Importance of Strategic Planning when Entering International Markets
When a company decides to take their business international, there are many different factors that they need to take into account. There are differences in management styles, international laws and treaties that regulate international business, trade barriers, tariffs, taxes, exchange rates as well as cultural customs that come into play. Each of these is significant and needs to be taken into account in order to minimize potential problems. It is essential to an expanding company to study these factors and integrate them into taking their business abroad. Many times, lack of knowledge can create serious problems and in some situations stop a business deal from happening all together. If such matters are not ever correctly dealt with they can completely destroy the entire business. All a company needs to do to reduce this risk is some research in the international market.
Today it is difficult to completely stay out of the international market place. Even if a business is completely based in a specific country, it is very possible that another company outside their country supplies them. Even if there is a small company that is simply importing some parts from Mexico, there are rules that must be met for NAFTA. It is almost impossible today for a company to avoid dealing with international issues. That is why all companies should have some understanding of international business.
When first discussing international business, one must realize how beneficial international trade is to the world. Trade amongst countries has been growing very rapidly since the end of the Second World War. One way of looking at international trade is the simple economic principle of supply and demand. One country is producing something that another country needs so they use trade in order for the other countries to obtain the products that they desire. This then brings in the basic law of comparative advantage by David Ricardo, “Each country would posses comparative advantage in the production one of the two products and both countries would then benefit by specializing completely in one product and trading for the other.”(3) A country can definitely gain by any means of trade.
Countries set up barriers to import and export for several reasons. Duties on importing and exporting can create some government revenue. It is usually a minor source of revenue, however, in smaller less developed countries, it can be a significant source of revenue. A shortage of supply is a reason for a high tariff on exports in a country. 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 of it. 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...