Topics in International Business

International business comes in many forms. This paper takes an in-depth look at three such arenas: International development, trade and multinational corporations. Each of these three forms of international business, while very different in structure, play a significant role in nations' economies, business development and, just as President Wilson envisioned, the establishment and maintenance of close, peaceful relationships.

Keywords Free Trade Agreement; Multinational Corporation; International Development; USAID; World Trade Organization

International Business > Topics in International Business

Overview

Interstate commerce is by no means a new or even recently introduced concept. For thousands of years, nations have conducted trade with their immediate and regional neighbors. In the 15th century, they went much farther, as Europeans traveled across Asia and the Atlantic in search of new trade relationships. In the 20th century, President Woodrow Wilson used international business as a critical component in his vision of post-World War I peace as one of his historic 14 Points: "The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance" (Halsall, 1997).

Wilson's "point" is one that has reverberated throughout human history. International business is a constant in an ever-changing world. It transcends the politics and sociological disparities that often separate different cultures. This fact is due to the very nature of commerce: Mutual need drives both involved parties into the relationship without consideration of those issues.

International business comes in many forms. This paper takes an in-depth look at three such arenas: International development, trade and multinational corporations. Each of these three forms of international business, while very different in structure, play a significant role in nations' economies, business development and, just as President Wilson envisioned, the establishment and maintenance of close, peaceful relationships.

International Development Aid

Among the more popular terms applied to nations in varying stages of development (one that is increasingly becoming considered outmoded and derogatory) are the monikers applied to so-called "first world" (“developed”), "second world," and "third world" (or developing) nations. The former of these three is affixed to wealthy and fully industrialized countries, chief among them the US and the European Union. "Second world" are those countries that have emerged from poverty and have established infrastructures that can foster full industrialization, such as Mexico and the non-European Union countries of eastern Europe. Developing nations, as logic suggests, are those whose citizens predominantly live in poverty with very few economic or technological resources to help them move "upward" on the international ladder.

The "three worlds" concept is one that, despite its unpopularity among those in academia and government, is reflective of the discernible gulf between wealthier industrialized nations and those that have yet to experience industrialization and the prosperity that comes with it. For a variety of reasons, however, virtually all industrialized nations have in place some sort of program that provides international development aid to less-developed countries. It is to these programs (and the relationships they build) that this paper next turns attention.

Mauritania, A Case Study

In 2005, the government of Mauritania was overthrown in a bloodless coup, with a military junta put in place of what the coup's leaders called a totalitarian regime. Beyond that northwest African country's boundaries, many observers decried the move against a democratically elected government. In the streets of the capital city of Nouakchatt, however, people welcomed the move as one toward democracy and away from international isolation. Two years later, the country held its first post-coup democratic and open elections, installing a new president, Sidi Ould Cheikh Abdallahi, as well as a new parliament.

Abdallahi's first order of business was business. Only eight months after his election, Abdallahi declared that the country was dedicated to a free, open-market system and that government's role was to guarantee the safety and well-being of its people. Mauritania, he said, would be neighborly and cooperative with its neighbors. Finally, he said, the nation would be dedicated to building its economic resources so that it could become part of the international business world. His comments, which appeared in a November 2007 edition of Foreign Affairs, were in effect an advertisement, inviting countries to join Abdallahi and the new government in rebuilding the new Mauritania. "Mauritania's uniquely strategic position on the northwest African coast and blend of Arab and African culture," he wrote, "sets the stage for mutually beneficial relationships with surrounding nations and particularly European, American, and Asian partners" (Foreign Affairs, 2007).

Despite Abdallahi’s deposition in 2008, the efforts of Mauritania to attract international development funds and other forms of aid are not unique. Countless developing nations on nearly every continent recognize two important facts about their status: First, they desire to attract potential business, political and security partners from a membership in the international community; and second, they lack the infrastructure and/or the economic, social and political stability necessary to drawing investment.

The Attract & Draw of International Aid

A central theme consistently arises in the discussion of international development aid, one that has been manifest in this author's use of the terms "attract" and "draw." International development, after all, is not a philanthropy. No national government would invest state funds in contributing development aid to a nation that will not use the monies in such a way that there is no sign of improvement, nor a return on that investment.

An examination of the history of the primary source of American international development, the United States Agency for International Development (USAID), presents an illustration of this point. After World War II, efforts to reconstruct a devastated European theater proved successful, lasting until 1951. From that point onward, however, the US international aid system became confused and schizophrenic, with countless congressionally implemented subparts instilled in the place of European reconstruction aid systems. President Eisenhower and his successor, President Kennedy, saw the machinations of that system becoming bogged down in oft-contradictory bureaucracy. They also took notice of the lack of criteria used to determine the recipients of that aid. By 1960, the public's taste for helping war-torn, impoverished and unstable governments had soured significantly.

In 1961, however, Kennedy gave new life to the policy of international development. Dismantling the multifarious aid agencies and organizations, he crafted together USAID under his "Foreign Assistance Act." The focus of development programs, he said, would be on developing countries whose stabilization and growth would almost certainly ensure security (particularly at the height of the Cold War) and even trade relationships. A major point he delivered in his proposal was that the economic collapse of developing countries "would be disastrous to our national security, harmful to our comparative prosperity, and offensive to our conscience" (USAID, 2005).

The United States is not alone in its "no free riders" position with regard to international aid. Like the US, the European Union (EU), which has been the predominant figure in the redevelopment of the former Soviet Union countries, has long worked to provide aid to those nations that are rebuilding from decades of external control. However, in determining the amount of funds to distribute among developing nations, the EU also seeks some sort of intrastate benefit from such relationships. While the European nations do not expect an immediate economic return, its international development funds tend to flow more freely when they are delivered to countries that are strategically and potentially important economic partners (Kostadinova, 2004).

International Development Planning vs. Philanthropic Relief

An important distinction to be made here between international development funding and disaster or philanthropic relief. The former, to which the above text refers, is a long-term investment designed to build infrastructures, systems and programs that developing nations can use to restart their own economies, build government institutions and better address the needs of their citizenry. The latter is usually a short-term contribution, donated in a variety of forms, such as food, supplies, equipment or even personnel in response to a crisis (as well as money for otherwise stable governments to use to replenish coffers drained by the disaster in question). On many occasions, a nation may be the recipient of both types of aid — USAID operates development programs in the south Asian country of Bangladesh, but after the devastating cyclone that ravaged that impoverished nation's coastline in November 2007, more emergency relief was provided for the people whose lives were uprooted by the storm. Similarly, USAID’s decades long presence in Haiti was expanded after the 2010 earthquake when $773 million was assigned to USAID to facilitate reconstruction efforts (Gootnick, 2013).

Politics & International Aid Development

It was stated earlier in this paper that international business, with its focus on revenue generation and development, transcends (or at least eschews) politics. This statement would hold fast were it not for the fact that it is the government (or a counsel thereof, as is the case with the International Monetary Fund) that initiates international development aid programs. Politics presented a problem for USAID's predecessors, for example, not because of a refusal to help. Rather, as the euphemism suggests, there were simply too many cooks in the kitchen. Far too many individual agencies and legislators, following their own political agendas, sent the multitude of development organizations into a myriad of directions and, thus, apparent chaos. USAID may have been the solution to that problem, as it combined the American aid community under one umbrella.

However, another issue arose with similar appearances: With so many needy nations in every corner of the world, and money on limited supply, decisions have to be made. This problem was exacerbated after 9/11, when development funds focused on countries that were either at risk of or attempting to address the presence of terrorist organizations, such as Afghanistan and the countries of the Middle East. Larger, multinational organizations such as the World Bank have fared no better, largely because they are pulled in the directions of each individual country that plays a role in its activities, each of which is focused on its own ideas of local, regional and international security (Woods, 2005).

International development aid programs may experience a number of problems in terms of policy implementation and conflicts in priorities. Nevertheless, this component of international business remains a critical tool in establishing links not just between so-called industrialized nations and developing countries, but in terms of potential long-term business partners as well.

International Trade

Whereas the inequity between the donor and recipient country in international development programs is implicit, trade relationships are more illustrative of a sense of parity among parties. Each participating economy derives some sort of benefit from trade agreements. It comes as no surprise, therefore, that industrialized nations choose to initiate international development programs with developing countries that possess some sort of economic or natural resource (or an intangible form of benefit, such as a willingness to oppose a national enemy) of use to the donor country. After all, if a developing nation succeeds under the aid programs offered by USAID, for example, it is likely to continue its relationship with the United States under the auspices of trade agreements.

The WTO & Trade Partnering

In 1995, the World Trade Organization (WTO) became the chief administrator of the international trade arena. Nearly 100 percent of the world's trade (especially after the accession of China in 2001 and Russia in 2012) falls under the umbrella of the WTO (WTO, 2013). Although that organization is dedicated to the concept of promoting open trade among all interested countries, the fact remains that in recent years, the WTO has been focused largely on the nations of central and Eastern Europe as well as other former Soviet countries as opposed to sub-Saharan African and other distant countries (Madichie, 2007). The rationale is two-fold: First, these countries did at one point possess the infrastructure and industrial potential to be contributing trade partners with the rest of the world; and second, these nations are far closer in geography and culture to major European traders.

Of course, such a conclusion does not mean that a sub-Saharan African country has little to offer potential trade partners. Many of the nations in this region have vast diamond mines, oil and other lucrative resources. However, government instability, poverty and seemingly endless civil wars have left many of these resources untapped or, at best, risky ventures for trade. Some countries are, however, willing to take the risk if the potential benefit is within sight. For example, China, whose energy needs have skyrocketed in its explosive entry as an economic powerhouse, has been working closely to establish strong commercial relationships with the countries of the former USSR, such as Turkmenistan. Although many former Soviet countries have unstable government institutions, substandard technologies and poverty levels that rival many sub-Saharan African countries, they were part of the Soviet Union for a reason — they possess vast energy reservoirs, such as oil, coal and natural gas. China's concern is that if they do not establish close trade relations with such nations before other high-level consumption countries (like the US, Russia and European Union states) do, they will be forced to pay a higher rate for the resources they need (Lanteigne, 2007).

The Global Network

Arguably, the most significant attribute of the worldwide economic system over the last century is that it has become a global network. No longer are the isolationist, tariff-laden ways of pre-World War II-era economies viable solutions. While many developing economies still apply trade barriers and protectionist measures to ensure the health of their domestic industries, such measures are minute when compared to the potential returns on entering into the myriad of free-trade agreements in the post-millennium global economy. With the open, liberal trade mechanisms that are free of convoluted bureaucracies, weighty tariffs and heavy regulations such accords have to offer, scores of nations have entered into regional and global free trade agreements (FTAs). Among the more prominent is the North American Free Trade Agreement (NAFTA) signed between the US (one-third of whose economy is dedicated to international trade), Canada and Mexico. However, there are approximately 300 such agreements around the world, including the Association of South East Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC), not to mention FTAs in Africa, South America and of course, the European community. In 2013, the WTO implemented the Bali Package, the first such accord approved by all of its members, and one with the focus of lowering trade barriers globally. Free trade encompasses not just the industrialized nations — rather, such agreements create parity among less-developed countries and larger economies alike. Clearly, with a worldwide trend heading in the direction of free trade blocs (Trunick, 2012), international trade remains a fluid, dynamic aspect of international business for any nation, regardless of economic status.

Multinational Commerce

The first two arenas this paper has outlined, while containing private industrial elements, depend on intergovernmental relations (treaties must be signed, agency-to-agency agreements must be forged and contracts must be approved on national, state and local levels). However, there is a third arena of international commerce that, while affected by government rules and regulations, centers solely on business relationships.

In the 18th century, the East India Company became a pioneer in another form of international business. Enveloping the spice trading corporations of the Dutch and Portuguese, the Company dominated an industry that, for two centuries prior, spanned across Asia and traversed two oceans. In essence, that organization, which was much reviled for its monopolistic hold on the business arena, was the world's first multinational corporation (Robins, 2004).

Centuries later, the multinational corporation is still one of the most preferable forms of international business, particularly for industrialized nations. According to the International Labour Organization, the vast majority of the most profitable multinational corporations (MNCs) are based in either the United States or western Europe. By the late 1990s, the 500 largest multinational corporations reported $11.4 trillion in revenues, $404 billion of which were profits. Nearly 36 million people were employees at these companies, which in total possessed assets of over $33 trillion (ILO, 1996).

Controversy

As was the case with the East India Company two centuries ago, multinational corporations have come under fire. This time, however, a major source of that consternation centers on the companies’ efforts to minimize expenses while maximizing revenue. Most of these corporations base themselves in locales where the environment is business-friendly — real estate is reasonable, labor is inexpensive and taxes are, of course, at a minimum. The latter of these three is particularly controversial, as many governments are willing to offer disproportionately large tax breaks and similar incentives for setting up shop (Wague, 2013). Again, like the East India Company's case, opponents claim such pro-business breaks do little more than keep wealth among a relative few while exploiting labor and taking away from local economies (New York Times, 2007).

Regardless of one's attitudes about the size and wealth of multinational corporations, it cannot be denied that global businesses remain, as has been the case throughout history, a major if not central element of the modern global economy.

Conclusions

Since the latter half of the 20th century, countries hoping to provide strength and long-term health to their economies have found them through international business. This paper has provided an illustration of the many different capacities in which such commerce takes place in the new millennium.

For example, some countries still have fledgling economies and continue to struggle with issues of internal stability. Still, if the will exists to join and profit from an increasingly global economy, these countries will likely find receptive audiences in international development programs, especially if they possess potential resources, products or intangible benefits of interest to donor countries and organizations. Using development aid and grant monies, these developing nations may build the infrastructures and systems necessary to generate intrastate industries and attract foreign investors. Such programs may even give these countries the ability to one day become trading partners on a level playing field with other industrialized nations.

If those resources and linkages do exist on an equitable level, the potential for a trade relationship may be realized. Trade agreements, however, are not without controversy, particularly in light of the assertion that many traders will likely pursue relationships with nearby countries with similar interests and socio-political composition. Still, for some countries, those geographical and social similarities may create regional parity and fertile ground for competitive trade agreements. Countries may even link together within free trade agreements, thereby avoiding burdensome tariffs and burdensome government intervention and, once such organizations are forged, attract outside participants to it rather than pursue them.

Beyond government-sanctioned development programs and trade agreements, many businesses will cross borders and even oceans in order to maximize their economic potentials. Multinational businesses have long been the target of those fearful of the imposition of an Orwellian form of corporate governance. After all, the fact that only a handful of businesses can command such astronomical profit margins, possess such large amounts of real estate and assets and reach virtually any locale on the planet can prove intimidating to the casual observer. Still, the fact remains that this form of international business remains a viable, extensive and profitable form of commerce, thriving in the modern economic world.

Terms & Concepts

Free Trade Agreement: Treaty or accord in which trading partners agree not to impose excessive government regulation or taxes on transactions.

Multinational Corporation: A company which conducts business in more than one country.

International Development: Program whereby assistance, grants and projects are offered by an industrialized country or organization thereof to a less-developed nation.

USAID: United States Agency for International Development; chief administrator of American international development programs.

World Trade Organization: International governmental organization which oversees all trade agreements.

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Suggested Reading

Baltazar, T. & Kvitashvili, E. (2007). The role of USAID and development assistance in combating terrorism. Military Review, 87, 38-40. Retrieved November 27, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=25012929&site=ehost-live

McIymont, R. (2007). Missed opportunities. Journal of Commerce, 8, 22-24. Retrieved November 27, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=27417905&site=bsi-live

Shapiro, H.S. (2007). Is the US falling behind on the fast track of international trade? World Trade, 20, 8. Retrieved November 27, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=26600902&site=bsi-live

Wilson, M. (2014). NAFTA's Unfinished Business. Foreign Affairs, 93, 128–33. Retrieved December 3, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=93322523