Trade between countries is beneficial because these countries differ in their relative economic strengths—some have more advanced technology and some have lower costs. The International Product Life Cycle suggests that countries will differ in their timing of the demand for various products. Products tend to be adopted more quickly in the United States and Japan, for example, so once the demand for a product (say, VCRs) is in the decline in these markets, an increasing market potential might exist in other countries (e.g., Europe and the rest of Asia). Internalization/transaction costs refers to the fact that developing certain very large scale projects, such as an automobile intended for the World market, may entail such large costs that these must be spread over several countries.
Economics of international trade
Exchange rates come in two forms:
- “Floating”—here, currencies are set on the open market based on the supply of and demand for each currency.
- “Fixed”—currencies may be “pegged” to another currency (e.g., the Argentine currency is guaranteed in terms of a dollar value)
Trade balances and exchange rates- When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.
Measuring country wealth– There are two ways to measure the wealth of a country. The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars.
The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country
Political and legal influences
The political situation- The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue.
Laws across borders- When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable. Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application).
The reality of legal systems– Some legal systems, such as that of the U.S., are relatively “transparent”—that is, the law tends to be what its plain meaning would suggest. In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated). Further, the amount of discretion left to government officials tends to vary.
Legal systems of the World-There are four main approaches to law across the World, with some differences within each:
- Common law, the system in effect in the U.S., is based on a legal tradition of precedent. Each case that raises new issues is considered on its own merits, and then becomes a precedent for future decisions on that same issue. Although the legislature can override judicial decisions by changing the law or passing specific standards through legislation, reasonable court decisions tend to stand by default.
- Code law, which is common in Europe, gives considerably shorter leeway to judges, who are charged with “matching” specific laws to situations—they cannot come up with innovative solutions when new issues such as patentability of biotechnology come up. There are also certain differences in standards.
- Islamic law is based on the teachings of the Koran, which puts forward mandates such as a prohibition of usury, or excessive interest rates. This has led some Islamic countries to ban interest entirely; in others, it may be tolerated within reason. Islamic law is ultimately based on the need to please God, so “getting around” the law is generally not acceptable. Attorneys may be consulted about what might please God rather than what is an explicit requirements of the government.
- Socialist law is based on the premise that “the government is always right” and typically has not developed a sophisticated framework of contracts (you do what the governments tells you to do) or intellectual property protection (royalties are unwarranted since the government ultimately owns everything).
Culture
Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals.
The definition of culture offered one text is “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member of society.”
- Culture, as a “complex whole,” is a system of interdependent components.
- Knowledge and beliefs are important parts.
- Other issues are relevant. Art, for example, may be reflected in the rather arbitrary practice of wearing ties in some countries and wearing turbans in others
Culture has several important characteristics:
(1) Culture is comprehensive. This means that all parts must fit together in some logical fashion.
(2) Culture is learned rather than being something we are born with.
(3) Culture is manifested within boundaries of acceptable behavior.
(4) Conscious awareness of cultural standards is limited. One American spy was intercepted by the Germans during World War II simply because of the way he held his knife and fork while eating.
(5) Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change.
Breaking|Boundaries| 