international business discussion board responses
Respond to each post separately in 2 or more paragraphs and include references.
Post resonse: Week 6
As we have learned throughout this course the world is shifting towards globalization and a global economy. The barriers that prevented the free trade of goods, services and capital are slowing and being erased. A company no longer has to be limited by only selling domestically and can reach customers across the globe. Exporting is one of the six different modes of entry into a foreign market. A company such as MD International, can see an advantage in the form of lower costs by exporting rather than if they attempted to establish manufacturing operations in the host countries (Hill, 2013).
I believe that it has been very important for a company like MD International to have government assistance in exporting. A small to medium size company will normally not chose to enter into the foreign market because of a lack of familiarly with culture or an understanding of what the new market represents. For example, in 2000 MD’s shipment to Venezuela was held up by customs. If the U.S. Export Assistance Center had not stepped in the equipment may have been tied up indefinitely. Also, a resource like the Export-Import Bank allows companies the size of MD International to feel safe in dealing with foreign customers. The whole mission of the Export-Import Bank is to provide financial aid to facilitate exports and imports between the U.S. and other countries (Hill, 2013). The government wants to encourage companies to export because exporting goods means more money coming back into the U.S.
I can see both sides of the argument on whether government assistance for exporting is a good use of taxpayer money. On the one hand, why wouldn’t the government spend that money on companies and jobs here the U.S. thus limiting the need to import goods? Maybe, they could offer money for start-up companies here in the U.S. that would lead to more American jobs. Conversely, I understand that the government should spend money on exporting assistance because 70 percent of the World’s purchasing power is located outside the U.S. (“Exporting is good for your bottom line”, n.d.). Also, the argument can be made that exporting will increase a company’s profits and this will also lead to an increase in jobs. The simple fact is, that the U.S. is not going to stop importing goods so without encouraging companies to export the likely result would be the U.S. running a higher current trade deficit or importing more than it is exporting (Hill, 2013).
I found the CNBC video, People’s Republic of Profit, very interesting. My first observation was the importance that China puts on a U.S. education. Almost all of individuals interviewed talked about how being able to speak English and going to America for their education was vital to their success. Second, the video reinforced what I learned during my research for the BRIC’s case; namely, that it is difficult for foreign companies to enter the Chinese market. The company, American Apparel, explained that there were 13 levels to getting government approval to open a business in China. At one point the Chinese government even required a copy of the CEO’s utility bill in California in order to prove his address (“People’s Republic of Profit”, 2008).
Hill, W. L. C. (2013). International business: Competing in the global marketplace. New York, NY: McGraw-Hill/Irwin.
International Trade Administration. (n.d.). Exporting is good for your bottom line. Retrieved from http://www.trade.gov/cs/factsheet.asp.
People’s Republic of Profit [Video File]. (2008, July 30). Retrieved from http://www.dailymotion.com/video/x9df1c_cnbc-originals-made-in-china-the-pe_news.
Government assistance has been very important to MD International. Along the way to becoming a successful exporter, MD International has leaned heavily upon export assistance programs established by the US (Hill, 2013). In the early 2000s, the US Export Assistance Center arranged for the US Embassy in Venezuela to write and deliver a letter to the customs officials assuring them the medical devices, shipped by MD International and held up by Venezuelan customs, had no military applications and the shipment was released. MD International also worked extensively with Export-Import Bank to gain financing for its exports.
Sales of products and services to developing nations involve a significant degree of foreign risk, especially when the foreign buyers finance their purchases over several years. Commercial banks historically have been reluctant to assume a major share of this risk. For one thing, the collateral securing the loans is often in another country, where recovery can be difficult (Merritt, 2006).
Every exporting nation grapples with this risk. Nearly all of them address it by providing guarantees to commercial lenders and brokers that agree to finance exports using certain criteria, or by providing credit directly to exporters (Merritt, 2006).
This is particularly vital for transactions by smaller companies. Not many banks are involved in export finance. And not many of those will handle smaller international transactions, especially when the exporter is a small business. Fewer still will accept “walk-in” small business exporters who are not long-time commercial customers. Without Export-Import’s (and SBA’s) available backing for export finance, small business access to export finance would be close to zero (Merritt, 2006).
I am not sure if helping firms such as MD International represent a good use of taxpayer money. On one hand you could argue that that the U.S. is not going to stop importing goods and not encouraging companies to export would likely result in the U.S. running a higher current trade deficit or importing more than it is exporting (Hill, 2013).
On the other hand you can argue that most government export promotion programs currently shower their benefits disproportionately on “big”—not small—businesses. More importantly, the American workforce is the best in the world. America’s businesses, whether large or small, do not need the assistance of government programs in order to survive. What they need is for government to get out of the way (Stansel, 1995).
In addition, the same principle applies to programs that would benefit small businesses as to those which benefit big businesses: taxpayer dollars should not be used to prop up the bottom line of private businesses, regardless of their size (Stansel, 1995). In conclusion, government should not be in the business of using taxpayer dollars to promote exports for three simple reasons:
1) It’s unconstitutional.
Nowhere in the Constitution is the federal government granted the power to spend general taxpayer dollars to promote the welfare of specific groups, whether through export promotion programs or through any other means (Stansel, 1995).
2) It’s too expensive.
The six programs I have discussed alone consume $2 billion of taxpayer money. If the goal is to promote economic growth, that money would be put to much better use by simply leaving it in the hands of its rightful owners, the American taxpayers (Stansel, 1995).
3) It doesn’t work.
It’s difficult to believe that government employees somehow have a greater ability to promote the exports of private businesses than do the owners of those businesses themselves. After all, those private business owners are putting their own money at risk. All that those who run export promotion programs are putting at risk is the hard-earned tax dollars of America’s overburdened taxpayers (Stansel, 1995).
Hill, W. L. C. (2013). International business: Competing in the global marketplace. (9th ed.). New York, NY: Irwin/McGraw-Hill.
Merritt, J. (2006, March). Regarding reauthorization of the export-import bank of the united states. Small Business Exporters Association. Retrieved from http://www.banking.senate.go v/public/index.cfm?FuseAction=Files.View&FileStore_id=f3dce276-6fbe-434c-95fb-588e3d2f8574
Stansel, D. (1995, May). Federal export promotions programs. CATO Institute. Retrieved from http://www.cato.org/publications/congressional-testimony/federal-export-promotions-programs
The International Accounting Standards Board sets accounting standards across the globe. Unlike country-specific standards such as the Unites States’ GAAP (generally accepted accounting principles), international standards have no governing authority to enforce them, making them purely voluntary. Existing international standards carry a number of distinct benefits to participants, and they serve as an early template for future globally regulated and enforced standards (Ingram, 2013)
One major benefit of adopting International Accounting Standards is enhancement of comparability method across the world. Better financial information would be available to investors and shareholders with a unified system of accounting information. Even in the context where companies are within a similar industry, varying standards of accounting result to difficulty in making comparisons of financial data. A unified system would result to increased investor confidence since it enables them to confidently make comparison when they are conversant with the terminology. Hence, adoption of International Accounting Standards is of great benefit to a business enterprise since it increases investor confidence and enables the enterprise to have a clear overview of the competitive environment that other businesses are operating in (Greuning & Terblanche, 2011).
International accounting standards also simplify accounting for multinational companies that have facilities and operations in multiple countries. Rather than using their home country’s accounting standards in their foreign subsidiaries, multinationals can institute international standards across all geographical units to avoid confusion and increase the system’s accuracy and efficiency. Standard accounting systems across all geographic units within a large company can simplify the process of transferring managers from one unit to another and can make cross-unit collaboration on financial matters more productive (Ingram, 2013)
Another major benefit of international standards is that they consider input from professionals and legal authorities around the world. This can create a set of ethical guidelines that do not favor one culture over another, as can be the case when a foreign company adheres to its own domestic ethical values. Different countries and regions around the world boast very different cultures and norms, which manifest themselves in the prevailing business culture in the country. Some countries, for example, make bribery a rule of thumb in business, while others view it as highly taboo. International accounting standards set a unified code of accounting ethics to be followed across cultures. This simplifies disputes between companies in diverse parts of the world and helps companies comply with different legal guidelines around the world (Ingram, 2013)
There are some probable risks that a nation can face with a move toward the adoption of International Accounting Standards. One of the risks is linked to the cost associated with the change. Several accountants and financial professionals have been coached by the use of Generally Accepted Accounting Standards, GAPP for more than seventy years. This implies that retention of all financial professionals would require a considerable amount of money. It would be necessary for the entire corporate finance departments to learn the new accounting standards. Another disadvantage is the loss of efficiency because of the time that would be spent in order to fully comprehend and implement the new accounting standards. This would necessitate re-writing of entire textbooks and students having to learn the new method (Sale, 2007).
Another problem associated with International Accounting Standards is that it lacks a funding source, and this could make it susceptible to political influence. In the United States the International Accounting Standards is neither self-sustaining nor government-funded. In this case corporate donations act as the major source of funding for International Accounting Standards. This fact solely stirs other problems for instance, the probability of International Accounting Standards’ agendas being determined by the contributors’ agendas. The surrounding skepticism is warranted combined with the fact that adoption of International Accounting Standards is still in an infant stage (Godfrey & Chalmers, 2007).
In the United States, the move to adoption of International Accounting Standards is likely to cause the revisions in the reported financial performance of business enterprises. This is because the nation has better GAAP compared to International Accounting Standards. The current iteration of GAAP has been drawn from the Accounting Principles Board, Accounting Standards Board, American Institute of Certified Public Accountants and the Committee on Accounting Procedures. This implies that the present GAAP has been refined ad tweaked for the last seventy years to correct any major flaws. Hence the United States largely consider GAAP as the gold global standard, and a perfect candidate for an International Accounting Standard (International Accounting Standards Board, 2008). Additionally, International Accounting Standards in the United States not funded by the government but rather corporate donations. It is therefore clear that change to International Accounting Standard would greatly affect business enterprises and alter their financial performance (Sale, 2007)
Ingram, D. (2013) What Are the Benefits of International Accounting Standards. Retrieved August 5, 2013, from http://www.ehow.com/info_7975847_benefits-international-accounting-standards.html
Greuning, H., & Terblanche, S. (2011). International Financial Reporting Standards. World Bank Publications
Godfrey, J., & Chalmers, K. (2007). Globalization of accounting standards. Edward Elgar Publishing
International Accounting Standards Board (2008). International financial reporting standards. Kluwer Publishing
Sale J. (2007). Advances in international accounting, Vol. 20. Elsevier publishers