Companies engage in international operations due to comparative advantages, but face national restrictions imposed by governments to manage economic factors, protect local industries, or for political reasons. Multinational corporations actively seek strategies to overcome these barriers, leading to the evolution of global trade agreements and organizations.
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Gradually we're going into that
international operation as you're
saying. So we're talking about now the
reason why a company will also have to
be selling to other country because they
might have comparative advantage or
absolute advantage and they will able to
make more money at a lower cost. Yeah.
But guess what there can be restrictions
Let's call it national restrictions
as you probably have heard about US have
been putting all sort of restrictions on
on importing of things into the US and
all over and you find it in all
countries. Every country has their
restriction. Yeah. So and why why do you
think countries will want to put
restrictions? There are so many reasons
which you probably learned in FM if you
remember. Yeah. national restrictions to importation.
So some countries might not allow things
to be imported into their country for so
many reasons or even if it's going to be
imported they might want to control the
amount or how it is done or so many
process around that um that trading and
the major reason is because they might
want to manage their foreign exchange rate.
Remember a country that imports a lot,
would that country have a weaker
>> A weaker
>> I think it's going to be weaker. Yeah. Yeah.
Yeah.
>> Exactly. Exactly. So if you import a
lot, you are likely going to weaken your
currency. So that might be one reason
why a country might say no we don't want
things to be imported or we want to be I
mean we allow importation however we
want to control it we don't want social
amount we want this one we don't want
that one yeah or it might just be
because they just want to
manage competition
remember this factor is also very
important if you bring things to the country
country
especially when there's already a local
product obviously it will increase
competition in the market and it has
both pros and cons. When there is
competition, price will be low. So the
customers might benefit. However, it
might not be good for the market. Might
not be good for the economy of the
country because the local country might
not be able to make money as much as
would have been able to make. And if the
local company is not making a lot of
money, they might not be able to employ
people. They might not be able to make a
lot of money to even do additional
investment. is a foreign country company
that has come into your country will
make money and move all the money out to
their country. So
because of that national
restriction might want to play in there
to make sure that the competition is not
really really so much that the prices
are coming down and all of that. Yeah.
And that also ties to another reason
which is if the national country wants
to promote domestic market growth, they
might not want product to come in from
outside of their country. And another
popular one is the political reasons.
Yeah. Which you also have seen in the US
and all the other places just for
political reasons. They just don't want
your product to come in. Yeah. And
because we're not friends or we're
enemies. Yeah. Yeah. So those are a few
reasons yeah that might make
but the question is now how do they do
it? How can they achieve those
restrictions? Yeah. How what are the
measures that countries usually put in
place to minimize importation? Yeah. And
that is what you refer to as
they're trying to protect their country
from importation. So what are those
protectionist measures
that countries normally use?
The first one which is very popular is
can use tariffs and what is tariffs? We
all know what tariffs is. We're talking
So something that probably
used to be imported into a country maybe
free of tariff then they can say oh if
you are selling that product $100
whatever the price you are selling it
government is going to add 50% tax on
it. that they add 50%. Something that you
you
spent $100 automatically goes to 150 and
what happens to price? Price will have
to go up. So almost impossible to be
able to sell that product in that
foreign market. So when government tries
to add that tariff,
two things they are trying to do.
The first one is they are trying to make
sure that your product is not marketable
in their country
and at the same time they are making
money from you because you are coming to
sell things in their country. So
customers will suffer for sure if the
product has to be sold. However, usually
what happens is this gives room for
local markets to be able to sell or
another country that does not have
similar tariff
issue with the country because usually
when a country is given this tariff they
don't impose it generally on all
countries different rates to different
countries the same product US can say
tariff from Canada is 20% from UK is 35%
from China is 55% the same product so
you realize that different producers
were able to sell their product at
different prices. So eventually you can
see that some countries will be favored
while some would not be favored
and that is how tariffs can be used.
Yeah. Quot is when they putting like a
cap on quantity that you can import into
a country.
So you can say you cannot import more
than 1,000 units in a year.
Unfortunately, once you make that 1,000,
you can't take anything to that country
again. Another country has to serve.
Yeah. You don't want the product to even
come in at all. Yeah. Into the country.
Or you can just use a simple exchange control.
control.
Foreign exchange control is also very
popular. Here what we are saying is that
you don't want people to be able to
access foreign currency or you don't
want people to be able to sell the
domestic uh domestic currency. Yeah. So
Yeah.
to sell
domestic currency.
Remember, if you're importing something
into into your country, you have to pay
the foreign country. And for you to pay
the foreign country, you need foreign
currency. To get the foreign currency,
you have to sell domestic currency. So
indirect way of a government trying to
stop importation is making sure that it
is difficult for anybody to sell their
domestic currency because once you are
not able to sell it there's a limit to
how much you can actually buy your
foreign currency and buy the foreign
product and lastly it's just a pure
admin control.
It's also a subtle way of reducing
importation. And what do they do here?
Government will just put too many
Too many bureaucratic process. So you
are just discouraged by the number of
steps that you have to cross for you to
be able to bring anything into the
country. Yeah. So that is what we refer
to as protectionist measures which
affects companies or multinationals
that are trying to do international
trade outside different countries and
all. Yeah. But do you think the
multinationals will just fold their
hands and be looking at these barriers?
No, they will not.
Multinational companies will want to
break these barriers. So they always try
to break the barriers. So they must
break it because they have to do
transaction. They must find a way out.
Yeah. So those measures that have been
put in place by those countries to
minimize importation has now become the
target for multinationals to see how can
they bypass it? How can can they break through?
through?
There are few things they do. Yeah.
Very important. The first one they try
to do is
So which means they don't have to ship
products and be selling as import. They
just establish a proper subsidiary
in that local local government local uh
market where they want to sell to. So
take for instance if um say
say
you pick a company let's say UK says you
can't ship Apple product into our
country again
okay no problem what Apple can do is to
just build a factory in the UK employ
people there and instead of bringing
apple product there I'm just bringing
raw materials because raw materials will
not be a
then they will start producing in the
local market. So with this they don't
have to actually import any products of
apple into the UK again because now all
of a sudden UK started manufacturing
Apple product that's one way. Yeah.
Another way which is also popular is
through trade agreements
So the government in those different
countries where the companies want to
start trading across each other might
come together and just have an
agreement. Yeah. To say okay yes we will
allow each other to do things. They will
come with terms. Okay. It's okay. Yeah.
Because we agree together. Okay. You can
bring this to my company. You my bring
it to my country. You can sell this to
my country. Will allow you will not
disturb you. So and it depend. Sometimes
it's between two countries. Yeah. If
it's between two countries, that's what
So you have a question exams where a
company is struggling to actually sell
things into another country. A proposal
might be to lobby and engage the other
government to see whether they can have
a bilateral trade agreement
such that both countries will agree.
They give each other one or the other
thing to say okay if I bring wisdom to
your country you two can bring that one
into my country or it might even be
between more than two countries
motor m motor m motor m motor m motor m
motor m motor m motor m motor terror agreement.
Yeah.
>> Or sometimes they establish what you
I hope you're following this story
because it's quite interesting. You see
where we are coming from from
international operations. Why companies
will do international operations.
However, countries might not like it for
things to be coming into their country.
Anyhow, they putting restrictions there.
However, these multinational companies,
they want to break the restrictions
because they want to make money. And how
do they break restrictions? Either they
invest in the local market. Yeah. They
invest in local market or they decide to
have some trade agreement. Yeah. So, how
does free trade area work? I mean, this
is just talking about
different countries coming together in
similar geographical area and with that
they are able to do transaction among
each other. So take for instance you can
have maybe some African countries in the
same area maybe West Africa and just say
okay all of us in West Africa we can
trade amongst each other this particular
product or any product without
restrictions or whatever it is. You also
Yeah. So yeah what you are saying is
that you have
a region with many countries coming
together and agree on the same policy.
Yeah, they form a policy and what
they're trying to achieve is a full
freedom of of movement.
of not just product
whether it's good or services, capital
or labor, people or money. So you're
saying full freedom of movement for
all factors of production.
Remember those four factors of production
production
you're saying all those factors of
production will be able to move. So
those factors we're talking things like
uh talking of capital, labor,
technology, anything. Think about it.
Anything can product and services
whatever you are doing there's no
restriction. If you are belonging to
this market
then you're sorted with your production.
Nothing absolutely nothing to worry
about. Yeah.
Yeah. But guess what? As good as this
look because it helps those
multinational to be able to do their
thing the way they want to do it. It has
it disadvantage.
It has it disadvantages.
Yeah. And the popular one I'm going to
touch on is the fact that non-members
will suffer.
So take from
take for instance if you have
multilateral agreement between say Mexico,
Mexico,
Canada and US
any countries outside these three will suffer
suffer
transactions into any of those three
countries. So UK will suffer to sell
things to Canada or to Mexico or to US
because they are not part of this agreement.
agreement.
Yeah. So and when you look at those kind
of circumstance scenario, it doesn't
make sense because you're just going to
have so many small small organizations
coming together, small countries coming
together, two countries, three
countries, four countries, how many
agreement are you going to be talking
about? And that was what gave rise to
things organizations that are
actually much more encompassing global
organizations like what trade organization
organization
you're talking of um IMF such things
So instead of us just talking about oh
we have bilateral agreement multilateral
agreement with three countries with two
countries now you're talking about
global organizations being formed to
make sure that
we achieve the objective that all these
small small organizations are trying to
achieve but at the same time
we are able to cater for more people and
not just few people because when you
look at this huge organization you'll
realize that Almost all the countries in
the world are members. Yeah. Like for
world trade organizations, you have more
than 164 countries. Yeah. Yeah. I know
few countries are not part of this. Like
Iran is not part of world trade
organizations. Even I'm not sure. I
think Algeria also is not part of that.
Yeah. So just few countries are not
surprisingly part of the world
organization. So which means if they
already part of water organizations,
you're going to benefit as a member. So
because this will discourage those
little small side agreement between each
all those few countries at the same time
it will minimize barriers to
international trading right so enough of
those other groups I mean that non-
members are not able to benefit yeah and
in addition to minimizing barriers yeah
so like I said all of them they focusing
on minimizing
But also they also helps with conflict
resolution. So they will resolve trade disputes.
disputes.
They practically just having one stop
shop for a lot of problem. Yeah. So and
in addition to that an organization like
IMF will even do more because those ones
are looking more into even the economy
of all these countries ensuring that the
global currencies are stable as much as
they can though individual country
definitely has a lot of role to play.
Yeah. But in addition they even going to
produce credit facilities.
So if you don't have money as a country
you might be able to borrow. Yeah. as a
member of IMF. Yeah, some likewise world
bank as well is probably trying to
support in developing countries and all
of that. So
those are the key functions of those
organizations and what they try to do
majorly trying to make ensure that
those barriers to international trades
are minimized as much as possible and at
the same time they are trying to cover a
lot of grants. Not just talking about
the few countries who are members
forming adult organizations but rather
you having almost the whole world being
part of an organization. So in that case
you are able to achieve
limited barrier to international trade.
Yeah very very important. Yeah I want to
round up this part quickly. Um
let's round this up with international
financial market. Yeah,
I want this to be a bit discussive now
that you have an idea of what we're
talking about on international
operations. So now talking about
remember what we're talking about is
basically talking about how we have
integrated international trade
and investment
with the companies that are doing them
and also how is impacting on those
countries where they are being done.
>> Yeah. So
this is the component of international
financial market. How are they linked
together? Yeah, you have companies in
different countries that are doing
different and investment.
What do you see here? You see movement
of capital. So which means capital
mobility will be a big day.
And I want to ask you when you have
capital mobility where you have money
being able to move across different
countries is that good or bad? Let's
open. Is that a good thing or a bad thing?
thing?
>> It might be a good thing for the country
receiving the capital. But then with the
company um inhouse, it might be a bad
thing. A typical example was Apple uh
funding the Chinese
manufacturing sector in the early 2000s.
They moved a lot of their capital over
there. So much so that even till today
they're not able to move a lot of their
factories back to their home country.
>> And that's how I see it.
>> Yeah. Thanks. Good, good, good, good,
good. I like I like your line of thought
there. Yeah. Um who
Definitely is
looks good and can be bad like you said
all depends on whose perspective you're
looking at it. So you have a situation
whereby naturally if you stick to the
money available only in your country you
might be limited to how much you're able
to achieve. However, if money is able to
move across countries, which means we
can bring dollars into UK, you can bring
pounds into Canada,
people are able to access. So
accessibility is easier. So you know
that there are advantages to it because
yeah cost of capital will be low because
if people can actually borrow from
different countries, there will be
competition. Yeah. So there's a tendency
that cost of capital will come down
for sure and likewise
fund accessibility will go up because if
people can know can actually
go to another countries to source for
fund. Yeah. Then they can avoid national restrictions
However,
it's not all rosy because even if we can
have access to fund, cost of capital can
be lower. It can also have problems. It
can create problems for us.
And what is a possible problem that you
will see here? FX risk. Remember
Remember
in your days of FM
you have transaction risk translation
risk economy which will probably do a
flash. Yeah. So yes
that risk is there the fact that you
might lose some money due to just
fluctuation of exchange rate. Yeah. And
likewise for a country, a multinational
company that is playing a new country
that is not his own or that is getting
money from another country. Yeah. Can
also be exposed economic risk
of that country where he has bought
which is due to the actions of the
government of the new country where the
guy is trying to operate.
So very important.
All of these things actually impacted
the whole international market.
And sometimes it can be as bad as what
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