Economic and political trade relation between countries is a commonality in the modern world. International business between two countries can have a positive impact on the development of an economy. Adekola and Sergi (2016) stated that the biggest benefit can be gained by the emerging economy as the labour and capital gained from the developed or advanced economy can help in increasing the financial condition. Hence, it is necessary to ensure that proper motive for being involved with in trade relations exists between the countries in order to succeed (Peng, 2016). The company in focus is Foxconn, a multinational electronic contract-manufacturing product.
For the assignment, the focus is on the improvement of an organisation from an advanced economy, which is doing business with an emerging or underdeveloped economy. The countries in focus are China and the United States of America (USA). The nature of business relationship in the market is analysed along with the challenges faced by each country while trying to continue with the trade relations. Application of related theories associated with international business is provided in the assignment. Based on the application of the theories and the challenges faced recommendations are also provided which can help in the development of Foxconn.
Foxconn is essentially a Taiwanese electronic contract manufacturing company that is located in a number of countries. The majority of the branches of the company are located in China, which accounts for about 12 manufacturing plants (Foxconn.com, 2019). The company was established in 1974 and over the years have evolved its technological development so that it can provide assistance to the rising need for technological impact. In the modern world, Foxconn is the fourth largest information technology company in terms of revenue earned (Foxconn.com, 2019). The products manufactured by Foxconn are directed for the American market so that it can be of assistance for the development of modern devices. Foxconn contributes to manufacturing of Blackberry, iPad, iPhone, Play station, Xbox and similar devices that are famous all over the world (Foxconn.com, 2019). In 2017, Foxconn decided to build $10 billion TV manufacturing plant in Wisconsin, United States (Foxconn.com, 2019). However, due to the high labour costs, currently the plan is kept on hold (Foxconn.com, 2019).
China
China is considered as a moderately growing economy mainly because of the high population it possesses. The forecasted growth of the GDP of the country potentially ranges from 6.4% in 2018 to 6.1% in 2019 (Amin, 2017). One of the advantages that China possesses is that per capita is about US$16,600, which signifies that the country has cheaper labour cost. It is for this reason that Foxconn have set up 12 companies for the manufacturing of the parts and devices of the latest technologies (Foxconn.com, 2019).
Aguilera and Crespi-Cladera (2016) is of the opinion that China spends about 9% of the GDP on infrastructure. A comparison can be made about the change in the economy that China had to undergo during 2006-2016.
Figure 1: Changes undergone in China
(Source: Wang & Liu, 2016)
From the figure, it can be seen that with the appointment of the president Xi Jinping, China have undergone rapid changes in its economy. The focus had been on sustainable growth and thus willingness to tolerate lower growth rates existed. Challenges faced by China are in the development of its domestic market (Ahlstrom et al., 2018). Due to the low GDP, it can be difficult for the country to continue its dominance in the domestic market. Despite this with the low labour cost, Foxconn have managed to continue its business in the country (Foxconn.com, 2019).
Other challenges that are faced by China are in the assumption of a global leadership position. This means that China is not considered as a reliable market for making purchase of products. This is mainly due to the economic imbalances that exist in the country. As stated by Taneja, Sewell and Odom (2015) environmental issues also account for the development of the country and it is necessary that the country address the rise in the economic inequality. For Foxconn, it can be considered as an advantage mainly because the company can indulge in proper manufacturing of the products (Foxconn.com, 2019). Hence, development of the manufacturing establishment in China can be considered as an advantage for Foxconn (Foxconn.com, 2019). It is also for this reason that China is considered as an emerging country in the world.
United States of America
As observed by Verbeke and Kano (2015) the economy of the United States of America can be considered as one of the advanced and healthiest among the world. Evidence can be provided about the steady rise of GDP that is incurred by the country due to its various trade and business relations with other countries.
Figure 2: GDP of United States of America
(Source: Collings, Mellahi & Cascio, 2018)
From the figure, it can be seen that GDP growth of the country can be predicted to be strong and healthy until 2020 (Santoro, 2015). However, changes may be required in order to maintain a balance in the economy from consumption to savings. As stated by Kano (2017) the United States of America is said to be faced with challenges due to its political and economic supremacy. The figure also shows that in 2018, the country have shown resilience despite having to deal with natural disasters. As observed by Cavusgil and Knight (2015) the service sectors are the main drivers of the economy of the country while the manufacturing base can be considered as being at a stage of recovery and increases at a faster rate than the general economy.
Hence, for Foxconn to indulge in doing business with the United States, these factors can be taken into consideration. As stated by Winterhalter, Zeschky and Gassmann (2016) the economy of the United States of America contributes to about 20% of the global output. Hence, for Foxconn to develop its services it is necessary that the service provided and the manufacturing of the different technological parts be valued as per the requirements of the customers. Prediction of 2020 can be made about the growth of GDP, which is shown to be by 3% (Anderson et al., 2018).
However, the president of the country aims to increase the GDP by 4%. The employment data of United States can be discouraging for Foxconn mainly because unemployment rate has been low since 2012 (Foxconn.com, 2019). With the project for the development of TV manufacturing plants at Wisconsin, Foxconn can provide employment opportunities to the people (Foxconn.com, 2019).
In order to ensure that business transactions and trade relations exist in a smooth manner, it is necessary that the motive for involvement of business relations be analysed. In this regard, for Foxconn, the immediate motive for being involved with the United States of America is of its expansion, which can be considered as a strategy seeking approach (Foxconn.com, 2019). Having established its potential as a technically competent manufacturing company, Foxconn can use the reputation in order to promote some of the most demanding technologies in the world (Foxconn.com, 2019).
It has been seen that at the beginning of the new millennium powerful macroeconomic forces reshaped the economy (Barbosa, Romero and Cunha 2019). As pointed out by Brondoni (2018) the United States of America or the United Kingdom usually dominated these forces. Availability and dominance of the other countries particularly Asian and African countries did not exist at the time.
However, as stated by Bower (2017) with changes in the economic demand of the population of a country, there has been considerable changes and emergence of several countries that are popular in terms of trade. Similarly, in the case of China, the business relations with the United States of America can help in enhancing the prospects of the country. At the same time, for Foxconn expansion and development of the business can be considered as an important motive for being involved in the business trade. It means that development of business with an advanced economy can help Foxconn to enhance its reputation.
Along with this, emerging global threats can be considered as another cause for the development of trade among the countries (Bolino, Klotz & Turnley, 2017). The emerging threats can be sudden as well as unpredictable and possess the ability to spread through global processes and forces. Hence, for Foxconn, the business relations with a development economy can help in the mitigation of the threat (Foxconn.com, 2019). In this regard, a nature of relationships between the markets of the United States as well as China can be taken into account.
Political tension as well as economic crisis may exist while conducting trade between two countries. This is mainly due to the varied political and economic scenario that exists within the economy, which highlights the nature of relationship that may exist between the countries. Hence, as stated by Ramaswami, Carter and Dreher (2016) it is necessary that an analysis be made about the political and economic relationship that exists between the United States and China. The biggest relationships that exist is the fact that imminent and new global threats may unite the countries in establishing business relationship with one another (Lapko, Trucco & Nuur, 2016).
Over the years, it has been seen that China has arisen as a major force in the business environment mainly due to the systematic nature of the business activities undertaken by the country. The support of the government need to be taken into consideration so that global threats can be mitigated. However, as stated by Sunder (2016) the support of the government may not be gained on a regular basis. The United States and China maintain a healthy relationship in terms of business deals with one another. It is for this reason that a company like Foxconn, can gain good deals with business organisations in the United States (Foxconn.com, 2019).
For example, it has already been established that the company manufactures technical parts that are used by Play Stations, Xbox, iPhone and other devices (Foxconn.com, 2019). This development and implementation of the parts on these technologies that are mostly manufactured in the United States can have a positive impact in developing the economy of both the countries. However, limitations and issues can be highlighted while trying to implement similar technology. For example, Foxconn have struggled to improve the labour conditions in China despite the fact that the country has a low labour cost (Foxconn.com, 2019). Hence, a fluctuating relationship exists between the two countries but it can be considered as effective while trying to follow the norms set up for the business relationships.
While conducting business in an international manner, it is necessary to understand the challenges that may be faced by an organisation. Dessart, Veloutsou and Morgan-Thomas (2015) stated that these challenges could be in the form of adjusting with the new environment in terms of political, economical as well as social wellbeing. In the case of Foxconn while doing business with an advanced economy, one of the major risks that can be faced is the political risk. This arises robustness and the legal institutions that exist within a country.
According to Charter and Polonsky (2017), the economic and social challenge that may arise is the poor infrastructure and labour shortage. Foxconn can face labour shortage in the United States, which in turn can increase the labour cost in the business. However, with Foxconn, such a possibility is negligible mainly because the companies that it supplies its manufactured products are reputed (Foxconn.com, 2019). For example, iPhones of Apple are reputed throughout the world and the implementation of the parts can provide Foxconn with an opportunity to gain international stature in the market (Foxconn.com, 2019).
At the same time, emerging economies also face challenges while maintaining the volatility of its growth. In the words of Winterhalter, Zeschky and Gassmann (2016) the widespread volatility in terms of growth can act as reduction in the investments based on the expected returns. Hence, in the case of Foxconn, it is necessary that it make investment based on the analysis of the business risks so that it can ensure proper productivity in the market (Foxconn.com, 2019). A proper understanding of the relationship between the emerging and development economy can be explained with the application of relevant theories.
In order to understand the business relations that exist between two foreign countries, the application of OLI theory can be implemented. As stated by Adekola and Sergi (2016) the OLI framework as an MNE provides certain firm-specific advantages. These advantages allow an organisation to overcome the costs related to the operation in a foreign country. The goal of the theory is to ensure that MNE provides more overall value than the choices that are provided by the international or domestic business. In the case of Foxconn, the manufacturing of the products and services can contribute for determining the advantages that can be gained from establishing business relations with United States of America (Foxconn.com, 2019).
Peng (2016) stated that the OLI theory identifies the ownership advantage, location advantages and internationalisation advantage. For Foxconn, it is necessary that it apply the theory to understand the extent and pattern of FDI by an MNE in the United States (Foxconn.com, 2019). Despite the success of the theory, several criticisms exist that may provide Foxconn with a disadvantage while implementing it in the business environment. One such criticism made by Cavusgil and Knight (2015) is the fact that the OLI theory cannot be used in a straightforward manner to make the internationalisation process exploit the strategies of the foreign market.
At the same time, Winterhalter, Zeschky and Gassmann (2016) stated that another criticism of the theory is that it was developed by taking into account the success stories of the United States and the United Kingdom. However, Foxconn is a Chinese company and the application of the theory may not provide advantage in conducting business with an advanced economy (Foxconn.com, 2019). Hence, an analysis can be made about the competitive advantage that may be gained by Foxconn.
Based on the analysis of the emerging economy and the advanced economy, the impact on the competitive nature of Foxconn can be taken into account. One such impact can be the fact that Foxconn can develop its business activities in a manner that provides the company opportunities to develop the economy of China (Foxconn.com, 2019). It has already been seen that the Chinese labour market faces issues that relate to low cost provided to the employees for the effort. The proper implementation of the products and services can help in the development of the company and ensure that Foxconn can become the sole manufacturer of iPhones and Play Stations in the near future (Foxconn.com, 2019).
At the same time, the application of the OLI theory can pose problems for the company mainly because the theory cannot be applied for the emerging countries. For Foxconn this can be a disadvantage as despite the growing reputation of China as a developing economy, failure to gain approval of from the Government of the United States in terms of conducting business might hamper the growth of the company (Foxconn.com, 2019). Along with this, the decision taken to scrap the TV project may cost the company financial problems.
After analysing the impact Foxconn may have on the international market, recommendations can be made about the manner in which it can improve its reputation. One of the challenges that the company need to address is the fact that it needs to gain an ownership advantage. The application of the OLI model can fail for the company if it fails to contribute towards the development of the economy of the country. Hence, recommendation in the form of development of an alternative source of developing business relations can be made. Foxconn can apply the Linkage, Leverage an Learning (LLL) approach in order to gain resources by linking with the foreign companies. Hence, a link with Apple can be made in order to gain resources that can help in proper development of parts required for Apple based products. At the same time in order to mitigate the legal constraints of the United States, it is necessary to understand the laws related to the country by following the legal system.
At the same time, another recommendation that can be provided can be based on the labour issues that are faced by the Chinese people. Most Chinese people are rejected due to the inability to speak English. Hence, Foxconn can provide employment opportunities for the people so that development of the economy can be made. Higher employment rate can help in the increase of the GDP of a country. The can help in mitigating the labour shortage of the company. This is evidenced from the GDP of the United States as analysed in the assignment. Investment can be done only on the activities in which Foxconn can understand the possibility of growth. For example, investment in Apple products can help Foxconn to ensure growth of the market.
Conclusion
Thus, conclusion can be made about the effectiveness of conducting business relations between two countries having different status in the market. The emerging economy usually tends to use the resources of the advanced economy for progress. In the case of Foxconn, similar exploitation of resources can be expected as the company tries to increase the Chinese economy by merging with the economy of the United States. It is necessary that the company understand the importance of growth in a competitive economy so that it can continue to its dominance. The challenges faced by Foxconn need to be mitigated in order to ensure that it continues to built its business by providing the necessary assistance to the reputed organisations. Hence, it can be said that the appropriate application of international trade model can help in the development of the Chinese economy and ensure that exploitation of the advanced economy is undertaken for the betterment of the company.
References
Adekola, A., & Sergi, B. S. (2016). Global business management: A cross-cultural perspective. Routledge.
Aguilera, R. V., & Crespi-Cladera, R. (2016). Global corporate governance: On the relevance of firms’ ownership structure. Journal of World Business, 51(1), 50-57.
Ahlstrom, D., Yang, X., Wang, L., & Wu, C. (2018). A global perspective of entrepreneurship and innovation in China. Multinational Business Review, 26(4), 302-318.
Amin, A. (2017). Social Constructionism and Women Entrepreneurship: A Global Research Perspective. Universal Journal of Industrial and Business Management, 5(3), 38-46.
Anderson, I., Gallagher, P., Hall, K., & O’Malley, N. H. (2018). A Global Perspective.
Barbosa, F., Romero, F. C., & Cunha, J. (2019). Innovation, Sustainability, and Organizational Change in a Social Portuguese Organization: A Strategic Management Perspective. In Social Entrepreneurship: Concepts, Methodologies, Tools, and Applications (pp. 304-327). IGI Global.
Bolino, M. C., Klotz, A. C., & Turnley, W. H. (2017). The implications of turning down an international assignment: a psychological contracts perspective. The International Journal of Human Resource Management, 28(13), 1816-1841.
Bower, J. L. (2017). Managing resource allocation: Personal reflections from a managerial perspective. Journal of Management, 43(8), 2421-2429.
Brondoni, S. M. (Ed.). (2018). Competitive Business Management: A Global Perspective. Taylor & Francis.
Cavusgil, S. T., & Knight, G. (2015). The born global firm: An entrepreneurial and capabilities perspective on early and rapid internationalization. Journal of International Business Studies, 46(1), 3-16.
Charter, M., & Polonsky, M. J. (Eds.). (2017). Greener marketing: a global perspective on greening marketing practice. Routledge.
Collings, D. G., Mellahi, K., & Cascio, W. F. (2018). Global talent management and performance in multinational enterprises: A multilevel perspective. Journal of Management, 701.
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