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International Expansion

• Trade Barriers

• Trade Facilitators

International Trade Most int’l trade consists of the purchase & sale of

industrial equipment, consumer goods, oil & agricultural products

Federal Reserve Bank of New York

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What factors encourage companies to take their business abroad?

• Competition• Trade agreements• Economic Growth• Move to Market

Economy

• Keep up w/competition• Market opportunities• Profitability• Extend mature phase of

PLC

International Trade & Trade Policy

Opinions on trade

Protectionism - regulate trade to protect home markets

- Trade barriers

Free Trade – an open global market- Trade facilitators

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Barriers/Facilitators to Trade

• Barriers: Import restrictions, standards, boycotts/embargos, other

• Facilitators: International Organizations U.S. Government Organizations Other (incl. Foreign Trade Zones)

Trade Barriers• Import Policies:

Tariffs - taxes/duties levied against imported goods.- A tax of 15% makes jewelry from Mexico more expensive than

jewelry made in the United States. Quotas - limits quantity or dollar amount of goods allowed in

the host country- Korea may export only 15,000 automobiles a year to the United

States. Import Licenses - like quota, but on a case-by-case basis

• Standards: health, quality, safety, labeling, certification

- The rungs on the ladder of any bulldozer sold in Germany must be 12 inches apart; US manufacturers generally make rungs 15 inches apart.

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Trade Barriers

• Other Voluntary Agreements - reciprocal limits between 2 countries to

avoid penalties by one

Monetary Barriers – e.g., Exchange Permit - government permit required to convert local currency into foreign (U.S.) money for transfer abroad.

Anti-dumping penalties – penalties for underpricing goods in a foreign market in order to shut out the competition abroad.

Other Restrictions - e.g., language laws, product labels, religious conventions, etc.

Example: Honduras

• 15% tariff on finished goods

• Exchange permit required

• Strict sanitary standards; Sanitary permit required

• Label law; labels must include sanitary registration number

Country Commercial Guide

Barriers to International Trade: Boycotts & Embargos

• Boycotts – “can’t buy from” ban on the purchase of all goods associated with a particular

company and/or country

• Embargos –”can’t sell to” Prohibits all business deals with the target country

Facilitators of International Trade

International Trade/Development Organizations

• History

• Organizations: World Trade Organization International Monetary Fund (IMF) Development Banks – e.g., World Bank

• United Nations Organizations

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International Monetary Fund

• Founded 1944 to prevent another world-wide depression

• Oversees world economic situation

• Monitors countries’: Balance of payments Financial sector Economies

• Provides assistance

The World Trade Organization (WTO)

• 150 member countries

• A forum of governments to negotiate trade agreements via: A negotiating forum A set of overriding rules

• Purpose: “to help trade flow smoothly, freely, fairly and predictably” remove barriers to international trade Settle trade disputes

Government Organizations Facilitating International Trade

• United States Agencies US Agency for International Development (USAID) US Department of Commerce Export-Import Bank of the United States State and Local Government Agencies Department of State Small Business Administration Department of Agriculture

Non-government Organizations that Facilitate International Trade

Commercial banks Export intermediaries Chamber of commerce and trade associations American chambers of commerce abroad International trade consultants and other advisors

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Free Trade Zones

• Tax-free area not considered part of the country in terms of import regulations