International Business: Questions and Answers

Question 1

The Regional Economic Integration theory is built on the need for governments within a given region to congregate and allow free trade with other member states. The idea, in this case, is for the region to come together with a set of rules aimed at improving the regional economy as a whole. Therefore, the challenge is that governments would have to give up some of their sovereignty. In order to work as one region, each government must be able to step back and allow to be led by the regional leadership in economic matters. This means that nations in the regional integration may have to expose some of their industries to international competition, thus, presenting a significant dilemma for a government. Regional integrations often demand full compliance with set regulations, and this places some countries at a disadvantage. Currently, there are no trade restrictions that could be used to ensure that the market is indeed fair based on the status and circumstances of the member states (Hill 26). The meaning of this theory is that having an open market will improve each nation’s economy due to the increased number of potential customers. Sadly, this only works in an ideal context where all the member states can compete at the same level.

The political economy of international trade, on the other hand, is a theory that focuses on the role of governments in international trade, and why it is often important for governments to intervene within the international contexts. According to this theory, governments are often pushed by both political and economic reasons (Hill 73). When the country opens up its borders to international trade, a number of countries can decide to take advantage and practice unsavory business strategies, like dumping. As such, a government should be able to not only protect its citizens from bad quality products from abroad, but also from losing their jobs and businesses to unfair foreign competition. The countries of the world are mainly at different stages in their economic and political development and getting them to do business together without any government regulation may result in more economic deterioration than growth as the wealthier nations compete unfairly with the developing nations. The logic here is that a government’s main loyalty is to their own citizens, and they can, thus, not risk the economic stability of their people for the sake of international trade. It is up to a government to dictate its own terms of trade rather than allowing other foreign countries to do as they please.

To explain the relative merit of the international trade theory, it is important to understand the specific costs and benefits of each theory with a focus not on the businesses but on citizens of a country in question. The whole point of participating in international trade is to improve the economy by increasing the opportunities that a country’s citizens have with regards to doing business with foreign countries and getting jobs in foreign companies among other things. It must be appreciated at this point that a government is the only entity within the context of international trade that can look out for its citizens. Even within a regional integration, each of the member states is often only concerned about its citizens. They try to further their agenda in other countries with the hope of getting more benefits for their people and often with no consideration for the businesses or individuals in the foreign country. This means that without government intervention, the international business platform is not likely to present any benefits to the local people. In this case, it can be noted that the political economy of international trade is by far the most compelling. Governments should be able to intervene and play an active role in determining the extent to which their markets will be used by foreign businesses. The main concern, in this case, is that with the government’s active involvement, citizens’ needs will be considered. Moreover, even though government intervention does not necessarily guarantee that a nation will benefit from the international business, it helps to provide friendly policies aimed at keeping the local businesses afloat in the long term.

The role of government is to create the right environment for its citizens to do business. This is what governments need to be doing even within the contexts of international trade. It is understandable that national governments would have to make concessions when getting into trade agreements since they have to give something in order to get something. However, governments need to evaluate what they are giving in exchange for access to the international market. For example, it would be very unwise for Australia to pen its agricultural market to Germany in exchange for a piece of Germany’s automobile industry. Australia, in this case, would not be able to compete fairly with Germany in the automobile industry, and thus, the trade agreement would be favoring only Germany both in locally and internationally. In addition, as Germany advances its business footprint locally and internationally, Australia is likely to lose business and may be unable to make any competitive progress internationally as well. The point here is that it is up to the governments to decide how they are going to help their citizens rather than depending on decisions made by foreigners whose main interest is how they will help their own citizens.

Question 2

Extra-national organizations such as WTO, UN, NAFTA, EU, etc. are mandated to, among other things, maintain international peace. This means that these organization act as watchdogs that monitor, mediate, and enable peaceful co-existence amongst the nations within which they have a jurisdiction. International business involves different countries with different legal, cultural and political environments. The economic interests held by these countries may be similar but other aspects of the international business environment could cause a problem as well. Within such contexts, organizations such as the EU or the AU are supposed to create a conducive business environment by bringing the concerned nations together to discuss a way forward (Hill 151). Each of these extra-national organizations often has a specified mandate that they work towards. The UN, for example, is interested in global peace and security. Their involvement in international business can thus be described through the correlation between peace and economic stability. The international business community understands this connection and is willing to work with the UN, and with such collaboration, each side is likely to get what they want. The EU, on the other hand, is interested in the economic prosperity of its member states. This means that their reason for existence is to moderate the international business environment to create a level playing field for all the member states. By opening up the region’s borders, the EU enabled France to sell products to Poland, but Poland may not have much to sell to France, despite having the opportunity to do so. In the end, this arrangement favors the stronger and more developed economies, leaving countries like Greece at a consistent disadvantage.

Considering that extra-national organizations have been involving themselves more in international business, governments should try and take back some control of their respective markets to prevent cases like that of the EU where only the stronger nations are able to benefit from the arrangement. Extra-national organizations promote free trade where any country that has the means to take advantage of a foreign market is able to do so. The problem, in this case, is that the member states of these organizations are not at the same level of economic and infrastructural development. This means that while a country like Germany can sell its products comfortably to any country and compete favorably with the local businesses, the less developed nations may not have the right technology or intellectual superiority to compete with a local brand in Germany. This means that Germany will be able to dominate most local markets without giving the weaker nations a chance to benefit from the trade union. If governments intervene, they will be able to negotiate for stimulus packages aimed at enabling their industries to compete internationally as well. If governments leave international business in the hand of extra-national organizations, it can be expected that the stronger economies will continue growing while their weaker counterparts remain helpless on the sidelines. As German companies get to venture into new markets within Europe, companies in Poland would have to fight for a very small share of their domestic markets with limited potential for excelling in the foreign markets. With government intervention, these local industries should be able to grow and meet the desired quality within the German market and thus, with more effort, they can compete with German businesses both locally and internationally. The governments are the only source of salvation in cases where extra-national organizations are looking out for the interests of the stronger economies within the region.

As extra-national organizations take on more responsibility in regulating international business, the role of the national government seems too diminish in significance. This means that with time, national governments will not be able to impose protectionist concepts that are aimed at giving their local businesses a competitive advantage over the foreign businesses. The EU, for example, has been striving to open up all the markets to ensure that each member state can conduct business in another member state’s market at no extra costs or with no significant disadvantages. This implies equal competition across national borders and within regional borders. A great challenge is that these extra-national organizations are not formed based on economic equality. Some of the countries that are in the EU, for instance, are not on the same level as the UK or Germany and can thus not compete fairly without protectionist principles for competitive advantage.

Moreover, the growing influence of extra-national organizations limits the ability of government to cushion the relatively weaker local businesses. This leaves local businesses exposed and unable to compete sustainably. To resolve this situation, the best option is for national governments to negotiate terms for their membership within extra-national organizations. These organizations are created to further a specific cause for the benefit of the member states. This means that they should be able to accommodate the special needs of their member states in a sustainable manner. Currently, organizations such as the EU only seem to look out for the interests of the more powerful members, and this is part of the problem. Weaker nations like Greece continue to languish in debt and poverty while their counterparts like Germany and France are experiencing a strong economy owing to the inter-state business opportunities that they can take advantage of owing to their strong economic and infrastructural position.

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