Socio and Economic Factors in Global Business
When a company decides to take their business international, there are many different sociological and economic factors that they need to take into account. There are differences in management styles, international laws and treaties that regulate international business, as well as cultural customs that come into play. Each of these are significant and needs to be taken into account in order to minimize potential problems. Many times, lack of knowledge can create serious problems. Although there are a myriad of socio- and economic factors, this paper will focus on three key ones: 1) political barriers; 2) labor practices; and 3) cultural barriers. Additionally, real world examples will be offered on how some businesses have successfully overcome these barriers.
For purposes of this discussion, political barriers refer to the geo-political situation of a country, as well legal barriers such as tariffs, taxes, etc. Countries set up barriers to foreign entities conducting business within their borders (especially imports and exports) for several reasons. Duties and taxes can create some government revenue. If there is a high tariff then there will be less exporting, therefore more of that product in the country, thus making the price of that product in the country lower since there will be a greater supply. So trade barriers can be helpful to a country. On the contrary, trade barriers can have a negative effect on a country as well. Consumers will have to pay a higher price on imports, and for similar products produced in the country the price will rise due to consumers buying the imported products. In order to regulate the barriers on international trade, there have been organizations formed. GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization) and NAFTA (North American Free Trade Agreement) are just a few examples (Czinkota, 1999).
Other considerations in overcoming political barriers are the governments themselves. Conducting business in Cuba is virtually impossible for American companies probably until the fall of the Castro regime. Domestic and international pressure on human rights, governments considered to be corrupt or "illegal" may also hamper an organization’s ability to do business in certain regions of the globe. Although these factors are challenging, they are not insurmountable. Take Wal-Mart’s entrance into the mainland China market. The benefits of building a business in this market are enormous, and every company in the industry that considers itself a global player has spent the past five years trying to win the favor of Chinese officials. While most continue to lose money, including Wal-Mart, they've come to realize that loss is the cost of admission to a market offering the potential for enormous sales and profits as it transitions to a market-based economy and the standard of living increases for its 1.2 billion...