To What Extent Are European Entrepreneurs Seeking To Start New Businesses At ADisadvantage Compared To Their American Rivals? The European Union and the United States are each other’s main trading partners and enjoy the largest bilateral trade relationship in the world. In 2007 their combined economies accounted for nearly 60 % of global GDP, approximately 33 % of world trade in goods and 44% of world trade in services.
The onset of the financial crisis in 2008 resulted in a rapid deterioration of the real economy all over the world, which had a major impact on trade volumes. In this changing environment the United States and the European Union are the main engines of global growth and must remain committed to free and non-discriminatory trade. For this reason, the unfolding economic recession makes the transatlantic relationship even more pertinent. Available at: http://vlex. com/vid/barreras-entrada-interconexion-paso-129564 (Acessed:28 February).
International trade remains a central aspect of the activity economic growth and development processes of most modern societies. According to Krugman (1991), nations are engaged in the international trade for two reasons. The first is that countries that traded in the international market are not necessarily similar, but different each other, trade helps poor countries benefit from their differences, acquiring foreign market that has not or is not economically feasible to produce in the local market, and reaching, as a result, a certain improvement in local production.
The second reason refers to the countries market to achieve economies of scale in production, so that the expansion of markets and customers purchase their products allows each country to produce only a very limited range goods on a larger scale and more efficient that attempting to produce a variety of goods to meet certain local markets. In this regard, international trade can be interpreted as the engine that drives growth and international competitiveness as the fuel said motor fuels (Ezeala-Harrison,1999). An entrepreneur is an individual who owns a firm, business, or venture, and is responsible for its development”. (Shukla, 2009) In reality, any person with business knowledge along with a good business idea can become an entrepreneur. One of the most important factors of becoming an entrepreneur and starting up a business is having the financial capabilities to support the firm. “Entrepreneurship is the practice of starting a new business or reviving an existing business, in order to capitalize on new found opportunities”. (Shukla, 2009)
Generally, entrepreneurs have a desire for developing their own business ideas or improving them but, you can also find that some entrepreneurs like to start up their own business to provide them with more stability, security and a better financial situation. Europe and the United States two of the biggest and strongest economies in the world share different perspectives of entrepreneurialism. In the United States the entrepreneurship involvement is much higher than in Europe due to the people’s preferences in the business world.
In the United States people prefer to be self-employed and become a business owner. Meanwhile, in Europe people prefer to be employed which affects deeply entrepreneurial initiation. The United States has a big advantage which is the participation of two important types of investors that help start-up firms grow which are “business angles” and “Venture Capital Firms”. Europe’s few fast growing ventures do not succeed enough to grow at an international level due to their poor financial capabilities. Compared to the US, there is less entrepreneurial dynamism in the European Union. Europeans are less involved than Americans in new entrepreneurial initiatives and European businesses do not grow as much as in the US”. (EU Commission, 2003) To enter the American market and you have a competitive product or service. To do this you need to conduct a Market Study on your potential competitors, potential customers and your potential suppliers. You have to get a proper legal advice, employment, legal, accounting and tax from early stages.
Having the right team that has good English language skills and be flexible to adapt and understand the American mentality. And finally, have sufficient financial resources. Available at: http://www. congresoacocex. es/resources/Oportunidades+y+estrategias+en+el+Sector+agroalimentario+en+USA. pdf (Acessed:28 February). Theories developed from classical country-based theories and supported with empirical research. Attempt to explain business phenomena related to international trade.
Firm-based theories have developed for several reasons: the growing importance of MNCs in the postwar international economy, the inability of the country-based theories to explain and predict the existence and growth of intraindustry trade and the failure of Leontief and the other researchers to empirically validate the country-based Heckscher-Ohlin theory. The most important theories are: The mercantilism is an economic theory that holds the prosperity of a nation is dependent upon its supply of capital, and that the global volume of international trade is “unchangeable. Economic assets or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports) and assumes wealth and monetary assets are identical. Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy; by encouraging exports and discouraging imports, notably through the use of tariffs and subsidies. Book: Griffin & Pustay (2009),International Business: Global Edition, 6th Edition, Pearson Education.
Adam Smith and the Classical Economists blasted merchants who lobbied for, and governments that surrendered to, demands for protection from foreign producers. They believed that international trade was an efficient mechanism for allocating resources and for increasing national welfare, regardless of the level of a country’s economic development. Also, that any impediments to trade would detract from the gains from trade and therefore harm a country’s economy. (Adam Smith, “The Wealth of Nations,1776”).
His main point of the theory of absolute advantage is that nations should import only those products in which another country has an absolute advantage. In his greatest work, The Wealth of Nations, Smith uses the example of trade between England and France to show how absolute advantage works and how it benefits both countries in the process. Adam Smith and all Classical Economists opposed any kind of restrictions on international trade. What he is trying to illustrate to the people is that since France has the absolute advantage in wine, England should buy wine from them because it is cheaper.
Available at: http://www. megaessays. com/viewpaper/80772. html (Acessed:28 February). Other important theory is the Product Life Cycle. This theory suggests that early in a product’s life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.
A commonly used example of this is the invention, growth and production of the personal computer with respect to the United States. The model applies to labor-saving and capital-using products that (at least at first) cater to high-income groups. In the new product stage, the product is produced and consumed in the US; no export trade occurs. In the maturing product stage, mass-production techniques are developed and foreign demand (in developed countries) expands; the US now exports the product to other developed countries.
In the standardized product stage, production moves to developing countries, which then export the product to developed countries. The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries. Available at: http://www. economyprofessor. com/economictheories/product-life-cycle-theory. php (Acessed:28 February). Finally, the Porter? s theory of national competitive advantage is the newest addition to international trade theory.
Book: Griffin & Pustay (2009),International Business: Global Edition, 6th Edition, Pearson Education. According to Porter a nation could create new advanced factor endowments like skilled labor, strong technology and knowledge base, government support and culture. He used a diamond shaped diagram as the basis of framework to illustrate the determinants of national advantage consisting of Factor conditions, Demand conditions, Related and Supporting industries, and Firm strategy. Available at: http://basiccollegeaccounting. om/michael-e-porters-diamond-theory-on-international-trade/ (accessed: 1 march) Using the four conditions and interact them will assure success in international trade. 1. FACTOR CONDITIONS: Based on the view of Heckcher-Ohlin theory re: the perspective of classical factor endowments like land, labor and capital but Porter’s Diamond, extended the issues into factors of innovation, creativity, quality and training. -Human Resources: First of all, comparing factor condition of the USA and Europe, it occurs that in 2004 the USA had the lowest labour costs of all EU-15, except for Ireland.
Next, between 2000 -2004 only Sweden had higher manufacturing productivity growth than the USA. The USA have the least restrictive regulation on labour in comparison with Europe, giving them a very important advantage- labour flexibility. And a point that is very important is that the majority of Americans speak the same language. -Physical resources: The American also have got an advantage, their country area is over twice as big as EU. While Europe has to use the land very wisely, Americans have got a lot more flexibility in space development.
Geographical location may have critical influence on profitability and success of firms in certain sectors. -Knowledge resources: More Americans attain university education than any EU countries. In general, USA has got higher expenditure on Research and Development than Europe. Americans also appear to be more innovative nation and the number of patents registered in the USA every year. -Capital resources: In Europe, the entrepreneurs usually do not have other choice than follow the ordinary sources and often fail to get credits from banks or to attract potential investors.
The USA entrepreneurs have got better perspective, a lot of USA companies have started their businesses with a help from the so called “Business angels”. They are private individuals who invest their own money in high potential start-ups in exchange for a share in the company, and also contribute their expertise in business management and their personal network of contacts. These companies are not held by either family or friends. As such, business angels play a crucial role as providers of early stage, informal, venture capital and competences at the seed and/or development stages of the business lifecycle.
Angel intervention is long-term, active, and may take a variety of forms. The role of business angels is especially important in view of both the decreasing levels of formal venture capital investment at these stages and the growing average amount of individual deals. Angel investors typically invest at an earlier stage of growth and provide more business guidance than venture capital providers. Therefore, angel investors are key players in generating high-growth companies essential to regional economic development.
Available at: http://www. eban. org/component/content/article/43/112 (Acessed:28 February). -Infrastructure: The technology is often a decisive determinant in doing business. Using the internet and mobile phone. Americans entrepreneurs have a great opportunity of using many interlinked systems of scientific institutes, universities and government departments. 2. DEMAND CONDITION: Based on new trends of consumer preferences. For examples like the using of the Internet (eBay, Amazon. om is becoming popular for the purchase and sale of on-products & services to meet the needs of domestic and international markets). Porter argues that demand conditions created more competitiveness and innovative markets and firms. That also increases quality of their products and services. Conditions demand make companies specialize and be more efficient and effective. 3. RELATED AND SUPPORTING INDUSTRIES: Refer to the increase in the number of suppliers to meet the industry production, marketing and distribution needs every time a new industry emerges.
Available at: http://www. essays. cc/free_essays/b5/lvt197. shtml (Acessed:28 February). This third diamond is related and supporting industries which in the EU due to their philosophy of single market which limit themselves in understanding and investing in other industries. Meanwhile, in USA different industries can invest on each other which create new venture firms. 4. FIRM STRATEGY, STRUCTURE AND RIVALRY: Important when competing in world markets as firms must be able to create strategies and continually provide high quality goods and services to stay ahead.
Important for firms to are competing internationally to be on pars with competitors on areas like research and development, advertising, promotion, branding, staff training and others. Available at: http://www. essays. cc/free_essays/b5/lvt197. shtml (Acessed:28 February). As the last diamond, the firm strategy in the retail sector is to offer quality products or services at a low-level price. This low-level price can due to the high productivity and manufacturing the USA develops. In Europe, due to the high quality hand-set made products