UNIVERSITY OF EXETER
PRINCIPLES OF INTERNATIONAL BUSINESS
2. Discuss the role and principles of the World Trade Organisation (WTO), as well as its
effects on both developed and developing economies.
The World Trade Agency (WTO) is the primary international organization responsible for enforcing international trade laws and treaties. Its main purpose is to provide smooth, regular, and unhindered international trade. Individuals and trading economies gain from the WTO’s policy because it reduces trade restrictions via negotiations among member states. International trade rules provide a sense of security and stability. Consumers and producers believe that technical developments will lead to more choices in finished goods and components, raw materials, and services. Production and exporters know they will have access to foreign markets for some time. Globally, these efforts have made the world more prosperous, peaceful, and responsible. WTO decisions are typically achieved by consensus among all members, and then adopted by national legislatures. Disputes over global commerce go through the WTO’s dispute settlement process. Concerned with interpreting international trade agreements and commitments, the WTO also works to align national trade policies with these agreements and obligations. Disagreements that do not escalate into political or military conflicts are less likely to do so in the future.
The WTO has principles based on a policy of pursuing open borders, non-discriminatory treatment for all member states, and the guarantee of a most-favored-nation code. A majority of the world’s trading economies have negotiated and accepted the WTO treaties, which are then reaffirmed in their national legislatures. These agreements provide the legal basis for international business transactions. These accords are essentially commercial treaties that provide WTO members major commercial rights. These accords also force countries to maintain openness and predictability in their trade practices, which benefits all parties. The agreements help create a stable and transparent environment for product and service manufacturers, exporters, and importers. The ultimate goal is to improve the lives of individuals living in WTO member countries. In order to achieve more uniformity in global economic policy-making, the WTO collaborates with international bodies including the International Monetary Fund and World Bank. When it comes to accomplishing global goals such as the Sustainable Development Goals, the WTO is a critical participant.
In the World Trade Organization, developing and least-developed countries account for more than three-quarters of the membership. All of the countries on the list of those who will be accepted are also developing nations. In the current debate, the question of whether the interests of developing nations are adequately represented in the WTO is at the forefront of the discussion. Even the poorest of the developing world’s countries have come to recognize that the system is helpful to their own citizens and communities. For member countries, both developing and developed, membership provides a number of significant advantages, including increased trade opportunities, protection against exploitation, collaboration on global policymaking, participation in the global economic platform, and improved trading prospects. In addition to assisting developing countries in the creation and execution of export promotion programs, the WTO also assists developing nations in the development and implementation of import operations and strategies. Export markets are covered in detail by the organization’s information and recommendations. Membership in the WTO has made it feasible to provide export promotion and marketing services, as well as to train the personnel who will provide these services in various countries.
For developing countries, each of the WTO’s agreements contains special provisions, such as extended implementation periods for arrangements and obligations, ways to raise trading opportunities, assistance in developing infrastructure relevant for WTO roles, resolving disputes, and putting technical standards into effect. The least-developed nations are given special consideration and treatment, and some rules are lifted in their favor as part of this. The WTO can also use the needs of the developing nations to justify acts that would otherwise be prohibited under the accords, such as the granting of specific subsidies to governments of member states.
The cooperation between the developed and the developing nations is best exemplified by the WTO. Some of the effects to both nations include a chance to improve economies through trade. Ultimately, the argument over whether poor nations require assistance or trade in order to grow has come to a conclusion. For developing nations’ growing markets, there is a need for both assistance (aid) and opportunities for trade. WTO treaties, on the other hand, do not ensure a rise in trade flows; rather, they provide chances for an increase in trade. An initiative of the WTO called Aid for Trade brings together donors, development organizations, recipient governments, and the private sector on a regular basis to address trade-related concerns. This conversation aims to draw attention to what is available and what is required, as well as to aid in the construction of more successfully planned initiatives in the future.
3. Discuss three potential factors/reasons that may motivate a firm to invest abroad.
One of the most important reasons for businesses to invest abroad is to expand their product markets, not only in the region where the investment is being made, but also in neighboring countries or countries with which the company already has trade relations, according to the International Finance Corporation. It is referred to as an export platform because it supports firms in overcoming trade barriers such as tariffs and establishing physical closeness to their target market, hence cutting logistics and transportation costs and increasing profitability. A similar situation might occur in the service business. Many US-based corporations, like Amazon, Google and Facebook, outsource customer support operations to other countries to save costs and provide a service that is culturally appropriate with their customers while remaining in the same time zone as their headquarters in New York.
Second, increasing the efficiency of a company’s operations is a compelling reason to expand its activities abroad. Companies make investments in a range of locations in order to guarantee that each product may be manufactured in the most cost-effective location feasible for the company. This type of strategy is referred to as vertical investment in the business world. Volkswagen’s headquarters are in Germany, but the business produces and assembles autos at a number of locations throughout the world in order to cut costs. Volkswagen’s headquarters are in Germany. This investment also forms part of a hybrid approach that incorporates the notion of an export platform with the quest of greater efficiency. When considering the profitability of a business venture, the costs of transportation and the availability of infrastructure are critical considerations to consider. Despite the fact that a country may have low labor costs, if the country also has high transportation costs to deliver the commodities to the international market, this is a disadvantage. Countries with access to the sea have a competitive edge over landlocked countries, which will pay higher shipping costs as a result of the increased prices of shipping commodities in the coming years. Foreign direct investment is typically focused toward the selling of goods directly to the country that was engaged in the process of collecting the money in order to maximize efficiency. Future investment will be heavily influenced by factors such as the population size and the possibility for economic development. To provide an example, Eastern European countries with a large population, such as Poland, offer opportunity to expand their business into new market segments. In order to sell to Poland’s growing middle class, foreign manufacturers such as Toyota and Volkswagen may decide to invest in and build factories in the country. Here, smaller countries are at a disadvantage because investing in a small population does not make financial sense. Because the rapidly expanding Chinese middle class is likely to have a considerable demand for the goods and services of multinational firms, China will be a popular location for foreign investment in the coming years.
Outsourcing labor-intensive manufacturing to countries with cheaper labor costs is another key motivation for multinational firms to extend their operations abroad. It is possible that outsourcing production could allow firms to save money on costs. For example, some countries provide low wages with very high-skilled labor. China and India are prime examples of such nations, explaining why companies such as Apple and Nike choose to operate in Asia. Because of this, a large number of Western firms have opened manufacturing facilities in Asia, notably in countries such as Taiwan, India, Cambodia, Vietnam, China, Singapore, and the Philippines. Wage rates, on their own, have little effect on foreign direct investment; but, countries with high wage rates may attract higher-technology investment. Because of the low wages in Sub-Saharan Africa, a corporation may be cautious to invest there because the positive elements of the region outweigh the bad ones, which include a lack of infrastructure and poor transportation links. Specialized labor is required at higher concentrations in some industries than in others, such as pharmaceuticals and electronics. Global firms will thus invest their money in countries that provide a combination of low wages and high worker productivity as well as skills. The call center sector, for example, has attracted a lot of attention since India has a significant percentage of the population that knows English and yet salaries are relatively low in the nation. As a result of its attractiveness as a place for outsourcing, it is a popular location for foreign direct investment.