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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, privatecompanies undertake such transactions for profit; governments undertake them for profit andfor political reasons.
[1]It refers to all those business activities which involve cross border transactions
of goods, services, resources between two or more nations. Transaction of economic resourcesinclude capital, skills, people etc. for international production of physical goods and services such asfinance, banking, insurance, construction etc.
[2].
A multinational enterprise (MNE) is a company that has a worldwide approach to markets andproduction or one with operations in more than a country. An MNE is often called multinationalcorporation (MNC) or transnational company (TNC). Well known MNCs include fast food companiessuch as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford MotorCompany and Toyota, consumer electronics companies like Samsung, LG and Sony, and energycompanies 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, economicpolicy, language, accounting standards, labour standards, living standards, environmentalstandards, local culture, corporate culture, foreign exchangemarket, tariffs, import and export regulations, trade agreements, climate, education and many moretopics. Each of these factors requires significant changes in how individual business units operatefrom one country to the next.
The conduct of international operations depends on companies' objectives and the means with whichthey carry them out. The operations affect and are affected by the physical and societal factors andthe competitiveenvironment.
Operations
Objectives: sales expansion, resource acquisition, risk minimization
Means
Modes: importing and exporting, tourism and transportation, licensing and franchising, turnkey operations, management contracts, direct investment and portfolio investments.
Functions: marketing, global manufacturing and supply chainmanagement, accounting, finance, human resources
Overlaying alternatives: choice of countries, organization and control mechanisms
Physical and societal factors
Political policies and legal practices
Cultural factors Economic forces
Geographical influences
Competitive factors
Major advantage in price, marketing, innovation, or other factors.
Number and comparative capabilities of competitors
Competitive differences by country
Local taxes
There has been growth in globalization in recent decades due to the following eight factors:
Technology is expanding, especially in transportation and communications. Governments are removing international business restrictions.
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Institutions provide services to ease the conduct of international business.
Consumers know about and want foreign goods and services.
Competition has become more global.
Political relationships have improved among some major economic powers.
Countries cooperate more on transnational issues.
Cross-national cooperation and agreements.
Studying international business is important because:
Most companies are either international or compete with international companies.
Modes of operation may differ from those used domestically.
The best way of conducting business may differ by country.
An understanding helps you make better career decisions.
An understanding helps you decide what governmental policies to support.
Managers in international business must understand social science disciplines and how they affect allfunctional business fields.
Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and international trade andcustoms consultant, uses the Six Tenets when giving advice on how to globalize one's business. TheSix Tenets are as follows[3]:
1. Take advantage of trade agreements: think outside the border
Familiarize yourself with preference programs and trade agreements.
Read the fine print.
Participate in the process.
Seize opportunities when they arise.
2. Protect your brand at all costs
You and your brand are inseparable.
You must be vigilant in protecting your intellectual property both at home and abroad.
You must be vigilant in enforcing your IP rights.
Protect your worldwide reputation by strict adherence to labor and human rights
standards.
3. Maintain high ethical standards
Strong ethics translate into good business.
Forge ethical strategic partnerships.
Understand corporate accountability laws.
Balance Of Payment
Record of all economic transactions between the residents of a country and the rest of the world
Current account
record of all recurring trade in merchandise and services, private gifts,
and public aid between countries
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trade deficit
trade surplus
Capital account record of all long-term direct investment, portfolio investment, and
capital flows
Dumping (pricing policy)
From Wikipedia, the free encyclopedia
This article is about the economics term. For industrial relations and social justice issue, seeSocial
dumping. For the tax avoidance term, seeSUTA dumping.
In economics, "dumping" is any kind of predatory pricing, especially in the context of international
trade. It occurs when manufacturers export a product to another country at a price either below the
price charged in its home market, or in quantities that cannot be explained through normal market
competition.
Dumping can force established domestic producers out of a market and lead to monopolistic positions
by the exporting nation. For example, a glut of Chinese garlic exports in the mid 2000s forced many
North American producers to switch crops and leave the market. When the price of Chinese garlic
soared in 2009, the shuttered North American businesses were unable to quickly re-enter the local
market due to barriers to entry.[citation needed]
Contents
[hide]
1 Overview
2 Anti-dumping actions
o 2.1 Legal issues
o 2.2 Definitions and extent
o 2.3 Procedures in investigation and litigation
o 2.4 Actions in the United States
o 2.5 Actions in the European Union
2.5.1 Chinese economic situation
3 Agricultural support
o 3.1 European Union and Common Agricultural Policy
4 See also
5 References
6 External links
[edit]Overview
http://en.wikipedia.org/wiki/Social_dumpinghttp://en.wikipedia.org/wiki/Social_dumpinghttp://en.wikipedia.org/wiki/SUTA_dumpinghttp://en.wikipedia.org/wiki/Predatory_pricinghttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Overviewhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Anti-dumping_actionshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Legal_issueshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Definitions_and_extenthttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Procedures_in_investigation_and_litigationhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Actions_in_the_United_Stateshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Actions_in_the_European_Unionhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Chinese_economic_situationhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Agricultural_supporthttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#European_Union_and_Common_Agricultural_Policyhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#See_alsohttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Referenceshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#External_linkshttp://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=1http://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=1http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#External_linkshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Referenceshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#See_alsohttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#European_Union_and_Common_Agricultural_Policyhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Agricultural_supporthttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Chinese_economic_situationhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Actions_in_the_European_Unionhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Actions_in_the_United_Stateshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Procedures_in_investigation_and_litigationhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Definitions_and_extenthttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Legal_issueshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Anti-dumping_actionshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Overviewhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Barriers_to_entryhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Predatory_pricinghttp://en.wikipedia.org/wiki/SUTA_dumpinghttp://en.wikipedia.org/wiki/Social_dumpinghttp://en.wikipedia.org/wiki/Social_dumping -
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A standard technical definition of dumping is the act of charging a lower price for a good in a foreign
market than one charges for the same good in a domestic market. This is often referred to as selling
at less than "fair value". Under the World Trade Organization (WTO) Agreement, dumping is
condemned (but is not prohibited) if it causes or threatens to cause material injury to a domestic
industry in the importing country.[1]
The term has a negative connotation as advocates of free markets see "dumping" as a form of
protectionism. Furthermore, advocates for workers and laborers believe that safeguarding businesses
against predatory practices, such as dumping, help alleviate some of the harsher consequences of
such practices between economies at different stages of development (seeprotectionism).
The Bolkestein directive, for example, was accused in Europe of being a form of "social dumping," as
it favored competition between workers, as exemplified by the Polish Plumber stereotype. While there
are very few examples of a national scale dumping that succeeded in producing a national-level
monopoly, there are several examples of dumping that produced a monopoly in regional markets for
certain industries. Ron Chenow points to the example of regional oil monopolies in Titan : The Life
ofJohn D. Rockefeller, Sr. where Rockefeller receives a message from Colonel Thompson outlining
an approved strategy where oil in one market, Cincinnati, would be sold at or below cost to drive
competition's profits down and force them to exit the market. In another area where other independent
businesses were already driven out, namely in Chicago, prices would be increased by a quarter.[2]
[edit]Anti-dumping actions
[edit]Legal issues
If a company exports a product at a price lower than the price it normally charges in its own home
market, it is said to be "dumping" the product. Opinions differ as to whether or not such practice
constitutes unfair competition, but many governments take action against dumping to protect
domestic industry. The WTO agreement does not pass judgment. Its focus is on how governments
can or cannot react to dumping it disciplines anti-dumping actions, and it is often called the "anti-
dumping agreement". (This focus only on the reaction to dumping contrasts with the approach of the
subsidies and countervailing measures agreement.)
The legal definitions are more precise, but broadly speaking, the WTO agreement allows
governments to act against dumping where there is genuine ("material") injury to the competing
domestic industry. To do so, the government has to show that dumping is taking place, calculate the
extent of dumping (how much lower the export price is compared to the exporters home market
price), and show that the dumping is causing injury or threatening to cause injury.
[edit]Definitions and extent
While permitted by the WTO, General Agreement on Tariffs and Trade (GATT) (Article VI) allows
countries the option of taking action against dumping. The Anti-Dumping Agreement clarifies andexpands Article VI, and the two operate together. They allow countries to act in a way that would
http://en.wikipedia.org/wiki/Fair_valuehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-bossche-0http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-bossche-0http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-bossche-0http://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Directive_on_services_in_the_internal_markethttp://en.wikipedia.org/wiki/Polish_Plumberhttp://en.wikipedia.org/wiki/John_D._Rockefellerhttp://en.wikipedia.org/wiki/Cincinnatihttp://en.wikipedia.org/wiki/Chicagohttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-FTA3-1http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-FTA3-1http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-FTA3-1http://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=2http://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=3http://en.wikipedia.org/wiki/Exportshttp://en.wikipedia.org/wiki/Unfair_competitionhttp://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=4http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=4http://en.wikipedia.org/wiki/Unfair_competitionhttp://en.wikipedia.org/wiki/Exportshttp://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=3http://en.wikipedia.org/w/index.php?title=Dumping_(pricing_policy)&action=edit§ion=2http://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-FTA3-1http://en.wikipedia.org/wiki/Chicagohttp://en.wikipedia.org/wiki/Cincinnatihttp://en.wikipedia.org/wiki/John_D._Rockefellerhttp://en.wikipedia.org/wiki/Polish_Plumberhttp://en.wikipedia.org/wiki/Directive_on_services_in_the_internal_markethttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)#cite_note-bossche-0http://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Fair_value -
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normally break the GATT principles of binding a tariff and not discriminating between trading
partnerstypically anti-dumping action means charging extra import duty on the particular product
from the particular exporting country in order to bring its price closer to the normal value or to
remove the injury to domestic industry in the importing country.
There are many different ways of calculating whether a particular product is being dumped heavily or
only lightly. The agreement narrows down the range of possible options. It provides three methods to
calculate a products normal value. The main one is based on the price in the exporters domestic
market. When this cannot be used, two alternatives are availablethe price charged by the exporter
in another country, or a calculation based on the combination of the exporters production costs, other
expenses and normal profit margins. And the agreement also specifies how a fair comparison can be
made between the export price and what would be a normal price.
Five percent rule
According to Footnote 2 Anti-Dumping Agreement, domestic sales of the like product are sufficient to
base normal value on if they account for 5 per cent or more of the sales of the product under
consideration to the importing country market. This is often called the five per cent or home market
viability test. This test is applied globally by comparing quantity sold of like product on the domestic
market with quantity sold to importing market. Normal value cannot be based on the price in the
exporters domestic market when there are no domestic sales. For example, if the products are sold
only for foreign market, the normal value will have to be determined on another basis. Besides, the
products may be sold on both markets but the quantity sold on the domestic market is small
compared to quantity sold on foreign market. This situation often happens in countries with small
home market (Hong Kong, Singapore for example). Large market, however, may face the same
situation while the like products are sold in significant on both markets, some types of products are
sold in larger quantity on foreign market while other types are vice versa. This is because of
differences in consumer tastes, maintenance, etc. This leads to some exported types of products are
sold in small quantities on the domestic market.
Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be
applied if the dumping is hurting the industry in the importing country. Therefore, a detailed
investigation has to be conducted according to specified rules first. The investigation must evaluate all
relevant economic factors that have a bearing on the state of the industry in question. If the
investigation shows dumping is taking place and domestic industry is being hurt, the exporting
company can undertake to raise its price to an agreed level in order to avoid anti-dumping import
duty.
Factor Endowment
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In economics a country's factor endowment is commonly understood as the amountof land, labor, capital, and entrepreneurship that a country possesses and can exploitfor manufacturing. Countries with a large endowment of resources tend to be more prosperous thanthose with a small endowment, all other things being equal. The development of sound institutions to
access and equitably distribute these resources, however, is necessary in order for a country toobtain the greatest benefit from its factor endowment.
Nonetheless, the New World economies inherited attractive endowments such as conducive soils,ideal weather conditions, and suitable size and sparse populations that eventually came under thecontrol of institutionalizing European colonists who had a marginal economic interest to exploit andbenefit from these new discoveries. Colonists were driven to yield high profits and power byreproducing such economies vulnerable legal and political framework, which ultimately led themtowards the paths of economic developments with various degrees of inequality in human capital,wealth, and political power.
[edit]Factor endowments in the New World
A classical example often cited to emphasize the importance of institutions in developing a country's
factor endowment is that of North America (the United States and Canada) around the turn of the 19thto 20th century. It is commonly argued that these countries benefited greatly by borrowing manyof Britain's institutions and laws. While North America undoubtedly gained from this borrowing, thisdoes not fully explain why the rest of the New World (which also enjoyed a large factor endowmentand access to British institutions) did not develop in a similar way. In fact, data shows that connectionbetween the prosperity of the colonizing and the wealth of the colony was weaker than many thought.The future United States and Canada surpassed several British established colonies in theCaribbean, such as Barbados, Jamaica, Belize, and Guyana. In fact, the United States converged onthe world economic leader, measured in GDP/capita, the UK. In 1910, the United States overtook theUK and began to diverge from it until about the 1950s. This shows that there must have been anotherexplanation as to why the future United States and Canada developed at a faster rate than othercolonies in the region.
[1]
Kenneth Sokoloff and Stanley Engerman argue in their article "History Lessons: Institutions, FactorEndowments, and Paths of Development in the New World"[2]that the difference between NorthAmerica and the rest of the New World was not just in institutions but in the nature of their respectivefactor endowments. Countries like Brazil and Cuba had an extremely large yet concentrated factorendowment that tended towardexploitation, a hierarchical social system and exhibited economies ofscale. Cuba and Brazil primarily grew lucrative products such as cotton, coffee, and sugar, whichrequired hand picking and most efficiently picked when picked by hands in unison, whereas theUnited States was generally a wheat producer. The true advantage of the United States and Canadalay in a more equitable distribution of factors that could not be exploited on an extremely large scale.This distribution led to a more open and opportunistic economy, and eventually to long-termprosperity. For example, because wealth and power were distributed relatively equally in the UnitedStates and in Canada, these two countries led the rest of the Americas in providing education on abroader scale. Education is an important factor to improve technology in order to boost productivity,
which is the reason that US and Canada surpassed the others. Greater access to education allowedfor greater investment in human capital, which increases productivity and contributed to the UnitedStates and Canada's economic growth. According to Sokoloff and Engerman's article "HistoryLessons: Institutions, Factors Endowments, and Paths of Development in the New World,"
[3]not only
the United States had relatively equal distribution of wealth, it had relatively homogeneous population,political power and human capital. United States and Canada's relatively equal distribution of wealth,amount of human capital and political power utimately affected development of institution, extent offranchise, and public education that persist and influence growth of the country. The open franchise inthe United States and Canada was possibe due to the large voting body of middle class and smallelites. The open franchise brought elimination of wealth and literary requirement by 1940 in Canadaand the United States (literacy requirement was still enforced in US southern regions only). Again, theopen franchise was possible because the United States endowed a land suitable for wheat growingthus had a large body of middle class unlike Brazil and Cuba where they exhibited small elites, some
overseers and large slave population. United States, then, outgrows other New World countries andeventually diverged from Cuba and Brazil in late eighteen and early nineteen century.
http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Land_(economics)http://en.wikipedia.org/wiki/Labour_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Entrepreneurshiphttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Resource_(economics)http://en.wikipedia.org/w/index.php?title=Factor_endowment&action=edit§ion=1http://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/New_Worldhttp://en.wikipedia.org/wiki/Factor_endowment#cite_note-0http://en.wikipedia.org/wiki/Factor_endowment#cite_note-0http://en.wikipedia.org/wiki/Factor_endowment#cite_note-0http://en.wikipedia.org/wiki/Kenneth_Sokoloffhttp://en.wikipedia.org/wiki/Stanley_Engermanhttp://en.wikipedia.org/wiki/Factor_endowment#cite_note-1http://en.wikipedia.org/wiki/Factor_endowment#cite_note-1http://en.wikipedia.org/wiki/Factor_endowment#cite_note-1http://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Cubahttp://en.wikipedia.org/wiki/Exploitationhttp://en.wikipedia.org/wiki/Social_systemhttp://en.wikipedia.org/wiki/Factor_endowment#cite_note-2http://en.wikipedia.org/wiki/Factor_endowment#cite_note-2http://en.wikipedia.org/wiki/Factor_endowment#cite_note-2http://en.wikipedia.org/wiki/Factor_endowment#cite_note-2http://en.wikipedia.org/wiki/Social_systemhttp://en.wikipedia.org/wiki/Exploitationhttp://en.wikipedia.org/wiki/Cubahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Factor_endowment#cite_note-1http://en.wikipedia.org/wiki/Stanley_Engermanhttp://en.wikipedia.org/wiki/Kenneth_Sokoloffhttp://en.wikipedia.org/wiki/Factor_endowment#cite_note-0http://en.wikipedia.org/wiki/New_Worldhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/w/index.php?title=Factor_endowment&action=edit§ion=1http://en.wikipedia.org/wiki/Resource_(economics)http://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Entrepreneurshiphttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Labour_(economics)http://en.wikipedia.org/wiki/Land_(economics)http://en.wikipedia.org/wiki/Economics -
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Sokoloff and Engerman hypothesize that in societies founded with greater inequality, the elites gainedmore power to influence the choice of legal and economic institutions.
[4]In those countries which are
inequal, small elites restrict majority people's rights, such as education and votes, to perpetuate thesocial structures and continue to make themselves "elites." The U.S. began its economic growthlargely through slave labor and trade of the output of that labor. As the elites enacted policy togenerate more economic equality, for example by increasing literacy rates, the U.S. GDP per
capita pulled ahead of other long-since established countries along with the literacy rates. It isessential to note that factor endowments played a crucial role in shaping the colonies institutions andeconomic growth; colonies with a richer quality of soil grew cash crops such as sugar, coffee, andcotton, which were most efficiently grown using plantation systems. As such, the demand for not onlyslave labor but also peonage within these colonies grew. Due to the vast inequality that the societydeveloped due to a small elite population in comparison to the vast laborer population, they were ableto maintain the wealth and power within the elite class via establishing a guarded franchise. Theinequalities within the cash crop colonies resulted in their economy not being able to expand andgrow as fast as the U.S and Canada, due to restrictive policies. Those policies in inequal countriescurb the intellectual development of most people who are only required to do simple manual jobs;however, US and Canada encourage their people to take part in education. As a result, US andCanada excel with higher productivities which are supported by advanced technology.
Political Stability in Business Environment
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No matter how attractive the economic prospects of a particular country orregion are, doing business there might prove to be financially disastrous ifthe host government(s) inflict(s) heavy financial penalties on a company orif unanticipated events in the political arena lead to the loss of income-generating assets.
The political environment in which the firm operates (or plan to operate)will have a significant impact on a company's international marketingactivities. The greater the level of involvement in a foreign markets, thegreater the need to monitor the political climate of the countries business isconducted. Changes in government often result in changes in policy andattitudes towards foreign business. Bearing in mind that a foreign companyoperates in a host country at the discretion of the government concerned,the government can either encourage foreign activities by offeringattractive opportunities for investment and trade, or discourage its activitiesby imposing restrictions such as import quotas, etc. An exporter that iscontinuously aware of shifts in government attitude, will be able to adaptexport marketing strategies accordingly.
Nearly all governments today play active roles in their countries'economies. Although evident to a greater or lesser extent in mostcountries, government ownership of economic activities is still prevalent inthe former centrally planned economies, as well as in certain developingcountries which lack a sufficiently well developed private sector to supporta free market system.
The implications of government ownership to a company marketing abroad might be that certainsectors of the foreign market are the exclusive preserve of government enterprise or that thecompany is obliged to sell directly to a state trading organisation. In either case, the company'sinfluence on the market is greatly reduced. Similarly, if an exporter is seeking to establish a subsidiaryin a country where there is a high degree of state influence over the factors of production, the investorshould bear in mind that marketing activities in the country concerned may be restricted and that theso-called controllable elements of the marketing mix (see Chapter 4) will be less controllable.
Of primary concern to an exporter should be the stability of the target country's political environment.A loss of confidence in this respect could lead to a company having to reduce its operations in themarket or to withdraw from the market altogether. One of the surest indicators of political instability isa frequent change in regime. Although a change in government need not be accompanied byviolence, it often heralds a change in policy towards business, particularly international business.Such a development could impact harshly on a firms long-term international marketing programme.
Reflected in a government's attitudes and policies towards foreign business are its ideas about howbest to promote national interest in the light of the country's economic and political resources and
objectives. Foreign products and investment seen to be vital to the growth and development of theeconomy often receive favourable treatment from the government in the form of reduced tax,exemption from quotas, etc. On the other hand, products considered by a government to be non-essential, undesirable, or a threat to local industry are frequently subjected to a variety of importrestrictions such as quotas and tariffs. It is also important to be aware of the nature of the relationshipbetween South Africa and the foreign target market. This was a major consideration during SouthAfrica's political isolation. Fortunately, South Africa's international relations have normalised and todaySouth Africa is viewed very favourably, from a political perspective, by the rest of the world.
The political environment is connected to the international business environment through the conceptof political risk.
Political risk
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Political riskcan be defined as the impact of political change on theexport firm's operations and decision-making process.
Political risk is determined differently for different companies, as not all of them will be equallyaffected by political changes. For example, industries requiring heavy capital investment are generally
considered to be more vulnerable to political risk than those requiring less capital investment.Vulnerability stems from the extent of capital invested in the export market, e.g. capital-intensiveextracting or energy-related businesses operating in the foreign market are more vulnerable thanmanufacturing companies exporting from a South African base.
Political risk is of a macro nature when politically inspired environmental changes affect all foreigninvestment. It is of a micro nature when the environmental changes are intended to affect onlyselected fields of business activity or foreign firms with specific characteristics, (possibly byexpropriation).
When business is conducted in developing countries, the risks of greatest concern are civil disorder,war and expropriation. When business is conducted in industrialised countries, labour disruptions andprice controls are generally seen to pose the greatest threats to a company's profitability.
Expropriationis the take-over of a foreign firm located in a hostcountry, by the host country's government.
All organisations doing business abroad should be aware of the fact that what they do could be theobject of some political action. Hence, they need to recognise that their success or failure coulddepend on how well they cope with political decisions, and how well they anticipate changes inpolitical attitudes and policies.
Role of culture in business environment
The importance of culture in a global environment
Nowadays, communications, transportation and other technologies allows almost any
businesses to be global. From simply creating a web-site or physically opening a store in
a foreign country, understanding local culture is often overlooked, and caused more
business failure then any other business aspect. But what is culture? How different can a
culture be? How to understand and adapt to a different culture? We will try to answer
those questions during this review.Culture (from the Latin cultura stemming from colere, meaning "to cultivate,")
generally refers to patterns of human activity and the symbolic structures that give such
activities significance and importance. Cultures can be "understood as systems of
symbols and meanings that even their creashmetors contest, that lack fixed boundaries,
that are constantly in flux, and that interact and compete with one another" Different
definitions of "culture" reflect different theoretical bases for understanding, or criteria for
evaluating, human activity. Culture is manifested in music, literature, lifestyle, food,
painting and sculpture, theater and film and similar things. Although some people
identify culture in terms of consumption and consumer goods (as in high culture, low
culture, folk culture, or popular culture), anthropologists understand "culture" to refer
not only to consumption goods, but to the general processes which produce such goodsand give them meaning, and to the social relationships and practices in which such
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objects and processes become embedded. For them, culture thus includes art, science,
as well as moral systems. `
Travelling trough different parts of the world will open your eyes and help you see how
much different peoples behavior change from one country to another. For example
travelling in Europe will show you how within a couple hour of driving you can go trough
three countries that are all different: They speak a different language, listen to differentmusic, dress differently, look different, what they conceder acceptable differs from one
place to another etc.
Unfortunately, US culture is really specific and ethnocentric, and having such a vast
country where you can go skiing, go to a tropical island and more without leaving the
country, I found that out of all the country I have lived in or been US is the only one
where people dont travel outside their country. Nowadays in a global environment
where at one point you will have to deal with a Chinese supplier or a Mexican customer.
Another important fact of the US culture is that while at school only few
learnhow to speaka foreign language, where most of the countries educational system will
teach all students at least one or two languages on top of the national language. And
language is the first barrier to cultural differences. Now why does travelling, being part
of an ethnocentric culture or speakingforeign languageshas anything to do with business?
From a multi-national corporation to a small online store everybody as the opportunity to
see the whole world as one giant marketplace and be successful importing, exporting,
selling, finding supplier in another country. If you are trying to create an on-line custom
dress shirt business, why buy US fabric and produce the shirts locally where fabrics are
not the best quality and expensive and local worker will cost you a lot more to produce
less of a job? Buy your fabric from Italy, get the shirts done in China, and sell it
throughout the whole world! In this case you will have to deal with cultures that are
different from each other and different from yours. I realize that if you have been taught
since a younger age how to adapt to various culture and environment, learn differentlanguage it will be easier and almost natural for you to adapt and be successful in your
international business venture. No matter how many classes, or international business
consultant you see in order to prepare you for a meeting with foreigners, there is
nothing worst then someone forcing himself and not acting naturally. Also most of
cultures cannot be learned on paper they can only be lived in order to be understood,
and the more cultures you already understood the easier the next one will be ( it is like
learning a new language).
We saw what culture is and how important it is start as early as possible to travel and
experience the culture instead of just reading about it, but how different can a culture
really be?
After working for several years for a consulting firm that dealt mainly with internationalmergers and deals in general I understood how what you learned from a vacation in
Morocco talking with locals and observing them is applicable to doing business with
executives or government representatives in Morocco. Here are some example of
cultural differences and how to deal with it:
When doing business with North African countries you ll be surprised of how warm and
welcoming are the people, most business man might kiss and hug to greet each other,
always talking with hand gesture, and touching each other like grabbing your hand,
shoulder and always talking really close. In the US relationship are cold, a hand shake in
the beginning and ending of a meeting, if someone start to touch you or get to close the
American will feel nervous (and might think of suing the person). In this case adapt
yourself and dont be shy! Grab your interlocutors hand and get even closer
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when you have an important message to send! They will respect you even more because
they know your culture is different.
If you are trying to get a deal done with a French company, dont expect your email
to be returned instantly and to do a deal in a day. Everything happens around the dinner
or lunch table and a good bottle of wine. Even if in your own company you can get fired
for having a drink between 9 and 5, there if you refuse to drink, laugh and be friendlychances are people wont trust you and your deal will fall apart.
Finally one of the greatest examples was when we were representing a German company
to help them sell buildings that they owned in Berlin. The prospective customer was a
British investment bank. The German executives (like in many other countries) were
expecting to receive XXXmillions for the buiding and Xmillion on a swiss bank account.
Arriving at meeting in London the British executives told us that they couldnt
understand why their bid was the highest and reasonable but couldnt get the deal
signed. We try to explain them that they could lower their bid but that the rest and
maybe more needs to be transferred to a special bank account. The British executives
could not understand what that money was for! After explaining them more and more
specifically without compromising our German customer they finally understood and told
us that there is no way for them to enter such practice, and were almost shock and the
deal never went trough although they might have been able to get the project for a
better deal. This is to show you that different countries have different values overall and
could result in business success or failure by itself even if all other factors are positive.
Now lets study a specific countrys culture to try to understand its cultural
differences.
Indias culture is one of the oldest and most unique in the world.Indian culturevaries
throughout the country. People inhabiting the southern, northern, and northeastern
areas have their own cultures, and almost every state has defined its own cultural niche.
India is a vast country, with a variety of geographical features and climatic conditions.Indias vast history is rooted in some of the worlds most ancient civilizations and
has fostered the growth of four major world religions: Hinduism, Buddhism, Jainism and
Sikhism. Indian culture is a mixture of different styles and influences. In the matter of
cuisine, for instance, the northern and southern areas are dynamically different than
other regions of the country. Festivals in India have vivid colors, enthusiasm, prayers
and rituals. In the world of music, there are varieties of folk, popular, pop, and classical
music. The classical tradition of music in India includes the Carnatic and the Hindustani
music.
India, a place of wide variety, is a fascinating mix of ancient culture, enormous contrasts
and architectural beauty. The Indian culture has existed through the ages precisely for
the reasons of antiquity, unity, continuity and the universality of its nature. Thus withinthe boundaries of Indian culture one can identify Indian type of Music ,
Indian type of Dance , and Indian type of Cinema . Indian culture
stresses the importance of treating guests with the best possible manners and taking
care of them as if they are part of the family itself. Even if there is not enough food on
the table, a family will make sure its guest is full before leaving. The concepts of
respecting one another and having a helpful nature are other important aspect of Indian
culture. Indian culture strives to distribute joy and happiness as well as sharing sadness
and pain. Nowadays globalization has reached the Indian shores creating a culture that
has extended globally, adapting to other cultures (dressing, arts etc.) but never
forgetting its roots and traditions.
Like many other countries around the world, doing business in India requires knowledge
of the English language. English is the language of international business and, although
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the government only recognizes Hindu, most schoolsteachEnglishand a vast majority of
Indians speak English (especially in a business environment). One of the most critical
factors to understand when attempting to conduct business in India is the importance
placed on hierarchy and the respect Indians pay to seniority. In the United States, elders
are not necessarily as respected simply because of their age when compared to many
other cultures. Indian society operates within a framework of strict hierarchy that definespeople's roles, status, and social order. When entering a meeting it is customary to greet
the oldest or the highest ranked person in the room first. Others are not allowed to
oppose this decision. For example, manual labor is only carried out by the "peon"
(roughly equivalent to a 'runner'). It is not uncommon for the moving of a desk to take
hours. This is because no one in the office will carry out this labor-intensive task except
the "peon" who, if otherwise engaged, cannot do so.
Meeting and greeting etiquette are two very important factors when conducting business
in India, which generally requires a handshake. Indians use Namaste where ones
palms are brought together at chest level with a slight bow of the head. A foreign
businessperson using Namaste is a sign that he or she understands and respects Indian
culture. When addressing an Indian that you know personally, it is important to use the
appropriate formal title, whether it is Professor, Doctor, Mr., Mrs. or, if you do not know
the proper title, Sir or Madam. Like many other cultures, business cards should be
exchanged at the first meeting. It is important to receive and give the business card with
your right hand and then put it away respectfully, not to simply push it into a trouser
pocket as that could be seen as a sign of disrespect.
When conducting business in the United States, it is not unheard of for a deal to happen
in matter of hours. In India ones counterpart must believe they can trust and
understand you, even on a personal level, before considering a discussion on business
related matters. Indians only deal favorably with those they know and trust, even at the
expense of lucrative deals. It is vital that a good working relationship is founded withany prospective partner. This must take place both on a business level (demonstrating
strong business skills) and on a personal level. It is critical not to become frustrated if
after a week of meetings nothing concrete occurs. This is part of the culture. It is also
important to remain patient and not too pushy because the closure process is likely to
drag out.
Indians do not only base business decisions on statistics, data, and exciting PowerPoint
presentations. They use intuition, feeling, and faith to guide them. It is important to
always exercise patience, show good character, and refrain from exhibiting frustration or
anger. When negotiating, it is a good idea to avoid high-pressure tactics and
confrontation. Criticisms and disagreements should be expressed only with a diplomatic
approach. Indian society believes that saying "no" is rude due to the possibility ofcausing disappointment or offense. If terms such as "we'll see or "possibly" are used
in a response to a proposal, then the Indian businesspeople are most likely saying 'no',
but are having a difficult time. When negotiations successfully end, always maintain
relationships and host a celebration dinner as it is part of their local customs.
To conclude, we saw the importance of culture in a business environment and how
important it is to live a culture instead of just reading about it, and that the
sooner you acquire an open mind and a global mind the easier adapting to new culture
will become and the more natural you will become. Upon reviewing some of the key
aspects of culture and their application to a business environment, it is easily
understandable how one can fail when conducting business simply due to cultural
differences. Often, people are afraid of differences but you need to know that people
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from another country know about these cultural barriers and wont expect much
from you and often time as a foreigner you will be gratified a lot for trying, and that will
give you an hedge against the competition.
Consequences of globalisation
The Consequences of Globalization
Mainly, the general views about globalization can be categorized into four main perspectives that are
economic, technological, development, and societal respectively.
The Economic Perspective: of globalization is the growth of world trade as a proportion of output
(the ratio of world imports to gross world product, GWP, has grown from some 7% in 1938 to about
10% in 1970 to over 18% in 1996). It is reflected in the explosion of foreign direct investment (FDI):
FDI in developing countries has increased from $2.2 billion in 1970 to $154 billion in 1997. It hasresulted also in national capital markets becoming increasingly integrated, to the point where some
$1.3 trillion per day crosses the foreign exchange markets of the world, of which less than 2% is
directly attributable to trade transactions.
The Technological Perspective: involves Information Communication Technology (ICT) what
explains this globalization? It certainly lies in the development of technology. The costs of transport,
of travel, and above all the costs of communicating information have fallen dramatically in the
postwar period, almost entirely because of the progress of technology
The Development Perspective: is the most controversial and important of all. It touches the heartof dichotomy which today globalization phenomenon faces. It tries to find the clues of the increasing
divide between the rich and the poor, the existing cleavage between the ICT haves and have-nots,
under the umbrella of one world concept of integrated markets and capital flows. Above all it
challenges the greatest protagonists of globalization, the global institutions of World Bank, IMF, and
even WTO one hand. One the other it has created a massive wave of antagonists threatening the
industrial nations through anti-globalization relays, protests, and strikes.
The Societal Perspective: focuses on some key factors which have become pivotal to ensure the
longevity of success of developed nations and that are their sensitivity to the community, cultural
norms, and environmental care. This includes the condition of human rights, women empowerment,
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gender sensitization, civic education, status of women in the society, political status becoming more
democratic, freedom of speech, rule of law, equal access to resources and level of education.
Globalization is also a key to future environmental changes. Decisions made by the private sector, in
its search for comparative advantages, are increasingly affecting where and how people live and work.
Globalization is having a major impact on population migration, population distribution, particularly
through accelerating urbanization trends, and growth of mega-cities. These population changes are in
turn impacting on security, governance, poverty, health and environmental factors
Globalization research raises many questions with respect to contemporary forms of power--
economic, political, cultural--as well as strategies to challenge power and promote alternatives. To
what extent do globalization processes produce global convergence, for example, towards economic
insecurity? Do local conditions produce "varieties of globalization" at local levels? Are states
overwhelmed by corporate power? To what extent do states shape the new global economy? With
respect to questions of resistance, in what ways do globalization processes facilitate or constrain new
opportunities for collective action? In the age of transnational corporate institutions, in what ways has
social activism responded to this transnational context?
Causes of Globalisation
Causes of Globalization
While it is truethat state ventures (or adventures) have at times driven the process, e.g. the colonial
conquests, the globalization process has largely reflected market forces, specifically, the exploitation
by large and smaller businesses in the world of benefits from trade in commodities, goods, services,
capital, and even labor, and of opportunities for new investments and markets.
The process of global economic integration was perpetrated at the behest of World War II, when the
leaders of Britain and the US helped establishing the World Bank and International Monetary Fund in
1944 to promote a liberal, capitalist world to counter the shadows of Socialism and Marxism.
The loans are granted by IMF and WB on the condition that the borrowing country will reduce the
state's role in the economy, lower barriers to imports, remove restrictions on foreign investment,
eliminate subsidies for local industries, reduce spending for social welfare, cut wages, devalue the
currency, and emphasize production for export rather than for local consumption. Such conditions
imposed laid the basic foundation to open economies to steer the mechanism of economic integration
giving birth to the World Trade Organization.
By mid 1950s Pakistan had become a favorite candidate for receiving the benefits pledged by
President Truman, having joined the network of international defense treaties with the United States.
It marked the beginning of an enduring trend in Pakistan to follow every one of the strategies of
development devised successively in Washington and promoted globally. Pakistan's own Dr. Mahbub-
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ul-Haq called this trend the pursuit of "development fashions" and listed it among his "seven sins of
economic planners."
Before development theory and practice could be redesigned in any significant way to address the
lingering issue of social justice it was literally hijacked to serve the agenda of a more aggressively
mobile global capital which aimed at a deeper integration of all national economies into the structures
and ideological framework of neo-liberal globalization. Foreign debt is the main lever used by donor
countries and multilateral aid organizations to break resistance to the imposition of external economic
agendas and development policies.
Challenges to Globalisation
Globalization poses four major challenges that will have to be addressed bygovernments, civil society, and other policy actors.
One is to ensure that the benefits of globalization extend to all countries. That will
certainly not happen automatically.
The second is to deal with the fear that globalization leads to instability, which is
particularly marked in the developing world.
The third challenge is to address the very real fear in the industrial world that
increased global competition will lead inexorably to a race to the bottom in wages,
labor rights, employment practices, and the environment.
And finally, globalization and all of the complicated problems related to it must not
be used as excuses to avoid searching for new ways to cooperate in the overall
interest of countries and people.
Several implications for civil society, for governments and for multinational institutions
stem from the challenges of globalization.
Civil society organizations concerned with development have traditionally focused
on aid and resource transfers; they now are going to have to broaden their agenda
to deal with the much more complex issues of trade and investment, international
financial flows, environment, and migration, among others. Civil society
organizations in the old industrial countries also will have to deal with the backlash
against global ization, which is producing a growing unwillingness to support
multilateral cooperation.
Governments are going to have to decide what they mean by civil society and to
identify new ways of dealing with its organizations. At the Overseas Development
Council, we define civil society broadly to encompass not only development and
advocacy groups, but also corporations, financial institutions, think tanks,
foundations, and a range of other groups that are not part of government. But
governments and other actors need to decide whether civil society is simply an
effectiveand even cheapway of delivering social programs, or whether it is
good in and of itself, an essential component of a democratic society. In other
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words, they are going to have to be much more precise about the purposes of
working with civil society groups and about how they fund them.
Then, there is a whole set of critical questions for the multilateral institutions,
particularly concerning participation and transparency. These issues are extremely
difficult because these remain governmental institutions, and governments often
do not welcome the participation of civil society in decisions.
Finally, there is a need for high-level political discussions among leaders from the
old industrial countries, the emerging economies, and the countries that risk
marginalization by globalization. We are urging the Group of Eight this year in
London to call for a new summit on globalization in order to begin a discussion of
maximizing its benefits and minimizing its costs.
Limits to Globalisation
Does globalization have any limits?
We have all become familiar with theongoing debate about the desirabilityof globalization. What we have notseen much of is a discussion ofwhether globalization has any limits.
Implicit in both the pro- and anti-
globalization positions is theassumption that unless globalization isstopped either by a world war, ashappened in 1914, or by a consciouspolitical decision, as anti-globalizationists advocate, it willcontinue until the world has become aseamless, frictionless marketplace.
Pro-globalizationists argue that such a world will be far more prosperous and peaceful than today's;the antis predict a world of universalized poverty and terrorism. On the balance, I agree with theglobalizers. However, there are some limits to the process.
To date, they have been largely theoretical; sheer protectionist obstruction by entrenched interestshas been so powerful that the other issues have been barely worth considering. However, enoughprogress has been made on lowering barriers that they have begun to be significant, and should beconsidered.
The world has benefited immensely from the general liberalization of trade that began after World WarII, and most particularly in the past two decades. Entire regions, such as East Asia, have been liftedout of the most wretched poverty into a comfortable standard of living. Country after country hassuccumbed to pressures to lower trade barriers and permit the free flow of capital, labor and products.Those that remain closed are for the most part the poorest and least free, and certainly are notshining enticements for other countries to follow the anti-globalization path.
From this, however, we should not extrapolate that globalization along current lines can expand until
the world is a single uniform economic space. Limiting factors difficult to overcome might well emergeto establish the limits of the process. It's worth thinking about what a few such limits might be.
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One is public health. The epidemic of severe acute respiratory syndrome, SARS, serves as a timelyreminder that medicine has not brought immunity from disease but only better tools for fighting it. It islikely no accident that Canada, with its higher immigration rates and looser border practices than theUnited States, was the center of SARS outbreaks in North America.
History has seen repeated cycles of expansion of trade suddenly cut off
because of plague. Now cheap air travel, crowded megalopolises andmass movement of populations, have created the potential for very rapidspread of lethal diseases on a global basis. Several rounds of suchoutbreaks could create a set of quarantine and inspection processes formovement of goods and people that could substantially raise the cost ofinternational trade.
Additionally, SARS is teaching us yet again that strong civil society is essential to fighting diseaseeffectively. Without a tradition of honest public service, and without a tradition of independent entitiesin society to watch and report on administrative bodies, from media to legislatures, it is too easy forbureaucracies to hide bad news and their own inefficiencies.
By covering up SARS in its early stages, China reminds us that its ambition to be a first-class player
in world trade and affairs still runs ahead of its development of civil society, and that a strong civilsociety is and must be the entry ticket to first-class status.
Security issues in their own way also act as a permanent barrier to full globalization, and one thatcannot merely be wished away. The war in Iraq reminded us that substantial sectors of the economy,particularly in transportation and communications, are intimately tied in to national security.Mobilization of the Civil Reserve Air Fleet, which calls civilian airliners into military service, remindedus that who owns and controls airlines is a national security issue. Thus barriers such as the currentlimits on foreign ownership and control of U.S. airlines and certain communications facilities areunlikely to go away any time soon.
At the same time, the burden of SARS, on top of the burdens of war and terrorism, havedemonstrated the airlines' critical need for capital. Free international flow of capital into the U.S. airline
industry, both via international investment and merger, would be a significant boost at a critical time.Yet it is hard to imagine the Pentagon being happy at the prospect of one of the major airlines comingunder the wing of, say, Air France.
Finally, continuing terrorism and fear of terrorism will continue to have a
dampening effect on international travel and trade. At worst, fear of
terrorist use of cargo containers to carry nuclear, biological or chemical
weapons into target nations could substantially increase inspection costs
for such trade.
At a minimum, fear of terrorist activities will reduce the willingness of
business people to travel to and do business in "soft target" nations,
those too poor to effectively screen out and fight international terrorists. The October 2002 bombings
on Bali may be a better example of future attacks than the World Trade Center assault; as the United
States and other rich, strong nations improve security, the natural tendency will be to move terrorist
activities to poor nations with less effective security.
Barring a runaway episode of epidemic disease, war or terrorist phenomena, it is likely that these
factors will merely remain constraints on globalization, and not showstoppers. However, as
experience grows with both the continued deepening of globalization, and the continued emergence
of long-term limiting factors, we will begin to have a better feel for the texture and contours of a
globalizing world.
Rather than happening at a constant pace in all directions, globalization is more likely to continue tohappen unevenly and along certain lines and vectors. Certain links will be most likely to happen
We have all become familiar
with the ongoing debateabout the desirability of
globalization. What we have
not seen much of is a
discussion of whether
globalization has any limits.
Institutions of globalization
need to be rethought - the
World Trade Organization
and global universally
targeted trade initiatives may
have picked most of the low-
hanging fruit available to
them.
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between equally strong civil societies; others will happen along geographically regional lines; still
others will happen along lines of shared language and culture.
These realities also suggest that the institutions of globalization should be somewhat rethought.
Global institutions such as the World Trade Organization, and global, universally targeted trade
initiatives may have picked most of the low-hanging fruit available to them. From here on, it may bethat merely lowering tariff barriers further and eliminating obvious discriminatory rules may be close to
its useful limits, while other concerns, particularly in public health and national security, may just not
be addressable through universal rules.
Much beneficial work on globalization remains to be done, but it may be that attention will now shift to
examining ways of linking particular sets of nations and economies that can be integrated without the
problems that would stem from a universal application of such rules. Economists have tended to
dislike such particularist solutions, and always tend toward the universal.
But the world has more factors than their models can incorporate, and it may be that the costs such
factors impose can no longer be kept in the margins.
Multinational Enterprises
A multinational corporation (MNC) or multinational enterprise (MNE)[1]
is a corporation enterprisethat manages production or delivers services in more than one country. It can also be referred to asan international corporation. The International Labour Organization (ILO) has defined
[citation needed]an
MNC as a corporation that has its management headquarters in one country, known as the homecountry, and operates in several other countries, known as host countries.
Some multinational corporations are very big, with revenues that exceed some countries' grossdomestic products (GDPs). Multinational corporations can have a powerful influence in localeconomies, and even theworld economy, and play an important role in internationalrelations and globalization.
Contents
[hide]
1 International power
o 1.1 Tax competition
o 1.2 Market withdrawal
o 1.3 Patents
2 Transnational Corporations
3 Criticism of Multinationals
4 See also
5 References
6 External links
[edit]International power
[edit]Tax competition
http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-pitelis-0http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-pitelis-0http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-pitelis-0http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/International_Labour_Organizationhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Multinational_corporation#International_powerhttp://en.wikipedia.org/wiki/Multinational_corporation#Tax_competitionhttp://en.wikipedia.org/wiki/Multinational_corporation#Market_withdrawalhttp://en.wikipedia.org/wiki/Multinational_corporation#Patentshttp://en.wikipedia.org/wiki/Multinational_corporation#Transnational_Corporationshttp://en.wikipedia.org/wiki/Multinational_corporation#Criticism_of_Multinationalshttp://en.wikipedia.org/wiki/Multinational_corporation#See_alsohttp://en.wikipedia.org/wiki/Multinational_corporation#Referenceshttp://en.wikipedia.org/wiki/Multinational_corporation#External_linkshttp://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=1http://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=2http://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=2http://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=1http://en.wikipedia.org/wiki/Multinational_corporation#External_linkshttp://en.wikipedia.org/wiki/Multinational_corporation#Referenceshttp://en.wikipedia.org/wiki/Multinational_corporation#See_alsohttp://en.wikipedia.org/wiki/Multinational_corporation#Criticism_of_Multinationalshttp://en.wikipedia.org/wiki/Multinational_corporation#Transnational_Corporationshttp://en.wikipedia.org/wiki/Multinational_corporation#Patentshttp://en.wikipedia.org/wiki/Multinational_corporation#Market_withdrawalhttp://en.wikipedia.org/wiki/Multinational_corporation#Tax_competitionhttp://en.wikipedia.org/wiki/Multinational_corporation#International_powerhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/International_Labour_Organizationhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Multinational_corporation#cite_note-pitelis-0 -
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Multinational corporations are important factors in processes of globalization. National and localgovernments often compete against one another to attract MNC facilities, with the expectation ofincreased tax revenue, employment, and economic activity. To compete, political entities may offerMNCs incentives such as tax breaks, pledges of governmental assistance or subsidizedinfrastructure, or lax environmental and laborregulations. These ways of attracting foreigninvestment may be criticized as a race to the bottom, a push towards greater autonomy
for corporations, or both.On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively lowlabor costs and weak environmental and social protection, multinationals actually bring about a 'raceto the top.' While multinationals will certainly see a low tax burden or low labor costs as an element ofcomparative advantage, Bhagwati disputes the existence of evidence suggesting that MNCsdeliberately avail themselves of lax environmental regulation or poor labor standards. As Bhagwatihas pointed out, MNC profits are tied to operational efficiency, which includes a high degree ofstandardisation. Thus, MNCs are likely to adapt production processes in many of their operations toconform to the standards of the most rigorous jurisdiction in which they operate (this tends to be eitherthe USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developingcountries far below levels in countries where labor productivity is high (and accordingly, will adoptmore labor-intensive production processes), they also tend to pay a premium over local labor rates of10 to 100 percent.
[2]Finally, depending on the nature of the MNC, investment in any country reflects a
desire for a medium- to long-term return, as establishing plant, training workers, etc., can be costly.Once established in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary governmentintervention such as expropriation, sudden contract renegotiation, the arbitrary withdrawal orcompulsory purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to thebottom' critique may be overstated, while understating the benefits (besides tax revenue) of MNCsbecoming established in a jurisdiction.
[edit]Market withdrawal
Because of their size, multinationals can have a significant impact on government policy, primarilythrough the threat of market withdrawal.
[3]For example, in an effort to reduce health care costs, some
countries have tried to force pharmaceutical companies to license their patented drugs tolocal competitors for a very low fee, thereby artificially lowering the price. When faced with that threat,multinational pharmaceutical firms have simply withdrawn from the market, which often leads tolimited availability of advanced drugs. In these cases, governments have been forced to back downfrom their efforts. Similar corporate and government confrontations have occurred when governmentstried to force MNCs to make their intellectual property public in an effort to gain technology for localentrepreneurs. When companies are faced with the option of losing a core competitive technologicaladvantage or withdrawing from a national market, they may choose the latter. This withdrawal oftencauses governments to change policy. Countries that have been the most successful in this type ofconfrontation with multinational corporations are large countries such as United States and Brazil
[citation
needed], which have viable indigenous market competitors.
[edit]Patents
Many multinational corporations hold patents to prevent competitors from arising. Forexample, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipmentand infrastructure and Microsoftbenefits from software patents.
[4]The pharmaceutical companies
lobby international agreements to enforce patent laws on others.
[edit]Transnational Corporations
A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself withone national home. Whilst traditional MNCs are national companies with foreign subsidiaries,
[5]TNCs
spread out their operations in many countries sustaining high levels of local responsiveness.[6]
Anexample of a TNC is Nestl who employ senior executives from many countries and try to makedecisions from a global perspective rather than from one centralised headquarters.
[7]However, the
terms TNC and MNC are often used interchangeably.
[edit]Criticism of Multinationals
Main article:Anti-corporate activism
http://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Incentivehttp://en.wikipedia.org/wiki/Environmental_lawhttp://en.wikipedia.org/wiki/Labor_lawhttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Race_to_the_bottomhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Jagdish_Bhagwatihttp://en.wikipedia.org/wiki/Multinational_corporation#cite_note-1http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-1http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-1http://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=3http://en.wikipedia.org/wiki/Government_policyhttp://en.wikipedia.org/wiki/Multinational_corporation#cite_note-2http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-2http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-2http://en.wikipedia.org/wiki/Pharmaceuticalhttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Competition_(economics)http://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=4http://en.wikipedia.org/wiki/Patentshttp://en.wikipedia.org/wiki/Adidashttp://en.wikipedia.org/wiki/Siemens_A.G.http://en.wikipedia.org/wiki/Microsofthttp://en.wikipedia.org/wiki/Software_patentshttp://en.wikipedia.org/wiki/Multinational_corporation#cite_note-3http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-3http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-3http://en.wikipedia.org/w/index.php?title=Multinational_corporation&action=edit§ion=5http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-4http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-4http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-4http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-5http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-5http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-5http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Schermerhorn-6http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-S