Firms reconfigure value-chain activities and rationalize their operations. The formation of economic blocs also leads to mergers and acquisitions. Managers revise marketing strategies by standardizing products and developing regional brands. Regional integration also leads firms from outside the bloc to invest into the bloc. GOVERNMENT INTERVENTION IN INTERNATIONAL BUSINESS Governments intervene in trade and investment to achieve political, social, or economic objectives. Barriers benefit specific interest groups, such as domestic firms, industries, and labor unions. Intervention Rationale: Job creation by protecting industries from foreign competition; support homegrown industries/firms. Government intervention is at odds with free trade , the unrestricted flow of products, services, and capital across national borders. Market liberalization and free trade foster economic growth and improved living standards. Economists have long argued that free trade is good for the world: resources are efficiently employed; living standards increased and value chain activities exploited. Research suggests a strong positive relationship between market openness (unimpeded free trade) and economic growth. Unimpeded free trade is a myth. Government intervention obstructs the free flow of trade and investment. Intervention alters the competitive position of companies and industries and takes the form of: tariffs, quotas, subsidies, FDI restrictions, bureaucratic procedures, regulations that restrict business types/value-chain activities, and financial incentives to sustain domestic firms. THE NATURE OF GOVERNMENT INTERVENTION: MOTIVATION FOR Protectionism – (hinders imports) national economic policies designed to restrict free trade and protect domestic industries from foreign competition, and is manifested through:
Tariff (duty): tax imposed by a government on imported products, thus increasing the acquisition cost for the customer. Nontariff trade barrier : government policy, regulation, or procedure that impedes trade through means other than explicit tariffs Investment barriers target FDI thus restricting foreign firm operations. RATIONALE FOR GOVERNMENT INTERVENTION: FOUR REASONS (1) Generate revenue (2) Ensure citizen safety, security, and welfare (3) Pursue economic, political, or social objectives (4) Serve company and industrial interests Rationale for trade and investment barriers fall into two major categories Defensive barriers are imposed to safeguard industries, workers, special interest groups, and to promote national security. Offensive barriers are imposed to pursue a strategic or public policy objectives, such as increasing employment or generating tax revenues. DEFENSIVE RATIONALE: Four major defensive motives:  PROTECTION OF THE NATIONAL ECONOMY: Proponents Argue: Firms in advanced economies cannot compete with those in developing countries that employ low-cost labor, thus governments should impose trade barriers to block low- priced imports. Fear is that advanced-economy manufacturers will be undersold, wages will fall, and home country jobs will be lost.
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- Fall '07
- International Trade, bloc