Unit 3.3.4 - Other considerations before trading internationally

Unit 3.3.4 - Other considerations before trading internationally

1. Key Terms

   • Stakeholders
     • All those who have an interest or stake in a particular business
     • E.g. customers, shareholders, etc
   • Corporate Culture
     • Set of important assumptions that are shared by people working in a particular business
     • Influence the ways in which decisions are taken there
   • Corporate Social Responsibility (CSR)
     • Taking decisions in a way that takes into account all stakeholders' interests
     • E.g. Treating employees, customers and suppliers fairly, or avoiding polluting activities and contributing positively to lives in the community
   • Ethical decision making
     • Following codes of practice that embody moral values
     • The objective is to do the right thing, act with honesty/integrity and taking into consideration everyone's interests (affected by the decision)
   • Social/Cultural Differences
     • Individual societies and groups within them may have a different way of life
       • This will affect their patterns of consumption and the products they favour and also the way they do business with one another
   • Protectionism
     • Government policies aimed at protecting the domestic economy from the effects of imports that might otherwise damage domestic industries and reduce employment
   • Trade Barriers
     • Anything that slows or prevents free trade from occurring
       • E.g. Tariffs and Quotas
   • Quotas
     • Physical limits on the level of specific imports in any one year

2. Shareholder Model

   • Profit maximisation - main priority of managers
   • Everything managers do should be in the best interest of shareholders
   • If shareholders want short-run profit maximisation at the expense of long-term growth - it's the responsibility of managers to deliver
   • Managers are employed to manage, on behalf of shareholders
     • Needs, desires and aspirations of other interest groups should not be prioritised over those of shareholders

3. Stakeholder Model

   • Taking into account interests of all stakeholders - as a priority
   • Benefits include; improved image perception by consumers (leading to increased sales & competitive advantage), improved retention & motivation of staff, closer relationships with suppliers (leading to a beteer service), improved public relations and a reduction in the disruption of commercial activities by pressure groups

4. CSR Policy

   • Desire to behave responsibly
   • Positive public image
   • Wanting to fit in with everybody else
   • Positive marketing ploy
   • Smokescreen to hide behind

5. Ethical Decision Making and Stakeholder Conflict

   • What to manufacture?
     • Should businesses make controversial products?
     • Some products attract dispute and criticism (E.g. Cigarettes)
   • Capital and Labour?
     • Should a business use more capital?
     • Trade-off between capital and labour, more capital means less labour and more unemployment
   • Pay and Working Conditions
     • Should businesses improve pay and conditions?
     • Trade-off between standards of pay/conditions and employee morale & productivity - weighed against increased costs
   • The Environment
     • All businesses affect the environment in some way by their activities
     • Trade-between controlling such problems as pollution and reducing costs
   • Where to manufacture?
     • Should businesses stay within original country or move production overseas to reduce costs?
     • Dyson moved to Malaysia in 2002 - took advantage of cheap labour but UK workers lost jobs

6. Most Profitable Companies

   • Nestle
   • Gazprom
   • Microsoft
   • Chevron
   • AT&T

7. Most Ethical Companies

   • IBM
   • intel
   • PepsiCo
   • Unilever
   • Cisco

8. Behaving Ethically

   • Drawbacks
     • Labour costs increase due to fairer wages/conditions
     • Changing methods of production/corporate culture may be expensive
     • Unethical competitors - may have lower prices/costs
     • Supplies/minerals ethically sourced - more expensive
     • Minimising eco damage - increased costs
   • Advantages
     • Favourable media attention
     • Potentially profitable
     • Improved relationships with suppliers (leads to better service)
     • More motivated workforce - productivity
     • Ethically produced products carry a premium price without damaging sales
     • Improved public image - increased sales and brand loyalty

9. Marketing

   • Place
     • Conventional avenues may not be available
   • Price
     • May need to be lower
   • Promotion
     • Has to appeal to local tastes/culture
   • Product
     • May need to adapt to local needs

10. Social/Cultural Differences

    • Language
      • Effective communication is vital
      • Businesses need bilingual people who can advise them on how to avoid pitfalls (may be a factor in unfamiliar markets)

11. Joint Ventures

    • Disadvantages
      • Partners may not be reliable/suitable
      • Profits are shared
      • Possible cultural clashes
      • Management styles may clash
      • Communication problems may arise
    • Advantages
      • Spreading risk
      • Gaining local knowledge/expertise
      • Shared costs
      • Helps avoid cultural/social clashes
      • Can use existing supply chains/distribution networks
      • May be a condition of entry into some markets

12. Tariffs and Quotas

    • Quotas make the supply curve vertical at the quota limit - causes price to rise and quantity demanded to decrease (depends on price elasticity of demand for the import)

13. Why create barriers to trade?

    • To stop cheap foreign imports from replacing domestic substitutes (leading to job losses & business closures)
    • To protect 'infant' industries
    • Helps to avoid a trade deficit
    • Useful source of tax revenue - help fund public expenditure
    • Disadvantages of Protectionism
      • Reduces competition
        • Leads to inefficiency & higher prices
      • Causes a welfare loss (paying more for imports - less spending on other goods)
      • Provokes retaliation

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