Page 105 - Business Principles and Management

Unit 1

business note products, but have the practical effect of keeping them
out. In other cases, barriers are deliberately created to
protect domestic producers.
Almost all countries have nontariff barriers of one sort
or another. For example, in the United States, steering
Many international companies buy busi- wheels are on the left side of motor vehicles, whereas in
nesses in the United States. In 2006, a Ireland, the steering wheel is on the right side. Thus, before
Dubai company, Dubai Ports World, pur- an American company can sell cars in Ireland, it would
chased a British firm that operated six U.S. have to make changes to the vehicle. Another example of
ocean ports. This led to an outcry from the nontariff barriers would be a public campaign to “Be
U.S. public and politicians. U.S. protestors American, Buy American.” This is clearly designed to
did not want a company from the Middle discourage the buying of foreign goods and services. Non-
East to buy these U.S. assets. Dubai Ports tariff barriers are difficult to remove because they are often
World finally transferred ownership of the part of a country’s culture and tradition.
U.S. ports to a U.S. entity. Each year, the Governments may place restrictions on what goods
United States buys billions of dollars of oil and services can be exported or imported. The goals are
from the Middle East. These actions could again to protect domestic businesses, citizens, or cul-
hurt the United States’s image as a good tures and to ensure national security. American firms
country to invest in. need government licenses to sell high-technology or
military products abroad. For political reasons, a gov-
ernment may bar companies from doing business with
particular countries. Such a restriction is known as an
embargo. For instance, the U.S. government has established an embargo that
bars U.S. companies from conducting business with Cuba.
Sanctions are a milder form of embargo that bans specific business ties with a
foreign country. For instance, it is illegal for an American company to sell nuclear
technology to Pakistan, which tested atomic bombs in 1998.
Governments place restrictions on what domestic companies foreigners are
allowed to buy or invest in. In the United States, foreign firms are not allowed
to have a majority control of airlines or television stations. The government fears
that allowing that to happen might endanger national security. In extreme cases,
a government may seize foreign firms with or without compensation, if such busi-
nesses are thought to be harmful to the national interests.

CURRENCY VALUES
International business involves dealing with the money, or currency, of foreign
countries. Currencies have different names, such as the dollar in the United
States, peso in Mexico, and yen in Japan, but more important, they differ in
value. This is a key difference between doing business domestically and doing
business internationally. The exchange rate is the value of one country’s cur-
rency expressed in the currency of another country. For example, one U.S. dollar
might be worth nine Mexican pesos right now. If you were traveling to Mexico
and wanted some Mexican money, you would receive nine pesos for every dollar
you turned in to the bank at this exchange rate. The value of each currency in
terms of another can change every minute, depending on many factors, such as
the demand for a particular currency, interest rates, inflation rates, and govern-
ment policies. Major newspapers and several Web sites publish exchange rates
for most currencies.
Managers must closely watch exchange rates, as they affect profits and invest-
ment decisions in a big way. For example, assume the value of one American dol-
lar is equal to 125 Japanese yen. A camera made in Japan for 12,500 yen would
sell in the United States for $100 (12,500/125). If the exchange rate changes to

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