Business activity thrives and grows when a nation is politically stable. When it is politically unstable then multinational firms can still profitable Business activity tends to grow and thrive when a nation is politically stable. When a nation is politically unstable, multinational firms can still conduct business profitably but there will higher risks and higher costs associated with the business operations. Political instability makes a country less attractive and hence foreign and domestic companies doing business in such countries must frequently pay higher interest rates on business loans, higher insurance rates and higher cost to protect the security of the employees and operations. Alternatively, in countries with stable political environments, the behaviour of consumers and markets is more predictable, and organizations can rely on governments enforcing the rule of law, meaning that governments do not exercise power arbitrarily. Instead, they adhere to established, recognized, and well-defined laws.
Domestic and Global Business Law
Governments around the world regulate business practices. Some of these laws and regulations are designed to create a stable environment for business (both domestic and international) with the establishment and enforcement of property rights and contracts. Others are designed to protect consumers and the environment, requiring businesses to adhere to responsible, safe, and ethical practices. Still other laws and regulations privilege domestic businesses and protect or partially shield them from foreign competition. There are even laws and regulations that affect what marketers are allowed to include in marketing communications.
Marketers should become familiar with the political and regulatory environments in the countries and world regions where they operate, and specifically the laws, regulations, and legal processes that may affect business and marketing operations. For example, it is common for countries to maintain laws and regulations in the areas. Contract law governing agreements about the supply and delivery of goods and services. Trademark registration and enforcement for brand names, logos, tag lines, and so forth. Labelling for the purposes of consumer safety, protection, and transparency. Patents to enforce intellectual property rights and business rights associated with unique inventions and “ownable” business ideas. Decency, censorship, and freedom-of-expression laws to which marketing communications are relied on. Price floors, ceilings, and other regulations regarding the price organizations can charge for some types of goods and services. Product safety, testing, and quality control. Environmental protection, conservation, and the use of permits and other regulatory tools to encourage acceptable and responsible business practices. Privacy, including laws governing data collection, storage, use, and permissions associated with consumers and their digital identities. Financial reporting and disclosure to ensure that organizations provide transparency around using sound business and financial practices
In some cases, international laws and regulations also seek to govern these issues, looking out for ways to manage the friction that can surface between national governments, as well as ways to serve the common interests of regional allies and economic partners.
Free Trade refers to the free exchange of goods and services across international borders without governmental restrictions such as quotas (which limit amounts of goods that can be traded), tariffs (which are taxes charged for imported or exported goods), and other restrictions. Many nations encourage free trade by inviting foreign firms to invest in and conduct business without severe disadvantages or restrictions compared to domestic businesses. Often these same governments encourage domestic firms to engage in overseas business. When governments have a strong free-trade orientation, they typically prefer not to enact regulations that strictly limit imports and discriminate against foreign firms–at least not in most product and service categories. When countries enact free trade agreements with one another, they agree to allow advantageous terms for the flow of goods and services between designated countries.
Regional trading blocs represent a group of nations that join together and formally agree to reduce trade barriers among themselves. The North American Free Trade Agreement (NAFTA) enacted between Canada, the U.S., and Mexico boosts export sales between these countries by enabling companies to sell goods at lower prices because tariffs are reduced or eliminated. The EU Single Market attempts to guarantee free trade between the twenty-eight member states of the European Union. The Association of Southeast Asian Nations (ASEAN) is an example of a regional trading block. This agreement allows for the free exchange of trade, service, labour, and capital across the ten independent member nations. In addition, ASEAN promotes the regional integration of transportation and energy infrastructure.
Trade Policy and the World Trade Organization
Countries engage in international trade for two basic reasons, each of which contributes to the country’s gain from trade. First, countries trade because they are different from one another. Nations can benefit from their differences by reaching agreements in which each party contributes its strengths and focuses on producing goods efficiently. Second, countries trade to achieve economies of scale in production. If each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of industrialization, advanced transportation, globalization, multinational corporations, and outsourcing.
The World Trade Organization (WTO) was formed to supervise and liberalize international trade on January 1, 1995. The organization deals with the regulation of trade between participating countries. It provides a framework for negotiating and formalizing trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements.
Trade sanctions are penalties imposed on one country by one or more other countries. Allied countries may impose sanctions on their enemies. On occasion, the WTO authorizes trade sanctions against a specific country in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another.
Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies. All of these are called trade barriers, which are established by a government that implements a protectionist policy. If a government removes all trade barriers, a condition of free trade exists. The WTO helps arbitrate and settle disputes about trade barriers between different countries.
The fair-trade movement promotes the use of labor, environmental, and social standards for the production of commodities, particularly those exported from developing countries to industrialized nations. Importing firms voluntarily adhere to fair trade standards, or governments may enforce them through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of goods made using slave labor to minimum-price support schemes such as those for coffee in the 1980’s, to industry-focused marketing schemes to boost consumer demand for fair trade products. Nongovernmental organizations (NGOs) also play a role in promoting fair trade standards by serving as independent monitors of compliance with fair trade labeling requirements.