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Recession Increases Homelessness In Los Angeles Economics Essay

The entire United States is feeling the pinch during the current economic recession. In particular, Los Angeles, California is struggling to keep families off the streets. At the same time, developers are trying to attract new clientele to the downtown area by demolishing homes and building outrageously expensive condos. With unemployment rising and the affordable housing depleting, more and more families are becoming homeless. The continuous effort to help families maintain a stable environment is becoming harder. Los Angeles is not receiving the proper amount of funding it needs. Therefore, many families are left to try and survive on their own.
A group of 44 settlers named the Los Pobladores and Spanish governor Felipe de Neve founded Los Angeles in 1781. During this time period, the city was called “The Town of Our Lady the Queen of the Angels on the Porciúncula River.” Originally, Los Angeles was part of Mexico. It was not until1848 that California became part of the United States, after being bought as part of the Treaty of Guadalupe Hidalgo (Los Angeles, n.d.).
Los Angeles, California ranks as the second largest city in the United States. Spanning over 498.3 miles, Los Angeles is the largest city in the state of California. Home to 3.8 million people, including many famous movie stars, it is the 13th largest metropolitan area in the world. named Los Angeles the world’s eighth most economically powerful city, passing Shanghai and Toronto (para.1-3).
Nearly half of the people living in Los Angeles were born in another country; this makes the city very diverse. In Los Angeles alone, 224 different languages are spoken. Currently, a majority of the population residing in Los Angeles are minorities, with the Hispanic and Latino race being number one (para. 61-65).
Known for being one of the sunniest and most tourist-conscious cities, Los Angeles offers many attractions for visitors (Archibold, 2006). They hold many sports venues as well, including the Staples Center, which houses the L.A. Lakers and many award shows, like the Grammys. This city is said to be the “Entertainment Capital of the World.” Over the years Los Angeles developed nicknames for its city, such as L.A., Southland, Lalaland, and The City of Angels (Los Angeles, n.d.).
While some people might call it The City of Angels, others could not disagree more with the nickname. During the daytime Los Angeles is a place of business, upper-class citizens roam the streets and movie producers are filming their next big hit. On the other hand, at nighttime it’s nothing more than a nightmare you cannot wake up from; thousands of people are left roaming the streets searching for a place to sleep.
What we do not typically hear about or see is Los Angeles’s Skid Row, which hides in the shadows of the downtown skyline. This fifty block section of downtown L.A. holds the largest concentrated area of homeless people in the entire United States (Valle, 2005). The section of Fifth Street is also referred to as “the nickel.” It is said that Skid Row is America’s only third world city (Skid row, n.d.). Skid Row is nothing more than a result of the neighborhood’s gentrification (Valle, 2005).
“Gentrification and urban gentrification denote the socio-cultural changes in an area resulting from wealthier people buying housing property in a less prosperous community.” This can cause the price of taxes, homes, and rental homes to increase. Commercial businesses also tend to change their cliental base and cater more towards the upper-class society. As a result lower-income families are forced to move out of the area because they cannot afford to pay the prices (Gentrification).
These horrifying streets are home to the unwanted. Many police officers from other jurisdictions have been seen dumping homeless people in the area; they cannot provide correct services to them, so they dump them in the most undesirable area. Already overwhelmed with the abundance of homeless people, the county is facing a major problem with social service organizations being short-staffed. They are also experiencing a shortage of funds to help the homeless families who are in severe need of assistance. All services that a homeless person might be offered are located in the downtown area of Los Angeles. No other areas in Los Angeles provide services to accommodate their needs, such as shelter, food, and medical assistance.
The Chief of the Los Angeles Police Department thought he had found a solution to help local businesses and real estate developers dispose of the site of homeless people. He would have anyone arrested for minor infractions, littering, sleeping on sidewalks, and public urination. Unfortunately, his strategies were only wishful thinking. Soon after his rules were put into effect the city jails were overpopulated with homeless people and filled to capacity. It was also costing the city more to keep them in jail than it did to help house them for the night (Valle, 2005). These laws still remain in effect in the county, but are rarely acted on due to the lack of space.
Recent plans for Skid Row have been to build condos and lofts that sell for $700,000. This would completely gentrify the area and push homeless people further away. Without anywhere else in the county offering assistance for the homeless, they have nowhere and no one to turn to for help. Los Angeles Homeless Service Authority could not afford the new rent; they were forced to move because the building was being renovated into condominiums.
The downtown area is being renovated to attract new businesses, but the downfall of it all is that it’s causing rental prices to become unaffordable. New homes and condos are priced at an average of $2,000 to $3,000 per month. Even though it is not number one, Los Angeles has one of the most expensive rental markets in the state of California, and it is still rising (Martinez and Pitkin, 2007). The Center for Housing Policy has reported that Los Angeles ranks in 10th with the most expensive rental market in the United States. This 2010 report was based on the rent of a two bedroom apartment (Jeremy, 2010). With housing costs on the rise and the supply of affordable housing falling, many people are struggling to keep a roof over their head. Due to the renovations and demolitions, the 28,000 affordable homes L.A. produced from 2001 to 2006 meant nothing (Martinez and Pitkin, 2007).
Los Angeles is demolishing perfectly good homes during the middle of the current housing crisis. Coalition for Economic Survival and Housing LA have both been fighting to stop renovations and demolitions. Thankfully, the City Planning Department has recently started to deny some requests for demolition. They are also making it a requirement that some of the residences have to be affordable. Unfortunately, previous renovations have already caused damage. If the City Planning Department started denying requests sooner, then many family’s homes could have been saved and fewer people would be found wondering the streets homeless.
To restore Los Angeles’ middle class society the city must provide and create enough affordable housing units. Affordable housing is the ratio of housing costs to household income. Families should not pay more than 30% of their income, but in L.A. most moderate to low income families pay 50%. For someone to live in a one-bedroom apartment in L.A. they must make a minimum of $48,000 a year (Livable Places, n.d.). “An average family of four with two working parents must make $70,000 a year, just to skim by.” If a family experiences any kind of unexpected expense–an illness, injury, or car wreck, it could send them straight to the verge of homelessness (Valle, 2005).
In 2007, only 3% of homes sold in Los Angeles were affordable for median income families (Woolsey, 2007). As the need for housing grows larger the number of homeless people also increases. Not only are developers building new condos, but they are evicting residents as well. These families who are being evicted or who cannot afford the new pricing are left without a home.
Due to the lack of affordable housing, the Hollywood Community Housing Corporation formed a lottery for people to have a chance to secure a spot in a new fifty-eight unit subsidized apartment. Lines formed seven hundred people deep waiting for an application. Even though they might have received an application, that did not mean they were accepted. The housing corporation’s executive director said that subsidized projects similar to this one were becoming more and more difficult to finance (Garrison, 2009).
Families who do not win “the lottery,” they are left on the streets and shooed away. Because of the increase and widespread development of unaffordable housing, homelessness is at an all time high. What used to be a designated area for the homeless in Los Angeles, Skid Row, is now a widespread community epidemic. Homelessness is no longer designated to the poorer areas of Los Angeles; the entire county is now experiencing, what was once an isolated phenomenon. All eight of the Service Planning Areas have been heavily affected.
On an average night in Los Angeles 73,000 homeless people roam the streets without a place to sleep. Around 40% of the homeless have been this way for less than a year. About half the residents living in L.A. are housing a family member or friend to keep them off the streets. Los Angeles County supplies 17,000 emergency beds for the homeless. This low amount does not even come close to the demand. Shelter Partnership did a study that showed how L.A.’s shelters and agencies only accommodate a quarter of homeless families (Martinez and Pitkin, 2007).
The Los Angeles Unified School District has reported a 35% increase of homeless students. Recent data have revealed that the number of homeless families with children is rising. Between 2006 and 2007 the United States Department of Housing and Urban Development (HUD) data reported that public schools were teaching an estimated 680,000 children who were either homeless or living in an unstable environment. Studies have shown that homelessness can lower a child’s academic performance and reduce high school completion. Homeless children are nearly three times more likely to suffer from emotional or behavior problems, thus in the long run affecting their education.
An estimated 10,000 people were found living in uninhabitable areas (the medical news). Not only has the lack of affordable housing caused homelessness, but the economy as well. The recession has impacted the job market greatly. It has been projected by Goldman Sachs that unemployment will continue to rise throughout 2010. This would cause nearly 10 million Americans to live in poverty. The United States is dealing with the highest amount of unemployment rate it has ever seen (Homelessness declines in Los Angeles; recession pave way for affordable housing, 2009).
Los Angeles is one of the nation’s hardest hit regions for unemployment. Though unemployment rates fell 0.2% in November and December of 2009, the rate is still sitting at 13.2%. Surprisingly, Michigan topped out at a 14.6% unemployment rate in December. This means that the people of Michigan lost their jobs in 2009 faster than California residents did (Modesti, 2010).
The current economy is the worst downturn our nation has seen since the Great Depression. Nearly 8.4 million people have lost their job due to the recession. In January 2010, the Bureau of Labor Statistics found that 20,000 jobs were lost in that month alone. When the recession began in 2007, U.S. payrolls immediately shrank 6%, double the contraction during the 1981 recession. The rate that companies are cutting jobs is faster than the last three recessions.
To keep up with the growing population, the economy must create 100,000 to 125,000 jobs a month. Most unemployed workers will typically be waiting an average of six months before returning to work. Even if job growth increases at a high rate, it will take years to bring employment back to pre-recession levels (Schoen, 2010).
It is likely that the nation will face a higher increase in severe poverty than it has in the last 30 years. The current recession is more likely to cause the risk of homelessness. Unlike previous recessions that provided safety nets to protect jobless families, the assistance for families now is weaker than ever (Sard, 2009).
Chrysalis Enterprises is one of Los Angeles’ non-profit organizations. The organization provides employment opportunities to help families prevent homelessness. Each year, they help over 2,500 people avoid the risks of poverty and homelessness. They provide yearly assistance for transitional jobs to 600 men and women every year (Chrysalis Announces New CEO, Vice President and 2 additions to its Board of Directors, 2009). Even though Congress is expected to try and restore several million jobs, an unbelievably high number of people will still be at the risk of becoming homeless
Local and state jurisdictions have arranged inter-agency plans to prevent homelessness. This has helped reduce the number of unsheltered people in the past, and if proper resources are used than it could lessen the increase of homelessness during the current recession. Adequate funding must be provided in order for the inter-agency plans to function effectively. However, states and localities are dealing with budget shortfalls. The recession has caused them to cut programs and raise taxes to try and keep their budgets balanced. Homelessness prevention will without a doubt struggle to maintain, let alone increase proper funding (Sard, 2009).
Between 2007 and 2008 Los Angeles County has reported a 12% increase in welfare assistance for families who are homeless. More families will fall into deep poverty if the unemployment rate keeps rising. An estimated 900,000 to 1.1 million families with children will reach the level of severe poverty if this happens, leaving them with the risk of homelessness and housing instability.
Despite falling incomes and rising unemployment, rents are still being driven through the roof. Home foreclosures constantly keep pushing home owners into the rental market. The severe problems with home foreclosures only help boost the increase of homeless families. The demand for rental units will continually grow even though the prices of homes are falling. Families who previously would have purchased homes are now renting; they are waiting for the economy and prices to stabilize. Homelessness will continue to rise during the recession as long as the housing market maintains its downward spiral.
One way Los Angeles can help try to prevent homelessness is by offering housing vouchers. These vouchers can be used for families to pay past due utility bills or rent. Families dealing with foreclosure can be assisted with relocation funds, a one-time cost associated with moving into a new home. Unfortunately, the only way these short-term assistance programs will work is if families can continue to pay rent on their own after receiving assistance.
A recent five year study has proven that housing vouchers are effective in preventing homelessness. The national government needs to grant a substantial number of additional vouchers in the economic recovery package. In an economic crisis, such as now, voucher programs work the best. As a family’s income changes the amount of subsidy they receive will also change. Costs will also decline as the participants gain employment and their earnings increase.
In 2008, Congress provided 15,000 more housing vouchers to Los Angeles. Only 2,840 of the new vouchers were given to families with children; the families also had to be connected to the foster system. The rest of the vouchers were set aside for disabled people and homeless veterans. If no special restrictions on eligibility for new vouchers are set by Congress, then state and local agencies that receive the funds will be responsible for disbursing them. It is likely that more than half of the vouchers will be given to poor families with children.
If 200,000 new housing vouchers were given throughout 2010, including administrative fees, it would cost $2.1 billion. These additional vouchers could strain HUD’s 2011 budget. Subsequent budget pressures could be avoided if the recovery package stated that agencies could reissue vouchers after a family has left the program. By not allowing agencies to reissue vouchers, roughly 30% of the new vouchers will be retired by the ending calendar year of 2010.
Because of the recession, it is unlikely that families will leave the program, but there is still a chance that some families might leave the program for non-economic reasons. The possibility of fewer people leaving the program than anticipated could result in a need for additional funding in 2011 to sustain new vouchers that were not offset. The proposed funding of $2.1 billion is only meant to cover a 16 month period. If Congress provided a 20 month program, than agencies could accept a higher number of vouchers and further help prevent homelessness in their community.
With the new proposal, families would be able to spend more money on food, clothing, and health care. The benefits of trying to eliminate and reduce homelessness would be immediate and long-term. New vouchers would help pump funds back into local economies within a four to six month period. When comparing Michigan to California with the estimated state shares of recommended increases in housing vouchers and the Emergency Shelter Grant (ESG) homelessness prevention funding, California will receive 26,962 more vouchers and $182,507,187 more new ESG funds than Michigan (Sard, 2009).
After the Government’s stimulus spending starts to fade at the end of 2010, it will remain uncertain whether or not the economy will make any forward progress. With the economy still in
a recession, hopes of employment are still uncertain. Families could remain poor and jobless for years to come. If the government does not set regulations on demolitions and reconstructions, families will remain without a home. It will keep costing residents of Los Angeles County nearly half of their wages to keep a roof over their family’s heads. Without affordable housing, Los Angeles will continuously spend unnecessary money to help the poor. The amount of homeless people in Los Angeles is on the rise and shows no sign of slowing down.
The economy is at its worst, affordable housing is at its lowest, and homelessness is at an unbelievable all time high. It is time for Congress and Los Angeles County to step up and take control of the situation; they simply cannot afford for anyone else to become homeless. “The size of homelessness population in Los Angeles County, which is more than any other in the country, has sold itself to the rest of the world as the Promised Land of endless opportunity, underscores the depth of the social crisis that racks the state of California and the entire country (Valle, 2005, 27).”

Parallel Imports And Their Effect On Prices Economics Essay

Pricing is a means whereby an organization covers its all costs and makes profit. Price of a product includes all its cost of research, manufacturing and advertisements. Organisational goals and objectives are determined through market conditions. Sometimes these goals and objectives cannot be achieved. It is very important to decide the price of product according to the market conditions. In pricing brand name quality and other environmental factor also counts. We determine the price of any product to keep an eye on our profit with a scientific process. Therefore pricing is mean through which we can achieve market objectives. Pricing is mean which affect the individual status and also the function of marketing as well. We don’t just give the price also accounts the need of the customers and utility of the product as well.
Pricing Approaches The pricing theory is divided in three different approaches. These approaches determined by the market economists. Each approach has its own characteristics and tell us how to deal with the pricing.
Economist’s Approach
This approach made by the economists, they describe that the demand and supply of the product keep in to equilibrium through pricing. This approach operates with the perfect competition of the market.
Accountant’s Approach
This approach based on to cover all the incurred cost. The main focus of this approach is the rate of return. There is disadvantage of this approach; it ignores the demand and supply of the product.
Marketer’s Approach
This approach concentrates the competition of the market. How your product can gain competitive advantage of the market. How we can make profit through to gain competitive advantage.
Factors of Pricing It is very easy to determine the price in the home market but it difficult to set a price in the international market. You need to do full research of market before to give a competitive price. The price which is adaptable and make profit as well. It also depend on your product what you are going to launch in the market. How much it is competitive for other companies and how would deal all these scenarios. There are some factors which need to be focused in international pricing.
The main factors who affect the price are inflation. Inflation is thing which you can’t control in free capital economies. But there are some rules in some countries to control inflation like China. But there are many chances that the price goes up through inflation. Like the prices of oil going up day by day and every country is bound to increase the price of oil. It is hard to control the price under inflation.
Taxes, Tariffs and Administrative
The second main reasons which affect the price are taxes, tariffs and administrative costs. When any type new tax put on anything the price of that product automatically rise or any administrative cost occur on any product cause price rise.
Cost of Production
The cost of production is also factors which affect the price. If our production cost goes up or down it will definitely affect the price of product.
Product Differentiation
Product differentiation is factor which play role to determine the price. If we are making any product which is different from other or it has any unique quality obviously, we would charge our own price compare to others. The brand image is also a way to charge a desired price. Mostly brand charge higher prices when they launch in the international market.
Exchange Rate Fluctuation
When any firm start its any country they also focus which they would charge. How their product satisfy the customers and how much they will be able in foreign currency like, Pound Sterling, Euro, US dollar etc. Every one wants its accounts in international currencies.
Competition is very big factor to determine the price. When any company starts its business globally? Its count everything the quality, reliability, durability and packaging as well to beat its competitors. After focusing these entire thing then you should charge a reasonable price.
Transportation Cost
Price automatically will be change when your transportation cost would increase. When we spend more money on transferring goods from one place to another, it would obviously increase the cost of goods and we would recover from the product.
Middle Man Cost
Middle man cost is also a factor to which affect the price. Middle man is source between firm and other dealers or consumers. If, it costs us more expensive it will definitely affect the price of the product.
Parallel Imports and their Effect on Prices Parallel imports (PI) are the goods produced under the legal, genuinely with patents and rights circulating in one market that is home market of the product. After that, these goods has imported into second market without the permission of the owner or the original copy right holder. The owner is licence holder for their local market, is called parallel importing. Parallel importing also called gray importing. The owner has no right to sell these goods in any other country. Parallel importing normally occurs when the price of goods lower in one country and it is expensive in any other country or state. In Europe they are trying to stop parallel importing. Mostly, students and tourists bring many things from their host countries and sell to the other country. Because these are goods are not those risky and not more chances to pay custom duty on them. For example the Top Gear Magazine of UK is allow to sell in UK and the Top Gear Magazine Australia is allow to sell in Australia but few unofficial dealer in Australia also sell Top Gear Magazine (UK version). Cigarette is also the parallel import everywhere in the world. Like most of the New Zealand Luxury dealer buy Mercedes Benz from Malaysia on cheap price New Zealand than the original Mercedes price.
To decide a price of anything is complicated and research sensitive process. It is not easy for any company to launch the price of any product and especially internationally. They launch the price after the market research of their international competitors. When parallel imports occur in any country the goods which are already in the market are expensive that is why people would like to buy the parallel import goods because they are cheap. Therefore, they would reduce the price of their goods to compete the parallel imports goods. It will cause losses to the home goods makers.
Causes of Parallel Imports Internationally, firms launch their product according to the market survey of the product; sometimes they are relatively low from the other countries because they had considered the buying power of the people which cause parallel importing.
Parallel importing comes in to existence when the price margins are huge.
Parallel importing occurs when we restrict the supply of one product in particular market, parallel importer meet the requirements of market through parallel importing.
Parallel imports occurs when any govt add lots taxes on imports of goods. This thing make parallel importing more attractive.
Parallel importing occurs when ineffective management fails to charge the reasonable price for any product and the supply of the product.
The taxes on products are high or the VAT id high.
Currency exchange rate is a very big cause to parallel imports.
Cultural restrictions are main reason like magazines are same all over the world but they identify the culture of specific areas.
Solutions of Parallel Imports To solve all these issues countries should make laws to stop parallel importing.
Company should make special rules and regulations to control the supply because excessive supply gives room to suppliers to sell the goods outside in other markets to gain their personal benefits.
Market should be separated on geographic basis under any law to control parallel importing.
Supply of the market should not restrict in the particular market to control parallel importing.
These are solutions through which we can control the parallel importing. By implementing all these strategies we should be able to control parallel importing.
Question No. 4 Tariff Barriers Every country makes their own good and they want to sell their own goods in the country as much as they can sell. The main reason is behind is to promote local industry. Countries do international business as well to meet the requirement of the country. Many multination companies working world wide and many which provide their goods and services in the world wherever they needed. But in some cases no country allows people or any autonomous body to import good from somewhere else and use in the country. This is way that country protects home industry from foreign competition. Because, any country first think about the home industrial market after that any other international market.
A tool to control or regulate imports is called tariff. It is like a duty or tax to control imports. In other word you can say impose duties on goods which create problem in the trade. Tariff barriers are also called import constraints. This is mean to control the goods to be imported. Countries use this to reduce the imports as much as they can.
Types of Tariff Barriers There are some types of tariff barriers
Specific Tariff
This is type of tariff barrier in this form a barrier a fixed percentage is levied on any import goods like we can say if any one imports a pair of shoe from Italy he would pay $20 on each pair of shoe or anyone who imports a computer from US would pay $250 as levied charges.
Ad valorem Tariff
It is also a type of tariff. It is a Latin word which means “according to the Value” it means that a percentage would be charge on the value. Like we can if anybody imports a car from Malaysia to New Zealand in $10,000 he would pay 15% levied on it as an ad valorem tariff means would pay 11,500 for a car
Compounded duties
These tariffs are imposed on the manufactured goods items. Like the import of raw material what be charge extra on particular raw material to save home country raw material.
Why Do we Use Tariff Barriers There are some specific reason due to them we use tariff barriers. Actually, to protect them from international competition.
Protecting Consumers
The countries want to save the consumer from the usage of imported goods. The people who make these decisions think that some imported commodities are harmful for the consumers that are why they put barriers on them. Like the South Korean govt tariff on the import of beef from US. They think it is full of diseases.
Protecting Domestic Employment
Tariff is imposed to save the domestic employment. A large number of populations work in the industries. If people would start importing than people of home industry would lose their jobs.
Infant Industries
The govt of any country impose a tariff on the all imported goods to promote the home industry. Because, the in developing countries the industry is already not well than developed countries to save the home industry country impose theses tariffs on imports.
Non Tariffs Barriers Non tariff barriers are the restriction on the imports but they are not like usual tariffs. When barriers are been set up than some further tariff. Non tariff barriers are toll to control the trade of an economy that is conduct another economy.
Types of Non Tariff Barriers There some types of non tariff barriers
Specific Limitations on Trade There some certain types which comes under this head.
In these types of non tariff barrier we decide a quantity of commodity. We cannot import more than a fixed quantity. That is the way how we restrict the import.
Government issue a licence to anybody or firm to import certain thing which they need for their business. Like govt issue a licence to company to import cheese from any other country, but not to everyone to keep the market safe.
Proportion Restriction
This is also a type of restriction to bind the any company to stop the imports from other countries.
Minimum Import Price limits
There would be charge a fix price for imported goods.
It is also a type of non tariff barriers to control import. Like a country banned a particular country or bane the particular product. Like US banned it trade to North Korea (like ivory). Embargoes can be both imports and exports both.
Customs and administrative entry procedures
It is also a way to impose non tariff barriers. Anti dumping is way to control, that you are not dumping below the local cost to destroy the local market.
Different countries have different standard of goods. Like we can say Japan keep their goods out because it does not meet the standard. These include the packaging and labelling as well.
Voluntary Export Restraints
These barriers impose the export country not the importing country. Like Brazil export sugar to Canada on the request of Canada through VER and Canada export coal to Brazil through VER.
Local Content Requirements
In this type of non tariff barriers the govt restrict the domestic industry to make a percentage of goods in home industry. This percentage could be a value of products itself. Like you can say 20% of the goods would become from the domestically made industry.
Example of Non tariff Barriers Non tariff barriers are those which are other than barriers, it is a type of barriers to stop certain things like Tata motor has non tariff barriers to start its market in USA. If we talk about East Africa where the cost of NTBs are imposed on Kenya to import Maize from Uganda and Tanzania is $0.09 per ton per kilometre. The cost of non tariff barriers for the trade of beef is 0.17 per ton per kilometre. They need to implement all these rules to run trade non tariff barriers. Even though, the road blocks are the main barriers in the trade. The traders wait long times in the queues to handle all their issues. The police men on border are unfriendly. The spent lots time to deal to the traders. The police men are indulged in bribing. Kenya has numbers of Road blocks in their cities and boarder areas. The govt on Kenya did a lots work on improvement of roads and they improved approximately 47 roads and they still working on it. The roads are non tariff barriers in trade between countries. The traders of both beef and maize had queued up long time in front of custom offices to deal all their queries. A maize trader waited approximately 7 hours in the custom office. In Kenya both beef and maize trader wait approximately 3 hours during every trip. These are the some example of non tariff barriers.
Question No. 5 International Marketing To penetrate in the international market is different than the local market. To enter in the market like u starting up from new business no experience not market idea and new people and community. But the companies do have a little knowledge of new market. Companies must look into the all the risks and all other elements which are required for the growth of product. Most of the companies like to have their executives’ international experience in the resume.
What is Joint Venture? If you are running a business and you want to increase to any other market and break down all the barriers to entry, there is a way to do joint venture with any other company and get into any market. Joint venture is a economic tool to capture the new market.
Joint venture is strategic alliance where two or more parties businesses together, it is the sharing of all the things like, intellectual property, knowledge, and assets and of course profits. A joint venture is contractual and legal document. A joint venture is different from a merger and acquisition. There is no transfer of ownership in joint venture. Joint venture can be between small or bigger businesses. It depends on which basis they want to come together. Mostly company’s deal in identical product jointly likes to work to penetrate the market. In some cases a big company does joint venture with a small firm to get all the knowledge of market and then start business.
Emerging Markets Emerging markets are those countries who are reconstructing their markets are value able and offer wealth opportunities in trade, technology and foreign direct investment. According to the World Bank there are five big emerging economies are China, Russia, India, Indonesia and Brazil. Some other countries are also emerging markets like, Mexico, Argentina, South Korea and Poland. These countries transition from developing markets to emerging market. These markets are facing global market individually and in group as well. These emerging economies are coming out with their characteristics like big population, lots resources and big markets. The developing countries borrow huge loans from IMF and world bank to manage their internal problems but they don’t use them properly due to instable political environment but theses emerging market reduces to borrow loans and if they borrowing their political democratic leaders using them properly.
Circumstances for joint venture in Emerging Markets Any multinational company when goes in any emerging market the main focus on the maximum utilisation of opportunity.
Economic Growth
The growth rate is high in emerging market. The main objective of every firm is to gain maximum out of its investment. According to IMP the growth rate is double in emerging markets than developed markets. This economic growth attract the more multinational firm to go in emerging countries
Favourable Demographic
The emerging countries have younger people than the developed countries and this younger generation plays role in the economic growth. Younger generation are the people who can do anything. You can utilize them as energetic work force.
Economy’s Strength
The emerging economies are becoming more strengthened day by day. The more improvement came in last 10 years. They are still on the way to progress like china is growing on the rate of 8% per year. It was growing more than that before this economic recession.
Economic Reforms
The emerging countries are making proper rule and regulation for their monetary and fiscal policies. They made special rule to deal with the debt policies. They try to control inflation and try to deal with any disrupt situation.
Emerging Markets are under owned
The big population of the world is living in emerging economies. Approximately 80% of the world population belong to emerging economies. 66% of foreign exchange reserves and 50% of gross domestic product.
Reasons for Joint Venture Cost Sharing
The main reason is cost sharing when any company goes in to any new market. It doesn’t want to bear all expenses by them self. They want to share all the cost on the with the host firm. It is good to bear the half cost to start a new business on a new place.
More Resources
In the form of joint venture you have full access on all the resources which you don’t have alone because you are new in that country but you can access all the resources with the help of joint venture in any host country.
Greater Capacity
You have double capacity to work in any country with the help of joint venture because you can utilise all the capacity which you partner has to exploit the market on advance basis. It helps you out to do proper research of market.
Increase Technical Expertise
You have a chance to all the technical expertise which you have and your partner have about the domestic market. You can get benefit from all of them.
Risk Elimination
We can reduce all the risk of the market with help of joint venture. The host firm knows each and every thing about the market risks. Not only to understand all the market risks but we can eliminate them with the help of our partner.
Shared People Resources
We can get better and well educated people in emerging countries. A big number of populations are educated in emerging countries. We can utilise all these work force nice and beneficially.
Any company can do joint venture with any firm which has it brand image in the market this is very big opportunity for any firm to capture the market. The coming company is no need to putt special effort on the any marketing cost to launch any product.
Access to Technology
The access to technology is easier for you because your partner has already technological equipped to deal with the market. It is big opportunity for you to access all these technologies and get maximum benefit as much you can.
Better define Industry Boundaries
It is easy for you to define the boundaries of any industry and you can deal under your descriptive method and tool to handle all the market. It is good for any firm to have an idea about industry boundaries.
Example of Joint Venture
Maruti Udyog Limited is leading car maker in the India. Its main factory is situated in Gurgaon in Heryana and the other end the Suzuki is the famous car maker in Japan. The company did a joint venture with Suzuki Japan and made a success story in the annals of Indian automobile industry. It was the joint venture when India was emerging to the modern world. After this joint venture the company made its recorded sale in 13en months. Suzuki Maruti made very good car after utilising the Japanese technology according to the Indian environment. Its market share reached up to 70% in 1998 because of less competition and Maruti has it share in market 38% in luxury car makers.
The success of this joint venture led Suzuki to increase its share from 26% to 40% and further more they reached up to 50% of the share. Maruti was a govt firm was before after with the introduction of economic liberalisation from July 1991 the govt realised to make the growth more potential and promoting the employment for the up gradation of the industry.
Maruti was the leading car maker in India when Suzuki did joint venture. Suzuki was equipped with technology and realised that there is room in this emerging market. India has massive population and there was need to develop a better technology equipped vehicles which can meet the customer need and also has ability satisfy the customers. As a result the process of technology was slow but successful. Recently, Magneti Merelli, Suzuki Motor Corporation and Maruti Suzuki India Limited did again a joint venture in Oct-2007 for the production of Electronic Control Unit (ECU) for diesel engine. In this agreement Magneti will contribute 51%, Suzuki 30% and Maruti 19%. The total investment is approximately euro 16 million. It is again a big joint venture in the emerging market.
Conclusion As we seen how the companies going in the emerging economies and these emerging economies are had lots potential to support the global market. These are the countries which are attracting the whole world in sense of capital, trade and technology. The main reason is that the countries has big population and there is a big room in these countries markets to handle all these upraising problems.