This essay analyzes the international business strategy - protectionism which is a country-specific risk and a form of cultural and institutional risk. Protectionism is defined as the attempt by a national government to protect certain of its designated industries from foreign competition…
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Economic integration leads to openness and openness triggers volatility leading to insecurity. To alleviate the fears, to provide security to the local firms, the governments need to have a protectionist attitude (Fitoussi, 2007). Protectionism interferes in the process of globalization as it puts strict limits on the interplay of free markets. In fact, the rise of protectionism led to the end of the first phase of globalization. The MNEs, however, attempt to overcome the host country protectionism through different ways.
Protectionism implies that the government in the emerging economies will not let growth slow down. It will use the instruments of economic policy which assures to reduce the uncertainty linked with investment (Fitoussi, 2007). It also helps to increase the dynamism in the labor market. Protectionism definitely helps the “infant” industries in emerging markets. It fosters the long-term rate of growth of developing countries. Nevertheless, if these economies have to be integrated into the world economy, it requires a richer industrial structure. The fiscal and social receipts are too low and the welfare state is embryonic. Protectionism would allow it to develop a richer industrial structure and to provide through tariffs the necessary public funds to build a social system. Trade protection has to be there for the developing nations to eventually integrate into the world economy.
Shiva (2005) is of the firm conviction that trade liberalization does not lead to development. “Aid for Trade” is merely a coercive imposition of trade liberalization by WTO, the World Bank, and IMF. These tactics enable the MNC’s to expand and enlarge in every sector - agriculture, services, manufacturing. Protectionism is justified because development should be endogenous and not imposed with conditions.
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