Government Policies Influence On International Business - Essay Example

Government Policies’ Influence on International Business Government Policies’ Influence on International Business/Management Introduction Governments the world over create different standards and regulations that are intended to provide economically suitable environments necessary for businesses to compete against each other. The rules are not static and as such, the government makes changes from time to time, forcing companies to change their modes of operation (External environment, n.d.). The government’s economic policy plays a significant role in shaping any given country’s economy trend. For instance, the government of the United States of America increasingly interfered in the economy through the establishment of state-run industries between 1945 and 1979. The public corporations created did not perform as expected and, as a result, the government moved to adopt privatization in a bid to improve the competition levels of the business industry. The USA currently has free trade agreements with twenty countries. The Free Trade Agreements present both advantages and disadvantages to the U.S. Discussion Colombia, Israel, Chile, Canada, Bahrain, Honduras, Mexico, Morrocco and Jordan are some of the countries that have signed Free Trade Agreements with the USA (Free Trade: United States reserves, n.d). The government views Free Trade Agreements as an effective way of opening up foreign markets to the exporters of the U.S (Free trade, n.d). Policymakers and economists believe that Free Trade Agreements will not only reduce trade barriers to U.S.A’s exports, but also serve to protect the country’s interests in the Free Trade Agreement partner country. The further reduction of barriers to trade and the subsequent creation of a transparent and stable investment and trading environment eases the cost burden of U.S companies to export products and services to trading partners. Free Trade comes with the following advantages to the U.S (The Benefits, n.d): Spreading the value of freedom. Reinforcing the very fundamental rule of law. Facilitating economic development in some of the developing countries in the world such as Colombia (Villareal, 2014). The promotion of innovation and competition in businesses in the U.S in the past decade is probably the greatest benefit of the Free Trade policy to the country. On the other hand, the dumping problem created by the same Free Trade Agreements is the worst of difficulties that local producers face. Advantage of Free Trade: Promotion of competition and innovation Currently, very few people in America earn a living from subsistence agriculture and local trade as that would be too costly in terms of financial costs and the time spent. Americans today can access most of the items that they need such as food and clothes on the open market with ease. The principles of cost and practicality apply on international market scenarios. The financial burden of purchasing a commodity is significantly reduced if purchases can be made from a specialist producer who incurs fewer costs of production. Imports, should not be viewed as a sacrifice, but rather a necessary evil required for exportation. People export to obtain other different commodities in return. The primary purpose of trade is to enable access to a vast variety of goods and services. Free trade offers the consumers the luxury of choosing what to purchase from a wide array of consumption bundles and subsequently the best opportunities to improve their standards of living. The numerous consumption bundles available for choice mean that companies have to be innovative and develop more sophisticated products for the market. The competition, thus created ensures the market prices are kept low without necessarily lowering the quality of the products/services. Over the past decade, the U.S.A market has proved that innovation is a result of increasing competition. Competition to create the latest, ultra-modern personal computer has led to a tremendous cut in the purchase price. The Electronic Commerce sector of the United States’ economy has grown tremendously, availing unlimited choices of commodities and very low prices. Recently, some companies have been offering free computers, provided the buyer signs a yearly Internet Service Provider agreement. Americans have, over the years developed an innate talent to innovate. Farmers have used that very ability to increase productivity over the years. Statistics show that between 1948 and 1996, the U.S. agricultural production doubled while the increase in agricultural labor productivity was more than eightfold. Disadvantage of Free Trade: Dumping Dumping refers to the exportation of goods at lower prices in comparison to the producing country’s local rates (What is dumping? definition and meaning, n.d.). In addition to cut-throat competition, Free Trade may lead to dumping. Through dumping, goods are sold off at extremely cheap prices, which could even be below the production costs with the aim of controlling a foreign market (Sinha, n.d.). Some of the explanations as to why dumping occurs are: 1. In particular instances where producers in a given country try as much as possible to remain in the competition with other producers in the international market. 2. Situations whereby producers in one nation aim at eliminating producers from another country and as such gain the lion’s share of the world market. 3. Some producers want to dispose of excess products that are not sellable in their local market. 4. Producers want to generate more profits from the division of sales into foreign and domestic markets, and then selling the products at whichever price customers are willing to offer. Some of the well-known types of dumping include: Sporadic Dumping: Rare but regular sale of a particular commodity at under-par cost in order to do away with an unforeseen but temporary surplus without a corresponding decrease in the domestic prices. Predatory Dumping: The temporary disposal of a commodity through sales in the foreign market at a price below the average domestic costs in a bid to drive foreign competitors out of business. The ultimate aim is to establish a monopoly in the international market and a subsequent exploitation of the consumers. Persistent Dumping: The persistent unethical tendency of a particular local monopolist to sell goods at an astronomically higher price domestically than in the international market in order to match the rivals’ competition. From the consumer’s point of view, dumping is advantageous because of the variety of goods that it avails in the market. However, since the local customers are not willing to purchase the relatively expensive local goods, dumping reduces the profit margin of the target market’s local producers significantly. Exporters if left to trade freely, without the regulation of anti-dumping laws, will cause significant adverse effects on the local industries. Conclusion Countries that operate on a Free Trade policy agreement with other willing nations enjoy numerous advantages that come with such arrangements. On the other hand, Free Trade also exposes a Free Trade Agreement member country to various adverse effects which are economically costly. However, comparing the positive side against the negative side of Free Trade policies, it is more advantageous than disadvantageous for a country to implement a Free Trade policy. References Bahal, M. (2012, October 1). International Trade: Dumping and Its Impact On Competition. Retrieved April 21, 2015, from http://cci.gov.in/images/media/ResearchReports/InternationalTradeDumpingImpactOnCompetition.pdf External environment theory. (n.d.). Retrieved April 20, 2015, from http://businesscasestudies.co.uk/business-theory/external-environment/how-businesses-are-affected-by-government-policy.html#axzz3S9ysGPRK Free Trade Agreements. (n.d.). Retrieved April 22, 2015, from http://trade.gov/fta/ Free Trade Agreements | United States Trade Representative. (n.d.). Retrieved April 24, 2015, from https://ustr.gov/trade-agreements/free-trade-agreements The Benefits of Free Trade: A Guide For Policymakers. (n.d.). Retrieved April 21, 2015, from http://www.heritage.org/research/reports/2000/08/the-benefits-of-free-trade-a-guide-for- policymakers Villareal, M. (2014, February 14). The U.S.-Colombia Free Trade Agreement: Background and Issues. Retrieved April 21, 2015, from https://www.fas.org/sgp/crs/row/RL34470.pdf Sinha, A. (n.d.). What are the disadvantages of Free Trade ? Retrieved April 22, 2015, from http://www.preservearticles.com/201012291888/disadvantages-of-free-trade.html What is dumping? definition and meaning. (n.d.). Retrieved April 23, 2015, from http://www.businessdictionary.com/definition/dumping.html Read More