Introduction
International trade can be thought as the exchange of goods and services between countries. Such trade in many countries represents a fundamental share of the Gross Domestic Product (GDP).
International trade gives rise to a world economy in which demand and supply or prices affect and are affected by the global proceedings (Tharakan, Bulcke, and Plasschaert, 1998). When participating in the international trade, the member countries ought to account for the exports and imports in the county’s current account in the balance of payments so as to determine whether they are making profits or loss from the trade
Los Angeles, as a global city’s current economy overview.
Los Angeles can be termed as an extraordinarily global, but highly disaggregated, metro area. Besides lacking a commanding downtown that is inherent in majority of global cities and its reputation for sprawl, the region’s endless towns and cities merge to make one of the most densely populated urban areas in the United States (Fontagné, 2014)
Los Angeles global reach relates to a great length to its ports, advanced manufacturing and trade, films, investments, and immigration links to the Pacific Rim, which includes Latin America and Asia. Los Angeles is positioned among the most powerful global cities in the United States.
Studies indicate that it leads the country in annual exports which are approximated to be $79.8 based on goods and services that are produced in the metro area. The city is also the leading destination for foreign direct investment particularly from Europe, Canada, and Asia. Research has established that the Los Angeles port is the leading in the United States in terms of Container Volume (Fontagné, 2014).
This port is adjacent to Port of Long Beach that ranks second with reference to container traffic. When these two ports are taken as a single unit, they are ranked among the top five port complexes globally. In the recent A.T. Kearney’s Global Cities Index, Los Angeles was placed sixth and has been a consistent top twenty performer in other major rankings (Tharakan, Bulcke, and Plasschaert, 1998)
Los Angeles is a leader in the fashion industry as well as in biotechnology and health sciences. The residents of Los Angeles of which about thirty-five percent are foreign-born represent a wide variety of cultures (the University of Birmingham. Dept. of Economics, 1996).
South Korea’s Foreign Direct Investment and International Trade in city of Los Angeles
Foreign Direct Investment refers to investment in a business by an investor from another country for which the foreign investors bears control over the organization purchased. Thus, the entities that make direct investments typically have a substantial level of influence and control over the company into which the investment is made (Tharakan, Bulcke, and Plasschaert, 1998). The Organization of Economic Cooperation and Development (OECD) terms control as owning ten percent or more of the business.
South Korea is a significant market for the United States’ medium and small-sized firms that constitute the majority of the United States business exporting to South Korea. Studies by the Migration Policy Institute have indicated that there are over one and a half million Koreans in the United States with over one hundred and sixty residents of Korean origin living in Los Angeles (Fontagné, 2014).
Major strides have been made in promotion of the United States- Korea commercial and trade relations, specifically, the passage of United States-Korea Free Trade Agreement (FTA). Such factors make it favorable for South Korea to participate in international trade with the United States as well as making Foreign Direct Investments in the country particularly in Los Angeles city.
Over the past year, South Korean foreign direct investment to the United States reached $36.1 billion with the South Korea’s tech industry finding a warm reception in Los Angeles. Other foreign direct investments by South Korea in Los Angeles include banking, manufacturing, and wholesale trade sectors (Fontagné, 2014).
Foreign Direct Investment and International Trade of Mexico in city of Los Angeles
In the year 2013, Foreign Direct Investment in the city of Los Angeles by Mexico grew to a record of $35.2 which was more than double the level that was witnessed in the previous year.
Research indicates that the city of Los Angeles hosts the largest number of Mexican-owned and–affiliated organizations including Gigante Cemex and Bimbo Bakeries. Mergers and acquisitions indicate that Mexican investment is principally focused in the United States especially the City of Los Angeles (Fontagné, 2014).
The trends South Korea and Mexico’s economic scale (FDI, Trade) in Los Angeles, and Los Angeles to these two countries.
In the recent years, the overall Foreign Direct Investment in Mexico has been nothing short of mediocre. This is despite the country’s post-hype crises. Foreign Direct Investment in 2014 for Mexico reached $22.6 billion. This may seem as though it is a good figure until it is compared to Foreign Direct Investment of other counties such as Brazil which despite finding itself in the economic doldrums and criticized for its red tape, rigid labor market, high taxes, and protectionist tendencies has managed over $60 billion annually since 2011 (Fontagné, 2014).
Thus, Mexico can only redeem itself by carrying out Foreign Direct Investment in other countries such as it is doing in Los Angeles. Studies have indicated that in the year 2014, the Foreign Direct Investment declined sharply with a thirty-nine percent decline in capital investment and sixteen percent decline in the number of Foreign Direct Investment projects in the Caribbean and Latin America. Mexico has been in the past years been experiencing a negative regarding its economic scales in Los Angeles (Fontagné, 2014).
With regard to the International Trade, Mexico has been experiencing a trade deficit in its transactions with the City of Los Angeles considering that it has been exporting less than it has been importing from Los Angeles ( the University of Birmingham. Dept. of Economics, 1996).
On the other hand, the study revealed that the Asian- Pacific remained the leading destination for the Foreign Direct Investment. The region attracted over thirty-eight percent of all capital investments globally. The study revealed that South Korea had increased its capital investment overseas by one hundred and thirty-nine percent in the year 2014 which translated to $23 billion (Fontagné, 2014)
With South Korea having various businesses in the city of Los Angeles then we can say that as far as the country’s economic scale in Los Angeles is concerned, the country has been having a positive trade with the tech industry being on the lead (Tharakan, Bulcke, and Plasschaert, 1998).
On the other hand, considering that Los Angeles is a global city, the city has had positive trend in both Mexico and South Korea regarding its economic scale in these two counties (Fontagné, 2014).
As it has been indicated before, Los Angeles leads in various industries and thus by conducting Foreign Direct Investment in these two countries, it will have a competitive advantage over the native firms. This may be due to the advancement in technology by entities from Los Angeles. Studies have shown that these entities are growing steadily and thus exhibit a positive trend.
The problem, each of this two country, is facing in Los Angeles’s market and way to overcome.
As earlier stated, when conducting both international trade and Foreign Direct Investment, member countries ought to account for the exports and imports in the county’s current account in the balance of payments (Tharakan, Bulcke, and Plasschaert, 1998). This is so as so to determine whether they are making profits or loss from the trade. Both Mexico and South Korea have seen little foreign interest when it comes to investing in Los Angeles due to market characteristics or competition conditions.
Considering that the United States’ dollar and hence Los Angeles is more stable than the currencies of these two countries, Los Angeles has an advantage as it continues transacting with these two countries since the city and hence the United States enjoys the balance of trade benefits ( the University of Birmingham. Dept. of Economics, 1996).
The trade deficit of these two countries with the United States and hence Los Angeles dictates that the companies or entities of these two countries that are unable to compete with quality goods and services from the local firms lower their prices or risk going out of the business. So as to lower their costs, these companies may start outsourcing jobs. Some of the major problems that are faced by these countries in Los Angeles’s market are discussed below (Tharakan, Bulcke, and Plasschaert, 1998)
Ideology. Typically, basic ideologies play a critical role in the way negotiations are conducted. However, these ideologies differ in various states. Thus, while planning to conduct Foreign Direct Investment in Los Angeles, these two countries should carry out a feasibility study for their intended business ventures so as to determine whether the business people in Los Angeles tend to be more adversarial in their negotiations or whether they rely on consensus-building among other aspects (Fontagné, 2014).
Foreign bureaucracies. There are well-established and accepted ways of doing business in several of countries that may seem dangerous and difficult in another country. Things such as joint ventures and silent partners which are a virtual necessity in making business deals may not only difficult but potentially illegal in another country.
Thus, it is imperative for investors from these two countries to conduct a market research before carrying out Foreign Direct Investment in Los Angeles since this would help them in making major decisions which may aid in evading possible losses (Tharakan, Bulcke, and Plasschaert, 1998).
Negotiating environment. When conducting a business, one cannot avoid some factors such as ranging degree of culture shock. This encompasses almost everything ranging from conflicting business styles to, new food to language variations and consequently, these factors make negotiations to be more difficult. Thus, the foreign investors from these two countries should conduct a market research, determine some of these factors with regard to the citizens of Los Angeles and subsequently strategize on the ways to overcome them (the University of Birmingham. Dept. of Economics, 1996)
Foreign Direct Investment is transforming our commercial activities and societies. Every national business environment consists of unique cultural, political, legal, and economic characteristics. Thus, when undertaking Foreign Direct Investment, the management of the companies from these countries are likely to face all these factors. Thus, the management must be attentive to the nuances and adapt products and practices as required (Fontagné, 2014).
References
Fontagné, L. (2014) Foreign Direct Investment and International Trade: Complements or Substitutes? Organization for Economic Co-operation and Development.
Tharakan, K, Bulcke, V, and Plasschaert, R. (1998) International Trade, Foreign Direct Investment, and the Economic Environment: Essays in Honor of Professor Sylvain Plasschaert. Palgrave Macmillan.
The University of Birmingham. Dept. of Economics. (1996) Foreign Direct Investment and International Trade Theory. The University of Birmingham.
