[This is the sixth in a series of articles on globalization.]

As noted in previous articles, the world offers significant business opportunities for every company. However, opportunities are accompanied by significant challenges for managers. The greatest challenges associated with doing business in a foreign country stem from attempting to deal with the distinctive, and often quite different, nature of the business environment. For example, a company looking to set up manufacturing facilities in a foreign country may encounter government controls, difficulties in making an effective transfer of core technologies, poorly trained local workers, financial restrictions, and a lack of inputs and supplies meeting the necessary quality standards.

Consider the following scenario that almost ruined one company’s efforts to set up an overseas facility. Due to government controls on foreign investment, the company was required to set up a new joint venture with a local partner. Problems began immediately as the company discovered that the local partner’s employees lacked the technical background to absorb effectively the technology licensed to the joint venture. Moreover, local employees assigned to the joint venture felt they were being cast adrift from their main company and were reluctant to accept training in new techniques.

An inadequate industrial infrastructure also caused problems for the company. As a condition to formation of the joint venture, the government required supplies to be purchased from local companies; however, the local inputs fell far short of the quality required to export finished goods back to the company’s home market.  In some cases, required inputs were unavailable in the foreign country and had to be imported. But, the importing process was delayed due to the absence of import financing and the need to satisfy local bureaucratic requirements. As a result, production cycles were delayed and costs increased significantly.

Changes in demand also played a big part in the company’s problems. At the time the decision to form the joint venture was made, the government was following a national development strategy that encouraged demand for the goods that were to be produced by the joint venture. Thus, the joint venture had a reasonable expectation of strong sales in the local market before export plans could be formalized. However, as is often the case in developing countries, government strategies can shift quickly, and a sudden movement toward agricultural production created havoc with the joint venture’s business plan. In addition, rising inflationary pressures led to credit controls that reduced the financial resources of potential buyers, including several government-owned businesses. Finally, the cost advantages of entering the foreign market were further reduced by the entry of low-priced imports from other countries.

The risks of going global are further increased by the increased exposure to macroeconomic and political risks in other countries. For example, inflation in a foreign country can lead to radical changes in monetary policies, including devaluation of the local currency. Macroeconomic problems can also adversely impact the availability of capital for local firms from external sources, such as multilateral agencies like the World Bank and the International Monetary Fund. A change in the political landscape in the foreign market can lead to different governmental attitudes toward core issues such as the protection of private property and the duties and obligations of companies toward their workers. These changes can lead to the adoption of new laws and regulations that increase the costs associated with using local resources.

Other important elements of the business environment in a foreign country are the socioeconomic conditions that define the marketplace and the unique cultural norms that exist within the country. Foreign companies must carefully consider how their products and marketing activities will be perceived in the local market. For example, a company marketing birth control products or food supplements for infants must consider how those items might clash with social values in the foreign country. Moreover, the potential for abuse, and misuse, of health-related products due to lack of knowledge and poor living conditions must also be measured. Differences in social classes and language in foreign countries must also dictate adjustments in the marketing messages and personnel management practices of the entering company.

Finally, U.S. managers must understand that their management techniques while largely effective in the U.S. and in other countries with a long history of industrialization, have often not been successful when transferred in a wholesale fashion to developing countries. There is a school of thought that argues that they are universally applicable across all cultures and organizations, regardless of the economic, political and social context, and this belief has been followed in management development and training programs in developing countries. Unfortunately, the idea that “one size fits all” has not prospered in the face of drastically different local customs and environmental conditions. In fact, there appears to be a growing acknowledgement that the better course may be to recognize the search for an optimal theory of management practiced in a particular country requires a mix of science and art. This is particularly true, given the relatively recent successes of Japanese management styles and the radical transformation of popular American management dogma to include such quick fix theories as “reengineering,” “reinventing,” and “downsizing.”

Legal considerations in operating in foreign markets

There are a number of legal issues that must be taken into account in commencing operations in a foreign market. For example, areas of potential concern under the local laws of the country in which the operations are to occur include the following:

• Local laws relating to the relationship between a manufacturer and local agents or distributors, including laws that regulate the duration and termination of the arrangement, require that local law governs the contractual relationship, and restrict post-termination noncompetition covenants on the local party.
• Intellectual property laws in the foreign country, which should be examined to determine the protection that will be available for the company’s patents, trademarks and other intellectual property once its products have been sold into the market.
• Local laws that give sales representatives who are natural persons the protections available to employees under local labor laws, including employee benefits and rules relating to termination of employment.
• Local product liability laws that may expose the company to substantial financial risk or require substantial modifications to the company’s basic product.
• Local antitrust or competition laws that might treat an agency or distribution arrangement as creating a restriction on competition.

In addition, the company must always consider the possible application and effects of certain domestic laws, including competition laws and export controls.

Planning for global expansion

Global expansion strategies must be implemented within the context of the company’s overall business plan. Accordingly, management needs to take a careful look at the opportunities that might be available to the company in foreign markets and the risks associated with pursuing those opportunities. In many cases, entry into a foreign market can provide a company with a competitive advantage over current and projected competitors. However, an alliance with a foreign partner may increase the possibilities of misappropriation of the company’s proprietary technology. Moreover, adapting the company’s products and services to the requirements of a foreign market may be difficult and expensive.

In developing a business plan for foreign activities, companies must take into account the goals and objectives for entering a specific foreign market. For example, if the company is seeking to sell products and services in a foreign country, it must develop a comprehensive marketing plan that takes into account the unique cultural and language characteristics of the market. If, on the other hand, the company will be using an alliance with a foreign firm for manufacturing of products, or procurement of raw materials, to be used outside of the foreign market, detailed specifications and performance schedules will be needed. In either case, the company must be mindful of uncertainties that may be created by local regulations or the political environment. As such, planners should build and test various scenarios based on assumptions regarding future events and trends in the foreign market.

In many ways, entry into a new foreign market is similar to launching an entire new business. As such, companies need to consider the capital requirements associated with the move and determine the availability of necessary financial resources to fund the expanding international operations. For example, a budget should be prepared that includes allocations for hiring additional managers and employees, establishing a distribution channel and acquiring the information necessary to prepare a sensible marketing and overall strategic plan for the new market. While funds for these activities may be available from traditional operations, companies often have to look elsewhere to fund new international ventures. One possibility that might be considered is subsidies and other incentive programs for importers that are available from governmental entities in the target market. In addition, the company will need to recruit managers with experience in establishing and managing foreign operations, particularly foreign sales and distribution activities. The company will also need to consider how personnel focusing on international activities will be integrated into the overall organizational structure of the company, including establishment of appropriate lines of authority and guidelines for sharing resources with the traditional domestic units and functions. Finally, the company must identify, and establish relationships with, appropriate business contacts in each foreign market. Locating customers is, of course, the first order of business; however, depending on the circumstances, the company will also need to contact potential distributors, suppliers, financing sources and government officials. If the company is not able to initiate these contacts through its own internal resources, recourse will need to be made to agents in the target market.

Many firms discover that their initial export activities are quite profitable, particularly when the products in question are based on unique proprietary technology controlled by the company and sales are made into niche markets with little competition. In those cases, the company is able to obtain high margins and generally can generate material level of sales with a relatively small outlay of marketing funds. The early successes are often eroded, however, by the additional demands that are placed on the firm as it attempts to grow the export activities beyond the initial limited size. As demand increases and interest builds in entering new markets, firms must decide whether to make substantial investments in adapting the product to new markets and educating the customers in those markets. In order for this step to be successful, companies must be prepared to develop and nurture the organizational structure necessary to support export activities. Elements of this infrastructure include managerial resources, control and information systems and strong relationships with competent local representatives.

[This is the fourth in a series of articles on globalization.]

Types of foreign markets

Just as strictly domestic companies must carefully identify and segment the potential U.S. markets for their products and services, firms interested in going global must be mindful of the diversity of foreign markets. In fact, many aspects of how, where and when a company does business overseas will be influenced by a country’s relative development, especially whether the new market is an emerging economy or is an industrialized or technological one.

If the market is an emerging economy, a number of hurdles must be overcome. For example, cash may be limited, consumerism may be unknown or unattainable and transportation and communication may be very difficult and expensive. On the other hand, while the challenges may be greater, competition may be even more limited in emerging economies. Accordingly, if the company can identify and enter an emerging economy just as it takes off, it will be able to enter the market when prices and costs are low and then reap the benefits of rising demand and revenue.

In contrast, an industrialized economy may present fewer potential problems from a regulatory, economic, social, cultural, political and technological standpoint. Unfortunately, this also means that competitors are more likely to have already entered the market. Even if competitors are not already there, business plans must assume that they will eventually be there. Companies may elect to enter the markets in industrialized countries for several reasons, typically because their presence is necessary to remain competitive with other firms and because entry is easier due to the presence of a more mature infrastructure for conducting business activities. However, because of the higher level of competition, the projected return on investment in these areas should be more modest.

A technology economy is essentially a variant of an industrial economy that may be created by the rapid and widespread substitution of technology-based production tools and products for the more traditional modes of manufacturing. The U.S., as well as most of the more affluent countries around the world, is part of the global technology economy. In a technological economy, new technology is likely to be welcomed, and a technology company is likely to feel at home in such an environment. On the other hand, a company from a technological economy that is trying to enter an emerging economy may be perceived as being arrogant and may have to adjust to a different pace of doing business. Also, many emerging economies lack the knowledge base to understand and integrate cutting edge technologies; however, opportunities do exist for companies to introduce those countries to mature technologies that are no longer competitive in the U.S. and other technology economies.

Ways of doing business in foreign markets – Indirect investment

Once the threshold decision to expand globally has been made, the company might decide to cautiously move overseas by an indirect investment. By indirect investment, we mean a method that requires no direct involvement of the company in the foreign market. Rather, the company engages an individual or company in the foreign market to assist it in exporting its products to that market. The most common indirect investment other than receipt of orders is the use of a local agent, typically a sales representative, who locates customers and obtains orders that are forwarded to the U.S. company for review and, if acceptable, fulfillment. The agent receives a commission based on sales generated from its activities. Another alternative is a distributorship. Under this arrangement, the U.S. exporter will actually sell its products to the foreign distributor with the intent that the distributor will resell the products to end users or other resellers located in the target market. The distributor assumes the risk of resale of products purchased under the distribution arrangement; however, the distributor is allowed to keep any spread between the price paid to the U.S. exporter and the consideration received upon resale of the products.

Proper selection and management of indirect investment partners should lead to greater foreign sales and a higher level of comfort with the operational activities necessary in order for products to be prepared for shipment to foreign markets. Moreover, the U.S. company will begin to liberalize its shipment terms to something like C&F (“cost and freight”) or CIF (“cost, insurance and freight”), port of entry, shipping documents D/A (documents against acceptance), 90 or 120 days sight. As the company builds up its reserves, and its confidence, it may decide to extend the terms of sale and provide credit terms to its distributors and selected customers identified through its network of foreign sales representatives.

[This is the third in a series of articles on globalization.]

One factor that is driving change in global markets is the impact that technology, particularly information technology (IT), is having on the growth and economic development of all countries, regardless of the prior level of industrial capacity. Among other things, IT facilitates the reduction of manufacturing costs and the introduction of value-added manufacturing processes, as well as the ability for countries and their companies to gain access to markets that would have been closed or prohibitively expensive in the past. For example, commentators have suggested that of all the challenges confronting sub-Saharan Africa, the most important is ensuring that the region is able to participate in the IT revolution. They make it clear that failure in this area will foreclose tremendous opportunities for communication with the outside world and the development of relationships with supplies, customers and competitors. The ability to acquire and deploy IT opens up a wide range of opportunities for developing countries, including each of the following:

Standard of Living. IT can lead to substantial improvements in the standard of living and quality of life for citizens of developing countries. For example, governments can use computers and other IT tools to reduce crime and increase the level of public safety. Health organizations can employ technology to enhance the delivery of medical aid and other assistance to isolated areas in the developing world, including consultations with foreign experts through videoconferencing and high-speed transmission of medical images. Businesses should be able to use IT to improve business processes, thereby enhancing the work experience for each of their employees. Finally, IT, particularly the Internet, allows the citizens of developing countries to gain access to information, educational programs and entertainment from all over the world.

Commerce. IT is being deployed in a wide range of commercial settings, thereby creating a virtual marketplace that operates 24 hours a day every day of the year all around the world. Businesses in developing countries can conduct transactions with customers and vendors located thousands of miles away using secure payment systems that guarantee that funds will be moved quickly and efficiently without delays. Other IT tools, such as teleconferencing and online meeting rooms, allow managers in developing countries to communicate with customers and colleagues in other parts of the country and in foreign markets. As a result, firms in developing countries are now able to gain access to cost-effective sources of raw materials and participate in procurement contests. IT also allows firms in developing countries to create new markets for their goods and services and readily expand their existing relationships with foreign customers.

Industrialization. IT has led to radical changes in product development and manufacturing processes. IT is a powerful communications tool between partners in different countries and allows them to quickly and reliably share information on product specifications, design issues, quality control and delivery and distribution. In addition, IT is increasingly important to suppliers and manufacturers who rely on it for procurement, billing, payment and tracking of shipping and delivery.

Education. IT can also be used to increase the distribution of much-needed education and training in developing countries. For example, IT facilitates delivery of lectures to remote locations on a real-time basis, and the Internet now allows users to access courses from anywhere at their convenience. IT can also be used to allow thousands of persons in the developing world to share information that would be hard for them to access normally, such as the resources found in libraries and other databases. Computer programs are also a powerful and efficient method to develop the problem-solving, critical thinking and creative skills necessary for development of indigenous management talent.

Government Services. Governments in developing countries have been roundly, and rightly, criticized for their failure to efficiently manage the services they provide to citizens and to business entities. The problem is particularly acute in the developing world, given that the state continues to occupy a substantial role in the local economy. Properly deployed, IT can be used by governments to monitor the activities of their departments and provide citizens with essential information regarding government services and various legal and regulatory requirements. Policymakers in developing countries can use the information available through the Internet to improve their planning processes, such as benchmarking performance against other developing countries and industrialized partners. Finally, IT can be used to stimulate communication between government and its citizens, providing individuals, businesses and organized groups with a way to tell their leaders what they think about government services and proposals.

Job Creation and Diversification. The explosion of IT and its related products and services also provides opportunities for job creation and diversification for developing countries. First, businesses in developing countries will need to create positions to perform and administer various IT-related functions. This will not be an easy task, given the current shortage of trained local workers; however, it can be overcome through targeted educational programs. Second, jobs may be created in response to trends in the United States and other industrialized countries of outsourcing certain IT-related services. Again, however, a competent and trained local workforce is essential for firms to be able to exploit these opportunities. Finally, developing countries may be able to participate in manufacturing of IT-related products, including hardware and software. This will permit diversification of manufacturing jobs out of traditional areas that are becoming obsolete or are being replaced with technology-based solutions.

All of these are opportunities that small and medium-sized companies can meet.

[This is the second in a series of articles on globalization.]

Small and medium-sized businesses should consider foreign markets for many reasons. In this article, I will describe the most commonly cited reasons.

Reasons for foreign business activities – Cost reduction

For most companies, one of the primary reasons for establishing a facility or function in a foreign market is to take advantage of perceived opportunities to reduce the costs of operations and production. Labor costs can be reduced by tapping into the large pool of low-wage workers available in many countries. In addition, provided that foreign investment in land and building facilities is allowed, companies often find these resources to be much less expensive, thereby reducing capital costs. Foreign companies also often offer valuable opportunities to reduce or eliminate transactional costs through exemptions from local taxes, tariffs, and licensing and documentary fees.

Reasons for foreign business activities – Risk reduction

Global operations can effectively reduce the risks associated with business operations by diversifying a company’s market opportunities. For example, if a company sells goods used in connection with warm weather activities, such as swimsuits, it can literally follow the summer around the world to create a steady, year-long demand. In addition, companies with access to capital in several different foreign markets can take advantage of opportunities that may arise due to currency fluctuations to obtain the funds at the most cost effective rate.

Reasons for foreign business activities – Source of supplies

Companies that use raw materials as supplies often elect to pursue sources in a variety of countries. In many cases, materials that are scarce, or even non-existent, in a company’s home country will be abundant and inexpensive in a foreign market. Strategies in this area may include shipping supplies out of the foreign country or locating a manufacturing facility directly in the foreign country to further reduce the cost of the supplies. Japanese automobile manufacturers have a long history of setting up plants in oil producing countries in order to assure they have access to necessary supplies of petroleum goods that are not available in Japan.

Reasons for foreign business activities – Improved customer service and relations

Companies often establish autonomous facilities, or enter into joint ventures with local partners, in foreign countries in an effort to gain a better understanding of the demands and customs of consumers in those countries. By actually being present in the country, the company can customize its goods and services to meet local requirements and begin to build brand loyalty based on customer service. In order for this strategy to be successful, however, the company must be willing and able to hire local managers who understand their own domestic market and the specifications and functionality of all of the company’s products.

Another benefit of a local presence is the company’s ability to improve response time to changes in demand patterns in the country. As a company’s products gain acceptance in a new foreign market, customers will demand better service and support. Any failure to respond will likely lead to erosion of market share at the expense of competitors that enter the market in response to the company’s own early success in selling its products.

Reasons for foreign business activities – Access to new markets

Companies should look to foreign countries as potential new markets for their goods and services. New foreign markets can increase sales, diversify the company’s customer base, and provide protection against variations in the domestic business cycle. Foreign markets also provide good opportunities for selling older, more mature products that have become obsolete in more advanced markets. In addition, a network of global facilities allows a company to quickly divert products and supplies to regions where demand is booming.

Reasons for foreign business activities – Global learning

Education and environmental scanning is an important strategic tool for any business, regardless of the size or scope of its operations. For a company that can afford to make the investment, cross-border operations can be a powerful learning tool for enhancement of operations and product development activities. Setting up business operations in a foreign market is the best way to observe how other companies deal with the unique technological, social, cultural, and political factors that impact demand in that market. In addition, global operations can provide access to companies that have developed internationally recognized best practices in key functional areas, such as new product development, manufacturing and supply chain management.

Reasons for foreign business activities – Access to global talent

Companies that look outward and participate actively in foreign markets can gain access to valuable human resources in those markets, as well in their own country. Many less industrialized countries, such as India, have a large pool of well-educated scientists and engineers who can provide high quality services at tremendous cost savings to firms located in higher-priced markets such as the U.S. and the European Union. By recruiting and using such resources, a company, regardless of its size, may significantly reduce its own product development costs. Global operations can have other benefits in the recruitment area. For example, a company that has established one or more foreign branches or strategic relationships can attract managers with interest and experience in international business, thereby creating a pool of talent that naturally thinks globally when the company thinks about the development of new markets and resources.

[This is the first in a series of articles on globalization.]

For the past several centuries, companies wishing to do business internationally had to face two major problems – geographical and temporal space. However, with the emergence of virtually instantaneous communication methods, including telephones, computers, and video conferences, and the ability to be in almost any other part of the world within 24 hours, distance and time are no longer major concerns for operating on a global playing field. In fact, today, all businesses, from start-up firms to large mature companies, must operate and compete in a rapidly changing environment. Competitive opportunities and threats arise from a number of disparate factors: regulatory, economic, social, cultural, political and technological. As circumstances change, all firms must adapt or lose their competitive advantage to other firms. The last thirty years have been marked by the emergence of the international marketplace, making even the smallest firm a potential multinational business enterprise searching abroad for supplies, technology, low-cost manufacturing and, most importantly, potential customers for its goods and services.

Emerging international opportunities and threats – Product distribution

Opportunities have expanded rapidly in foreign markets; however, each new market has its own unique requirements with respect to product characteristics and distribution. As a result, domestic firms must develop the capability to differentiate existing products to meet the needs of foreign markets and must understand the distribution channels in those markets. In addition, improvements in communications have led to broad dissemination of advertising information, thereby influencing consumer tastes and preferences in foreign markets.

Emerging international opportunities and threats – Production and manufacturing

The factors of production and manufacturing have undergone dramatic changes. The availability of low-cost labor in foreign markets, improvements in transport and communications which permit rapid delivery of goods from point of manufacture to point of sale, and the rapid transfer of production technologies have driven down prices, altered perceptions of quality and service and allowed new competitors to gain rapid entry into product markets.

Emerging international opportunities and threats – Trade barriers and regional trading systems

The existence or absence of non-tariff trade barriers, as well as the emergence of regional trading systems in large markets such as the continuously expanding European Union, have had a significant effect on the distribution function. This trend is expected to continue in large untapped markets in Asia, particularly in the Greater China area that includes Hong Kong, the Peoples Republic of China and Taiwan. The U.S., through bilateral negotiations and activities within multilateral trade organizations, has pushed vigorously for reduction of non-tariff trade barriers in order to allow U.S. firms to access new foreign markets.

Emerging international opportunities and threats – Foreign competition

In the United States, foreign competition has affected consumer tastes and materially impacted opportunities for growth and expansion. Moreover, many foreign competitors have achieved economies of scale which provide substantial advantages with respect to the cost of production and the ultimate pricing structure. In many U.S. industries, foreign firms have become strong and effective domestic competitors, as they establish and maintain manufacturing and distribution facilities in major regional markets throughout the U.S.

Emerging international opportunities and threats – Emerging capital and credit markets

Foreign competitors have utilized emerging capital and credit markets to obtain the funds necessary to expand product development, manufacturing and distribution facilities, as well as for the acquisition of technology and related skills from firms in the U.S. In fact, U.S. capital providers have begun to expand the breadth of their investment and credit activities by providing funding directly to companies located outside of the U.S. For example, U.S. venture capitalists are making investments in technology-based companies in Asia and in the European Union and have established local offices in those areas to provide consulting services, monitor their investments and scan innovative activities in other parts of the world.

Emerging international opportunities and threats – Regulatory and administrative

guidance

The effect of government regulation and administrative guidance has become an important element of competition throughout the world. Foreign investment laws, technology transfer regulations, intellectual property laws and export controls clearly impact the decision to enter new markets; and governmental attitudes toward joint development efforts and other aspects of trade regulation and competition are perceived as creating a number of significant advantages for foreign firms.

Reasons for foreign business activities

Companies, both large and small, consider going global for a variety of difference reasons. Some of the more tangible benefits include opportunities to reduce costs and risks, secure additional access to necessary supplies, improve customer service and relations, and gain access to new markets for the companies’ goods and services. Companies may also look at global operations as a means of learning about new ways to improve operations through the company and to attract talented managers, engineers, and scientists who can make a contribution to the entire organization. In future articles, we will consider these in more detail.

The IC-DISC was added to the tax code in 1984, and is essentially a paper entity that can be utilized as a tax-savings vehicle. Basic requirements of this type of corporation are that it may have no more than one class of stock, and a minimum value of $2,500. To create the corporate entity, the shareholders simply file a form, Form 4876-A, with the IRS. The overwhelming majority of users of IC-DISCs are small business exporters, because the IC-DISC only allows for a maximum of $10 million in profit to be taxed at a lower rate. Shareholders of an IC-DISC can be corporations, individuals, or a combination of both.

An IC-DISC is quite simple in operation. After an IC-DISC is created, the owner-export company can pay up to 50% of its profits from export sales as a commission to the ICDISC. This amount is tax deductible, thus, half of the profits are not taxed at the corporate tax rate of 35%, and go directly into the IC-DISC. The IC-DISC then distributes this commission, at least annually, as a dividend to its shareholders. The shareholders of the IC-DISC are usually comprised of the shareholders of the parent export corporation, or the parent corporation itself. This income distributed by the ICDISC is not taxed at the corporate rate of 35%; instead it is taxed as a dividend at 15%, resulting in a 20% tax savings. It allows up to half of a company’s profits from export sales to be taxed at this lower rate, resulting in significant savings for the shareholders. This money can be kept by the individual shareholders, or reinvested in the parent export company to facilitate growth.

An example will help to illustrate the usefulness of the IC-DISC. If an export company brings in $2 million in profits from sales, it could pay $1 million (50% of the net profits) to the IC-DISC as a commission. Instead of these profits being directly taxed at 35%, resulting in an expense of $350,000, the $1 million is distributed to shareholders as a dividend, and taxed at only 15%. This results in an expense of only $150,000 in taxes, and results in savings of $200,000 on $2 million in income. As shown on the chart below, an IC-DISC allows the exporting company to save up to $100,000 per $1 million generated in profits. Again, it is important to note that up to only $10 million can be paid as a commission to an IC-DISC, and therefore, it is not a viable option for large exporters generating hundreds of millions of dollars in income.

There have been multiple initiatives introduced in Congress over the past two years with an aim at abolishing the IC-DISC; however, these have been unsuccessful. A 2006 initiative to amend the tax code and eliminate the IC-DISC did not pass. In 2007, a provision was initially included in a tax reform bill that would have raised the tax rate on IC-DISC dividends to 35%, which would have eliminated its usefulness. However, a strong outcry from members of the House against this measure, which would have drastically impacted many small business constituents, resulted in the removal of this provision from the bill. The House and Senate then passed the legislation, the Tax Technical Corrections Bill, in late December. It appears that despite these efforts to do away with the IC-DISC, it will not be removed from the tax code anytime in the near future.

Ultimately, all small and mid-sized export companies that are able to create an IC-DISC should be aware of its existence, and the savings it can provide. The 20% reduction in tax rate on up to half of an export company’s profits can result in huge savings. As a paper entity relatively easy and simple to create, it should be utilized by any qualifying corporation. While other export tax incentives have been eliminated by Congressional legislation, it appears that the IC-DISC will continue to provide domestic export companies with an invaluable mechanism to save money and stimulate growth.

Is it time to do business with India – is it ever time? A recent reprint of a 1920’s article in The New York Times says it all.

Close to a century after this article the premise remains the same. The market is too big to ignore. Undoubtedly, the hows and whats have changed over the passage of time, but if American companies subscribe to the long term play the returns are undeniable.

India and USA have endured a half century of the ‘blow hot blow cold’ syndrome, mainly as a result of changing politics and alignments. At least since the 1960’s, America has experienced the diaspora – well educated, hard working folk willing to contribute, while themselves, gaining from the freedom afforded by our great country. Doctors, engineers, and educators from India have permeated all walks of our society to our benefit. Initially they came here to experience the ‘good life’. Over a few decades, they came to pursue scientific and other dreams as well. This was, however, a one-way street.

The IT explosion brought numbers of young talented engineers who temporarily migrated. Upon their return to India, they wanted to retain their American experience. They also allowed vast sums of hard currency to come to India creating a very favorable balance of trade.

The simultaneous liberalization and opening up of the economy in India allowed the free availability of what used to be called ‘imported luxury goods’. As free trade became the norm more than the exception, economic policies facilitated imports, production and exports to create 7- 10% growth year upon year with goods reaching lower and lower levels of the economic population. By and large, however, only the middle class has partaken of this. Keeping in mind that the entire population of the USA is about 1/3 and that the Indian middle class alone may be as large as the entire US population, the potential is enormous.

India is the world’s largest democracy. It is a good democracy, but the idiom ‘too many cooks spoil the broth’ is apt. While democracy and democratic values are here to stay, the Government is not. Mostly built of coalitions, governments have to pander to various elements lust to stay in power. Unfortunately that does not translate into making tough choices and decisions. A consequence is the lack of infrastructure, electricity, roads, transportation, healthcare, and education. India is where it is economically in spite of this which is a tribute to the dogged desire of the population to improve themselves in more ways than one.

The coming together of needs, the desire to fulfill them and the wherewithal to do so creates huge opportunities for American companies. We have the technology, quality standards research and innovation that puts us in a unique position to engage with India today. The playing field has changed however. Given that manufacturing, by and large, seeks the lowest cost, competing on price alone will not cause success. Aimed at the long term, success will be created upon innovativeness and engaging in bi-lateral trade. Creating a win-win both up and down the value chain with facilities or long-term partners in India would cause a long-term and self-sustaining effect. If India grows at its current rate for the next 50 years it may achieve the quality of life that Americans take for granted.

In looking for products or services that make sense for American companies, one only has to look for the ‘gap’. Sometimes economic or governmental policies cause the gap either because of protectionist or social motivations. As an example, life insurance was very restricted for a long time to protect the government owned Life Insurance Corporation. In the recent past, easing of norms have allowed insurance companies from the world over to open offices in partnership with domestic companies and access a huge population base

Healthcare in all forms is a huge opportunity – hospitals, clinics, instruments, diagnostic equipment to name a few. We see plenty of doctors from India here today. Some are investing in healthcare ventures back home, bringing their expertise as well as their money. Reputed hospital chains in the US are tying up with partners in India which in turn is spurring the ‘medical tourism’ industry. The ‘gap’ still remains immense, creating huge opportunities for investment. Similarly, health insurance, as always, remains both a need and a ripe area for American companies, along with the downstream distribution and fulfillment mechanisms.

Almost anything to do with energy and power has a huge demand the world over, and most certainly in India. Solar, wind and utilization of non fossil fuels has enormous potential. Among fossil fuels too, coal and energy from coal will have a long future, given the enormous reserves. Kentucky, in particular, can greatly benefit. Mining and processing technologies, as well as raw material have a big market. Electrical generation by any means is essential to sustaining growth. This need has prompted the debated ‘nuclear deal’ between the two countries. If it goes through, once again, opportunities abound.

The need for sustainable infrastructure is enormous as well as critical in India today. Roads, airports, sea ports, transportation are all seeing big investments from within and without. Worldwide conglomerates are zeroing in to take advantage of the ‘gap’. All services from design to project management are in great demand in addition to equipment, parts, maintenance and technologies.

Opportunities for sourcing from India have now moved from the traditional handicrafts, leathers and textiles to high-tech engineering items, movie production and pharmaceuticals, to name a few. The more sustainable opportunity, however, lies in using India as a springboard to other markets. Manufacturing facilities set up in India will not only return cheaper product cost and access to a huge market in India, but will also allow re-export of products back to the USA as well as to SE Asia, the Middle East and Europe. American firms will be well-advised to think along these lines.

All in all, India is a country that in the span of a few decades has produced firms that own the largest steel plants -Jaguar and Land Rover who produce the cheapest car in the world. India is a meaningful home to over a billion people. The time to engage and do business with India is now!