International Business Environment

 

International Business Environment

Trinidad is an industrial island whereby oil, natural gas, agriculture and industry are the major exports. It has a population of 1,252,800 people and 35% of them live in urban areas.  The International monetary Fund and the World Bank have argued it to venture into globalization to increase it business operations so as to reduce its dependence on financial aids. For Trinidad to expand its businesses to other nations it has learn of the environment of the global markets.  There are also factors that will affect international business, they are, cultural, political and economic factors. Political events in Trinidad are of great concern because they influence the cost of doing business, the social and economic stability of countries, the accessibility to the human and non human resources. They also have security and safety implications and have effects on the transfer payments. Most ideas, principles and legal concepts used in international transactions often find expression in the legislative acts and policies of nation states. Although many forces besides economic factors help shape world trade, it cannot be denied that the economic component of international relations is the most significant and that generally, a prosperous and stable international business environment.

Economic globalization refers to the increasing interdependence among countries. It is the integrating of several economies. Globalization entails the expanding of markets to increase exports as well as imports. There are five dimensions of globalization that need to be identified and they are economic globalization, political globalization, ecological constraints, cultural values and globalization of communication.  Trinidad has to identify all these dimensions and formulate procedures and strategies to learn about all of them and implement strategies to incorporate them into their ventures into the global market. They have to diversify its production of the various exports it majors in. Globalization involves integration and disintegration, cooperation and conflict. It leads to economic interdependence of a country.  It has been in existence for about 5000 years and it would be a good idea for Trinidad to venture into it because its importance and relevance runs deeper than the risks involved.

Jeffrey Hart identified various concepts of globalization and these are, global infrastructure, global convergence of the most relevant feature characteristic. borderlessness, initially localized phenomenon global diffusion and geographical dispersion of core competences in highly wanted activities.  We are moving towards a world in which barriers to cross border trade and investment are diminishing, perceived distance between countries is shrinking due to advances in transportation and telecommunication technology. Material culture is beginning to look similar and national economies are merging. These processes by which these changes are taking place in general are referred to as globalization. This is what the IMF and the World Bank suggest that Trinidad should do to diversify its market. Globalization has increased international business opportunities for firms to expand their revenues by selling their products worldwide.

There are three theories of Globalization. One of them is the World system theory. This theory originated in the 1500 in the European world economy. In Western Europe, long term crisis led to give way to technological advancement. Their developed infrastructure gave them an advantage to create economic ties with other countries that favored it to be good for business because the environment was not bad. In definition, a world system is the social system of interdependent regions that create a structure and operate within distinct rules (Wallerstein).  Examples are portrayed in mini-systems, world economies and world empires. One of the key features of this system is that it has no political center.  It is made up of one labor division in one world market but at the same time has many states which have different cultures.  This system works by letting the military strong states serve the needs of powerful classes. Semi peripheral areas are a necessary structural element in the system because they deflect partially political pressures. A shared ideology makes strong the partners commitment.  The world system changes in that there is expansion on the basis of European advantage. Cyclical crises that happen after innovation periods and expansion, profit rates reduction and market exhaustion, cause recession as well as stagnation. There has been transition from a system type to another because of contradictions that could not be managed. There have been changes in that resistance caused by anti systematic collisions that have led to ideological shifts and other system alternatives.

The world polity theory of globalization is a system that creates value by collective conferral of authority. (Meyer). It has no institution or single actor that defines the valuable part of the world. Instead, the world society culture allocates authoritative actor hood for the member states. On e of its component features is that global models enactment forms considerable similarity in the institution in differently placed states. The 19th century was the period when this system was used and it held the individual states together. It changes in a stateless society where there is no authority to control culture. Also the pursuit of the same kind of the same interests leads to intense competition. The more the number of entities needs the same resources, the more the conflict that is likely to arise. The world society needs different types of actors and the probability that they will conflict is high.

Finally there is the world culture theory.  It is a label with an interpretation of globalization that has a focus on the participant’s way of being aware and giving meaning to living in the world as a single place. In this theory, globalization is referred to the compression and intensification of awareness of the whole world.  Crystallization of the main components of global-human circumstance, i.e. the societies, individuals, humankind and the system of societies is also involved. The key feature that it has is that it is a process that stimulates and connects awareness and globalization in this case dissolves the actors in the contemporary world order. This theory has been in practice for centuries in tandem than as a result of modernity. Its structure in relation to globalization comprises of core units that are four and they are international system, individual selves, humankind and societies. It uses the principle of relativism whereby each unit from the emerging world assumes its own shape in relation to those around it. It also works through emulation whereby it creates form by incorporating ideas originating from the global collision. (Robertson). Glocalization also occurs in that universal processes and ideas which are in globalization are interpreted differently depending on the history of some particular groups.   This theory has changed by the inherent globalization dynamic, re globalization movements that provokes resistance. A particular case is that of the Islamic fundamentalism. Multiple sources in that this theory emphasizes reflexivity roles and globalization worldviews. Therefore change can arise from anywhere.   For Trinidad it will have the advantage of reduced costs by companies producing in countries whose key inputs are cheaper.

Globalization has two major components; the globalization of markets and the globalization of production. Globalization of markets refers to merging of historically distant and separate markets into one large global market place. It has been argued that for some time that the tastes and preference of the consumers in different nation s are beginning to converge on the same global norm thereby helping create a global market. Despite the changing prevalence of global markets, significant differences still exist between national markets which may call for adjustment in the management operations of foreign business. These differences occur in consumer tastes and preferences, distribution channels, cultural embedded value systems etc. these differences frequently require that marketing strategies be customized to meet local conditions in the country. A large fraction of the global markets is not a market for consumer products where differences in tastes and preference are the major factor that could affect demand.

Most of the products exchanged in global markets are industrial goods and materials that serve a universal need from different industries. They include markets for commodities such as oil, gas. Trinidad will be in a good position to trade it commodities because generally they are essential in any country. Though it produces only in small amounts, globalization of production can be considered it will be quite expensive and the payback period might be long. Globalization of production refers to sourcing of goods and services from different countries in the world to take advantage of national differences in the cost and quality of factors of production such as labor, energy, land and capital. By doing these companies can lower their overall cost structure and improve the quality of their products. This can give them a functional advantage over their competitors by making their products cheaper.

Large manufacturing companies produce different parts of their products in different countries depending on their availability of raw materials, skills, costs etc. and they ship them to a place where they are assembled into their final products. The reason for outsourcing so much production in many different countries is that producers and suppliers are known to be the best producers of the parts assigned to them in the world. Also producing some of the parts of a product in different countries increases their chance of sales in these countries. Trinidad can opt to have production companies in other countries which are convenient in terms of costs and labor. They are also given favorable consideration by foreign governments because the production activities lead to increased Gross National Product (GDP) higher employment levels and incomes. The factors that may reduce globalization of production include barriers to direct foreign investments, transport costs and the level of political and economic risks.

Proponents of globalization argue that the removal of barriers to international trade and investment is good because it increases prosperity in the participating countries. They say that increased trade and cross border investment will lead to lower prices of goods and services. They believe that globalization increases economic growth, raise income and helps to create jobs in all participating countries.

Those that oppose globalization argue broadly that it leads to job losses in industries under attack from foreign competitors. It also puts downward pressure on wage rates of unskilled workers; it causes environment degradation and cultural imperialism. In developed countries globalization has been blamed for loss of jobs and incomes in manufacturing companies as they relocate to less developed countries where wages are low and trade barriers have been removed.  Less developed countries like Trinidad have become havens for the developed countries to venture in. Those who support free trade argue that free trade will result in countries specializing in those goods and services that they can produce more efficiently while importing those goods and services that they cannot produce efficiently. It would not be appropriate to venture into the global markets if the risks will outweigh the benefits.  There is the inequality risk for developing countries like Trinidad caused by active participation in the global markets. Recent research indicate that trade liberalization widens the gaps between the educated and the uneducated. And when education is lagged, inequality increases.

It is also argued that free trade encourages firms from developed countries to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse. Supporters of globalization argue that adhering to labor and environment regulations significantly increases the cost of manufacturing and puts them at a comparative cost disadvantage. When these firma are allowed to operate without regulations and controls, their operations can lead to increased pollution of the air, sea and land. They can also exploit workers by paying low wages and forcing them to work long hours. Trinidad should therefore put into considerations all this factors before agreeing to globalize. But it is generally argued that growth and development comes at accost. There cannot be industrial production without causing any pollution. Also it is possible that as a country’s technological development grows so does its ability to control pollution.

Supporters of free trade also point out that it is possible to tie free trade agreements to the implementation of tougher environmental and labor laws in less developed countries. In addition it is argued that business firms have a moral obligation to behave in an ethical manner and they are not expected to relocate to a less developed country for the sole reason of causing pollution or exploiting laborers.

The task of managing an international business firm differs from managing a domestic business in many ways. The differences arise from the simple fact that countries in which international trade takes place differ in many ways. Trinidad has to deliberate and examine the following factors that exist in the international market. In that the countries they will enter into business differ in cultures, political systems, economic systems, legal systems and their levels of development. These differences require an international business firm to vary its operating practices from country to country. Marketing the product in Trinidad may require a different approach from marketing the product from Brazil or in Germany. So Trinidad should implement new strategies to market and venture into the new markets.  The managers of the Trinidad countries must also adopt the appropriate business policies and strategies for their operations. They should also decide on the location of the business to minimize costs and maximize added value. Where production activities are to be carried out in more than one country, they have to determine how best to coordinate and control production activities. It is also important for an international business to decide which foreign market to enter and which ones to avoid. The mode of entering and starting a business in a foreign country should carefully be evaluated. The firm should consider whether to allow a local company in the foreign country to produce the product under license in that country. It should consider on whether it wants to enter into a joint venture with a local firm to produce the product in that country. Where the demand of the product is not expected to last for a long time or there is a possibility of political and economic risks, the country should start to export business.

The Trinidad business faculty should understand that conducting business transactions across national borders requires understanding of rules and regulations governing the international trading and investments systems. Managers in international business must also deal with government trade restrictions. They must also find ways to work within the limits imposed by the foreign governments on international trade and investment. Cross border transaction also require the conversion of the home currency into foreign currencies. Since exchange rates fluctuate with the changing economic conditions, an international business must develop policies for dealing with exchange rate movements. Firms that adopt wrong exchange policies can lose large sums of money while those that adopt correct foreign exchange policies can increase the profitability of their business. In general the range of problems faced by the country in case they globalize their markets is wider and the problems faced are more complex than those confronted by a manager in the home trade. Financial globalization, which is the merging of financial systems of different countries, can lead to financial system development and the financial sector develops a great deal. This enhances availability of funds to venture into new investment opportunities. (Baldwin).

Stiff competition is also another threat in globalization because if the country does not have appropriate strategies to face competitors, then its products will be bundled out of the market. There stands the risk of segmentation. Some research has shown that the movement of less developed countries to developed countries in terms of investment costs affects the latter’s security markets.

An additional gain that Trinidad will get is that it will have the principle of absolute advantage in that it will have an added advantage in the production of a commodity in which it is more efficient to produce than any other trading country. This means that it will produce at a lower cost than any other country. In this case oil and natural gas production will be cheaper and the output will be higher and the quality will also be high.  Even if the country has absolute advantage, mutually advantageous trade can also take place if the less efficient country specializes in the production of those goods in which its relative disadvantage is less. There are countries is comparatively more efficient in the production of those goods in which it has comparative advantage.

Supplementary advantages of engaging in international trade will be that since different countries are differently endowed with production resource. This means that some countries will produce some goods which other countries do not produce.  In this case, Trinidad will be able to obtain commodities it does not have at cheaper prices as it exports its products. It may also means that some countries can produce some goods more cheaply or more efficiently than others. Assuming there is free trade, a commodity will be imported if the import price is lower than its price in the importing country. It will be exported if the prices in the home country are less than the price in the foreign country. This means that the immediate cause of international trade is the differences in absolute monetary prices between trading countries.

Planning for the global markets require adequate planning that takes into consideration the challenges arising from the global environment. The planning undertaken enables them identify markets to enter, identification of entry of strategies and determination of survival methods in the foreign markets. The planning attempts to manage the effects of external and controllable factors that have an impact on the firm’s positions with regard to international markets.

 

 

 

 

 

 

 

 

 

Reference list

Wallerstein. 1974a. “The Rise and Future Demise of the World-Capitalist System: Concepts for Comparative Analysis. New York.

Meyer, John W. 1980. “The World Polity and the Authority of the Nation-State.” Pp. 109-137 in A. Bergesen (ed.), Studies of the Modern World-System. New York: Academic Press analysis.” Comparative Studies in Society and History 16: 387-415.

Robertson, Roland. 1991. “The Globalization Paradigm: Thinking Globally.” Pp. 207-24 in Religion and Social Order. Greenwich: JAI Press.

 Robert E. Baldwin, L. Alan Winters 2007 Challenges to Globalization: Analyzing the Economics. United States of America. University of Chicago Press.

Gabriella Kutting 2010. Global environmental politics: concepts, theories and case studies. United Kingdom. Taylor and Francis publishers

Antony Harold Birch. 2007The concepts and theories of modern democracy. United Kingdom. Taylor and Francis.