Core Concepts of Marketing

THE INTERNATIONALMARKETINGENVIRONMENT 143

PoliticalStability

Businessactivitytendstogrowandthrivewhena nationis politicallystable.Whena nation

ispoliticallyunstable,multinationalfirmscanstillconductbusinessprofitably.Theirstrate-

gieswillbeaffected however. Mostfirmsprobablyprefertoengageintheexportbusiness

ratherthaninvestconsiderablesumsofmoneyIninvestmentsinforeignsubsidiaries.Inven-

torieswillbelowandcurre.1cywillbeconvertedrapidly.Theresultisthatconsumersin

theforeignnationpayhighprices,getlesssatisfactoryproducts,andhavefewerjobs.

MonetaryCircumstances

Theexchangerateofa particularnation's currencyrepresentsthevalueofthatcurrencyin

relationtothatofanothercountry.Governmentssetsomeexchangeratesindependentlyof

theforcesofsupplyanddemand.Theforcesofsupplyanddemandsetothers.If a coun-

try'sexchangerateis lowcomparedtoothercountries,thatcountry'sconsumersmustpay

higherpricesonimportedgoods.Whiletheconceptofexchangeratesappearsrelatively

simple,theseratesfluctuatewidelyandoften,thuscreatinghighrisksforexp0rtersand

importers.

TradingBlocsandAgreements
U.S.companiesmakeone-thirdoftheirrevenuesfromproductsmarketedabroad,inplaces
suchasAsiaandLatinAme:-ica.TheNorthAmericanFreeTradeAgreement(NAFfA)fur-
therboostsexportsalesbyenablingcompaniestosellgoodsat lowerpricesbecauseofreduced
tariffs.
Regionaltradingblocsrepresenta groupofnationsthatjointogetherandformally
agreetoreducetradebarriersamongthemselves.NAFfAis sucha bloc.Itsmembersinclude
theU.S.,Canada,andMexico.Notariffsexistongoodssoldbetweenmembernationsof
NAFfA.However,a uniformtariffis assessedonproductsfromcountriesnotaffiliatedwith
NAFfA.Inaddition, NAFTAseekscommonstanc!ardsforlabelingrequirements,foodaddi-
tives,andpackagesizes.
OneofthepotentiallyinterestingresultsoftradeagreementslikeNAFfAisthatmany
productspreviouslyrestrictedl:Jydumpinglaws,lawsdesig~edtokeepoutforeignprod-
ucts,wouldbeallowedtobemarketed.Thepracticeofdumpinginvolvesa companysell-
ingproductsinoverseasmarketsatverylowprices, oneintentionbeingtostealbusiness
fromlocalcompetitors.Theselawsweredesignedtopreventpricingpracticesthatcould
seriouslyharmlocalcompetition.Thelaws weredesignedtopreventlargeproducersfrom
floodingmarketswithverylowpricedproducts,gaina monopoly,andthenraiseoricesto
veryhighlevels.In1993,about 40 nations,countingtheEuropeanCommunityasone,had
anti-dumpinglegislation. Thoseinfavorofagreements arguethatantidumpinglawspenal-
izethosecompanieswhoarecapableofcompetinginfavorofthosecompaniesthatarenot
competitive.
AlmostallthecountriesintheWestern~emispherehaveenteredintooneormore
regionaltradeagreements.Suchagreementsaredesignedtofacilitatetradethroughtheestab-
lishmentofa freetradeareacustomsunionorcustomsmarket.Freetradeareasandcus-
tomsunionseliminatetradebarriersbetweenmembercountrieswhilemaintainingtrade
barrierswithnonmembercountries.CustomsUnionsmaintaincommontariffsandratesfor
nonmembercountries.Acommonmarketprovidesforharmoniousfiscalandmonetarypoli-
cieswhilefreetradeareas andcustomsunionsdonot.Tradeagreementsarebecominga
growingforcefortradeliberalization;thedevelopmentofsuchagreementsprovidesfor
tremendousopportunitiesforU.S.companies doingb'lsinessinLatinAmericaandNorth
America.