Amarica Case

Executive summary.

The greenfield FDI is a form of direct investment where a parent company starts a new business in a foreign country by setting up new operational facilities. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. In order to decide which country is better for 'greenfield' foreign direct investment via sole ownership, the advantages and disadvantages of the countries should be considered.

For example, China is a developing country, and during the past 30 years, China's rapid economic development shows that China has a strong power in developing economic. In recent decades, China stays on one of the leading positions in direct investment and therefore a lot of investments to this country are considered to be profitable for any company or investor. The reasons are simple: the growth of the economy and a large number of different projects. Foreign direct investment in China, due to stable growth potential of the economy and a huge production resources, aimed at both the external and the internal market.The innovative ability is a great attraction for investment managers around the world. In contrast, a lot of foreign investors had chosen China for investment and this resulted in a very big competition.

Nevertheless, USA is a successfully developed country. And its economy is the top one in the world. As the most important country in the first world countries, the USA has many good experiences in global business. The most strong enterprises were set in the USA and it means that the competition in the USA is very huge. This competition affects many areas, not only the market place but also the labour market and the use of resources. All of these causes higher costs and reduces the profits.Also, American "antitrust law" regulates that a company with market share exceeding 20% can no longer merge any other similar enterprises.Considering different legal context in China and America, Australian oriented firm may find more business flexibility in China but business efficiency in America and achieve a reduction of operating in China but high business ethics in America.For the absence of well-designed legal system and poor implementation, Australian investors may enjoy a low operating cost, and in the meantime, the operation cost in America would be quite high. Employers running business in America must afford much more social responsibilities than a Chinese firm needs for having a more comprehensive legal system which has weaved a protection network for all citizens as well as surrounding environment. Compared with law systems in US, one most evident character of Chinese legal system is reflected by the relative low requirements of law, especially in environment protection field or "Greenfield".The sudden change of policies also lead to economic loses for foreign investors. USA and China are both in relative stable situations these days, though the political system of China is neither monolithic nor rigidly hierarchical and with widespread of corruption.

Ghemawat claims that the social customs or specific standard of behaviour will automatically influence the preference and choice of local residence. As a result, the cultural differences between host and home countries become the main risk of FDI. The consequence of the social and cultural risk could be localized strike and demonstration, and also could cause the large scale riot or political turmoil. Hofstede outlines four characters of cultural evaluating system: power distance, collectivism or individualism, masculinity or femininity, and uncertainty avoidance. In contrast with America, the scores of China are twice as those of USA in terms of power distance which indicates that China is centralized while USA is relatively decentralized.

The advantages and disadvantages of both countries.

To decide which country is better for 'greenfield' foreign direct investment via sole ownership, we should consider the advantages and disadvantages of both countries.When managers make decision for FDI, they should think of the profit they can get from investing in the country and therefore they should look for the advantages of their investment. This report is going to analyse the advantages of both countries first.

The advantages of China.

China is a developing country, and during the past 30 years, China's rapid economic development shows that China has a strong power in developing economic. After mid-1990, FDI became highly

significant for Chinese economy. And the data shows the foreigner investment contribute nearly 26 billion US dollar in 1993. These data shows that China has nearly 20 years experience in FDI, in other words, Chinese people accept the foreigner's culture more easily than before. Good managers should consider the cultural issues of foreign investment first, so that they can reduce the risk in their business. Until now, China has opened the market for nearly 30 years, in many major cities like Shanghai and Beijing, foreign investment can be found everywhere. Most Chinese people try to change or adopt the foreign culture. These appearance shows that investment in China has less risk than before, regards cultural issues.

The second advantage is that China has large market size and large labor market. The data shows China's mainland population in nearly 1.34 billion in 2010, and still increase . Large population means large market. And China is a developing country, many industries are could be new industries for this market, new types of products and new industries always can easily catch the eye of buyers and cooperators. Large number of buyers is supposed to increase the profit of investors. And the good cooperators are supposed to reduce the risk in many different aspects and also good for the future promotion. Good promotion can help the investors quickly open the market and let the buyers accept the new products.

Another important advantage is the policy advantage. After 1978, many institutional reforms happened in China. Lemoine states that China has strongly encouraged the export-oriented activities by FDI. For some special industries the government provides five-year tax refund program and some other similar policies. And the government also provides the special protection for FDI. These preferential policies can help foreigner investors reduce the risk and increase the profit.

The advantage of USA .

The USA is a successfully developed country. And its economy is the top one in the world. As the most important country in the first world countries, the USA has many good experiences in global business. First, the USA has many high technology skills