IBM is a world leader company in information technology and stands as the largest revenue generating Company in its field. In the past 50 years, IBM has earned a place for itself as the pioneer in information technology developments and innovation. The Company manufactures products ranging from hardware to software for its impressive clientele around the world. These products are designed for another range of storage products, line of business servers, customized microchips including the application software. In addition to manufacturing, IBM also serves as a consulting and outsourcing agent. The new information age is quite challenging to compete with, since the developments of many innovations like the personal computers, the Internet, distributed computing and many more. Though IBM does not still remain the single leader in the field of Information Technology, it does serve as a great Company for its investors and competitors. It has a long established base of loyal customers among such stiff competition of middle-sized companies and also Fortune 100 Companies (Searchitchannel.techtarget.com, 2014).
- Comparative Analysis
The macroeconomic indicators are indicated as follows in the respective tables:
- GDP growth rate: A
- GDP per capita at constant prices: B
- Inflation rate: C
- Unemployment rate: D
- Interest rates (Monetary Policy Rate)2: E
- General government balances (% of GDP): F
- Balance of Payments (% of GDP): G
- Exchange rates (national currency/USD OR National Currency/Euro)3 : H
The indications from the macroeconomic indicators can be well assessed to see the effects of these variables on IBM, be it in China or the US. The macroeconomic indicators of US show overall positive signs for the Company, as all the indicators seem to be favorable. As the US economy has grown, there has also been a growth in the success and profitability of IBM, which shows that the national level activities equally affect a firm’s activities. The condition of China’s economy over the years has also helped IBM prosper its business in China. Along with the rise of China as the new powerhouse, it has also helped IBM in exploiting best out of the economy in terms of its growth in the country.
c) An analysis of the market structure in which your company operates for the two countries:
Market Structure of China: The whole market structure of China can be divided into two parts:
- Equity Market:
There has been greater volatility in the Chinese equity markets in the recent years than compared to a decade and half ago. There has been low correlation observed between the leading enterprises existing in the Economy and the overall performance of the economy itself. The Chinese market succeeded to record super profits in 2006 and 2007, however slowed its returns in 2008. In the recent years, they are still trying to repeat the success of 2007 (China's Capital Markets. 2014).
The global economic crisis had a little impact on the Chinese economy in comparative terms and there is a slide when we see the Chinese equities, which finally ended in 2008. There were high levels of turnover but the fluctuation continued in the market until 2011 first quarter. China’s stock markets are hugely influenced by A Shares, and the foreign currency B share market is dominated by Qualified Foreign Institutional Investors (QFIIs).
The recent innovations in the Chinese market include stock exchange future launch, the Shenzhen ChiNext market, and the permit for QFII investors for their participation in trading of futures.
- Bond Market:
The role of Chinese bond markets in the economy is crucial; however, the resource allocation role of these markets remains limited when compared to developed ones. There are issues in the bond market structure as there is no uniformity in the composition of bond users. There are cross-market issuance hindrances and so investors are prohibited from investing and cross-market trading.
Market Structure of US:
The market structure of the United States can be summarized with the following characteristics:
• The market structure has changed overwhelmingly with the innovation in technology.
• Increased competition and enhanced liquidity have become more common because of the propagation of faster and less expensive hardware (U.S. Market Structure: Is This What We Asked For?, 2014)
• The innovation regarding quantitative trading strategies has heightened resulting in an increase in the overall market efficiency.
• The response time of tasks has drastically been minimized from seconds to milliseconds to microseconds, within the short span of only a few years.
• The exchange landscape has changed.
• The level of competition has increased as the barriers have entry have been minimized due to advances in technology.
• The world is actually flattening with the changing nature of relationships between exchanges and brokers.
• The exchange fees have been reduced to a large extent as a result of high competitive market conditions, the savings being transferred to end consumers.
- Liquidity strategies have replaced the traditional High frequency strategies
• There are no obligations for privileges such as sponsored access, Co-location, and direct exchange data feeds and many more.
• The whole landscape has been drastically changed by numerous decisive regulatory changes.
• Reg SHO, Reg ATS, Reg NMS
• Displayed liquidity has been dramatically influenced by Decimalization
• Virtual blocks have been created as a result of increased usage rate in algorithmic trading.
• Efficiency gains have been enhanced with manual procedures being automated.
• There has been a shift to algorithmic trading, which gives way for conducting agency orders.
• There has been development of automation in internal crossing opportunities facilitated by the use of ATS construct in the broker-dealer network.
• Development of a strong private network, as a result of which connectivity and liquidity access have increased.
• The new system is the Reg NMS inter-market sweep and within it, there is a connection between displayed and non-displayed liquidity pools, and exchanges.
An analysis of the monetary and fiscal policy for the two countries and their impact on the firm’s economic activity
The Chinese economy has derived various achievements from the national policies. But, there are many challenging areas in the country’s economic development. Besides the internal problems, the global economic uncertainty has had an impact on the exports and growth of China (China's Monetary and Fiscal Policy. 2014). These problems are intended to be solved with the strong fiscal and monetary policies that the economy wants to implement in practices. The major developments are:
Monetary policy: There has been a sound monetary policy in China since 2002 and it has promoted the implementation part equally. The money supply and liquidity positions have shown positive signals and the loans from China’s financial institutions have increased rapidly, reflecting the advancements in lending quality and structures. The country is expected to use a flexible monetary policy for the proper adjustment of money supply and maintenance of credit growth. There are also signs of reform in the interest rate mechanism and the incentives on lending and commercial bank governance systems (Sally, R. 2014).
Fiscal policy: The fiscal policy of China is of proactive nature since 2002. The fiscal deficit has been on a decreasing trend but the total fiscal revenue is also decreasing. The factors for trend may be reduction in customs tariffs, the visible impacts of lowered securities stamp tax rate and the lowering of banking and insurance business tax.
The monetary and fiscal policies of both the states i.e. China and the U.S. have developed over the years to make the existence and sustainability of domestic as well as foreign companies easier. IBM is a US company so it has no huge problems in the knowledge about the trade and operation rules in the US. But, the Chinese economy is diverse and it has different elements that IBM needs to follow up as the trade and other policies and other factors in that country change.
There have been many alterations in these policies in the past decade and almost all of them have it easier for IBM to cross inter-border barriers and emerge as the top company of all economies. The introduction of reform policies sin the US and Chinese economy, regarding the tax, interest rate and lending provisions have been positive initiations for corporations such as the IBM, in investing more in foreign lands and optimizing resources of their organization as well as the economy in which they are functioning as a host. The economic recession had affected the Company as much as it had affected both the economies, but as the countries started recovering with new and improved policies, IBM has also stepped back into its pace and gained a new momentum for going ahead.
China has risen as the leader in trading nations (in absolute numbers) in less than thirty years. The country’s entry into the WTO opened new avenues for the economy to boost the integration of Chinese economy to the global one. There is a growing pressure on China because trade is the only area of international politics, where the country seems successful. Though Chinese market have opened a lot as compared to past and liberalization is an important feature of the economy, there are areas to improve and challenged to cope.
China has signed agreements on free trade and economic partnership at the bilateral level, with thirteen partners as of 2011. This bilateral agreement helps China in putting up its status as the primary power and gives impetus to the position of the economy as the new emerging gravity.
The characteristics of Chinese trade policy can be summarized as being pluralistic, in-transparent, immediate and dynamic. Grand strategies are not the driving forces for framework of the trade policies. They are rather driven by economic interests or direct calculations. This means that external factors can influence Chinese trade policy to a significant extent.
In the recent years, the U.S. economy has derived increasing benefits from its exports to the rising economic powers such as China and other developing countries (Ahearn, R. 2014). For the US economy to optimize from its trade capabilities, it is important to increase the access to rising economic markets though trade and investment barriers may be higher in those areas as compared to other sectors. There are efforts being made in these countries to reduce such types of barriers.
The growing differences about the roles of state in economic activity constrict US from exercising the persuasion power for the embracement of WTO principles of free and fair trade. WTO’s introduction of dispute settlement understanding (DSU) has played an important role in trade relations management around the globe. There needs to be a revision and renewal of Trade Promotion Authority (TPA) to reap further befits from the country’s trade policies. U.S. trade negotiators need to invest considerable time, resources and incentives along with flexibility and leverage, to maximize trade benefits.
The international trade policies of both the states i.e. China and the U.S. play dramatically crucial roles in global trade development. These policies have most of the times, made the existence and sustainability of domestic as well as foreign companies easier. IBM is a US company so it has no huge problems in the knowledge about the trade and operation rules in the US. The trade policies in US affect IBM when it comes to export provisions or when getting back all the incomes repatriated from different Company sources. But, the Chinese economy is diverse and it has different elements that IBM needs to follow up as the trade and other policies and other factors in that country change.
In the past, there have been many alterations in the international policies and almost all of them have it easier for IBM to cross inter-border barriers and emerge as the top company of all economies. The introduction of reform policies in the US and Chinese economy, regarding the trade liberalization and free and fair trade have been positive initiations for corporations such as the IBM, in investing more in foreign lands and optimizing resources of their organization as well as the economy in which they are functioning as a host. Despite continuous improvements in trade policies, the economic recession had hit the Company as much as it had affected both the economies. With the passage of time, as the countries started recovering with new and improved policies, IBM has also stepped back into its pace and gained a new momentum for going ahead.
Thus, with the change in the forms and functions of the economy, there have been changes in the ways that IBM functions in both the states. The success of the Company in both the places, despite conditions of favorable or unfavorable consequence, is guaranteed by the support from Government’s side, which exists in the form of rules and regulations of the domestic state. The maximum revenue generating Company has established a name and fame in all the countries that it functions and much of the credit also goes to the flexibility of the policies in the domestic country and the new laws on liberalization and free and fair trade. We indeed live in a global village now.
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