Page 12 - DMGT545_INTERNATIONAL_BUSINESS

Unit 1: International Business: An Overview

Sales and Profit notes

Foreign markets constitute a larger share of the total business of many firms that have wisely
cultivated markets aboard. Many large U.S. companies have done well because of their overseas
customers. IBM and Compaq, foe ex, sell more computers aboard than at home. According to the
US dept. of commerce, foreign profits of American firms rose at a compound annual rate of 10%
between 1982 and 1991, almost twice as fast as domestic profits of the same companies.

Diversification

Demand for mast products is affected by such cyclical factors as recession and such seasonal
factors as climate. The unfortunate consequence of these variables is sales fluctuation, which
can frequently be substantial enough to cause lay offs of personnel. One way to diversify a
companies’ risk is to consider foreign markets as a solution for variable demand. Cold weather,
for instance may depress soft drink consumption. Yet not all countries enter the winter season at
the same time, and some countries are relatively warm year round. Bird, USA, inc., a Nebraska
manufacturer of go carts, and mini cars, for promotional purposes has found that global selling
has enabled the company to have year round production. It may be winter in Nebraska but
its summer in the southern hemisphere – somewhere there is a demand and that stabilizes the
business.

Inflation and Price Moderation

The benefits of export are readily self-evident. Imports can also be highly beneficial to a country
because they constitute reserve capacity for the local economy. Without imports, there is no
incentive for domestic firms to moderate their prices. The lack of imported product alternatives
forces consumers to pay more, resulting in inflation and excessive profits for local firms. This
development usually acts as prelude to workers demand for higher wages, further exacerbating
the problem of inflation.

Import quotas imposed on Japanese automobiles in the 1980’s saved 46200 US production jobs
but at a cost of $160,000 per job per year. This cost was a result of the addition of $400 to the
prices of US cars, and $1000 to the prices of Japanese imports. This windfall for Detroit resulted in
record high profits for US automakers. Not only do trade restrictions depress price competition
in the short run, but they also can adversely affect demand for year to come.

!

Caution Demand for most products is easily to be fluctuated by occurrence of any cyclical
or seasonal factors pertaining like recession or climate.

employment

Trade restrictions, such as high tariffs caused by the 1930’s Smoot-Hawley bill, which forced
the average tariff rates across the board to climb above 60%, contributed significantly to the
great depression and have the potential to cause wide spread unemployment again. Unrestricted
trade on the other hand improves the world’s GNP and enhances employment generally for all
nations. Importing products and foreign ownership can provide benefits to a nation. According
to the institute for international economics – a private, non-profit research institute – the growth
of foreign ownership has not resulted in a loss of jobs for Americans; and foreign firms have paid
their American workers the same, as have domestic firms.

lovely Professional university 7