GLOBAL TRADE
The hypothesis behind the traditional economic theory is that globalization relies on competition to drive down prices and increase product and service quality. Business goes to the countries that operate most efficiently, have lower labor costs, and have the technology.
In today's’ economy those who retrench will be hit hardest. What we do today will determine our future. Adapting a global vision can be profit-making for a corporation, yet it does not come without its disadvantages. There is no haven in business, and a global view is not a one-way street.
U.S. companies have struggled at home to maintain their market shares against foreign competitors, with many counties depending more on international commerce than the United States. Net exports are an estimation of the total value of a country's exports minus the total value of its imports with a positive net export figure indicating a trade surplus.
In 2019, the U.S. trade deficit was $616.8 billion, according to the U.S. Bureau of Economic Analysis and the U.S. Census. The U.S. imported $3.1 trillion of goods and services while exporting $2.5 trillion.
Corporations need to grasp the political and legal environments of the countries in which they plan to do business. Political authority and dominant cultural expectations are central to this understanding.
Political and Legal Issues
Politics are inserted into existing and proposed global trade agreements like never before.
According to recent Press releases, the word of a virus in Wuhan was circulating in late November 2019. Approximately six weeks later, the U.S. trade deal with China was signed. China insisted that a clause including the language, "act of God, and a pandemic" be included in the trade deal. The provision allows either nation to renegotiate "if a natural disaster or "other unforeseeable events would impact on the agreement.
Government Stability
Government stability is the ability of a given government to stay in power against opposing factions. A significant issue relating to government stability is the risk it inflicts on Corporate foreign employees. Extremist groups have targeted U.S. executives for terrorist activities, which have resulted in kidnapping for ransoms. Violence rates in Juarez, Mexico, have increased with the total number of murders at 89 in January 2020.
The U.S.-Mexico border area of El Paso, Texas, borders two countries and three states. It is a major Industrial and Transportation HUB with Mexico encompassing over 300 multi-national Industrial Plants located along the border.
The fact that U.S. businesses may be harassed and accused of being illegal informants or spies is also of concern. The dangers associated with the business itself forced to become nationalized, or seized by the foreign government is prevalent. Nationalization has occurred in both the Middle East and countries in South America.
Trade Incentives
Incentives such as tax breaks for international trade to build facilities in certain countries can be lucrative. So much in fact that it became the equivalent of a bidding war as to what state or local government could offer the best incentive packages when BMW, Mercedes, and Toyota built assembly factories in the United States.
Trade Controls
Dreaded trade controls such as tariffs or taxes collected on goods shipped across national boundaries and quotas designed to protect the market share of domestic competitors are also part of the political and legal environment of international business.
The human relations aspect of international business had taken a turn when U.S. expatriate managers dominated middle and upper management positions in China and Japan, today more locals fill these positions.
The Chinese people have sharpened their English language skills and developed significant leadership and decision-making skills, which has manifested itself to more Chinese locals holding middle and upper-level management positions today in U.S. firms doing business in China.
This trend has also emerged in German corporations such as Siemens, in which senior-level positions are now filled in China with local managers. The trend is based on local managers having the ability to understand their countries' market conditions, competitive behaviors, and government regulations. This, in addition to the fact that hiring local managers, is much cheaper.
Economic Communities
The final but equally critical component of the political and legal environment are Economic communities or sets of countries that agree to reduce or eliminate trade barriers among their member nations. One of the most recognized ones being the European Union (EU), consisting of 12 countries to include: Belgium, France, Luxembourg, Germany, Italy, and the Netherlands.
Traditionally, Global Trade has been the domain of huge multination companies. Today, small and medium-sized companies are pursuing international markets at a continually increasing rate.
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About the Author:
Restrepo is the President of Global Outreach and owner of RDI Global Services a global government and military defense multidisciplinary research and strategic marketing development firm. Projects include Corporate Technology Commercialization through the U.S. National Laboratories. She is an award-winning multimedia and marketing strategist whose awards include best documentary and public service TV Commercials for the U.S. Dept. of Commerce, served as Consultant for ABC News Investigative Report and Project of the Year Award from the Steel Erectors Association of America.