1.

International trade is the concept of exchange between people or entities in different

countries. Theories which are referred to as modern are firm-, or company-,
based. Mercantilism was one of the earliest efforts to develop an economic theory. The
belief is that trade generates wealth and is stimulated by the accumulation if profitable
balances, which a government should encourage by means of protectionism. What is wrong
with this theory in today's world of Business? Are there better forms of trade?

Mercantilism is the opposite of the theory of free trade. The free trade theory is imposed through
tariffs and fair free trade reduction which is believed to improve the country’s economic well-
being. With mercantilism the government would regulate the trade and the economy to help only
that country domestically. An example of Free trade would be the agreement between the U.S.,
Mexico, and Canada in this trade agreement all the barriers between the countries are removed
as well as the tariffs. This trade agreement is called North America Free Trade Agreement or
NAFTA. The problem the counties are seeing with this arrangement is exploitation of lower
paying wages and environmental restrictions being of lower standards in Mexico than in the U.S.
Many feel this sort of trade agreement is taking away jobs from our country. Free Trade is still
more preferable than mercantilism, but countries such as the U.S may need to impose tariffs for
counties who are not in this agreement such as Chine, due to the way in which they manipulate
currency.

2. Using Porter’s four determinants of competitive advantage, describe how a business may
use the trade theories to develop its business strategies.

1. Factor conditions -Local market resources and capabilities. A business could look at
this as potential employees who have ideas as well as skills in order to make the business
succeed.
2. Demand conditions -Local market demand conditions dictate- A business would look
at this as a way to see the size of the customer base as well as the nature of the costumers
in order to find what interests them. This would also lead to innovation of ideas and
improvements in their products as well.
3. Local suppliers and complementary industries – related and supporting industries
would lead a business to possibly work with others in order to exchange ideas between
one and other.
4. Firm characteristics – strategy structure and rivalry, A business could use this as a
way to refer to the find the competition. Competition leads a business to finding ways in
which they can increase production or to develop something.

3. Why is it important to understand political and legal factors of countries that you want to
deal with when trading Internationally?

It is important to understand the political and legal factors of a country when trading
internationally because despite globalization a company must abide by the laws/regulations in
which the local country has and in which they would be operating their company in, this
includes religious law, criminal law, civil law and common law. The most direct impact on

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 business can be observed in Islamic law—which is a moral, rather than a commercial, legal
system. A company may also want to assess the political risk and stability of a country as well.
Political stability is a key factor in attracting foreign investments as well. An example of laws
and regulations could be the amount of a harmful materials used in products, the U.S would
have more strict laws because of the laws set forth by the environmental protection agency than
say someplace like China. Certain countries such as dictatorships in terms of politics may
control the commodities in which are of large economic interest. If a new technology company
for instance wanted a more “free” type of country they may choose the U.S because it’s a
democracy. Businesses need to assess if a country believes in free markets, government control,
or heavy intervention in the industry. As you might expect, established democracies, such as the
United States, Canada, Western Europe, and Japan offer a high level of political stability.
Countries like Asia and Latin America also are functioning democracies; their stage of
development impacts the stability of their economic and trade policy, which can fluctuate with
government changes

4. What are three factors that impact a company’s decision to invest in a country? What is
the difference between vertical and horizontal FDI? Give one example of an industry for
each type. How can governments encourage or discourage FDI?

The three factors that would impact countries decisions to invest in another country would be the
cost, whether or not it would be more or less expensive to produce in another country. The
impact would be another factor, referring to the impact of how it would affect the company’s
profits, demands, and things of that nature. The third would be the logistics, meaning could they
move the product, or the transportation cost being prohibitive for the environment they would be
in. Political factors as mentioned above affect the choices of investing in certain countries as
well due to the economic stability of those countries.

5. Identify at least two ways culture can impact a Business. Be specific and PROVIDE
EXAMPLES. Explain some of the challenges that could materialize (i.e. decision -making,
negotiating, etc.) and generate some ideas on how you would help to resolve the problem in
specific ways.
1) Business protocol – how to greet and interact with a person from a foreign country. Different
cultures have different ways of greeting one another. In the United States, we tend to shake hands
with one another. You must do research when visiting another country to determine if you are to
shake the hand of a woman, especially in an Arab country, gently shake the hand of a Japanese
individual, or shake hands in a hierarchy of either age or management position. There are
cultures such as Russians, United Arab Emirates and Saudi Arabians that may kiss guests on
each cheek. This custom is best not initiated by yourself. Asians prefer to bow, and it is necessary
to bow back, or one is considered rude. Those who are lower in rank must bow first and lowest.
India natives may use a greeting such as the Namaste that involves hands and a nod. There are
online resources, and discussion with fellow coworkers and management who have interacted

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 with different cultures than can provide education as how you are to greet and interact with a
person from another country.

2) Marketing, sales and distribution – The culture of a country can affects the sales of a product.
To market a product, a company must go to the area, speak to people of that culture, and get
their feedback on that product. Sales presentations must be customized. If the sales pitch is to a
country in which English is a second language, it would be beneficial to have an employee that
either speaks that language or has some knowledge of the language. Distribution is easier if a
company collaborates with local distributors to discuss the cultural norms of that area. Check
the product name for possible translation snafus.

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