Page 447 - Encyclopedia of Business and Finance

eobf_I 7/5/06 3:04 PM Page 424

International Trade

and help establish more cooperation among exporting Business professionals also run into another practice
countries. that occurs in some countries—bribery. The practice of
Another form of a trade barrier that a country can bribery is common in several countries and is considered
employ to protect domestic companies is an import a normal business practice. If the bribe is not paid to a
quota, which strictly limits the amount of a particular businessperson from a country where bribery is expected,
product that a foreign country can export to the quota- a transaction is unlikely to occur. Laws in some countries
enacting country. For example, the United States once prohibit businesspeople from paying or accepting bribes.
threatened to limit the number of cars imported from As a result, navigating this legal and cultural thicket must
Japan. Japan, however, agreed to voluntary export quotas, be done very carefully in order to maintain full compli-
formally known as “voluntary export restrictions,” to ance with the law.
avoid U.S.-imposed import quotas. The power of import
quotas has diminished because foreign manufacturers—to PHYSICAL ENVIRONMENT
avoid such regulations—started building plants in the Other factors that influence international trading activi-
countries to which they had previously exported. ties are related to the physical environment. Natural phys-
A government can also use a nontariff barrier to help ical features, such as mountains and rivers, and
protect domestic companies. A nontariff barrier usually human-made structures, such as bridges and roads, can
refers to government requirements for licenses, permits, or have an impact on international trading activities. For
significant amounts of paperwork in order to allow example, a large number of potential customers may live
imports into its country. This tactic often increases the in a country where natural physical barriers make getting
price of the imported product, slows down delivery, and the product to market nearly impossible.
creates frustration for the exporting country. The end goal
is that many foreign companies will not bother to export
WORLD TRADE ORGANIZATIONS
their products to those markets because of the added cost
AND AGREEMENTS
and aggravation. Japan and several European countries
After World War II, the world’s leading nations wanted to
have frequently used this strategy to limit the number of create a permanent organization that would help foster
imported products.
world trade. Such an organization came into being in
1947 when representatives from the United States and
CULTURAL ENVIRONMENT twenty-three other nations signed the document creating
Before a corporation begins exporting products, it must the General Agreement on Tariffs and Trade (GATT),
first examine the norms, taboos, and values of the coun- which now includes more than 100 countries as signato-
tries in which it wants to sell its products. This informa- ries. The threefold purpose of GATT was to:
tion can be critical to the successful introduction of a
product into a particular country and will influence how 1. foster equal, nondiscriminatory treatment for all
it is sold and/or marketed. Such information can prevent member nations;
cultural blunders, such as the one General Motors com- 2. promote the reduction of tariffs by multilateral
mitted when trying to sell its Chevy Nova in Spanish- negotiations; and
speaking countries. Nova in Spanish means “doesn’t
3. foster the elimination of import quotas.
go”—and few people would purchase a car named “does-
n’t go.” This marketing error—resulting simply from GATT nations meet periodically to review progress
ignorance of the Spanish language—cost General Motors toward established objectives and to set new goals that
millions in initial sales, as well as considerable embarrass- member countries want to achieve. The goals and objec-
ment. tives of GATT vary and change over time as trade issues
Business professionals also need to be aware of for- based on domestic and world economies evolve.
eign customs regarding standard business practices. For Likewise, representatives from Belgium, Denmark,
example, people from some countries like to sit or stand France, Germany, Greece, Ireland, Italy, Luxembourg, the
very close when conducting business. In contrast, people Netherlands, Portugal, Spain, and the United Kingdom
from other countries prefer to maintain a spatial distance came together to form the European Economic Commu-
between themselves and the people with whom they are nity (EEC), sometimes called the Common Market, in
conducting business. Thus, before businesspeople travel 1958. The purpose of the EEC was to create equal and fair
overseas, they must be given training on how to conduct tariffs for all of the nations in the organization so that
business in the country to which they are traveling. trade could flourish in Europe.

424 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION