MAN-372-FINAL-CES-the-real-one
- 1. 1 Chelsea Smith International Analysis of America and China Chelsea Evelyn Smith Thomas Edison State College International Management
- 2. 2 Chelsea Smith Abstract The two biggest competitors in the globalized world, China and America, are also having the strongest partnership. America had the upper hand for several decades but no there is a shift in economic power. There is a great rash for both in failing for supremacy but equally great opportunity. It will be key for analyzers to watch the changes in the GDP as they illustrates the shifts. The global and economic impact of both countries involvement and trends also has a substantial impact not only on their nation’s strength but the strength of others. China and America will need to make strategic moves to gain the title of being number one. There will also be cultural and political differences that will need to be adjusted one way or another to gain an upper hand in the other countries. In this analysis we shall see major aspects of international trade between China and America their current strategic movements will be identified as well as recommendations that will be acknowledged.
- 3. 3 Chelsea Smith International Analysis of America and China Global World Economy What will be discussed in this analysis will be China’s involvement of globalization and their economic dance with America. There is a need to clarify the globalization of a country does not only pertain to economic trade but world views, ideas, and culture. Globalization between America and China is lubricated by the technological advancement in transportation and telecommunication. Due to these advancements the world’s boarders are fading, the ideas are expanding, and products are being traded to advance the world. “In the past few years, the global balance of economic power has been shifting from developed to developing countries. As this trend continues, it will have an increasing impact on where growth opportunities arise for companies – and on where they invest to capitalize on those opportunities” (Yang). Yang prediction of underdeveloped countries rise to power is the reason that developed countries like America are weary of change. The shift in power would increase the overall wellbeing of all the countries involved. What is interesting is how there is little difference between the GDP of developed countries and the other undeveloped countries. Stating that China, India, Brazil, and etc. is an understatement of their current power. This is
- 4. 4 Chelsea Smith loosely stated because just a half a century before these countries where considered underdeveloped. The China and the United States are currently two global titans with two clashing political approaches from the authoritarianism and the electoral democracy. China has had repeated supremacy through authoritarianism in history and has quickly regained ground from a minor hiccup in their long history. Electoral democracy was only attempted twice in the known history of the world, Ancient Greece and now America. America is toddler in this reformed philosophy of equal rights and electoral democracy. America, though is young in their approach, promotes individuals to create their own success. This ideology allows large leaps and bounds in technological success and freedom to advance in a chosen field. China’s government focuses not on the individual but the whole of a nation. A citizen’s interest can be dismissed if it does not benefit the others it can affect. This is important in the fact the China will import and export products and services if it will be for the greater good of the country and communities affected. This ideology is why China has increased in global economic strength in recent years by eliminating frugal investments. They, as a country are prepared to do what it takes to get ahead and stay ahead. Though their traditions of authoritarianism can have its setbacks the overall resilience is what makes their approach strong.
- 5. 5 Chelsea Smith The graph and analyzes of China’s growth domestic product (GDP) compared to the United States GDP. The United States, illustrated above in dotted lines, demonstrated the relationship of an incline. However, the United States was sensitive the 2009 recession. This tells us that though America has been a global strong hand they are not as strong as they would like to be. However, China’s economy has had their own and even thrive despite the global recession. Chinese and American businesses have an abundance of resources and opportunities that their entrance into the international market place. One of the significant resources that is used is the internet in modern trade. Just searching on EBay or Amazon you can find items being sold in your local community or locate the same item from China. Modern telecommunication and transportation products not only large businesses but small businesses the opportunity to expand and trade internationally. Many companies are have teamed up with google and other resources to take advantage of their advertising services. The benefits of international trade are substantial and resources are easy pulled, this goes without saying that there are challenges to trading in the global market. The largest wall to overcome is the monetary exchange. The second is the cost of shipment. It would be pointless
- 6. 6 Chelsea Smith to send a product that only costs 5 dollars to have a 15 dollar shipping and handling charge. If current trends continue, China may emerge as the world’s largest economy by 2020. Implications of development varies and changes with time and several aspects will need to be discussed. The first that will be addressed is China’s involvement in the World Trading System (WTO). Second is influence the monetary system has. Then the business strategy of today’s European and US-based global corporations has on China’s global decisions. Lastly, for the implications of development are the global commodity prices that effect their competition. These all effect China’s decisions with the world market both with imports and exports specifically with America. “World Trade Organization (WTO) is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states.” At the center of the WTO philosophy are the agreements that provide legal ground rules for an international commerce. These contracts between governments have the real goal to help exporters and importers conduct business. The WTO act as unbiased negotiators and handle trade dispute. As of March second 2013 there are 159 members with WTO. Included is the new super power China who joined the WTO on December 11 2001. China during that same year went from an 8.2% share of world output at the beginning of 2010
- 7. 7 Chelsea Smith to a 10.6% share. This increase in of exportation is more than likely the tipping point of following into the WTO. China’s GDP per Capital is currently 3348.01. This is a significant gain since just 10 years ago the GDP per capita was only one third its current prices. This represents the consistent growth of China’s economy which makes it a strong economic force. There is even slight significant incline after 2010 once the 2009 crises occurred. This tells officials that once China entered into the WTO they were able to increase exportation and felt little to no effects of the recession. The past 10 years China has developed into a leading exporter. In the beginning of 2004 China exported more than the United States. However there seems to be a dance that the United States leads. When the 2009 recession both China and the United States to a step back from exportation however China was not as effected by the global recession. Though China is not the leading exporter they are not far behind the United States. This strength is especially significant after China joined the World Trade Organization.
- 8. 8 Chelsea Smith The gaining strength of China’s global economy has pushed Chinas investment to the International Monetary System. The International Monetary System allows various participating countries to speak the same language of rules, conventions and supporting institutions. China will able to facilitate international trade across borders for investment and the general reallocation of capital between nations with ease. China’s trending business tragedy will be to gain the strong trade bonds with other nations. Their resources include materials, products, and people that hasten the opportunities to export. U.S.-based global corporations are wise to utilize China’s resources including the people. What appeals US towards importing China’s resources, goods, and people are at a competitive price. You can buy a child’s toy from China for a $1 or buy that same toy but of a different color for twice or even thrice the price in the United States. This is due to their low cost of mass production.
- 9. 9 Chelsea Smith Top five export destinations* Rank 2012 2030 1 USA HK 2 HK USA 3 JAPAN KOREA 4 KOREA JAPAN *The table considers goods exports between the 25 countries in the sample. Cultural and Political Differences. The newest and successful political system is democracy. Democracy is defined by Webster Dictionary as a “government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections.” Additionally, freedoms and liberties are generally protected by the constitution and citizens are promised to legitimize these basic principles. Communism is an economic system where the government owns most of the factors of production and decides the allocation of resources and what products and services will be provided. This type of political system does not promote the individual needs but the greater good. Democracy can have a negative impact on the American economy. The variety within a democratic system the legislation can avoid an uneven distribution of political balance of powers. The powers are separated but when a branch in the system accumulates power it can become harmful to the democracy itself. Additionally individualism can make collective action
- 10. 10 Chelsea Smith more difficult because individuals pursue their own interest without internalizing collective interests. These are the major issues that have kept many democratic nations advance within the world economy. 50 years ago the individualistic attitude made America a super power because individuals were perusing their interests but the same interest effected the creation of the great depression. With a communistic political system the power is centralized so there is less struggle of power (theoretically). The economy can grow due to the focus on growth and development as a nation versus the individual. Collectivism makes collective action easier on sense that individuals internalize group interest to a great degree. Communist economy such as China, has been found to that they have become a gathering supper power in the world’s economy. Since China has entered the free trade market their success as a nation has surpassed many democratic nations including the United States. In this theoretical general assumption between two competing political powers communism has an upper hand. As a nation that promotes the greater good of the economy and citizens. The greater good gives the nation strength and agility to stand together and focus on goals. Democracy is flawed but its greatest weakness becomes its greatest strength. Individualist culture within a democratic system rewards those with social status for their personal accomplishments such as imperative discoveries, innovations, and great artistic achievements. This freedom was the reason we have people like Steve Jobs, Mark Twain, and Stephen Hawking that have advanced America while gaining personal success. Communism encourages conformity and discourages individuals from standing out. This was true 50 years ago when China was struggling with control on the economy. China made an
- 11. 11 Chelsea Smith adjustment on their way of trade and entered into the free trade market. Since their involvement in free trade China has advanced and has a continuous GDP growth. Though their reward system is different their adjustments to promote invocation has pushed trade and success. The comparison of the two political system powers could continue for the battle of supremacy in efficiency. With China’s entrance in the free trade market we saw that china flourish though they are a communist political system. The difference in the political system doesn’t affect the economic growth and efficiency. Free trade is what makes a nation successful. By eliminating cultural and political differences nations will receive the benefits of economic growth and stability. When comparing China’s and America’s yearly salary of the marketing strategic alliance senior manager we understand the financial and cultural differences between the two countries. For simplicity of the analysis we will convert the Chinese yen into real time American dollars. The yearly income for this position in China is $6205.88. When compared to the American yearly income we find that the difference is vast with a median of $123,000. This seems like it would differ individuals from working in China but the average cost of living place into effect. We find the consumer prices of the United States are 46.22% higher than China. The average monthly disposable salary after tax we see that China has over 300% less than the United States. What do these numbers tell us? That the communistic cap and distribution of wealth has an impact on the economic freedom. When analyzing China’s gross national income (GNI) per capita purchasing power parity (PPP) we find that the ability to make money and spend money is directly related. In the graph below we find that China’s relationship between the two, GNI and PPP, that the Chinese
- 12. 12 Chelsea Smith individually do not have the ability to “throw away” money like American’s this effects the culture and efficiency Above, the analysis illustrates the influence of the GNI per capita PPP in China. This actually has a significant relationship with the GDP per capita PPP of the nation. The GDP is the gross domestic product. The GDP shows us the market value of all officially recognized final goods and services produced within a year in China. The GDP, like the GNI, has risen and an increasing rate that gives them economic presence in the world and therefore the strength of doing international business. The graphs have an increase in quality and growth of China’s economic development. This growth begins to increase at a significant rate right before China enters into the free trade agreement with other nations. After the entering the agreement growth within the economy has grown and quality of life continues to increase.
- 13. 13 Chelsea Smith So what are the costs of the free trade agreement and the business relationship with America and China? It could be say that the relationship with the two major super powers is growing stronger throughout each year. When an American company decides to start expanding internationally, China is looked at as a possible profitable partnership. Many American based companies such as Estee lauder set a side project teams that become experts in the China market. This separation is due to the laws but also so social and cultural differences. This is why the project teams include a various team members that deal with the “emotional” aspect of their presence. Companies like McDonalds adjust their menu options to appeal to the local community. They decide this by research and analysis of the common culture of China. The cost of doing business with China would be to create a location that supplies a special team to do with the legal and business with the country. Additionally, there is an immediate cost of adjusted promotions, advertising, and products to optimize long term sales. The potential profit margins are worth the costs when it is done right. Going Global Strategies “In 16 nations, at least eight-in-ten say trade is good for their country. Support is especially high in the Asian economic powers of India (96% good), China (93%) and South Korea (92%)” (Pew Global). The arguments against free trade a tightly connected with the costs of entering free trade regime. The first argument is that if developing countries have industries that are relatively new, then at the moment these industries would struggle against international competition. This cost is referred to as the infant industry argument. The country must gain a comparative advantage or the market and economy of the underdeveloped country will fall. The best management strategy
- 14. 14 Chelsea Smith is to create a definitive plan to face the competition. Either lower cost of the products produced or raising the quality of the items exported. The next cost of the international exchange with China and America is the economic impact. Many suggest the biggest cost is the outsourcing of jobs and differed attention from the originating market nation. This assumption is quickly dismissed due to the overall benefit of exchange. This is why the two super powers will continue to deal with each other. With this strengthened relationship both countries will have a strong economic development. China specifically is projected to out run America for the number one slot of supremacy. America will never loose strength, pending no disasters or wars, but will begin to plateau. China has a remarkable resource, people. For the past 20 years China has begun to invest in the education of children. They have become so successful in this that there national test scores out trump American children. History has shown that education will outweigh numbers and in an economic battle for supremacy. China has both. This is why the business practices of both parties are strategic for either to succeed. Both must adjust to the others needs so both may profit. Part of the adjustment knows the etiquette practices, personality differences, and cultural differences between of the two. The second is understand the trade flows and laws between two competing countries. Additionally the political stability of the countries and communities must be considered and respected. Imported taxes could be used for the government, however, with free trade; there is only a little amount of money. Though there is increased revenue among the citizens that work to create the product or service, the government does not have that instant gratification from import taxes. The government should take the strategy of taxing the businesses that buy the supplies of
- 15. 15 Chelsea Smith the products. On the other hand, the government should understand that too high of taxes will slow consumer demand of the products imported. With Globalization, the roles and rules for nations to compete in international trade and investment are under constant reform. Many have discredited the effectiveness of the functions of the governments involved at the roles of the state as a central planner and controller of the national economy. They are typically the primary provider of goods and services. Even the capacity of states to utilize independent control over the internal economic activities and businesses across their borders has deteriorated in the face of unyielding globalization. Governments in China and the United State must seek to participate effectively in global economic competition must increasingly assume new roles. As they catalyze for the marked development they must also be enablers of productivity and efficiency, regulate ensuring that markets remain open and equitable, promoters of private sector expansion, and stimulators of human and capital resource development. Their resources to provide services and infrastructure that make productivity activities competitive nationally and internationally. The governments must work cooperatively with the private sectors, civil society organization, the international financial institutions, as well as public interest groups to develop institutions that sustain and support market systems through which the enterprises of all sizes engage in regional as well as global trade and investments. China’s competitive advantage today lies largely in their labor-intensive manufactured goods (CGT.COM). Leonard K. Cheng is head of economic department at the Hong Kong University of Science and Technology states that the “labor-intensive industries would be in China’s comparative advantage, but natural resource-intensive industries, capital-intensive industries, and technology-intensive industries are China’s Comparative disadvantage. It may
- 16. 16 Chelsea Smith have comparative advantage in some of the skill-intensive industries but comparative disadvantage in others” (Peoples’ Daily). According to the U.S. Bureau of Labor Statistics, in 2006 (the most recent year available), compensation costs in China were 2.7 percent of the U.S. level (U.S. BLS). Paul Krugman explains that “China’s dominant role in the export of many labor-intensive manufactured goods surely reflects its combination of relatively abundant labor and relatively high manufacturing competence” The comparative advantage the United States lies increasingly on services, agriculture products, processed foods, and high-tech manufacturing. When considering the countries value on competitive advantage is based on its ability to export more than it imports, the advantage may be the result of not-free trade practices or more production efficiencies. The U.S. service sector also has a global comparative advantage that has increased in services in the GDP rose from a rough 60% to a strong 72%. “The demand for high-quality services at home contributes to a global comparative advantage in the delivery of many different professional services. In part because the domestic market is so well developed, the United States is also the world’s leading exporter of business and professional services. . . The comparative advantage enjoyed by the U.S. in the service-sector industries is reflected not only in their rising share in total exports but also in the positive and increasing net export balance in services” (Peterson). The surplus in service exports doesn’t begin to match the size of America’s deficit in goods imported. China takes the strategy of producing goods that all nations can benefit from regardless of being rich, poor, developed, or underdeveloped. Not many countries can buy an American financial asset or purchase services America’s service providers. Both China and America play their part in the roles that define globalization.
- 17. 17 Chelsea Smith “The U.S. service sector has global comparative advantage. As our trading partners develop and grow, their demand for services will rise. Ensuring open markets for competitive U.S. exporters will raise U.S. export levels and will benefit the recipients” (Peterson). Though America relies on service they are undoubtedly in the competition as well as a strong competitor. The U.S. additionally has a decent-sized trade surplus in services; America has a clear competitive advantage in the financial assets. Financial assets derive its value because of a contractual claim. Stocks, bonds, bank deposits are some of the examples of the American competition. Suggestions and Recommendations When expanding into China, any American business needs to understand the impact of globalization will have on their business. The company will need to answer the following seven questions: 1. How will this affect my local community? 2. Will we be successful in China? 3. What are the cultural differences between Chinese and American business? 4. Will the costs out way the opportunities? 5. Can we navigate customs between commerce?
- 18. 18 Chelsea Smith 6. Will our supply meet their demand and vice versa? 7. Will this cause a political unrest? If these questions can be answered with a cohesive yes than business between China and your American company will be successful. However, companies like Google could not answer yes to all of these questions and therefore will not go into the Chinese market even though they are a super power in America. Summary The globalization of a China has not only benefited the individual but the whole world. These benefits are what allow the shift in global power. When analyzing China and the United States you can see the shift through the GDP. Due to globalization managers can take up various resources to expand their business but they must continuously remain cautious the ever changing tide. Additionally, the global and economic impact of China’s involvement and trends has a substantial impact not only on China’s national strength but the strength of others. For China the costs of entering into the free trade regime has been quickly counter acted by strategic moves. The commerce between American and China has been met with a few bumps in the road but all businesses involved can make strategic move to overcome any obstacles In conclusion, both China and the United States government play a proactive role in promoting national competitive advantage in certain industries that they are strong in and will be met with economic growth.
- 19. 19 Chelsea Smith References Shift in global economic power. (n.d.). Retrieved August 24, 2014, from http://www.pwc.com/gx/en/issues/megatrends/shift-in-global-economic-power-silas- yang.jhtml Why China's Political Model is Superior. (n.d.). Retrieved August 24, 2014, from http://www.nytimes.com/2012/02/16/opinion/why-china-political-model-is- superior.html?_r=0 China GDP per capita 1960-2014 | Data | Chart | Calendar | Forecast. (n.d.). Retrieved August 24, 2014, from http://www.tradingeconomics.com/china/gdp-per-capita China GDP per capita 1960-2014 | Data | Chart | Calendar | Forecast. (n.d.). Retrieved August 24, 2014, from http://www.tradingeconomics.com/china/gdp-per-capita China Exports 1983-2014 | Data | Chart | Calendar | Forecast | News. (n.d.). Retrieved August 24, 2014, from http://www.tradingeconomics.com/china/exports China Trade Forecast Report - HSBC Global Connections. (n.d.). Retrieved August 24, 2014, from https://globalconnections.hsbc.com/us/en/tools-data/trade-forecasts/cn China GDP per capita PPP 1980-2014 | Data | Chart | Calendar | Forecast. (n.d.). Retrieved August 24, 2014, from http://www.tradingeconomics.com/china/gdp-per-capita-ppp GNI per capita - PPP (US dollar) in China. (n.d.). Retrieved August 24, 2014, from http://www.tradingeconomics.com/china/gni-per-capita-ppp-us-dollar-wb-data.html Hill, Charles (2013). International Business: Competing in the Global Marketplace (9th ed.). New York: McGraw Hill. ISBN-13: 978-0078029240
- 20. 20 Chelsea Smith "Global Attitudes Project: Chapter 5. Views On Trade And Globalization." Pew Research Centers Global Attitudes Project RSS. Paw Research, 23 July 2009. Web. 11 July 2014. <http://www.pewglobal.org/2009/07/23/chapter-5-views-on-trade-and-globalization/>. Dennis A. Rondinelli, “Sovereignty On Line: The Challenges of Transnational Corporations and Information Technology in Asia,” in John D. Montgomery and Nathan Glazer (eds.) Sovereignty Under Challenge: How Governments Respond, (New Brunswick, NJ: Transaction Publications, 2002): 345-371. People’s Daily, “Researcher: China Enjoys Comparative Advantage in Labor Cost” U.S. Bureau of Labor Statistics, International Comparisons of Hourly Compensation Costs in Manufacturing, 2007. Paul Krugman, “Increasing Returns in a Comparative Advantage World” Peterson Institute for International Economics, “Has US Comparative Advantage Changed?” http://www.bls.gov/spotlight/2008/around_the_world/ "Imports and Exports of Financial Assets, 1980-2009." <i>China Global Trade</i>. 9 Mar. 2011. Web. 28 July 2014. <http://www.chinaglobaltrade.com/fact/us-imports-exports- financial-assets-1980-2009>. "Financial Asset Definition | Investopedia." <i>Investopedia</i>. Web. 28 July 2014. <http://www.investopedia.com/terms/f/financialasset.asp>.