Element of International Business - Term Paper Example

International business deals with commercial transactions carried out by two countries with varying economic conditions. The variations in the level of incomes, living standards, distribution of incomes, occupational structures, monetary systems, economic resources etc. International business decides demand creation, availability of foreign exchange and international price fixation. According to needs and necessities of world economy it is essential to put in to practice some changes towards global business. They are the indicators of economic developments across the countries. The recent globalization has opened up new areas to speed up their activities. Taking the entire world as a common market, adequate flow of technology and investment- The global business is about to achieve new heights. International business help the global exports to expand from US$ 3311 billion in 1990 to US$ 5456 billion in 1997. Technological improvements in communication and information have made the whole world as common place of business burying all the factors of distance, culture, language and climate. Besides traditional avenues, mercantile trade, many new avenues have opened up for both developed and developing countries such as export of software, opening up of service sectors like banking and insurance to international competition. Global business can take up any one of the following aspects. 1. Merchandise / Product package 2. Service / service package 3. Turnkey projects International business also deals with a number of channels. Home country production consist of direct and indirect exports. Over seas production deals with licensing, franchising, contract manufacturing, management contracting, manufacturing facilities, assembly operations and joint ventures. Production in free areas are created in any country which is free of all domestic taxes, levies, restrictions etc. They may be Export Processing Zones (EPZs), 100% Export Oriented Units (EOUs), Technology Parks (TPs), Special Economy Zones (SEZs) or Free Trade Zones (FTZs). Factors influencing international business. In international business, both import and exports play equal roles. There are two factors controllable internal factors and uncontrollable external factors, they are summarized below. Internal Factors Product: It is the core product or services that may be either tangible or intangible, which carries its own value. Price: Price is the value of ‘any thing’ which determines its cost of a product which includes its cost of production as well as a certain percentage which forms its profits. Among countries there is variation in price level, but international business is based on a stable price level. Promotion: It is carried out to increase the sales volume of any country by adopting various activities like trade fairs and international exhibitions. Human Resources: Human Resource are the man power which integrate all other resources like money, material, machinery and method. Technology: Due to the increasing era of science and development technology plays a crucial role in international business. The success of any countries international trade is highly depending on its successsful implementation of sophisticated technology towards its market trends Finance: It’s a life blood of any business, the adequate function of any business requires sufficient investment. Physical resources- Like transportation, telecommunication, ware housing etc. also plays a linguistic role in international business scenario. External Factors These are the major environmental factors, which goes on changing due to various reasons. Major external factors are: Economic Systems:-Economy plays an important role for the business development. The quality and price of a product can also take varying positions in an economy. Depending on the economic policy of various countries, the administrative business frame work will also vary. Political Systems:-Nature of decisions taken on international issues vastly differs in different countries due to their political differences. Political issues and economic issues are interrelated in business context. Legal systems: Laws and regulations controlling and regulating the international business can also be vastly deferent from country to country. There fore modification should be made on marketing strategies to support them. It is very important to obey the rules and regulations prevailing between trading countries. Cultural Daimentions: It is the ethical behavior, values and believes of any country. Even though the cultural system of countries may vary, to be successful a business has to cope up with those changes. Merits of WTO. World Trade Organization is an international organization to foster and promote trade facilities between its member nations.” The goal is to help producers of goods and services, exporters, and importers conduct their business.” 1 Benefits of WTO Markets: WTO helps its member countries to connect with global markets. International marketing environment is free from trade and other economic barriers it helps the national manufactures to find a global market for their product and improve their product standard. Global marketing is highly relating with different countries Cultural, political, legal systems. Each countries market is influenced by these elements. And the World Trade Organization helps to provide new markets for products. Production: International business creates a good opportunity for manufacturers to find optimal locations to establish their manufacturing function through low cost. A countries growth in production is depending on their ample availability of labor and technological improvements. China is one of the good examples of successful manufacturing growth. It has fiscal discipline over its cost of manufacturing and is thus able to produce high quality products at relatively lower prices to compete in the international arena. Certain multinational companies established their manufacturing plants in various countries of the world in order to reduce their cost of production and thus maximize profits. Lowering of trade barriers, which is the principle idea behind WTO, creates good opportunities for multinationals to establish their units at favorable locations in the world. Firms can design their products in one country, manufacture the parts in yet another country and assemble the composite unit in a third country and thus benefit in terms of cost of production and sale. The WTO follows following principles with regard to their trade policies. Non discrimination- By adopting the Most Favored Nation (MFN) policy the WTO ensures that the goods manufactured in one member country should not be treated less than a similar good produced in another country. According to the national treatment policy imported goods and locally produced goods by the member nation shall be treated at par. Reciprocity- By adopting this policy member nation can be assured of better access to international market. Binding an enforceable obligations- All signatories to the WTO are committed to honor their mutual obligations signed with their trading partners and these contract are valid. Any changes in the schedule of concession have to be renegotiated with the trading partners and disputes arising if any could be referred to WTO dispute settlement authorities. Transparency. The WTO members are required to publish their trade information and respond positively to requests for trade information from other member countries and also inform the WTO regarding changes in their trade policies for validation. Safety Valves. Normally WTO favors unrestricted trade practices among member countries. However under certain circumstances it may become necessary for government to impose certain restrictive practices in order to facilitate economic, non economic or fair competition objectives. Achievements of WTO During the Doha WTO Conference held in 2001, three key aspects were taken for discussion: liberalizing agricultural markets in developed markets, market inroads for industrial goods in developing countries and finally, liberalization of service sector under GATT agreement. Demerits of WTO. The main demerits OF World Trade Organization is that their policies of globalization and free trade has lead to misuse and exploitation of the child labor and worker force in the third worlds countries by unscrupulous and profit motivated corporations and “a force for environmental devastation, exploitation of the developing world, and suppression of human rights?” 2 More over the indiscriminate felling of trees and abuse of natural resources for setting up industrial units have lead to serious ecological and environmental issues. The denigration of forest life has endangered the existence of a healthy environment. Another fallout of the policies of the WTO has been a rise in social inequality among the people in developing and under developing countries and the growing hostility towards the domination of trans national corporate giants over the poor working masses all over the world it is believed this corporations have gone over board in gaining control over the lives of the poor working classes and are setting determinants to their culture way of life and the WTO is just a silence spectator to the nefarious activities of large companies. All though the intentions of the world trade organization is to annihilate geographical and administrative barriers within their member countries and provide a sound platform for economic growth through the removal of unfair trade practices yet the implementation of this policies have taken undesirable routes and the growth has materialized by the exploitation of poorer sections of the masses. The policies of the WTO do not serve the interests of the poor and the middle class sections of the society has much as it serves the interest of the high income groups.” American attitudes toward the agenda of the WTO and the transnational are sharply divided along economic and class lines.” 3 The Seattle protest in the year 1999 reminded the American administration regarding the ever increasing gulf between the large business houses and the ordinary citizen of the country. They felt that the conference did not address their concerns but only paid heed to the maters of importance relating to the big business houses and the talks collapsed in the face of “in the face of unprecedented protest from people and governments around the world.” 4 Most of the demonstrators who attended the Seattle protest meeting were exposing the interests of people of less developed countries and members of the group of farmers and exploited laborers from many countries. The presence of such anti-corporate feeling has assumed great importance because the privileged classes in the USA were growing richer by leaps and bounds whereas the poor, working classes were struggling to lead a mere existence, and “the WTO has systematically undermined democracy around the world.” 5 Although the stated objective of WTO is to promote free trade and enhance economic growth, it has been successful in this respect only to a limited extent. This is because its policies have been biased towards biased countries and multi-national giant corporations while ignoring the needs of smaller and lesser developed countries. The Uruguay Round of the WTO has not made much headway for industrial growth. Since market penetration has not improved and the developing countries have not benefited from the elimination of textile quotes and anti-dumping laws. However, tariff protection of manufacturers in underdeveloped and developing countries have increased. The decision making process is often the subject of criticism. It has been ineffective and complex and often WTO has not been able to reach a consensus on the issues relating to member countries. Moreover, the smaller nations are not able to express their views or influence the trade decisions of the WTO. Therefore, there is a need for greater freedom to be exercised by the developing countries in order to fully meet the stated aims and objectives of WTO and to fully realize all round economic growth and development of its member nations. Works Cited What is The WTO? World Trade Organization. Switzerland. http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm (accessed on April 11, 2007). A Student’s Guide to Globalization. What is Globalization? Globalization 101.org. A Project of the Carnegie Endowment. http://www.globalization101.org/ (accessed on April 11, 2007). The Social Meaning of the Anti-WTO Protest in Seattle. World Socialist Website. 1999. Editorial Board. http://www.wsws.org/articles/1999/dec1999/wto-d06.shtml (accessed on April 11, 2007). World Trade Organization (WTO). Public Citizen. Global Trade Watch. http://www.citizen.org/trade/wto/ (accessed on April 11, 2007). WTO, World Trade Organization. Global exchange. 2006. http://www.globalexchange.org/campaigns/wto/ (accessed on April 11, 2007). Read More