Characteristics Of The Us National Business System Economics Essay

The CEO of Tata Motors Limited, a reputed car company in India considers the possibility of come ining the U.S. market. Therefore, the chief end of this research study is to supply advice on the entry method that should be utilized under the specific fortunes that present in both economic systems at the clip being. The secondary aim is to exemplify an overview of the U.S. car industry and the significant overlying kineticss that exist. Taking all the findings into consideration, Tata Motors enlargement in the U.S. market is executable.


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2.1 The industry

Automotive merchandises were excessively affected by the recognition crunch and the recession during 2009. World exports in value footings declined by 24 % in the last one-fourth of 2008 and 49 % in the first one-fourth of 2009. Of the top 10 major exporters of automotive merchandises, five recorded more than 30 % diminution in their exports in the last one-fourth of 2008 and all witnessed a diminution of over 40 % in the first one-fourth of 2009.

Beginning: WTO International Trade Statistics 2009

However, a closer expression at the WTO International Trade study for 2009 gives the information that India presents a important addition in exports of automotive merchandises during 2008, specifically by 40 % following South Africa, which presents 44 % one-year addition.

Beginning: WTO International Trade Statistics 2009

2.2 The states

2.2.1 State A ( India )

India is a underdeveloped state with GDP existent growing rate of 7.4 % ( 2008 est. ) with about 25 % ( 2007 est. ) of population below poorness degree and 9.1 % ( 2008 est. ) unemployed. Its exports include a broad scope of trade goods, such as crude oil merchandises, fabric goods, treasures and jewellery, technology goods, chemicals and leather. During 2008, the state ‘s exports were increased by 21 % . The chief exports spouse is the U.S. , which absorbs 12.3 % of the entire Indian exports, while the stock of outward foreign direct investings reached $ 61.77 billion ( 31 December 2008 est. ) .

Actually, there has been a singular roar of outward FDI from India during the last decennary. Flows of OFDI increased by 3,374 % and stock of OFD increased by 3,222 % ![ 1 ]

Series: Direct investing abroad ( FDI Outward )

Measure: US Dollars at current monetary values and current exchange rates in 1000000s

Economy: India

Beginning: UNCTAD Major FDI indexs ( WIR 2009 ) A

Traditionally, developed states were the initial beginning of planetary cognition flows through outward FDI. However, rather late, a new form of outward FDI is developing with turning engagement of developing state companies in outward investing activities, including India, China, Korea, and Taiwan ( Dunning, Hoesel and Narula, 1996 ; Chen and Chen, 1998 ; Poon and MacPherson, 2005 ; Gammeltoft, 2008 ) . Concentrating on the automotive industry, India has made significant advancement in edifice domestic capableness in this technologyaˆ?intensive industry and is now emerging as a planetary Centre for automotive fabrication ( Singh, 2007 ; KPMG, 2007 ) .

2.2.2 State B ( United States )

The United States is a developed state and has the largest and most technologically powerful economic system in the universe, with a per capita GDP of $ 47,500 ( 2008 est. ) and GDP existent growing rate of 0.4 % ( 2008 est. ) . During 2008, imports presented an one-year per centum alteration of 7 % and they were focused on non-auto consumer goods ( 23 % ) ; fuels ( 22 % ) ; production machinery and equipment, ( 20 % ) ; non-fuel industrial supplies ( 14 % ) ; motor vehicles and parts ( 11 % ) ; nutrient, provender and drinks ( 4 % ) ; aircraft and parts ( 2 % ) ; other 4 % . Inward FDI are turning every bit good, as it is illustrated at the diagram below. Specifically, the stock of inward FDI reached $ 2.367 trillion ( 31 December 2008 est. )[ 2 ]

Series: Direct investing in describing economic system ( FDI Inward )

Measure: US Dollars at current monetary values and current exchange rates in 1000000s

Economy: United States

Beginning: UNCTAD Major FDI indexs ( WIR 2009 )

The U.S. National Business System & A ; Cultural Conditionss

3.1 Features of the U.S. National Business System

Real GDP increased by 0.4 % during 2008 compared to the mean GDP growing rate of the remainder of the universe, which increased by 2.9 % . This seems to be a comparatively low per centum, nevertheless we should bear in head that American economic system struggles to get the better of the planetary fiscal crisis and during the 3rd one-fourth of 2009 existent GDP increased by 2.2 %[ 3 ]The United States appears to be strong chiefly in several high-technology industries, particularly the IT sector and life scientific disciplines and besides in a figure of service industries, including consulting and fiscal services. Notwithstanding these strengths, the U.S. appears rather weak in fabricating industries such as consumer electronics, machine tools or luxury autos, while it constitutes one the largest net importers of rider autos, obtaining the 16 % of the worldwide auto imports. In add-on to that, the value of the auto imports for 2008 was $ 119.2 billion, reflecting a portion in the economic system ‘s entire ware imports of 9.2 % . The same increasing tendencies are witnessed at inward FDI in the automotive industry.

Beginning: U.S. Bureau of Economic Analysis

For the clip being, the car industry in the United States is dominated by General Motors, Ford and Chrysler, normally referred to as the ‘Big Three ‘ , while other than those, there are 12 makers, taking to a instead rough competitory environment. However, harmonizing to informations from Ward ‘s Automotive[ 4 ], the Big Three market portion for the U.S. has turned from 90 % in 1965 to 45 % in 2009. In malice of that fact, the Big Three are distinguished non merely by their size, but besides by their concern theoretical account. Most of their operations are nonionized ( United Auto Workers and Canadian Auto Workers ) , taking to higher labour costs than other transnational makers.[ 5 ]

With respect to the needed resources in the U.S. automotive industry, the U.S. car parts industry late faced force per unit area from two waies. First, while presenting new theoretical accounts to run into new consumer demands, the major vehicle makers have besides struggled to cut down costs “ by driving theoretical account designs off a smaller figure of vehicle ‘platforms ‘ , stressing greater commonalty of parts, but with more typical characteristics, while cut downing the figure of providers ” . For illustration, Ford and GM have stated that they intend to have more parts from cheaper production makers, particularly from China. The 2nd factor which places force per unit area in this industry is the turning cost of stuffs, particularly steel ( Cooney and Yacobucci, 2005 ) .

On the other manus, the Indian car industry is the 9th largest in the universe with an one-year production of over 2.3 million units in 2008[ 6 ]. The competitory advantage, which underlies this accomplishment is the low cost of car constituents ( Kamala and Doreswamy, 2007 ) . High duty on imported car constituents resulted in the turning usage of locally produced car parts, offering encouragement to domestic car accessory sector. ACMA confirms this impression and allocates this competitory advantage particularly to metal intensive constituents like forgings, stampings, and castings.[ 7 ]Another beginning of competitory advantage is the low cost of labour. Average rewards in Indian car industry are about less than 50 % of rewards in developed states ( Kamala and Doreswamy, 2007 ) .

Furthermore, it is of great importance the fact that the automotive industry in India receives important institutional support and strategic province intercessions. The ‘Automotive Mission Plan 2006aˆ?2016 ‘ launched in January 2007 recommends:

Development of Automotive developing Institute and Auto Design Centre, Particular Auto Parks and car constituent practical SEZs ; Technology Modernization Fund

heightening exports and related substructure preparation establishments in car hubs

3.2 Cultural conditions in the United States

3.2.1 Culture of direction and employees

Culture has a significant impact on concern directors ‘ attitude towards both concern moralss in general and several concern patterns in peculiar. United States and India present singular differences in this construct. First, India ‘s work force is comparatively immature. Nevertheless, entree to professional instruction is disproportionately concentrated among societal groups that have traditionally dominated the professional Fieldss. The educational system seems unequal in developing endowments for the occupation market, specifically the IT sector, which generates rapid economic growing. On the contrary, in the United States there is a important investing on human capital. The U.S. educational system was characterized since the beginning of the twentieth century by publically funded mass secondary instruction. This early realisation of the demand for instruction boosted the US productiveness and growing. Second, during the past two decennaries a strong system of anti-discrimination statute law was developed in the U.S. , including mechanisms for supervising recognition, protection of workers from ‘hostile work environment ‘ state of affairss and protection against penalty for showing ailments. In contrast, the legal precautions mechanisms and monitoring procedures in India are developing. Discrimination in enlisting, choice and calling promotion are normally witnessed in working environment ( Christie, Kwon, Stoeberl, Baumhart, 2003 ) .

3.2.2 Consumer civilization

10 Best selling U.S. autos, 2009

Toyota Camry


Toyota Corolla/Matrix


Honda Accord


Honda Civic


Nissan Altima


Ford Fusion


Chevy Impala


Chevy Malibu


Ford Focus


Toyota Prius


Beginning: Ward ‘s AutoInfo Bank “ The autos of the close hereafter will be lighter, more expensive and possibly smaller. Large engines will shrivel. And more and more autos will be loanblends or diesel-powered vehicles like those common in Europe ” ( Steven Mufson, Washington Post Staff Writer, May 20, 2009 )[ 8 ]. This statement unimpeachably does non reflect the past penchants of the American consumer. However, the scenery is likely to alter, as the White House announced the new fuel-efficiency and tailpipe-emissions criterions during 2009, which will take auto makers to schemes that target to cut downing U.S. oil dependance and the emanations of nursery gases.

This is precisely the point where Tata Motors joins the game. In January 2008, the house introduced the Tata Nano to the populace, a four-seat car that sells for merely $ 2,500. Nano has been greatly appreciated by the media for its low-priced and eco-friendly motivations, which include utilizing compressed-air as fuel. Specifically, it is argued that the house could maintain the cost of the auto low by set uping the works in an country that receives revenue enhancement grants and holding the providers set up workss nearby to diminish transit costs. Nowadays, Tata Motors considers the possible launch of Nano in the U.S. market.[ 9 ]

4.Patters of trade between India and the United States

4.1 Pattern of trade between the states in the automotive industry

As it has already been stated earlier in this paper, there is an intense trade activity between the United States and India since 1991 and the FDI liberalisation in the Indian economic system. U.S. is India ‘s largest trading spouse and premier export finish. A brief overview in the two states ‘ trading activity is given at the tabular array below.









India ‘s










India ‘s










Employee turnover


















Beginning: US Department of Commerce, Bureau of Census

Sing the mutuality of the two economic systems in the automotive industry there are non equal informations at nowadays. However there are certain indicants that the U.S is receptive both to inward FDI and imports of automotive merchandises.

Beginning: WTO International Trade Statistics 2009

Automotive industry

$ Billion

U.S. Exports to Asia

U.S. Imports from Asia







Beginning: WTO International Trade Statistics 2009

Indian car constituents Exports, Employee turnover







5 old ages p.a. growing ( % )









Employee turnover








Ratio of Exports to Turnover







Beginning: Compiled from ACMA ( 2008:23 ) and other ACMA beginnings.

4.2 Trade barriers

The development of the automotive sector in India was restricted by the early 1990s by policy obstructions which confined the inward foreign investing and engineering imports. High duty on imported car constituents resulted in the turning usage of locally produced car parts, offering direct growing to the domestic car accessory sector. However, the economic liberalisation in 1991 and the debut of policies, such as the abolishment of industrial licensing, automatic blessing for inward FDI, engineering imports and broad attack to merchandise, boosted the automotive sector in India and resulted in the entry of several international participants, like General Motors and Toyota in the Indian market for fabrication every bit good as sourcing constituents. An indirect impact of the state of affairs above, was the cognition spillovers to the domestic houses, which bit by bit upgraded their technological strength by stressing in in-house R & A ; D activities, in order to cover with the turning competition.

The United States is a member of the NAFTA understanding ( North American Free Trade Agreement ) , which besides includes the authoritiess of Canada and Mexico and creates a trilateral trade axis in North America. Nowadays, NAFTA supplies 46 % of the entire U.S. vehicle imports and more than 50 % of all parts imports. Furthermore, while in 1990, the value of U.S. vehicle imports from Canada were $ 3.5 billion less than from Japan, by 2004, imports from Canada were approximately 50 % in front of both Japan and the European Union, and accounted for a 3rd of all imports. Sing the 3rd spouse, Mexico supplied less than 5 % of U.S. entire vehicle imports in 1990, but more than 13 % in 2004. Mexico is besides the taking provider of motor vehicle parts imports, merely in front of Canada. The United States in 2004 imported 10 times the dollar value of parts imports from the two NAFTA spouses than it did from China ( Cooney and Yacobucci, 2005 ) . Therefore, come ining the U.S. market by exports might be instead disputing for a company, provided that the bing competition by the NAFTA spouses is likely to be rough. However, one should non disregard the fact that exports of vehicles and parts from India to the U.S. grew from 215 $ million in 2003 to 303 $ million in 2004.[ 10 ]A

In malice of the fact that, the bilateral trade between the two economic systems has excessively increased and the trade dealingss have been improved, a figure of economic and trade issues still remain between India and the United States. Both economic systems expect greater market entree to the other ‘s domestic markets, in add-on to the lessening of the bing trade barriers. Furthermore, the United States and India require updates and alterations in the other state ‘s legal and trade policies, in order to protect and advance exports and foreign direct investing ( Martin and Kronstadt, 2007 ) . An extra consideration that should be made by Indian automotive companies, which target the American market concerns steps that have been performed by old U.S. authoritiess. In May 1981, with the American automotive industry under recession, Nipponese auto makers agreed to restrict exports of rider autos to the United States. This “ voluntary export restraint ” step terminated in 1994 and had a significant negative impact on Nipponese exports of automotive merchandises in the United States ( Berry, Levinsohn and Pakes, ( 1999 ) .

Exchange rate governments in India and the U.S.

The U.S. Monetary policy is characterized During the last decennary, a gradual grasp of the U.S dollar against the Indian Rupee has been observed, as it is illustrated at the diagram below. In 1993, one U.S Dollar equaled to 31.29 Sri lanka rupees, while nowadays one Dollar peers to 46.21 Sri lanka rupees. If the Dollar is appreciated against the Rupee, the U.S. exports in India become more expensive, therefore the U.S. exports in India are decreased, while the imports of Indian merchandises in the U.S. are increased. From the Indian point of position, if the Rupee is depreciated, so the Indian exports in the U.S. are cheaper, therefore the Indian exports in U.S. are increased, while the imports of U.S. merchandises in India are decreased. Consequently, it could be argued that exports, as a agency of entry into the U.S. market, are enhanced by the present conditions. Furthermore, this impression is confirmed when possible net incomes are taken into consideration. In the instance of exports, when Rupee was depreciated, the net incomes for Tata Motors would increase. For illustration, the cost of the production of one Nano unit is 50,000 Rupees which equals to $ 1,000 when the exchange rate is 1 $ =50 Rupees. The monetary value in the U.S. market is $ 2,500. If transit costs and duties are non taken into history the net income for Tata peers to $ 1,500. If Rupee depreciates, for illustration 1 $ =60 Rupees, the cost peers to $ 833 and if the monetary value remains at $ 2,500, the net incomes are increased 11 % .

Furthermore, “ there has been a dramatic correlativity between inward foreign direct investing ( FDI ) in the United States and the value of the dollar over the past twelve old ages. Foreign direct investing in the United States has tense to diminish with a strong dollar and increase with a weak dollar ” ( Klein and Rosengren, 1992 ) . Therefore the fact that Dollar has bit by bit appreciated against Rupee is likely to discourage any possible Indian investors.

HOWEVER, dollar is forecasted that will deprecate against Rupee during the following months and likely will fall to 42 Sri lanka rupees per Dollar.[ 11 ]12

Beginning: hypertext transfer protocol: //

In the context of outward FDI from Indian automotive sector, possible biaˆ?way cognition

flows between Indian and host states can besides be predicted ( Figureaˆ?2 ) . Indian vehicles

and car parts companies have been well bettering their designing and

technology service capablenesss. Indian vehicle companies like Tata Motors, Mahindra & A ;

Mahindra have shown singular strength in designing and edifice new vehicles.

Indian car accessory makers are besides sing rapid upgradation of their

fabrication and quality capablenesss. With these turning competitory capablenesss

Indian automotive houses are internationalising their concern activities. As per the

industrial organisation theory of FDI ( Hymer, 1960 ; Kindleberger, 1969 ; Caves, 1971 ) and

OLI ( ownershipaˆ?locationaˆ?internalization ) eclectic attack ( Dunning, 2001 ) , the outward

investing activities of Indian automotive houses may partially be motivated to work their

bing ownership or competitory advantages. Page 23

The ownership construction of Indian automotive OFDI undertakings though continued to be

jointly owned in 1990s but in 2000-07 there is strong penchant for whollyaˆ?owned


With the rise of greenfield OFDI by Indian automotive houses a important escape of

cognition from India can be expected. Specifically, host underdeveloped states are

expected to profit from supply of research consequences and accomplishments that Indian parent

companies supply to their abroad subordinates



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