Download Commerce Exam Revision - The Bored of Studies Community

Commerce Exam Revision Chapter 8
Sourcing products internationally
Improved technologies and communications have changed how consumers shop. Consumers
around the world will just as readily browse an Internet shopping site as examine a catalogue
delivered to their private letterboxes. As the world has evolved into a global marketplace, the
world's consumers have become global in their buying behaviour.
Trends towards a global market
The development of mass communications has increased the uniformity of consumers around
the world. For example, the same television commercials are shown across the globe.
Internationally, millions of people want to purchase a particular brand of soft drink, jeans,
sunglasses, computer, DVD player or car.
Purchasing products internationally – online shopping
Over the last decade, e-commerce (online shopping via the Internet) has become the most
commonly used method of purchasing products from overseas.
Amazon.com - an e-tailer
Amazon.com is one of the best known of all online e-tailers. Originally only selling books, it now
sells music, gifts, electronics, DVDs, videos, tools and hardware.
The relationship between domestic and international trade
We live in a global world, rather than a world limited by national borders. Consider the news and
entertainment we receive from around the world, the clothing and footwear brands being sold
worldwide, the rapid telecommunications access to all parts of the globe, and the large number of
products Australia buys and sells on the world market. This process has been strengthened by
the impact of globalisation: a trend that sees people, goods, money and ideas moving around
the world faster and more cheaply than before. In the commercial world, globalisation refers to:
globalisation of production - businesses becoming transnational by operating in many countries
Globalisation of markets - consumers purchasing products from around the world.
Items of trade
What does Australia export?
Billabong, Holden Ltd and the University of Western Sydney all have one thing in common. They
all sell their products on the world market; that is, they export to overseas countries. An export is
a good or service sold to another country. Australian businesses now export a huge variety of
goods and services.
What does Australia import?
Imagine all the Subaru cars, Nike sports shoes and IBM personal computers sold in Australia
during the past year. They are just a small part of all the imports which Australian consumers
buy. An import is a good or service bought from another country. We import goods and services
either because we can purchase them more cheaply from overseas or because we cannot
produce them ourselves.
Australia's changing trading partners - past and present
Who are Australia's main customers?
Due to Australia's historical links with the United Kingdom and Europe, the majority of our trade
used to be with these regions. However, since the end of the 1940s:
as new markets began to emerge, the general emphasis of Australia's exports has shifted to Asia
and the United States
exports to the United Kingdom and countries belonging to the European Union (EU) have
declined relative to the total
exports to Japan have grown steadily and it is now Australia's main customer, followed by the
United States.
On current trends, China will become Australia's biggest export customer by 2012.
Who are Australia's main suppliers?
Changes in the direction of Australia's exports over the last century have been matched by
changes in the sources of our imports. A dramatic decrease in the importance of the United
Kingdom has been offset by an increase in the importance of the Pacific countries - namely
Japan and the United States Ð and the growing significance of the South-East Asia region.
Investing money in the global financial market
Money is now more mobile and flows relatively easily between countries due to the globalisation
of equity (share) markets. This has come about because financial services companies such as
Deutsche Bank, Citibank, Goldman Sachs and Nomura Securities have expanded into many
countries. These businesses are keen to arrange finance deals and provide advice for customers
anywhere around the world.
Features of businesses with global links
A transnational (multinational) corporation (TNC) is a large business organisation that has a
home base in one country, and operates partially owned or wholly owned businesses in other
countries. The TNC represents the highest level of involvement in global business where national
borders do not represent barriers to trade but are seen as merely lines drawn on a map.
Consequently, TNCs conduct a large percentage of their business outside their home country.
TNCs come in many different forms. LG, McDonald's, Unilever, Ford, News Corporation and
BHP Billiton are just a few of the well-known foreign and Australian transnational corporations.
However, all TNCs have a number of features in common. In a fully developed TNC, ®nance,
assets, technology, information, employees, patents, goods and services all ¯ow freely from one
country and one subsidiary to another. These resources may be shared within the corporation.
For example, information may be pooled through corporation-wide databases, and patents and
technologies may be utilised on a global scale.
Operations - the main activities of a TNC in the Australian economy
Billabong International Limited One example of an Australian TNC is Billabong International
Limited, manufacturer of surf and extreme sports apparel and accessories. Established in
Queensland in 1973 by Gordon Merchant, Billabong originally manufactured only board shorts.
Today, Billabong designs, produces and distributes a wide range of surf and extreme sports wear
including swimwear, jewellery, belts, backpacks, skateboards and sunglasses. It is currently the
leading surf wear apparel brand in Australia.
From its head office in Burleigh Heads, Queensland, the company controls its major brands Billabong, Element and Von-zipper. Billabong products are distributed to over 3000 outlets
worldwide. The product range consists of over 2200 items in Australasia, over 1300 items in
North America and 1200 items in Europe.
Employment issues
A business's success is very much determined by the abilities and performance levels of its
employees. Therefore, the quality, quantity and composition of the available labour force are
important considerations for any business as it undergoes global expansion, as well as
establishing and maintaining effective employment relations.
Staffing
In a global business, finding the right people can be difficult, especially for senior management
positions. These positions require people who are preferably bicultural, able to appreciate and
understand the business practices and customs in the host country, and who can speak the
language of both home and host country.
Minimum standards of labour
Each country has specific labour laws that outline the minimum wage and non-wage conditions
for employees. Obviously, there are regional and cultural differences in labour standards. Labour
standards refer to those conditions that affect a business's employees, or those of its suppliers,
subcontractors, or others in the production chain. In some developing countries, sweatshop
conditions exist, in which adults and children work long hours in extreme heat for very low wages
and with virtually no safety precautions. There is increasing pressure to ensure employees who
work for low wages in many developing countries are not exploited by unscrupulous businesses.
Cultural diversity
Cultural diversity means the multitude of individual differences that exist among people. With
the pressure to globalise, businesses must find new approaches to staffing. Workplace diversity
in terms of gender, race, ethnicity and religion is a permanent feature of today's workplaces.
Managers, therefore, are required to effectively manage a culturally diverse workforce.
Ethical issues of international trade
Numerous TNCs have recognised the importance of fulfilling their social responsibilities.
Environmental standards
There is growing pressure for businesses to adopt ecologically sustainable operating practices.
Concern for our environment operates at the local level as well as on a global scale. Over the
last two decades, the global business community has undertaken many initiatives to put the
principle of sustainable development into practice. For example, the jeans manufacturer Levi
Strauss and Company has developed its own environmental policy. Levi Strauss will conduct
business only with partners who share its commitment to the environment.
Human rights code of conduct
A human rights code of conduct is one method of conducting business in a socially responsible
way. Once a code of conduct has been established, the organisation may insist that all its
suppliers conform to it. Billabong, for instance, will only deal with suppliers who live up to its code
of conduct requirements. Some business people doubt whether such individual company codes
can stop labour abuses in other countries, in part because other competitors may not abide by
similar standards.
Global business and environmental issues
In many developing countries, environmental protection laws are often non-existent or very weak.
This has tempted a number of TNCs to use these vulnerable countries as a means of engaging
in activities that are detrimental to the environment.
Of particular concern is the dumping of hazardous materials, including nuclear waste, in
developing countries. Countries are often coerced into taking such materials; they may receive
Financial or other incentives and extra revenue may be used to repay staggering foreign debts.
Of course, transnational corporations have little fear of any retaliatory actions from individual
citizens of developing countries.
Risks associated with selling to global markets
There are many advantages to be gained from selling internationally. However, a business that
expands globally has to deal with more complex factors than a business that operates only in a
domestic market.
Currency risks
Countries have their own currency, which they use for domestic purposes. This means that when
transactions are conducted on a global scale, one currency must be converted to another Ð the
foreign exchange rate. For example, if an Australian business (exporter) sells foodstuffs to
Japan, the Japanese firm (importer) will have to pay in Australian dollars, not Japanese yen.
Exchange rates fluctuate over time due to variations in demand and supply. A currency
depreciation lowers the value of a currency in terms of foreign currencies. Therefore, a
depreciation in the Australian dollar makes our exports cheaper on international markets but
prices for imports will rise. A currency appreciation has the opposite affect. Consequently,
exchange rate fluctuations will affect the profitability and production costs. Such fluctuations
create risks for global business.
Political risks
A political risk is defined as any political event which results in a drastic change to the country's
business environment and which ultimately has a negative impact on business operations and
profit. Political risks tend to be greater in countries experiencing social and economic unrest,
particularly terrorism, war or other violent conflict. In such situations, businesses may have to find
means to directly influence politically powerful people in order to obtain permission to operate in
the country.
Legal risks
Global business is affected by many thousands of laws and regulations because each country
has its own unique set of laws and legal systems. These can vary dramatically between
countries. This poses a number of risks for a global business in the areas of:
Contract law - especially the methods of enforcing contracts
Legal disputes - resolving these can be very complicated due to differences in legal systems and
culture
Intellectual property rights - weak protection can cost international businesses a great deal of
money.
Social and cultural risks
International business is conducted on the world stage. This means that people are working in
societies and cultures that differ from their own. It is important that international businesspeople
fully understand and appreciate the customs and traditions of the countries they deal with. Failing
to do so may result in either an embarrassment or lost business opportunities.
Role of aid
Foreign aid consists of financial and technical assistance by government and non-government
(private) organisations from developed (high income) nations to developing (low income) nations.
The assistance comprises:
Loans - involving the payment of an interest rate to the donor country
Grants - gifts which do not have to be repaid
Technical assistance - trained personnel, such as engineers, teachers and medical staff, to help
with development programs
Food and emergency aid - donations of food, clothing and shelter in response to natural or
human disasters
Education and training programs - as part of a project or education in the developed country
Technological aid - machinery and equipment
Community-based projects - construction of schools, wells, health centres etc.
Sources of aid
1. Non-government aid. This is provided by over 110 Australian humanitarian, non-government
organisations (NGOs). These include religious and voluntary organisations such as Christian
Blind Mission International, TEAR Australia and World Vision, and non-religious organisations
such as CARE Australia and the Red Cross.
2. Government aid. The Australian Government's overseas aid program is managed by AusAID,
the Australian Agency for International Development, which provides assistance for over 60
million people living in poverty around the world. These programs play an important role in
maintaining the links with recipient countries, most of which are located within the Asia-Pacific
region.
Role of foreign aid
Foreign aid is used to support economic development in the recipient countries. Developing
countries lack the financial and technical assets to improve their physical and human resources.
The richer countries are in a position to provide help to developing countries. At the heart of all
aid programs should be the desire to encourage ecologically sustainable economic development.
Successful aid programs will reduce poverty and improve the standard of living, resulting in
stronger, more stable communities. From building roads and bridges, providing healthcare and
educational facilities, to delivering clean drinking water, foreign aid is a crucial element in a
developing country's drive for economic development. This is demonstrated in AusAID's Long
Delta Rural Water Supply and Sanitation Project.