Business in a Global Environment

 

LESSON 5 OF z2.busa.101-Intro2Biz

Date: 3 Juney 2020

 

TOPIC 1: Business in a Global Environment

(Read pgs. 78 to 106 of Fundamentals of Business,  by Skripak Stephen J.

BUSINESS IN A GLOBAL ENVIRONMENT

 

International business is affecting everyone.

·       Most of the products around you are manufactured overseas.

·       You will meet and work with individuals from various countries and cultures as –

          i. customers,

          ii. suppliers,

          iii. colleagues,

          iv. employees,

          v. employers.

·       The bottom line is that the globalization of world commerce has an impact on all of us. In this topic we discuss how globalization operates.

 

 

TOPIC 2: WHY NATIONS TRADE AMONG EACH OTHER

No nation is self-reliant, no one nation can produce all the goods and services that its people need.

Bottom line is no nation can do without other nations.

Importing is when a country buys goods/services from other countries e.g. Zambia buys machines/vehicles from Japan

Exporting is when a country sells goods/services to other countries, e.g. Zambia selling maize to Kenya, Malawi etc. Zambia also sells electricity, tourism etc.

The cost of labor, the availability of natural resources, and the level of know-how vary greatly from country to country, hence trade among countries.

 

 

TOPIC 3: HOW WE CAN MEASURE TRADE BETWEEN NATIONS

 

To evaluate the nature and consequences of its international trade, a nation looks at two key indicators: 

BALANCE OF TRADE

BALANCE OF PAYMENT

 

Balance of Trade is the difference between the amount a country earns from exporting goods and what it spends on importing goods.

It can either be:

·       If imports exceed exports a country is said to have an unfavourable balance of trade.

·        If, on the other hand, exports exceed the imports, the country would have a favourable balance of trade. For a country to be able to do all this the customs authorities keep a statistical record of goods coming in and those leaving the country. It is from these records that a country can work out the total amount of goods imported and those that are exported in a given year. 

 

Balance of Payment is the difference between total exports and total imports. This includes the visible, invisible as well as capital items. In case of Zambia, exports of copper, farm produces represent a source of foreign exchange earning while foreign debt repayment is a use of such funds. So the balance of payment of Zambia summarizes all payments made to other countries and payments received from other countries. These are divided into three types: 

The visible items – refer to trade in physical goods that we can touch, see, measure and or weigh; such as furniture, cars, clothes, foods, building materials etc.

The invisible items – refer to trade in services sold to foreign countries which bring money into Zambia and those bought from foreign countries which result in money leaving the country. For Zambia, tourism, Zambia supplying electricity to other countries, human skills to other countries as well as coming to see the physical beauty of Zambia; these bring money into Zambia. These are called invisible exports. On the other hand, Zambia pays for services to other countries e.g. transport, banking, insurance, etc.

The capital items – these record all international purchases of sales of assets by Zambia. In this case an asset is any form in which wealth can be held, such as money, stock, bonds, land, factories etc. When foreigners buy assets or invest in Zambia, there is a capital inflow. On the other hand when Zambians buy foreign assets or invest abroad, there is capital outflow. The Capital Account also shows the amount of money coming in through borrowing from abroad and the amount going out through lending abroad. The capital balance is calculated by subtracting the net capital receipts from abroad from net capital payments made abroad i.e. CB = CR – CP

 

 

TOPIC 4: IMPLICATIONS OF BALANCE OF PAYMENT

 

Favourable balance of payment – when export is greater than import, this is called favourable balance of payment. This is the goal of all countries including Zambia. This means:

·       The country can afford to implement development projects such as building schools, hospitals, houses, roads, provide clean water, education etc.

·       The country makes savings in the form of foreign exchange reserves that can help pay for imports

 

Unfavourable balance of payment – this is when import is greater than export. This means the country spends more than it earns. Persistent unfavourable balance of payment is the biggest economic problem facing many countries in Africa.

·       a country becomes a net borrower

·       development projects will either be delayed or postponed or even cancelled

·       citizens will live a poor standard of living

 

How Countries Solve Unfavourable BALANCE OF PAYMENT PROBLEM

 

1. Devalue the local currency – the Kwacha

          i. it makes exports cheaper

          ii. imports become more expensive after devaluation

 

2. Impose import quotas – a quota is a limit set on the amount of imports allowed in the country in given year.

 

3. Impose tariffs or customs duty – customs duties restrict imports by making import far too expensive thereby discouraging people from buying imported goods.

 

4. Ban the importation of some goods – place a ban of importation

 

5. Push up interest rates – this causes a fall in spending

 

6. Stimulate exports by providing subsidies – encourage local manufacturers of exported goods


TOPIC 5: PROBLEMS FACED BY TRADERS IN INTERNATIONAL TRADE

Exporters find it more difficult to sell their goods in foreign markets than in their own country because of the following:-

·       There are problems of obtaining information on foreign markets; 

·       There is the difficulty of communication caused by language difference; 

·       Longer distances add problems faced for exporters 

·       There is the delays in payment due to political factors and exchange control regulations 

·       The problem of trade barriers either in the form of customs duties, quota or total ban; 

·       Differences in units of measurements cause a problem too; 

·       There is the problem of payment since different currencies are involved

 

 

TOPIC 6: TRADE CONTROLS

Governments continue to control trade. They do this in order to protect domestic industries by reducing foreign competition, the use of such controls is often called protectionism and they use the following means:

Tariffs are taxes on imports

Quota imposes limits on the quantity of a good that can be imported over a period of time.

 

 

TOPIC 7: REDUCING INTERNATIONAL TRADE BARRIERS

 

1. Trade Agreements and Organizations

2. General Agreement on Tariffs and Trade

3. World Trade Organization

4.Financial Support for Emerging  Economies:

          i. The International Monetary Fund

          ii. The World Bank

          iii. The European Union

5. The SADC – Trade in goods

6. COMESA

 

THE SADC – TRADE IN GOODS

It is an agreement between SADC member states to:

·       Reduce customs duties and barriers to trade in imported products among SADC member states.

·       A Free Trade Area, in which Member States agree to remove tariffs against each other but are free to levy their own external tariffs on non-member nations, fosters economic cooperation between Member States

·       A Customs Union adds a common external tariff against non-SADC countries with all members of the union receiving shares from that tariff

·       Gradual elimination of tariffs

·       Adoption of common rules of origin

·       Harmonization of customs rules and procedures

·       Attainment of internationally acceptable standards, quality, accreditation and metrology

·       Harmonization of sanitary and Phyto-Sanitary - Member States have agreed on a need to apply measures to ensure food, animal and health safety across the region. The SADC Protocol on Trade provides a framework for co-operation on these issues

·       Competition Policy – in order to support wider cooperation and effective monitoring of business practices, SADC has developed a Declaration on Regional Cooperation in Competition and Consumer Policies

·       Non-Tariff Barriers – SADC is committed to removing barriers to trade, such as import/export quotas and administrative oversights

 

COMESA

COMESA is abbreviation for Common Market for Eastern and Southern Africa

OBJECTIVES:

·       Need to create and maintain; full free trade area guaranteeing the free movement of goods and services produced within COMESA and removal of all tariffs and non-tariff barriers;

·       A customs union under which goods and services imported from non-COMESA countries will attract an agreed single tariff in all COMESA Members States

·       Free movement of capital and investment supported by the adoption of a common investment area so as to increase a more favourable investment climate for the COMESA region;

·       Gradual establishment of a payment union based on the COMESA Clearing House and the eventual establishment of a common monetary union  a common currency

·       Gradual Relaxation and Eventual Elimination of Visa Requirement leading to the Free Movement of Persons, Labour, Service etc