Riordan Manufacturing Company: Review and Analysis

Riordan Manufacturing Company: Review and Analysis Jennah Es-Sudan, Monica Malcom, Annie Willis and Yeong Yoo University Of Phoenix BUS/430 December 1, 2009 Riordan Manufacturing Company Review and Analysis The focus of this paper is to analysis the regulatory measures of Riordan Manufacturing. Riordan Manufacturing, Inc. is an industry leader in the field of plastic injection molding. With state-of-the art design capabilities, creating innovative plastic designs that have earned international acclaim. Attention to detail, extreme precision and enthusiastic quality control are the hallmarks of Riordan Manufacturing. With facilities in San Jose, California, Albany, Georgia, Pontiac, Michigan and Hangzhou, China, Riordan has the capacity to fulfill unique needs. Riordan Manufacturing is wholly owned by Riordan Industries, a Fortune 1000 enterprise. The company decided to closed their plant in Michigan and open it in China. Opening this business in another country has advantages. Our team will also discuss unfair import laws, Foreign Corrupt Practices Act of 1977, Patents, trademarks, and intellectual property, and environmental regulation and how they relate to doing business in China. Unfair Import Laws The government has assertively imposed our anti-dumping laws to fight unfair Chinese trade. † alleged Commerce Secretary Carlos M. Gutierrez. â€Å"China’s economy has developed to the point that we can add another trade remedy tool, such as the countervailing duty law. The China of today is not the China of years ago. Just as China has evolved, so has the range of our tools to make sure Americans are treated fairly. By acting on the petition filed last October, the United States today is signifying its continued pledge to leveling the playing field for American manufacturers, workers and farmers. Foreign Corrupt Practice Act (FCPA of 1977) Congress enacted the Foreign Corrupt Practices Act (â€Å"FCPA† or â€Å"the Act†) in 1977 in reaction to the Watergate scandal. Widespread media coverage of unreported crusade assistance and potentially unlawful payments to strange officials encouraged the Securities and Exchange Commission (â€Å"SEC†) to begin an investigation. The SEC's investigation eventually exposed that more than 400 U. S. companies had paid bribes to foreign governments and politicians, totaling more than $300 million. An FCPA violation requires that action be taken with a corrupt intent. Corrupt means an evil motive of purpose, and intent to wrongfully influence the recipient of the payment or offer to misuse his official position or to influence someone else to do so. The act does not require the corrupt act to be a success; it just means that an attempt was made to influence an alien bureaucrat. China has made great efforts to combat essentials of bribery—through endorsement and enforcement of strict anti-bribery laws and penalties—it still remains a cause of concern in the China business market. For example, in 2005, 11,071 members of the Communist Party of China (â€Å"CPC†) were disqualified from the party as reprimanded for dishonesty. In addition, Chinese magistrates dealt with 120,000 cases of misappropriation, corruption, and negligence of duty over the past five years. Given the size and magnitude of China's market, these issues also cause alarm for U. S. companies doing business in China. Chinese and other overseas companies may make unlawful expenses in China with restricted risks, U. S. ompanies doing business in China may feel marketable stress to disobey the Act to avoid finding themselves at a aggressive difficulty to companies that are not subject to the same laws or similar enforcement. For this reason, U. S. companies operating in China need a solid FCPA compliance program to avoid action for FCPA violations and to avoid becoming knotted in China's domestic corruption and bribery laws. Patents, Trademarks, and Intellectual Property Companies try to cap ture the markets by issuing licensing permits for intellectual properties to increase profits for their business. These intellectual properties included patents and trademarks. Unfortunately, nations are still struggling to adopt a consistent international legal system that governs the intellectual property. They often have restrictions which includes geographical/and field use limitations and customer restriction. The Paris Convention is a guarantee that in each signatory country, foreign trademark and patent application from other signatory countries will receive the same treatment. According to United States Patent and Trademark Offices (2009) a patent for an invention is the grant of a property right to the inventor. There were problems and drawbacks with this particular agreement so in 1970 the patent cooperation Treaty was adopted. This particular agreement addresses the centralized utility patent application process (Schaffer, Agusti, & Earle, 2009). A trademark is a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies and distinguishes the source of the goods of one party from those of others United States Patent and Trademark (2009). Riordan Manufacturing makes plastic products in the United States and decided to move the plant that makes Pontiac products to China. This was a way to produce goods cheaper than in the United States and enter the market international. When making this move into the international market Riordan Manufacturing has trademarks on their plastic bottles and other plastic products that the Paris Convention would cover. Environmental Regulations Environmental regulations are guidelines that are in place to govern how matters that effect human life and environment handle. WTO rules a nation can require foreign producers to comply with environmental standards that are required by domestic firms (Schaffer, Agusti, & Earle, 2009). Riordan Manufacturing had to make sure that when moving their company from Michigan to China that the environmental regulations are followed. China has been working with great determination in recent years to develop, implement, and enforce a solid environmental law framework. Chinese officials face critical challenges in effectively implementing the laws, clarifying the roles of their national and provincial governments, and strengthening the operation of their legal system EPA- China Environmental Initiative (2009). Having a manufacturing company Riordan had to make sure that the plant that was being built was welcome in China and it adhered to the regulation guidelines. Riordan also had to follow the pollution regulation and the energy regulation. Production of their products was welcome and they learned the environmental regulation to take their business to China. Political Risks of Operating a MFG Company in China China has been one of desirable areas that any international companies would want to expand their business to. Its evolving economy, huge manufacturing base, enormous supply of natural resources are dangerously attractive, yet the expansion to this developing country comes with risks. The political risks in China Riordan Company should consider is that China is increasingly pressuring foreign investors to transfer technology to local producers, which could erode the patent protections and competitiveness of investors. Next fact that Riordan should consider is that as they focus on shifting growth from exports to domestic consumption, China’s leaders may withdraw tax benefits for foreign investors. Infrastructure bottlenecks and strong upward pressures on government-controlled electricity and fuel prices also create considerable uncertainty around manufacturing efficiency and operating expenses. Our initial decision to locate our China operations in Hangzhou was driven largely by the fact that our Chinese partners already had facilities there that should be able to handle all regulations and political surroundings. As a join venture partner, Riordan Company should understand sporadic fuel shortages and worsening urban gridlock inject ambiguity into forecasts for domestic auto demand growth. In short, low-cost manufacturing and vast potential domestic demand is offset by uncertainty in regulatory and infrastructure capacity. This makes China a potentially higher-risk, higher-reward investment destination. Riordan Company executive management also should outline framework for understanding how local political and market dynamics affect foreign ventures. China holds tremendous promise as a manufacturing centre and market, but management should remember are social, regulatory and energy issues around the next curve in the road. Political-risk analysis should have been processed to contemplate not just broad, easily observable trends but also the nuances of society and the quirks of personality that can affect a venture’s success. For Riordan Company to be successful in join venture in Hangzhou China Riordan must obtain professionally prepared political risk analysis giving current assessments and forecasts of future stability. They can also seek consulting firms, insurance industry reports, reports of U. S. government agencies, and informal discussions with experienced international bankers nd shipping company representatives. Outline of the Possibilities for Foreign Investment and Securities A company that operates in a foreign country has to comply with the laws of that country. As a rule international business causes great pressures for U. S. business managers. A projected high profit margin weighs little if local law prevents repatriation of profits to the foreign investor’s home jurisdict ion. Riordan Manufacturing made the decision to expand internationally for the following reasons. China attempts to encourage investments from foreign residents. The following are among the reasons that foreign investors are attracted to China: †¢ Extremely low labor costs. †¢ A tremendous buyers' market in China itself with a population of 1. 3 billion. †¢ An expectation of a sharp increase in the buying power of Chinese residents, a fact that is influenced by the annual GDP of over 8% per annum and the low rates of inflation. †¢ In recent years, Chinese laws concerning foreign investments have been significantly eased. The total FDI in China for 2006 totaled 63 billion dollars. Conclusion From the beginning of the nineties and particularly from 2001, when China joined the WTO, until the present, the attitude to foreign investment in China has changed, among other matters, foreign investors are permitted to form companies that are 100% owned by foreign capital. Sales to the local market are permitted and foreign investment is also allowed in sectors other than industry and hi-tech, such as banking, insurance, financial services, etc. As a result of joining the WTO, China is expected to standardize specific benefits that were previously granted only to overseas investors or only to Chinese companies. As a general rule, industries in China that are open to foreign investments are divided into 3 categories, an encouraged investment, a restricted investment and a prohibited investment. Foreign investors cannot invest in projects that are connected with the military and defense industries in China. There are also restrictions on 100% control of foreign investors over transport, the automobile industry and power stations. Benefits that China grants to foreign investors are not given in the form of grants. Most benefits are in the form of a tax benefit, including value added tax, customs and income tax benefits in putting the mphasis on an investment in a Special Economic Zone (SEZ) or in special sectors and areas. The benefits granted are as previously approved according to the nature of the foreign investment. There are 5 SEZ's in China in the south of the country, the main tax benefits are: corporate tax of 15%. A benefit of â€Å"2 + 3 years â€Å"which means an exemption from ta x for the first two years and tax at the rate of 12. 5% for the next three years. Pudong Zone (Shanghai) In the Pudong zone there are 5 development zones specializing in hi-tech, financial services, agriculture and more. The benefits are similar to those granted to investors in an SEZ. References Schaffer, R. , Agusti, F. ,& Earle, B. (2009, 2005). International Business Law and Its Environment (7th Ed. ). Mason, Ohio: South-Western, Cengage Learning. World Wide- Tax& Finance (2009). China Foreign Investment Incentives. Retrieved December 1, 2009, from www. worlwide-tax. com/china/chi_invest. asp United States Patent and Trademark Office 2009. Definitions. Retrieved on November 30, 2009 from www. uspto. gov/ EPA- China Environment Law Initiative November 2009. Retrieved on November 30, 2009 from www. epa. gov/ogc/china/initiative_home. htm