When foreign currency is in short supply, as it is in many less-developed countries, the government uses foreign currency to purchase necessities and capital goods and produces other products locally, thus limiting its need for foreign imports. 13
Other legal barriers to trade are quotas, embargos, and dumping practices. A quota is a restriction on the number of units of a particular product that can be imported into a country. Quotas may be established by voluntary agreement or by government decree. An embargo prohibits trade in a particular product. Embargoes are generally directed at specific goods or countries and may be established for political, economic, health, or religious reasons. One common reason for setting quotas or tariffs is to prohibit dumping , which occurs when a country or business sells products at less than what it costs to produce them. 14
A company may dump its products for several reasons: 1. Dumping permits quick entry into a market. 2. Sometimes dumping occurs when the domestic market for a firm’s product is too small to support an efficient level of production. 3. In other cases, technologically obsolete products that are no longer salable in the country of origin are dumped overseas. Dumping is relatively difficult to prove, but even the suspicion of dumping can lead to the imposition of quotas or tariffs. Two honey suppliers were charged with dumping violations involving honey imports from China, as shown in this photo. 15
Political considerations affect international business daily as governments enact tariffs, embargoes or other types of trade restrictions in response to political events. Unlike legal issues, political considerations are seldom written down and often change rapidly. Political unrest may create a hostile or even dangerous environment for foreign business. Political concerns may lead a group of nations to form a cartel , a group of firms or nations that agrees to act as a monopoly and not compete with each other, to generate a competitive advantage in world markets. You are probably familiar with the oil cartel called OPEC and have seen firsthand how a cartel can have an impact on price and supply. 16
Most businesspeople engaged in international trade underestimate the importance of social and cultural differences; but these differences can derail an important transaction. Research can help minimize the problems associated with social and cultural differences. Cultural differences include differences in spoken and written language. Although possible to translate words, the true meaning is sometimes misinterpreted or lost. Differences in appropriate body language, posture, facial expressions and personal space must be acknowledged. Family roles may differ in different societies. Many countries do not allow children to be used in advertising, for example.
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- Spring '14
- International Trade