Intro bus (2)

Contents
Serial No Subject Page No
01 Summary 2
02 Introduction 3
03 What is International Business? 4
04 Terms of International Companies 6
05 Objectives of International Business 7
06 Importance of international Business 9
07 Modes of International Business 11
08 Risks of International business 12
09 International Business Vs domestic business 13
10 10 International business risks and challenges for
small business
13
11 Cultural Barriers of International business 15
12 Its effect on global economy 17
13 International Business Contributes to Bad
Business Practices
22
14 Conclusion and Recommendations 26
15 References 29

Summary
The aim of this report is to expand knowledge about the International Business. We know
the importing and exporting of goods is big business in today's global economy. When
goods are produced in one country and sold in another, international trade occurs. It is so
common to find items produced worldwide that people rarely even think about it. Not too
long ago, countries consumed goods predominately produced within their borders. As
transportation has become increasingly less expensive and telecommunications have
improved, international trade has flourished.
In general, international trade allows countries to focus on the industries in which they
can be most productive and efficient. In this way, trade often raises the standard of living
of both producers and consumers. International trade also has a dark side. This Spark
Note will address many of the questions about international trade that are probably
looming in your mind. Why should countries trade? How does trade work? What is the
effect of international trade? How do exchange rates affect trade? Can the government
interfere in free trade? What is the trade deficit?
The benefits and pitfalls of trade affect the economy at its core. Everything from output
to standard of living to interest rates remains under the partial control of international
trade. By understanding international trade, we will uncover one of the most important
real life applications of macroeconomics. Take a minute and look around. You might be
surprised to discover how many of the everyday items in your life are made overseas.
Your shirt might be made in China. Perhaps your stereo was assembled in Japan. The
watch you're wearing could be from Switzerland. And yes, the shoes that you are sporting
might have been assembled in the United States.
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Introduction
Although globalization has made trade among countries more liberalized and easy,
participating countries are increasingly being engaged into competition with each other in
order to secure their position in the international market. On the other hand, because of the
decreasing trend in the possibility of receiving foreign aid, all the countries tend to strengthen
their potentials and initiatives to expand foreign trade as a more appropriate instrument for
development. In this respect all the countries are engaged in utilizing their respective
comparative advantage in producing goods so as to stay in the competition.
Today, business is acknowledged to be international and there is a general expectation
that this will continue for the foreseeable future. International business may be defined
simply as business transactions that take place across national borders. This broad
definition includes the very small firm that exports (or imports) a small quantity to only
one country, as well as the very large global firm with integrated operations and strategic
alliances around the world. Within this broad array, distinctions are often made among
different types of international firms, and these distinctions are helpful in understanding a
firm's strategy, organization, and functional decisions (for example, its financial,
administrative, marketing, human resource, or operations decisions). One distinction that
can be helpful is the distinction between multi-domestic operations, with independent
subsidiaries which act essentially as domestic firms, and global operations, with
integrated subsidiaries which are closely related and interconnected. These may be
thought of as the two ends of a continuum, with many possibilities in between. Firms are
unlikely to be at one end of the continuum, though, as they often combine aspects of
multi-domestic operations with aspects of global operations.
International business grew over the last half of the twentieth century partly because of
liberalization of both trade and investment, and partly because doing business
internationally had become easier. In terms of liberalization, the General Agreement on
Tariffs and Trade (GATT) negotiation rounds resulted in trade liberalization, and this was
continued with the formation of the World Trade Organization (WTO) in 1995. At the
same time, worldwide capital movements were liberalized by most governments,
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particularly with the advent of electronic funds transfers. In addition, the introduction of a
new European monetary unit, the euro, into circulation in January 2002 has impacted
international business economically. The euro is the currency of the European Union,
membership in March 2005 of 25 countries, and the euro replaced each country's
previous currency. As of early 2005, the United States dollar continues to struggle against
the euro and the impacts are being felt across industries worldwide.
In terms of ease of doing business internationally, two major forces are important:
1. technological developments which make global communication and
transportation relatively quick and convenient; and
2. the disappearance of a substantial part of the communist world, opening many of
the world's economies to private business.
International business
International business is a term used to collectively describe all commercial
transactions (private and governmental, sales, investments, logistics, and transportation)
that take place between two or more regions, countries and nations beyond their political
boundary. Usually, private companies undertake such transactions for profit;
governments undertake them for profit and for political reasons. It refers to all those
business activities which involves cross border transactions of goods, services, resources
between two or more nations. Transaction of economic resources include capital, skills,
people etc. for international production of physical goods and services such as finance,
banking, insurance, construction etc.
Or Simply we can say International business is the exchange of goods and services
among individuals and businesses in multiple countries in the form of a specific entity,
such as a multinational corporation or international business company that engages in
business among multiple countries.
A multinational enterprise (MNE) is a company that has a worldwide approach to
markets and production or one with operations in more than a country. An MNE is often
called multinational corporation (MNC) or transnational company (TNC). Well known
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MNCs include fast food companies such as McDonald's and Yum Brands, vehicle
manufacturers such as General Motors, Ford Motor Company and Toyota, consumer
electronics companies like Samsung, LG and Sony, and energy companies such as
ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national
markets.
Areas of study within this topic include differences in legal systems, political systems,
economic policy, language, accounting standards, labor standards, living standards,
environmental standards, local culture, corporate culture, foreign exchange market,
tariffs, import and export regulations, trade agreements, climate, education and many
more topics. Each of these factors requires significant changes in how individual business
units operate from one country to the next. The conduct of international operations
depends on companies' objectives and the means with which they carry them out. The
operations affect and are affected by the physical and societal factors and the competitive
environment. Industrialization, advanced transportation, globalization, multinational
corporations, and outsourcing are all having a major impact on the international trade
system. Increasing international trade is crucial to the continuance of globalization.
Without international trade, nations would be limited to the goods and services produced
within their own borders.
International trade is, in principle, not different from domestic trade as the motivation and
the behavior of parties involved in a trade do not change fundamentally regardless of
whether trade is across a border or not. The main difference is that international trade is
typically more costly than domestic trade. The reason is that a border typically imposes
additional costs such as tariffs, time costs due to border delays and costs associated with
country differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of production
such as capital and labor are typically more mobile within a country than across
countries. Thus international trade is mostly restricted to trade in goods and services, and
only to a lesser extent to trade in capital, labor or other factors of production. Trade in
goods and services can serve as a substitute for trade in factors of production.
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Instead of importing a factor of production, a country can import goods that make
intensive use of that factor of production and thus embody it. An example is the import of
labor-intensive goods by the United States from China. Instead of importing Chinese
labor, the United States imports goods that were produced with Chinese labor. One report
in 2010 suggested that international trade was increased when a country hosted a network
of immigrants, but the trade effect was weakened when the immigrants became
assimilated into their new country.
Terms or Categories of international Companies
We tend to read the following terms and think they refer to any company doing business
in another country.
• Multinational Company
• International Company
• Transnational Company
• Global Company
Each term is distinct and has a specific meaning which define the scope and degree of
interaction with their operations outside of their “home” country.
• International companies have no foreign direct investments (FDI) and make their
product or service only in their home country. In other words, they're exporters
and importers. They have no staff, warehouses, or sales offices in foreign
countries. The best examples of international companies, in the strict sense, are
exotic retail shops that sell imported products, or small local manufacturers that
export to neighboring countries.
• Multinational companies cross the FDI threshold. They invest directly in foreign
assets, whether it's a lease contract on a building to house service operations, a
plant on foreign soil, or a foreign marketing campaign. Generally, though.
Multinational companies, however, have FDI only in a limited number of
countries, and they do not attempt to homogenize their product offering
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throughout the countries they operate in -- they focus much more on being
responsive to local preferences than a global company would.
• Global companies have investments in dozens of countries but maintain a strong
headquarters in one, usually their home country. Their mantra is economies of
scale, and they'll homogenize products as much as the market will allow in order
to keep costs low. Their marketing campaigns often span the globe with one
message (albeit in different languages) in an attempt to smooth out differences in
local tastes and preferences.
• Transnational companies are often very complex and extremely difficult to
manage. They invest directly in dozens of countries and experience strong
pressures both for cost reduction and local responsiveness. These companies may
have a global headquarters, but they also distribute decision-making power to
various national headquarters, and they have dedicated R&D activities for
different national markets.
In the world of eCommerce and virtual business, it becomes more difficult to stick any
particular company squarely into a category. At that point, it's more helpful to categorize
a company by its intention or strategic focus, rather than its actual operations.
Objectives of International Business
Companies involved international Business for many reasons but these four are
significant
 To expand their sales
 To acquire resources
 To diversify the sources of sales & supplies
 To minimize competitive risk
Expand Sales
Companies sales are depend on two factors:-
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1. Consumers’ interest in their products or services
2. Consumers’ willingness and ability to buy them
We know the number of people and the amount of their purchasing power are higher for
the world as a whole than for a single country, so companies may increase the potential
market for their sales by pursuing international markets. Generally we know higher sales
means higher profit, assuming that each unit sold has the same markup. So increase sales
are major motive for a company’s expansion into international business. Many of the
world’s largest companies derive over half their sales from outside their home countries.
There are some companies who involved in international business- Volkswagen
(Germany), Ericsson (Sweden), IBM (United States) etc.
Acquire Resources:-
Today companies seek out products, services and components produced in foreign
countries. They also look for foreign capital, technologies, and information that they can
use at home. They do this to reduce their costs and improve product quality. Simply
acquiring resources may enable a company to improve its product quality and
differentiate itself from competitors. Although a company initially uses domestic
resources to expand abroad, once the foreign operations are in place, the foreign
resources such as capital, expertise, labor can use for production.
Diversify the sources of sales & supplies:-
We know many companies produce a verity of product for ensuring greater market share
such as Uniliver, ACI, and Nestle etc. These companies produce diversified product. If a
company producing only one product it’s easy to compete with him but if a company
produce more than one product and periodically introduce new product to market its has a
secure market share. So it’s also a significant factor for firms involved in international
Business.
Minimize risk
To minimize swing in sales and profits, Companies seek out foreign markets to take
advantage of recession and expansions differences among countries. Sales decrease or
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grow more slowly in a country that is recession and increase or grow more rapidly in one
that is expansion. Many companies enter into international business for defensive
reasons.
Importance of International Business
The economic importance of international business is discussed below.
The points below highlight
the importance of
international business:-
1. Earn foreign
exchange:
International
business exports its
goods and services
all over the world.
This helps to earn valuable foreign exchange. This foreign exchange is used to
pay for imports. Foreign exchange helps to make the business more profitable and
to strengthen the economy of its country.
2. Optimum utilization of resources: International business makes optimum
utilization of resources. This is because it produces goods on a very large scale for
the international market. International business utilizes resources from all over the
world. It uses the finance and technology of rich countries and the raw materials
and labors of the poor countries.
3. Achieve its objectives: International business achieves its objectives easily and
quickly. The main objective of an international business is to earn high profits.
This objective is achieved easily. This it because it uses the best technology. It has
the best employees and managers. It produces high-quality goods. It sells these
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goods all over the world. All this results in high profits for the international
business.
4. To spread business risks : International business spreads its business risk. This is
because it does business all over the world. So, a loss in one country can be
balanced by a profit in another country. The surplus goods in one country can be
exported to another country. The surplus resources can also be transferred to other
countries. All this helps to minimize the business risks.
5. Improve organization’s efficiency : International business has very high
organization efficiency. This is because without efficiency, they will not be able
to face the competition in the international market. So, they use all the modern
management techniques to improve their efficiency. They hire the most qualified
and experienced employees and managers. These people are trained regularly.
They are highly motivated with very high salaries and other benefits such as
international transfers, promotions, etc. All this results in high organizational
efficiency, i.e. low costs and high returns.
6. Get benefits from Government: International business brings a lot of foreign
exchange for the country. Therefore, it gets many benefits, facilities and
concessions from the government. It gets many financial and tax benefits from the
government.
7. Expand and diversify: International business can expand and diversify its
activities. This is because it earns very high profits. It also gets financial help
from the government.
8. Increase competitive capacity: International business produces high-quality
goods at low cost. It spends a lot of money on advertising all over the world. It
uses superior technology, management techniques, marketing techniques, etc. All
this makes it more competitive. So, it can fight competition from foreign
companies.
Modes of International Business
The six major modes of international business are:-
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1. Imports and exports
2. Tourism and transportation
3. Licensing and franchising
4. Turnkey operations
5. Management contracts
6. Direct and portfolio investment
Imports and exports are the most common mode of international business, particularly in
smaller companies even though they are less likely to export. Large companies are more
likely to engage in other modes of international business in conjunction with importing
and exporting. Companies may import and export merchandise, defined as tangible goods
brought into or out of (respectively) a country. While exports and imports apply mainly
to goods, they can also apply to services, or no products.
Most service imports and exports revolve around tourism and transportation. The revenue
gained from international tourism and transportation is best seen in hotels, airlines, travel
agencies, and shipping companies. For many countries, especially in the Caribbean and
Southeast Asia, their income on foreign tourism is more important than their income from
exports. The same holds true in countries such as Norway and Greece, who earn a
considerable amount from foreign shipping.
Many companies enter into international licensing agreements, allowing other countries
around the world to use their assets (i.e.: trademarks, patents, copyrights, or expertise)
under contract, receiving royalty payments in return. Similarly, many companies engage
in franchising, a mode of business where the franchisor allows the franchisee to use a
trademark that is an essential part of the franchisee's business. For example, Gloria
Vanderbilt has franchised her name out to several clothing companies, forming the Gloria
Vanderbilt line. The franchisor also assists on a continuing basis in the operation of the
business-for example, by providing components, management services, and technology.
Companies also pay fees that may be incurred on an international level for engineering
services handled through turnkey operations and management contracts. A turnkey
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operation involves construction of facilities, performed under contract, which is then
transferred to the owner when the company is ready to begin operating. Management
contracts are initiated when one company supplies personnel to perform general or
specialized management functions for another company. This is most evident in Disney's
theme parks in France, Japan, and China.
Finally, international business occurs within direct and portfolio investments. By
investing in a foreign company, the investor takes ownership in a foreign property for a
financial return. A foreign direct investment (the more common of the two) gives the
investor a controlling interest in the foreign company. When two or more companies
share in an FDI, it is known as a joint venture. When a government joins a company in an
FDI, it becomes a mixed venture. Conversely, a portfolio investment is a noncontrolling
interest in a company that usually involves either taking stock in a company or making
loans to a company in the form of bonds, bills, or notes that the investor purchases.
Portfolio investments are particularly popular with multinational enterprises as they offer
a safe means towards short-term financial gain.
Risks that are involved with internationalization of a business
1.) Cross Cultural Risk; a situation or event where a cultural miscommunication puts
some human value at stake. (Differences in language, religion, customs, lifestyles,
mindsets)
2.) Country Risk; potentially adverse effects on company operations and profitability
caused by developments in the political, legal, and economic environment in a foreign
country. (Government intervention, protectionism, barriers to trade, mismanagement,
lack of legal safe guards, property rights)
3.) Currency Risk; risk of adverse fluctuations in exchange rates. Currency exposure,
assets valuation, foreign taxation, inflationary and transfer pricing.
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4.) Commercial Risk; a firm’s potential loss or failure from poorly developed or
executed business strategies, tactics, or procedures. (Weak partner, operational problems,
timing of entry, competitive intensity, poor execution of strategy).
International business Vs domestic business
The difference between international business and domestic business is obvious.
International refers to business transactions from our country to other counties. Domestic
business refers to business transactions within the country itself. The differences can
include unique economic conditions, political systems, laws and regulations, and national
cultures. Focal Firms are the major participants in international business; MNE & SME.
Multinational enterprise: (Historically the most important type of focal firm) a large
company with substantial resources that performs various business activities through a
network of subsidiaries and affiliates located in multiple countries. Small and Medium-
sized Enterprise: A company with 500 or fewer employees in the United States, although
this number may need to be adjusted downward for smaller nations.
10 International Business Risks and Challenges for Small Businesses
And How to Overcome Them
Small businesses dominate the international business arena by contributing 97% to the
number of exports, according to the U.S. Department of Commerce. These businesses are
able to take advantage of significant growth opportunities, but not without overcoming
challenges and risks. Small businesses must plan for these potential challenges and risks
in order to be successful and earn a return on investment (ROI) faster.
Challenges and Risks for Small Businesses
Too often business owners jump when they see opportunities abroad without first taking
the time to conduct research and train their employees for the challenges they may face.
Here are some of the top challenges and risks that small businesses face.
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1. Inexperienced management team. The management team of small businesses may
not have experience with international businesses. Having experience with conducting
business globally is critical for businesses to move into the international market with the
lowest amount of surprises, mistakes, and expenses. the management team should be
provided with appropriate training beforehand. Another option is to hire internal or
external experts to guide decision making.
2. No local marketing contacts or partners. Having connections in the foreign country
is a valuable asset to pushing the product out faster and obtaining a quicker ROI. If the
business does not have any contacts or partners, it should start working on networking
and possibly hiring a local marketing firm.
3. Foreign country's laws and regulations. Each country has its own set of laws and
regulations when it comes to importing goods, taxes, and even selling online. Obtain
legal advice from someone experienced in business law for that country and conduct your
own research to see which laws and regulations will affect your business. However,
finding information online does not replace legal advice from a qualified lawyer.
4. Inadequate infrastructure within the foreign country. Some countries do not have
adequate infrastructure for transporting goods. Find out which obstacles exist and what
should be done to overcome them or what adjustments should be made.
5. Cultural and language barriers. Researching the local culture and speaking the same
language is not enough to communicate efficiently. When two people are speaking the
same sentence, the underlying meaning may not be the same. Find out how the locals
conduct business and how their culture affects their decision making and communication.
6. Corruption amongst foreign officials. Corruption is more prevalent than what most
small business owners are prepared for. Conduct research into the foreign country and
find out how business is truly conducted. If possible, avoid countries where corruption is
prevalent to save on future headaches and possible losses.
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7. Company is not flexible. After entering into the foreign market the business may have
to adapt further to the local market. Small businesses that are not flexible or refuse to
make alternations will lose out on customers and potential revenue. The business should
be prepared to make changes after entrance and have the structure in place for quick
decision making and implementations.
8. Tariffs and quotas. Countries add taxes or restrictions to particular products coming
into their country in order to give their own businesses a higher advantage. Unsuspecting
small business owners unaware of these tariffs and quotas can end up at a loss instead of
profiting.
9. Pricing is not optimized for the country. Small business owners that price its
products the same in foreign country as in the United States is either overcharging or
undercharging customers. For instance, in countries with a lower GDP, consumers have
less money to spend on purchases so lower price points should be set to attract more
buyers.
10. Does not provide after sales services. Customer support should be available in the
language of each country and be conveniently accessible. Customers should not have to
pay long distance charges in order to receive assistance. Small business owners should
ensure that they are providing adequate customer service to all their customers. They can
outsource this to a customer call center within that country (or a country with the same
language), provide a local phone number (or toll-free number), e-mail support (make sure
the internet is widely available in this country), and live chat through its company
website.
Cultural Barriers in International Business
Hill (2009) wrote that the worst thing that can happen to a firm going abroad is to be ill-
informed. Managers have to think globally when running multicultural teams.
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Power distance
the acceptance of the unequal distribution of physical and intelligent capabilities within a
society will determine the level of power distance.
Uncertainty avoidance
As the name supposes it is the extent to which an organization will go to avoid
uncertainty. This culture is reflected in the workers attitude to job security, retirement
benefits, etc.
Individualism/collectivism
Individualism is the tendency of people to look after themselves and their immediate
family only (Rugman and Collins 2006: 135)
Masculinity / Femininity
A societal or organizational value towards assertiveness and materialism determines the
masculinity or femininity of the culture.
Long term orientation
Hofstede and Micheal Bond and his associates (Chinese cultural connections) used an
innovative technique to add this framework (Luo, 2004). A group of Chinese socialists
named 10 basic and fundamental values, and this was used to produce a list of 40 values
that was used in a survey of 22 countries. In Nov 2006, Jeanne Brett, Kristin Behfar and
Mary C. Kern, writing in the Harvard Business Review, highlighted the challenges
managers face with multicultural teams. They categorized four challenges:
Direct versus indirect communication
Different cultures have different ways of communicating, the westerners are direct in
communication and their opinion is known to be clear. Non- westerners would prefer to
speak indirectly and politely pass their opinion across through inferences and not outright
renditions
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Trouble with accent and fluency
This problem is similar with all multicultural gathering, one will feel very out of place
when meeting with a group of Indians and a joke is cracked in Hindi and everyone
laughs, save you, and your Indian friend that invited you, translates the joke, and every
one looks at you as you try to grin to the 'cultural joke' that is only funny in Hindi
Deferring attitude towards hierarchy and authority
In some cultures team members are seen to be equal while others must have a leader. if
dealing with a team that has a leader a team member from a equal culture will feel
underestimated. And if in a flat team an hierarchical member exists, he will feel that the
team is not being held up.
Conflicting norms for decision making
An example was given of an American company negotiating to buy Korean products
after discussing 3 points on the first day the American company (accustomed to quick
decision making) felt point four will begin the next day. the Koreans asked that the initial
3 points be discussed again. negotiating with teams could pose a challenge, in some
cultures negotiating are done the hard way (China) but others believe in subtle decisions
(France).
International Business & Its Effects on Global Economy
With the passage of time there will be many changes globally that would affect the
economy of many countries. Globalization was one of the major changes that the world
witnessed recently, and similar to this kind of major make over, there are expected to be
more isolated yet more effective changes made.
Introduction: In the last 10-15 years trade has seen major changes. These changes are
ones that directly affect the lives of the working class, and have raised a great deal of
concern for millions of people. This is because of the fact that democratic principles
might well be overwhelmed by capitalist endeavors. However, from a governmental
perspective it appears that these strategies are ones that would not interfere with
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democracy. It seems that the government believes that the alliances would aid the effect
of globalization, thereby creating better trade in the North Western hemisphere.
There are many organizations who act as the alliances some of the most noted ones are
the World Trade Organization & the IMF there are briefly described below
World Trade Organization (WTO):
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world's trading nations and ratified in their
parliaments. The goal is to help producers of goods and services, exporters, and importers
conduct their business.
International Monetary Fund (IMF):
The International Monetary Fund is a specialized agency of the United Nations system
set up by treaty in 1945 to help promote the health of the world economy. Headquartered
in Washington, D.C., it is governed by its almost global membership of 184 countries.
The IMF is the central institution of the international monetary system-the system of
international payments and exchange rates among national currencies that enables
business to take place between countries.
It aims to prevent crises in the system by encouraging countries to adopt sound economic
policies; it is also-as its name suggests-a fund that can be tapped by members needing
temporary financing to address balance of payments problems. By uniting several
economies in the North Western hemisphere the alliances believe it can establish
conditions in which trade would be most efficient. In order to implement such a strategy
in the North Western hemisphere it must be realized that there are quite a good number of
companies required to make it all possible.
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Protestors believe that some of the biggest business owners want more and more
autonomy from the government, and have in fact succeeded in blackmailing them into
allowing them to implement the free trade.
By implementing free trade, it is said that businesses that establish liberty to trade with
whomever they want gain both power and profit. This kind of situation is something that
is extremely dangerous to the 800 million people living in North, Central and South
America. These same people produce an estimated CDN $15 trillion even though more
than half of them live in poverty. It is feared that the alliances might have an immense
influence on their lives and worsen their already pathetic standard of living Though these
kinds of fears still prevail with the existence of the alliances, its merits must not be over-
ruled. It should be remembered that products that are scarce or are not available would be
freely available at affordable rates. The fact that labor is cheaper in economies outside the
United States and Canada creates enormous opportunity for profit for investors. This is
because of the fact that products produced where labor is cheaper means that they would
be sold for greater profit in the investing countries. But this does not mean that only
richer countries or investors would gain from such a venture. This is because of the fact
that there would also be many more job opportunities created in countries that fall under
the the alliances.
In addition to such benefits there are numerous others that may be achieved under the
agreement. In the December of 1994 in Miami this was the basic idea behind uniting the
economies of the Western Hemisphere into a single free trade arrangement. Though the
concept was initiated in 1994 the FTAA's launching is planned for 2005, and this venture
would certainly supercede NAFTA, as it encompasses many more countries in the North
Western Hemisphere. The alliances such as the FTAA even has greater potential for
efficient trade than the NAFTA, as is emphasized in the words of US Secretary of State
Colin Powell: "Our objective with the FTAA is to guarantee control for North American
businesses over a territory which stretches from the Arctic to the Antarctic, free access,
over the entire hemisphere, without any difficulty or obstacle, for our products, services,
technology and capital"
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It is evident that there would be a surge in the US economy if the THE ALLIANCES
were to be established. There is already so much zeal for its inception from the private
sector which means that the economy would certainly be strengthened. Though there
would not be heavy or extra taxes imposed on the private sectors but the fact that there
would be many more businesses participating in the venture that the regular taxes
collected would serve as a basis for more funds in the country.
In addition to the US gaining economically the poorer countries would also gain though
their taxes would not be increased. This is because there would be many more people
with jobs there, and businesses setup under the alliances would also provide more regular
tax for their countries. It is because of this that their economy would also be ameliorated
Considering the number of people whose lives would be influenced by the alliances it
must be realized that there would certainly be a very significant outcome. It is really up to
governments to overview all the trade processes that would take place in countries under
the alliances.
One cannot begin to imagine what would ensue if organizations really had enough
autonomy to carry out their businesses independently. It is quite hard to believe that
governments would be blackmailed by organizations to allow them more power and
profit. This is because governments would not allow the country to be used for the sake
private sector if the country did not stand to gain anything from a particular venture
It is also quite hard to believe that there would be so many countries involved with the
alliances that would be blackmailed by businesses. Governments surely would be more
aware of the intimidating aspects of businesses and would not permit any kind of venture
that would cause them or their people to lose power and independence.
The alliances are an agreement that is bent on ameliorating trading conditions in the
North Western hemisphere, and therefore making these countries more and more
independent of other countries that are greater distances. In this way these countries are
also saving themselves a great deal of resources because of the distances and time spans
being mitigated tremendously. Their markets too are large enough to host trade with in
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the North Western hemisphere, without them interacting with other continents.
Independence of other countries with regard to trade seems to be of central importance in
the alliances, along with the fact that there is immense scope for greater profit.
The poverty of a country can be defined as the total economic stability or instability it
has. It defines the status of the individual and the country as well. Countries that are poor
are likely to remain the same for a long period in a society where there are many
inequalities. This is often the trend that is followed in capitalist society. Most of the poor
countries that are trying to apply democracy are the ones that seem to become victims of
the same. It appears that richer countries can afford this form of government if the
general standard of living is relatively higher than others
An example of this is the United States of America, where we see that there is also
significant amount of poverty and unemployment. This country also has a high standard
of living, so these effects are not that prominent. But, if we look at a country like India,
we see that because the general standard of living is so low the whole country seems to
be a poor one, and the majority of the population suffers.
At the same time, we must also compare the two as far as their defense budgets are
concerned. This gives us a good idea of some of the reasons why poverty is so difficult to
remove from there. Of course, though the international community is aware of the way
that things have fallen into place against the favor of these poor countries, there is not
much that can or will be done about the same. It is the international politics practiced
today that keeps the poorer countries the way that they are so that they are not capable of
developing themselves to a degree that will match the superpowers, which at one time
ruled over them by force. Today, the same is seen and not much has changed because it
all continues in the form of economic oppression.
According to Chen & Ravallion we find that the incidence of poverty decreased between
1987 and 1998. The level of poverty in some regions of the world has gone extremely
bad in the last decade or so, and this is largely due to the effect that free trade has had
along with few other factors. But this is just one of the reasons for the same in countries
21

where there is far too much freedom exercised with regard to trade. It is also said that far
too many "persistent inequalities (in income and other measures)" are responsible for the
poverty of the world to be in such bad shape. The economic growth and the rate of it as
well are responsible for the condition that the world economy is in today
Though globalization has taken place, and the rate at which trade should be taking place,
it appears that the reverse has resulted. And this is largely due to the faulty policies that
have been implemented by governments that have encouraged too much freedom. There
is also a reason for this. The state of some of the poor countries is so bad that the
education there is also in a pathetic condition. There are many people who are struggling
to improve the literacy level too, but it is indeed a difficult task because of the lack of
funds in these regions
In addition to this, those who do manage to obtain a good education do not want to waste
their acquired knowledge within the same country, and hence, search for means to better
their prospects abroad. It is these people who do not realize the fact that they are the ones
who are being exploited the most for their talents and capabilities. They are given
lucrative offers outside their own countries, which they do not refuse. As a result,
exploitation does not end even if the individuals are educated, and the country itself
continues to be led by less educated, shortsighted politicians that serve as an internal
destructive force. This takes place because they have a lack of realization of the situation
that they get into, and they know that they only have a short while to amass wealth while
they are in power. Hence, the country sinks deeper in poverty
International Business Contributes to Bad Business Practices
Globalization has had one effect that is seldom talked about: using off-shore labor has
allowed some very poorly run businesses to succeed while well-run native business has
failed. The reasons for this are varied, but the very fact that multi-nationalism in the
business world is generally seen as progressive and forward-thinking and tends to lend
credibility to many businesses that don't deserve it. The cloak of business respectability
22

hides the fact that there are no business values left but short-term profits. The cost to the
local economy and citizens is never considered.
Consider the company that markets the common widget-widely used, competitively
priced and using local labor. Their profit margins are modest-steady but modest. All-
American Widget contributes to the local economy, gives generously to the local United
Way, Girl Scouts and the homeless shelter. The executives' children attend the local
school and they have a vested interest in not only their own well-being but that of their
workers. They realize that, as good corporate citizens they must give back to the
community. Again, their modest profits don't excite Wall Street and venture capitalists
aren't beating down doors to get a piece of the action.
Enter competition from International Widget. Started by a new-comer to the business
world, it's CEO decides he can make widgets cheaper if he outsourcers the work
overseas. A fast talker and good promoter, the new CEO sets up a business plan based on
the outline in the latest popular business magazine, has a manicure and his hair styled and
heads to New York to pitch his budding business to the money-men. Some forward-
looking Fund, with cash to spare, makes a deal for a return from profits provided he give
them some operations control. They then steer our new CEO to contacts to find the
overseas manufacturer who can do the job. It turns out there is already an existing Asian
manufacturer who can manufacture widgets-in fact, the Asian widget looks identical to
the All-American widget. Of course, it's identical because this Asian manufacturer is
creating knock-off widgets, avoiding development costs and skimping on the cost of
labor and materials. Our new CEO is a bit worried about the legal and moral
ramifications of the knock-off widgets, but the Fund managers remind him he has
promised to provide them with a healthy share of the profits and this is how they expect
him to make them.
Our new CEO flies over to look over the manufacturing plant and is somewhat concerned
over the working conditions. The Fund manager, however, tells him this is how
international business is done and not to worry about it. . .remember the profits!! So, the
new CEO creates a contract, secures shipping and takes a well-deserved holiday in Aruba
23

where he calculates his profit-margin. Even with shipping costs, and warehouse cost back
at the home base, he can sell the imported widgets for 75% of what All-American can. He
goes home, secures a warehouse-and a large tax rebate for starting new business and hires
a few warehouse employees. He enrolls his kids in the new private school and contracts
with a builder for his new Mc Mansion.
Mr. International Widget is by now getting plenty of perks in the way of glowing
business reviews and write-ups based on his high profit margin. Meanwhile, things aren't
looking quite so rosy inside International Widget; it seems he's getting plenty of new
business with the advertising campaigns but repeat business has dropped to nearly
negative numbers. It seems that the "guarantee" attached to International Widget requires
that defective products-and there seem to be many of them-be shipped back to the
manufacturer. Since International Widget isn't the manufacturer, the warranty becomes
nearly worthless. So, customers may buy one International Widget, but don't buy a
second one when the first breaks or wears out. Some irate customers sue for better
response to warranty problems. Mr. International Widget is required to cut short his
vacation at the seashore to deal with both the lawsuit and the required replacement
widgets. This costs the company big time as lawsuits are expensive and free widgets are a
net loss.
So, as Mr. International Widget goes over the books with his finance officer, sweating
profusely, the Fund Manager calls-and this time, he isn't even polite! Profits-and along
with them, the Fund's share-have dropped precipitously. Mr. Funding manager makes
serious demands, telling Mr. International Widget he must increase profits if it means he
must load the trucks himself! He is told in no uncertain terms to cut costs by turning off
the air conditioning in the warehouse, reducing employee breaks to the legal minimum
and cutting payroll costs. Mr. I.W. calls home to tell his trophy wife they will have to sell
the new yacht; she threatens him with divorce and community property and hangs up on
him.
Now, Mr. I.W. is already paying $2 an hour less to his employees than competitor All-
American Widget. He's done away with health insurance and most other benefits. He has
24

cut breaks to a minimum, shut off the air conditioning and raised the prices of the soda
vending machine to $1.75. His employees are NOT happy-many quit. That solves Mr.
I.W.'s dilemma about having to lay off employees and pay unemployment benefits-they
quit so they're not eligible. Mr. I.W. promptly calls the new temporary employment
agency in town and tells them to send him 20 of the cheapest employees they can get.
The temp agency tells him he will need a bi-lingual foreman.
Meanwhile, across town, All-American Widget is struggling. Competition from
International Widget, with their cheaper prices, has cut into their profits. All-American
cant cut prices as they pay a decent wage and benefits to their employees. They make the
product right there in the factory and thus employ more people. They contribute as much
as they can to local programs and enjoy being a valued member of the community. Mr.
A-A W cant in good conscience shut off the air conditioning or lower his employees' pay-
or even do away with the ever-increasing costs of their health care as the local medical
community struggles to keep the doors open in the face of the many uninsured illegal
users. He knows his employees depend on him and he intends to do the best he can to see
that they can maintain a decent standard of living.
Eventually, All-American Widget is forced to close its doors. The loss of a major
employer is devastating to the town, as they already have high unemployment due to
International Widget's use of illegal labor. International Widget ends up being touted in
all the business magazines once again as a successful model for American business. But
now, the tax incentives are about to run out on the warehouse and the Fund is concerned
about the additional taxes. They inform Mr. I.W. to look for another location for the
business-one that will give a whole new set of tax incentives. And they suggest a specific
legislative district-one in which they have contributed heavily to the local representative
and garnered favorable tax legislation. So, Mr. I.W. polishes the pinky diamond and
heads off in the Lexus to the next municipality that can be victimized by the Fund
Manager's schemes. He knows the drill, promises much he doesn't intend to give and
soon abandons the warehouse one dark night, moving the business to another state where
he will put another small town into the red.
25

Many will say International Widgets is an example of good business practices. After all,
many see continued profits as the only business concern that should be taken into
account. The problem here is that many people, including an entire town, have been
exploited and abandoned. The profits from International Widget benefited few people-the
members of the investment fund and a few senior officers. Employees did not benefit.
The town did not benefit-they got increased taxes to make up for the tax incentives
International Widget was given. The public did not benefit-they got cheap, unreliable
widgets that a few managed to sue to have replaced. In fact, the public can no longer buy
decent widgets because the business practices of International Widget forced competitors
out of business. It is questionable if the workers in the off-shore factory benefited as there
is no way to measure their improved standard of living. The entire national economy was
damaged because International Widget exported every possible job and service out of the
country. Municipal, state and national treasuries were all damaged as low-wage and
unemployed workers pay fewer taxes, buy less and travel less.
This type of business practice is ultimately disastrous for all involved. Mr. I.W. and his
investment controllers can only play this game a limited number of times. As everyone
else who can manage it is doing the same thing, eventually there will be no one left to
buy widgets. Mr. I.W. and his investors will likely be out of business. As for the over-
seas factory, they will no longer need American markets-they will be selling those
widgets to their own rising middle-class. International Widgets and those of their ilk are
in essence, eating their own. Good business practices? I hardly see how.
Conclusion and Recommendations
From the all above discussion we have understood that Internationalization of business is
benefited for business firms as well as the whole world. It helps a business to earn more
profit and brand image by improving there product quality and reducing cost. It helps
countries which does not have enough natural resources to fulfill their demands.
International business is important as it creates a stable ground on which companies can
26

expand their markets and operations. This is attributed to the fact that no country can
stand alone without having to engage in transborder transactions hence there is need to
include the neighboring countries, as well as, the international community. This will lead
to a wider market for goods and an even wider source of raw materials essential for
producing the products which are alter on exported. The other reason as to why
international business is important is due to the nature of legal or political policies in the
native country of the investor. Some countries are often face economic crisis due to
political instability thus making any form of investment quite risky hence there is need to
seek other geographical localities which may be rather stable hence safe, as well as,
profitable to establish the business. This can occur incases where ethnical wars are
evident in one country while political stability prevails in the adjacent country such that
the investor decides to carry out his/her business enterprises from the safer ground. The
increased levels of globalization have also led to elevated international business as more
people are getting involved in multinational corporations. In this respect, the investors
often open subsidiary branches of their companies in other countries hence their
transactions are carried out across the borders. Consequently, improved communication
by introduction of the internet has generated increased interest in the ability to transact
business across continents without having to shift the locality in terms of being mobile.
Hence it becomes even easier to locate business enterprises where it is more likely to
attract more profits and this could be in foreign countries
It is accepted that globalization is an unavoidable process and will progress forever. All
business that firms desire to compete successfully in international environment, should
obey to legal and ethical rules and regulations. To behave in an ethically and socially
responsible way should be a hallmark of every marketer`s behavior, domestic or
international. It requires little thought for most of us to know the socially responsible
or ethically correct response to questions about breaking the law, destroying the
environment, denying someone his or her rights, taking unfair advantage, or behaving in
a manner that would bring bodily harm or damage
Perhaps the best guide to good international marketing ethics are-
27

Do not direct intentional harm.
Produce more good than harm for the host country.
Respect the rights of employees and of all others affected by one’s actions or policies.
To the extent consistent with ethical norms, respect the local culture and work with and
not against it.
Multinationals should pay their fair share of taxes and cooperate with the local
governments in developing equitable laws and other background institutions.
DeGeorge(2000:50) asserts that “ for purposes of international business, there are
certain basic claims and norms that are necessary for business, and these throw some
light on claims to universality in ethics”. For example, the Universal Declaration of
Human Rights is an important norm which has been ratified by almost every country
and lays down basic principles that should always be adhered to irrespective of the
culture in which one is doing business. For instance, Article 23 of this declaration
states that: Everyone has the right to work, to free choice of employment, to just
and favorable conditions of work, and to protection against employment.
Every one without any discrimination, has the right to equal pay for equal work.
Everyone who works has the right to just and favorable remuneration ensuring for
himself and his family and existence worthy of human dignity and supplemented, if
necessary, by other means of social protection.
Everyone has the right to form and to join trade unions for the protection of his
interests
28

References
WEBSITES
http://en.wikipedia.org/wiki/International_business
http://voices.yahoo.com/international-business-contributes-1553357.html?cat=9
http://voices.yahoo.com/10-international-business-risks-7526598.html?cat=3
http://www.local.com/y/results.aspx?keyword=international+business&cid=17493
http://www.exampleessays.com/essay_search/Conclusion_Business.html
http://www.businessdictionary.com/definition/international-
business.html#ixzz1lQbk1XYU
BOOKS
Daniels, J.D., Radebauch, L.H and Sullivan, D.P "international Business Environment
and Operations" Tenth edition
Charles W.L Hill “International Business, Competing in the global marketplace. Sixth
edition
Helen, V.M., and David, B.Y (1989) "between free trade and protectionism: strategic
trade policy and theory of corporate trade demands" [E-Book] International Organization
Morrison, J. (2006) "The international business environment: global and local
marketplaces in a changing world"
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