ASSIGNMENT-1

UNIT-1

Q- Why do we study international business? (any

four reasons) discuss the nature and scope of
international business?
ANS- If you’re still exploring business school options, you might
wonder if studying global business will give you an advantage over
pursuing a general business degree. Here are five benefits of an
international business education.

1. A Competitive Edge in the Job Market

It’s a small world, and with ever-evolving technology, it’s only getting
smaller. Today, the economy is truly global. As businesses handle more
international transactions and acquisitions than ever, employers are
increasingly looking for workers with the skills to oversee these deals.
Whether you pursue a bachelor’s or master’s degree, whether you major
in international business or pursue a global management concentration
within a general business program, you’ll be glad to have international
business on your degree – and your résumé.

2. The Chance to Travel the World (For Free)

Have you always dreamed of traveling the world? In the field of
international business, you’ll have this opportunity frequently – and you
won’t even have to come up with the money for airfare and lodgings
yourself. Exploring new lands, soaking up new cultures, meeting new
people and tasting new cuisine will all be part of your job.
Sound good? Well, earning your degree in international business is the
perfect place to start.

3. More Career Options

Where do international business majors find work? You might be
surprised. Opportunities for business professionals with an international
educational background are plentiful in private, non-profit and public
sectors, according to the International Business Center at Michigan State
University.
You might find work as a cultural adviser with a business or
organization. You might even find work with a government agency as a
community developer or diplomatic associate. Most students of
international business do work in the business world, handling
responsibilities that involve global development and operations or
international trade. However, some use their international business
education as a foundation for a law school degree, according to Saint
Louis University.
4. A Big-Picture View of the Business World
International business is business on a large – literally, a global – scale.
Studying international business will do more than help you understand
different cultures, markets and geographies. It will allow you to see the
big picture when it comes to business issues and their solutions.
Even if you don’t wind up working for a major corporation where
international transactions are routine, you can use your unique, global
perspective to help employers large and small see the big picture and
make important decisions for their businesses.

Nature of International Business

1. Accurate Information

2. Information not only accurate but should be timely

3. The size of the international business should be large

4. Market segmentation based on geographic segmentation

5. International markets have more potential than domestic markets

Scope of International Business

1. International Marketing

2. International Finance and Investments

3. Global HR

4. Foreign Exchange

Q- Highlights the dimension and stages in globalization. What

are the difference factors causing globalisation of business.
ANS- Economic
Economic globalization is the intensification and stretching of economic
interrelations around the globe. It encompasses such things as the
emergence of a new global economic order, the internationalization of
trade and finance, the changing power of transnational corporations, and
the enhanced role of international economic institutions.

Political
Political globalization is the intensification and expansion of political
interrelations around the globe. Aspects of political globalization include
the modern-nation state system and its changing place in today’s world,
the role of global governance, and the direction of our global political
systems.
Military globalization, as subdomain of political globalization, is defined
as the intensification and stretching of military power across the globe
through various means of military power (nuclear military weapons,
radiation weapons simply weapons of mass destruction). This form of
globalization occurs across offensive and defensive uses of power and
survival in international field. Beyond states, global organizations such
as the United Nations also extend military means globally through
support given by both Global North and South countries.
Cultural
Cultural globalization is the intensification and expansion of cultural
flows across the globe. Culture is a very broad concept and has many
facets, but in the discussion on globalization, Steger means it to refer to
“the symbolic construction, articulation, and dissemination of meaning.”
Topics under this heading include discussion about the development of
a global culture, or lack thereof, the role of the media in shaping our
identities and desires, and the globalization of languages.
Ecological
Topics of ecological globalization include population growth, access to
food, worldwide reduction in biodiversity, the gap between rich and poor
as well as between the global North and global South, human-induced
climate change, and global environmental degradation.

Factors Influencing Globalization –

(1) Historical:
The trade routes were made over the years so that goods from one
kingdom or country moved to another. The well known silk-route
from east to west is an example of historical factor.

(2) Economy:
The cost of goods and values to the end user determine the
movement of goods and value addition. The overall economics of a
particular industry or trade is an important factor in globalisation.

(3) Resources and Markets:

The natural resources like minerals, coal, oil, gas, human resources,
water, etc. make an important contribution in globalisation.

Q- Differentiate between international company

and multinational company. Discuss the concept
of multinational trade. Discuss the firm specific
and location specific advantages of MNCs.
ANS- International vs. Multinational
International and multinational are different terms. An
international company is a company that has a group of
people from different countries and is not a profit-making
organisation whereas the multinational company is a global
company that makes the profit. If we only talk about the terms,
the term ‘international’ is used in a general context whereas
the term ‘multinational’ is used in a business context .
 International companies have no foreign direct
investments (FDI) and make their product or service
only in their home country. In other words, they're
exporters and importers. They have no staff, warehouses,
or sales offices in foreign countries. The best examples of
international companies, in the strict sense, are exotic
retail shops that sell imported products, or small local
manufacturers that export to neighboring countries.
 Multinational companies cross the FDI threshold. They
invest directly in foreign assets, whether it's a lease
contract on a building to house service operations, a
plant on foreign soil, or a foreign marketing campaign.
Generally, though. Multinational companies, however,
have FDI only in a limited number of countries, and they
do not attempt to homogenize their product offering
throughout the countries they operate in -- they focus
much more on being responsive to local preferences than
a global company would.
 Global companies have investments in dozens of
countries but maintain a strong headquarters in one,
usually their home country. Their mantra is economies
of scale, and they'll homogenize products as much as the
market will allow in order to keep costs low. Their
marketing campaigns often span the globe with one
message (albeit in different languages) in an attempt to
smooth out differences in local tastes and preferences.
 Transnational companies are often very complex and
extremely difficult to manage. They invest directly in
dozens of countries and experience strong pressures
both for cost reduction and local responsiveness. These
companies may have a global headquarters, but they also
distribute decision-making power to various national
headquarters, and they have dedicated R&D activities for
different national markets.

Meaning of Multinational Companies (MNCs):

A multinational company is one which is incorporated in one
country (called the home country); but whose operations extend
beyond the home country and which carries on business in other
countries (called the host countries) in addition to the home
country.

It must be emphasized that the headquarters of a multinational

company are located in the home country.

Following are the salient features of MNCs:

(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical
and financial assets. This also results in huge turnover (sales) of
MNCs. In fact, in terms of assets and turnover, many MNCs are
bigger than national economies of several countries.

(ii) International Operations Through a Network of Branches:

MNCs have production and marketing operations in several

countries; operating through a network of branches, subsidiaries
and affiliates in host countries.

(iii) Unity of Control:

MNCs are characterized by unity of control. MNCs control business
activities of their branches in foreign countries through head office
located in the home country. Managements of branches operate
within the policy framework of the parent corporation.

(iv) Mighty Economic Power:

MNCs are powerful economic entities. They keep on adding to their
economic power through constant mergers and acquisitions of
companies, in host countries.

(v) Advanced and Sophisticated Technology:

Generally, a MNC has at its command advanced and sophisticated
technology. It employs capital intensive technology in
manufacturing and marketing.

Q- DISCUSS THE ROLE OF CULTURE IN THE

INTERNATIONAL TRADE. HOW IT AFFEECTS
THE INTERNATIONAL TRADE AND WHY IT IS
IMPORTANT TO CONSIDER AS IMPORTANT
FACTORS?
ANS- Research into culture and lifestyle can also identify potential
problems with translation, marketing and advertising

PACKAGE COLOURS, SIZES AND STYLES, AND

PRODUCT FUNCTIONS CAN ALL REQUIRE
ADAPTATION BECAUSE OF CULTURAL
REQUIREMENTS.
The cultural and lifestyle information about a country can be broken down into several
areas of research:
1. Material culture- This includes the technological goods used by the
majority of the population, personal transport (including car ownership)
and the availability of resources such as electricity, natural gas, telephone,
Internet and wireless communication.

2. Cultural preferences- Each international market will have

varying preferences for products, foods, product/food quality levels, and
even brands. The meaning of shapes, colours and iconic features can also
have different cultural significance. These cultural differences must be
taken into account to determine whether products are suitable for a market
or whether they can be adapted for greater business success. For example,
Fanta soda is orange flavoured for the North American market. However,
the Coca-Cola company, which produces Fanta, has adapted the flavouring
for certain markets to take cultural taste preferences into account. Fanta is
peach flavoured in Botswana, tastes of passion fruit in France and is
flavoured to taste like flowers in Japan.

3. Languages- The languages spoken and used in a country

have an impact on marketing, brand names, the collection of
information through surveys and interviews, advertising and the
conduct of business relationships. Languages might vary between
regions of a country, and some countries have more than one
official language. For example, Canada has two official languages,
and a third or fourth is spoken in several areas of the country.
Switzerland has four main languages, and Kenya has 22.

4. Education-The typical level of completed education in a

region can indicate the quality of a potential work force and the
status of consumers.

5. Religion- Religion is a major cultural influencer that can

affect many aspects of life, including the role of women in society,
rules about food and beverage consumption, clothing habits and
holiday activities.

6. Ethics and values- These can have an impact on

international business, especially when conducted from within
another country. However, it is important for researchers to
remember that the same ethics and values are not held by
everyone in a target market. They are always dependent on
status, region, ethnicity and religion. Researchers should also
consider the human-rights conduct of any potential market.

7. Social organization -The composition of family groups,

the prevalence of special-interest groups and attitudes toward
them, racial diversity and recreational lifestyles are all important
to consider when a country is being investigated as a potential
export market.

Q- DEVELOP A FAMEWORK FOR THE ECONOMIC

ENVIRONMENT,SOCIAL AND CULTURAL
ENVIRONMENT, POLITIAL, LEGAL AND
REGULATORY ENVIRONMENT NATURAL
ENVIRONMENT,TECHNOLOGICAL ENVIRONMENT
IN ORGANIZATION?
ANS- A PESTLE analysis or PESTLE analysis (formerly
known as PEST analysis) is a framework or tool used to
analyse and monitor the macro-environmental factors that
may have a profound impact on an organisation’s
performance. This tool is especially useful when starting a
new business or entering a foreign market. It is often used in
collaboration with other analytical business tools such as
the SWOT analysis and Porter’s Five Forces to give a clear
understanding of a situation and related internal and external
factors. PESTEL is an acronym that stand for Political,
Economic, Social, Technological, Environmental and Legal
factors. However, throughout the years people have expanded
the framework with factors such as Demographics,
Intercultural, Ethical and Ecological resulting in variants such
as STEEPLED, DESTEP and SLEPIT. In this article, we will
stick simply to PESTEL since it encompasses the most
relevant factors in general business. Each factor will be
elaborated on below:
Political Factors:
These factors are all about how and to what degree a government intervenes in
the economy or a certain industry. Basically all the influences that a government
has on your business could be classified here. This can include government
policy, political stability or instability, corruption, foreign trade policy, tax policy,
labour law, environmental law and trade restrictions. Furthermore, the
government may have a profound impact on a nation’s education system,
infrastructure and health regulations. These are all factors that need to be taken
into account when assessing the attractiveness of a potential market.

Economic Factors:
Economic factors are determinants of a certain economy’s performance. Factors
include economic growth, exchange rates, inflation rates, interest rates,
disposable income of consumers and unemployment rates. These factors may
have a direct or indirect long term impact on a company, since it affects the
purchasing power of consumers and could possibly change demand/supply
models in the economy. Consequently it also affects the way companies price
their products and services.

Political Factors:
These factors are all about how and to what degree a government
intervenes in the economy or a certain industry. Basically all the
influences that a government has on your business could be classified
here. This can include government policy, political stability or
instability, corruption, foreign trade policy, tax policy, labour law,
environmental law and trade restrictions. Furthermore, the government
may have a profound impact on a nation’s education system,
infrastructure and health regulations. These are all factors that need to
be taken into account when assessing the attractiveness of a potential
market.

Economic Factors:
Economic factors are determinants of a certain economy’s
performance. Factors include economic growth, exchange rates,
inflation rates, interest rates, disposable income of consumers and
unemployment rates. These factors may have a direct or indirect long
term impact on a company, since it affects the purchasing power of
consumers and could possibly change demand/supply models in the
economy. Consequently it also affects the way companies price their
products and services.
ASSIGNMENT-1
UNIT-2
Q- HIGHLIGHT ABSOLUTE COST THEORY AND
COMPRATIVE THEORY?
ANS- if the country can produce a good at a lower cost than
another. Furthermore, this means that fewer resources are
needed to provide the same amount of goods as compared to
the other country. This efficiency in production creates “an
absolute advantage,” which allows for beneficial trade.

As opposed to the Absolute Advantage Theory,

the Comparative Advantage theory was developed by David
Ricardo, argues that a country doesn’t have to have an absolute
advantage for beneficial trade to occur.

Assumptions in Absolute Advantage

1. Lack of Mobility for Factors of Production
Adam Smith assumes that factors of production cannot move between
countries. This assumption also implies that the Production Possibility
Frontier of each country will not change after the trade.

2. Trade Barriers
There are no barriers to trade for the exchange of good. Governments
implement trade barriers to restrict or discourage the importation or
exportation of a particular good.

3. Trade Balance
Smith assumes that exports must be equal to imports. This assumption
means that we cannot have trade imbalances, trade deficits or surpluses.
A trade imbalance occurs when exports are higher than imports or vice
versa.

4. Constant Returns to Scale

Adam Smith assumes that we will get constant returns as production
scales, meaning there are no economies of scale. For example, if it takes
2 hours to make one loaf of bread in country A, then it should take 4
hours to produce two loaves of bread.

Comparative Cost
Critical Appraisal of Comparative Cost Theory:
Theory of comparative cost which is the important doctrine of
classical economics is still valid and widely acclaimed as the correct
explanation of international trade.

The basic contention of the theory that a country will specialise in

the production of a commodity and export it for which it has a lower
comparative cost and import a commodity which can be produced
at a lower comparative cost by others, is based on a sound logic. The
theory correctly explains the gain from trade accruing to the
participating countries if they specialise according to their
comparative costs.

These merits of the theory have led Professor Samuelson to remark,

“If theories, like girls, could win beauty contents, comparative
advantage would certainly rate high in that it is an elegantly logical
structure.” He further writes, “the theory of comparative
advantage has in it a most important glimpse of truth A
nation that neglects comparative advantage may have to
pay a heavy price in terms of living standards and
potential rates of growth.”

Factors for Variation in Comparative Costs

1. The various countries differ in respect of factor endowments

suited for the production of different commodities.

2. The different commodities require different factor proportions

for their production.
Thus Heckscher and Ohlin supplemented the comparative costs
theory by providing valid reasons for differences in comparative
costs in various countries.

3. Against the Ricardian doctrine of comparative cost it has also

been said that it is based on the constant cost of production in the
two trading countries. This assumption of constant costs leads them
to conclude that different countries would completely specialise in
the production of a single product on the basis of their comparative
costs.

Criticism of the Comparative Cost Theory:

The Comparative Cost Theory can be criticised on the
following grounds:
(i) Wrong Assumptions:
The comparative cost theory is based on some assumptions which
do not hold good in real life.

Some of these assumptions are:

(a) The unit costs remain the same,

(b) Static assumptions of fixed costs, fixed supplies of the factors of

production, etc.,

(c) It is assumed that there are no transport costs,

(d) It assumes that there are no other costs except labour costs

Q- WHAT DO YOU MEAN BY INTERATIONAL PROUDUCT

LIFE CYCLE? EXPLAIN EACH CYCLE WITH SUTIABLE
EXAMPLES.

ANS- The international product lifecycle (IPL) is an abstract model

briefing how a company evolves over time and across national borders.
This theory shows the development of a company’s marketing program
on both domestic and foreign platforms. International product lifecycle
includes economic principles and standards like market development and
economies of scale, with product lifecycle marketing and other standard
business models.
The four key elements of the international product lifecycle theory are −

 The layout of the demand for the product

 Manufacturing the product
 Competitions in international market
 Marketing strategy
The marketing strategy of a company is responsible for inventing or
innovating any new product or idea. These elements are classified based
on the product’s stage in the traditional product lifecycle. These stages
are introduction, growth, maturity, saturation, and decline.

IPL Stages
The lifecycle of a product is based on sales volume, introduction and
growth. These remain constant for marketing internationally and involves
the effects of outsourcing and foreign production. The different stages of
the lifecycle of a product in the international market are given below −

Stage one (Introduction)

In this stage, a new product is launched in a target market where the
intended consumers are not well aware of its presence. Customers who
acknowledge the presence of the product may be willing to pay a higher
price in the greed to acquire high quality goods or services. With this
consistent change in manufacturing methods, production completely
relies on skilled laborers.
Competition at international level is absent during the introduction stage
of the international product lifecycle. Competition comes into picture
during the growth stage, when developed markets start copying the
product and sell it in the domestic market. These competitors may also
transform from being importers to exporters to the same country that
once introduced the product.

Stage two (Growth)

An effectively marketed product meets the requirements in its target
market. The exporter of the product conducts market surveys, analyze
and identify the market size and composition. In this stage, the
competition is still low. Sales volume grows rapidly in the growth stage.
This stage of the product lifecycle is marked by fluctuating increase in
prices, high profits and promotion of the product on a huge scale.
Stage three (Maturity)
In this level of the product lifecycle, the level of product demand and sales
volumes increase slowly. Duplicate products are reported in foreign
markets marking a decline in export sales. In order to maintain market
share and accompany sales, the original exporter reduces prices. There
is a decrease in profit margins, but the business remains tempting as
sales volumes soar high.

Stage four (Saturation)

In this level, the sales of the product reach the peak and there is no further
possibility for further increase. This stage is characterized by Saturation
of sales. (at the early part of this stage sales remain stable then it starts
falling). The sales continue until substitutes enter into the market.
Marketer must try to develop new and alternative uses of product.

Stage five (Decline)

This is the final stage of the product lifecycle. In this stage sales volumes
decrease and many such products are removed or their usage is
discontinued. The economies of other countries that have developed
similar and better products than the original one export their products to
the original exporter's home market. This has a negative impact on the
sales and price structure of the original product. The original exporter can
play a safe game by selling the remaining products at discontinued items
prices.

Q-WRITE NOTES ON TARIFFS, SUBSIDIES,IMPORT

QUOTAS, VOLUNTARY EXPORT RESTRAINTS
ADMINISTRATIVE POLICY ANTI DUMPING POLICY?

ANS- What is a Tariff?

A tariff is a tax imposed by a government on goods and
services imported from other countries that serves to increase
the price and make imports less desirable, or at least less
competitive, versus domestic goods and services. Tariffs are
generally introduced as a means of restricting trade from
particular countries or reducing the importation of specific types
of goods and services.
International Tariffs
By the same token, other governments can apply tariffs for the same
reason. A 2010 Business Insider article cited China’s tariff of 105.4% on
U.S. chicken as a situation gone awry and negatively impacting U.S.
poultry farmers. But China’s tariff was in direct response the U.S.’s new
tariff on Chinese tires, which started at 35% the first year and declined to
25% in the third as a way to shore up the U.S. tire industry.

A Pre-Income Tax Source of Funding

In addition to discouraging the purchase of imported goods, tariffs at one
time were also the major source of governmental income. Until the
income tax was introduced in 1913, tariff revenue comprised as much as
95% of governmental funding. Back then, typical tariffs were 20% of the
product’s value.

What is Subsidy?
Subsidy refers to the discount given by the government to make
available the essential items to the public at affordable prices.

Subsidy refers to the discount given by the government to make

available the essential items to the public at affordable prices, which is
often much below the cost of producing such items. Specific entities or
individuals can receive these subsidies in the form of tax rebate or cash
payment. This helps to keep essential items such as food, fuel, fertilisers
within the reach of poor people.

Benefits of Subsidies
 Subsidies help make items of daily needs affordable such as food
and fuel, among others. The government provides subsidized
education, so that the youth of the country can become employable
and thereby, contribute to the GDP of the country.
 Subsidies are also given in the form of tax exemptions to certain
sectors in a bid to promote industrialisation. Travelling, for instance,
has become affordable with subsidies on public transport.
 Notable examples of subsidy include the rural employment
generation scheme called NGERA, midday meal programmes,
healthcare, women empowerment and farm loan waivers. These are
some examples of subsidies which have helped in empowering the
marginalised, women and poor people of the country.

Meaning of Import Quotas:

The import quota means physical limitation of the quantities of
different products to be imported from foreign countries within a
specified period of time, usually one year. The import quota may be
fixed either in terms of quantity or the value of the product.
For instance, the government may specify that 60,000 colour T.V.
sets may be imported from Japan. Alternatively, it may specify that
T.V. sets of the value of Rs. 50 crores can be imported from that
country during a given year.
What Is a Voluntary Export Restraint - VER?
A voluntary export restraint (VER) is a trade restriction on the quantity of
a good that an exporting country is allowed to export to another country.
This limit is self-imposed by the exporting country.

How a Voluntary Export Restraint - VER Works

Voluntary export restraints (VERs) fall under the broad category of non-
tariff barriers, which are restrictive trade barriers, like quotas,
embargoes, sanctions levies, and other restrictions. Typically, VERs are
a result of requests made by the importing country to provide a measure
of protection for its domestic businesses that produce competing goods,
though these agreements can be reached at the industry level, as well.

VERs are often created because the exporting countries would prefer to
impose their own restrictions than risk sustaining worse terms from tariffs
or quotas. They have been used by large, developed economies.
They've been in use since the 1930s, and have been applied to a wide
range of products, from textiles to footwear, steel, and automobiles.
They became a popular form of protectionism in the 1980s.

After the Uruguay Round, updating the General Agreement on Tariffs

and Trade (GATT) in 1994, World Trade Organization (WTO) members
agreed not to implement any new VERs, and to phase out any existing
ones within one year, with some exceptions.

KEY TAKEAWAYS
 A voluntary export restraint (VER) is a self-imposed limit on the
quantity of a good that an exporting country is allowed to export.
 VERs are considered non-tariff barriers, which are restrictive trade
barriers—such as quotas and embargoes.
 Related to a voluntary import expansion, which is meant to allow
for more imports, and can include lowering tariffs or dropping
quotas.
Special Considerations
There are ways in which a company can avoid a VER. For example, the
exporting country's company can always build a manufacturing plant in
the country to which exports would be directed. By doing so, the
company will no longer need to export goods, and should not be bound
by the country's VER.

What Is an Anti-Dumping Duty?

An anti-dumping duty is a protectionist tariff that a domestic government
imposes on foreign imports that it believes are priced below fair market
value. Dumping is a process where a company exports a product at a
price lower than the price it normally charges in its own home market.
For protection, many countries impose stiff duties on products they
believe are being dumped in their national market, undercutting local
businesses and markets.

The World Trade Organization

The World Trade Organization (WTO) operates a set of international trade
rules. Part of the organization's mandate is the international regulation of anti-
dumping measures. The WTO does not regulate the actions of companies
engaged in dumping. Instead, it focuses on how governments can—or
cannot—react to dumping. In general, the WTO agreement allows
governments to "act against dumping where there is genuine (material) injury
to the competing domestic industry." In other cases, the WTO intervenes to
prevent anti-dumping measures.

KEY TAKEAWAYS

 An anti-dumping duty is a protectionist tariff that a domestic government

imposes on foreign imports that it believes are priced below fair market
value.
 The World Trade Organization does not regulate the actions of
companies engaged in dumping, but instead focuses on how
governments can—or cannot—react to dumping.

This intervention is justified to uphold the WTO's free-market principles. Anti-

dumping duties distort the market. Governments cannot normally determine
what constitutes a fair market price for any good or service.

Q- WHAT ARE THE DIFFERENT ADVANTAGES AND

DISADVANTAGE OF FREE TRADE? WHAT DO YOU MEAN
BY TRADE BARRIERS? DIFFERENTIATE BETWEEN TARIFF
AND NON TARIFF BARRIERS WITH EXAMPLE.

ANS- ADVANTAGES
Free trade agreements are designed to increase trade between two or more
countries. Increased international trade has the following six main advantages:

1. Increased Economic Growth: The U.S. Trade Representative

Office estimates that NAFTA increased U.S. economic growth by
0.5% a year.
2. More Dynamic Business Climate: Often, businesses were
protected before the agreement. These local industries risked
becoming stagnant and non-competitive on the global market. With
the protection removed, they have the motivation to become true
global competitors.
3. Lower Government Spending: Many governments subsidize local
industry segments. After the trade agreement removes subsidies,
those funds can be put to better use.
4. Foreign Direct Investment: Investors will flock to the country. This
adds capital to expand local industries and boost domestic
businesses. It also brings in U.S. dollars to many formerly isolated
countries.
 5. Expertise: Global companies have more expertise than domestic
companies to develop local resources. That's especially true in
mining, oil drilling, and manufacturing. Free trade agreements allow
global firms access to these business opportunities. When the
multinationals partner with local firms to develop the resources, they
train them on the best practices. That gives local firms access to
these new methods.
6. Technology Transfer: Local companies also receive access to the
latest technologies from their multinational partners. As local
economies grow, so do job opportunities. Multi-national companies
provide job training to local employees.

Disadvantages
The biggest criticism of free trade agreements is that they are responsible for
job outsourcing. There are seven total disadvantages:

1. Increased Job Outsourcing: Why does that happen? Reducing

tariffs on imports allows companies to expand to other countries.
Without tariffs, imports from countries with a low cost of living cost
less. It makes it difficult for U.S. companies in those same industries
to compete, so they may reduce their workforce. Many U.S.
manufacturing industries did, in fact, lay off workers as a result
of NAFTA. One of the biggest criticisms of NAFTA is that it sent
jobs to Mexico.
2. Theft of Intellectual Property: Many developing countries don't
have laws to protect patents, inventions, and new processes. The
laws they do have aren't always strictly enforced. As a result,
corporations often have their ideas stolen. They must then compete
with lower-priced domestic knock-offs.
3. Crowd out Domestic Industries: Many emerging markets are
traditional economies that rely on farming for most employment.
These small family farms can't compete with subsidized agri-
businesses in the developed countries. As a result, they lose their
farms and must look for work in the cities. This aggravates
unemployment, crime, and poverty.
4. Poor Working Conditions: Multi-national companies may
outsource jobs to emerging market countries without adequate labor
protections. As a result, women and children are often subjected to
grueling factory jobs in sub-standard conditions.
5. Degradation of Natural Resources: Emerging market countries
often don’t have many environmental protections. Free trade leads to
depletion of timber, minerals, and other natural
 resources. Deforestation and strip-mining reduce their jungles and
fields to wastelands.
6. Destruction of Native Cultures: As development moves into
isolated areas, indigenous cultures can be destroyed. Local peoples
are uprooted. Many suffer disease and death when their resources
are polluted.
7. Reduced Tax Revenue: Many smaller countries struggle to replace
revenue lost from import tariffs and fees.

What are trade barriers?

Trade barriers unjustifiably prevent your business succeeding in exporting.
You may have different ways of describing them. They all mean the same
thing.

They’re often called:

 red tape
 roadblocks to export
 price controls
 subsidies
 government rules/procedures
 arbitrary rules and decisions
 goods delayed at the border
 hold-ups at Customs
 container stuck on the wharf
 biosecurity rules
 restrictions on repatriating profits
 local ownership rules
 a cost of doing business.
 Types of trade barriers: tariff and non-
tariff
Tariff barriers can include a customs levy or tariff on goods entering a
country and are imposed by a government. Free trade agreements seek to
reduce tariff barriers.
You can see what reductions may apply to your products from New
Zealand’s free trade agreements at the Tariff Finder

Non-tariff barriers can include excessive red tape, onerous regulations,

unfair rules or decisions, or anything else that is stopping you from
competing effectively.

Non-tariff barriers can affect all forms of goods and services exports – from
food and manufactured products, through to digital services.

Examples of barriers
 administrative procedures
 quantity restrictions (such as quotas)
 licensing requirements
 data storage requirements
 privacy requirements
 board director requirements
 procurement rules
 price controls
 subsidies
Q- DISCUSS LOCATION SPECIFIC ADVANTAGE
THEORY AND MARKET IMPERFECTIONS THEORY?
HOW ARE THESE FRAMED AND HOW THESE HELP
IN INTERNATIONAL BUSINESS?
ANS-