Factors affecting the growth of international business Essay
Though international business has experienced tremendous growth in the recent times, there are still some factors that affect its growth. Such factors are: i. Political stability: Different countries vary on the way they handle and deal with issues related to international business. Some countries encourage foreign businessmen and companies to invest in their land by reducing investment taxes and offering them a favorable and level playground while others impose tough conditions.
Therefore when an individual or company is considering investing on a given country, political stability should be an issue of great concern. A country that is politically unstable is prone to making quick decisions that can negatively impact on the fate of international businessmen and investors (Dunning, 1999:481). For example, a country can decide overnight to change its policies towards engaging itself in international business.
Political instability has also been the cause of civil wars in most countries resulting to serious economic catastrophes. ii. Foreign currency: Transacting in foreign currency has also been a major issue affecting the growth of international business. Foreign currency usually fluctuates in value posing a serious danger to foreign companies as well as the businessmen. These parties could lose an enormous amount of money especially if
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Another case that involves currency is that some countries do not usually have the cash necessary to purchase a particular product. The only means of carrying out transactions with such countries will only be involving in exchange of goods for other goods or counter trading. Such kind of trade used to exist in pre-historic times and it was majorly known as barter trading. An example of counter trading involves a foreign company exchanging cars for steel with a certain country. The company then uses the steel to manufacture other new cars.
iii. Self sufficiency: Another issue that has been affecting the growth of international business is self sufficiency. Self-sufficiency is a situation in which a given country does not want to involve in international business with other nations. Such countries prefer taking this route mainly due to their strong political and cultural beliefs. An example of this is the former Soviet Union. The Soviet Union imposed policies and restrictions that prevented practicing whatever kind of trade with other nations apart from their allies.
The major reason why the Soviet Union avoided involving themselves with international business was due to the fact that they wanted to carry out their leadership without being influenced by other external forces. iv. International Trade Policies: Another important factor influencing the growth of international business is taxes. Most countries impose excise tax on imported goods and commodities. Excise tax is imposed on imported products due to various reasons. For example, a country could impose a revenue tax on a particular product.
This kind of tax is majorly used by such country to generate its own revenues to be used in other forms of development. Revenue tax is usually set at a lower cost and does not have much impact on international business. But there arise a situation whereby, the domestic companies compete for a local market with foreign companies. This usually prompts the government of the affected nation to impose protective tax on the imported goods (Kline, 2005:7). This is normally done in order to make imported goods more expensive than the domestic ones thus protecting the domestic companies.