Cheltenham: Edward Elgar Pub., 2003. Print.
Gunter, Lewell F., Joseph C. Jarrett, and James A. Duffield. "Effect of U.S. Immigration Reform on Labor-Intensive Agricultural Commodities." American Journal of Agricultural Economics 74.4 (1992): 897. Print.
Lorenzo, Mauro, and Apoorva Shah. Entrepreneurial philanthropy in the developing world a new face for America, a challenge to foreign aid. Washington, DC: American Enterprise Institute for Public Policy Research, 2007. Print.
McCormack, R. A. Manufacturing a better future for America. Washington, DC: Alliance for American Manufacturing; 2009. Print.
Peri, Giovanni. "The Effect Of Immigration On Productivity: Evidence From US States." Review of Economics and Statistics 4 (2011): 110223123708091. Print.
Susman, Gerald I.Small and medium-sized enterprises and the global economy. Northampton, MA: Elgar, 2007. Print.
U.S. International Trade Commission. Small and medium-sized enterprises overview of participation in U.S. exports. Washington, DC: U.S. International Trade Commission, 2010. Print.