Global Trade: Connectivity Breaks Down Barriers - Essay Sample

Introduction

Distance and borders are no longer a barrier to trade as technology has broken down the barriers of time zones, language, cultural differences, and distance. The world has been linked to form a global market place where countries freely choose who to trade with. Increased connectivity has brought a better understanding of cultural differences, which are often a significant barrier to international business. Despite events that could slow down trade, companies have remained focused on the future by distributing risks such as political unrest, unfavorable government policies, terrorism, among others, across regions. International business has also been made easier by increased forums and trade unions that campaigns for free and fair trade, such as trade unions. However, the picture created on the theory of international trade is quite different from real-world business.

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The Differences Between Theory and Practical International Business

Trade Unions

According to Hill (2017), globalization has enabled countries to expand their revenues by selling around the world and reduce their costs by producing in nations where key inputs, including labor, are cheap. Such was the idea when the North American Free Trade Agreement (NAFTA), a trade union between Canada, the US, and Mexico, was established in 1988. The union sought to abolish trade barriers within the boundaries of the three countries. The pioneers of the idea had a vision of raising the economy of Mexico to be equal to that of the US and Canada by allowing the two developed countries to explore Mexico's resources. In so doing, Mexico would raise its Gross Domestic Product (GDP), while firms from Canada and the US would benefit from the low costs of wages, which would, in turn, lower their product cost. In theory, that was a step towards maximizing the trade in the region by providing a market for goods from the member countries (Hill, 2008). In return, Mexico would import more products from Canada and the US, balancing the income lost due to companies shifting into Mexico. Mexico also had a high unemployment rate, which would be reduced. In theory, trade unions have regulatory and administrative barriers reduced, and some eliminated, which translates into broader markets and a higher generation of revenues. It also encourages foreign investment by lowering rules on international companies from the member States.

However, international trade is not as easy to operate. Businesses are no longer protected from foreign competition, and some end up closing down because the foreign companies sell their products at a lower cost. For instance, in NAFTA, companies that were initially operating in the US and Canada shifted their operations to Mexico as labor was cheaper there. The shift led to an uproar by Americans and Canadians, as most of those who could not afford to move were left jobless. According to Hill (2008), the union aimed to benefit citizens but has instead affected them negatively. International trade also aims at connecting developing countries with developed countries through the provision of knowledge and machinery, which is achieved by polarizing borders and reducing immigration restrictions. However, this results in overcrowding od developed countries, as citizens from developing countries rush to search for better-paying jobs. The number of illegal immigrants at the Mexico border keeps rising and has been blamed on NAFTA's decision to polarize the border for the sake of trade.

The Andean Pact also has a similar history of failing to achieve its intended purpose. Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement to make trade between their borders easier, but the agreement had a different effect. The member countries did not have free trade or common external tariffs, and their economies were still not harmonized (Hill, 2008). The states in the union were not stable economically and often experienced political interference, which slowed down the progression of the agreement terms. The head of States did also not offer the expected support to spearhead the operations of the agreement. The Andean Pact ended up collapsing in the mid-1980s without achieving any of its objectives. Theory may portray globalization as an achievement and easy to embrace with the availability of technology, but operating across borders is still a challenge. It needs proper policies for it to be successful.

Foreign Exchange

Carry trade has also become common in the stock exchange market. The currencies of different countries have varying values, fluctuating according to the economic state of the country. Globalization has made it easier for investors to follow up on the changes in the stock exchange market despite time differences. When the US is in the wee hours of the morning, countries in the Asian continent are up, and their stock exchange market is most active at that time. Americans with interest in Asian stock markets can follow the trends through the internet, noting which countries have a rising tendency versus those whose currency is depreciating. In Carry Trade, investors borrow a currency that is rated low in the stock market, then invest in currencies that are highly rated (Hill, 2008). The individual then uses the proceeds to repay the loan while generating profit from the same.

The speculation is imagined to be a business idea that could earn an individual passive income despite the difference in time zones, language, and currency. However, while examining how carry trade happens, it is a risky investment that could push an investor in one day. The value of different currencies in the market keeps fluctuating, and a particular currency can record a consistently depreciating trend after an investor had bought it at a higher price (Hill, 2008). Taking an example of a country with frequent unrest due to terrorist attacks, the value of the currency is likely to below. However, in the vent that the attacks stop and the country quickly regains its stability, an investor who had borrowed in the form of the specific currency will make a considerable loss. Carry trade seems an exciting and easy way to earn money, but only in theory. The Stock Exchange Market is unpredictable and can be frustrating.

E-Commerce

The 21st century has also revolutionized eCommerce. Businesses are no longer worried about how to reach global markets. With the availability of technology, the company can connect with sales representatives from all over the world without incurring the cost of traveling. Marketing is made easier by the presence of virtual teams. The teams are selected through online applications, such that the employer has the freedom to choose the best since the distance is not a limitation. Virtual teams have a leader at the head office who talks to each team member individually before holding a group meeting through video conferencing. The team holds its meeting online, through which members get to know each other, and the team leader sets basic rules before they embark on the first task. They also agree on how often they should be meeting, and the time of the meeting.

Virtual teams are an alternative and easy way to reach customers from all over the world in a cost-effective manner. The convenience of working from home and without restriction also gives the employee freedom. However, working in and supervising virtual teams is difficult in practice. The biggest challenge is when the team is in different time zones and has different communication cultures. The team leader and members must understand their cultural differences in communication. What is okay in one country may be obscene in another. For instance, comparing the US with Saudi Arabia, it would be offensive to tell an Arabian, "I freaking love this shit" (Hill, 2008). Even in informal settings, the words will not be taken kindly by an Arabian since they are relatively more conservative. Understanding policies on the sharing of information online is also essential. For instance, South Korea has strict guidelines on what internet users are allowed to share online (Hill, 2008). Most virtual teams are broken by failure to understand this, which is not discussed in theory. It is only through experience and handling of diverse teams that leaders can learn these essential skills.

Virtual teams are held together by communication; thus, a breakdown or bad communication leads to the breaking of the team. It is not uncommon for members to miss scheduled meetings without explanation. The team leader has no alternative to reach them other than the internet, which can be frustrating. E-commerce through virtual teams also demands self-driven individuals who can push sales without supervision, attend meetings, and hand in reports when required.

Companies are also utilizing client details as a means of advertising. Most websites will ask the user to sign up and provide an email, which the company uses to send updates, promotions, and other news concerning their products. The updates double up as advertisements. However, there is an increased concern on the security of client information on company websites due to the danger of hackers. Cybersecurity is a concern for many clients, especially after some companies have been accused of giving their client's email addresses to a second party for the sake of marketing. Clients are becoming more reluctant to provide their primary emails on company websites as it is considered a bother. For those who willingly offer their primary email address, they are likely to mark company updates as spam, unless they are interested in the company. Firms, therefore, need to reconsider using emails as a means of advertisement (Hill, 2008).

Conclusion

The world has been linked to form a global market place where countries freely choose who to trade with. Increased connectivity has brought a better understanding of cultural differences, which are often a significant barrier to international business. Political unrest, unfavorable government policies, terrorism, among others, is no longer a problem as companies have learned to distribute risk. International business has also been made easier by increased forums and trade unions that campaigns for free and fair trade. However, the theory taught in class requires significant application and expansion for it to be applicable. Using trade unions, the use of e-commerce, and the operations of the stock exchange market, it is evident that the theory and practice of international business are different.

Reference

Hill, C. (2008). International Business: Competing in the global market place. Strategic Direction, 24(9).