Many firms are turning to international trade in a move to not only increase market for their products, but to also take advantage of cheap labor in other countries. Initially, there was a lot of discrimination regarding the prices that were offered to different commodities depending on whether they were raw materials or finished products.
We will write a custom Essay on International Trade specifically for you
301 certified writers online
In this regard, agreements were made between different countries to ensure that goods from each country receive relatively equal treatment. When the issues pertaining inequality of products prevailed, the concepts of free and fair trade were introduced into international business. The concepts of free and fair trade are nowadays significantly applied when firms are either exporting or importing commodities.
The concept of free trade is used in reference to processes by which trade is carried out with minimal or no government interference. The regulations that are implemented by governments on imports and exports such as tariffs, subsidies or quotas are absent in the case of free trade (Kerr & Galsford, 2008).
Therefore, free trade allows the invisible hand of the market to take control of the situation. As a result, the prices of commodities are set by the forces of demand and supply. It should be noted that free trade spurs economic growth because it allows both exporters and importers to price their commodities competitively. On the same note, free trade allows consumers to have increased choices because a lot of goods gain access to the market (Jansson, 2008).
Moreover, given the ease with which foreign products enter new markets, competition proliferates which leads to increase in the quality of products. However, free trade has not been without negative effects. Monopolization by multi-national firms which have taken advantage of the lack of government intervention is arguably the most prevalent drawback. Similarly, free trade has been associated with exploitation of the farmers as well as workers.
On the other hand, fair trade refers to agreements that are made between developed and developing countries, to enable selling of products from the developing countries at a value higher than average price.
On the same note, fair trade is implemented to eliminate middlemen and enable producers and consumers to deal directly. Consequently, producers are protected from middlemen who mostly exploit them. In addition, fair trade ensures that labor is adequately rewarded and the poor benefit from their work (Krugman & Obstfeld, 2011).
Generally, fair trade is seen as a move to counter free trade and ensure that the gap between the rich and poor countries is reduced. Unlike free trade where government intervention is not allowed, fair trade requires the government to partner with producers and give the necessary support. On the same note, fair trade highly advocates for environmental conservation and also protection of the consumer from exorbitant prices.
Coffee is considered to be among the most fairly traded products in the world. In achieving fair trade for coffee, governments are allowed to support farmers by extension of credit to them through cooperatives. The fair-trade foundation is tasked with the issuance of rights to packers, who must meet certain minimum standards during production. There is no upper limit on what the retailers or packers can charge, but the coffee should be from a cooperative recognized by fair-trade.
Moreover, there is a lower price limit in case the supply in the market is extremely high. The cooperatives are not regulated on how they choose to spend the money they get, though evidence show that after covering their costs they sometimes have money remaining to give farmers (Krugman & Obstfeld, 2011).
Corporate social responsibility is regarded highly, and cooperatives are known to spend some of their money in community development. Channels of distribution are not different between products from fair-trade and others, though fair-trade is marketed mainly by certified cooperatives in producing countries.
Milk and milk products are not among the products that are traded fairly in most countries of the world. Reason being milk has not reached the state of large commercial production in many developing countries. As a result, including it in fair trade is not economically feasible (Kerr & Galsford, 2008). However, some countries like Germany and New Zealand have made a lot of efforts in including milk and its products in the fair trade logo. In this regard, milk is also not included in the list of commodities that are fairly traded in Egypt.
Though firms extend their operations into foreign nations, management of the branches remains in the country of incorporation. Consequently, decisions that are made at any given stage should take into consideration all the branches.
On the same note, since the management will be making decisions for several branches in different countries, the strategy of thinking global and acting local will be vital. Each affiliate firm should act according to the local circumstances prevailing at that particular time. It should be noted that in every country there is a unique culture which differs from other countries.
Get your first paper with 15% OFF
On the other hand, the products of the firm are to be sold internationally. Therefore, a global firm should think-global and act-local. Arguably, advertising is quite a paramount tool in the aggressive marketing of products both perishable and non-perishable (Jansson, 2008). Consequently, multi-national companies have had to invest heavily locally in the marketing of their brands through billboards, print and electronic media.
This is usually done so as to increase the awareness of products to end users. In this regard, it is noteworthy to mention that the internet has become an indispensable tool in the proliferation of cross-border awareness of certain brands of goods (Kerr & Galsford, 2008). Another aspect of management would be product differentiation. A market study should be conducted by a company prior to exploration, in order to know the modes of packaging of products for sale.
For instance, Egypt is a former British Colony and uses the metric system as opposed to the Imperial system of Measurement used in the United States of America. The United States uses gallons when packaging their milk in bottles, while in Egypt the measurement is based on liters and milliliters. Consequently thinking-global but acting-local will be appropriate.
Going international has come with different problems that usually befall firms. To begin with, the culture of the host country is different and sometimes a complete contrast from that of the origin country. In this regard, the international affiliations need to incorporate the locals in their management in order to understand the local culture.
On the same note, there can be a problem when the parent company will want to institute some policies which might not be applicable to the affiliation. It will be quite beneficial for the central management to allow inputs and views from the affiliate firms, before making decisions (Krugman & Obstfeld, 2011).
Moreover, the exchange rates as well as political instability are very problematic to affiliates. Exchange rates make earnings fluctuate while political instability causes changes in the economic environment. The problem of exchange rate can be avoided by entering into forward contracts. Unfortunately, firms have no power over political situations and can only hope for the best.
Jansson, H. (2008). International Business Strategy in Emerging Country markets: The Institutional Network Approach. Northampton: Edward Elgar Publishing
Kerr, W. A., & Gaisford, J. D. (2008). Handbook on International Trade Policy. Northampton: Edward Elgar Publishing.
Krugman, P. R., & Obstfeld, M. (2011). International Economics: Theory and Policy. New York: Pearson.