The purpose of this proposal is to select two countries, one being the member of the European Union, and one not belonging to the European Union, for the Greenfield production facility overseas for Acme, and to analyze the advantages and disadvantages of starting operations in each of these countries. The analysis will be based on such factors as economic development, stability of the currency, trade regulations, cultural variables and similarity of business culture to that of the US, availability of skilled labor and resources, ease of starting business and the cost of doing business in these countries.
The member of European Union chosen for selection is Denmark, due to its economic stability, availability of skilled labor and open approach to international trade. The second country chosen for analysis which is located outside the European Union is Singapore. It is one of the world’s fastest growing economies, and was ranked the most attractive country for doing business during two consequent years (2011 and 2012). Analysis of business environments of each of these countries is presented below.
Analysis of Denmark business environment
Denmark is located in Northern Europe, it has 5.5 million population (Stutz & Warf, 2011). The main advantages of Denmark economy are human resources and service sector. The country exports machinery, food products and instruments (Stutz & Warf, 2011). Different types of energy are available, such as oil, gas, bio- and wind energy (Stutz & Warf, 2011), so if Acme is planning to launch an innovative or power-consuming project, Denmark will be a good choice.
Denmark has become member of the European Union in 1973, but it did not adopt the euro – the government opted to keep crone as the currency (Stutz & Warf, 2011). As a result, Denmark is less vulnerable to European sovereign debt crisis than members of the eurozone, and its economy shows slight signs of progress in 2011.
During the recent years, there have been several important reforms in Denmark which have made it easier to start and run a business in this country for MNEs. Among favorable changes, there are the reduction of corporate income tax rate to 25%, reduction of minimum capital requirements for LLCs to $14, 620, and improved rules for registering and reorganizing companies (Doing Business, 2012). It is comparatively easy to start a business in Denmark – there are 4 procedures involved, and the official fees are quite affordable.
One of important features of Danish economy is that there is no minimal wage set by the government, and there are no specific regulations governing hiring and firing employers: the employer can hire and fire employees whenever necessary (Doing Business, 2012). These factors might significantly reduce labor costs for Acme. However, it should be taken into account that the cost of labor in Denmark is above average in the EU (Stutz & Warf, 2011). Thus, wage costs in Denmark are among on of the highest in the EU, but non-wage costs are one of the lowest (only Malta offers lower non-wage costs).
Danish business culture is known for its creative design and quality of goods (World Business Culture, 2012). Small and medium companies are quite abundant in Denmark, while there are not many large corporations hosted there. Management in Denmark is focused on consensus and egalitarian approach (World Business Culture, 2012), and managers are viewed like people encouraging and coaching the employees. Danish employees are good team players. Taking into account the availability of skilled workforce in Denmark, this country can be used by Acme for starting a project associated with intense automation, innovation or manufacturing of technology-focused goods. Although Danish is the only official language, skilled Danish employees often master two or three languages (World Business Culture, 2012), and therefore only minor communication problems can be expected. Democratic and flexible approach to business and a developed western culture will contribute to Acme’s success if the company chooses to start the new project in Denmark.
Denmark has always been known for liberal trade policy, and it offers favorable conditions for international trade: its import and export costs and duration of import and export operations are one of the lowest among all members of Organization for Economic Cooperation and Development (OECD). 5 days are required for import and export operations in Denmark (compared to OECD average of 11 days), and the cost of import or export for a 20-foot container is $744 (compared to OECD average of $1,085) (Doing Business, 2012).
Overall stability of Danish economy seems to be better than average EU balance: Danish economy grew 0.1% in the third quarter of 2011, instead of predicted contraction by 0.2% (Wienberg, 2011), and the economy is expected to recover slightly in 2012, provided that trade balance would be further revised (Wienberg, 2011). Denmark was ranked number 5 in the rating of most attractive countries for doing business (Doing Business, 2012), and it is one of the most attractive EU members for Acme.
Analysis of Singapore business environment
The republic of Singapore is located in Southeast Asia. It consists of 63 islands, and its population is slightly more than 5 million people (Stutz & Warf, 2011). Official language of Singapore are English, Malay, Chinese and Tamil (Stutz & Warf, 2011). Most citizens of Singapore are fluent English speakers, and thus language barrier will not be an issue for Acme, if the company decides to start the new project in Singapore. Moreover, Singapore was rated as top world country for starting a business in 2011, and it managed to keep the same rank in 2012 (Doing Business, 2012).
Singapore has a state capitalist mixed economy, with state-owned share of GDP equal to approximately 60% (Stutz & Warf, 2011). The country specializes in export of science intensive goods, such as electronics and chemicals (Stutz & Warf, 2011). Service sector is also highly developed in Singapore. The country is also a financial centre and offers a high level of protection for investors, which also creates favorable conditions for international business.
Advantages of Singapore economy are low corruption, low tax rates, open and free business environment, and successfully growing economy. In 2010, Singapore’s economy experienced a 14.7% growth (Stutz & Warf, 2011). In 2011, the development slowed down a bit, and by the end of 2011, growth rate constituted 4.8%, which is still one of the most impressive economic developments in the post-recession period (Doing Business, 2012). Singapore dollar belongs to stable currencies, and during the last 20 years its exchange rate has been relatively stable, fluctuating in the range between 1.63 and 1.83 Singapore dollars for 1 US dollar (Stutz & Warf, 2011).
It is easy to start a business in Singapore – it takes only 3 days to complete all procedures (and it is also possible to complete everything online within 1 day) (Doing Business, 2012). There are neither costs on income per capita nor minimal paid capital for starting a business in Singapore. Most activities starting with incorporating a company to paying taxes can be performed online in Singapore, and many important activities such as construction permits have been computerized in 2010, thus making it even easier to start a business (Doing Business, 2012).
Moreover, Singapore is in fact optimal country for international trade, because it adheres to a very liberal trade policy. Import time for Singapore is 4 days, and export time is 5 days. The cost of import is $439 per 20-foot container, and the cost of export is $456 (Doing Business, 2012). Average rates for import/export operations in Asia and Pacific region are almost twice higher, and OECD costs are 2.2 times higher (Doing Business, 2012).
With regard to business culture, Singapore is strongly oriented to western approach, and as a result, many processes and attitudes common for western countries are adopted in Singapore as well. At the same time, the role of relationships in business and the focus on personal attitude and communications in Singapore is very high. Management structures in Singapore are hierarchical, and information can be disseminated by private channels (World Business Culture, 2012). To a certain extent, managers occupy a paternal position with regard to employees. The relationships between employees are commonly formal and rather distant. Foreign managers are treated with respect and in accordance with their professional qualities and rank.
The specifics of Singapore working culture is related to the inadmissibility of direct “no” in business conversations (World Business Culture, 2012). Other specific features rare use of humor, avoidance of deep personal conversations among employees and negative reaction to criticism and comments related to Singaporean system and government.
Overall, Singapore is the world fastest growing economy, with very favorable conditions for international business and trade, low taxes and easily available skilled labor. Certain cultural differences related to Eastern culture are mitigated by the fact that Singapore has an approach to free market rather close to western countries, and the rapid internationalization of the country contributes to ease of doing business in Singapore.
It is recommended for Acme to choose Singapore for establishing a Greenfield production facility. There are numerous factors which make Singapore more attractive for starting a business than Denmark. First of all, it is the level of economic growth and the potential of the economy. Secondly, Denmark is the member of the European Union and it will be most likely affected by the expected crisis of sovereign debt in Europe. Although Singapore’s economy is also likely to be affected by this crisis, the impact on Singapore will be much milder.
The costs of starting and running business in Singapore are significantly lower than in Denmark, and the security of financial operations is expected to be higher there. Language barrier will not be present in Singapore, while in Denmark it might still affect communications. One possible obstacle to running business in Singapore is its specific business culture, with strong hierarchy and complex communications. In the future, Singapore’s business culture is expected to get even closer to western one, and this disadvantage will be reduced in the course of time. Overall, the advantages of Singapore significantly outweigh its cultural difference with US business culture, and it is recommended to choose Singapore as the new business location.