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3.4 other considerations before trading internationally
- 1. 1|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c OTHER CONSIDERATIONS BEFORE TRADING INTERNATIONALLY O VERVIEW 0B 1. RESPONSIBILITY TO STAKEHOLDERS a. Ethical decisions as to what and where to manufacture b. Balance between capital and labour c. Where to sell d. Pay and work conditions e. Environmental factors such as waste and disposal f. Potential conflicts of socially responsible and ethical behaviour with profit-based and other objectives. 2. SOCIAL AND CULTURAL DIFFERENCES IN DOING BUSINESS a. Different promotional message for different countries b. International branding c. Distribution channels and Joint Ventures d. Pricing strategy for different countries 3. THE PURPOSE OF TARIFFS, LAWS AND IMPORT QUOTAS a. Why tariffs, laws or import quotas are used i. Protect domestic industries ii. Balance of trade b. Other Trade barriers c. Constraints on that these barriers provide R ESPONSIBILITY TO STAKEHOLDERS 1B Corporate Social Responsibility (CSR) is continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life for the work force and their families as well as of the local community and society at large. THE WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT
- 2. 2|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c W HAT AND WHERE TO MANUFACTURE • Businesses (especially mining) may have to take up large areas of land in order to operate which may often be farm-land. Establishing business operations here will damage the livelihoods of the local inhabitants as well as have negative environmental effects. Often businesses will compensate by spending money on local environmental projects; jobs to local community are also offered. o Places that are very environmentally sensitive are best left un- Figure 1 - Locating in this sensitive ecosystem could tempered as small change could have a large impact on the have disastrous implications for the environment. ecosystem. B ALANCE BETWEEN CAPITAL AND LABOUR • Businesses might seek to reduce production cost by making their production capital intensive. However, this will mean that fewer jobs will be available. In poorer countries, cheap labour is heavily exploited. Figure 2 - Coca-Cola production is highly W HERE TO SELL capital intensive. • Often businesses will take advantage of the lack of education that people have in certain regions. For example, the sale of cigarettes has declined heavily in western markets, so now they are exploring markets in Asia (Philippines) where the literacy rate is low. • Businesses that deal in arms, will exploit civil unrest to sell their weapons. This may in turn cause much bloodshed. P AY AND WORKING CONDITIONS • Giving workers better working conditions will definitely increase business costs. Businesses often outsource production in order to from lower wage costs. Figure 3 - Smoking KILLS! Figure 4 - Brick makers in India are offered the worst working conditions. Children also are forced to work when they are able so that the family can at least earn something to feed itself. The dust that these children inhale could cause asthma in many and other go on to have worse diseases.
- 3. 3|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c 25 1991 1992 20 1993 1994 1995 15 1996 1997 1998 10 1999 2000 2001 2002 5 2003 2004 2005 0 2006 United United States China India Bangladesh Russian Germany European Kingdom Federation Union 2007 E NVIRONMENTAL FACTORS SUCH AS WASTE AND DISPOSAL 8B • Often there are laws in countries (such as Germany and other developed countries) that limit the amount of pollution that a business can emit. Fines have to be paid for crossing the limit. • Often businesses relocate to a developing country where their laws on pollution are not as stringent, all in an effort to reduce cost, but the total damage to the environment remains constant. • Developed countries emit the highest pollution per capita. • Often businesses are adopting more responsibility for their actions, many chocolate producers are now opting for fair-trade. This means that the cocoa farmers will get a fair price for their produce. C ORPORATE S OCIAL RESPONSIBILITY AND ETHICAL BEHAVIOUR 9B Ethical Decision making means making decisions based on moral principles. The objective is to do the right thing, which means taking into consideration of everyone affected by the decision. The difference between CSR and Ethical decisions is that ethical decisions are morally intended to benefit the stakeholders. CSR although pays some attention to taking responsibility for its actions, ethical decision making goes further, often setting their own standards for environmental friendly-ness etc. Ethical decisions are done to with intentions to genuinely benefit the community, however CSR is often done because of laws and regulations and also because it is really good for Public Relations.
- 4. 4|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c S OCIAL AND CULTURAL DIFFERENCES IN DOING BUSINESS 2B Culture refers to the attitudes, values, customs and expectations that define groups of people. INTERNATIONAL BUSINESS FOR A2 Culture is the customary beliefs, social forms, and material traits of a racial, religious, or social group MERRIAM-WEBSTER’S DICTIONARY D IFFERENT PROMOTIONAL MESSAGES IN DIFFERENT COUNTRIES 10B • Due to the differences in culture, there may be many manners as well as customs that businesses have to understand and appreciate in order to do business in a particular country. • Often, businesses have had to resort to changing brand names or even slightly altering the machine itself in order to appease customer tastes. • Adverts often have to carefully worded in order to make sure that people are not offended by it. Advertising may be handled by local firms so that all potentially disastrous. Figure 5 - Promotional poster for the ICC 2011 Cricket world cup from PEPSI I NTERNATIONAL BRANDING 1B • Brands with international appeal can be marketed in a range of different countries. For example, Pepsi or Coca-Cola can market their products with few changes to their product’s composition. So production (which is a big part) is made a lot easier. Making this product marketable to a wide range of countries with limited modifications. • Brand loyalty felt by many could be exploited and would become a trusted product to the business traveller. For example, to a travelling businessman who has no time to find local cuisine can simply go to the nearest McDonald’s and get a meal. D ISTRIBUTION CHANNELS AND JOINT - VENTURES 12B • Often businesses have to work in co-operation with partners in foreign countries, forming a joint-venture. This means, that profits will be shared as well as the tasks of operating the business. The exact deal will differ from company to company. P RICING STRATEGIES 13B • Often products with a brand image have to reduce the quality of their products in order to sell them. People in developing countries often have to sacrifice something else for branded product. In these cases, marketing using high prices to prove the product’s superiority is not a good idea as the average Asian consumer is not as rich as the average European or American consumer.
- 5. 5|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c THE PURPOSE OF TARRIFS, LAWS AND IMPORT QUOTAS A Tariff is a taxation imposed on goods and services imported into a country; also known as a duty tax. INVESTOPEDIA A Quota is a limit put on the amount of a specific good that can be imported. INVESTOPEDIA Trade Barriers Exchange Safety Tariffs Quotas Subsidies Rates standards W HY T ARIFFS AND QUOTAS ARE USED • PROTECT DOMESTIC INDUSTRIES: As foreign goods are more expensive, it will give the domestic products cheaper and thus more people will opt to buy domestic products. • RAISE TAX REVENUE: Some goods such as food are price inelastic, increasing duties will give the government significant rise in revenues. • PREVENT DUMPING: When a country sells a product at a much cheaper price that in domestic markets, in an effort to kill domestic competition. So, that when only the foreign company remains, it can charge whatever it wishes to charge. • PROTECT INFANT INDUSTRIES: This is a temporary measure where the government allows fledgling industries in their countries to strengthen their bases, so that when they are strong, the tariff will be lifted. However, tariffs have negative consequences as the countries that these tariffs are implemented on may retaliate which means the country’s exporters will suffer. However in financial crises, it may be the only way to protect a failing industry. Either way, these protectionist policies have a very high price: relations with other countries can be seriously jeopardised. Quotas can also help the exporter when the demand for the good is inelastic, as there is lower supply but still the same demand, this the price of the good will increase. Thus, the exporting business could make more profits from fewer units sold.
- 6. 6|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c O THER BARRIERS • The government could provide businesses subsidies, so that they are able to sell their goods at cheaper prices, to cut costs or to simply ensure their survival through a recession. • Undervalued exchange rates provide exporting businesses a competitive advantage when they are exporting their goods as it makes their goods cheaper. China has been accused of this many times by the United States. • Safety standards can often be used to prevent certain goods from competing. Nowadays, this is mostly imposed on the food industry. C ONSEQUENCES • Implementing tariffs and quotas make goods more expensive and thus reduce consumer purchasing power. • Often price hikes can cause civil unrest and demonstration leading to a lot of negative coverage from the media. • Retaliation by foreign nations could damage the country’s exporting industry and hence reduce GDP. • However, is a company is dependent on a particular nation; it might force the company to set up operations in the country.