Doing business with the Americans

Name

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nDoing business with the Americans

nExecutive Summary

nThe United States has the strongest economy in the world due to advanced technology, stable political environment and economic policies. The nation has over 310 million people and more than half of the populations are productive. There are stable transitions of administration after every presidential election, which increase investors confidence. Foreign investors and entrepreneurs are attracted in the U.S economy due to political stability and strong economy. Many of the international investors aim to acquire U.S firms due to increased access to advanced techniques and technological innovations. The country is a favorable business destination of foreign investors because many U.S cities and states provide tax credits to entice international manufacturer investors. The United States has also entered trade agreements with other business partners such as the U.K, France, Canada, Mexico, Germany and China. These trade agreements prevent double taxation from investors working in these countries. It has huge technologically advanced factories including consumer goods, telecommunications, aerospace, motor vehicles and petroleum industries. In 2009, the inflows from foreign direct investment were at $148.5 billion as compared to $316 billion in 2008. Foreign firms can enter the U.S market through acquisition and mergers, strategic alliance or joint venture and building a new business. However, prior to investment in the U.S, firms should understand business environment in the country. In this respect, they should understand banking systems, taxation, rules and regulations as well as labor legislations that affected their business. Some of the business risks and challenges that business are likely to experience include, high rate of competition, and new policies such as minimum wage for workers in every state.

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nContents

n TOC o “1-3” h z u HYPERLINK l “_Toc411286544″Executive Summary PAGEREF _Toc411286544 h 1

nHYPERLINK l “_Toc411286545″Introduction PAGEREF _Toc411286545 h 2

nHYPERLINK l “_Toc411286546″New markets in the United States PAGEREF _Toc411286546 h 2

nHYPERLINK l “_Toc411286547″Advanced technology PAGEREF _Toc411286547 h 4

nHYPERLINK l “_Toc411286548″Incentives of the government PAGEREF _Toc411286548 h 6

nHYPERLINK l “_Toc411286549″Challenges and Risks in the United States PAGEREF _Toc411286549 h 8

nHYPERLINK l “_Toc411286550″Marketplace PAGEREF _Toc411286550 h 8

nHYPERLINK l “_Toc411286551″Economy PAGEREF _Toc411286551 h 9

nHYPERLINK l “_Toc411286552″Stability of political systems PAGEREF _Toc411286552 h 11

nHYPERLINK l “_Toc411286553″Industries PAGEREF _Toc411286553 h 12

nHYPERLINK l “_Toc411286554″Foreign investment PAGEREF _Toc411286554 h 13

nHYPERLINK l “_Toc411286555″Strategies of investment PAGEREF _Toc411286555 h 14

nHYPERLINK l “_Toc411286556″Build or buy PAGEREF _Toc411286556 h 14

nHYPERLINK l “_Toc411286557″Acquisitions and mergers PAGEREF _Toc411286557 h 15

nHYPERLINK l “_Toc411286558″Strategic alliances PAGEREF _Toc411286558 h 16

nHYPERLINK l “_Toc411286559″Tax incentives for state and federal governments PAGEREF _Toc411286559 h 17

nHYPERLINK l “_Toc411286560″Taxation PAGEREF _Toc411286560 h 19

nHYPERLINK l “_Toc411286561″Taxation on income PAGEREF _Toc411286561 h 20

nHYPERLINK l “_Toc411286562″Sarbanes-Oxley act PAGEREF _Toc411286562 h 21

nHYPERLINK l “_Toc411286563″Labor PAGEREF _Toc411286563 h 23

nHYPERLINK l “_Toc411286564″Banking systems in the U.S PAGEREF _Toc411286564 h 26

nHYPERLINK l “_Toc411286565″Imports and exports PAGEREF _Toc411286565 h 28

nHYPERLINK l “_Toc411286566″Conclusion PAGEREF _Toc411286566 h 29

nHYPERLINK l “_Toc411286567″Work cited PAGEREF _Toc411286567 h 30

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nIntroduction

nUnited States of America has a population of more than 310 million people. The nation contributes approximately 20 per cent of the global economy. In addition, is has the wealthiest market in the world. The United States has an attractive market that offers opportunities to businesspersons (Busse and Carsten, 2). For a long period, the United States has acted as the foundation of many foreign business and investments. Foreign investors and entrepreneurs are attracted in the U.S economy due to political stability and strong economy. Moreover, there are established businesses that produce stable increase in direct foreign investments via acquisitions and mergers (Bayulgen, 48). In the U.S, the technological innovation and robust economy has generated strong demand of goods and services from customers. Consequently, the country has experienced stable increase in the gross domestic product (GDP) (Desai, Mihir, Fritz, and James, 1). The consumer and business confidence has been boosted by peaceful transition of one presidential administration to the other. However, the united states has experienced the effects of global recession that have affected its economic growth. Fortunately, the nation has recorded significant recovery (Bakija, 1). Most notably, although there is robust economy and stable political environment, foreign investors need to understand challenges, risks and barriers in the United States.

nNew markets in the United StatesThe United States has the largest market of consumer goods. The North American Free Trade Agreement (NAFTA) provide the manufacturing firms an opportunity to obtain easy access of distribution networks in north America. The NAFTA offers trans border trade with neighboring nations such as Canada and Mexico (Desai, Mihir, Fritz, and James, 2). In this regard, the global firms benefit from the market in the U.S and they use the nation as a base to tap businesses in the neighboring markets. For instance, several countries such as India and China have used this business avenue to expand their businesses. Chinese exports to the U.S increased from 2009 to 2010 by more than 37 percent. In order to satisfy the growing customers demand, the Chinese investors have developed distribution and productions areas in the U.S by obtaining assets and businesses (Desai, Mihir, Fritz, and James, 3). Moreover, the trade deficits of the U.S increased steadily by more than $22 billion from 2009 to 2010. Most of the companies from India have acquired companies in the united states that have facilitated faster growth rather than depending singly on organic growth in the country. For instance, 239 Indian-based companies had made acquisitions of more than 370 during 2004- 2009 in the United States. Most importantly, 267 businesses were worth US $21 billion (Bakija, 2). Moreover, approximately 90 Indian firms between 2004 and 2009 had made investments of over US $ 5.5 billion using Greenfield projects in the United States.

nThe Greenfield projects were set in various sectors such as financial services, tools and equipment, industrial machinery, entertainment and leisure, IT & software services and metals. Most notably, the Tata Company is the largest India multinational in North America. It has more than 12 firms in the region and has employed approximately 16 000 workers in Canada and the U.S (Busse and Carsten, 2). In the recent past, Tata Group has recorded tremendous growth across the communities in the U.S. consequently the company has established robust relationship in the marketplace (Desai, Mihir, Fritz, and James, 3). Tata group of companies are facilitating growth of economy in America through indirect and direct investment, payment of taxes and creating job opportunities. It also benefits the American by boosting productivity. Tata has also invested in service industry such as Taj Luxury hotels and manufacturing industries of Tata Steel Europe (Haskel, Sonia, and Matthew, 13). Moreover, it has engineering expertise through Tata Technologies and Tata Consultancy Services to aerospace and automotive companies. Tata products are one of the most recognized brands in the United States markets (Bakija, 3). Some of these brands include Eight O Clock Coffee, Good Earth and The Pierre Hotel (Folsom, Ralph Haughwout, Michael, and John, 13). The investments of The Tata Group has a huge impact in the domestic market in the U.S. in addition, its operations are not limited by large business in the country.

nAdvanced technology

nIn the United States, technological innovations form a good foundation to foreign investments. Many businesspersons have access to information and technology infrastructure as compared to other countries such as China. Many of the international investors aim to acquire U.S firms due to increased access to advanced techniques and technological innovations (Bakija, 4). A survey conducted by China Council for the promotion of international trade in 2010 indicated that many chines entrepreneurs consider the United States as the favorable business destinations because of easy availability of high technology. In addition, the participants of the survey revealed that the United States has sufficient and wide labor pool (Duysters, et al, 3).

n

n(Source, Schutter, Johan and Jan, 53)

nEncouraging Economies

nWhen a business environment is favorable, it is able to bolster international currency appreciation, distress assets and businesses, and allow crucial foreign exchange reserves. Following economic crisis across the world, there were higher opportunities to purchase business assets at lower value in the United States (Bakija, 3). Prior to 2006-2007, assets such as real estates had appreciated significantly. However, after the peak season in 2007, the value of real estates has depreciated at a higher value. International investors are encouraged to the country due to healthy reserves of the U.S dollar (Desai, Mihir, Fritz, and James, 3). Moreover, investors should take advantage to purchase assets at lower value in the country. Since the economy in the United States is beginning to stabilize, the cost of these assets will begin to rise (McMillan, & Samuel, 23).

nIncentives of the government

nThe United States government has established measures that will attract international companies in the domestic market. The country is a favorable business destination of international investors because many U.S cities and states provide tax credits to entice international manufacturer investors (Baier, Scott and Jeffrey, 9). The administrations recognize that new factory in any part of the nation can provide job opportunities to their residents especially states that suffered from recession (Bakija, 4). Additionally, pursuant to the Real Estate Revitalization Act of 2010, the federal authority in the United States aimed at lowering taxes in the country that were previously imposed on foreign investors particularly in real estate (Bernanke, 9).

nThe U.S provides efficient protection of the intellectual property rights. Research indicates that enforcement and protection of intellectual property rights is a key factor that attracts foreign investors in any nation (Haskel, Sonia, and Matthew, 13). The U.S is center of international research, innovation and development expenditures. The majority of foreign investors are attracted to the U.S because of research and development (R&D) (Busse and Carsten, 4). Many firms are able to commercialize their intellect in their businesses.

n

n(Source, McMillan, & Samuel)

nMost Multinational companies such as Brazilian Meat producers have invested in the U.S. JBS are the biggest multinational firm in Brazil that deals with food processing. In particular, the firm is concerned with processed, chilled and fresh pork, chicken, beef, and dealing with by-products of processed meat (Haskel, Sonia, and Matthew, 10). The firm has acquired many stores not only in Brazil but also in many parts of the world. It is one of the largest firms in the beef sector. In the U.S, the firm acquired Sift & Company that was a processor of pork and beef. Furthermore, the firm has acquired Smithfield Beef Group, Inc. in Virginia hence; it has expanded its business in the United States (Bakija, 5). The firm has recorded growth in the recent past in the country. Through acquisition of many United States firm in chicken, beef and pork markets, the firm have created a brand that increases it ability to do business (Forbes, 13).

nSimilarly, China Construction bank Corporation (CCB) deals with lending services, management of investment, corporate banking and retail banking. In addition, China Construction Bank Corporation provides services in credit card and management of wealth. The bank opened a new branch in New York City in 2009 (Busse and Carsten, 3). Therefore, the new step provided an opportunity for the bank to establish its global strategy. Most notably, during the launch of the CCB management noted that the United States in one of the most crucial economic and trade partner of China (Desai, Mihir, Fritz, and James, 25). Indeed, China is the second trading partner of the United States. Therefore, opening a bank in New York provided a perfect opportunity for the bank to serve its customers worldwide. In addition, it created a chance for the bank to facilitate American-Chines trade and economic investment and cooperation in financial matters (Wright, and Alexis, 3). By opening a branch in the U.S economy, China Construction Bank Corporation showed confidence in the market especially during recession.

nThe bank takes advantage of its good infrastructure, strong worldwide network and wide range of financial resources to offer services to its customers particularly international corporations (Bakija, 5). A strong financial partnership between China and the United States has created a favorable business environment for CCB to make substantial progress towards its goals. In this respect, CCB has become one of the largest banks in the world in terms of profitability.

nChallenges and Risks in the United States

nA robust economy makes the U.S a competitive place to do business. However, the economic systems tend to reward integrity, productivity and efficiency while requiring higher level of compliance of the rules and regulations of the nation. As the economy of the U.S improves, the cost of business in the country rises (Desai, Mihir, Fritz, and James, 7). Consequently, international investors would need higher levels of investments in order to offer competition to domestic investors. Local, state and federal laws demand comprehensive understanding of labor, commercial and tax laws. Pursuant to the Fair Minimum Wage Act, all businesses should establish a minimum wage of $7.25 per hour (Bakija, 5). Furthermore, many of the states have enacted laws that require all businesses to comply with minimum wage. In case an employee is subjected to state and federal minimum wage, he or she is entitled to higher minimum wage.

nMany crises especially in public companies in the late 1990s forced the government to increase its regulations on how businesses conduct their businesses in the United States. Pursuant to Sarbanes-Oxley Act, every registered company should document its controls of financial-reporting (Haskel, Sonia, and Matthew, 10). The law has increased standards compliance as well as transparency in financial reporting. Therefore, many international companies that intend to do business in the U.S market place should be prepared to face some of these challenges and risks (Feldman, Maryann and Maryellen, 7).

nMarketplace

nThe presence of skilled labor and huge natural resources has enabled the U.S to become one of the biggest industrial nations in the world. It has huge technologically advanced factories including consumer goods, telecommunications, aerospace, motor vehicles and petroleum industries. Its power in the financial services makes Wall Street in New York the biggest foreign investment capital in the world (Bakija, 5). The economic crisis of 2008-09 established doubts of the marketplace. Nonetheless, the economy has recorded significant recovery (Duysters, et al, 9). Fortunately, the recovery has not only opened more business opportunities but has boosted confidence among international investors.

nEconomy

nBy 2009, the U.S GDP was more than $14.26 trillion while median household income was $70 500. It economy is oriented in the market and it one of the largest and powerful in terms of technology (Bremmer, 3). Private businesses make many decisions that affect the economic activities at state and federal level. As compared to Western Europe, many businesses in the U.S enjoy higher level of flexibility in terms of decision to initiate new products, lay off employees, increase capital expenditures (Desai, Mihir, Fritz, and James, 7). However, the domestic businesses in the country face huge challenges when entering other markets as compared to challenges foreign firms face when entering U.S markets. In 2009, the rate of inflation decreased significantly to zero level but it has increased to good level y 2010 (Bayulgen, 57). The rate of unemployment increased from 2007 but now it have constantly decreased (Bakija, 5). Fortunately, although the economy has faced these challenges, it has recorded huge levels of technological improvement.

nNumber of Permanent Jobs created

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n(Source, Lawrence, Edward, Ellen, and Qu Qing-Jiang, 7)

n

n(Source, McMillan & Samuel, 76)

nWealth and population

nThe U.S population is more than 310 million people and half of this population forms an employable workforce. Consumers in the country are considered as the foundations of its economy. In this respect, increase in services and goods consumption has produced foreign investors confidence, reducing unemployment and lowering inflation (Haskel, Sonia, and Matthew, 13). The economy has remained substantially resilient even during acts of terrorism and natural disasters. The terrorism attack in 9/11 had short-term effects in its financial markets. However, engagement of NATO and the U.S in Afghanistan and Iraq contributed significantly to huge budgets. Besides, natural disasters such as Hurricane Katrina produced huge destruction of properties along Gulf Coast (Kentouris, 23). Nonetheless, the hurricane had minimal effects in the growth of GDP of the country. In 2005, the nation witnessed higher rate of oil prices that could cause unemployment and inflation but the economy recorded significant growth. Economic intelligence Unit predicted that recovery in the U.S economy would help to minimize deficit in federal budget from 2010 (Bakija, 3). Financial analysts argues that lack of sufficient investment in economic infrastructure, huge budget deficits, higher costs of pension and medical services and stagnant income could influence the stability of financial resources in the U.S (Bernanke, 7).

nStability of political systemsRelative to other countries, the United States has experienced long period of political stability (Bremmer, 7). Political powers are divided across the federal and states governments. There is separation of powers between three arms of government: judicial, executive and legislative. The laws in the state and federal agencies protect the citizens from unfair business practices (Haskel, Sonia, and Matthew, 11). The U.S has several agencies, which include Equal Employment Opportunity commission, Environment Protection Agency and Federal Trade Commission. Some national laws limit the jurisdictions of some of the state laws. Every state has a distinct political division and they set laws governing conduct of business in their jurisdiction. In this regard, in USA there is no a single government agency that deals with regulations and laws to all businesses (Haskel, Sonia, and Matthew, 15).

nNonetheless, there is a substantial state and federal laws that influence the decisions on foreign investment in the country. For instance, the federal government controls the defense and utilization of natural resources and federal lands (Desai, Mihir, Fritz, and James, 7). The federal government restrict own ship of communications sectors such as telegraph, telephone and domestic radio as well as utilization of public properties such as internal transport. Some states have enacted laws that ban foreign investment in use of agricultural resources (Ramasamy, Matthew, and Sylvie, 3). Furthermore, the U.S has dual system in banking, hence both the state and federal and state governments control banking based on they kind of charter in banking that an institution acquires (Wright, and Alexis, 3). For instance, the Office of the Comptroller of the Currency controls banks having national charter. In addition, the Federal Reserve control bank holding firms while the office of Thrift Supervision (OTS) regulates thrift holding firms (Busse and Carsten, 3). A banking company can also choose to obtain a state charter if it is a state institution.

nIndustries

nAbundance of natural resources in the United States enables the nation to develop many of its domestic companies. For instance, timberland has contributed to production of paper, wood and forest products. Coal, natural gas, and oil reserves, have stimulated the advancement of international energy firms. Rich agricultural soils have been cultivated to provide crucial products such as livestock, vegetables and fruits. Some of the international companies have invested in hydroelectric power generation in rivers (Bakija, 12). New York is the financial heart of the nation and has been essential in establishment of financial services and products as well as public stock exchange that is applicable across the world. Other cities such as San Francisco have emerged as crucial hubs of higher level of technology through research and development (Levine, 7). For instance, silicon chips that are used in software were developed in these centers (Desai, Mihir, Fritz, and James, 7). Moreover, research and development has nurtured young firms. Due to higher level of demand of services and products, the country has recorded growth of consumer-products firms. Some of these firms include manufacturers of aerospace, and automobile and retailers of household products.

n

n(Source, Morales and John)

nForeign investment

nIn general, the economic policy in the U.S welcomes foreign investors because it enables creation of employment, development of new technologies, enhances productive capacities and capital formation (Wright, and Alexis, 3). In order to diversify risk, the majority of firms distribute their investment in different parts of the world. Many international businesspersons view the U.S as favorable destination in capital preservation due to its economic and political stability. The foreign direct investment has increased since 1990s (Desai, Mihir, Fritz, and James, 6). In 2009, the inflows from foreign direct investment were at $148.5 billion as compared to $316 billion in 2008. Fortunately, inward direct investment is anticipated to increase in the future. In the future, the country is likely to remain a favorable business destination for many foreign investors. It has a long period of good reputation that is expected to remain constant in the future.it has favorable policies that facilitate a fair competition for private enterprises (Haskel, Sonia, and Matthew, 9). The markets in the U.S. are characterized by accessible, liquid and deep capital markets that steadily regained liquidity from 2009. Some of the multinational companies have emerged from developing markets (Busse and Carsten, 54). They produce competitive export goods to Japanese, European and the U.S goods.

n

n(Source, Morales, and John)

nStrategies of investment

nBuild or buy

nA firm makes decisions on whether to build or buy a business depending on customer availability, success potential, financial consideration and industrial maturity. In addition, a firm should consider its internal capacity making decisions. A foreign telecommunication firm, for instance, has higher probability to succeed if it buys a firm that has acquired necessary infrastructure and licensing than starting a new business (Busse and Carsten, 7). However, if an investor is an international retailer it is less extensive to buy real estate and develop operations that use existing products and brands (Bakija, 11). Decisions to build create crucial advantage to business to develop confidentiality and a chance to use current technological innovations. Additionally, a firm has an opportunity to create a brand, recognition of services and products (Bremmer, 9). Nonetheless, building a new business has several disadvantages because of challenges in finance when there is no proper management of the business. A decision to buy always offers a perfect opportunity to negotiate a certain price and terms regardless of cost delays and overturns (Wright, and Alexis, 7). However, challenges of decision to buy include long period of negotiation and sometimes the process of buying may collapse. In addition, the total cost of buying may be higher than the original price that was intended.

nAcquisitions and mergers

nFirms utilize acquisitions and mergers as an option to its internal growth. Acquisitions and mergers are of diverse forms ranging from hostile takeovers of public entity to friendly mergers of firms. In the U.S, there are a wide range of tax and security regulations regulating acquisitions and mergers. In this regard, a firm considering using these strategies should not only seek financial advice but also legal advice in the country (Haskel, Sonia, and Matthew, 10). Acquiring firms have emerged as one of the major business activities both in the U.S and across the globe. In efficient processes of acquisitions and mergers, all parties should use recommended procedures and strategies (Desai, Mihir, Fritz, and James, 12). Experienced business partners can help those investors with limited experience in acquisitions and mergers. Some of these firms include accounting firms, valuation analysts, financial consultants, business advisers and investment banking firms (Bakija, 11). The investment firms assist in identifying foreign investors in identifying potential targets tax outcome evaluations, target valuing, analysis of potential targets and contract negotiation.

nStrategic alliances

n In case a potential target for acquisition does not exist, a strategic alliance or joint venture forms a viable avenue to enter in the market of the United States. These forms of business strategies provide a way to gain knowledge and grow business that would be expensive and time consuming when carried out alone. The kind of alliance requires trust and cooperation and it is usually aimed at sharing risks (Desai, Mihir, Fritz, and James, 10). A strategic alliance is collaborative plan between two or more firms aiming to accomplish a common strategic goal. Two forms of strategic alliance exist which include non-equity based and equity-based. Non-equity based cooperation is regulated by contractual plans that requires accountability of each stakeholders in terms of termination or expansion, and systems of operations (Haskel, Sonia, and Matthew, 7). On the contrary, equity-based alliance involves minority investment in stock and joint ventures.

nMany international businesses have used initial public offering to enter in the United States markets. The IPOs are designed to increase capital and provide expansion in the United States. However, before foreign investors decide to engage in IPOs in the U.S they should look for advice from legal and financial advisers (Desai, Mihir, Fritz, and James, 11). Proper management is the most important feature a firm needs to succeed in acquiring public financing. Members of the public who seek investments are concerned of experience, integrity and quality of management as a core indicator that their investment would be enhanced and protected. Companies with inexperienced management have not succeeded in the convincing the public to invest (Bakija, 6). However, some of the firms with inexperienced management have recorded successful public investment due to their potential in extraordinary potential of its products or services. Other crucial features are the size of the firm, performance in earning, and growth potential (Levine, 3). The firm should consider when the public would be interested in buying its securities. Therefore, it is always advisable to conduct comparison reviews of peers in the firm (Desai, Mihir, Fritz, and James, 13). The review should include earning and sales performances in the past half a decade.

nTax incentives for state and federal governmentsForeign investors considering entering the U.S markets often face challenges due to financial, legal and fiscal difficulties. In addition, exposure to U.S tax system in the country for the first time causes huge complications of the business (Forbes, 10). The tax code involves incentives developed to attract capital formation, minimize state and federal tax burden and entice foreign investment. In order to maximize benefits, an international investor need to have a lot of knowledge on how these incentives work to properly execute and plain their strategies of investment (Baier, Scott and Jeffrey, 9). Greenfield projects in the U.S are initiatives that provide incentives. These projects provide incentives in terms of establishing new capacities in production, transfer technologies, new employment, expertise and create a network in global marketplaces (PASCO, 5). Greenfield projects involve development of new facilities and expansion of existing facilities. In addition, these projects benefit from subsidized loans and other incentives from tax from local, state and federal governments (Feldman, Maryann and Maryellen, 9).

n

n(Source, Morales, and John)

nMoreover, through Small Business Administration, the federal government offers managerial and financial assistance to young businesses. A small business is referred to as an entity that is not dominant in the field and is independently operated and owned (PASCO, 9). The Small Business Administration provide a wide range of programs on loans to eligible small firms that have no capacity to borrow from conventional institutions. In every industry, an agency develops standards of qualification to small businesses that qualify for the loans. Besides, the Congress set annual direct loans and guarantees to SBA in the nation (Desai, Mihir, Fritz, and James, 13). The Small Business Administration may not guarantee or provide loan if firms have the ability to acquire funds on reasonable terms from a private financier or a bank. Therefore, a borrower need to attempt financing from private firm prior to their application in SBA. Additionally, the SBA also regulates licenses and offers financial help to private small business investment (Wright, and Alexis, 3). The firm makes risky ventures or investment by distributing equity capital and providing loans without collateral or unsecured loans to small businesses. Therefore, it helps those small investments to create self-employment (Bakija, 7). Furthermore, foreign investments can benefit from SBA loans in the United States.

nTaxation

nThe laws on federal taxation are contained in Title 26 of the United States Codes that is normally referred to as Revenue Code. Although the U.S does not have value added tax, many states have enacted laws that demand use or sale taxes as well as other taxes such as personal and real property taxes. A corporate firm should pay taxes on its net profits. Moreover, dividends are taxed as they are distribu