Understanding International Businesses

Describe the importance or importing and exporting and explain how absolute advantage and comparative advantage have fostered international business.

     Importing and exporting are important because no country can produce all of the goods and services demanded by its citizens. Countries sometimes engage in international trade because they are able to produce a good or service more efficiently than any other nation (absolute advantage) . But more often they trade because they can produce some items more efficiently than they can produce others (comparative advantage).

Discuss the factors involved in deciding to do business internationally and in selecting the appropriate levels of involvement and organizational structure.

     In deciding whether to do business internationally, a firm must determine whether a market for its product exists abroad, and if so, whether it has the skills and knowledge to manage such a business It must also assess the business climates of other nations to make sure they are conducive to international operations. If a firm decides to limit its international involvement and serve only as an exporting firm it may use independent agents or licensing arrangements to get its products to foreign customers. Whether it takes a middle road and becomes an international firm or goes all the way and becomes a multinational firm, it must decide on the appropriate combination of licensing arrangements, branch offices, strategic alliances, and direct investment to achieve its goals. Any firm doing business internationally must also deal with the need to countertrade in some nations.

Describe some ways in which social, cultural, economic, legal, and political differences between nations affect international business.

     Social and cultural differences that can serve as barriers to trade include language, physical stature, age, and traditional buying patterns. Differences in economic systems can force businesses to establish a close relationship with the government of a foreign country before it will be permitted to do business there. Quotas, tariffs, subsidies, and local content laws offer protection to local industries but restrict imports. Differences in business&-practice laws can make the normal business practices of one nation illegal activities in another.

Explain how trade agreements and international financial institutions assist world trade.

     Several trade agreements, including the General Agreement on Tariffs and Trade and the Free Trade Agreement of 1989, have attempted to eliminate restrictions on free trade internationally. International financial institutions assist world trade more  indirectly. The International Monetary Fund (IMF) assists world trade by lending money to countries with temporary negative balances of trade. The World Bank funds improvements to a nation's productive capacity, which can help to increase its exports in the long run.