Hello! I have a paper and presentation to do. So far, I answered all the questio

Question

Hello!

I have a paper and presentation to do.
So far, I answered all the questions except one that I'm really struggling with.
Here is the question:

-Convincing US firms to serve foreign markets from the US instead of investing overseas.
-Urge firms to serve foreign markets from the US instead of investing overseas.

For this question, you can either support or refute the statement.
I chose to refute, but you can support.

All arguments must present strong data to back up.
I'm struggling to find good arguments and data to back up my points.

I would really appreciate any help.

Thank you.

Explanation / Answer

The U.S. companies, in the past, went abroad to obtain raw materials. But now, they are moving overseas to have production & manufacturing there and then ship back to U.S. The companies think that the only way to compete with inexpensive, high-quality imports is to have cheap labour in foreign countries. But, this is not the only option as it can be helpful in short-term but in long-term, it may be dangerous to the economy of domestic country.

The argument to have cheap labour as the only way to compete with the other companies overseas is only short-sighted measure. Take the example of Eastman Kodak Company. In 1985, their earnings dropped to 31% as compared to earnings of 1984. In addition, they also lost $563 million when they withdrew from instant photography business. Though, they were somewhat reliant on offshore manufacturing, they also drastically modified their strategy to gain competitve edge. They trimmed workforce, mainly the middle management, and revise the wage dividend plan and eliminated inefficient operations and marginal product lines and increased R&D expenditures. As a result, their sales grew by 9% in 1986 and earnings from operations climbed to 24%. This clearly depicts that my modifying management and business operations, a company can tremendously change the earning potential than to rely on overseas operations.

Also, there are many political risks associated with foreign investments. The trade agreements, tax structure changes, and major political events can threaten foreign markets. The best example would be how political and economic problems affected Mexico in 1994. Mexican stock and bond prices took big losses during the period of Mexican economic unrest. The Mexican economy experienced a severe recession and poverty and unemployment increased. Such hinderances can create problem in foreign investments and managing workforce.

Also, generally, foreign stock markets trade at lower volumes than domestic markets. Thus, it makes trade difficult with some securities in absence of supply or demand. This lack of liquidity is also major problem in developing markets, where volume can be very light.

Also, there are numerous examples of American companies failing tremendously in foreign lands. Many such cases are in China, where most failures has to do with lack of understanding of legal and cultural environment. An interesting case would be Home Depot company. The China ahs growing middle class and millions of new homeowners. The Home Depot acquired local firms in China, and stocked the stores with tools and materials. But after 6 years of struggle, they shut down stores and fired many workers. Reason for failure were many, like they enetred the market late, and different nature of China's housign market. In China, many people buy homes for investment and speculation, not to improve. Also, chinese consumers don't like big warehouses far away from a city centre. The DIY concept of Home Depot didn't resonate with Chinese consumers as the labour was so cheap that they simply hired a handyman. So, if local culture, traditions or prevalent norms are not studied properly, it can lead to much business loss and can be disastrous for company, which is another risk of investing in foreign markets.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.