1. In order to decide whether to engage into trade with a foreign country, business usually assesses market for their products, access to resources needed, the opportunities for making distribution systems and production more efficient and the ways to reduce the dependence on one economy, thus spreading business risks.
Participating in the information economy on a global scale requires the consideration of the large number of people, who are currently employed in the local industries. It is necessary to understand the internationalisation of the information economy and to the increase of the labour force in the foreign countries with lower hourly wage. Therefore, local workers are likely to lose employment due to outsourcing. However, the demand for information technology is increasing due to a constant growth of technology users.
2. China and India are becoming more important as the size of their population grows together with the average income and consumption ability. Even despite the relatively uneven income distribution, rich people, who represent only a small proportion of the population, still outnumber consumers in many developed countries. Therefore, countries like India and China offer wide opportunities for expansion due to their large number of potential consumers.
3. Absolute advantage represents the ability to use fewer inputs in producing a particular product, than other producers do. Comparative advantage – the ability to produce a particular good at a lowest opportunity cost, or the lowest cost of the opportunities forgone in favour of the one chosen. A country can possess a comparative advantage even without having an absolute advantage in production. Comparative advantage serves as the rationale for specialization and trade (Mankiw).
4. Balance of trade represents the difference between country’s exports and imports (Boyes, and Melvin). Balance of payment represents the difference between the money flow in and out of the country. Thus, trade is not the only factor, which affects balance of payment (Vaghefi, Paulson, and Tomlinson). It is also influenced by international loans, investments, borrowing and aid. Therefore, a country may have favourable balance of trade, or a trade surplus, while its balance of payment is negative, if a lot of money has left the country in the form of loans, aid or other international payments.
5. Barriers to communication are not only connected with the language mistranslation in a foreign country. They also deal with the inappropriate communication channels, disregarding local preferences and traditions, non-verbal communication misinterpretation, cultural and religion differences. Problems may also occur when cultural differences are exaggerated based on stereotypes, thus presenting the distorted picture of reality (Lehman, and Dufrene ). To overcome these issues, companies should make sure to hire local employees to guide the company. International expansion can be also conducted through franchising, in order to make local people responsible for the success of the new market penetration. Even most successful strategic decisions should be first approved by the local regional office, before it is implemented in the new cultural setting.
6. The three dimensions of the legal environment are the laws of the country of origin, international legislation and the regulations of the country, where business is planned to take place (Boone, and Kurtz ). The first category describes the responsibilities of both for the U.S. countries operating abroad and foreign countries, which are present in the U.S. International legislation are universal and are binding for both companies of countries of origin and the countries, where business takes place. Lastly, local regulations outline the responsibilities and rights of the companies, which want to operate abroad, and regulate their relationships with the local entities.
7. Tariffs are the taxes, that have been imposed on the goods, which are imported, in order to make them more expensive for the local buyers, compared to the locally produced goods. Nontariff barriers limit imports by controlling the amount of imports and directly supporting local producers. The major types of nontariff restrictions are quotas, embargo, exchange controls and export subsidies (Schaffer, Agusti, and Earle).
8. NAFTA is the North American Free Trade Agreement, which abolishes tariff barriers and trade restrictions among the member states: the United States, Mexico and Canada (Lundahl, and Ndulu ).
9. European Union aims to achieve overall European economic and social development through removal of trade barriers among member states. EU countries standardized their trade regulations and introduced free movement of people and goods between members. Some of the countries joined the European Monetary Union, which uses a single currency to simplify transactions and strengthen their financial stability (O'Connor ). The result of the EU integration was an increase in trade both within EU and with the outside countries, as well as an increase of foreign direct investment into the member states (Organisation for Economic Co-operation and Development).
10. Before going global, the company should first decide which foreign markets to enter. Secondly, it is necessary to assess the cost, associated with entering the market. Finally, the most efficient way to organize operations in the foreign countries should be assessed.
References
Boone, L. E., and D. L. Kurtz. Contemporary Business 2010 Update. 13thed. Hoboken, NJ: John Wileys & Sons, 2010.
Boyes, W., and M. Melvin. Fundamentals of Economics. 5th ed. Mason, OH: South-Western Cengage Learning, 2009.
Lehman, C. M., and D. D. Dufrene. Business Communication. 15 ed. Mason, OH: Thomson Higher Education, 2008.
Lundahl, M., and B. J. Ndulu. New Directions in development economics: growth, environmental concerns, and government in the 1990s. London, United Kingdom: Routledge, 1996.
Mankiw, N. G. Principles of Economics. 6th ed. Mason, OH: South-Western Cengage Learning, 2009.
O'Connor, D. E. The basics of economics. Westport,CT: Greenwood Press, 2004.
Organisation for Economic Co-operation and Development. The European Union's Trade Policies and Their Economic Effects. Paris, France: OECD, 2000.
Schaffer, R., F. Agusti, and B. Earle. International Business Law and Its Environment.
Mason, OH: South-Western Cengage Learning, 2009.
Vaghefi, M. R., S. K. Paulson, and W. H. Tomlinson. International business: theory and practice. New york, NY: Taylor & Francis, 1991.
