NAME: DYANI RAMAH

COURSE CODE: MGMT 0305

LECTURER: EARL BROWNE

DUE DATE: OCTOBER 25TH , 2022

Question 1

The types of companies that participate in International Businesses are as follows:

 A local firm is the originator of an international business transaction. It conceives,

designs and produces offerings which are intended for consumption by consumers

worldwide. Focal firms take center stage in international business. They are mainly

large multinational enterprises as well as small and medium sized enterprises. There

are selective privately owned companies; others are public, stock-held firms; and

others are state enterprises owned by governments. A selective few focal firms are

manufacturing businesses while others are in the service sector.

 A distribution channel intermediary can be described as a specialist firm which

provides logistics and marketing services for focal firms as part of of international

supply chains, both abroad as well as in the focal firm’s home.

 A facilitator is simply a firm or individual with special expertise in banking, legal

advice, customs clearance or related support services which helps focal firms perform

international business transactions. Facilitators can include logistics service providers,

freight forwarders, banks and other support firms which assist focal firms in

performing specific unctions.

 State Owned enterprises account for a substantial portion of economic value added in

multiple countries, even said rapid liberalizing emerging markets like Russia, China

and Brazil. Governments with such advanced economies such as France, Australia

and Sweden have a significant ownership of telecommunications companies, banking

and natural resources.

The reasons why a student hould study International Business are as follows:
 International business is transforming the world as never before. In the past 50 years,

international trade and investment have experienced unprecedented growth. Since the

1980s, emerging markets have provided new impetus to worldwide economic

interconnectedness. These fast-growth developing economies—some 30 countries,

including Brazil, Russia, India, and China, the so-called BRICs—are experiencing

substantial market liberalization, privatization, and industrialization, which are fueling

global economic transformation.

 International business contributes to economic prosperity, helps countries use their

resources more efficiently, and provides interconnectedness to the world economy

and access to a range of products and services. Consequently, governments have

become more willing to open their borders to foreign trade and investment.

International trade is a critical engine for job creation. It is estimated that every $1

billion increase in exports creates more than 20,000 new jobs. I

 To sustain a competitive advantage in the global economy, firms must readily

participate in crossborder business and acquire the necessary skills, knowledge, and

competence. Procter & Gamble sells shampoo, disposable diapers, and other

consumer products in more than 150 countries. Going international offers countless

opportunities for firms to grow and earn additional profits.

 Although most international careers are based in one’s home country, managers travel

the world and meet people from various cultures and backgrounds. Traveling abroad

leads to exciting challenges and learning experiences. Managers rising to the top of

most of the world’s leading corporations honed their managerial skills in international

business.
2. Briefly describe the driving forces, dimensions, and consequences of Market

Globalization.

 Worldwide reduction in barriers to trade and investment. The tendency of

national governments to reduce trade and investment barriers has accelerated

global economic integration. For example, tariffs on the import of industrial

and medical equipment and countless other products have declined nearly to

zero in many countries, encouraging freer international exchange of goods and

services. Falling trade barriers are facilitated by the WTO. After joining the

WTO in 2001, China has made its market increasingly more accessible to

foreign firms. The decrease in trade barriers is also associated with the

emergence of regional economic integration blocs.

 Market liberalization and adoption of free markets. In the past three decades,

free-market reforms have smoothed the integration of China, India, Russia and

other formerly protectionist countries into the global economy. Numerous

Asian economies—for example, India, Indonesia, Malaysia, and South Korea

—embraced free market norms. These events opened much of the world to

freer international trade and investment. China, India, and Eastern Europe

have become some of the most cost-effective locations for producing goods

and services worldwide. Privatization of previously state-owned industries in

these countries has encouraged economic efficiency and attracted massive

foreign capital to their national economies.

 Industrialization, economic development, and modernization. Economic

development results in increased incomes and living standards, an important

measurement of which is gross national income (GNI) per person. A critical

driver of rising income levels is the nation’s volume of international trade.

 Integration of world financial markets. Financial market integration makes it

possible for internationally active firms to raise capital, borrow funds, and

engage in foreign currency transactions. Financial services firms follow their

customers to foreign markets. Cross-border transactions are made easier

because of the ease with which funds can be transferred between buyers and

sellers. This takes place through networks of international commercial banks.

For instance, the SWIFT network connects more than 11,000 financial

institutions in some 200 countries. This global financial connectivity assists

firms in developing and operating world-scale production and marketing

operations. It enables companies to pay suppliers and collect payments from

customers worldwide.

 Advances in technology. Technological advances are a remarkable facilitator

of cross-border trade and investment. This is an important megatrend that

requires greater elaboration.

The globalization of markets can be characterized by several major

dimensions.

 Integration and interdependence of national economies. Internationally active

firms develop multi-country operations through trade, investment, geographic

dispersal of company resources, and integration and coordination of value-

chain activities. The collective activities of such firms give rise to economic

integration, that is, increased trade and other commercial activities among the

nations of the world. Governments assist this integration by lowering barriers

to international trade and investment, harmonizing their monetary and fiscal

policies within regional economic integration blocs, and creating supranational

 institutions. These include such organizations as the World Bank, International

Monetary Fund, and World Trade Organization.

 Rise of regional economic integration blocs. Regional economic integration

blocks consist of groups of countries that facilitate reduced trade and

investment barriers among themselves. Examples include the North American

Free Trade Agreement area (NAFTA), the Asia Pacific Economic Cooperation

zone (APEC), and Mercosur in Latin America. In more advanced

arrangements, such as a common market, the barriers to the cross-border flow

of labor and capital are completely removed. A notable example is the

European Union (www.europa.eu). The European Union has adopted free

trade among its member countries and harmonized fiscal and monetary

policies and business regulations. • Growth of global investment and financial

flows. In the process of conducting international transactions, firms and

governments buy and sell large volumes of national currencies (such as

dollars, euros, and yen). The free movement of capital around the world—the

globalization of capital—extends economic activities across the globe. It

further increases interconnectedness among world economies. The bond

market has gained worldwide scope, with foreign bonds representing a major

source of debt financing for governments and firms.

 Convergence of consumer lifestyles and preferences. Consumers around the

world increasingly spend their money and time in similar ways. Many aspects

of lifestyles and preferences are converging. Shoppers in New York, Paris, and

Shanghai increasingly demand similar household goods, clothing,

automobiles, and electronics. Teenagers everywhere are attracted to iPhones,

 Levi’s jeans, and Hollywood movies. Major brands enjoy a global following

encouraged by movies, global media, and the Internet.

 Globalization of production. Intense global competition is forcing firms to

reduce their costs of production. Companies cut their costs and selling prices

through economies of scale, standardization of finished products, and shifting

manufacturing and procurement to foreign locations with less expensive labor.

For example, firms in the auto and textile industries have relocated their

manufacturing to low labor-cost locations such as China, Mexico, and Poland.

 Globalization of services. The services sector—banking, hospitality, retailing,

and other service industries—is undergoing widespread internationalization.

The real estate firm REMAX has established more than 6,500 offices in some

100 countries. Firms increasingly outsource business processes and other

services in the value chain to vendors located abroad. In a relatively new

trend, many people go abroad to undergo medical procedures, such as cataract

and knee surgeries, to save money

 The most direct consequence of market globalization is on the firm’s value

chain. Globalization compels firms to organize their sourcing, manufacturing,

marketing, and other value-adding activities on a global scale to achieve cost

advantages and time efficiencies. In a typical value chain, the firm conducts

research and product development (R&D), purchases production inputs, and

assembles or manufactures a product or service. Next, the firm performs

marketing activities such as pricing, promotion, and selling, followed by

distribution of the product in targeted markets and after-sales service. The

value-chain concept is useful in international business because it helps clarify

what activities are performed where in the world.

Each value-adding activity in the firm’s value chain is subject to

internationalization; that is, it can be performed in locations outside the home

country. Exhibit 2.6 illustrates a value chain in a typical international firm.

The most typical reasons for locating value-chain activities in particular

countries are to reduce the costs of R&D and production or to gain closer

access to customers. Through offshoring, the firm relocates a major value-

chain activity by establishing a factory or other subsidiary abroad. A related

trend is global outsourcing, in which the firm delegates performance of a

value-adding activity to an external supplier or contractor located abroad.

 3. Explain the concept of Culture and its importance for International Business.

Culture can differ sharply, even between neighboring countries. Effective handling of

the cross-cultural interface is a critical source of firms’ competitive advantage.

Managers not only need to develop empathy and tolerance toward cultural differences

but also must acquire a sufficient degree of factual knowledge about the beliefs and

values of foreign counterparts. Cross-cultural proficiency is paramount in many

managerial tasks, including:

• Managing employees

• Communicating and interacting with foreign business partners

• Negotiating and structuring international business ventures

• Developing products and services

• Preparing advertising and promotional materials

 Preparing for international trade fairs and exhibitions

 Screening and selecting foreign distributors and other partners

• Interacting with current and potential customers from abroad

Let’s consider specific examples of how cross-cultural differences may complicate

company activities. Developing products and services. Cultural differences necessitate

adapting marketing activities to suit the specific needs of target markets. Johnson &

Johnson developed different varieties of its mouthwash, Listerine, for foreign

markets. For instance, it created alcohol-free Listerine Zero for Muslim countries

where spirits are forbidden. For Asian markets, it launched Green Tea Listerine. In

Europe, consumers want their mouthwash to solve more complex problems than just

bad breath, so the firm developed an advanced gum treatment rinse.21 Providing
services. Firms that engage in services such as lodging and retailing substantially

interact with customers, implying greater cultural interaction and the potential for

cognitive and communication gaps. Imagine a Western lawyer who tries to establish a

law office in China or a Western restaurant chain operating in Russia. Both firms will

encounter substantial cultural challenges. Differences in language and national

character have the same effect as trade barriers.22 Organizational structure. Some

companies prefer to delegate authority to country managers, which results in a

decentralized organizational structure. Other firms have centralized structures, in

which power is concentrated at regional or corporate headquarters. Firms may be

bureaucratic or entrepreneurial. How do you deal with a bureaucratic partner or

manage distantly located, decentralized subsidiaries? Teamwork. Cooperating with

partners and host-country nationals to achieve common organizational goals is critical

to business success. But what should managers do if foreign and domestic nationals

don’t get along? The Chinese home appliance manufacturer Haier (www.haier.com)

delayed acquiring overseas firms because management felt it lacked the ability to

manage foreign nationals and integrate differing cultural systems. Pay-for-

performance system. In some countries, merit is not the main basis for promoting

employees. In China and Japan, a person’s age is the most important determinant, but

how do such workers perform when Western firms evaluate them using performance-

based measures? Lifetime employment. In some Asian countries, firms are very

protective of their employees, who may work for the same company all their lives.

The expectations that arise from such devoted relationships can complicate dealings

with outside firms. Western managers may struggle to motivate employees who

expect they will always have the same job. Union–management relationships. In

Germany, union bosses hold the same status as top-level managers and can sit on
corporate boards. Many European firms have a business culture in which workers are

relatively equal to managers. This approach can reduce the flexibility of company

operations because it makes it harder to lay off workers. Attitudes toward ambiguity.

In some countries, people have a hard time tolerating ambiguity, which refers to

situations in which information can be understood in more than one way. For

example, some bosses give exact and detailed instructions, whereas others give vague

and incomplete instructions. If you’re not comfortable working with minimum

guidance or taking independent action, you may not fit well into some cultures.

Negotiations. Negotiations arise in virtually all aspects of business, as when the firm

takes on a partner or a supplier–buyer relationship. Goals, interests, ethics, and

cultural assumptions vary cross-culturally, which can complicate forming and

maintaining business relationships. In most of Northern Europe, negotiations are

relatively efficient, impersonal, and unsociable; negotiators get down to business

quickly. Technology. In the past, distinct cultures developed because regions had

limited contact with each other. Today, digital, information, communications, and

transportation technologies bring people into close contact. The Internet and other

communications technologies imply greater likelihood of cross-cultural

miscommunications and blunders. To help reduce problems, managers use software

that instantly converts messages into any of dozens of languages.

4. Discuss Ethical Behaviours and challenges and their importance for International

Business.

Ethical behavior is essential for successful business in today’s global marketplace.1

Ethical behavior is about doing the right things for the company, the employees, the

community, the government, and the natural environment. It requires companies to act

in ways that stakeholders consider honest and fair. Components of Ethical Behavior

Global business leaders define ethical behavior in terms of four key components: •

Ethics • Corporate social responsibility • Sustainability • Corporate governance Ethics

are moral principles and values that govern the behavior of people, firms, and

governments regarding right and wrong.2 Corporate social responsibility (CSR) refers

to operating a business in a manner that meets or exceeds the ethical, legal, and

commercial expectations of customers, shareholders, employees, and the communities

where the firm does business. Sustainability means meeting humanity’s needs today

without harming the ability of future generations to meet their needs. Corporate

governance is the system of procedures and processes by which corporations are

managed, directed, and controlled. Corporate governance provides the means through

which the organization’s directors and managers undertake ethical behavior, corporate

social responsibility, and sustainability. Leading corporations ensure that ethical

behavior transcends all international business activities and figures prominently in

management decisions about financial performance and competitive advantage. An

integrated, strategic approach to ethical, sustainable, and socially responsible behavior

provides the firm with competitive advantages, including stronger relationships with

customers, employees, shareholders, customers, suppliers, local governments, and the

communities where they do business. Exhibit 4.1 provides a framework for the key
managerial approaches to ethical behavior addressed in this chapter. Experienced

executives understand that incorporating a culture of ethical behavior is essential to

achieving their profit objectives. Just as reputation affects the success of individuals,

it is critical for companies as well. Failure to protect and nurture the corporate image

translates into poor performance and potential ruin. This is even more critical in cross-

border business where the firm is constantly under the scrutiny of stakeholders in

multiple countries. Let’s examine ethics in terms of its value to firms.

Why is it imperative for firms that conduct international business to behave ethically?

Here are key reasons.

• Acting in a fair and respectful way that does not harm human rights is the right thing

to do.

• Ethical behavior is often prescribed within laws and regulations. Violating laws and

regulations has obvious legal consequences.

• Customers, governments, and the news media demand ethical behavior. Firms that

commit ethical blunders attract unwanted attention from opinion leaders.

• Ethical behavior is good business, leading to enhanced corporate image and selling

prospects. The firm with a reputation for high ethical standards gains advantages in

hiring, motivating employees, partnering, and dealing with foreign governments.

Firms that behave unethically run the risk of criminal or civil prosecution, damage to

their own reputations, harm to employee morale and recruitment efforts, and exposure

to blackmailers or other unscrupulous parties. For all these reasons, companies need

to incorporate ethical considerations into their international activities.

A study in the Harvard Business Review found that bad behavior results when:

• Top management sets goals and incentives aimed at promoting good outcomes (e.g.,

profits) that instead encourage bad behaviors. Law firms and accounting firms often
encourage employees to maximize the hours they bill for their services. Under

pressure, some employees pad their hours or charge clients for work they did not do.

• Employees overlook unethical behavior because of peer pressure or self-interest. A

manager may fail to complain about toxic waste discharged by a subsidiary because

he doesn’t want to rock the boat.

• Managers tolerate lower ethical standards in value-chain activities suppliers or third-

party firms perform. Coffee producers sometimes ignore the poor working conditions

of supplier farmers in Africa, Latin America, and other areas.

• Unethical practices are allowed to accumulate in the firm slowly over time. When a

firm is awash in bad behavior, smaller infractions seem less noticeable. A permissive

environment tends to foster further unethical behavior.

• Questionable means are justified by good ends. Pharmaceutical firms sometimes

use unethical testing procedures to validate the effectiveness of new medications for

disorders such as cancer and AIDS. The drugs help people but were developed

through bad practice .

5. Describe how internationalizing firms gain and sustain Competitive Advantage.

Three contemporary perspectives help explain the development of national

competitive advantage: the competitive advantage of nations, the determinants of

national competitiveness, and national industrial policy.

The Competitive Advantage of Nations. According to Porter, the competitive

advantage of a nation depends on the collective competitive advantages of the

nation’s firms. Over time, this relationship is reciprocal; the competitive advantages

the nation holds tend to drive the development of new firms and industries with these

same competitive advantages.

At both the firm and national levels, competitive advantage and technological

advances grow out of innovation. 4 Companies innovate in various ways. They

develop new product designs, new production processes, new approaches to

marketing, and new ways of organizing or training. Firms sustain innovation (and, by

extension, competitive advantage) by continually finding better products, services,

and ways of doing things.

The Competitive Advantage of Nations, Michael Porter described several factors that

give rise to competitive advantage at both the company and national levels. Named

the Porter Diamond Model, it is composed of four major elements. • Demand

conditions refer to the nature of home-market demand for specific products and

services. The presence of demanding customers pressures firms to innovate faster and

produce better products. For example, the United States has a large population of

prosperous senior citizens who suffer from various health problems. These conditions

have created an enormous market for quality medical equipment and cutting-edge

pharmaceutical medications.
A national industrial policy is a proactive economic development plan a government

launches to build or strengthen a particular industry, often implemented in

collaboration with the private sector. Usually, governments design such policies to

support high value-adding industries, those that yield higher corporate profits, better

wages, and tax revenues. Historically, governments favored traditional industries,

including automobiles, shipbuilding, and heavy machinery—all with long value

chains that produce enormous added value.

6. Identify the types of Country Risk produced by Political and Legal systems.

Governments occasionally seize the assets of corporations. The industry sectors most

often targeted by government seizure are natural resources (for example, mining and

petroleum), utilities, and manufacturing. Fortunately, aggressive seizure is less

common these days as governments in many developing countries have adopted

institutional reforms that aim to attract FDI from abroad and foster economic growth.

“Creeping expropriation” is a subtle form of country risk in which governments

modify laws and regulations after foreign MNEs have made substantial local

investments in property and plants.19 Examples include abrupt termination of

contracts and the creation of new laws that favor local firms.

Most countries are signatories to international treaties and agreements that specify

rules, principles, and standards of behavior in international business. Nevertheless,

governments may unilaterally resort to sanctions and embargoes to respond to

offensive activities of foreign countries. A sanction is a type of trade penalty imposed

on one or more countries by one or more other countries. Sanctions typically take the

form of tariffs, trade barriers, import duties, and import or export quotas. They

generally arise in the context of an unresolved trade or policy dispute, such as a

disagreement about the fairness of some international trade practice. There is much

evidence suggesting that sanctions often do not achieve desired outcomes. An

embargo is an official ban on exports to or imports from a particular country to isolate

it and punish its government. It is generally more serious than a sanction and is used

as a political punishment for some disapproved policies or acts.

Consumers and special interest groups occasionally target particular firms perceived

to have harmed local interests. Consumers may refuse to patronize firms that behave

inappropriately. A boycott is a voluntary refusal to engage in commercial dealings

with a nation or a company. Boycotts and public protests result in lost sales and

increased costs (for public relations activities needed to restore the firm’s image).

Terrorism is the threat or actual use of force or violence to attain a political goal

through fear, coercion, or intimidation. It is sometimes sponsored by national

governments.

War, insurrection, and other forms of violence pose significant problems for business

operations. Although such events usually do not affect companies directly, their

indirect effects can be disastrous. Violent conflict among drug cartels and security

services along the U.S.–Mexico border has led some firms and financiers to withdraw

investments from Mexico because of perceived heightened risks and political

instability.

In addition to political concerns, country risk also arises due to peculiarities of

national legal systems. Especially relevant to international business are commercial

law, which specifically covers business transactions, and private law, which regulates

relationships between persons and organizations, including contracts and liabilities

that may arise due to negligent behavior. In many countries, the legal system favors

home-country nationals. Laws are designed to promote the interests of local

businesses and the local economy.

FOREIGN INVESTMENT LAWS These laws affect the type of entry strategy firms

choose as well as their operations and performance. Many nations impose restrictions

on inward FDI. For example, Indonesia restricts foreign investment in certain

industries, such as tourism, alcoholic beverages, and some chemical manufactures, to

protect the country’s security or cultural assets.

CONTROLS ON OPERATING FORMS AND PRACTICES Governments impose

laws and regulations on how firms can conduct production, marketing, and

distribution activities within their borders. Such restrictions can hinder company

performance abroad. For example, host countries may require companies to obtain

permits to import or export. They may devise complex regulations that complicate

transportation and logistical activities or limit the options for entry strategies.

MARKETING AND DISTRIBUTION LAWS These laws determine which practices

are allowed in advertising, promotion, and distribution. Many countries cap the prices

of critical goods and services, such as food and health care. Such constraints affect

firms’ marketing and profitability. Product safety and liability laws hold

manufacturers and sellers responsible for damage, injury, or death defective products

cause. In the case of violations, firms and company executives are subject to legal

penalties, such as fines or imprisonment, as well as civil lawsuits. Product liability

laws in developing countries are generally weak. Some firms take advantage of these

weaknesses.

LAWS ON INCOME REPATRIATION MNEs earn profits in various countries and

typically seek ways to transfer these funds back to their home country. However, in

some countries, governments devise laws that restrict such transfers.

ENVIRONMENTAL LAWS Governments enact laws to preserve natural resources;

to combat pollution and the abuse of air, earth, and water resources; and to ensure

health and safety. In Germany, for example, companies must follow strict recycling

regulations. Manufacturers and distributors bear the burden of recycling product

packaging. Governments usually try to balance environmental laws against the impact

such regulations may have on employment, entrepreneurship, and economic

development.

CONTRACT LAWS International contracts attach rights, duties, and obligations to

the contracting parties. Contracts are used in five main types of business transactions:

Shibuya is a popular shopping district in Tokyo. In Japan, foreign-owned large stores

such as Carrefour and Walmart have faced restrictive laws designed to protect local

retailers.

• Sale of goods or services, especially large sales.

• Distribution of the firm’s products through foreign distributors.

• Licensing and franchising—that is, a contractual relationship that allows a firm to

use another company’s intellectual property, marketing tools, or other assets for a fee.

• FDI, especially in collaboration with a foreign entity, to create and operate a foreign

subsidiary.

• Joint ventures and other types of cross-border collaborations.

INTERNET AND E-COMMERCE REGULATIONS Internet and e-commerce

regulations are the new frontier in legal systems and continue to evolve.32 Firms that

undertake e-commerce in countries with weak laws face considerable risk.

INADEQUATE OR UNDERDEVELOPED LEGAL SYSTEMS Just as laws and

regulations can lead to country risk, an underdeveloped regulatory environment or

poor enforcement of existing laws can also pose challenges for the firm. Worldwide,

safeguards for intellectual property are often inadequate.

. Extraterritoriality refers to the application of home-country laws to persons or

conduct outside national borders. In most cases, such laws are intended to prosecute

individuals or firms located abroad for some type of wrongdoing.

THE FOREIGN CORRUPT PRACTICES ACT (FCPA) The U.S. government passed

the Foreign Corrupt Practices Act (FCPA), which bans firms from offering bribes to

foreign parties to secure or retain business.

ACCOUNTING AND REPORTING LAWS Accounting practices and standards

differ greatly around the world, posing difficulties for firms.

TRANSPARENCY IN FINANCIAL REPORTING The timing and transparency of

financial reporting vary widely around the world. Transparency is the degree to which

firms regularly reveal substantial information about their financial condition and

accounting practices.

7. Describe how firms can respond to government trade intervention.

Governments intervene in trade and investment to achieve political, social, or

economic objectives. They often create trade barriers that benefit specific interest

groups, such as domestic firms, industries, and labor unions. A key rationale is to

create jobs by protecting industries from foreign competition. Governments also

intervene to support homegrown industries or firms.

Protectionism is perhaps the leading manifestation of government intervention in

international business. Protectionism refers to national economic policies designed to

restrict free trade and protect domestic industries from foreign competition.

Protectionism typically arises in the form of tariffs, nontariff barriers such as quotas,
and administrative rules designed to discourage imports. A tariff (also known as a

duty) is a tax a government imposes on imported products, effectively increasing the

cost of acquisition for the customer. A nontariff trade barrier is a government policy,

regulation, or procedure that impedes trade through means other than explicit tariffs.

Trade barriers are enforced as products pass through customs, the checkpoints at the

ports of entry in each country where government officials inspect imported products

and levy tariffs. An often-used form of nontariff trade barrier is a quota, a quantitative

restriction placed on imports of a specific product over a specified period.

Government intervention may also target foreign direct investment (FDI) flows via

investment barriers that restrict the operations of foreign firms.

RESEARCH TO GATHER KNOWLEDGE AND INTELLIGENCE Experienced

managers continually scan the business environment to identify the nature of

government intervention and to plan market-entry strategies and host-country

operations. They review their return-on-investment criteria to account for the

increased cost and risk of trade and investment barriers.

CHOOSE THE MOST APPROPRIATE ENTRY STRATEGIES Tariffs and most

nontariff trade barriers apply to exporting, whereas investment barriers apply to FDI.

If high tariffs are present, managers may consider FDI, licensing, and joint ventures

that allow the firm to operate directly in the target market and avoid import barriers.

TAKE ADVANTAGE OF FOREIGN TRADE ZONES In an effort to create jobs and

stimulate local economic development, governments establish foreign trade zones

(also known as free trade zones or free ports). A foreign trade zone (FTZ) is an area

within a country that receives imported goods for assembly or other processing and

subsequent re-export.35 Products brought into an FTZ are not subject to duties, taxes,
or quotas until they, or the products made from them, enter the non-FTZ commercial

territory of the country where the FTZ is. Firms use FTZs to assemble foreign

dutiable materials and components into finished products, which are then re-exported.

Firms may use FTZs to manage inventory of parts, components, or finished products

that eventually will be needed at some other location.

SEEK FAVORABLE CUSTOMS CLASSIFICATIONS FOR EXPORTED

PRODUCTS One approach for reducing exposure to trade barriers is to have exported

products classified in the appropriate harmonized product code. Many products can be

classified within two or more categories, each of which may imply a different tariff.

TAKE ADVANTAGE OF INVESTMENT INCENTIVES AND OTHER

GOVERNMENT SUPPORT PROGRAMS Obtaining economic development

incentives from host- or home–country governments is another strategy to reduce the

cost of trade and investment barriers.

Question 2

The driving forces of Globalization are as follows;

 Worldwide Reduction in Barriers to Trade and Investment. This is the tendency of

national governments to reduce trade and investment barriers which has increased

global economic integration.

 Market Liberalization and Adoption of Free Markets. Free market reforms have

smoothed the integration of India, China, Russia and other formerly protectionist

countries into the global economy. Numerous asian economies like India, Malaysia,

Indonesia and South Korea have embraced free market norms.

 Industrialization, Economic Development, and Modernization.