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Because learning changes everything.® Political Forces That Affect Global Trade Module 5 © 2020 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. Learning Objectives 5-1 Describe the goals of nationalizing and privatizing business. 5-2 Explain government protection and stability and their importance to business. 5-3 Describe the role of country risk assessment in international business. 5-4 Explain the political motivations for government intervention in trade and the major types of government trade restrictions. © McGraw Hill Linking Political and Economic Dimensions in International Trade Venezuela was the fifth nation to join Mercosur in 2012. One aim of Mercosur was to strengthen democratic principles in the region. • In 2016, presidents of Argentina, Brazil, and Paraguay met to discuss suspending Venezuela which was not meeting membership requirements, based on examples of human rights violations and a lack of democratic order. • Failing to meet standards within a three-month period, Venezuela was suspended from membership. Mercosur members clearly linked political and humanitarian behaviors with economic benefits of international trade. © McGraw Hill 3 Governments and the Ownership of Business 1 Nationalization: Why Governments Get Involved • Nationalization: the taking of private property by a government to make it public. • Motivated by the belief that government can manage a public good or necessity better than the private, profitdriven sector. © McGraw Hill 4 Governments and the Ownership of Business 2 Privatization: Why Governments Sell Businesses • Privatization: the selling of government owned property to the private sector to gain more efficiency in business operations, to raise money or to change in political climate/philosophy. © McGraw Hill 5 Critical Thinking Question Why might a government-owned firm have an unfair advantage over privately owned companies? © McGraw Hill 6 Government Stability and Protection 1 Stability: Issues with Lack of Peace and Predictability • Stable government maintains itself in power and whose fiscal, monetary, and political policies are predictable and not subject to sudden, radical changes. • Instable government cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes. Protection From Unfair Competition • Protect the economic activities of citizens. © McGraw Hill 7 Government Stability and Protection 2 Protection from Terrorism, Cybercrime, and Other Threats • Terrorism: unlawful acts of violence committed for a wide variety of reasons. • Kidnapping: provide source of operating funds for terrorists. • Piracy: hijacking and kidnapping on the seas. • Cybercrime: any illegal Internet-mediated activity that takes place in electronic networks. © McGraw Hill 8 Figure 5.2 Global Kidnapping Risk Map 2017 Source: Red24, Threat Forecast 2017, p. 61, https://www.agcs.allianz.com, accessed September 17, 2018. Access the text alternative for slide images. © McGraw Hill 9 Table 5.1 Maritime Piracy Incidents, 2013 to 2017 Number of Piracy Incidents Asia Latin America and the Caribbean Rest of World Total Incidents Africa 2013 79 167 18 0 264 2014 55 183 5 2 245 2015 70 202 8 1 281 2016 122 101 27 1 251 2017 151 95 71 4 321 Sources: Oceans Beyond Piracy, The State of Maritime Piracy 2017, http://oceansbeyondpiracy.org/reports/sop, accessed September 17, 2018; and ICC International Maritime Bureau, Piracy and Armed Robbery Against Ships, http://www.allaboutshipping.co.uk, accessed September 17, 2018. © McGraw Hill 10 Country Risk Assessment and Countermeasures to Threats 1 Country Risk Assessment (CRA) • An assessment of a country’s economic situation and politics to determine how much risk to employees, property, and investment exists for the firm doing business there. © McGraw Hill 11 Figure 5.3 Sample Country Risk Rankings from Economist.com Source: “Risk Briefing,” The Economist Group, 2014. Access the text alternative for slide images. © McGraw Hill 12 Country Risk Assessment and Countermeasures to Threats 2 Types of Countermeasures • Know country and region so risk-assessment is realistic. • Insurance and outsourced skills, such as hostage negotiations, as needed to cope with crisis. • Train for daily living skills: varying driving routes, awareness of surroundings, antiterrorism training. © McGraw Hill 13 Government Intervention in Trade 1 Reasons for Restricting Trade • Provide for National Defense • Certain industries need protection from imports because they are vital to security. • Economists say this is a weak argument and used to gain emotional advantage. © McGraw Hill 14 Government Intervention in Trade 2 Reasons for Restricting Trade continued • Impose Sanctions • Inflict economic damage, punish, or encourage change of behavior. • Seldom achieve their goal. • Produce collateral economic damage. © McGraw Hill 15 Government Intervention in Trade 3 Reasons for Restricting Trade continued • Protect an Infant or Dying Industry • Give infant industries a change to grow and build comparative advantage. • Without this, lower-cost imports will underprice in local market. • Slow down impact of dying industry—move capital into other sectors. © McGraw Hill 16 Government Intervention in Trade 4 Reasons for Restricting Trade continued • Protect Domestic Jobs • “Cheap foreign labor” argument does not hold up—wages don’t account for all production costs. • Argument has strong emotional appeal. © McGraw Hill 17 Government Intervention in Trade 5 Reasons for Restricting Trade continued • Ensure Fair Competition • Import duty to bring cost of imports up to cost of domestic goods. • Don’t ban imports but equalize them. • Consumer impact: import duty increases the price they pay. © McGraw Hill 18 Government Intervention in Trade 6 Reasons for Restricting Trade continued • Retaliate • Dumping defined in three ways. 1. Selling product abroad for less than cost of production. 2. Selling product abroad for less than price in home market. 3. Selling product abroad for less than price to third-party countries. • Predatory dumping. • Social dumping. • Environmental dumping. © McGraw Hill 19 Government Intervention in Trade 7 Reasons for Restricting Trade continued • Retaliate continued • Subsidies: Financial contributions, provided directly or indirectly by a government, that confer a benefit, including grants, preferential tax treatment, and government assumption of normal business expenses. • Countervailing duties: Additional import taxes levied on imports that have benefited from export subsidies. © McGraw Hill 20 Figure 5.4 Agricultural Producer Support by Country, Selected Organization for Economic Co-Operation and Development and Developing Nations Source: “Agricultural Support,” OECD, 2017. Access the text alternative for slide images. © McGraw Hill 21 Global Debate This debate centers around the subject of sugar subsidies and questions whether they are “sweet for producers but sour for food manufacturers and consumers.” U.S. sugar tariffs went into place in 1789 and sugar imports are currently limited by quotas. These protect a relatively small group of growers in 18 states and costs U.S. consumers and businesses an estimated $4 billion a year. Sugar accounts for less than one percent of U.S. agricultural sales but have received an estimated 17 percent of all agricultural political contributions since 1990. Some note this as “a very effective lobby.” 1. Should sugar continue to be a protected commodity? 2. Should the U.S. consumer continue to fund protection for U.S. sugar farmers? Why or why not? © McGraw Hill 22 Government Intervention in Trade 8 Tariff Barriers • Tariffs • Taxes on imported goods for the purpose of raising their price to reduce competition for local producers or stimulate local production. • Ad Valorem Duty • An import duty levied as a percentage of the invoice value of imported goods. © McGraw Hill 23 Government Intervention in Trade 9 Tariff Barriers continued • Specific Duty • A fixed sum levied on a physical unit of an imported good. • Compound Duty • A combination of specific and ad valorem duties. • Variable Levy • An import duty set at the difference between world market prices and local government-supported prices. © McGraw Hill 24 Government Intervention in Trade 10 Nontariff Barriers • NTBs are all forms of discrimination against imports other than import duties. • Quantitative Barriers • Numerical limits for specific goods imported during specific period. • Voluntary Export Restraints • VERs are export quotas imposed by exporting nation. • Orderly marketing arrangements are formal agreements. © McGraw Hill 25 Government Intervention in Trade 11 Nontariff Barriers continued • Nonquantitative Nontariff Barriers • Direct government participation in trade. • Customs and other administrative procedures. • Government and private standards. © McGraw Hill 26 Get That Job! From Backpack to Briefcase Fernando Villanueva Fernando Villanueva shares his transition from undergraduate studies to international work. His approach began in high school and involved study in France. After graduation, he took a traineeship with AIESEC, a student-run international nonprofit organization that provides leadership training and internship opportunities. His adjustment difficulties in his overseas assignment had to do with recognizing that his cultural assumptions were not always shared and that he could learn rather than teach. • © McGraw Hill Would you consider an international internship, traineeship, or volunteer position to build your global mind-set? Share your strategy for developing your international management skills. Courtesy of Fernando Villanueva 27 MiniCase The minicase “Chocolate: Is Your Treat the Result of Unfair Labor and the Exploitation of Child Labor?” explores the question of the use of child slave labor on the Ivory Coast. Nearly 60 percent of the world’s cocoa comes from the Ivory Coast where it is estimated that more than 500,000 children work in hazardous conditions, many of which are thought to be victims of human trafficking. It’s highly likely that all chocolate treats enjoyed by consumers have their start on the Ivory Coast. 1. Should labor practices in another country be a relevant consideration in international trade? Why or why not? 2. With regard to trade in products such as cocoa, what options are available to governments, businesses, and consumers for dealing with practices such as child labor or slave labor in other countries? What are the implications associated with each of these options? 3. How would international trade theorists view the Fair Trade movement? © McGraw Hill 28 Because learning changes everything. www.mheducation.com © 2020 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. ® Sustainability and Natural Resources Module 4 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Learning Objectives LO 4-1 Describe environmental sustainability and its potential influence on business. LO 4-2 Describe frameworks for sustainability. LO 4-3 Summarize ways to measure sustainability achievements. LO 4-4 Identify the characteristics of environmentally sustainable business. LO 4-5 Describe how the stakeholder model can help businesses achieve sustainability. LO 4-6 Describe how geographic features of a country or region contribute to natural capital. LO 4-7 Outline nonrenewable and renewable energy options available and their potential impacts on business. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-2 Sustainability in the Business Context Environmental sustainability State in which the demands placed upon the environment by people and commerce can be met without reducing the capacity of the environment to provide for future generations Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-3 Sustainability in the Business Context Brundtland Commission, drafted a widely accepted definition of sustainable development: it “meets the needs of the present without compromising the ability of future generations to meet their needs.” Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-4 Systems for Achieving Sustainability Life cycle assessment (LCA) An evaluation of the environmental aspects of a product or service throughout its life cycle Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-5 Life Cycle Assessment (LCA) Involves the cumulative impact of product, can lead to reductions and savings of environmental footprint, cost structure, and potential carcinogens in inputs, processes and wastes. Such “product stewardship” leads organizations to be concerned about the entire life of their product. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-6 Systems for Achieving Sustainability Cradle-to-cradle (C2C) design model suggests that products and services should be designed to completely close the production loop, so that all resources needed to produce them are recycled and reused rather than discarded or left to pollute. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-7 Cradle-to-Cradle (C2C) Design Model Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-8 Cradle-to-Cradle (C2C) Design Model Identifies two components: Technical nutrients - inorganic and synthetic, so reusable. Biological nutrients - organic and decompose. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-9 Critical Thinking Question Why is it challenging to measure how successfully a business is practicing sustainability? Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-10 Tools for Measuring Sustainability United Nations Global Compact A voluntary reporting scheme for businesses that covers critical areas affecting the conduct of international business—human rights, labor, the environment, and anticorruption efforts Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-11 Tools for Measuring Sustainability Global Reporting Initiative (GRI) Carbon Disclosure Project (CDP) Sustainability reporting framework developed among stakeholders Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Organization that provides reporting frameworks for greenhouse gas emissions and water use 4-12 Tools for Measuring Sustainability Carbon footprint Water footprint A measure of the volume of greenhouse gas emissions caused by a product’s manufacture and use Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A measure of the amount of water used in a product’s manufacture and use 4-13 Context for Sustainability Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-14 Limits as Part of the Sustainability Context Limits address the reality that environmental resources are exhaustible. To recognize the limits of the earth’s atmosphere to absorb emissions, and to incorporate this recognition into the way the business operates, is an ecologically responsible decision that supports sustainability. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-15 Interdependence as Part of the Sustainability Context Interdependence describes the complex relationships that sustainable practices create among ecological, social, and economic systems, in which actions in one of these systems may affect the other two, often in ways that are not easily predicted. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-16 Equity in Distribution as Part of the Sustainability Context For system interdependence to work, there cannot be vast differences in the distributions of gains. Equity requires a business model that allocates value added over a wide array of stakeholders. Vast inequities lead to social disruption and violence. One approach is to pursue backward integration to gain control over supply chain. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-17 Controversial Issues This debate centers around the unknown time we have left to rely on fossil fuels and how to approach preparation for the transition. Although we do not know if we have reached the midpoint of their extraction, we know that they are nonrenewables and that our present economic model depends on them. The debate centers around how to approach this issue. Meanwhile, reliance on fossil fuels at the global level is increasing. How immediate do you think the fossil fuel crisis may be? How much time do you think we have for our transition to new energy sources? Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-18 The Stakeholder Model for Sustainable Business Stakeholder theory An understanding of how business operates that takes into account all identifiable interest holders calls for managers to consider the network of tensions caused by competing internal and external demands that surrounds the business. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-19 The Company in a Societal Context Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4-20 The Stakeholder Model for Sustainable Business Triple-bottom-line accounting (3BL) An approach to accounting that measures the firm’s social and environmental performance in addition to its economic performance Does not allow for comparisons across companies because measurements, especially social and environmental areas are not standardized. Copyright © 2017 McG...