Discuss Some Steps For An International Business And Its Man

Discuss Some Steps An International Business And Its Managers Can T

Discuss some steps an international business and its managers can take to make sure ethical issues are considered in business decisions.

What is meant by the term free trade? Is free trade compatible with the concept of mercantilism?

Explain why there was greater pressure under GATT for protectionism around the world during the 1980s and 1990s.

Despite its advantages, FDI has been described as an "expensive" and "risky" international growth strategy. Other things being equal, why is FDI expensive and risky when compared to licensing and exporting?

Paper For Above instruction

International businesses operate within complex and dynamic environments that require careful strategic planning and responsible decision-making. One critical aspect of this management is ensuring that ethical considerations are integrated into business decisions. Sound ethical practices not only enhance corporate reputation but also foster sustainable growth and stakeholder trust in diverse global markets.

Steps to Incorporate Ethical Considerations in International Business

Firstly, establishing a comprehensive code of ethics tailored to international operations is fundamental. This code should define core values and ethical standards aligned with local cultural norms and global best practices. Training programs are essential to educate managers and employees about ethical standards and decision-making processes that respect regional differences yet uphold universal ethical principles.

Secondly, implementing transparent accountability mechanisms such as whistleblower policies and independent audits ensures that unethical behaviors are identified and addressed promptly. Regular ethical audits and evaluations of business practices reinforce a culture of integrity.

Thirdly, engaging in stakeholder consultation, particularly involving local communities and regulators, helps companies understand cultural sensitivities and legal requirements. This participative approach fosters ethical alignments and reduces risks related to cultural insensitivity or legal infractions.

Additionally, fostering corporate social responsibility (CSR) initiatives demonstrates commitment to ethical principles beyond profit motives. CSR activities that respect human rights, promote environmental sustainability, and support community development reflect ethical business conduct and can provide a competitive advantage in global markets.

Free Trade and Mercantilism: Definitions and Compatibility

Free trade involves the international exchange of goods and services without tariffs, quotas, or other restrictions, allowing market forces to set prices and allocate resources efficiently. The core idea is that open markets promote competition, innovation, and consumer choice, ultimately leading to economic growth and increased welfare.

Mercantilism, on the other hand, is an economic doctrine emphasizing the accumulation of wealth, particularly gold and silver, through a favorable balance of trade. Mercantilists advocate for protectionist policies such as tariffs and subsidies to boost exports and limit imports, aiming to increase national reserves and power.

The two concepts are fundamentally incompatible. Free trade advocates reduce barriers to facilitate open markets, while mercantilism relies on protectionism. Historically, mercantilist policies contradict free trade principles because they restrict the free flow of goods to achieve nationalistic economic goals. While some governments instrumentally combine elements of both strategies, pure free trade opposes the protectionist stance central to mercantilism.

The Push for Protectionism During the 1980s and 1990s Under GATT

During the 1980s and 1990s, global economic shifts and domestic pressures led to increased protectionist sentiment despite the multilateral efforts of GATT (General Agreement on Tariffs and Trade) to promote free trade. Several factors contributed to this trend.

Firstly, rapid technological changes and rising competition from newly industrialized economies, particularly in East Asia, threatened traditional industries in developed countries. Labor and industry groups lobbied for protection to safeguard employment and market share.

Secondly, trade deficits in some countries, notably the United States, fostered concerns over trade imbalances, prompting calls for protectionist measures to reduce dependency on foreign imports and promote domestic manufacturing.

Thirdly, national security considerations and political pressures often motivated governments to protect strategic industries, especially during periods of economic uncertainty or crisis.

Moreover, despite GATT’s efforts, enforcement mechanisms were limited, allowing countries to impose tariffs or non-tariff barriers unilaterally in response to domestic pressure, thereby undermining multilateral trade liberalization efforts.

Why FDI Is More Expensive and Riskier Compared to Licensing and Exporting

Foreign Direct Investment (FDI) offers companies deeper market penetration and control over operations abroad. However, it involves significant costs and risks compared to licensing and exporting, primarily due to the scale and complexity of investments involved.

Firstly, FDI requires substantial capital expenditure for establishing or acquiring facilities, such as factories or offices, which entails high initial costs. This capital commitment exposes firms to greater financial risk, especially if the expected returns are delayed or fail to materialize.

Secondly, managing overseas operations is inherently risky due to political instability, legal and regulatory differences, currency fluctuations, and cultural disparities. These uncertainties can lead to unforeseen expenses or operational disruptions, increasing the risk profile of FDI.

In contrast, licensing and exporting entail lower upfront costs and fewer commitments. Licensing involves granting rights to a local firm to produce and sell products, which reduces the firm’s financial exposure while generating licensing fees. Exporting, meanwhile, allows companies to sell products internationally without establishing physical presence, minimizing investment and operational risks.

Nevertheless, while FDI offers greater control and potential profits, the higher costs and risks associated necessitate thorough market research, risk assessment, and strategic planning to mitigate potential downsides.

Conclusion

Effectively managing international markets requires a comprehensive understanding of ethical standards, trade policies, and strategic investment options. Embedding ethics into decision-making processes fosters sustainable growth, while navigating trade policies and investment risks critically influences global competitiveness. Recognizing the conflicts and complementarities between free trade and protectionism, as well as understanding the implications of FDI, enables managers to develop resilient strategies aligned with organizational goals and global economic conditions.

References

• Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International Business. Pearson.
• Hill, C. W. L. (2014). International Business: Competing in the Global Market. McGraw-Hill Education.
• Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2015). International Economics: Theory and Policy. Pearson.
• World Trade Organization. (2020). World Trade Report 2020. WTO Publications.
• Melitz, M. J. (2003). The impact of trade on intra-industry reallocation and aggregate industry productivity. Econometrica, 71(6), 1695–1725.
• United Nations Conference on Trade and Development. (2021). World Investment Report 2021. UNCTAD.
• Ghemawat, P. (2001). Distance Still Matters: The Hard Reality of Global Expansion. Harvard Business Review.
• Ohmae, K. (1989). Managing in a Borderless World. Harvard Business School Press.
• Rugman, A. M., & Verbeke, A. (2003). Location, competitiveness, and the multinational enterprise. Oxford Handbook of International Business.
• Borensztein, E., de Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135.