40 another country, it should also consider the
political stability of the host country’s
INTERNATIONAL TRADE
One of the most logical questions to ask is,
why do modern countries trade with one
another? There are numerous reasons that
5 countries engage in international trade.
Some countries are deficient in critical raw
materials, such as lumber or oil. To make up
for these various deficiencies, countries
must engage in international trade to
10 obtain the resources necessary to produce
the goods and/or services desired by their
citizens. In addition to trading for raw
materials, nations also exchange a wide
variety of processed foods and finished
15 products. Each country has its own spe-
cialties that are based on its economy and
the skills of its citizens. Three common
specialty classifications are capital, labor,
and land.
20 Over time a nation’s work force will
change, and thus the goods and services
that nation produces and exports will
change. Nations that train their workers for
future roles can minimize the difficulty of
25 making a transition to a new, dominant
market.
POLITICAL ENVIRONMENT
Each country varies regarding international
30 trade and relocation of foreign plants on its
native soil. Some countries openly court
foreign companies and encourage them to
invest in their country by offering reduced
taxes or some other investment incentives.
35 Other countries impose strict regulations
that can cause large companies to leave and
open a plant in a country that provides
more favorable operating conditions. When
a company decides to conduct business in
INTERNATIONAL TRADE
government. Unstable leadership can create
significant problems in recouping profits if
the government falls of the host country
45 and/or changes its policy towards foreign
trade and investment. Political instability is
often caused by severe economic conditions
that result in civil unrest.
50 ECONOMIC ENVIRONMENT
An important factor influencing
international trade is taxes. Of the different
taxes that can be applied to imported
goods, the most common is a tariff, which is
55 generally defined as an excise tax imposed
on imported goods. A country can have
several reasons for imposing a tariff. For
example, a revenue tariff may be applied to
an imported product that is also produced
60 domestically. The primary reason for this
type of tariff is to generate revenue that can
be used later by the government for a
variety of purposes. This tariff is normally
set at a low level and is usually not
65 considered a threat to international trade.
When domestic manufacturers in a
particular industry are at a disadvantage,
vis-a-vis imports, the government can
impose what is called a protective tariff.
70 This type of tariff is designed to make
foreign products more expensive than
domestic products and, as a result, protect
domestic companies. A protective tariff is
normally very popular with the affected
75 domestic companies and their workers
because they benefit most directly from it.
In retaliation, a country that is affected
by a protective tariff will frequently enact a
tariff of its own on a product from the
80 original tariff enacting country. In 1930, for
example, the U.S. Congress passed the
Smoot-Hawley Tariff Act, which provided
the means for placing protective tariffs on
imports. The United States imposed this
85 protective tariff on a wide variety of
products in an attempt to help protect
domestic producers from foreign
competition. This legislation was very
 popular in the United States, because the PHYSICAL ENVIRONMENT
90 Great Depression had just begun, and the Other factors that influence international
tariff 140 trading activities are related to the physical
Another form of a trade barrier that a environment. Natural physical features,
country can employ to protect domestic such as mountains and rivers, and human-
companies is an import quota, which strictly made structures, such as bridges and roads,
95 limits the amount of a particular product can have an impact on international trading
that a foreign country can export to the 145 activities.
quota-enacting country.
A government can also use a nontariff
barrier to help protect domestic companies.
100 A nontariff barrier usually refers to
government requirements for licenses,
permits, or significant amounts of
paperwork in order to allow imports into its
country. This tactic often increases the price
105 of the imported product, slows down deliv-
ery, and creates frustration for the
exporting country. The end goal is that
many foreign companies will not bother to
export their products to those markets
110 because of the added cost and aggravation.

CULTURAL ENVIRONMENT
Before a corporation begins exporting
products to other countries, it must first
115 examine the norms, taboos, and values of
those countries. This information can be
critical to the successful introduction of a
product into a particular country and will
influence how it is sold and / or marketed.
120 Such information can prevent cultural
blunders, such as the one General Motors
committed when trying to sell its Chevy
Nova in Spanish-speaking countries. Nova,
in Spanish, means ‘‘doesn’t go’’—and few
125 people would purchase a car named
‘‘doesn’t go.’’ This marketing error—
resulting simply from ignorance of the
Spanish language—cost General Motors
millions in initial sales—as well as
130 considerable embarrassment.
Business professionals also need to be
aware of foreign customs regarding
standard business practices. Thus, before
businesspeople travel overseas, they must
135 be given training on how to conduct
business in the country to which they are
traveling.

INTERNATIONAL TRADE