Barriers to International Business

Firms desiring to enter international business face several obstacles, some much more severe than others. The most common barriers to international business are: cultural, social, and political barriers, and tariffs and trade restrictions.

A nation's culture and social forces can restrict international business activities. Culture consists of a country's general ideas and values and tangible items such as food, clothing, and buildings. Social forces include family, education, religion, and customs. (9)

Some countries also have different values about spending than do Americans. The Japanese have long been a nation that believes in paying cash for the products they buy, although the use of credit cards has soared in Japan over the last few years. The Japanese still save nearly 20 percent of individual income, compared to about 4 percent saved by people in the United States.

(10) In some countries, purchasing items as basic as food and clothing can be influenced by religion. And some societies simply do not value material possessions to the same degree that Americans do.

Most firms know the importance of understanding the cultural and social differences between selling and buying countries. (11) For instance, a business deal in Japan can fall through if a foreign businessman refuses a cup of green tea during a visit to a native Japanese firm.

The political climate of a country can have a major impact on international business. Nations experiencing intense political unrest may change their attitude toward foreign firms at any time; this instability creates an unfavourable atmosphere for international trade.

Tariffs and trade restrictions are also barriers to international business. A nation can restrict trade through import tariffs, quotas and embargoes, and exchange controls.

Import tariffs: a duty, or tax, levied against goods brought into a country is an import tariff. (12) The risk in importing tariff is that the other country could take the same action.

Quotas and embargoes: a quota is a limit on the amount of a product that can leave or enter a country. Some quotas are established on a voluntary basis. (13) For instance, Japanese automobile manufacturers have voluntarily reduced the number of cars shipped from the United States to five automakers here the time they need to modernise their factories. An embargo is a total ban on certain imports and exports. Many embargoes are politically caused.

Exchange controls: restrictions on the amount of a certain currency that can be bought or sold are called exchange controls. (14)

A Tariff can be used to discourage foreign competitors from entering a domestic market.

B A government can use exchange controls to limit the amount of products that importers can purchase with a particular currency.

C The voluntary quota reduced the quantity of products for exportation.

D Selling products from one country to another is sometimes difficult when the cultures of the two countries differ significantly.

E Generally, a voluntary quota fosters goodwill and protects a country from foreign competition.

F However, managers still make costly mistakes when conducting business internationally simply because they do not understand such differences.

G The most common barriers to international business are: cultural, social, and political barriers, and tariffs and trade restrictions.

H Social forces which are universal in people's daily life can create obstacles to international trade.

(9)