Page 12 - DMGT545_INTERNATIONAL_BUSINESS
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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.









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