Commerce Exam Revision Chapter 8

Commerce Exam Revision Chapter 8

Sourcing products internationally

Improved technologies and communications have changed how consumers shop. Consumers around the world will just as readily browse an Internet shopping site as examine a catalogue delivered to their private letterboxes. As the world has evolved into a global marketplace, the world's consumers have become global in their buying behaviour.

Trends towards a global market

The development of mass communications has increased the uniformity of consumers around the world. For example, the same television commercials are shown across the globe. Internationally, millions of people want to purchase a particular brand of soft drink, jeans, sunglasses, computer, DVD player or car.

Purchasing products internationally – online shopping

Over the last decade, e-commerce (online shopping via the Internet) has become the most commonly used method of purchasing products from overseas.

Amazon.com - an e-tailer

Amazon.com is one of the best known of all online e-tailers. Originally only selling books, it now sells music, gifts, electronics, DVDs, videos, tools and hardware.

The relationship between domestic and international trade

We live in a global world, rather than a world limited by national borders. Consider the news and

entertainment we receive from around the world, the clothing and footwear brands being sold worldwide, the rapid telecommunications access to all parts of the globe, and the large number of products Australia buys and sells on the world market. This process has been strengthened by the impact of globalisation: a trend that sees people, goods, money and ideas moving around the world faster and more cheaply than before. In the commercial world, globalisation refers to:

globalisation of production - businesses becoming transnational by operating in manycountries

Globalisation of markets - consumers purchasing products from around the world.

Items of trade

What does Australia export?

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

What does Australia import?

Imagine all the Subaru cars, Nike sports shoes and IBM personal computers sold in Australia during the past year. They are just a small part of all the imports which Australian consumers buy. An import is a good or service bought from another country. We import goods and services either because we can purchase them more cheaply from overseas or because we cannot produce them ourselves.

Australia's changing trading partners - past and present

Who are Australia's main customers?

Due to Australia's historical links with the United Kingdom and Europe, the majority of our trade used to be with these regions. However, since the end of the 1940s:

as new markets began to emerge, the generalemphasis 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's biggest export customer by 2012.

Who are Australia's main suppliers?

Changes in the direction of Australia's exports over the last century have been matched by changes in the sources of our imports. A dramatic decrease in the importance of the United Kingdom has been offset by an increase in the importance of the Pacific countries - namely Japan and the United States Ð and the growing significance of the South-East Asia region.

Investing money in the global financial market

Money is now more mobile and flows relatively easily between countries due to the globalisation of equity (share) markets. This has come about because financial services companies such as Deutsche Bank, Citibank, Goldman Sachs and Nomura Securities have expanded into many countries. These businesses are keen to arrange finance deals and provide advice for customers anywhere around the world.

Features of businesses with global links

A 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 countries.The TNC represents the highest level ofinvolvement in global business where national bordersdo 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, ®nance, assets,technology, information, employees, patents, goodsand services all ¯ow freely from one country andone subsidiary to another. These resources may beshared within the corporation. For example, informationmay be pooled through corporation-widedatabases, and patents and technologies may beutilised on a global scale.

Operations - the main activities of a TNC in the Australian economy

Billabong International Limited One example of an Australian TNC is BillabongInternational Limited, manufacturer of surf andextreme sports apparel and accessories. Establishedin Queensland in 1973 by Gordon Merchant,Billabong originally manufactured only boardshorts.Today, Billabong designs, produces and distributesa wide range of surfand extreme sports wearincluding swimwear,jewellery, belts, backpacks,skateboards and sunglasses.It is currently the leadingsurf wear apparel brand inAustralia.

From its head office in Burleigh Heads, Queensland, the company controls its major brands - Billabong, Element and Von-zipper. Billabong products are distributed to over 3000 outlets worldwide. The product range consists of over 2200 items in Australasia, over 1300 items in North America and 1200 items in Europe.

Employment issues

A business's success is very much determined by the abilities and performance levels of its employees. Therefore, the quality, quantity and composition of the available labour force are important considerations for any business as it undergoes global expansion, as well as establishing and maintaining effective employment relations.

Staffing

In a global business, finding the right people can be difficult, especially for senior management positions. These positions require people who are preferably bicultural, able to appreciate and understand the business practices and customs in the host country, and who can speak the language of both home and host country.

Minimum standards of labour

Each country has specific labour laws that outline the minimum wage and non-wage conditions for employees. Obviously, there are regional and cultural differences in labour standards. Labourstandards refer to those conditions that affect a business's employees, or those of its suppliers, subcontractors, or others in the production chain. In some developing countries, sweatshop conditions exist, in which adults and children work long hours in extreme heat for very low wages and with virtually no safety precautions. There is increasing pressure to ensure employees who work for low wages in many developing countries are not exploited by unscrupulous businesses.

Cultural diversity

Cultural diversity means the multitude of individual differences that exist among people. With the pressure to globalise, businesses must find new approaches to staffing. Workplace diversity in terms of gender, race, ethnicity and religion is a permanent feature of today's workplaces.

Managers, therefore, are required to effectively manage a culturally diverse workforce.

Ethical issues of international trade

Numerous TNCs have recognised the importance of fulfilling their social responsibilities.

Environmental standards

There is growing pressure for businesses to adopt ecologically sustainable operating practices. Concern for our environment operates at the local level as well as on a global scale. Over the last two decades, the global business community has undertaken many initiatives to put the principle of sustainable development into practice. For example, the jeans manufacturer Levi Strauss and Company has developed its own environmental policy. Levi Strauss will conduct business only with partners who share its commitment to the environment.

Human rights code of conduct

A human rights code of conduct is one method of conducting business in a socially responsible way. Once a code of conduct has been established, the organisation may insist that all its suppliers conform to it. Billabong, for instance, will only deal with suppliers who live up to its code of conduct requirements. Some business people doubt whether such individual company codes can stop labour abuses in other countries, in part because other competitors may not abide by similar standards.

Global business and environmental issues

In many developing countries, environmental protection laws are often non-existent or very weak. This has tempted a number of TNCs to use these vulnerable countries as a means of engaging in activities that are detrimental to the environment.

Of particular concern is the dumping of hazardous materials, including nuclear waste, in developing countries. Countries are often coerced into taking such materials; they may receive Financial or other incentives and extra revenue may be used to repay staggering foreign debts. Of course, transnational corporations have little fear of any retaliatory actions from individual citizens of developing countries.

Risks associated with selling to global markets

There are many advantages to be gained from selling internationally. However, a business that expands globally has to deal with more complex factors than a business that operates only in a domestic market.

Currency risks

Countries have their own currency, which they use for domestic purposes. This means that when transactions are conducted on a global scale, one currency must be converted to another Ð the foreignexchange rate. For example, if an Australian business (exporter) sells foodstuffs to Japan, the Japanese firm (importer) will have to pay in Australian dollars, not Japanese yen.

Exchange rates fluctuate over time due to variations in demand and supply. A currency depreciation lowers the value of a currency in terms of foreign currencies. Therefore, a depreciation in the Australian dollar makes our exports cheaper on international markets but prices for imports will rise. A currency appreciation has the opposite affect. Consequently, exchange rate fluctuations will affect the profitability and production costs. Such fluctuations create risks for global business.

Political risks

A political risk is defined as 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. Political risks tend to be greater in countries experiencing social and economic unrest, particularly terrorism, war or other violent conflict. In such situations, businesses may have to find means to directly influence politically powerful people in order to obtain permission to operate in the country.

Legal risks

Global business is affected by many thousands of laws and regulations because each country has its own unique set of laws and legal systems. These can vary dramatically between countries. This poses a number of risks for a global business in the areas of:

Contract law - especially the methods ofenforcing contracts

Legal disputes - resolving these can be verycomplicated due to differences in legal systemsand culture

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

Social and cultural risks

International business is conducted on the world stage. This means that people are working in societies and cultures that differ from their own. It is important that international businesspeople fully understand and appreciate the customs and traditions of the countries they deal with. Failing to do so may result in either an embarrassment or lost business opportunities.

Role of aid

Foreign aid consists of financial and technical assistance by government and non-government (private) organisations from developed (high income) nations to developing (low income) nations. The assistance comprises:

Loans - involving the payment of an interestrate to the donor country

Grants -gifts which do not have to be repaid

Technical assistance - trained personnel, suchas 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 -constructionof schools, wells, health centres etc.

Sources of aid

1. Non-government aid. This is provided by over 110 Australian humanitarian, non-government organisations (NGOs). These include religious and voluntary organisations such as Christian Blind Mission International, TEAR Australia and World Vision, and non-religious organisations such as CARE Australia and the Red Cross.

2. Government aid. The Australian Government's overseas aid program is managed by AusAID, the Australian Agency for International Development, which provides assistance for over 60 million people living in poverty around the world. These programs play an important role in maintaining the links with recipient countries, most of which are located within the Asia-Pacific region.

Role of foreign aid

Foreign aid is used to support economic development in the recipient countries. Developing countries lack the financial and technical assets to improve their physical and human resources. The richer countries are in a position to provide help to developing countries. At the heart of all aid programs should be the desire to encourage ecologically sustainable economic development. Successful aid programs will reduce poverty and improve the standard of living, resulting in stronger, more stable communities. From building roads and bridges, providing healthcare and educational facilities, to delivering clean drinking water, foreign aid is a crucial element in a developing country's drive for economic development. This is demonstrated in AusAID's Long Delta Rural Water Supply and Sanitation Project.