Business in the International Community

Exchange Rates

  • The exchange rate is the price of one currency in terms of another
  • Most currencies use supply and demand to set their exchange rate
  • Demand of the currency is determined by the demand of the goods and services of the country
  • This, in turn, determines the appreciation or depreciation of the currency

Currency Appreciation

  • The value of one currency rises and is able to buy more of another country’s currency than before
  • Exporters have a serious problem when the currency of their country appreciates
  • It could lead to fewer sales and exports
  • Import prices to fall

Currency Depreciation

  • The value of one currency falls and buys less of another currency than before
  • Cost of production will rise
  • Standard of living will fall
  • Loss of foreign currency
  • Everything becomes expensive
  • Import prices to rise
  • Export prices to fall

European Union

  • It is an organization of 25 European countries

1. There is a single market within Europe:

  • easier trade
  • no barriers/controls on trade
  • creates a huge market for goods and services
  • economies of scale may occur
  • increases competition amongst all European industries
  • more consumer choice
  • lower prices
  • businesses have motivation to develop new and better products

2. Common Currency/ European Monetary Union (euro):

  • fixed interest rates & supply of euro
  • easier to calculate
  • businesses won’t lose money through transactions
  • less rivalry
  • could lead to same taxation

3. Common Agricultural Policy:

  • scheme to maintain the price of foodstuffs in Europe
  • EU buys all excess food
  • imports of agricultural products from outside EU have strict controls

4. Social Charter:

  • aims to improve working conditions for European workers and create equality
  • mobility of labor
  • democratic leadership
  • discrimination laws
  • minimum/maximum hours
  • laws of safety and health
  • employee protection act
  • forcers all employers to comply
  • protection of children and disabled
  • collective bargaining
  • grants to unemployed
  • finances retraining through social fund

5. Transport/Infrastructure/Communications

6. European Investment Bank:

  • finance for small/medium businesses

7. Regulations on waste and pollution/noise levels

Advantages of Joining the EUDisadvantages of Joining the EU
Free trade to all markets of EU countriesIncreased business cost since part-time workers would get the same benefits as full-time workers
Removal of border controls and lower administration costsMaximum hours worked would be set
Bigger marketIncreased competition with no import controls/protection
Potential for growth and economies of scaleMany EU controls over business activity through Social Charter
More market opportunities
Exports of the business could increase
More source of employees
Greater competition 
More sources of finance 
Incentive and opportunity to become efficient 
Learn from other firms 
Same safety and technical standard for many products 
Ability to compete for contracts from member governments 
No exchange rate fluctuations 
Common laws and controls for all EU businesses 


Advantages for UK Firms of Joining the EuroDisadvantages for UK Firms of Joining the Euro
Lower costs- one price list onlyMore competition for UK firms
Lower cost- no price of converting currencyConsumers will be able to compare prices and choose the cheapest option which may not always be the UK firms
Easier to trade between countriesInterest rate may not suit the UK
Easier to compare costs- makes price differences more obviousThey won’t receive VAT anymore
No risk of losing out from exchange rateThey will have to adjust everything to euro
No differentiationThey will have to change their IT and stock control systems
Stability for businesses

Free Trades Association

  • A free trade association is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members
  • Aims of reducing all barriers and limits on international trade
allows every country to specializeincreased competition for firms
increased efficiencyno protection by government
prices will be competitive and not change by controls or import taxescannot ask for subsidies
helpful to developing nations since it helps them earn revenue
more variety for consumers
more opportunities for export
increased sales
living standards are likely to rise
prices are likely to be kept low

Globalization [World Trade]

  • The process by which businesses or other organizations develop international influence or start operating on an international scale.
free trade agreementsmore jobsunemployment
economic unionsvariety of goods/servicessocial problems
reduced protection for industrieslower pricesless protection for firms
no import controlsefficiencysmall businesses suffer
improved travel links and communicationsmerging/integration of firmsgovernment cannot protect their home businesses
better infrastructureeasier to export/import
easier to compare prices and quality of goodsspecialization
developing tiger economies creating tough competition

Multinational Businesses [Transnational Businesses]

  • Businesses with factories, production or service operations in more than one country
  • They produce goods and services in more than one country

Reasons Behind MNC:

  • globalization
  • to produce in the countries with low cost
  • to extract raw materials which the firm may need for production or refining
  • to produce nearer to the market to reduce transport costs
  • avoid barriers of trade
  • expand into different market areas to spread risk
  • near capital market
  • less restrictive practices
  • diversify assets
Advantages of MNC Operating in a CountryDisadvantages of MNC Operating in a Country
Jobs are createdJobs created are often blue-collar
New investments may increase output of countryAll the skilled jobs are taken by home country
Increased exportsLocal firms will suffer since MNC have lower cost and more efficiency
Reduced importsProfits are sent back to the home country
Taxes fund the governmentThey use up scarce and non-renewable resources
More competitionDamage environment
Influence the government and economy- they may ask for large grants


Leave a comment