8Global links

Globalisation is not a new process. Trade, exploration, and movement of people and ideas around the world have been occurring for centuries. However, it is only since the 1950s and, in particular, the last 20 years that the world has experienced such rapid and widespread globalisation. The current process of globalisation is remarkable for its phenomenal speed and reach, especially in relation to flows of finance and information. Not only has the world economy been transformed, but new communications, information and transportation technology have redefined our concepts of distance and time.

focusOn completion of this chapter, you will have learned about the effects of globalisation on our commercial and legal environment and be able to assess the impact on the individual, the economy and society.

outcomesA student can:5.2 Analyse the rights and responsibilities of individuals in a

range of consumer, financial, business, legal and employment contexts

5.4 Analyse key factors affecting commercial and legal decisions5.5 Evaluate options for solving commercial and legal problems

and issues5.7 Research and assess commercial and legal information using

a variety of sources5.8 Explain commercial and legal information using a variety of

forms5.9 Work independently and collaboratively to meet individual

and collective goals within specified timelines.

glossaryappreciation: an upward movement of the Australian

dollar (or any currency) against another currencybicultural: able to appreciate and understand the

business practices and customs in a host country, and speak the language of both home and host country

cultural diversity: the multitude of individual differences that exist among people

depreciation: a downward movement of the Australian dollar (or any currency) against another currencye-commerce: the buying and selling of goods and

services via the Internetequities (shares): ownership entitlements in a

companye-tailer: an online retailer

exports: goods and services sold to another country

foreign aid: financial and technical assistance by government and non-government (private) organisations from developed (high income) nations to developing (low income) nations

foreign exchange rate: the ratio of one currency to another; it tells how much a unit of one currency is worth in terms of another

globalisation: a trend that sees people, goods, money and ideas moving around the world faster and more cheaply than before

imports: goods and services bought from another country

intellectual property: property that is created by an individual’s intellect; a song, poem, novel etc.

international trade: the buying and selling of goods and services

between nationslabour standards: those conditions

that affect a business’s employees, or those of its suppliers, subcontractors,

or others in the production chainmanaged (investment) fund: money from a large number of smaller investors is

pooled together and managed as one large investment portfolio by a professional

investment managerpolitical risk: any political event which results in a drastic change to the country’s business

environment and which ultimately has a negative impact on business operations and profit

subsidiary: a company controlled by another companytransnational (multinational) corporation (TNC):

a large business organisation that has a home base in one country, and operates partially owned or wholly owned businesses in other countries.

New Concepts in Commerce186

8.1

The global consumer

Sourcing products internationallyImproved technologies and communications havechanged how consumers shop. Consumers aroundthe world will just as readily browse an Internetshopping site as examine a catalogue delivered totheir private letterboxes. As the world has evolvedinto a global marketplace, the world’s consumershave become global in their buying behaviour.

Trends towards a global market The development of mass communications hasincreased the uniformity of consumers around theworld. For example, the same television commer-cials are shown across the globe. Internationally,millions of people want to purchase a particularbrand of soft drink, jeans, sunglasses, computer,DVD player or car.

Purchasing products internationally — online shoppingOver the last decade, e-commerce (online shoppingvia the Internet) has become the most commonlyused method of purchasing products from overseas.

Here is what happened in the ‘average’ Australian household this morning.

Jake, the youngest member of the family, awoke firstand switched on the Philips flat screen TV andwatched Teletubbies while he ate a plateful ofKellogg’s Fruit Loops. Sam tuned to Triple J on hisSony Midi Hi Fi System. Yasmin washed her hair usingPalmolive Naturals shampoo and later dressed in herLevi jeans, Nike sweatshirt and Reebok joggers. Forbreakfast, she decided to have a cup of Dilmah teaand Sara Lee croissants covered with Kraft Singlescheese slices. Sam was playing soccer that morningso he cleaned his Adidas soccer shoes and got out hisNike tracksuit. For his breakfast, he decided to have acup of Nescafé coffee and Vogel cereal. Dad finallyemerged from the bathroom after shaving with hisRemington and caught a glimpse of the latest CNNnews report. He grabbed the Hyundai car keys beforegulping down a cup of coffee made on the GeneralElectric percolator.

Another day of ‘global interdependence’ had justbegun.

The Internet provides you with a whole newshopping experience. It increases the range of prod-ucts available, which increases your choice. You canshop around the world from the comfort of yourhome. However, the basic rules of wise shoppingstill apply, especially because NSW consumer pro-tection laws are not normally enforceable if youpurchase a product from overseas.

Taiwanese cap

Italian sunglasses

Brazilian belt

American

American

Italian shoes

Chinese socks

JapaneseMP3 player

French shirt

SouthKoreanwatch

Swedishmobile phone

The global consumer

soft drink

jeans

Global links187

Amazon.com — an e-tailerAmazon.com is one of the best known of all onlinee-tailers. Originally only selling books, it now sellsmusic, gifts, electronics, DVDs, videos, tools andhardware.

Amazon’s home page

The relationship between domestic and international tradeWe live in a global world, rather than a worldlimited by national borders. Consider the news andentertainment we receive from around the world,the clothing and footwear brands being sold world-wide, the rapid telecommunications access to allparts of the globe, and the large number of productsAustralia buys and sells on the world market.

This process has been strengthened by the impactof globalisation: a trend that sees people, goods,money and ideas moving around the world faster

Business-to-consumer (B2C) transactions cover products sold or distributed over the Internet. By 2010, B2C sales are expected to reach about $50 billion per year.

Tips for online purchasing• Check the details regarding product return, refund

and exchange.• Ensure that the site is secured and that credit card

details are encrypted.• Convert the displayed price to Australian dollars.• Receive confirmation of your order and follow its

progress.

UNDERSTAND

1 What do the letters ‘B2C’ represent?2 What is meant by the term ‘globalisation’?3 List two advantages and three disadvantages of

using the Internet to purchase a product from overseas.

4 Outline how the development of global consumers encourages the process of globalisation.

5 How has information communication technology changed existing consumer shopping practices?

INVESTIGATE

6 List five different products you regularly use, such as your computer, DVD player or shoes.(a) What is the brand name of the product?(b) What company made the product?(c) In which country was the product made?(d) Why do you think the product was made there?Compare your list with those of other class members, noting similarities and differences. You may wish to use a word-processing package to prepare your list.

7 Set up a class debate to consider the topic ‘Globalisation is good for all Australians’. Share roles so that those not debating are involved either in assisting with research or in running the debate and keeping notes on the arguments on both sides.

E-LEARNING

8 Use the Internet to investigate the process of purchasing a product from overseas. To help you, go to www.jaconline.com.au/commerce, select weblinks and click on the Amazon link for this textbook.(a) What features are used to make the site secure?(b) Outline Amazon’s refund, return or exchange

policy.

WORKSHEETS

8.1 Globalisation ezine

and more cheaply than before. In the commercialworld, globalisation refers to:• globalisation of production — businesses

becoming transnational by operating in manycountries

• globalisation of markets — consumers purchasingproducts from around the world.

Globalisation has not been welcomed by everyone. Critics of the process point to exploitation of workers, especially in developing countries, and the loss of jobs in developed countries.

New Concepts in Commerce188

8.2

Australia’s patterns of trade

Motor vehicles are one of Australia’s main imports.

Australia’s import trade by broad category 2001–02

Source: Derived from Composition of Trade Australia 2001–02,

Department of Foreign Affairs and Trade

Items A$ million % share

Primary

e.g. food, beverages, crude

petroleum 17 909 11.8

Secondary

e.g. computers, machinery,

transport equipment 101 745 67.0

Tertiary

e.g. travel, transportation,

insurance 32 257 21.2

Total imports 151 911 100.0

Tourism is classified as an export because tourists visiting Australia spend their overseas money (foreign exchange) on accommodation, food, tours and souvenirs.

Australians live in a large, wealthy country. How-ever, we cannot produce all the goods and services werequire. Also, our population and our domesticmarket are small compared with those of many othercountries. These two factors mean that we need totrade with the rest of the world. Internationaltrade has always played an important part inAustralia’s economic development.

Items of tradeWhat does Australia export?Billabong, Holden Ltd and the University ofWestern Sydney all have one thing in common.They all sell their products on the world market;that is, they export to overseas countries. Anexport is a good or service sold to another country.Australian businesses now export a huge variety ofgoods and services.

Tourism is one of Australia’s main exports, earning $16.3 billion in 2002.

Australia’s export trade by broad category 2001–02

Source: Derived from Composition of Trade Australia 2001–02,

Department of Foreign Affairs and Trade

What does Australia import?Imagine all the Subaru cars, Nike sports shoes andIBM personal computers sold in Australia during thepast year. They are just a small part of all the importswhich Australian consumers buy. An import is agood or service bought from another country. Weimport goods and services either because we can pur-chase them more cheaply from overseas or becausewe cannot produce them ourselves.

Items A$ million % share

Primary

e.g. coal, wool, mineral ores,

meat, cereal grains 77 432 50.8

Secondary

e.g. motor vehicles, machinery,

foodstuffs 43 768 28.8

Tertiary

e.g. tourism, education, financial

services 31 039 20.4

Total exports 152 239 100.0

Global links189

Australia’s changing trading partners — past and presentWho are Australia’s main customers?Due to Australia’s historical links with the UnitedKingdom and Europe, the majority of our tradeused to be with these regions. However, since theend of the 1940s:• as new markets began to emerge, the general

emphasis of Australia’s exports has shifted toAsia and the United States

• exports to the United Kingdom and countriesbelonging to the European Union (EU) havedeclined relative to the total

• exports to Japan have grown steadily and it isnow Australia’s main customer, followed by theUnited States.

On current trends, China will become Australia’sbiggest export customer by 2012.

Who are Australia’s main suppliers?Changes in the direction of Australia’s exports overthe last century have been matched by changes inthe sources of our imports. A dramatic decrease inthe importance of the United Kingdom has beenoffset by an increase in the importance of thePacific countries — namely Japan and the United States — and the growing significance of the South-East Asia region.

In 1992, one in every 34 boats to leave Australia with raw materials went to China. In 2004, the ratio was one in every 13.

Australia’s main customers — percentage of total exports, 2002

Source: Derived from Composition

of Trade Australia 2001–02,

Department of Foreign Affairs and

Trade

UNDERSTAND

1 Why does Australia need to trade with the rest of the world?

2 Explain the difference between exports and imports.3 Examine the tables on page 188. Draw a bar graph

to represent Australia’s (i) export, (ii) import of goods and services using a horizontal scale of 1 cm = 10 per cent (therefore the bars will be 10 cm long). Shade in each sector of the bars. Provide a title and key for the graph.

4 What generalisation can you make about the composition of Australia’s main imports? Share your answer with the rest of the class.

5 Should Australia be concerned about its reliance on secondary imports? Explain your view.

6 Outline the main changes since the late 1940s to Australia’s:(a) export markets(b) sources of imports.

CREATE

7 Work in pairs to create a poster publicising Australia’s main export items. Find as

many pictures, newspaper headlines and brief articles as you can. Display

your poster in the classroom. You may wish to use computer graphics software to design the poster.

8 In groups of three or four, design either a 60-second commercial or a three-minute PowerPoint presentation for the Tourism

Council of Australia, publicising the importance of overseas tourism

to the Australian economy. During your commercial or

presentation, make reference to the income and jobs generated by this important service export. Present your commercial or presentation to the rest of the class.

E-LEARNING

9 Imagine you are the business reporter for a daily newspaper. Your editor has asked you to write a

story about Australia’s future exports. In your article, refer to emerging exports such as biotechnology and information communication technology (ICT).

To help you, go to www.jaconline.com.au/commerce, select weblinks and click on the Austrade link for this textbook.

WORKSHEETS

8.2 Who are Australia’s main customers?8.3 Changes in trade patterns — services

trade

Japan

18.

6%

European Union

(EU) 12.4%

ASEA

N 12.2%

South Asia 3.0%

US

A 9

.6%

Oth

er 18.3%

Taiwan 4.0%

New Zealand 6.6%

China 7

%

Rep. o

f K

ore

a 8

.3%

Other 26.1%

US

A 1

8.0

%

Japan 13.0%

Taiwan 2.8%

Rep. of K

orea 4.0%

New

Zea

land 4.0

%South Asia 2.9%

AS

EA

N 8

.1%

Ch

ina 9

.4%

European Union

(EU) 11.7%

Australia’s main suppliers — percentage of total imports, 2002

Source: Derived from Composition

of Trade Australia 2001–02,

Department of Foreign Affairs and

Trade

New Concepts in Commerce190

8.3

The global investorYou could be excused for thinking that you will prob-ably never invest money in another country. However,unknowingly, you may already be indirectly involvedin this activity. For example, superannuation fundstrade on the international market. Alternatively, youmay decide to become a global investor and tradedirectly on overseas markets — something that isbecoming a reality for many Australians.

Many Australian financial institutions provide assistance regarding international investments.

Investing money in the global financial marketMoney is now more mobile and flows relativelyeasily between countries due to the globalisationof equity (share) markets. This has come aboutbecause financial services companies such asDeutsche Bank, Citibank, Goldman Sachs andNomura Securities have expanded into manycountries. These businesses are keen to arrangefinance deals and provide advice for customersanywhere around the world.

Your financial questions with

Helena Dunlop —financial adviser at Dent Equities

Q. I have just inherited $10 000 and want to invest it. I would like to buy some shares in overseas companies. Is that possible? What are the risks of buying international shares?P. J., Crookwell

A. The Australian share market makes up less than two per cent of the world’s stock markets. Investing internationally, therefore, gives you access to a wider range of investment options. You can buy shares in

companies such as Microsoft, IBM and Toyota, which are traded in the world’s largest economies, or in companies in newly emerging economies such as China and India. Also, by diversifying your investments you spread the risk, which is a good investment strategy. If one market is not performing well, you have the others to fall back on. One other benefit of buying international shares is that they can protect you against falls in the Australian dollar (AUD). Of course, should the AUD rise in value, then the value of your international shares will fall. All investments contain some risk so select

The New York Stock Exchange (NYSE) on Wall St is one of the world’s largest stock exchanges.

Global links191

UNDERSTAND

1 What is the difference between buying shares directly and using a managed fund?

2 What is meant by the term ‘equities’?3 Why does money flow more easily between countries

today than it did 20 years ago?4 How have improvements in ICT influenced global

investment?

INVESTIGATE

5 (a) List the stock market index measurements used in Japan, Hong Kong, England and the USA.

(b) Record the movement of these measurements over a four-week period.

(c) Which market performed the best? You may wish to use a database to record the measurements.

E-LEARNING

6 List five brokers offering ASX World Link. To help you, go to www.jaconline.com.au/commerce, choose weblinks and click on the Australian Stock Exchange link for this textbook.

COMMUNICATE

7 In groups of three or four, brainstorm the advantages and disadvantages of investing money internationally compared with Australian investments. Share your answers with the rest of the class.

8 Prepare a one-minute radio commercial explaining how consumers can invest internationally. Record your commercial and play it back in class.

your shares carefully. I advise you to research thoroughly the companies you wish to invest in.

Q. I own my own home and I have just received my superannuation payout of $135 000. I would like to invest $50 000 in international shares but I do not know which shares to purchase. I have never bought shares before. What should I do? H. W., Moss Vale

A. Deciding which international shares to purchase can be risky, especially if this is your first time. My advice is to use a managed (investment) fund that deals in international equities. This is the easiest option for most people. You place your money with a fund and they decide which companies to invest in. Their knowledge of global markets should provide you with a better return. As with all managed funds, you will have to pay entry, exit and ongoing management fees for this service. Make sure you know how much these are before committing yourself.

Q. Over the last few years, I have bought and sold a few shares in Australian companies. I have always used an online broker for my transactions. I now feel confident enough to purchase some international shares directly. Which method do you recommend? Is it more expensive than buying shares in local companies? E. M., Dubbo

A. The Internet now makes it easy to directly buy and sell shares in international companies, especially if you use the ‘ASX World Link’ service provided by the Australian Stock Exchange (ASX). Alternatively, you can use a stockbroker who has access to international stock exchanges. The cost of international purchase is higher than for

Australian shares so calculate the total cost before you decide to buy.

Q. I have recently sold some assets and have $38 000 to invest internationally. I do not want to buy shares as I consider them too risky. Is there any other way I could invest overseas? T. M., Sydney

A. To minimise your exposure (risk) you can deposit your money in a fixed interest account in almost any country. I would recommend that you visit a financial planner who has expertise in this area before committing yourself. You will need to compare the interest rates of Australia and your selected country to determine which provides the better return. However, a word of caution. If the AUD rises in relation to the currency of your selected country, the value of your investment will fall. You need to keep this in mind.

Today’s quick quiz

Q. What are the The Nikkei Index, Hang Seng Index, FTSE (Financial Times Stock Exchange) Index and Dow Jones?

A. They are stock market index measurements for Japan, Hong Kong, England and the USA respectively. They have become familiar segments in our news programs, a reflection of the free flow of money in today’s global marketplace.

New Concepts in Commerce192

8.4

Transnational organisationsFeatures of businesses with global linksA transnational (multinational) corporation(TNC) is a large business organisation that has ahome base in one country, and operates partiallyowned or wholly owned businesses in other coun-tries. The TNC represents the highest level ofinvolvement in global business where national bor-ders do not represent barriers to trade but are seenas merely lines drawn on a map. Consequently,TNCs conduct a large percentage of their businessoutside their home country.

TNCs come in many different forms. LG,McDonald’s, Unilever, Ford, News Corporation andBHP Billiton are just a few of the well-knownforeign and Australian transnational corporations.However, all TNCs have a number of features incommon. In a fully developed TNC, finance, assets,technology, information, employees, patents, goodsand services all flow freely from one country andone subsidiary to another. These resources may beshared within the corporation. For example, infor-mation may be pooled through corporation-widedatabases, and patents and technologies may beutilised on a global scale.

Reasons for expansion

According to the United Nations Committee on Trade and Development (UNCTAD), the value of global production from 53 000 TNCs and their 450 000 subsidiaries is more than US$10 trillion.

Operations — the main activities of a TNC in the Australian economyBillabong International LimitedOne example of an Australian TNC is BillabongInternational Limited, manufacturer of surf andextreme sports apparel and accessories. Estab-lished in Queensland in 1973 by Gordon Merchant,Billabong originally manufactured only board-shorts. Today, Billabong designs, produces and dis-tributes a wide range of surf and extreme sports wear including swimwear, jewellery, belts, backpacks, skateboards and sunglasses. It is currently the leading surfwear apparel brand in Australia.

From its head officein Burleigh Heads,Queensland, the com-pany controls its majorbrands — Billabong,Element and Vonzipper.Billabong products aredistributed to over 3000outlets worldwide. Theproduct range consistsof over 2200 items inAustralasia, over 1300items in North Americaand 1200 items inEurope.

Ashley Cheadle and Meredyth Saunders, Billabong-sponsored surfers

Fewer government regulations. This may result in lower

production costs.

Minimise the risk of competition. Overseas sales can provide another source of revenue. Economies of scale.

Mass production can lower the cost of production.

Cushioning economic cycles.

If the Australian economy is in a

recession, overseas markets may be booming.

Tax minimisation.Some countries impose

little or no tax.Increasing sales and finding new markets. For example, China offers

a market of about 1.4 billion people.

Acquiring resources and technology. This provides a

constant supply of raw material and latest ideas.

Diversification. This spreads the

risk in case of difficulties

experienced in one country.

Global links193

Why does Billabong manufacture overseas?The company now generates revenue in more than 60 countries throughout the world. Naturally, this requires a vast range of production sources to take account of various climates, quota and duty systems, freight and delivery lead schedules, etc.

Accordingly, the company produces products in more than a dozen countries throughout the world including Australia, the USA and various countries in Asia and Europe — but in all instances does everything practically and legally possible to ensure the quality of its products, delivery certainty for its customers and safe working conditions for those employed in its production sources.

Where does Billabong manufacture?Billabong sources manufactured produce from numerous countries including Australia, China, Vietnam, Korea, Indonesia, Fiji, India, Myanmar, Mexico, Turkey and Jordan. Over 98 per cent of product is manufactured by contracted factory suppliers. Billabong has a central sourcing division based in Hong Kong that provides most products to Australia and New Zealand and which competes at arms length for business from our European and North American divisions.

Source: www.billabongcorporate.com

Employment issuesA business’s success is very much determined bythe abilities and performance levels of itsemployees. Therefore, the quality, quantity andcomposition of the available labour force are impor-tant considerations for any business as it under-goes global expansion, as well as establishing andmaintaining effective employment relations.

StaffingIn a global business, finding the right people can bedifficult, especially for senior management pos-itions. These positions require people who are pref-erably bicultural, able to appreciate andunderstand the business practices and customs inthe host country, and who can speak the languageof both home and host country.

Minimum standards of labourEach country has specific labour laws that outlinethe minimum wage and non-wage conditions foremployees. Obviously, there are regional and cul-tural differences in labour standards. Labourstandards refer to those conditions that affect abusiness’s employees, or those of its suppliers, sub-contractors, or others in the production chain.

In some developing countries, sweatshop con-ditions exist, in which adults and children worklong hours in extreme heat for very low wages andwith virtually no safety precautions. There isincreasing pressure to ensure employees who workfor low wages in many developing countries are notexploited by unscrupulous businesses.

Increasingly, consumers are showing concern about unethical business practices, such as poor working conditions and wages in the sweatshops of the textile and clothing industry.

New Concepts in Commerce194

Cultural diversityCultural diversity means the multi-

tude of individual differ-ences that exist amongpeople. With the pres-

sure to globalise, busi-nesses must findnew approaches to

staffing. Work-place diversityin terms ofgender, race,ethnicity and

religion is a per-manent featureof today’s work-places. Managers,

therefore, are re-quired to effectively

manage a culturallydiverse workforce.

Workplace cultural diversity is now a key factor

in Australia’s international business success.

Management issuesThe demands on global managers have never beengreater than they are today. They need to have a clearunderstanding of how globalisation will influencetheir business operation.

Ethical issues of international tradeNumerous TNCs have recognised the importance offulfilling their social responsibilities.

Environmental standardsThere is growing pressure for businesses to adoptecologically sustainable operating practices. Con-cern for our environment operates at the local levelas well as on a global scale.

Over the last two decades, the global businesscommunity has undertaken many initiatives to putthe principle of sustainable development into practice.For example, the jeans manufacturer Levi Strauss andCompany has developed its own environmental policy.Levi Strauss will conduct business only with partnerswho share its commitment to the environment.

Billabong’s supplier policy and corporate social responsibility (CSR)Billabong has a global quality assurance program in place, based on QAL4 global standards which cover Factory Inspection reports (general), Factory Inspection reports (human rights), Factory Inspection reports (environmental issues) and Lab Test standards. Suppliers are required to abide by a comprehensive Quality Assurance Procedures Manual and to operate their factory in compliance with all legal and moral obligations that may apply to their operations. Suppliers and their factories are evaluated using Billabong’s quality control processes before Billabong will consider engaging a supplier. Re-evaluation of a supplier’s factory occurs annually. A factory evaluation involves an inspection of the factory and detailed discussions with management AND employees. The evaluation process looks at physical facilities, quality performance (pre-production, production and quality assurance policies and procedures) and a compliance audit (employment ethics, working hours and wages, environment, health and safety, fire prevention and illegal transhipment).

Source: www.billabongcorporate.com

Managing a global business is a challenge, but can also be a rewarding experience.

Environmental issues

• Ecologically sustainable practices• Location of facilities• Type of raw materials to be used

Financial issues

• Currency (exchange rate) fluctuations• Methods of payment• Insurance costs• Credit risks

Management issues

Legal issues

• Unique legal systems • Need to understand local customs• Difficulty in resolving contract- related disputes

Employment issues

• Approaches to staffing• Cultural diversity• Labour law variations• Shortage of skilled labour

Commercial issues

• Business practices and ethics vary between countries• Tax obligations• Social and cultural differences

Global links195

UNDERSTAND

1 What is meant by the term ‘transnational corporation’?2 List five examples of TNCs with which you are familiar.3 What features do all TNCs have in common?4 Why do global businesses prefer to employ senior

managers who are bicultural?5 What is meant by the term ‘labour standards’?6 How does Billabong fulfil its ethical responsibilities

towards the employees of its suppliers?7 List and provide an example for each of the key

management issues faced by TNCs.8 Elaborate on the following statement: ‘Transnational

corporations play a crucial role in our society. Without them, consumers would not have such a wide range of goods and services to select from.’

9 What are the advantages for Billabong of producing products in a number of countries?

INVESTIGATE

10 Collect from magazines, newspapers or the Internet five articles dealing with Australian businesses that are planning to expand overseas.(a) Select one article and prepare a brief summary

of it.(b) For each article, identify the reasons for the

expansion.(c) Present your findings as an oral presentation to

the rest of the class. You may wish to prepare this as a PowerPoint presentation.

11 (a) On a map of the world, shade in the countries from which Billabong sources its products.

(b) Why does Billabong source its products from these countries?

12 Research a social or ethical issue confronting a global business. Write a short report addressing the following:(a) What is the issue?(b) How has the global business reacted to the situation?(c) Do you think the business’s response was

adequate? Why?You may wish to use a word-processing package to write the report.

COMMUNICATE

13 In pairs, arrange an interview with the manager of a local business that sells its products overseas. Discuss the reasons for the business deciding to

expand overseas. Present your findings to the rest of the class. You may wish to video the interviews and view and discuss them as a class.

14 As a class, brainstorm the advantages and disadvantages of hiring host country employees when staffing an overseas operation.

15 Write and perform a song, aimed at high school students, which highlights the problem of labour exploitation in developing countries.

E-LEARNING

16 (a) In which countries are Billabong products sold?(b) What is Billabong’s most popular product?(c) What year did Billabong go international?To help you, go to www.jaconline.com.au/commerce, choose weblinks and go to the Billabong link for this textbook.

17 Many of the TNCs referred to in this chapter publish their global activities on the World Wide Web. Go to www.jaconline.com.au/commerce, choose weblinks and find the websites of the following corporations, then prepare a brief report on one of the corporations’ global activities.• Ford• The Body Shop• Coca-Cola Amatil Limited• Levi Strauss and Company.

18 Reebok and Levi Strauss place a great deal of importance on their corporate social responsibilities. Both the companies have taken action against overseas suppliers based on their human rights and environmental codes of conduct. Using www.jaconline.com.au/commerce, select weblinks and access the webpage of one of these companies. Research their commitment to their social obligations with reference to global sourcing. Prepare either an oral or written report and present it to the rest of the class.

Human rights code of conductA human rights code of conduct is one method of con-ducting business in a socially responsible way. Once acode of conduct has been established, the organisationmay insist that all its suppliers conform to it.Billabong, for instance, will only deal with supplierswho live up to its code of conduct requirements (seethe text box on page 194). Some businesspeople doubt

whether such individual company codes can stoplabour abuses in other countries, in part because othercompetitors may not abide by similar standards.

New Concepts in Commerce196

8.5

Global businessGlobal business and environmental issuesIn many developing countries, environmental pro-tection laws are often non-existent or very weak.This has tempted a number of TNCs to use thesevulnerable countries as a means of engaging inactivities that are detrimental to the environment.

Forests down the mine shaft

Transnational mining companies and foreign governmentsare lobbying the Indonesian government to open up pro-tected forest areas, national parks and other protectedareas for mining. With approximately four hectares ofIndonesian rainforest disappearing every minute, localcommunities and environmental justice groups haveresponded by demanding that the protected forest areasremain intact and free from mining. Twenty-two of these projects — proposed by trans-nationals — are being fast-tracked through the committeefollowing British and Australian Embassy lobbying tooverturn environment protection laws. Now in the fastlane is BHP Billiton’s plan to mine the protected forest ofGag Island and dump the waste into a proposed WorldHeritage marine site. Well-organised resistance is springing up fromindigenous communities from Borneo to Sulawesi. InNorth Maluku, 38 village heads and indigenous leaders ofthe Kao and Malifut peoples are speaking out againstAustralian Newcrest Mining’s push to mine their Toguraciprotected forest.

Source: New Internationalist, November 2003

Of particular concern is the dumping of hazardousmaterials, including nuclear waste, in developingcountries. Countries are often coerced into takingsuch materials; they may receive financial or otherincentives and extra revenue may be used to repaystaggering foreign debts. Of course, transnationalcorporations have little fear of any retaliatory actionsfrom individual citizens of developing countries.

Risks associated with selling to global marketsThere are many advantages to be gained fromselling internationally. However, a business thatexpands globally has to deal with more complexfactors than a business that operates only in adomestic market.

Currency risksCountries have their own currency, which they usefor domestic purposes. This means that when trans-actions are conducted on a global scale, one cur-rency must be converted to another — the foreignexchange rate. For example, if an Australianbusiness (exporter) sells foodstuffs to Japan, theJapanese firm (importer) will have to pay inAustralian dollars, not Japanese yen.

Exchange rates fluctuate over time due to vari-ations in demand and supply. A currency depreci-ation lowers the value of a currency in terms offoreign currencies. Therefore, a depreciation in theAustralian dollar makes our exports cheaper oninternational markets but prices for imports willrise. A currency appreciation has the oppositeaffect. Consequently, exchange rate fluctuationswill affect the profitability and production costs.Such fluctuations create risks for global business.

Political risksA political risk is defined as any political eventwhich results in a drastic change to the country’s

The imbalances of market power

Global links197

business environment and which ultimately has anegative impact on business operations and profit.Political risks tend to be greater in countriesexperiencing social and economic unrest, particu-larly terrorism, war or other violent conflict. In suchsituations, businesses may have to find means todirectly influence politically powerful people in orderto obtain permission to operate in the country.

Severe social unrest often results in acts of violence.

Legal risksGlobal business is affected by many thousands oflaws and regulations because each country has itsown unique set of laws and legal systems. These canvary dramatically between countries. This poses anumber of risks for a global business in the areas of:• Contract law — especially the methods of

enforcing contracts• Legal disputes — resolving these can be very

complicated due to differences in legal systemsand culture

• Intellectual property rights — weak protectioncan cost international businesses a great deal ofmoney.

Customs and traditions — some useful informationfor the global businessperson• Don’t pass documents with the left hand in Saudi Arabia.

The left hand is considered unclean.• Placing your hand on someone’s head in Singapore or

Thailand is highly offensive, as the head is considered sacred.

• When having a meal in Egypt, it is considered very impolite not to leave some food on your plate.

• It is considered rude to leave any food on your plate when eating in Malaysia or Singapore.

UNDERSTAND

1 What impact does a depreciation of the Australian dollar against the US dollar have on the price of Australian:(a) exports to the USA?(b) imports from the USA?

2 ‘Environmental policies are only clever marketing strategies by transnational corporations. In reality, profit maximisation will win out over any social responsibility in decision making.’ Assess the validity of this statement. Share your answer with the rest of the class.

3 The term ‘environmental racism’ has been used to describe the deliberate siting of hazardous waste sites in many poor countries of the world. If you were the manager of a waste management company, what factors would you take into consideration in selecting a new facility site?

4 Look carefully at the cartoon on page 196. (a) Who do the two characters represent?(b) Who do you think has more influence within the

situation? How can you tell?(c) Compare the appearances and body language of

the two characters. What does this tell you about how they might be feeling? What does the cartoon suggest about the imbalance of market power? Do you think this suggestion is justified? Why?

COMMUNICATE

5 Add extra elements to the mind map started below to summarise the risks associated with selling to global markets. You may wish to use a word-processing application to prepare the mind map.

WORKSHEETS

8.4 Currency converters

Curr

Social and cultural risksInternational business is conducted on the worldstage. This means that people are working insocieties and cultures that differ from their own. Itis important that international businesspeople fullyunderstand and appreciate the customs and tra-ditions of the countries they deal with. Failing to doso may result in either an embarrassment or lostbusiness opportunities.

New Concepts in Commerce198

8.6

International aid programsRole of aidForeign aid consists of financial and technicalassistance by government and non-government (pri-vate) organisations from developed (high income)nations to developing (low income) nations. Theassistance comprises:• Loans — involving the payment of an interest

rate to the donor country• Grants — gifts which do not have to be repaid• Technical assistance — trained personnel, such

as engineers, teachers and medical staff, to helpwith development programs

• Food and emergency aid — donations of food,clothing and shelter in response to natural orhuman disasters

• Education and training programs — as part of aproject or education in the developed country

• Technological aid — machinery and equipment• Community-based projects — construction

of schools, wells, health centres etc.

CARE Australia: a non-government aid agency

Sources of aid1. Non-government aid. This is provided by over

110 Australian humanitarian, non-governmentorganisations (NGOs). These include religiousand voluntary organisations such as ChristianBlind Mission International, TEAR Australia andWorld Vision, and non-religious organisationssuch as CARE Australia and the Red Cross.

2. Government aid. The Australian Government’soverseas aid program is managed by AusAID, theAustralian Agency for International Development,which provides assistance for over 60 millionpeople living in poverty around the world. Theseprograms play an important role in maintainingthe links with recipient countries, most of whichare located within the Asia–Pacific region.

Recipient countries of AusAID programs

The government aims to: • assist the economic development of the recipient

countries• promote political stability in the region• help develop investment and trade opportunities

for Australian businesses.

Role of foreign aidForeign aid is used to support economic developmentin the recipient countries. Developing countries lackthe financial and technical assets to improve theirphysical and human resources. The richer countriesare in a position to provide help to developingcountries. At the heart of all aid programs should bethe desire to encourage ecologically sustainableeconomic development.

Successful aid programs will reduce poverty andimprove the standard of living, resulting instronger, more stable communities. From buildingroads and bridges, providing healthcare and edu-cational facilities, to delivering clean drinkingwater, foreign aid is a crucial element in a devel-oping country’s drive for economic development.This is demonstrated in AusAID’s Cuu Long DeltaRural Water Supply and Sanitation Project.

Recipient countries

In 2004–05, Australia will provide approximately $2 billion worth of official development assistance. This is the equivalent of around $1.75 per week for every Australian.

Global links199

Cuu Long Delta Rural Water Supply and Sanitation ProjectActivity: Cuu Long Delta Rural Water Supply and

Sanitation ProjectCountry: VietnamObjective: To improve water and sanitation services in

disadvantaged district towns and rural communities in Vietnam

Cost: A$26 millionDuration: 1996–2006

In Vietnam only about 40 per cent of Vietnamese rural house-holds have access to clean water and in many districts, freshwater is displaced by saline or brackish water for up to sixmonths of the year.

Fewer than 12 per cent of rural and district towns haveaccess to a hygienic toilet and many schools do not haveadequate water supplies and sanitation facilities.

These problems are particularly pronounced in the CuuLong (Mekong) Delta, which contains one-fifth of thepoorest people in Vietnam, the second highest proportion ofall regions in the country.

Not having access to clean water is one of the mainobstacles to social and economic development in the area.

The Cuu Long Delta Rural Water Supply and SanitationProject is engaging the people and governments of Vietnamand Australia in working together to improve access towater and sanitation services in the delta.

Local communities are participating in the design andconstruction of the services, where appropriate, and localVietnamese are being trained in water and sanitation tech-nology to ensure that the systems can be maintained wellafter the project is completed.

Around 400 000 rural people will benefit from improvedwater supply for households, water supply and toilet con-struction for commune level schools and solid waste disposaland drainage facilities for clusters of rural households.

Another 200 000 in three district towns will have improvedand extended water sanitation services — including toiletsfor schools, and town drainage.

With better solid waste disposal and more drains, there willbe less stagnant wastewater and by using potable water, thechances of people contracting water-borne diseases such asdiarrhoea will be reduced.

The changes are also expected to produce economic spin-offs in rural small-scale industries such as gardening, fishfarming and the processing of agricultural products.

By improving water supply and sanitation services Aus-tralia generates growth in developing countries and improvesthe health and economic wellbeing of the poor.

The project is managed by the Australian company SagricInternational.

Source: www.ausaid.com.au

REMEMBER

1 Use the term ‘foreign aid’ in a sentence to demonstrate its meaning.

2 Explain the difference between a loan and a grant.3 List four non-government organisations involved with

providing foreign aid.

UNDERSTAND

4 Read about the Cuu Long Delta project above.(a) How did the community benefit from the project?(b) Evaluate the effectiveness of the project.

5 Examine the world map on page 198. What do you notice about the location of countries to which AusAID provides assistance?

CREATE

6 Using the information in this spread to give you ideas, design a poster to show the role of foreign aid in

supporting economic development in neighbouring countries. You may wish to use computer graphics software to design the poster. Display your poster in the classroom.

E-LEARNING

7 In groups of three or four, research Australia’s foreign aid projects to developing countries. Case studies of particular aid projects can provide information on the role of foreign aid. To help you, go to www.jaconline.com.au/commerce, select weblinks and click on any of the AusAID, TEAR Australia, CARE Australia or World Vision links for this textbook. Present your report orally using multimedia applications to enhance the information.

WORKSHEETS

8.5 Topic test — global links

Thach Thi Kim collects water from a pond at the back of her house.