Factors that Influence International Business

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Tariffs and Embargoes
Tariffs
Embargoes
Conclusion
References

Introduction

The term international business simply means any business that is conducted cross-border or between nations. The business could be conducted by governments of various nations, private companies or by individuals from different nations.

It is important to note that a business is any transaction or activity whose major motive is to make profits. Therefore, government activities that do not involve profit-making do not make up international business.

International business has been on the high over the last couple of years, with many international transactions being carried out. Companies have been highly involved compared to governments and individuals.

Globalization is one of the major reasons that have led to increased international business. The term international business and globalization are usually confused with each other, but they have different meanings. The terms cannot be used interchangeably.

However, one leads to the other in that globalization has led to increased international business. Globalization means integrating the economies of different nations to make one global economy.

It involves global connections in terms of communication, technologies and other business activities (Hansen, 2008).

There are a number of factors that influence international business. Among them include tariffs, embargoes, international laws, and policies, as well as quotas. These factors also act as the major barriers to international business.

They make it difficult for companies and nations to run businesses smoothly. In some areas, they make it almost impossible for some companies to do international business.

However, international business has to be regulated to avoid some nations and multinational corporations from taking advantage of others to maximize their wealth.

Bodies such as the World Trade Organization (WTO) can impose trade tariffs and embargoes on countries. This essay evaluates the issues that affect international business by focusing on tariffs and embargoes.

Tariffs and Embargoes

There is too much competition between nations and companies in the international business. Each of them wants to get the best out of the market. There are some nations and companies that will try to get the best at the expense of others.

For this reason, there are policies imposed to prevent such actions. The term protectionism is used to refer to the policies that are put in place to protect companies and nations (Aswathappa, 2010).

For instance, in a case whereby an American buys a BMW car instead of Chrysler, the effect of this would be that the American dollars will be transferred to another country.

The German company or workers are the ones who will withdraw the check at the expense of America. Such incidences are prevented through imposing embargoes, tariffs, as well as quotas.

Tariffs

A tariff is defined as an amount that is added to goods and services being imported or exported. This amount also referred to as a tax, has an effect of increasing the price of those goods and services and reducing affordability (Schaffer, Agusti & Earle, 2009).

International trade is impeded by tariffs enacted on given products. The major aim of business activity is to maximize profits. For a business to maximize its profits, it needs to make as many sales as it can.

Failure to make sales means that the business will not make profits and faces a possibility of closing down. In the international business, when the price of a product increases it becomes unaffordable to many people and, therefore, very few sales for that product are made.

This means that the exporting country will not be able to export more products since customers are not buying its products.

In international business, there are two types of prices. First, there is a world price. This is the price at which goods and services are being sold and bought in the international market. The second type of price is the domestic price (Schaffer, Agusti & Earle, 2009).

This is the price at which goods and services are being sold and bought in the domestic market. These two prices are very important in determining the number of goods to be exported or to be imported into a certain country.

For instance, if the goods and services in the international market are being sold at a price that is lower than the prices in the domestic market, assuming that other costs such as the transport cost are constant, there is a high possibility that the country will go for the international commodities. Imports will, therefore, increase.

On the other hand, if the prices of goods and services in the international market are higher than the prices in the domestic market, the country will opt to sell its commodities in the international market to make more money (Schaffer, Agusti & Earle, 2009). In addition, a country will opt to use local goods and services.

Exports will, therefore, increase and imports will decrease at the same time. Tariffs play a major role in determining the prices in the domestic market.

The fact that tariffs involve taxes charged on goods imported into a country means that increasing tariffs will increase the prices in the domestic market while decreasing tariffs will decrease the prices in the domestic market.

When tariffs are increased, then the demand for goods and services in the domestic market will decrease. This makes importers cut down on the imports they make, leading to a reduction in supply. Tariffs have several effects in the domestic country.

The first effect of tariffs is that taxes levied on imports act as a source of income to the government. Secondly, tariffs can be effective in protecting local industries. This is the main reason why tariffs are imposed by many nations (Hansen, 2008).

Tariffs help the local industries grow and expand their operations. When the amount of imports is reduced, the supply of commodities from outside the country reduces and competition to the local industry also reduces.

The demand for locally produced goods that are similar to those being imported or that can act as substitutes will increase. In turn, local industries will be able to make more sales and expand their operations. This is what is referred to as protectionism.

Protectionism is only effective when there is a local industry or company that produces goods that are similar to those being imported or their substitutes. There are several other benefits that follow up when local industries are protected.

For instance, the level of employment will increase because more opportunities will be created in the local industries (Hansen, 2008).

The lifestyle of local citizens will flourish since they have jobs and money to improve their living standards. The spending ability of citizens will increase, and this has an effect of improving the country’s economy.

Embargoes

An embargo is also a protectionism measure that is stricter than tariffs. It involves a complete ban on the import of specific goods or services into a country. For a number of reasons, a country may decide to ban the import of certain goods or services.

In such a situation, the country will impose policies that completely prevent those goods from passing through its boundaries. In addition, an embargo might be imposed to prohibit a country from doing business with a given country.

It is important to note that while an embargo is a complete prohibition, there are instances when it can be partial (Schaffer, Agusti & Earle, 2009).

For instance, when a partial prohibition is imposed to prohibit doing business with another country, it means that the nation imposing the embargo can buy certain commodities from the country it has imposed an embargo against but there are goods it cannot buy.

An embargo can also be considered as a diplomatic measure imposed towards a certain country. An embargo is imposed in the same way as an economic sanction and has similar effects as economic sanctions. In addition, an embargo is imposed legally to bar trade between given nations.

It is imperative to note that embargoes are different from blockades. While embargoes may be imposed due to economic issues, blockades, on the other hand, are imposed as a result of the war.

An embargo may go to an extent of prohibiting folks from a given nation from visiting another country. There are a number of reasons why an embargo can be imposed. One, an embargo can be imposed in a country in order to force it do a certain thing that it has avoided to do.

For instance, a country may refuse to abide with given international laws or treaties. Such laws are usually made for the benefit of all nations, but there are nations that may feel that the laws will be a barrier for them and opt not to abide (Wood, 2007).

In order to force such countries to abide by such laws, an embargo is imposed against them. The country will be prohibited from taking part in international business. The effects might be so hard on the country to an extent that it will have to abide by the international laws.

For instance, if a country is banned from exporting its goods, it means that it will not be able to make income from those goods. The country’s economy will be affected, and citizens will experience difficulties due to lack of money.

Also, a country might be importing goods that are essential for its industrial production or to citizens. If the goods are essential to its industrial production, lack of such goods will mean that its industrial operations will be affected and the income it gets from that industry will be no more.

The industry may even collapse, leading to other adverse effects such as loss of jobs by citizens.

Another reason why an embargo can be imposed is to prevent a country from doing something that is perceived to pose a danger to the general public, either internationally or nationally (Wood, 2007).

For instance, a country may be producing weapons that are likely to be dangerous for international security. If such a nation does not adhere to the laws that prevent the production of such weapons, an embargo can be imposed towards it.

On the other hand, the national government could be doing things that have negative effects on the well-being of its citizens. These are mostly actions that are seen to violate the rights of citizens. The international community can impose embargoes to force the government stops its actions.

A perfect example for this is the embargo imposed on Cuba by the United States of America. The main aim of imposing this embargo was to force the Cuban government to abandon its dictatorship that was seen as oppressive to the citizens and adopt democracy.

America’s objective was to weaken the economy of Cuba as an effort to remove the oppressive regime of Fidel Castrol.

Another reason why embargoes may be imposed is due to health reasons. There are products that are usually dangerous to the health of citizens (Schaffer, Agusti & Earle, 2009).

A nation or a multinational that deals with such goods may be prohibited from exporting the goods to other countries. The case of unhealthy products is likely to be associated with multinational organizations.

The main motive of these organizations is to maximize their profits. To do so, there is a possibility that they may sell goods that do not comply with health requirements.

This leads to the organizations being prohibited from exporting their products. It is the duty of a country to prevent its citizens from unhealthy products and services.

Conclusion

International business has been on the rise in the wake of globalization, with nations and multinational organization looking to expand their businesses to make more income. There are many issues that are associated with international business.

For this reason, there is a need for international business to be regulated. There are bodies that are formed to regulate international business. One such body is the WTO.

It imposes tariffs, quotas, and policies that are meant to control trade between nations and multinationals. Also, nations can also impose tariffs and embargoes to protect their industries, citizens and their general security.

References

Aswathappa, K. (2010). International business. New Delhi: Tata McGraw Hill Education.

Hansen, G. H. (2008). Taking the mess back to business: Studying international business from behind. Critical Perspectives on International Business, 4(1), 42–54.

Schaffer, R., Agusti, F., & Earle, B. (2009). International business law and its environment. Mason, OH: South-Western Cengage Learning.

Wood, P. R. (2007). Conflict of laws and international finance. London: Sweet & Maxwell.

Click Here To Order Now!