Panamera Subsidiary Evaluation Report:
Douglas, Isle of Man; Belize City, Belize; Hong Kong (PRoC)
Master of Business Administration, University of Fredericton
MBA 5020: The Global Economic Environment
Geoff Reid
May 28, 2023
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Hong Kong as an Ideal Subsidiary Location for Panamera: A Comparative Analysis, Study Guides, Projects, Research of Business Economics
A comprehensive analysis of hong kong as the ideal subsidiary location for panamera, a company seeking to expand its operations. It compares hong kong to other potential locations, such as douglas, isle of man, and belize city, belize, highlighting hong kong's strengths in trade regulations, tax policies, foreign exchange stability, intellectual property protection, and skilled workforce. Valuable insights into the factors that make hong kong an attractive destination for foreign businesses.
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Panamera Subsidiary Evaluation Report: Douglas, Isle of Man; Belize City, Belize; Hong Kong (PRoC) Master of Business Administration, University of Fredericton MBA 5020: The Global Economic Environment Geoff Reid May 28, 2023
Table of Contents
- Introduction......................................................................................................................................
- Overview..........................................................................................................................................
- Douglas, Isle of Man....................................................................................................................
- Belize City, Belize........................................................................................................................
- Hong Kong, People’s Republic of China.....................................................................................
- Discussion........................................................................................................................................
- Trade Regulations and Tariffs.....................................................................................................
- Taxes............................................................................................................................................
- Globalization...............................................................................................................................
- Foreign Exchange........................................................................................................................
- International/Regional Banking Factors...................................................................................
- IP Rights/Protection Infrastructure...........................................................................................
- Professional Services Support...................................................................................................
- Comparative Advantage............................................................................................................
- Conclusion.....................................................................................................................................
- References......................................................................................................................................
Overview Douglas, Isle of Man Isle of Man is a self-governing island state between Great Britain and Northern Ireland in the Irish Sea. With close ties to the United Kingdom (UK), the Isle of Man has felt a significant impact of globalization. The government has tried to participate in an increasingly globalized environment by creating a favourable environment for financial services and global online businesses to operate and thrive (Isle of Man Economic Research Report," 2012). The Isle of Man’s robust telecommunications infrastructure is integral in connecting the Isle of Man to the world: the advanced technology allows businesses to seamlessly connect with the world’s economies, societies, and cultures (“Telecoms & Infrastructure,” n.d.). As host to a variety of online and financial sector businesses that may operate with foreign currency, the Isle of Man has established a Financial Services Authority with a robust set of guidelines and regulations, including requirements for policy, periodic stress testing, and reporting for deposit-taking institutions established in the Isle of Man (“Guidance Note for Deposit,” 2017). The Isle of Man’s alternative approach to banking, assigning banks into three classes with specific guidelines and compliance requirements based on their primary activity, showcases a rigorous approach to protecting its vital financial sector from risk (“The Isle of Man Alternative Banking Regime,” n.d.). The Isle of Man enjoys a competitive advantage with foreign technology companies. In addition to its convenient location, government incentives, tax breaks, and other benefits create an ideal launchpad for companies targeting the European market (“Advantages of Using the Isle of Man for Your Business,” n.d.). Recognition of the British Pound (GBP) as a legal tender also streamlines transactions for local enterprises. (“Manx Currency - Coins and Notes,” 2023).
The Isle of Man relies on the extension of UK free trade agreements and is required to keep tariffs aligned with those in the UK (“Overview,” 2023). While beneficial to the Isle of Man if requests to extend the trade territory are supported, this arrangement also presents some limitations. The Isle of Man lacks the population and economic clout to influence trade agreements independently and is directly affected by decisions made by the UK and European Union, such as the UK’s exit from the EU, even though it belongs to neither group (“EU-UK Trade and Cooperation Agreement,” 2020). Proximity to other global financial centers and low corporate tax rates make the Isle of Man desirable for foreign investment. International firms pay a tax rate of 10% on profits made on the Isle of Man. Businesses with real estate income exceeding £500,000 are subject to a 20% corporate tax rate, double the previous rate of 10%, while the banking and retail sectors remain at 10% (“Tax in the Isle of Man,” 2023). However, enterprises outside these industries are exempt from paying corporate income tax. In addition, when repatriating funds, Canadian enterprises use the preferential treaty tax rate. Belize City, Belize One of the most significant benefits of Belize has been increased access to international markets. Located in Central America, globalization has enabled Belize to expand its exports beyond traditional markets, accessing new markets in Asia and Europe (OEC, 2023). However, globalization has also brought challenges, particularly regarding the vulnerability of the country's small and open economy to external shocks. The 2008 global financial crisis significantly impacted Belize, leading to a contraction in the country's economy and a rise in unemployment (“Global Financial Crisis Hits Home,” n.d.). In addition, the country's heavy reliance on exports
transition due to limited connectivity and high costs (“Belize - Information and Communications Technology,” 2022; Grant & Rossi, 2022). The U.S. International Trade Administration highlights key challenges to the Belize market (“Belize - Market Challenges,” 2022). These include high costs of telecommunication services, the fragility of the financial system due to a lack of banking relationships and no export-import bank to assist with the facilitation of access to financing from foreign suppliers, as well as lengthy bureaucratic delays and corruption (“Belize - Market Challenges,” 2022). Belize subject businesses to a Business Tax, based on gross income. The tax rate ranges from 1.75% to 19%, depending on the business classification (“Tax Regime,” n.d.). Belize also has a Corporate Tax based on company profits. The personal tax rate is 25% and the standard VAT rate in Belize is 12.5%, levied on the supply of goods and services in Belize ("Tax Zones: Belize," n.d.). Hong Kong, People’s Republic of China Hong Kong's strategic geographical position, expansive business environment, supportive government policies, advanced infrastructure, and skilled talent pool make it an attractive destination for subsidiaries (Au et al., 2022). Proximity to mainland China and access to regional markets offer significant advantages for software development and market reach. Hong Kong, in the heart of Asia, is an ideal location for companies looking to expand into the Asia-Pacific region. It is a gateway to mainland China and Southeast Asia, which have rapidly emerging market economies that are expected to drive global growth in 2023 (Jain, 2023). Hong Kong is synonymous with free trade - the country is a free port with minimal or no import or export duties (Theaud, 2022). Government regulations are minimal and create a favourable software development and innovation ecosystem, encouraging companies to establish
subsidiaries in Hong Kong. Low tax rates and minimal bureaucracy give Hong Kong a strong advantage in the global economy (Goetz, 2022). Hong Kong also has established legal and intellectual property protection frameworks, ensuring the protection and enforcement of IP rights (Au et al., 2022). Hong Kong's economy is open to the outside world. It has no limitation on admission, repatriating capital, or remitting profits from investments, allowing foreign businesses to transfer funds in and out of the country (“Hong Kong SAR”, 2022). Operating one of the largest global foreign exchange (FX) markets makes Hong Kong a prime international financial center (Cheung, 1998). A robust FX market will solidify and widen Hong Kong’s role as a prominent International Financial Center (Cheung, 1998). Hong Kong is an appealing subsidiary destination due to its connection to the growing Southeast Asian market. Southeast Asia boasts a strong IT infrastructure, a rapidly growing market for digital service, including SaaS, and a growing talent pool (“Your Guide to International Expansion into Southeast Asia, ” 2022). The Southeast Asian software market is expected to grow from 6.3 billion to 11.5 billion by 2030 (Wood, 2023). Unlike European markets, Southeast Asian markets are relatively unregulated and open to new market players (“The Digital Markets Act,” 2022). Hong Kong boasts many appealing qualities with few drawbacks, making it an ideal location for subsidiary growth. Discussion After reviewing all three potential locations, Hong Kong has been selected as the ideal subsidiary location for Panamera. In this section, we will review the indicators of Hong Kong’s appeal and compare them to the two locations that were not selected: Douglas, Isle of Man and Belize City, Belize.
outward profits. Globalization International commerce and financial flows are forming a global economy that is highly intertwined. Globalization, overall, is a spatial phenomenon that connects the world by increasing interdependence and interconnection among nations as a result of the deepening of international social, political, and economic activity. These developments have had a considerable impact on the operation of the Hong Kong economy and the Hong Kong government's fiscal policy (Lam, 2002). Furthermore, Hong Kong's physical location, position in the world's industrial and service networks, openness to market forces, and historical background are exceptional. All these are instrumental to Hong Kong’s benefit from globalization and frame one of the most knowledge- intensive regional economies in the world. Hong Kong's economy is one of the most prosperous in the world, yet more susceptible to outside shocks (Enright, 2002). However, Hong Kong still offers the best opportunity for Panamera to leverage a globalized economy, with better-developed trade networks and market access than the Isle of Man. Foreign Exchange Hong Kong's currency, HKD, is pegged to the USD, creating stability, strength, and resilience in a way that the Isle of Man and Belize cannot compete with. Belize’s use of the Belize dollar (BZD) is not conducive to international trade: its vulnerability to exchange rate fluctuations and limited use in global markets put Belize at a significant disadvantage in our evaluation. The Isle of Man’s use of GBP supports the island nation’s bid for international business appeal, with the GBP outranking USD as a stronger currency (Groves, 2023). Despite
its strength, GBP ranks lower than USD as a preferred currency in international business (Groves, 2023), which lessens the appeal of the Isle of Man in comparison to Hong Kong. Hong Kong’s fixed exchange rate with USD is more advantageous due to its domination of international markets (Amadeo, 2022). Conducting business in a USD-pegged currency allows for greater accessibility for Panamera’s customers, and it reduces currency risk from volatile exchange rates (Amadeo, 2022). International/Regional Banking Factors Hong Kong’s financial markets are distinguished by high liquidity, minimal obstacles to entry for foreign enterprises, and the absence of limitations on money flows into and out of the city. The outward orientation of Hong Kong demonstrates its significance in the global finance world. Banks' external assets were $461 billion, making Hong Kong one of the world's largest financial centers (Lam, 2002). In addition, Hong Kong's financial system is closely connected to the world's financial markets and ranked the fourth-largest foreign exchange market in the world in 2019, according to the Bank for International Settlements' most recent survey. The average daily turnover of foreign exchange transactions in Hong Kong increased by 44.8 percent from $436.6 billion in April 2016 to $632.1 billion in April 2019, accounting for 7.6 percent of the total daily turnover of foreign exchange worldwide. Hong Kong is a significant USD trading hub that caters to numerous international businesses and investors (Chen, 2020). Hong Kong boasts one of the world's most significant concentrations of banking institutions. Approximately 70 of the world's top 100 banks are in Hong Kong (Kwong, 2016). China's business sector will continue to stimulate and sustain capital markets and the financial services sector in Hong Kong. One thousand two hundred forty-one mainland businesses were
highlighting the exceptional dedication and industriousness of the employees in Hong Kong (“Doing Business In Hong Kong,” 2023). The Isle of Man’s development of its professional services sector also offers the skills required to support Panamera’s subsidiary, but the island’s small population and the low unemployment rate may create barriers to accessing the skills and human capital. Hong Kong's highly internationalised, high-standard, and agile professional services sector is well-suited to provide a diverse range of essential support services to Panamera’s international expansion. Its expertise across various fields positions Hong Kong as a valuable partner in facilitating international collaboration and the smooth execution of projects. (Liao, 2021). Comparative Advantage Hong Kong's global financial centre and commercial hub reputation are founded on its competitive advantage in providing a world-class business climate and infrastructure to efficiently and prudently connect the Chinese mainland's rapidly increasing market with the rest of the world. Its resilience stems from the long-term growth of institution construction and reflects the business logic of global market development and selection (Kwong, 2016). The strategic importance of Hong Kong in the global financial system will expand rather than shrink as the source of economic growth and wealth creation shifts to Asia in a more multipolar world order (Kwong, 2016). Hong Kong has a comparative advantage over the Isle of Man and Belize City as a location for Panamera’s subsidiary location. Belize cannot compete with the global connectedness and financial strength that Hong Kong has to offer, nor its infrastructure and its vast array of professional services. The Isle of Man, being more advanced, could support
Panamera’s current needs, but will be limited as Panamera continues to scale. Hong Kong remains the strongest contender with a favourable business environment that will sustain Panamera’s goals for many years to come. Conclusion Hong Kong outclasses the Isle of Man and Belize City in several key areas. As a potential subsidiary base, Hong Kong has many benefits: its advantageous location offers a natural entry point into the Asian market and serves as a global commercial and financial centre with modern infrastructure that benefits both businesses and investors. Hong Kong’s resounding support of free trade creates an economic environment that attracts investors and provides a welcoming setting for businesses due to its low tax rates, robust legal system, and well-protected intellectual property, all of which factor heavily into Panamera’s needs throughout this period of rapid growth. Hong Kong’s recognition as a tax haven with one of the world's most wealthy economies only adds to the city's allure as a subsidiary base. Hong Kong’s legacy of globalization and willingness to embrace market forces has resulted in a knowledge-based regional economy perfectly positioned to facilitate Panamera’s new subsidiary location. Despite external shocks and economic crises, the country's fixed currency exchange rate regime with the US dollar has been resilient. Hong Kong's trade policies, tax system, strategic position, strong financial sector, modern infrastructure, and trained workforce make it a better alternative than the Isle of Man and Belize City. Hong Kong provides the most favourable environment for Panamera to create its subsidiary. The chosen site is consistent with the company's strategy of sustained expansion and global stability. In conclusion, the evaluative team recommends the selection of Hong Kong as
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