Company Orientation Towards Cultural Diversity

The attitudes of companies and managers can affect how they successfully adapt to foreign cultures. Polycentrism is one type of attitude towards cultural diversity in which the company believes that its business units must act as close to its local competitors as possible. The problem with a Polycentric orientation is that the company can become too cautious about certain countries and pass up good opportunities. Also, home-country practices may actually work well in a foreign country, and a company that is too Polycentric will never apply any of its home-country practices to its business units abroad.

Another management orientation towards cultural diversity is Ethnocentrism. This is the belief that what works in the home-country should work in the host-country as well. The problem with Ethnocentrism is that it ignores important cultural variables in the foreign country. Sometimes, companies understand the environmental factors, but fail to change their objectives to fit the foreign market. This results in a loss of long-term competitiveness in the foreign country as the business unit cannot perform as well as its local competitors.

Geocentrism is a third orientation that is between the extremes of Polycentrism and Ethnocentrism. This approach is when the company adapts to the cultural differences abroad while also adopting some of the practices that are successful within the home market. This allows the company to increase its innovation as well as success rate in its international operations.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC.

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Non-Tariff Barriers to Trade

There are two categories of nontariff barriers to trade: direct price influences and quantity controls. Direct price influences are similar to tariffs in that they raise the prices of goods in order to limit trade. Subsidies are perhaps the most well-known type of direct price influence. Subsidies are used to protect domestic industries and keep them competitive. The government makes a direct payment to their domestic companies to give them assistance for selling abroad. Countries also offer their domestic industries tools such as market information and foreign contacts. Aid and loans are another form of direct price influence. This occurs when a government gives aid to another country, usually in the form of tied aid, which requires the country to spend the funds in the donor country. A third form of direct price influence is customs valuation. This occurs when customs agents are instructed to use discretionary power to value goods too high, which may require them to pay a higher ad valorem tariff and increase overall price.

The most common quantity control used is the quota. Import quotas prohibit the quantity of a product that can be imported in a given year. This puts a ceiling on the supply of foreign made products, and therefore restricts trade. The voluntary export restraint (VER) is when one country asks a foreign country to “voluntarily” restrict its exports into their country. This is really not voluntary at all, as the importing country will impose tougher trade restrictions if the foreign country does not limit its exports. An embargo is a type of quota in which a country prohibits all trade from a particular country or on a particular product. Another type of quantity control is standards and labels. Countries can impose tougher standards for product safety which will prohibit imports from foreign countries. Other forms of quantity controls include specific permission requirements, administrative delays, reciprocal requirements, and “buy local” legislation.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC.
www.identifyglobal.com

Trade Pattern Theories

There are two main factors that determine a country’s tendency to trade internationally. The first is the proportion of its production that is comprised of nontradeable goods, or products and services that aren’t practical to export. The other factor is the country size, which can mean land area or the size of the economy. A country with a larger land area has a tendency to trade a lower proportion of its production because it will have a larger variety of natural resources. Countries with large economies trade more because they have greater production and higher incomes.

The factor-proportions theory explains what types of products a country has a tendency to trade. This theory looks at the basic factors of production of labor, land, and capital. If a country has a high endowment of a particular factor, then this factor will tend to be cheaper than the other factors. This helps to determine what types of products are produced, and thus traded.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC.

International Gift Giving

Gift giving is a great way to display appreciation for business relationships but the process can be complex. Because the manner in which it is done varies from country to country, what is deemed appropriate in one may be the reverse in others. Understanding the perceptions different cultures have on gift giving is important. For example, several Asian cultures associate the colors black, white, and blue with misfortune hence gifts should not be wrapped in such colors. Also if the gesture is exercised in an incorrect manner, the recipient will likely be offended possibly hindering the business endeavor. Concerned with corruption, gift giving may constitute bribery thus some multinational corporations and governments have strict policies regarding the distribution and acceptance of gifts. To avoid being in a predicament, be aware of the guidelines that exist for both the company and country the business is conducted in. In essence, be attentive to little details because what may appear insignificant can be detrimental if overlooked.

Written by Trisha Le, Research Intern for GLOBAL ID, LLC.

Bouncing Back

Although the Asian Financial Crisis brought a long term troublesome economy to the Kingdom of Thailand in the mid 1990s, it was able to reverse the economic downturn with the aid of the International Monetary Fund (IMF). Since then it has achieved a developed infrastructure, minimal government ownership of enterprises, and Thaksinomics or policies that encourage trade. In late December of 2004, parts of Thailand were destructed by a monstrous tsunami as was its economy. Despite this negative occurrence, the country is on its path to restoration due to its endowments. Thailand is considered to be one of the most desirable tourist and business destinations in the world. Tourism contributes heavily to Thailand’s GDP and export demands in particularly agriculture and automobile production have performed exceptionally well prompted by trade agreements with a variety of partners. Its capital city, Bangkok is Thailand’s largest transshipment center surrounded by passable waterways. Such physical accessibility to world markets permits inexpensive transportation costs. It is no wonder export levels increased to nearly 17% in the previous year (CIA). Thailand’s economy will restore in no time as it is driven by ever increasing tourism and export demand.

Written by Trisha Le, Research Intern for GLOBAL ID LLC.

International Business: Importance of Trade Missions

A trade mission in economic terms refers to meeting with the target market by business representatives in efforts to promote trade. Although the internet has reinvented B2B activity making it much more efficient as well as effective in terms of speed and cost of electronic transactions, some things cannot be attained by sitting behind a desk. It is critical to dedicate the time to travel to different parts of the globe to meet with business executives. Trade missions are a great way to get exposure and become noticed in the community to executives that are distanced. It also exhibits a firm’s commitment to its business partners overseas and sets it apart from those that fail to participate in trade missions. Such gesture may appear insignificant but the economic impact could be substantial. Essentially, to ensure the production of favorable results cultivate relationships and make efforts to enhance the relationship building process between existing business partners.

Vietnam: Humble Beginnings, Brighter Future

It was inconceivable that Vietnam could ever catch up to the rest of the world’s major economic players. From being ravaged by war and post war conditions such as government collectivization of land and businesses, the country has made tremendous efforts to recovery. Through implementation of privatization, direct foreign investment, and deregulation, economic activity continues to rise. The country resumes preparing for international integration by educating its workforce and through investments in manufacturing technologies and infrastructure. Vietnam has positioned itself as a vital partner in the global marketplace. Its ability to produce low cost manufacturing yet high quality products has attracted companies from all over the world and will ever increase. As a member of the ASEAN Free Trade Area and the World Trade Organization, Vietnam reaffirms its commitment to economic liberalization. According to the Ministry of Foreign Affairs, this country’s GDP increased by a staggering 7.2% in 2005. At this remarkable rate, Vietnam has the potential to emerge as the world’s top outsource destinations.

By Trisha Le, Research Intern for GLOBAL ID, LLC.
www.identifyglobal.com