Question

You are an economic consultant for XYZ Corporation who reports to the VP of Finance, Maria Horowitz. You learned that multiple departments of your company are collaborating to create a presentation for a prospective client that explains how XYZ Corporation can help them improve their business. Maria has been asked to present on several financial aspects of an organization. She tasks you with developing the sections of the presentation relating to globalization. The potential client, named Fourevr Enterprises, mentions it mostly operates domestically, both in terms of production and selling, because it is unfamiliar with and apprehensive to engage in globalization efforts.

• How does international trade affect Fourevr, both domestically and in international markets?
• How can existing or potential changes in trade policies affect Fourevr’s operations?

Answer 1

Hi There,

Answer A) How does international trade affect Fourevr, both domestically and in international markets?

Below are some factors which will Fourevr both domestically and internationally:

1- Reduced dependence on Domestic market

Fourevr's domestic market may be struggling due to economic pressures, but if they go global, they will have immediate access to a practically unlimited range of customers in areas where there is more money available to spend, and because different cultures have different wants and needs, you can diversify your product range to take advantage of these differences.

2- Increased chances of success

Unless one has got its pricing wrong, the higher the volume of products you sell, the more profit you make, and overseas trade is an obvious way to increase sales. In support of this, UK Trade and Investment (UKTI) claim that companies who go global are 12% more likely to survive and excel than those who choose not to export.

3- Increased efficiency

Benefit from the economies of scale that the export of your goods can bring – go global and profitably use up any excess capacity in your business, smoothing the load and avoiding the seasonal peaks and troughs that are the bane of the production manager’s life.

4- Increased productivity

Statistics from UK Trade and Investment (UKTI) state that companies involved in overseas trade can improve their productivity by 34% – imagine that, over a third more with no increase in plant.

5- Growth

The holy grail for any business, and something that has been lacking for a long time in our manufacturing industries – more overseas trade = increased growth opportunities, to benefit both your business and our economy as a whole

Answer B)How can existing or potential changes in trade policies affect Fourevr’s operations?

below are some of the impediments that Fourevr might face while conducting international trade.

1. Shipping Customs and Duties

Most of these destination countries' customs agencies charge extra fees on items shipped to them.While each government determines these assessment of duties and taxes differently, it is typically calculated on the value of the products sent (item, insurance plus shipping).

2. Language Barriers

Despite the availability of online translators, language is still one of the major disadvantages of international trade. While tools like Google Translate and SDL can be used to formulate instructions and communications in another language, they are far from foolproof.

3. Cultural Differences

What makes this one of the major disadvantages of international trade is that cultural differences, many times, are never documented. They are the unwritten rules of commerce in the country that are hard to uncover and can be even more difficult to solve. For example, the word "yes," in Western cultures typically means agreement. In some Eastern cultures however, it can mean that the person understands what you are saying, but does not necessarily agree.

4. Intellectual Property Theft

The wider a product is distributed, the more likely that it may be illegally copied by a competitor. This can be in the form of proprietary information or market branding. With cross-country borders, it becomes very difficult for a company to prosecute. However, copyrighting in the U.S. can help protect a company as long as the country where the product is sold has signed one of the international intellectual protection treaties. Some countries also have their own separate copyright and trademark protections that can be filed to protect companies selling products in their countries.

5. Political Risk

There is always a political risk of international trade. Governments and their policies change over time, and sometimes companies can get stuck in the middle with different regulations that may target their sales and customers. This is why it may be good to market products to a geographic region, rather than a single country, to help balance the company's risk.