The US Business Environment
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The business environment in the US is currently facing is the problem of competitiveness. The problem of competitiveness is especially aggravated by the 2007 global financial melt-down that bottomed out in 2009. There are a number of structural changes that now threaten the competitiveness of the US. A survey carried out by the Harvard Business School indicates that the US is facing a growing competitiveness problem (Porter & Rivkin, 1).
The findings of the Harvard Business School have shed more light to the issue of competitiveness in the US. The findings show that the US is faring poorly against the rest of the world in competitiveness. The survey reveals that two thirds of the decisions involving high-end work, jobs and groups of activities located together are currently moving out of the US faster than it moves in. This essay will also describe the root causes of this problem. The implications of the competitiveness problem in the US will also form a subject of this paper.
The Problem of Competitiveness
First and foremost, it is important to define the term competitiveness, or to be specific, the US competitiveness. The US competitiveness is the extent to which US firms are able to compete favorably in the global economy while sustaining high nliving standards and wages for US citizens (Bailey & Slaughter, 1). This definition of the US competitiveness brings one thing to the fore. If the US firms are able to compete globally due to falling wages and standards of living, it would an indication that the US as a business location has become less competitive (Porter & Rivkin, 2).
However, the US has to sustain high wages and win on the global front. This means that the US has to produce high value goods and services per unit of capital, natural resources and human invested in the production program. The hinge of competitiveness, therefore, lies on improving productivity over the long run. A competitive US economy would result into the production of robust jobs that are desperately needed in the country. However, job creation is not sufficient to serve as the goal for the US economic policy.
The survey by the Harvard Business School reveals that major decision makers in the US expect US competitiveness to decline over the next three years (Porter & Rivkin, 4). In addition, workers in the US are currently under more pressure than firms (Accounting Education, 10). This is because workers will be expected to put in more effort in order to produce high quality goods and services, which would fetch better prices on the international market. This would enable the firms to pay higher wages to the workers. This would exert more pressure to the workers than it would to the firms.
Secondly, many decision makers in the US share pessimism concerning the US competitiveness. Most decision makers are familiar with international market situation. They contend that the US is currently doing poorly on the international front in terms of competitiveness. The pessimism seems to be springing from the recent global credit crunch, which left many world economies on the verge of collapse. The US economy, like many other world economies, has been struggling to recover.
The research conducted by the Harvard Business School also reveals that most decision makers in the manufacturing sector are particularly pessimistic about the ability of US firms to compete on the global front (Porter & Rivkin, 5). However, their counterparts in public administration and finance are less affected because they are less exposed to international competition. The sectors not much affected by international competition include accommodation, food services, real estate, construction and public utilities.
The problem of competitiveness is further compounded by the issue of sectoral differences. Sectoral differences make it difficult for the country to tackle the whole issue of competitiveness because various leaders may lack a shared perspective and a sense of urgency. Nevertheless, every sector posits that the number of people expecting competitiveness to drop is more than those who expect things to stabilize.
Research further indicates that the US is faring poorly in decisions on where to locate business activities and jobs (Porter & Rivkin, 7). This is because most businesses prefer to locate their businesses outside the US. Most companies have diversified outside the US, thus, creating jobs abroad rather than within the country. The reason for this could be attributed to the availability of cheap labor and raw materials abroad.
Whereas other countries compete against each other, the US experiences competition from the rest of the world combined. This implies that the rest of the world, that is, Europe, Africa and Asia, form one large competitor to the US in hosting business activities. It is, thus, very difficult for the US to institute mitigation measures against the problem of competitiveness.
The problem of competitiveness in the US is also evident in the fact that facilities involving high end work, large numbers of jobs and multiple types of activities located together are tending out of the US a lot faster than the reverse. Previously, the general conception was that only the low end activities like back office operations were moving out of the US. Decisions about moving out of the US mostly involve high end activities such as RD & E. In addition, there are more off-shoring decisions in moving more types of activities together than on-shoring activities.
The Root Causes of the US Competitiveness Problem
There are several causes of the US competitiveness problem. To begin with, although the US business environment is relatively strong, it is facing stiff competition from other economies, especially emerging economies. The US business environment can hardly keep pace with the emerging economies. This is because most emerging economies present a bigger market for goods and services compared to the US. Secondly, the cost of production in emerging economies is lower than in the US due to the presence of relatively cheaper labor in the emerging economies.
Another root cause of the US competitiveness problem springs from the country’s internal systems. These include its political system, tax code, the K-12 education system and its macro-economic policies. Other factors of the internal business environment include infrastructure, legal framework, regulations and work force skills (Porter & Rivkin, 13). These factors have made the business environment in the US less favorable.
The US competitiveness problem will have various implications on the US government. First, the government will have to revise its taxation policy. It would have to consider reforming the tax code, reducing the corporate tax and giving incentives for investments within the US. The US government will also have to reduce healthcare burden on employers, as well as investing in the K-12 education system, among a raft of other measures.
The US competitive problem is threatening the stability of the economy. The firms in the US are more inclined to do business outside the country than inside the country. The country, therefore, face more competition from the global market for jobs and production of goods and services. This has lead to shortages of jobs in the US. The root causes of the US competitiveness include the inability of the country’s economy to keep pace with emerging economies, and its internal systems such as education and its tax codes.
Nevertheless, the US competitiveness problem can be remedied if a number of measures are taken by the US government. These include reforming the tax code and investing in its education system, among others. This implies that the US competitiveness problem can be solved before it gets worse. The effects of the recent global financial crunch are still being felt. Therefore, the US government has its job well cut out.
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