US Company Expanding to Italy - Assignment Example

US Company Expanding to Italy Introduction International businesses have to contend with different factors that affect operationsand profitability of the business. International businesses therefore face an uphill task of maintaining the business requirements in a foreign nation. Further, the need to stay competitive in the foreign environment amidst local competing businesses presents a big challenge. Whereas, local businesses may enjoy certain privileges like government exemption to tax, subsidies and special protection, foreign businesses are exposed to different uneven playing ground in relation to the task of keeping up with the competition. Mostly, foreign businesses are exploited through regulations, practices and laws that are usually protective of the local businesses. These are the challenges that a U.S. firm expanding to Italy will face as it tries to gain grounds and remain competitive in foreign environment. U.S. business environment U.S. business regulations do not discriminate against small or large corporations as they are all subject to the same regulations. The country has a host of laws that govern business in the country and must be adhered to by any business. Employment and labor laws are stringent in how they regulate treatment of employees by businesses. These laws cover every aspect of employees’ relations. Further, the laws keep on changing as the government and labor bodies continue to protect employees more. The first labor law is Minimum Wage Law which sets the least possible wage for workers of every category. Other laws include Fair Labor Standards Act, Equal Opportunity Employment, Employee Retirement Income Security Act and many other laws that regulate employees’ welfare. The Employee Retirement Income Security Act (ERISA) seeks to make sure that every employee receives retirement benefits according to her own choice (Cihon & Castagneria, 2013). The Immigration and Nationality Act prevents any business from discriminating against any U.S. citizens. Advertising and marketing laws are also stringent on businesses activities. The Federal Trade Commission ensures that business comply with these laws. The laws are intended to safeguard consumers’ interests, while protecting them from scrupulous business who cheat through advertising and marketing. Businesses are required to give the truth in adverts, to enable Americans make purchasing decisions well. Failure to comply with these laws attracts lawsuits and heavy fines. The advertisements must not be unfair to competitors. Privacy law is another major business law that affect running of businesses in U.S. Privacy laws protect employees’ information given during employment, which includes social security information, education information and family information (Cihon & Castagneria, 2013). Businesses build up customers databases that contain information from consumers. Privacy laws protect this information from being used without the consent of the other party. The Safety and Health Act passed in 1970 provides for business to provide a safe and healthy environment for employees. The government carries out regular inspections to ensure that the set standards are maintained. This could highly elevate business operation costs. Another major policy that regulates business is environmental law. The Environmental Protection Agency (EPA) together with other regulatory bodies control the amount of green house gases (GHGs) released by a business. Even though the agencies have the responsibility of enforcing the laws, they should foster education to ensure compliance. The U.S. government also regulates online business. This enables the country not only to help local and global businesses with several issues but also to ensure that they comply with the established laws as well as paying taxes (Cihon & Castagneria, 2013). Another law that applies to business operating across states borders in U.S. is Uniform Commercial Code law (UCC). The law coordinates business transactions across all the states in U.S., which may include leasing of equipment, borrowing money and securing liens if a business operates in giving credit. However, business laws are different in the different states and enforcement agencies do not hesitate to ensure compliance. America also uses financial laws to protect business against financial problems. Bankruptcy, securities and antitrust laws ensure that small businesses and large corporations compete fairly. Further, these laws may aid in cushioning businesses from being bankrupt. The U.S. market regulations also offer a lot of protection to intellectual property where businesses are given intellectual property rights. These rights are exclusive provided they do not infringe on other trade laws (Cihon & Castagneria, 2013). Although, U.S. is one of the most competitive markets in the world, both official and unofficial trade barriers exist that make it hard for foreign businesses to enter. Formal barriers are state instituted while informal barriers are instituted by trade organizations, labor organizations and other local organizations that protect the interests of American businesses. America is considered to have some of the strictest rules when it comes to establishment and enforcement. Foreign businesses must comply with consumer, health and safety, and environmental regulations that may take permanent investments to install. However, the formal requirements are essential for maintenance of a level playing ground and to uphold competitiveness. Informal laws are trade organizations, labor, and consumer organizations requirements that keep on changing from time to time with an indirect effort to protect the local businesses. Further, different states have different regulations that increase the costs of doing business especially for foreign businesses. Despite lack of discrimination in the U.S. market, regulations and requirements provide a major obstacle for foreign business expanding into the U.S. market (Harris, 2002). Proposed security measures and intensification of security checks after the 9/11 attacks have also proved a trade barrier. The most affected areas include importation of products from other countries, which has increased screening and customs approval procedures. This heightened state of security has made some areas be designated as areas of national security interests. The government also uses grants, subsidies and other soft measures to ensure that restrictions like “Buy American” keep off foreign competition. The U.S. has sector specific barriers that prevent entry of foreign businesses into the industry (Harris, 2002). Italy business environment The lack of political will and vigor to combat things like corruption in government offices is a huge uncertainty to foreign business, which may find penetration easier. Legislations responsible for regulating trade are made by the political class. Thus, it is imperative to keenly evaluate the political climate of Italy and how it affects trade and businesses in general. According to Randlesome, et.al, (2011) Italy’s business environment is a product of the political patronage and association that businesses have with the political class and its size, family issues and the scale of small-firms that are in the sector of the business. However, Italy unlike U.S. maintains a small number of unfavorable regulations that may deter entry of new businesses. Some imports to country are not taxed if they are imported for export products processing. Italy is currently deemed to have relatively low unemployment rates compared to other countries. Further, this low level of unemployment is unevenly distributed in the country. The south has high rates due to crimes, corruption and poor infrastructure. Employment and labor laws are some of the neglected aspects of doing business with only three major laws. Most jobs are done on contract, mostly at the discretion of the employer who may decide to award benefits or not. Many workers have low wages, no retirement benefits, and medical covers. Further, contracts are terminated due to various justifiable reasons like illness, pregnancy and industrial accidents among other major issues. The maximum working hours are eight, with excess hours being considered as extra time. Employees on holiday leaves receive normal pay while those working receive 150% increase. Despite this, labor costs in Italy are high that may affect cost of doing business. The political class supports few employment and labor regulations, which implies that companies and businesses can lower the cost of doing business (Pianigiani, 2012). Further, laws that have been passed are exposed to different interpretations and thus liable to wrong interpretations. For example, the remuneration law that gives no directive on how people should be paid is vague and inapplicable. It is notable that foreign businesses that have high investments must forsake a portion of their ownership to Italians. Foreign businesses are exposed to both national government and local states taxation (Lorenzo, Carlo & Marco, 2012). As an EU member, Italy has few trade barriers. The first barrier to trade is the political corruption that exists in the country. Licensing of business is politicized and this may bring challenges as the concerned parties fight to protect their businesses from competition. Political patronage must first be sought before establishing a big business. Another barrier is the ownership clause that regulates a certain percentage of ownership of foreign businesses to Italians. Another barrier to businesses may be the relative sizes of business and the need to have a balance between the small and large corporate businesses. Italy is not secure in terms of security as gangs continue to rampage the streets. This may hinder the starting of foreign businesses in the country. The culture of Italians is built on close family relations, which reverberates to the business world. However, despite the existing culture, Italians emphasize on the profitability of businesses rather than family relationships (Hamilton & Webster, 2012). U.S. business expanding to Italy: challenges and how to overcome them There are various issues that a U.S. business expanding to Italy should consider and provide resolutions. One of the challenges is language barrier. Language barrier can be overcome by employing Italian citizens to help in running the business. Further, the expatriated workers can be taught the Italian language before the business starts. Another barrier to overcome is the inherent family alliances that Italians incorporate in their business decisions. It is obvious that Italians prefer to localize their business preferences. This can be overcome by employing more Italians to ensure that the localization of the business is perfect. Political corruption is another challenge that the business will encounter. However, political corruption can be dealt with by using existing laws to ensure that there are no loopholes. Security especially in the south is a major issue. In addition, poor infrastructure may affect the business. Insecurity can be avoided by using the government infrastructure to maintain security for the business (Hamilton & Webster, 2012). However, the business will benefit from the fact that it’s an EU based company. Government, regional and value added taxes that stands at 18% will be a major problem for the business. The Bank of America in Italy There are many American companies with branches in Italy dealing with all sorts of products and services. These companies include; Italian American Mushrooms, Bank of America, Impresa San Siro American Funeral srl, and American Airlines among many other companies. The Bank of America Corporation is a multinational bank with branches in Italy and all over the world. The Bank of America expanded into Italy in 1922 with the acquisition of Banca dell’Italia Meridionale. The initial expansion to Italy was not problematic due to few regulations that faced the banking industry. In contrast, the Bank of America faced a lot of problems from its own country of origin, which was characterized by infighting among the leaders, political hatred that passed legislations to bar the bank from owning other institutions and businesses like insurance and racial problems due to its original founder who was an Italian (Johnston, 2000). However, Italian politics and insecurity have affected the banking industry. Political patronage was aided by the acquisition of Banca dell’Italia Meridionale. As part of Europe and the EU economic zone, Italian banking industry has been affected by economic crisis. Lack of political will to enact proper legislations in the banking industry has had a major effect on operations of the bank. Foreign businesses in Italy, including the Bank of America pay high taxes to the regional and national government (U.S. Department of State, 2012). In 2011, Italy increased these taxes to cater for the high public debts and to cater for austerity measures. Italy is slow in economic growth, which hinders profitable growth of the bank. Further, the uncertainty due to organized crime and gangs hinders free trade in the region. Bank of America faced cultural problems. However, the long history and the Italian origin of the founder solved this problem by employing Italian citizens. Currently; the bank uses Italian citizens to run the bank. In 2011, the bank faced acquisitions of tax evasion. The government extreme intricate and subjective interpretation of tax regulations that targeted American investors and banks in issues of transfer pricing for multinational businesses and Italian subsidiaries placed charges for the bank. These problems were solved by turning to business lawyers and EU rules and regulations over international trade (U.S. Department of State, 2012). The Bank of America also faces discrimination due to the Italian culture of family ownership of business. This is solved by the Italian government regulation of having some certain shares belonging to the citizens. However, Italy remains a sophisticated market for international businesses like the Bank of America. The Italian climate for banking business continues to be complicated as the national government and state government get embroiled in power tussles. The problem in Italy is the political unwillingness to enact legislations that can enhance international banking. Bank of America continues to rely on the expereince, long stay in Italy and EU laws and regulations that influence business in EU countries. It appears that the Bank of America will continue to face challenges emanating not only from poor regulations but also from the political arrangement in Italy. The evolving problems will have to be solved using either legislations or lawsuits that favor foreign banking investments. Already, the EU rules and regulations pertaining foreign banking investments in Italy and other EU member states has over the years played a vital role in solving many problems (U.S. Department of State, 2012). Conclusion U.S. is a hostile market to foreign businesses than Italy. In U.S. regulations that need to be observed are strict and non-compliance attracts heavy penalties. Despite the competitiveness of the U.S. market, there are numerous formal and informal barriers that foreign business must contend with. Although, U.S. is a member of EU, state regulations and laws override EU trade regulations and tariffs. As opposed to U.S., Italy’s openness to foreign businesses can be attributed to the lack of an effective political leadership that can formulate good policies. Political corruption has rendered trade regulations ineffective. As an EU country, Italy charges the proposed tariffs and has fewer trade barriers. However, issues of political corruption, election uncertainties, and insecurity may be a huge barrier to foreign businesses. References Cihon, P. & Castagneria, J. (2013). Employment and labor law. Belmont, CA: Cengage learning. Hamilton, L. & Webster, P. (2012). The international business environment. (2nd Ed.). Oxford: Oxford University Press. Harris, P. (2002). The environment, international relations, and U.S. foreign policy. Washington, DC: Georgetown University Press. Lorenzo, C., Carlo, D. & Marco L. (2012). Temporary employment in Italy. DICE Report, 10(1): 55-62. Pianigiani, G. (2012). Stuck in recession, Italy takes on labor laws that divide generations. The New York Times, March 19, 2014. Retrieved from http://www.nytimes.com/2012/03/19/world/europe/italy-tackles-labor-laws-that-divide-young-and-old.html?pagewanted=all&_r=0 Randlesome, C., et.al. (2011). The business culture of Europe. (2nd Ed).New York, NY: Routledge U.S. Department of State. (2012). 2012 investment climate statement – Italy. State.gov. Retrieved; March 25, 2014, from, http://www.state.gov/e/eb/rls/othr/ics/2012/191170.htm Johnston, M. (2000). The tumultuous history of the Bank of America. Washington, DC: Beard Books. Read More