Executive Summary

The following report is providing a overview of the furniture manufacturing company

Adorn expanding its sales operations into a foreign country and the consequences of

such a decision.

The assignment covers:

The decision to go global and how to Adorn should choose which country to expand

its operations into. Discussed are such aspects as G.D.P. and demographic trends

The U.S.A. is the proposed country to expand into.

With this, data was gathered from many different sources to analyse the country and

trends of the U.S. economy. Analytical tools such as P.E.S.T., S.W.O.T. and Porters

Diamond Model are used to better understand the environment with in the U.S. and

how Adorn needs to adapt to those markets.

Also the ease of doing business with in the U.S. with regards to the relative ease of

setting up and doing business within the U.S., compared to other countries.

The furniture industry and its future is discussed in depth with regards to local

manufacturing industry, imports and consumer changing perceptions within the

United States.

Finally considerations such as regionalism, e commerce and international terrorism

and the impact on global expansion

Contents Page

1 Introduction............................................................................................................4

1.1 Reasoning for considering Globalisation of Adorn........................................4

2 Analysis of Globalisation.......................................................................................4

2.1 GDP................................................................................................................5

2.2 Demographic Trends......................................................................................6

2.2.1 Population-----------------------------------------------------------------------6

2.2.2 Culture---------------------------------------------------------------------------6

2.3 Proposed Country...........................................................................................6

3 The United States...................................................................................................7

3.1 P.E.S.T............................................................................................................8

3.1.1 Political – legal environment-------------------------------------------------8

3.1.2 Economic environment------------------------------------------------------12

3.1.3 Socio – cultural environment-----------------------------------------------18

3.1.4 Technological environment-------------------------------------------------21

3.1.5 Other---------------------------------------------------------------------------25

3.2 S.W.O.T. of setting up operations within US...............................................26

3.2.1 Strengths-----------------------------------------------------------------------26

3.2.2 Weaknesses--------------------------------------------------------------------27

3.2.3 Opportunities------------------------------------------------------------------27

3.2.4 Threats-------------------------------------------------------------------------27

3.3 National competitive advantage...................................................................27

3.3.1 Factor endowments-----------------------------------------------------------28

3.3.2 Demand conditions-----------------------------------------------------------29

3.3.3 Related support industries---------------------------------------------------29

3.3.4 Corporate strategy, structure and Rivalry---------------------------------30

3.3.5 Other influences--------------------------------------------------------------30

3.3.6 Concerns regarding this model---------------------------------------------30

3.3.7 Conclusion of the Diamond Model----------------------------------------31

3.4 Demographic trends.....................................................................................31

3.4.1 U.S. Workforce---------------------------------------------------------------32

3.4.2 US Education------------------------------------------------------------------33

3.5 Treaties.........................................................................................................33

3.6 Trends within the United States furniture industry......................................34

1

3.6.1 Change in perceptions:-------------------------------------------------------34

3.6.2 Economic changes within the furniture industry-------------------------34

3.6.3 Imports-------------------------------------------------------------------------34

3.6.4 Future trends------------------------------------------------------------------35

3.6.5 US Imports--------------------------------------------------------------------36

4 Additional considerations.....................................................................................37

4.1 Regionalism/ integration..............................................................................37

4.2 E commerce..................................................................................................38

4.3 International terrorism..................................................................................39

5 Conclusion............................................................................................................40

6 List of references..................................................................................................42

7 Appendices: List of Tables...................................................................................44

8 Appendices: List of Figures.................................................................................47

2

1 Introduction

Adorn is a furniture manufacturer that is producers to clients specifications. It utilises

highly automated processes development and production of its products,

Adorn’s core competencies and competitive advantage include high automation of

manufacturing processes, producing specialised and well designed furniture for the

user in practicality and style.

1.1 Reasoning for considering Globalisation of Adorn

With the current global economic recession it would be advisable to enter foreign

markets with the intention of sustaining or increasing the organisations profits through

increasing the company’s market base and sales.

Taking a more proactive stance to the slowdown in demand would be following in

Nissan South Africa’s successful approach of increasing sales through globalisation.

As reported by Ndundu Sithole (2009);

“”Nissan South Africa will boost production and expects to increase its local market

share despite a domestic and global economic slowdown, managing director Mike

Whitfield said. Local car sales have been in negative territory in the past 18 months,

falling by 30.1 percent in March, and the global slump has slashed vehicle exports.

Nissan S.A. expects new product lines to boost output to about 40,000 units from

28,000 in 2008. He said the company was exploring further production opportunities

in countries such as Angola and Nigeria. "Our market share came up to around 7.5

percent last year on the back of some lack of products in certain key segments. This

year we expect to be just over 8 percent... which means we are in a growth phase."

Thousands of jobs are on the line in the automotive industry and vehicle

manufacturers and car parts producers have approached the government for loans.

Whitfield said Nissan S.A. had escaped the worst, but was not unscathed and has shed

180 jobs.””

Globalisation could be attained through the company’s comparative advantage of low

cost and high automation combined with a well planned and implemented strategy.

2 Analysis of Globalisation

There would be negative aspects to globalisation, so a detailed analysis of the

proposal needs to be undertaken.

3

First, a country needs to be identified as best suited for our expansion plans. For this

we would look at potential geographical regions that have our target market within

and the amount of potential clientele within these regions which logically would give

the greatest potential of return for ever resource invested. These locations which

would be identified as having:

Highly developed education and infrastructure allowing growth of business in

the country.

High manufacturing input costs, with high labour costs and/or limited raw

materials which would assist in local competition in the region being easily

competed against.

Also a country that has with low import costs and barriers. Trade treaties with

our domestic market, South Africa which would assist in dropping costs of

doing business with the country while improving opportunities with in the new

country.

High Gross Domestic Product and high capita individuals which would relate

to potential clients that could afford buying our products.

Fairly stable currency, that is stronger than the South African Rand so to offer

more leverage to assist in keeping the costs of to market low.

2.1 GDP

Table 1: World Top Ten Richest Countries by GDP in US Dollars

(Source: Suite101.com Media Inc (2009): Richest Countries by GDP and the Poorest

Country, http://gross-national-product.suite101.com/artical.cfm/richest_countries -

_by_gdp_and the_poorest_county)

World Top Ten Richest Countries by GDP in US DollarsGDP GDP Per Head PPP

1 United States Of America 14’839 Billion 48’400 48’400

2 Japan 5’388 Billion 42’310 35’710

3 China 4’818 Billion 3’600 6’830

4 Germany 3’440 Billion 41’550 36’100

5 France 2’734 Billion 43’910 35’750

6 United Kingdom 2’442 Billion 39’470 36’820

7 Italy 2’334 Billion 40’150 32’210

8 Russia 1’680 Billion 11’880 16’300

9 Spain 1’581 Billion 34’540 32’120

10 Canada 1468 Billion 43’860 40’540

4

2.2 Demographic Trends

2.2.1 Population

Adorn would require a country that has a large domestic market with the ability to

purchase our organisation product offerings is preferred, so high Gross Domestic

Product combined with a high Gross Domestic Product Per Head is preferred.

2.2.2 Culture

Language:

Being a more westernised business culture with limited globalisation experience, a

national economy with English as a domestic language would be more advantageous

to Adorn. So an English speaking/understanding market with western influence would

be the easiest market to penetrate with regards to culture. However it is important to

note that this may not offer the bests returns on investment but is the least risky option

due to our lack of expertise in globalisation dealing with different international

cultures.

2.3 Proposed Country

So taking the above into consideration, a strategy to expand into a first

world/developed country that would have a stable political environment and the

market to offer the company substantial growth with limited risk, would be best suited

for our organisation. Considering that many developed countries have experienced

large economic slow downs in current recession, it would be advantageous to develop

strategies to capitalise on their economic upswing so to maximise the organisations

profits.

From this general overview it would be beneficial to focus on large markets where

Adorns products have the largest potential for profits, such as the United States.

5

3 The United States

Table 2: The United States Economy

(Source: Nationmaster.com (nd): American Economic Stats,

http://www.nationmaster.com/country/us-united-states/eco-economy)

The United States

Big Mac Index $ 3.15 5th of 65

Debt > Equity $ 12’250 billion 1st of 136

Distribution of family

income > Gini Index

45 4th of 43

Economic Freedom 3.2 7th of 156

Economic Importance 197.9 1st of 25

Exports $ 1’148 billion 3rd of 189

GDP $ 14’839 Billion 1st of 203

GDP Real growth rate 2% 167th of 198

Income category High Income

Income distribution >

richest 10%

30.5% 54th of 178

Poputlation below poverty

line

12% 41st of 48

Public Debt 60.8% of GDP 25th of 121

Technological

Achievement

0.73 2nd of 68

As reflected above in table 2, the United States (U.S.) is one of the wealthiest

countries, with poverty at 12% of population.

With debt to GDP is 60% in and one could assume that with the national bail outs by

the United States government to Corporate America in an attempt to limit the effects

of the recession that this percentage is going to increase this percentage while taxes

are going to increase in the population. With all this said the global recession will

affect the world not just the U.S. alone. But there are in recent months a increasing

vocalised concern regarding the future value of the American dollar and the U.S.

governments ability to stop spending in regards to economy bail outs.

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3.1 P.E.S.T.

P.E.S.T. is an external environment analysis of risks and opportunities that are present

which may have an effect on the organisation. It stands for political, environment,

social and technological, and every one of these aspects is analysis separately.

3.1.1 Political – legal environment

3.1.1.1 Form of governmentDemocracy:

The U.S. has a de facto two-party system; the Democratic Party generally represents

liberal ideals, while the Republican Party commonly represents conservative ideals.

According to a 2007 poll by Associate Press, 35% of Americans identified as

moderate, 36% as "conservative" and 25% as "liberal.

Political ideology

a) American Liberalism

Ideals stand for the preservation and extension of human, social and civil rights as

well as the government

b) American Conservatism

They aim to protect traditional values (especially on social issues) while promoting

the concept of small government.

c) Moderates

3.1.1.2 Stability of governmentThe United States has enjoyed 135 years of political stability since the end of the Civil

War (The Good News, 2009).

7

3.1.1.3 Social unrest, political strife and insurgency

Figure 1: Bleak Employment Outlook (Source: The New York Times (2009): Bleak

Employment Outlook, http://www.nytimes.com/2009/02/15/business/15global.html)

N.D. Schwartz (2009) stated in the New York Times on 15 February 2009, with the

economic down swing, there are large threats of social unrest around the world with

the increased unemployment levels and that United States director of national

intelligence, Dennis C. Blair, told Congress that instability caused by the global

economic crisis had become the biggest security threat facing the United States,

outpacing terrorism.

Chossudovsky (nd) notes a number of ways the U.S. government is using its national

resources to improve security national in preparation for any threats of terrorism and

social unrest with in the country. The outgoing administration (Bush prudency) has

laid the groundwork. Various pieces of "anti-terrorist" legislation (including the

Patriot Acts) and presidential directives have been put in place since 2001, largely

using the pretext of the "Global War on Terrorism." 

8

3.1.1.4 Government attitude towards foreign firmsOtt (nd) mentions the following; at the end of 1990, about 16 percent of foreign assets

in the United States were owned by foreign governments, while 84 percent were

privately owned. (Similarly, 14 percent of foreign assets owned by the United States

were official, and 86 percent were private.)

3.1.1.5 Legal tradition and the effectiveness of legal systemCurrent population supporting the government shows that there is a healthy

democracy at work with a strong constitution.

Burnham (2006) states the following, “The law of the United States was originally

largely derived from the common law system of English law, which was in force at

the time of the Revolutionary War. However, the supreme law of the land, under the

Constitution's Supremacy Clause, is the United States Constitution, as well as laws

enacted by Congress, and treaties to which the U.S. is a party. The Constitution forms

the basis for federal laws under the federal constitution in the United States; it

circumscribes the boundaries of the jurisdiction of federal law along with the laws in

the fifty U.S. states and in the territories.” This reflects a developed legal system and

infrastructure that has not been threatened since the American Revolution in the late

1700’s.

Labour law

United states rates at 22 out of 100 in the Employment Laws Index of the World Bank

(2004), which takes the regulation of hiring, regulation in firing and the regulation in

employment conditions, and results in the higher the score the more the nation

regulates employment

Laws affecting business firms

Is not detached from any other first countries law on how a company needs to operate

within its society. However some requirements such as labels, warning etc. need to be

investigated in more detail as these laws do change from state to state, so to ensure

that Adorn will meet those specific legal requirements.

9

Figure 2: Enforcing Contracts – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)

3.1.1.6 Other considerationsOne consideration that needs to be mentioned is the current recession and causes there

of, that have pushed for reform in most financial industries regarding regulation and

responsible accounting. These changes will affect organisations within the whole

economy both directly and indirectly. One such effect would be an increased in

administration costs of doing business but this will also improve the economic

stability in the long term.

This coupled with stability of the government supports the following conclusion that

the county has a stable democratic system and there would be little chance of this

stable democratic system changing in the near future.

Discussing (in more detail) the political composition (including parties and there

specific effects on the political stand of the U.S) goes beyond the limitations of this

report.

10

3.1.1.7 Managing political risk

An open democratic system is present with in the United States but the need to have

close ties to influential people within government would be beneficial for Adorn.

3.1.2 Economic environment

3.1.2.1 Literacy level

Figure 3: Literacy Rates

(Source: Wikipedia (2008): United Nations Human Development Literacy Rates,

http://en.wikipedia.org/wiki/File:World_literacy_map_UNHD_2007_2008.png)

According to the United Nations Development Program Human Development Report

2007/2008, the United States has a literacy rate of 99%.

3.1.2.2 Foreign policyTable 3: The United States Favourability Rating

11

(Source: Pew Research Centre Project (2009): Pew Global Attitudes Project:

Confidence in Obama Lifts U.S. Image Around the World,

http://pewglobal.org/reports/display.php?ReportID=264)

Pew Research Centre Project (2009) states that as in most countries where opinions of

the United States have improved foreign policy and that Obama's election led them to

have a more favourable view of the United States. 

3.1.2.3 Money and fiscal policy

The U.S. Diplomatic Mission to Germany (2008) Stated That United States

government also manages the overall pace of economic activity, seeking to maintain

high levels of employment and stable prices. It has two main tools for achieving these

objectives: fiscal policy, through which it determines the appropriate level of taxes

and spending; and monetary policy, through which it manages the supply of

money. The Federal Reserve, the independent U.S. central bank, manages the money

supply and use of credit (monetary policy), while the president and Congress adjust

federal spending and taxes (fiscal policy).

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3.1.2.4 Nature of competition

Majority of the competition in the U.S. is privatised. The U.S. has a large open market

with many buyers and sellers that have large number of firms with even larger number

products (Homogeneous) to choose from (Monopolistic Competition).

3.1.2.5 Currency convertibility

Table 4: US dollar to ZAR for Time period: 26/07/2008 to 01/08/2009

(Source: OANDA Corporation (2009): FXHistory – Historical Currency Exchange Rates,

http://www.oanda.com/convert/fxhistory )

Average (372 days): 9.04688 (Rand to one U.S. Dollar)

High 11.85060 (Rand to one U.S. Dollar)

Low 7.15560 (Rand to one U.S. Dollar)

The U.S. dollar is still considered a main benchmark for global currency, so is easily

tradable. Again it is necessary to mention that the excessive loans the government has

made for the economic bail out will have negative effects on the economy but the

country had a high gross domestic product so is could theoretically load substantial

amounts before large changes will be seen in the debt to GDP figures.

3.1.2.6 Inflation

Figure 4: U.S. Consumer Price Index January 1914 to March 2009

(Source: U.S. Department of Labour (2009): History of inflation in the US from Jan

1914 - Mar 2009, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)

From the figure 4, it can be noticed that inflation is consistent over the past 25 years.

13

3.1.2.7 U.S, Taxes

Table 5: U.S, Taxes

(Source: Nationmaster.com (nd): American Economic Stats,

http://www.nationmaster.com/country/us-united-states)

14

Table 6: Government spending

(Source: Simmons (2009): How Congress Is Spending Your Money,

http://www.federalbudget.com/,)

15

The taxes that will affect the company will be determined by economic treaties in

place between South Africa and the U.S., so further analysis in this regard is required.

Banescu (2009), states that businesses in the United Stated (across all industries) pay

from 35% to 41.6% of their income in taxes. The 41.6% maximum tax rate is

scheduled to rise to 46.2% in 2010 when President Obama’s promised tax increases

are implemented.

3.1.2.8 Economic freedom

Economic Freedom is the absence of government coercion or constraint on

production, distribution or consumption of goods and services by the national

economy.

Table 7: Economic freedom is rated within the top ten nations

(Source: Nationmaster.com (nd): Economic Freedom,

http://www.nationmaster.com/country )

Rank Country Rating

1

2

3

3

5

6

6

6

9

9

Hong Kong

Singapore

Luxembourg

New Zealand

Ireland

United States

Denmark

Estonia

Australia

United Kingdom

3.55

3.5

3.3

3.3

3.25

3.2

3.2

3.2

3.15

3.15

Counties with high rating generally have high growth rates (with the exception of

China), so the fact that the U.S. rates at number six bodes well for future economic

outlook of the country.

16

3.1.3 Socio – cultural environment

3.1.3.1 Language

Table 8: Top Languages spoken in the United States

(Source: American Community Survey (2005): United States - Languages,

http://www.mla.org/cgi-shl/docstudio/docs.pl?map_data_results)

Age 5+ %

English 216’078’959 80.6%

All Languages other than

English

52’007’297 19.39%

Spanish 32’252’890 12.03%

Chinese 1’550’547 0.57%

3.1.3.2 Religious beliefs

According to a U.S. Religious Landscape Survey done in 2007 by the Pew Forum on

Religion & Public Life, Christianity has 78.4% representation followed by No religion

at 16.1%, and then by Judaism at 1.7%.

17

3.1.3.3 Population

Table 9: U.S. Population

(Source: Nationmaster.com (nd): Population,

http://www.nationmaster.com/country/us-united-states)

The above figures show very stable population with regards to birth and death rates,

which is the norm for a developed country.

18

Table 10: U.S. labour Statistics.

(Source: Nationmaster.com (nd): American Labour Stats,

http://www.nationmaster.com/country/us-united-states)

The unions represent only 13% of the population as reflected by table 10 with the

level of unemployment at 5% which means that labour and social influence in the

market is subdued and will not greatly affect the future companies operations in the

U.S.

19

3.1.4 Technological environment

3.1.4.1 Government spending on research and development

Table 11: Research and development spending as portion of countries GDP.

(Source: World Bank (2002): Research and development spending (most Recent) By

Country,

http://www.nationmaster.com/red/graph/eco_res_and_dev_spe-economy-research-

and-development-spending&b_map=1)

The U.S. is rated at number seventh in the above table showing that it is one of the top

countries spending on Research and development, which shows that the country is

investing large amounts in their economic future.

3.1.4.2 Legal regime for patent protection

Beck & Tysver (2008) states that the importance of granting monopolies for new

inventions has been recognized in the United States since the adoption of the U.S.

Constitution.

In Article I, section 8, the U.S. Constitution: ‘Congress shall have power . . . To

promote the progress of science and useful arts, by securing for limited times to

authors and inventors the exclusive right to their respective writings and discoveries.’

Patents are governed by the Patent Act (35 U.S. Code), which established the United

States Patent and Trademark Office (the USPTO, http://www.uspto.gov/).

This illustrates the U.S. Commitment to property rights and protection.

20

3.1.4.3 Energy availability

Table 12: Electricity Production by Country.

(Source: Nationmaster.com (nd): Electricity Production (most recent) by Country,

http://www.nationmaster.com/graph/ene_ele_pro-energy-electricity-production)

The table shows the U.S. as top electricity producer, which could mean several things:

The largest first world country has to produce most electricity for its

population.

It may have enough energy for future growth and expansion, this is an

assumption but when considering that there has been no major energy crises in

recent times (excluding corporate scandals) it would be a reasonable

assumption to com to.

21

3.1.4.4 Transport infrastructure

Table 13: Transport, Million Tons per year, per Kilometre.

(Source: Nationmaster.com (nd): Air transport, freight – million tons per km (most

Recent by Country,

http://www.nationmaster.com/graph/tra_air_tra_fre_mil_ton_per_km-freight-million-tons-per-km)

These figures show the U.S. as have a developed infrastructure with a vibrant economy.

22

3.1.4.5 Availability of skilled workforce

Table 14: Countries with tertiary education as percentage of total population.

(Source: Nationmaster.com (nd): Labour force with tertiary education as percentage

of total (most recent) by country,

http://www.nationmaster.com/graph/lab_for_wit_ter_edu_of_tot-labor-force-tertiary-

education-total)

The figures show that the U.S. has large amounts of skilled labour with in its

population, which will assist in future expansion as the human resources are available.

23

3.1.5 Other

Figure 5: Ease of doing business – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)

Figure 6: Starting a Business – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)

24

Figure 7: Trading Across Boarders – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)

All the three figures above show the ease of doing business with in the U.S. as

compared to other countries in the world.

3.2 S.W.O.T. of setting up operations within US

A S.W.O.T. analysis is a tool used in management and strategy formulation. Strengths

(S) and weaknesses (W) are internal factors. While opportunities (O) and threats (T)

are external factors which a company cannot directly control, they derive from

competitive dynamics of the market/industry/from P.E.S.T. factors.

3.2.1 Strengths

Culturally close to domestic culture, so easily to identity with

Low cost of production in South Africa

Exchange rates in comparison to the US Dollar is advantageous as it off sets

costs of getting the products to market

Ease of developing products for U.S. market requirements by utilising current

expertise and resources

3.2.2 Weaknesses

25

Capital investment to penetrate into the market effectively through advertising

and promotions

Capital investment required to setup operations with in the United States.

Knowledge and experience of the market entering.

Time needed to establish organisation with in the market

Necessary links with in the U.S. economy to establish a business network with

clientele and suppliers.

Current infrastructure to capitalise on the increased demand which cannot

currently be determined with accuracy.

3.2.3 Opportunities

Growth potential with large customer base

Large retail base to utilise with in the economy to assist with distribution and

penetration within the country

Deteriorating local manufacturing industry

Change in consumers perceptions regarding furniture as a commodity

3.2.4 Threats

China entraining the American market

China offering retail franchises to the American market

War on terrorism

Raising taxes

3.3 National competitive advantage

Figure 8: Diamond Model

26

(Source: Porter (1990): The Competitive Advantage Of Nations, Macmillan: London)

Porter (1990) identifies a ‘diamond’ of four interrelated areas within a nation that

assist that country to be more competitive in international markets.

3.3.1 Factor endowments

Advanced specialists with good technical know how

Resources can be ‘home grown’ and ‘specialised’, by having provision of education,

universities, excellent telecommunication etc which is partly dependent on the

governments willingness to invest in these areas over long periods of time.

Table 15: Broadband Access by Country.

(Source: Nationmaster.com (nd): Broadband access (most recent) by country,

http://www.nationmaster.com/graph/int_bro_acc-internet-broadband-access)

Education levels

As reflected in Table 14: Countries with tertiary education as percentage of total

population, the United States has focused on developing its skilled labour force.

3.3.2 Demand conditions

Highly sophisticated and demanding customers in a domestic market drive up

innovation and quality of countries products

27

Furniture is becoming a commodity resulting in a shift from local manufactured

product to more imported products cheaper products. As discussed in further detail in

future trends, point 3.6 within this report.

3.3.3 Related support industries

Internationally competitive suppliers are critical for international success.

Table 16: Imports of Goods and Services by Country.

(Source: Nationmaster.com (nd): Imports of Goods and services in current U.S.

Dollars (most recent) by country,

http://www.nationmaster.com/graph)

3.3.4 Corporate strategy, structure and Rivalry

Fierce national competition drives innovation, which drives down costs and help

develop new methods of competition

Competition coming from international suppliers into the U.S. economy, is putting the

local manufacturing industries into a correction phase, forcing them to either:

Focus on more niche markets where more sustainable higher prices can be

charged.

28

Or become retailers or distributors of products that they have manufactured in

other countries and imported for U.S. consumption.

3.3.5 Other influences

The role of government - Investment, regulations, etc. which affect the above

factors.

An example is the increase regulations on funds moving internationally (due to

the war on terror) would have an effect on the economy and the speed at which it

grows.

Role of chance events - Which shift competitive advantage in unpredictable

ways, such as war, inventions etc.

We could look at the increase in the governments expenditures on national

security, the war on terror, the bail out packages for corporate America during the

recession, all of which is increasing taxes resulting in lower disposable income for

individuals, which will have an effect on theirs spending habits. If Adorn cannot

position its self correctly for being affordable and offering desired benefits then the

effectiveness of entering this market would be diluted and may risk the investment.

3.3.6 Concerns regarding this model

Some concerns amongst others

Chance may be used to explain many critical events.

Multinational influence in total ignored in this model.

Some multinational companies home country have no relevance to their

competitive advantage or organisational strategy or their success

So taking this into consideration, this model can only be used to highlight concerns

with in a specific county and cannot be used in isolation when analysing a specific

country

3.3.7 Conclusion of the Diamond Model

The country offers good infrastructure with a sustainable base of clientele and human

resources for future company expansion within the United States. No negative trends

can be identified that would cause a major concern for those entering the domestic

market except for other imports from other countries into the United States.

29

3.4 Demographic trends

Education will stay high as higher education will become norm to becoming

more marketable individuals with in the economy

Increase in population through immigration

Population will decrease through birth and death rates of population

Increasing age of population

3.4.1 U.S. Workforce

Table 17: U.S. Labour Stats.

(Source: Nationmaster.com (nd): American Labour Stats,

http://www.nationmaster.com/country/us-united-states)

30

Unemployment is at 5%, reflecting a highly economic active country, which will have

little risk of social unrest or having an over burdened social welfare within the

economy, such as high social grants compared to employment levels within the

country.

3.4.2 U.S. Education

Table 18: U.S. Education Stats.

(Source: Nationmaster.com (nd): American Education Stats,

http://www.nationmaster.com/country/us-united-states)

31

The above table shows a highly literate and educated country which not only gives

suggestions of sustainable labour resources but also the potential of a large consumer

base for Adorns products.

3.5 Treaties

According to National Tax Services (2009), the following treaties are to be in place

between the U.S. and S.A.:

South Africa, Republic of, Convention, Effective Date: January 1, 1998 The

Convention between the United States of America and the Republic of South

Africa for the Avoidance of Double Taxation and the Prevention of Fiscal

Evasion with Respect to Taxes on Income and Capital Gains, signed at Cape

Town on February 17, 1997.

Technical Explanation, Effective Date: January 1, 1998 Department of the

Treasury Technical Explanation of the Convention between the United States

of America and the Republic of South Africa for the Avoidance of Double

Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on

Income and Capital Gains.

A List of Treaties and Other International Agreements of the United States in Force

on January 1, 2009 made up of a 481 page document which needs to be closely

analysed to determine opportunities that may be beneficial to Adorn.

32

3.6 Trends within the United States furniture industry

3.6.1 Change in perceptions:

Schuler & Lawser (2007) stated that like many mass-produced consumer goods,

household furniture has become more of a commodity and is sold on price. Customers

are now becoming more interested in furniture that looks good and appears to be a

good value. Customers have moved away from the perception of furniture as a long-

term investment, as something to pass on to their children or to keep as an antique.

3.6.2 Economic changes within the furniture industry

Schuler & Lawser (2007) goes on to say many U.S. furniture manufacturers are

choosing to have their furniture made in China and other low-cost countries rather

than produce their own products. This has allowed offshore furniture competitors to

increase their penetration into U.S. and world markets.

The (American) furniture industry, excluding the kitchen cabinet sector, lost 108,000

jobs or 21 percent of its workforce between 1997 and 2005.

3.6.3 Imports

Schuler & Lawser (2007) also mentions that between 1992 and 2005, imports of all

furniture products (including household, institutional and office furniture, but

excluding kitchen cabinets) increased from $4.1 billion to $23.65 billion in 2005, an

increase of almost $20 billion or 477 percent. During this period, imports from China

increased from $208 million to $10.8 billion, an increase of almost $11 billion — a

fifty-fold increase in 13 years.

33

Figure 9: Wooden house hold furniture imports

(Source: Schuler & Lawser (2007): The U.S. Furniture Industry: Yesterday

and Today … Will There Be a Tomorrow?, www.wooddigest.com)

3.6.4 Future trends

3.6.4.1 Economic future trends

High tax rates will put a burden on countries growth.

Income per capita will remain high

Competition will increase for a share of the consumer’s wallet.

Imports will continue to increase as the U.S. moves away from manufacturing

their own products.

With the larger impact on importing manufactured goods their will issues with

Gross Domestic Product and current account, which will negatively affect the

stability of U.S. dollar. This would affect the extent the country could

subsidise the money out flow from imports that the nation buys, with

additional exports and/or investments.

Environmental trends will put emphasis on ethical purchases with regards to

consideration for the environment which in turn will affect the importers of

products to the United States.

34

3.6.5 US Imports

Table 19: U.S. Imports of furniture, household items, baskets by country in U.S.

thousand Dollars.

(Source: Nationmaster.com (2004): U.S. imports of furniture, household items,

baskets (most recent) by country,

http://www.nationmaster.com/graph/eco_tra_wit_us_us_imp_of_fur_hou_ite_bas-

imports-furniture-household-items-baskets)

The figures show China ($ 9’709’205’000) is by far the greatest importer of these

specific goods into America three times higher than the next biggest which is Canada

($ 3’172’390’000).

3.6.5.1 Future trends with relation to furniture industry

Schuler & Lawser (2007) noted the following trends taking place with in the furniture

industry with in the United States, the consumer is spending less and less on furniture

35

as it is viewed more and more as a commodity and now there is increasing

competition for the consumer’s dollar from electronics, home entertainment, travel,

leisure products etc. Because of the current emphasis on price, profit margins for

United States’ furniture manufacturers are very low, while the costs of manufacturing

inputs continue to rise. This has led to a significant decline in plant and equipment

investments. Many United States furniture manufacturers are choosing outsource their

production to other low-cost countries. This has allowed offshore furniture

competitors to increase their penetration into the United States market, resulting in the

United State manufactures focusing on becoming wholesalers and/or retailers.

Schuler & Lawser (2007) continues to suggest that as offshore manufacturers gain

more experience from supplying the United States furniture manufacturers, they will

learn enough to go direct to retailers, or through their own retail distribution outlets.

This trend has already started as most of the larger Chinese furniture manufacturers

sell direct to retailers and some have started offering retail franchises with in the

United States.

This trend will become more entrenched as the population will start saving more

while restraining their spending habits following the current economic slow down and

future uncertainty.

Another imported point to be mentioned is that the Chinese are moving their products

closer to the end user and cutting out the middle man, undoubtedly this would

increase their profits substantially, even posing a threat of further price reductions to

the end user. This coupled with the impact of China having distribution channels that

will allow access to markets with regards to any product, could pose a substantial risk

to any company in the U.S. market.

4 Additional considerations

4.1 Regionalism/ integration

The U.S. has regional treaties with the African Union, Southern African Democratic

Countries and the European Union.

The U.S. also participates in the North Americas treaty between Mexico, Panama and

Canada.

36

These regional treaties could be beneficial for Adorn once it has set up operations

within the U.S. and will require further analysis.

4.2 E commerce

Increased usage of e commerce which in turn increases opportunities and efficiencies

within industries even allowing new industries to evolve and take over older outdated

industries. This is assisting in reducing costs and improving speed of certain processes

for companies. An example of this is video conferencing in reducing air fairs and

travelling time for company employees.

E commerce also allows for efficient market penetration through more adaptive,

modes of communication and commerce with a wider market base. With the aid of

tools which include everything from electronic presentations to electronic mail that

can be sent anywhere reducing geographical boundaries.

This is also affecting the traditional concepts product and service marketing such as

packaging and location of company offerings.

With this new technology come more informed customers, which understand the

product offerings within the market more, keeping companies on their toes with

regards to product and services that the promote.

All of which can be specially manipulated to assist the company in achieving its

strategic goals, sometimes even assisting in reducing the cost of globalisation. An

example of this would be Amazon where it has a presence in ever country and can

distribute anywhere in the world utilising the courier services.

37

4.3 International terrorism

Table 20: U.S. Terrorism Stats.

(Source: Nationmaster.com (nd): American Terrorism Stats,

http://www.nationmaster.com/country/us-united-states)

Terrorism puts stain on immigration control, global financing, infrastructure risks,

personal security risks and nuclear power plants and energy generation.

Economic risks include:

Capital stock – human and physical stock is reduced

Induced higher levels of uncertainty which reduces economic activity within

the region.

Promotes increase in counter terrorism expenditures undermining any

economic stability within the region.

The direct negative impact on specific industries such as tourism.

Reduced foreign direct investment and increases outward flow of investments

38

Increased immigration controls that a slows down the movement of human

resources between counties

The reduction of global financing, slowing global growth and opportunities.

Maintenance and repair costs on infrastructure

Risk to and around nuclear power plants and energy generation.

So threats, risks and security considerations should also be taken into account when

evaluating a country for global expansion.

5 Conclusion

In conclusion my reasoning to expand into the U.S. market includes:

Highly developed education and infrastructure allowing growth of business in

the country.

High manufacturing input costs, with high labour costs and/or limited raw

materials which keep local competitors at a disadvantage.

Also the U.S. country that has with low import costs and barriers, even trade

treaties with our domestic market, South Africa which would assist in

dropping costs of doing business with the country while improving

opportunities with in the U.S.

The U.S. has a high gross domestic product and high capita individuals which

would relate to potential clients that could afford buying our products. This

equates into opportunity.

The high levels of education also mean that human resources with in the U.S.

are well developed and will assist Adorn with expansion into that market

With the aid of technology to achieve the strategy

Have technology assist in reducing costs of doing business and having operations

within two countries, reduce complexities and improve communication within the

company in to the market place. Utilise technologies to develop and manage effective

Enterprise Resource Planning which would include everything from stock and

inventory controls to customer databases. The end goal would be to improve speed

and efficiencies of business processes, including decision making process and follow

through by management.

39

Critical success factors include:

Price

Adorn’s price to market will be of considerable importance to success penetration

within the U.S. market, which I believe Adorn are in the position to offer.

Speed

With China positioning itself within the U.S. economy, it would mean that the time to

start with inroads to that market would need to be now before China is too dominant

in the U.S. market. Adorn can utilise the future economic upswing of the U.S.

economy to increase the companies growth momentum and improve the returns of the

investment.

40

6 List of references

American Community Survey (2005): United States - Languages,

http://www.mla.org/cgi-shl/docstudio/docs.pl?map_data_results.htm, 01 August 2009

Banescu, C. (2009): U.S. Companies Pay the Highest Taxes in the World,

http://chrisbanescu.com/blog/2009/03/03/us-companies-pay-the-highest-taxes-in-the-

world.htm, 01 August 2009

Burnham, W. (2006): Introduction to the Law and Legal System of the United States,

http://www.uscourts.gov, 01 August 2009

Chossudovsky, M. (nd): Preparing for Civil Unrest in America

Legislation to Establish Internment Camps on US Military Bases,

http://www.globalresearch.ca/index.php?context=va&aid=12793, 01 August 2009.

The Good News Magazine (2009): Political Stability,

http://www.gnmagazine.org/issues/gn32/politicalstability.htm, 01 August 2009

IPOS public affairs (2007): Party Affiliation and Ideology ,

http://www.bipartisandisorder.org/wp-content/uploads/2007/06/ap-ipsos-

thompson.pdf , 01 August 2009

Lever, R. (2009): Richest Countries by GDP and the Poorest Country,

http://gross-national-product.suite101.com/artical.cfm/richest_countries _by_gdp_and

the_poorest_county.html. 26 July 2009

Milpark Business School, (2009): Managerial Environment, Johannesburg: Milpark

Business School.

N.D. Schwartz (2009), Bleak Employment Outlook,

http://www.nytimes.com/2009/02/15/business/15global.html, 01 August 2009

Nationmaster.com (nd): Economic Freedom,

http://www.nationmaster.com/country.htm, 01 August 2009

41

National Tax Services, Inc (2009): Treaties,

http://www.unclefed.com/ForTaxProfs/Treaties/index.html, 28 July 2009

OANDA Corporation (2009): FXHistory – Historical Currency Exchange Rates,

http://www.oanda.com/convert/fxhistory, 01 August 2009

Ott, M. (nd): Foreign Investment in the United States,

http://www.econlib.org/library/Enc1/ForeignInvestmentintheUnitedStates.html,

01 August 2009.

Pew Research Centre Project (2009): Pew Global Attitudes Project - Confidence in

Obama Lifts U.S. Image around the World report,

http://pewglobal.org/reports/display.php?ReportID=264, 01 August 2009

Pew Research Centre Project (2007): U.S. Religious Landscape Survey,

http://pewglobal.org/reports.html, 01 August 2009

Porter, M.E. (1990): The Competitive Advantage Of Nations, Macmillan: London

Schuler, A. & Lawser, S. (2007): The U.S. Furniture Industry - Yesterday

and Today … Will There Be a Tomorrow?, www.wooddigest.com, 01 August 2009

Schwartz, N.D. (2009): Job Losses Pose a Threat to Stability Worldwide, http://www.nytimes.com/2009/02/15/business/15global.html?_r=1, 01 August 2009

Sithole, N. (2009): Nissan SA defies markets,

http://www.moneyweb.co.za/mw/view/mw/en/page295023?oid=285752, 27 July

2009

S.W.O.T Analysis, http://www.12manage.com/methods_swot_analysis.html 2 August

2009

Tysver, D.A. (2008): Patients, http://www.bitlaw.com/patent/index.html, 02 August

2009

42

United Nations Development Program (2008): United Nations Development

Program Human Development Report 2007/2008,

http://en.wikipedia.org/wiki/File:World_literacy_map_UNHD_2007_2008.png,

01 August 2009

U.S. Department of Labor (2009): History of inflation in the US from Jan 1914 - Mar

2009, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt. 01 August 2009

The U.S. Diplomatic Mission to Germany (2008): Economy Policy,

http://usa.usembassy.de/economy-policy.htm, 01 August 2009

U.S. Government (2009): Treaties,

http://www.state.gov/s/l/treaty/treaties/2009/index.htm, 01 August 2009

Wikipedia (nd): Political ideologies in the United States,

http://en.wikipedia.org/wiki/Political_ideologies_in_the_United_States, 01 August

2009

World Bank (2008): Doing Business 2009– Country Profile for the United States Report, Washington, The world bank

7 Appendices: List of Tables

Table 1: World Top Ten Richest Countries by GDP in US Dollars

(Source: Suite101.com Media Inc (2009): Richest Countries by GDP and the Poorest

Country, http://gross-national-product.suite101.com/artical.cfm/richest_countries -

_by_gdp_and the_poorest_county)_________________________________Page 5

Table 2: The United States Economy

(Source: Nationmaster.com (nd): American Economic Stats,

http://www.nationmaster.com/country/us-united-states/eco-economy)_____Page 7

Table 3: The United States Favourability Rating

(Source: Pew Research Centre Project (2009): Pew Global Attitudes Project:

Confidence in Obama Lifts U.S. Image around the World,

http://pewglobal.org/reports/display.php?ReportID=264)_______________Page 13

43

Table 4: US dollar to ZAR for Time period: 26/07/2008 to 01/08/2009

(Source: OANDA Corporation (2009): FXHistory – Historical Currency Exchange

Rates, http://www.oanda.com/convert/fxhistory )_____________________Page 14

Table 5: U.S, Taxes

(Source: Nationmaster.com (nd): American Economic Stats,

http://www.nationmaster.com/country/us-united-states)_______________Page 15

Table 6: Government spending

(Source: Simmons (2009): How Congress Is Spending Your Money,

http://www.federalbudget.com/,)_________________________________Page 16

Table 7: Economic freedom is rated within the top ten nations

(Source: Nationmaster.com (nd): Economic Freedom,

http://www.nationmaster.com/country )___________________________Page 17

Table 8: Top Languages spoken in the United States

(Source: American Community Survey (2005): United States - Languages,

http://www.mla.org/cgi-shl/docstudio/docs.pl?map_data_results)_______Page 18

Table 9: U.S. Population

(Source: Nationmaster.com (nd): Population,

http://www.nationmaster.com/country/us-united-states)_______________Page 19

Table 10: U.S. labour Statistics.

(Source: Nationmaster.com (nd): American Labour Stats,

http://www.nationmaster.com/country/us-united-states)_______________Page 20

Table 11: Research and development spending as portion of countries GDP.

(Source: World Bank (2002): Research and development spending (most Recent) By

Country,

http://www.nationmaster.com/red/graph/eco_res_and_dev_spe-economy-research-

and-development-spending&b_map=1)___________________________Page 21

44

Table 12: Electricity Production by Country.

(Source: Nationmaster.com (nd): Electricity Production (most recent) by Country,

http://www.nationmaster.com/graph/ene_ele_pro-energy-electricity-production)

___________________________________________________________Page 22

Table 13: Transport, Million Tons per year, per Kilometre.

(Source: Nationmaster.com (nd): Air transport, freight – million tons per km (most

Recent By Country,

http://www.nationmaster.com/graph/tra_air_tra_fre_mil_ton_per_km-freight-million-

tons-per-km)________________________________________________Page 23

Table 14: Countries with tertiary education as percentage of total population.

(Source: Nationmaster.com (nd): Labour force with tertiary education as percentage

of total (most recent) by country,

http://www.nationmaster.com/graph/lab_for_wit_ter_edu_of_tot-labor-force-tertiary-

education-total)_____________________________________________Page 24

Table 15: Broadband Access by Country.

(Source: Nationmaster.com (nd): Broadband access (most recent) by country,

http://www.nationmaster.com/graph/int_bro_acc-internet-broadband-access)

__________________________________________________________Page 28

Table 16: Imports of Goods and Services by Country.

(Source: Nationmaster.com (nd): Imports of Goods and services in current U.S.

Dollars (most recent) by country,

http://www.nationmaster.com/graph)____________________________Page 29

Table 17: U.S. Labour Stats.

(Source: Nationmaster.com (nd): American Labour Stats,

http://www.nationmaster.com/country/us-united-states)_____________Page 32

Table 18: U.S. Education Stats.

(Source: Nationmaster.com (nd): American Education Stats,

http://www.nationmaster.com/country/us-united-states)_____________Page 33

45

Table 19: U.S. Imports of furniture, household items, baskets by country.

(Source: Nationmaster.com (2004): U.S. imports of furniture, household items,

baskets (most recent) by country,

http://www.nationmaster.com/graph/eco_tra_wit_us_us_imp_of_fur_hou_ite_bas-

imports-furniture-household-items-baskets)_________________________Page 36

Table 20: U.S. Terrorism Stats.

(Source: Nationmaster.com (nd): American Terrorism Stats,

http://www.nationmaster.com/country/us-united-states)________________Page 39

8 Appendices: List of Figures

Figure 1: Bleak Employment Outlook

(Source: The New York Times (2009): Bleak Employment Outlook,

http://www.nytimes.com/2009/02/15/business/15global.html) 01 August 2009

10h03_______________________________________________________Page 9

Figure 2: Enforcing Contracts – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)_______________________Page 11

Figure 3: Literacy Rates (Source: Wikipedia (2008): Literacy Rates,

http://en.wikipedia.org/wiki/File:World_literacy_map_UNHD_2007_2008.png)

____________________________________________________________Page 12

Figure 4: U.S. Consumer Price Index January 1914 to March 2009

(Source: U.S. Department of Labour (2009): History of inflation in the US from Jan

1914 - Mar 2009, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)______Page 14

Figure 5: Ease of doing business – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)________________________Page 25

46

Figure 6: Starting a Business – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)________________________Page 25

Figure 7: Trading Across Boarders – Global Rank

(Source: The World Bank (2008): Doing Business Report 2009 – Country Profile

United States, The World Bank: Washington)_________________________Page 26

Figure 8: Diamond Model

(Source: Porter (1990): The Competitive Advantage Of Nations, Macmillan: London)

_____________________________________________________________Page 28

Figure 9: Wooden house hold furniture imports

(Source: Schuler & Lawser (2007): The U.S. Furniture Industry: Yesterday

and Today … Will There Be a Tomorrow?, www.wooddigest .com)

____________________________________________________________Page 35

47