Price Controls.

Essential products that command considerable public interest, such as pharmaceuticals,

food, gasoline, and cars, are often subjected to price controls. Such controls applied during infl ationary
periods can be used to control the cost of living. They also may be used to force foreign companies to
sell equity to local interests. A side effect on the local economy can be to slow or even stop capital
investment. Exhibit 6.2 How Complicated Things Can Get! Sources: “Myanmar’s Crumbling Kit,”
Asiaweek, March 2, 2001, p. 8; Michael Vatikiotis, “Neighbors Lean on Myanmar,” International Herald
Tribune, February 2, 2005, p. 7; “Myanmar Military Confirms No Change in Fuel Rations,” Dow Jones
International, December 31, 2007. Exchange controls also are extended to products by applying a
system of multiple exchange rates to regulate trade in specifi c commodities classifi ed as necessities or
luxuries. Necessary products are placed in the most favorable (low) exchange categories, while luxuries
are heavily penalized with high foreign exchange rates. Myanmar (formerly known as Burma), for
example, has three exchange rates for the kyat (Kt): the offi cial rate (Kt6:U.S.$1), the market rate
(Kt100–125:U.S.$1), and an import duty rate (Kt100:U.S.$1). Because the kyat is not convertible—that is,
not offi cially exchangeable for currencies that can be spent outside the country—investors are severely
affected by tax liability, and their ability to send profi ts outside the country is diminished. Under such
exchange rates, tax liability can be very high. For instance, a profi t of Kt135,000 is worth U.S.$22,500 at
the offi cial exchange rate of Kt6 to U.S.$1, but at the market rate, the investor has earned only
U.S.$1,000. The exchange rate difference means that the investor has to pay tax on U.S.$21,500 of
nonexistent, unearned income. It seems not much makes sense in Myanmar these days.
cat2994X_ch06_158-183.indd 169 18/08/10 12:13 PM 170 Part 2 The Cultural Environment of Global
Markets Labor Problems. In many countries, labor unions have strong government support that they use
effectively in obtaining special concessions from business. Layoffs may be forbidden, profi ts may have
to be shared, and an extraordinary number of services may have to be provided. In fact, in many
countries, foreign fi rms are considered fair game for the demands of the domestic labor supply. In
France, the belief in full employment is almost re ligious in fervor; layoffs of any size, especially by
foreign-owned companies, are regarded as national crises. We should also note that some multinational
companies are more power ful than local labor unions. Walmart closed a store in Quebec rather than
let it be unionized. In addition to economic risks, one or a group of nations may boycott another nation,
thereby stopping all trade between the countries, or may issue sanctions against the trade of specifi c
products. The United States has long-term boycotts of trade with Cuba and Iran and has come under
some criticism for its demand for continued sanctions against Cuba and its threats of future sanctions
against countries that violate human rights issues. 27 History indicates that sanctions are almost always
unsuccessful in reaching desired goals, particularly when other major nations’ traders ignore them. For
example, the Chi nese recently signed an agreement with Iran that will bring $70 billion of natural gas
to China. Please see Crossing Borders 6.2 for more on this issue. This lack of success is the case with
Cuba, North Korea, and Iran, where the undesirable behavior that the sanctions were imposed to
change continues, and the only ones who seem to be hurt are the people 28 and companies that get
caught in the middle. Political Sanctions The consequences of the U.S. embargo of Cuba: A brand new
German Mercedes for a foreign diplomat (black plate), a relatively new Chinese Chery Q (red provisional
plate), and one of the newest American cars you can fi nd on the island, a 1957 Chevy (yellow citizen’s
plate), certainly with a refurbished engine. A variety of other European and Asian brands ply the streets
of Havana, almost all recent models. No new American models are in sight. 27 Ginger Thompson,
“Imposing Conditions, OAS Lifts Its Suspension of Cuba,” Washington Post , June 4, 2009, online. 28
Barbara Demick, “North Koreans’ Misery Amplifi ed a Hundredfold,” Los Angeles Times , February 3