Finance

PRINCIPLE International trade has facilitated the process of globalization. As a result the concept of the global village has been realized. Advances in technology have also furthered the process of globalization through the expansion of the scope of the international trade.  

PRACTICE The process of the international trade making the world smaller is an accepted convention. The scope of the international trade has also been expanded through advances in the Internet technology. Advances in the communications technology have enabled international businesses to coordinate the supply chain management. Therefore, the connection between technology and international trade, and the consequent process of globalization are well accepted by academics and practitioners.    

PARTICULARS E-commerce is defined as the process of conducting secure transactions over the internet. E-commerce has facilitated the expansion of the international trade. The economic explosion in China means that businesses are rushing to stake their claims to the rising middle class in the country. Chinas entry into the World Trade Organization has enabled foreign businesses to compete in the market. Other trading blocs such as NAFTA and GATT have also facilitated the process.    

PERSONS  Hill (2005) has stated that the socio-cultural complexities arise as a result of the international expansion of businesses. Daniels (2004) has stated that the western economies have matured. One of the major critics of the benefits of globalization has been Mander and Goldsmith (2007) who has argued that the effects of globalization from on the international trade may not be benign.  

PERIOD Chinas entry into the WTO took place in 2006. The e-commerce business model became widely accepted from 1999.

PLACES The main engine of growth has been the foreign direct investment in China.

PHRASES NAFTA, GATT, WTO, IT

PROSPECTS Technology embedded in international business can maximize its efficiency

PROBLEMS The expansion of the international trade may harm the environment. Environmental considerations also have to be taken into account by multinational companies. This means that multinational companies have to develop production processes which are environmentallyfriendly. This increases the cost of production. However since the environmental standards are legally enforced, the multinational companies have to design their operations in accordance.  

PERFORMANCE The rise of e-commerce has facilitated the expansion of the international trade. One of the most important changes in the international business environment is the emergence of the global trading system. The emergence of a global trading system has enabled firms to manage access in the international markets to promote exports. However the global trading process is sometimes hindered by the governmental regulations which are influenced by the local businesses which might not have the operational excellence to compete internationally. This is considered to be one of the disadvantages of the globalization process. However this is an advantage for multinational companies, because this gives them the opportunity to set up operations in a new market and take advantage of the product life cycle in the growth stage. Most multinational companies are suffering from a disadvantage in terms of over-reliance on the mature economies of the West. The emergence of the global trading system has enabled these multinational companies to shift some of this reliance away from the mature economies and enter growing markets.

PUBLICATIONS
Fox, Jeremy. (2001). Chomsky and Globalization. Totem Books.
Laudon, Kenneth.,  Carol Traver. (2007). E-commerce Business, Technology, Society.
South western college pub.
Mander, Jerry.,  Edward Goldsmith. (2007). The Case Against the Global Economy. Earthscan Publications Ltd.

The level of the international trade has risen considerably because of the liberalization of the international financial system which has allowed investors in one country to invest into the assets of another country. The rising level of international trade has also been facilitated by the development of the free enterprise system in different regions of the world. This has meant loosening of the governmental controls and the opening up of the economies to the foreign direct investment. The best example is China in which the flow of the foreign direct investment has averaged a hundred billion dollars for the last ten years. The massive level of investment has been facilitated by the vast size of the market with a phenomenally rising level of demand. As a result, businesses which have been struggling with maturing or declining demand have been rushing en masse to take advantage of the surging growth in the Chinese economy. International trade requires supply chain management coordinated globally. This is making the world smaller as international businesses are focusing on quick delivery of service to create a competitive advantage.

There has been a robust trend of business process reengineering by the embedding of the technological processes into the existing business processes. The strength of this trend has been considerably aided by the fast process of technological sophistication (Naughton, 2005, p. 34). This has also contributed to the massive expansion of international trade. In the context of international trade, the modern business environment is characterized by a considerable level of competitiveness and this is manifest in the fast process of change. Because the international business environment is in a constant process of change, businesses also have to change, as otherwise their very survival would be put in question. This indicates the need for the continuous improvement process. However in order for the process to be effective, the management must have detailed information about the existing industry dynamics. Once the information has been collected, the management needs to act accordingly  by implementing a quick decision making process (McConnell  Brue, 2007, p. 12). In this respect, the issue of information sharing becomes a critical success factor. Addressing this factor has been facilitated to a considerable extent by developments in the communications technology. For example, the technology of video conferencing enables business executives on opposite sides of the globe to hold conferences in real time. This has made the world smaller by reducing the geographical distance between regions in international trade.

Different business models have come into being which have facilitated international business by reducing geographical and cultural distance. The most popular is the e-commerce business model (Laudon  Traver, 2007, p. 43). This business model benefits both the consumers and the businesses by minimizing costs from both sides. However its relevance is even more considerable in the international trade because the essence of the e-commerce business model is the elimination of physical distance which is the principal barrier to the expansion of international trade. By eliminating the distance, businesses and their markets have been brought closer and this is even more apparent in the international business environment. However, the e-commerce business model has been a source of competitive advantage even for businesses which had been confined to domestic operations. For example, Dell Inc. had been implementing this business model in order to implement the strategy of quick response. By implementing this strategy, Dell Inc. had become a market leader in the US within three years of starting operations. What had given Dell Inc. a huge competitive advantage over its competitors was the fact that by implementing the e-commerce business model, it had managed not only to minimize costs but also to respond quickly to customers demands. The cost minimization strategy had been facilitated by the elimination of the need to maintain physical warehouses as a substantial percentage of customers in the US preferred to shop from home rather than to visit the stores. However the e-commerce strategy has not been effective in the Chinese market because of the low penetration of the Internet Technology (Scholte, 2005, p. 43).          

The international trade has made the world smaller because international businesses have invested considerably in integrating the supply chain management. This means that the businesses have been building closer relations with their suppliers. This can be seen in the case of Dell Inc. The company has developed a process of supply chain management which facilitates quick delivery of needed components to the factory floor, enabling the company to deliver the completed order within 2-3 hours after receiving the order (Viotti  Kauppi, 2007, p. 54). This integration has been made possible by the implementation of enterprise resource planning solutions which facilitate instantaneous information transfer. Automation of different processes has also enabled Dell Inc. to cut its costs. The history of Dell Inc. illustrates the market evolution that forces businesses to leave their home countries and expand internationally. Desktop sales in the US had become a maturing industry and consumers tastes and preferences were also changing in terms of quality considerations preceding price considerations affecting their purchase decisions. Thus there were two sources of pressure being exerted on Dell one was the maturing industry and the other that of the effectiveness of its low-cost business model being challenged. These pressures forced Dell to seek entry into the Chinese market which was in the growth stage in terms of the desktop manufacturing industry.

The world has also been made smaller by the process of product standardisation. The feasibility of standardisation in the current business environment is illustrated by the iPod (Fox, 2001, p. 76). Apple has marketed exactly the same product regardless of the international market. This has been facilitated through targeting the teen segment which exhibits similar purchasing patterns regardless of cultural and social contexts. This trend has been strengthened through the advent of the Internet which has facilitated the sharing of information thus weakening the effect of cultural differences. Apple was quick to capitalize upon this homogeneity by standardising the iPod and then launching it internationally through a unified marketing program. In this respect, Apple was successfully able to identify the global customer, the teenager, who has the same needs and desires for trendy and image-oriented products worldwide. This insight enabled the management of Apple to build a promotional campaign that specifically emphasized upon these product features. As a result, the same product could be launched in different international markets. In this respect, the key issue has been to identify the right segmentation characteristics.  

The example above illustrates the effectiveness of the market research and conducting innovations accordingly. With the iPod Apple has developed a product which enjoys the universal appeal regardless of the target market in question. Therefore, the critical success factor is to conduct the new product development process in such a manner that the actual product features will appeal to different geographic customer segments. Given the two options, it is a waste of time to debate the effectiveness of standardisation vs. adaptation. The first option is to capitalize upon the diffusion patterns in lead countries so that interest will be successively generated in the lag countries and thus a sequential entry strategy is facilitated with standardisation. The second option is to develop a product such as the iPod which will appeal to the global customer so that different target markets can be entered simultaneously. Because of the advent of the Internet, the global customer is increasingly becoming a common phenomenon. As a result, it has become feasible to consider economies of scale by targeting the global customer. This is making the world smaller by creating a global village in which cultural distance is reduced. This has been possible through the information revolution in the form of e-commerce.  

E-commerce has become the most critical facilitator of international trade. However that benefit comes at the cost of having to manage the risk of unlawful application of customer-related data. E-commerce facilitates access to detailed information regarding customers lifestyles and their finances and therefore this information used for purposes of criminal intent could result in losses amounting to billions of dollars. The European Union manages this risk by imposing the restrictions from above. These restrictions guide e-commerce companies in how to use their databases so that the privacy of their customers is not violated. In the EU the framework of rules and regulations concerning how data are to be disseminated outside to non-members of the EU is centralized at the governmental level. In the US, protection of data privacy is left to the market and the government does not intervene in this respect. This is the fundamental difference in philosophy between the EU and the US when it comes to data protection. The EU practices enforcement while the US practices a voluntary system.

The implementation of the safe harbor agreement would enhance the volume of trade conducted via e-commerce because consumers are wary of sharing information online. They fear that their privacy will not be respected. This uncertainty surrounding data security restricts the potential of the e-commerce business model. According to one study, consumers preferred that the government should intervene in ensuring data privacy (Mander  Goldsmith, 2007, p. 87). The safe harbor agreement is a step in that direction. It would not only bolster consumer confidence in the e-commerce business model, in the process generating more business for companies that are conducting their transactions through e-commerce, but it would also facilitate international data exchange, in the process enhancing the scope of transnational e-commerce. Therefore data privacy issues incorporated by the safe harbor agreement would remove the biggest roadblock to the expansion of trans-Atlantic e-commerce. The problem is that many companies in the US would find it difficult to enter the safe harbor agreement because of structural complexities in their IT management systems which make it difficult to monitor exposure. However data privacy issues raised by the safe harbor agreement go to the very heart of the business potential inherent in e-commerce and therefore companies which have been neglecting consumer demand for enhanced privacy should use this agreement as a roadmap in the continuing evolution of their information systems.

E-commerce is the primary facilitator of international trade. This is because the speed with which information flows from one country to another becomes instantaneous via e-commerce. However that would not happen unless data protection policies in different countries were standardized. The case of the different policies being implemented in the US and the EU illustrates how the flow of e-commerce might be checked if issues of data protection are not standardized across borders. This lack of standardization has a direct bearing on the state of the economy in both regions because a large volume of business transactions flows back and forth between the two regions and these transactions would be disrupted if the EU and the US could not agree on the standards of data protection. Companies incorporated in the US have no limitations on sending data to countries in the EU because they are exempt from government control. In the US the companies are free to formulate their own policies regarding data privacy. However, these same companies have large scale investments in the EU and therefore the need for data exchange is critical. At some level these are issues of international business and companies in the US and the EU would have to customize their operations in order to be able to effectively globalize their operations. This customization is possible only when companies have detailed market data related to the country they are contemplating moving to. The detailed market data would also have to be available on a continuing basis for monitoring changing market conditions. Therefore the availability of information is critical and that availability would be severely hampered if there is disagreement between the US and the EU regarding data protection. As a result, the scope of international trade would be greatly restricted and economies in both regions would suffer.    

Some of the executive level decisions are concerned with the restrictions that compliance with a safe harbor agreement would impose. Unless the company involved has a very short operating history, it is difficult for the management to anticipate the possible uses for which they would need the customer-related information which has been collected for a long time. Companies in the US which operate complex electronic networks would have a hard time monitoring when data are seen by parties other than company employees. Therefore the decision that has to be made by the management of these companies is how to define confidentiality under the safe harbor approach. In this respect, the Department of Commerce, the EU commission and representations from the business community in both regions would have to reach a consensus that would allow businesses in both regions to comply without having to modify their legacy IT system extensively.

The rise of regionalism is another important change to be taken into consideration. Studies have indicated that multinationals in fact earn most of their revenues from nearby locales rather than from the global trading system. Examples of regionalism are NAFTA, the European Union and the Japan-led ASEAN (Stiglitz, 2003, p. 54). Regionalism is favored over a global trading system because logistics and cultural differences are easier to manage between nearby locales than between countries which are geographically further apart and thus culturally more different. As a result, costs of operations are minimized. Another advantage that regional trade agreements have over global trade agreements is that they take less time to negotiate. As a result, products can be quickly introduced. Another advantage to be noted is the reform that becomes facilitated when countries participate in regional trade agreements. This reform becomes necessary as the markets are deregulated and companies can no longer count on government protection to maintain their competitive advantage. This results in transparency of operations.

Another change in the international business environment is technological advancements. The current business environment is characterized by a high competitive intensity and one of the reasons for this competitive intensity is the fast pace of technological sophistication. The technological sophistication continues to enhance business productivity. This is particularly relevant in international business because in this context the issues of supply chain management are critical because of the geographical distances involved. However because of the advances in information technology, information sharing has become instantaneous, thus making geographical distances more manageable. The fast information sharing has also led to process of decentralization of the decision making authority so that business operations can be customized to a greater extent. In the current competitiveness of the international business environment, access to information has become the most important source of competitive advantage and this process has been facilitated by the process of technological changes. Therefore this is a critical change factor in the international business environment.

The process of international trade would not have been possible without information technology (Wu, 2007, p. 32). For example, the Internet has been the primary engine of globalization. Large corporations have been able to take advantage of sophisticated information technologies like Enterprise Resource planning systems in order to coordinate logistics worldwide (Moss, 2005, p. 78). Without these facilities created by advances in information technology, the notion of globalizing business operations would have seemed far-fetched.

However because geographical distances are irrelevant to operations that are conducted online, international businesses can diversify globally and still maintain their supply chain management in order to ensure maximum effectiveness. In fact, the effectiveness of supply chain management has been multiplied with the introduction of information technology into business processes. With most operations taken online, physical distance in supply chain management is no longer a limiting factor. Therefore international trade is making the world smaller and this has been facilitated by technological change.