Minggu, 28 Desember 2014

THE IMPACT OF INTERNATIONAL BUSINESS ON THE GLOBAL ECONOMY

Niki Geiersbach

Abstract
With the dawn of globalization, international business is becoming increasingly popular. Multinational organizations are among the most profitable in the world. A company needs to be aware of the language and culture of the country where it plans to embark with its investment. Politics and laws of the nation can either make international business easy or hard. With the success of international business, its future is gleaming, on a global scale.



The International Business Imperative
Revolutionary changes in technologies have provided the mechanisms that propel the  growth  of  international  business.   The intensification of competition at both domestic and international levels has driven firms to look beyond their domestic markets for new opportunities.   The  progressive  removal of barriers to trade and capital movements has  stimulated  greater  flows  of  exports, imports and foreign direct investment (FDI). Multinational enterprises have emerged as the key agents of international economic coordination. They provide the capability to generate innovations and deliver new goods and services to the market; they also provide the capability to exploit these technological advances at a global level; and they are a depiction of the capacity of international managerial co-ordination to operate efficiently  across  international  boundaries. Furthermore, the growing economic strength of  the  newly-industrializing  countries  (e.g. Taiwan, Hong Kong, Singapore, Korea) and the opening up of China and Eastern Europe have provided an additional stimulus to international business activities (Wei).
Culture and International Business
Chevrolet was unsuccessful at marketing the Chevy Nova in Mexico, and the result was lost revenue because inn Spanish, “Nova” means “it doesn’t go.” The American Motor Corporation named one of its products the “Matador,” to create images of strength and virility. But “Matador” means “killer” in  Puerto  Rico,  where  the  traffic  fatality rate is exceedingly high. It is therefore imperative to conduct an evaluation of names prior to introducing a product on the market (“International Business Customs”).
A 30-second advertising spot proved to be  a  costly  mistake  for  Doubletree  Hotels Corporation.   The  advertisement  was  the announcement  of  a  $31  million  marketing campaign to illustrate the warm, friendly atmosphere of the hotels. Deemed offensive to the Muslim community, the spot portrayed employees of the hotel dressed in Arab-style clothing and bowing to the guests. This was interpreted as the employees worshipping or “praying” to hotel visitors. As the Muslims worship the one true God, this advertisement was seen as ridicule of reality.Moreover, translation errors are the cause of the majority of blunders in global trade. The Coors slogan “Turn it Loose,” turned into “Drink Coors and Get Diarrhea.” Even the largely popular “Got Milk?” campaign lost its edge when it was introduced in Mexico as “Are you Lactating?” As is obvious, these mistakes and others like them can result in a devastating loss of revenue for companies in today’s global marketplace. Hence, it is very  important  to  know  its  culture  before conducting international business with a country (“International Business Customs”).
National Trade and Investment Policies
The  1996  National  Trade  Estimate  of the European Union explains the notions of national trade and investment policies. The European Union and the United States share the largest two-way trade and investment relationship in the world. In 1995, the US had a trade deficit with the EU of $8.3 billion, $3.4 billion less than that recorded in 1994. In 1995, US merchandise exports to the EU were $123.6 billion, an increase of $15.9 billion from those in 1994. US imports from the EU totaled $131.9 billion in 1995, or 10.4 percent greater than those in  1994.   The  stock  of  US  foreign  direct investment in the EU was $256.1 billion in 1994, an increase of 6.9 percent over that in 1993 (“1996 National Trade”).
As an example of import policies, when Austria, Finland, and Sweden joined the EU on January 1, 1995, these countries adjusted their tariffs to the EU’s common external tariff, resulting in increased tariffs on $3 billion of US industrial and agricultural exports.   The  European  Commission  was required to negotiate with the US and other  affected  trading  partners  a  package of  compensating  tariff  cuts.   During  1995, the EU adopted interim compensation for the US under which the EU continued to apply pre-accession tariff levels on imports into the three countries on most of the affected industrial products, but provided no compensation in agriculture. In December 1995, the EU and US concluded negotiations on the permanent compensation owed to the US. Some of the concessions were in the form of acceleration of tariff reductions agreed in the Uruguay Round, while others involved reductions of tariffs beyond levels agreed in the Round or the establishment of tariff-rate quotas.
EU member states had widely differing standards,  testing  and  certification procedures in place for some products. These  differences  served  as  barriers  to  the free movement of these products within the EU and could cause lengthy delays in sales due to the need to have products tested and certified  to  account  for  differing  national requirements. Nonetheless, the political will and the advent of the “New approach,” which streamlined technical harmonization and the development of standards for certain product groups, based on minimum health and safety requirements, generally pointed toward the harmonization of laws, regulations, standards, testing, quality and certification  procedures  in  the  EU.   The European standardization process had been closed to US firms’ direct participation.
Italy’s highly fragmented and sometimes non-transparent government procurement practices  created  obstacles  to  US  firms’ participation in Italian government contracts. Procurement  in  certain  areas  was  heavily directed toward Italian suppliers. In 1994, the Italian parliament enacted legislation aimed at providing more transparent procurement procedures, including establishment of a central body to monitor implementation. Due to its complexity, the bill was not fully implemented. The US cling peach industry complained in 1994 that the EU had failed to observe and enforce a commitment made in the 1985 US-EU  Canned  Fruit Agreement  (CFA)  to not subsidize EU processing operations for peaches in syrup. The US industry claimed implementation of the EU’s minimum grower price and fruit withdrawal programs was undermining the no-processing subsidies commitment made by the EU in the CFA, and that the sale of subsidized Greek canned peaches in the US and a number of foreign  markets,  including  Japan,  Mexico, and Canada, was harming the US industry.
The  level  of  software  piracy  continued to be a source of concern in Germany, as in  other  large  developed  markets.   The effects of Germany’s 1993 implementation of the EU’s software directive, as well as an educational campaign by the software industry, might have helped reduce piracy from previous levels.US express package services like UPS and Federal Express remained concerned that the prevalence of postal monopolies in many EU countries restricted their market access and subjects them to unequal competitive conditions.   Proposals  to  liberalize  many postal services and to otherwise constrain the advantages enjoyed by the monopolies might not be sufficient to fully redress these problems.
In 1992, the EU established a calendar for liberalizing the cabotage practice.  While cabotage within peninsular Spain had been liberalized, the EU had allowed Spain to restrict merchant navigation to and within the Balearic  Islands, the Canary Islands and  Ceuta  and  Mililla  to  Spanish  fag merchant vessels until 1999.  The benefts of EU law  in  the  aviation  and  maritime areas  were  reserved  to  frms  majority- owned and controlled  by EU nationals.  In addition,  the  EU Commission  had proposed that companies wishing to beneft from  the  mutual  recognition  of licenses for  the  provision  of  satellite  network  or communications  services be 75 percent owned, and effectively controlled by, EU nationals.
French regulations prohibited the import of poultry products, except offal, from the US.  A French decree of 1962 banned imports of poultry products from countries using arsenicals in poultry feed, as is the case with American poultry.  The US had renewed its objection to this barrier, which was imposed only by France.  While harmonization of policies within the EU may end this ban, the US may continue to monitor this issue closely (“1996 National Trade”).
Politics and Laws
Political  risk  in  international  business entails  discontinuities  occurring in the business environment that are: diffcult to anticipate;  and that  result  from  political action(s)  or  changes(s)  that  possess  the potential  to  signifcantly  affect  proft  or business goals.  Political risk may be related to political instability but it need not be (Kluyver). 
Cox’s  account  of  business  confict over US  policy toward Central  America progressed  through  three  stages.    During the 1950s and 60s, the principal cleavage divided nationalist  from internationalist business groupings.  Following World War II,  internationalist  frms  were  attracted to Central  America  as a potential  site for low-wage manufacturing and these interests  sought  three  policy  changes  to aid the movement of foreign investment to the region: (1) expanded aid programs to improve Central America’s poor economic infrastructure, (2) changes in US tax law to encourage  American direct foreign investment  abroad,  and  (3)  reductions  in US tariff rates so that goods produced by US frms in Central America and elsewhere could be proftably exported back to the US.  Nationalist frms, fearing increased import competition,  opposed all  three  initiatives.  But  they  succeeded  in  blocking  only  the latter.  US tariff levels remained high until implementation of the Kennedy Round of tariff cuts in the Sixties.  Discouraged from using Central America as an export platform by US tariff barriers, internationalist frms began to advocate  Import Substitution Industrialization  in Central  America  and other Third World countries (Cox).
World business has consistently recommended  to governments that they could  best support further growth of electronic  commerce  by focusing their energies on providing a basic legal  and institutional  framework  that  ensures effective  competition  as  well  as  general trust through more predictable and media- neutral rules.  The European Commission has stated that its primary aim in issuing the  draft  --  Directive  on  Certain  Legal Aspects of Electronic Commerce -- is to respond to this call from the private sector and to eliminate certain legal obstacles that remain to the online provision of services, particularly  for small and medium sized enterprises (“Policy Statement”).  Politics and laws are therefore, very important in international business.  They determine how and  where international  business may  be conducted by an organization or country.  In terms of international business, brotherhood, friendship and universality of laws are the best ideas.
The Theory of International Trade and Investment
International  trade  is not limited  to commodities that some countries produce and others do not.  Countries  sometimes import goods that they themselves could produce more cheaply  than the countries from which they get them.  It has been claimed, for example, that Britain could raise dairy produce more cheaply than Denmark.  But Britain  nevertheless  imports part of its supplies from that country and devotes its main energies to producing machinery, electrical  equipment,  motor vehicles  and other manufactures, because its advantages over  Denmark  in  producing  these  things are greater than its advantages in producing dairy  produce.    This  concentration  on manufacturers  involves  what  is  known as the principle or the law of comparative costs, or simply comparative advantages in  this  theory  of international  trade.   As applied to international trade this means that a country tends to concentrate on producing those things that will give it the best return for any given investment of its productive resources.  The law of comparative costs is an extension of the principle of division of labor to the international feld (Gartside, 195).  The theory of international investment explains  international  capital  movements in the context of international production and trade.  International investment creates international production and is integrated via international trade.  Knowledge, know-how and technology are generally  transferred between  countries  along  with  fnancial capital (Wei).
The International Economic Activity of the Nation: The Balance of Payments
Economists  keep  score  by  looking  at income statements and balance sheets and in the area of international economics, the key accounts are a nation’s balance of payments.  A  country’s  balance  of  international payments is a systematic statement of all economic transactions between that country and the rest of the world, the statement of international economic activity of a nation.  The major components of the balance of payments account are the current account and  the  capital  account  (Samuelson  and Nordhaus, 682).
International Financial Markets
Today’s  fnancial  market  is  truly international in scope but the international legal system continues to be based on the principle of national sovereignty.  The result is an absence of international institutions capable of regulating this global fnancial market  and  criminal  organizations  taking advantage of this situation in pursuit of their interests.  The activities of criminal organizations on the global fnancial market should  be  of great  concern  because  they constitute  formidable  obstacles  to law enforcement  and  represent  a  risk  to  the stability of these markets that are especially sensitive to exchange rates and taxes.  The international fnancial market is an extremely important mechanism in the global economy, as it enables the international allocation of capital, and as such should be protected by appropriate institutions. 
Criminal  organizations  are  capable  of using  the  international  fnancial  market to take advantage of the limitations of an international  legal  system based on the sovereignty of states; and a wide variety of economic crimes can be facilitated by using the international fnancial market to move capital  throughout  the  globe  quickly  and often anonymously.  The primary motive of criminal participants in the international fnancial market, to avoid law enforcement efforts, can lead to rapid shifts of capital that have the potential of disrupting the stability of  this  market.    Institutions  designed  to regulate the international fnancial market must be based on voluntary  cooperation, and the international  community should recognize its collective interest in regulating the  global  fnancial  market  and  establish institutions for that purpose (Sussman).
Economic Integration
International economic integration is not a new phenomenon.  Some communication and  trade  took  place  between  distant civilizations even in ancient times and since the travels of Marco Polo seven centuries ago, global economic  integration— through trade, factor  movements,  and communication  of economically  useful knowledge  and  technology—has  been  on a generally rising trend.  This process of globalization in the economic domain has not always proceeded smoothly; nor has it always benefted all whom it has affected.  However, despite occasional interruptions, such as following the collapse of the Roman Empire or during the interwar period in this century, the degree of economic integration among different societies around the world has generally been rising.  Indeed, during the past half century, the pace of economic globalization  has been particularly  rapid.  With the exception of human migration, global economic integration today is greater than it ever has been (Crafts).
Three fundamental factors have affected the  process of economic  globalization.  Firstly, improvements in the technology of transportation and communication have reduced the costs of                          transporting goods, services, and factors of production and of communicating economically useful knowledge and technology.  Secondly, the tastes of individuals  and societies  have generally, but not universally, favored taking  advantage  of  the  opportunities provided by declining costs of transportation and  communication  through  increasing economic integration.  And thirdly, public policies  have  signifcantly  infuenced  the character and pace of economic integration, although  not always  in  the  direction  of increasing economic integration (Mussa).
Market Transitions and Development
In Seattle, there was a manifestation of popular opposition to globalization  under the  rules of free  trade.    What  has been happening in Puerto Rico is a result of that same process in a specifc national context.  This is the country where the free trade model of development was implemented decades before  it  became  the  dominant  global paradigm.  For over 100 years, the history of the Puerto Rican people has been dominated by the economic  imperatives of the US, living under an evolving colonialism that has always manifested itself in signifcant socio- political movements against it.  The general strike in 1998 was a representative of such movements.  This strike made transitions in relation to international market integration diffcult.  Thus, new international businesses were not allowed to integrate in the market healthily (Diaz). 
The Brattle Group’s extensive experience with all sectors of the natural gas industry, from wellhead to burner-tip, allowed them to offer a wide array of services to frms looking to thrive in this complex environment.  In addition to their North American practice, The  Brattle  Group  as  their  way  into international  market  development,  began assisting  clients  in  the  United  Kingdom,  Europe,  Australia,  and other countries in  policy  debates  over  privatization  and restructuring of their natural gas industries.  They  also  provided  testimony  in  their regulatory and legal proceedings regarding such matters as pricing and terms of access, and  conficts  over  contract  performance (“The Brattle Group”).
International Business Research
International business research is about enterprise development in another country.  Enterprise  development,  especially  as it relates to micro, small and medium enterprise development is a  complex endeavor with many facets such as looking into the policy environment, entrepreneurship, innovation, competitiveness,  subcontracting, etc.  These  facets  of  international  enterprise development  require investigation  and research (“Enterweb”).
International Business Entry
Many  countries  make  it  attractive  to incorporate in their area, even when activities are to be conducted elsewhere.  In fact, there are so many tax effcient jurisdictions that an initial  problem  for most organizations wanting to form an international business company, is how to select from the available options.   Belize  is such a  country  that entered the offshore industry after carefully analyzing and adopting the best features of some of the best offshore jurisdictions in existence.  Its long history of democracy and stability, enhanced by its legal system which is based on English common law, have made it the premier source for easy market transition (“Belize Offshore Consultants”). Multinational Corporations
A multinational corporation is a company or enterprise operating in several countries, usually  defned  as  one  that  has  25%  or more of its output capacity located outside its  country  of  origin.    The  world’s  four largest multinationals in 1994 were General Motors,  Ford,  Exxon,  and  Shell.    Their total  sales  exceeded  the gross national product of all of Africa, and the top 100 multinational  corporations controlled $3.4 trillion in fnancial assets.  In 1993, multinational  corporations accounted  for one-third of the world’s industrial output, with  sales  of  $4,800  billion.      They  are seen in some quarters as posing a threat to individual national sovereignty and as exerting undue infuence to secure favorable operating conditions.  Unsuccessful efforts were made 1992, under UN  auspices, to negotiate  a voluntary code of conduct for multinationals, but governments and corporations alike were hostile to this idea.  In 1993, 11 of the 100 largest multinational corporations  were  British  (“Hutchinson Family Encyclopedia”).
Strategic Planning in International Business
The strategic plan must be developed and owned by the management team that has the job of implementing it.  Strategic planning in international business must be objective.  After international  business research,  the international business must defne a frst year operating  budget, build an infrastructure fexible enough to meet expansion needs, and prepare the company for expansion.  It must understand different growth options available  for  developing  transatlantic operations, and know the risks and rewards of each.  The international business must also build a long-range plan, and then adhere to that plan.  It must fnd the right mix of direct and indirect operations, and the right rollout sequence to keep risk low while maximizing longer-term  market  share  and  revenue potential.  To craft a good business strategy for international  success, the  company must have broadened awareness, coupled with  business experience.   Specialized organizations  such as Atlas  Venture  help international  businesses formulate  the strategic plan (“Atlas Venture”). 
International Marketing
International  Marketing  Services,  Inc, (IMS) is a uniquely positioned international      marketing frm.  Since 1986, it has assisted over fve hundred US, European and Russian companies  export  products, develop  joint ventures, locate  foreign investment,  and form strategic       relationships.  Its extensive experience  with business practices  and culture  in North  America, East-Central Europe and the C.I.S. is the foundation of its success.  IMS’ cross-cultural perspective allows  it  to  rapidly  overcome  signifcant obstacles to export sales and joint ventures that most frms are unequipped to deal with alone.    The  company  also  brings  broad analytical skills to bear on its global projects.  This includes substantial international trade and joint  venture  negotiations  expertise, market  and  competitive  assessments, macroeconomic,  fnancial  and  statistical analyses, and political risk evaluations.  In addition to broad skills, IMS’ employees hail from  diverse  backgrounds  and  industries.  The  company  offers  a  full  spectrum  of services ranging from one-time  primary market research assignments to marketing and  strategy  consultation  where  it  walks its  clients  through  each  diffcult  stage  of expanding their business presence abroad (“International Marketing Services”).  The successful operation of IMS indicates the factors needed for lucrative international marketing.  These factors include knowledge of culture, political risk evaluation, etc.
International Services
International businesses like Shell provide international  services.   Shell  Services International provides, among many other specialized services, electricity in the US.  Shell Energy was formed in 1997 to pursue new growth opportunities in  the  retail electricity and gas markets that have recently been opening to competition.  Today, Shell Energy serves more than 300,000 gas and electricity customers in Ohio and Georgia (“Shell Services International”).
International Logistics and Supply-Chain Management
International  logistics  are  about international  freight forwarding, moving and storage, warehousing and storage, project shipping, offce building and letters of credit.  Currently, there are organizations that  specialize  in  making  the  task  of international logistics easier for international business  (“International  Logistics Management”).  A supply chain is a network of facilities  and  distribution  options  that performs the functions of procurement of materials, transformation of these materials into intermediate and fnished products, and the distribution of these fnished products to consumers.   The geographic placement of production  facilities,  stocking  points,  and sourcing points is the frst step in creating a  supply  chain.    The  strategic  decisions include what products to produce, and which plants to produce them in, allocation  of suppliers to plants, etc.  Inventory decisions refer to means by which inventories  are managed. And the mode choice aspect of transportation decisions is the more strategic ones (Ganeshan and Harrison).   
Multinational Financial Management
International  trade,  fnancing  and investments  have grown at an extremely rapid pace in recent years, and the operations of corporations are increasingly becoming multinationalized.  Corporate  executives buying and selling goods and services, and making fnancing and investment decisions across national boundaries, have formulated policies and procedures for managing cash fows  denominated  in  foreign  currencies.  These  policies  and  procedures,  and  the related  managerial  actions of executives, change  as new relevant  information becomes available and this feld is that of multinational fnancial management (Reid).
Countertrade
Countertrade simply refers to listening to  the  company’s international  customers and  meeting  their  needs.    This  could  be in the areas of hard currency generation, technology transfer, or marketing assistance (“The American Countertrade”).
International Accounting and Taxation
In Malta, taxation  of an international trading  company  (ITC)  is  based  on  the Tax Refund Mechanism.  An ITC is taxed at the normal company rate of tax, which is currently about 35%.  Non-resident shareholders of an ITC are taxed at a fat rate of 27.5% on all distributions received from the frm.  Non resident shareholders of an international holding company which has a participating holding in a non-resident company qualify for a full refund of the Malta tax paid by the Maltese company on income arising from these foreign holdings.  Such refund is triggered upon a distribution of this income to the non-resident shareholders of  the  Maltese  frm  (“Accounting  and Taxation”). 
International Human Resource Management
Effective  management  of  expatriate managers is one of the most important areas in human resource management, and there is abundant research on expatriates of  American, European, and Japanese multinationals  with large expatriate populations.  In the age of globalization, strategic management of human resources is becoming critical  for organizational survival.  Global business environments demand fexibility and rapid response and there is a growing realization that the human dimension provides the key to fexibility and adaptability in organizations.  Multinational and transnational corporations have been increasingly aware of the growing necessity to have not only international  business strategies,  but also international  human resource  strategies.    Just as  international business strategy is likely to have unique features and needs to be understood well, international  management  of human resources has its own peculiarities that have to be managed well to be able to fourish in overseas operations (Naresh).
Organization, Implementation, and Control of International Operations, and their Future
Effective  management  of international business  operations  includes  effcient management  of  fnance,  personnel, product  development,  marketing,  and communication.    This  is  so  that  the organization,  implementation and control of  the  operations  go  well.    The  future of international  business is bright  as globalization and the need for universality continue.  
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