THE GLOBAL MARKETPLACE
INTERNATIONAL BUSINESS ENVIRONMENT
Doing business in other countries requires knowledge of the differences that exist among people and places. As shown in Figure 3-5, businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns.
Geography
The location, climate, terrain, seaports, and natural resources of a country influence business activity. Very hot weather will limit the types of crops that can be grown. A nation with many rivers or ocean seaports can easily ship products for foreign trade. Countries with few natural resources must depend on imports.
Cultural Influences
In some societies, hugging is an appropriate business greeting. In other societies, a handshake is the custom. These differences represent different cultures.
Culture is the accepted behaviors, customs, and values of a society. A society's culture has a strong influence on business activities. In Mexico, many businesses close in the afternoon by tradition while people enjoy lunch and a siesta (relaxing rest period).
The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships. These relationships include interactions among families, labor unions, and other organizations.
Economic Development
Countries and individuals face the problem of limited resources to satisfy needs and wants. You continually make decisions about the use of your time, money, and energy. In a similar way, every country plans the use of its land, natural resources, workers, and wealth to best serve the needs of its people.
In some countries, people travel on a high-speed bullet train to manage a computer network in a high-rise building. In other countries, people go by oxcart to a grass hut to operate a hand loom to make cloth for people in their village. These differences in living and work environments reflect the level of economic development. The key factors that affect a country's level of economic development are:
Political and Legal Concerns
Each day you come upon examples of government influence on business. Governments regulate fair advertising and enforce contracts. They require safety inspections of foods and medications. People in the United States have a great deal of freedom in their business activities. This is not true in all countries. In many places, the activities of consumers and business operators are restricted. The most common political and legal factors that affect international business activities include the type of government, the stability of the government, and government policies toward business.
Doing business in other countries requires knowledge of the differences that exist among people and places. As shown in Figure 3-5, businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns.
Geography
The location, climate, terrain, seaports, and natural resources of a country influence business activity. Very hot weather will limit the types of crops that can be grown. A nation with many rivers or ocean seaports can easily ship products for foreign trade. Countries with few natural resources must depend on imports.
Cultural Influences
In some societies, hugging is an appropriate business greeting. In other societies, a handshake is the custom. These differences represent different cultures.
Culture is the accepted behaviors, customs, and values of a society. A society's culture has a strong influence on business activities. In Mexico, many businesses close in the afternoon by tradition while people enjoy lunch and a siesta (relaxing rest period).
The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships. These relationships include interactions among families, labor unions, and other organizations.
Economic Development
Countries and individuals face the problem of limited resources to satisfy needs and wants. You continually make decisions about the use of your time, money, and energy. In a similar way, every country plans the use of its land, natural resources, workers, and wealth to best serve the needs of its people.
In some countries, people travel on a high-speed bullet train to manage a computer network in a high-rise building. In other countries, people go by oxcart to a grass hut to operate a hand loom to make cloth for people in their village. These differences in living and work environments reflect the level of economic development. The key factors that affect a country's level of economic development are:
- Literacy Level Countries with better education systems usually provide more and better goods and services for their citizens.
- Technology Automated production, distribution, and communications systems allow companies to create and deliver goods, services, and ideas quickly.
- Agricultural Dependency An economy that is largely involved in agriculture does not have the manufacturing base to provide citizens with great quantity and high quality of a product.
Political and Legal Concerns
Each day you come upon examples of government influence on business. Governments regulate fair advertising and enforce contracts. They require safety inspections of foods and medications. People in the United States have a great deal of freedom in their business activities. This is not true in all countries. In many places, the activities of consumers and business operators are restricted. The most common political and legal factors that affect international business activities include the type of government, the stability of the government, and government policies toward business.
INTERNATIONAL TRADE BARRIERS
Government actions can create trade barriers , which are restrictions to free trade. These political actions are formal trade barriers. Three common formal trade barriers are quotas, tariffs, and embargoes.
The culture, traditions, and religion of a country can create informal trade barriers. These situations are not based on formal government actions but they can restrict trade.
Quotas
To regulate international trade, governments set a limit on the quantity of a product that may be imported or exported within a given period. This limit is called a quota .
Quotas may be set for many reasons. Countries that export oil may put quotas on crude oil so that the supply will remain low and prices will stay at a certain level. Quotas may be set on imports from another country to express displeasure at the policies of that country.
Quotas can also be set by a country to protect one of its industries from too much competition from abroad. This often is done by a nation to shield its “infant industries,” which need protection to get started. In the past, the U.S. government has imposed quotas on sugar, cattle, dairy products, and textiles.
Tariffs
Another device that governments use to control international trade is the tariff. A tariff is a tax that a government places on certain imported products. Suppose you want to buy an imported bicycle. The producer charges $140, but the government collects a 20 percent tariff ($28) on the bicycle when it is imported. Therefore, you will have to pay $168 plus shipping charges for the bike. The increased price may cause you to decide to buy a bike manufactured in the United States at a lower price.
Some tariffs are a set amount per pound, gallon, or other unit, while others are figured on the value of the good, as in the example of the bicycle. A tariff increases the price for an imported product. A high tariff tends to lower the demand for the product and reduce the quantity of that import. Many people believe that tariffs should be used to protect U.S. jobs from foreign competition.
Government actions can create trade barriers , which are restrictions to free trade. These political actions are formal trade barriers. Three common formal trade barriers are quotas, tariffs, and embargoes.
The culture, traditions, and religion of a country can create informal trade barriers. These situations are not based on formal government actions but they can restrict trade.
Quotas
To regulate international trade, governments set a limit on the quantity of a product that may be imported or exported within a given period. This limit is called a quota .
Quotas may be set for many reasons. Countries that export oil may put quotas on crude oil so that the supply will remain low and prices will stay at a certain level. Quotas may be set on imports from another country to express displeasure at the policies of that country.
Quotas can also be set by a country to protect one of its industries from too much competition from abroad. This often is done by a nation to shield its “infant industries,” which need protection to get started. In the past, the U.S. government has imposed quotas on sugar, cattle, dairy products, and textiles.
Tariffs
Another device that governments use to control international trade is the tariff. A tariff is a tax that a government places on certain imported products. Suppose you want to buy an imported bicycle. The producer charges $140, but the government collects a 20 percent tariff ($28) on the bicycle when it is imported. Therefore, you will have to pay $168 plus shipping charges for the bike. The increased price may cause you to decide to buy a bike manufactured in the United States at a lower price.
Some tariffs are a set amount per pound, gallon, or other unit, while others are figured on the value of the good, as in the example of the bicycle. A tariff increases the price for an imported product. A high tariff tends to lower the demand for the product and reduce the quantity of that import. Many people believe that tariffs should be used to protect U.S. jobs from foreign competition.
Embargoes
If a government wishes to do so, it can stop the export or import of a product completely. This action is called an embargo . Governments may impose an embargo for many reasons. They may wish to protect their own industries from international competition more than either the quota or the tariff will achieve. The government may wish to prevent sensitive products, especially those vital to the nation's defense, from falling into the hands of unfriendly groups or nations. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country.
If a government wishes to do so, it can stop the export or import of a product completely. This action is called an embargo . Governments may impose an embargo for many reasons. They may wish to protect their own industries from international competition more than either the quota or the tariff will achieve. The government may wish to prevent sensitive products, especially those vital to the nation's defense, from falling into the hands of unfriendly groups or nations. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country.
ENCOURAGING INTERNATIONAL TRADE
Specific actions by governments can promote international business activities. Governments view exporting as an effective way to create jobs and foster economic prosperity. Common efforts to encourage international trade include free-trade zones, free-trade agreements, and common markets.
Free-Trade Zones
To promote international business, governments often create free-trade zones in their countries. A free-trade zone is a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing. A free-trade zone is usually located around a seaport or airport. The importer pays duty only when the product leaves the zone.
Specific actions by governments can promote international business activities. Governments view exporting as an effective way to create jobs and foster economic prosperity. Common efforts to encourage international trade include free-trade zones, free-trade agreements, and common markets.
Free-Trade Zones
To promote international business, governments often create free-trade zones in their countries. A free-trade zone is a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing. A free-trade zone is usually located around a seaport or airport. The importer pays duty only when the product leaves the zone.
Free-Trade Agreements
Many countries set up free-trade agreements with other nations. Under a free-trade agreement , member countries agree to remove duties, also called import taxes, and trade barriers on products traded among them. This results in increased trade between the members. For example, the United States, Canada, and Mexico began implementing the North American Free Trade Agreement (NAFTA) in 1994. This pact does away with tariffs on goods traded among the three countries and eases the movement of goods. NAFTA is designed to enlarge the markets and economic bases of the countries involved.
Common Markets
In a common market , members do away with duties and other trade barriers. They allow companies to invest freely in each member's country. They allow workers to move freely across borders. A common market is also called an economic community. Common market members have a common external duty on products being imported from nonmember countries. Examples of common markets include the European Union (EU) and the Latin American Integration Association (LAIA). The goals are to expand trade among member nations and promote regional economic integration.
Many countries set up free-trade agreements with other nations. Under a free-trade agreement , member countries agree to remove duties, also called import taxes, and trade barriers on products traded among them. This results in increased trade between the members. For example, the United States, Canada, and Mexico began implementing the North American Free Trade Agreement (NAFTA) in 1994. This pact does away with tariffs on goods traded among the three countries and eases the movement of goods. NAFTA is designed to enlarge the markets and economic bases of the countries involved.
Common Markets
In a common market , members do away with duties and other trade barriers. They allow companies to invest freely in each member's country. They allow workers to move freely across borders. A common market is also called an economic community. Common market members have a common external duty on products being imported from nonmember countries. Examples of common markets include the European Union (EU) and the Latin American Integration Association (LAIA). The goals are to expand trade among member nations and promote regional economic integration.