International Business
Chapter 2 Political and economic environment ................................................................................................................................................................ 4
2.1 Free trade ............................................................................................................................................................................................................ 4
2.2 Regional trading arrangements ......................................................................................................................................................................... 4
2.2.1 Free-trade bloc ............................................................................................................................................................................................. 4
2.2.2 Customs union .............................................................................................................................................................................................. 4
2.2.3 Common market........................................................................................................................................................................................... 4
2.3 Economic and Monetary Union .......................................................................................................................................................................... 5
2.4 Protectionism ...................................................................................................................................................................................................... 5
2.4.1 Tariff measures ............................................................................................................................................................................................. 5
2.4.2 Non-tariff measures ..................................................................................................................................................................................... 7
2.5 International organizations ................................................................................................................................................................................ 8
2.5.1 United Nations .............................................................................................................................................................................................. 8
2.5.2 Global Compact ............................................................................................................................................................................................ 8
2.5.3 The World Trade Organization (WTO) ........................................................................................................................................................ 8
2.5.4 The International Monetary Fund (IMF) ..................................................................................................................................................... 9
2.5.5 The World Bank ............................................................................................................................................................................................ 9
2.5.6 The BRICS bank and the Contingency Reserve Package............................................................................................................................. 9
2.5.7 The Organization for Economic Cooperation and Development (OECD) .................................................................................................. 9
Chapter 3 Culture ............................................................................................................................................................................................................. 9
3.1 What is culture .................................................................................................................................................................................................... 9
2.5.8 Layers of culture ......................................................................................................................................................................................... 10
2.5.9 Cultural levels ............................................................................................................................................................................................. 10
3.2 Elements of culture ........................................................................................................................................................................................... 10
3.2.1 Language ..................................................................................................................................................................................................... 10
3.2.2 Religion........................................................................................................................................................................................................ 11
3.2.3 Social structure ........................................................................................................................................................................................... 11
3.2.4 Cultural diagrams ....................................................................................................................................................................................... 11
3.3 Classification of cultural differences ................................................................................................................................................................ 12
3.3.1 Hall’s context approach ............................................................................................................................................................................. 12
3.3.2 Hofstede’s six dimensions.......................................................................................................................................................................... 12
3.3.3 Trompenaars’ seven dimensions ............................................................................................................................................................... 14
3.4 Ethics.................................................................................................................................................................................................................. 15
3.3.4 What are ethics? ........................................................................................................................................................................................ 15
3.3.5 Corruption................................................................................................................................................................................................... 15
3.3.6 Code of conduct ......................................................................................................................................................................................... 15
Chapter 4 Management and organization in an international environment ................................................................................................................... 16
4.1 Internationalization........................................................................................................................................................................................... 16
4.2 Strategic management ..................................................................................................................................................................................... 16
4.2.1 Vision, mission and values ......................................................................................................................................................................... 17
4.2.2 SWOT analysis and growth engines........................................................................................................................................................... 17
4.2.3 Strategic goal formulation ......................................................................................................................................................................... 17
4.2.4 Tactical goals and planning ........................................................................................................................................................................ 17
4.2.5 Evaluating and monitoring system ............................................................................................................................................................ 18
4.3 Value chain analysis .......................................................................................................................................................................................... 18
4.3.1 Differential advantage................................................................................................................................................................................ 18
4.4 Strategic planning ............................................................................................................................................................................................. 18
4.5 Internal organization......................................................................................................................................................................................... 19
4.5.1 Level 1 product-oriented ........................................................................................................................................................................... 19
4.5.2 Level 2 Market-oriented simple ................................................................................................................................................................ 19
4.5.3 Level 4 Market-oriented complex ............................................................................................................................................................. 19
4.5.4 Level 4 market-oriented absolute ............................................................................................................................................................. 20
4.6 Human resource management ......................................................................................................................................................................... 20
4.6.1 Global organization .................................................................................................................................................................................... 20
4.6.2 Levels of working in the company ............................................................................................................................................................. 21
Chapter 5 External analysis in an international environment.......................................................................................................................................... 22
, 5.1 What is an external analysis? ........................................................................................................................................................................... 22
5.2 Initial analysis .................................................................................................................................................................................................... 22
5.2.1 Basic demand analysis................................................................................................................................................................................ 22
5.2.2 Trade figures analysis ................................................................................................................................................................................. 23
5.2.3 Business Climate ......................................................................................................................................................................................... 23
5.3 Environment analysis ........................................................................................................................................................................................ 23
5.3.1 DESTEP analysis .......................................................................................................................................................................................... 24
5.3.2 Competition analysis .................................................................................................................................................................................. 25
5.3.3 Supplier analysis ......................................................................................................................................................................................... 25
5.3.4 Distribution analysis ................................................................................................................................................................................... 26
5.4 Market research ................................................................................................................................................................................................ 26
5.4.1 Primary data ............................................................................................................................................................................................... 26
5.4.2 Secondary data ........................................................................................................................................................................................... 26
5.5 Determining market potential .......................................................................................................................................................................... 26
5.5.1 Estimation by analogy ................................................................................................................................................................................ 27
5.5.2 Lead-lag analysis ......................................................................................................................................................................................... 27
Chapter 6 Market entry and international marketing ..................................................................................................................................................... 27
6.1 International cooperation ................................................................................................................................................................................. 27
6.1.1 Market entry strategy ................................................................................................................................................................................ 27
6.1.2 Strategic alliances ....................................................................................................................................................................................... 27
6.2 Modes of cooperation ....................................................................................................................................................................................... 28
6.2.1 Participatory cooperation .......................................................................................................................................................................... 28
6.3 Direct mode of entry ......................................................................................................................................................................................... 31
6.4 Mergers and acquisitions.................................................................................................................................................................................. 32
6.5 Outsourcing & out-tasking................................................................................................................................................................................ 32
6.6 International marketing strategy ..................................................................................................................................................................... 33
6.6.1 Standardize or adapt? ................................................................................................................................................................................ 33
6.6.2 Think globally, act locally ........................................................................................................................................................................... 34
6.7 International marketing mix ............................................................................................................................................................................. 34
6.7.1 Product........................................................................................................................................................................................................ 34
6.7.2 Price............................................................................................................................................................................................................. 34
6.7.3 Promotion ................................................................................................................................................................................................... 36
6.7.4 Place ............................................................................................................................................................................................................ 36
6.7.5 Personnel .................................................................................................................................................................................................... 36
6.7.6 Physical evidence........................................................................................................................................................................................ 36
6.7.7 Process ........................................................................................................................................................................................................ 36
Chapter 7 Intercultural communication and management ............................................................................................................................................. 37
7.1 Preparing for intercultural communication ..................................................................................................................................................... 37
7.1.1 Intercultural communication ..................................................................................................................................................................... 37
7.1.2 Preparation for cultural differences .......................................................................................................................................................... 37
7.2 Cross-cultural negotiating ................................................................................................................................................................................ 38
7.2.1 The process of cross-cultural negotiations ............................................................................................................................................... 38
7.2.2 Negotiating strategy ................................................................................................................................................................................... 39
7.2.3 Negotiations and agreement ..................................................................................................................................................................... 40
7.3 Intercultural management................................................................................................................................................................................ 41
7.3.1 International manager ............................................................................................................................................................................... 41
7.3.2 Multicultural team...................................................................................................................................................................................... 42
7.3.3 Virtual team ................................................................................................................................................................................................ 42
Chapter 8 International commercial law ........................................................................................................................................................................ 42
8.1 The principle legal systems ............................................................................................................................................................................... 42
8.2 Precontact negotiations .................................................................................................................................................................................... 43
8.2.1 Initial negotiation phase ............................................................................................................................................................................ 43
8.2.2 Consensus ad idem phase.......................................................................................................................................................................... 43
8.3 International contracts ..................................................................................................................................................................................... 44
8.3.1 The Vienna Sales Convention .................................................................................................................................................................... 44
8.3.2 General conditions ..................................................................................................................................................................................... 45
8.3.3 International commercial terms (INCO terms 2010) ................................................................................................................................ 45
8.4 Applicable law under Rome I ............................................................................................................................................................................ 46
8.5 Product liability.................................................................................................................................................................................................. 46
8.5.1 CE marking .................................................................................................................................................................................................. 46
, 8.5.2 Packaging requirements ............................................................................................................................................................................ 46
8.6 Intellectual Property Rights .............................................................................................................................................................................. 46
8.6.1 Industrial property...................................................................................................................................................................................... 47
8.6.2 Copyright..................................................................................................................................................................................................... 47
8.6.3 Company (trade) name .............................................................................................................................................................................. 47
8.6.4 Maintaining intellectual property rights ................................................................................................................................................... 48
8.6.5 Registering the Intellectual Property right abroad? ................................................................................................................................. 48
8.6.6 Parallel importation and exhaustion ......................................................................................................................................................... 49
8.7 Arbitration, settlements and jurisdiction ......................................................................................................................................................... 49
Chapter 9 Risk management, insurance and finance ...................................................................................................................................................... 50
9.1 Risks ................................................................................................................................................................................................................... 50
9.1.1 Political risks ............................................................................................................................................................................................... 50
9.1.2 Commercial or business risks..................................................................................................................................................................... 50
9.2 Risk management.............................................................................................................................................................................................. 51
9.2.1 CSR Risk management ................................................................................................................................................................................ 52
9.3 Insurance ........................................................................................................................................................................................................... 52
9.4 Types of insurance............................................................................................................................................................................................. 53
9.4.1 Quality risk .................................................................................................................................................................................................. 53
9.4.2 Transport risk .............................................................................................................................................................................................. 54
9.4.3 Exchange rate risk ...................................................................................................................................................................................... 54
9.4.4 Risk of kidnapping, hostage-taking or extortion ....................................................................................................................................... 55
9.4.5 Non-payment risk ....................................................................................................................................................................................... 55
9.5 Finance............................................................................................................................................................................................................... 55
9.5.1 Clean payment ............................................................................................................................................................................................ 56
9.5.2 Clean collection .......................................................................................................................................................................................... 56
9.5.3 Documentary collection ............................................................................................................................................................................. 56
9.5.4 Documentary credit ................................................................................................................................................................................... 57
9.5.5 International bank guarantees .................................................................................................................................................................. 57
9.6 International financing...................................................................................................................................................................................... 57
Chapter 10 Logistics and customs .................................................................................................................................................................................. 59
10.1 Logistics for international business .................................................................................................................................................................. 59
10.1.1 The position of Europe in logistics ...................................................................................................................................................... 59
10.2 Transport strategy............................................................................................................................................................................................. 60
10.2.1 Parties involved in transport ............................................................................................................................................................... 60
10.2.2 Transport activities .............................................................................................................................................................................. 60
10.3 Modes of transport ........................................................................................................................................................................................... 61
10.3.1 Road transport ..................................................................................................................................................................................... 61
10.3.2 Rail transport........................................................................................................................................................................................ 61
10.3.3 Air transport ......................................................................................................................................................................................... 62
10.3.4 Water transport ................................................................................................................................................................................... 62
10.3.5 Pipeline transport ................................................................................................................................................................................ 62
10.4 International transport law .............................................................................................................................................................................. 62
10.5 IT and logistics ................................................................................................................................................................................................... 63
10.5.1 ERP ........................................................................................................................................................................................................ 63
10.5.2 RFID (e.g. the passport) ....................................................................................................................................................................... 63
10.5.3 EDI......................................................................................................................................................................................................... 63
10.6 Customs ............................................................................................................................................................................................................. 63
10.6.1 Trade within the EU ............................................................................................................................................................................. 64
10.6.2 Trade outside the EU ........................................................................................................................................................................... 64
10.6.3 Customs regulations ............................................................................................................................................................................ 64
10.6.4 Documents for international business ............................................................................................................................................... 65
, Chapter 2 Political and economic environment
2.1 Free trade
Free international business benefits from the free movement of goods and services. As a result, the
consumer is offered a wider choice of products. The European Union (EU) is the world’s biggest
trader. The trade policy of EU members is primarily determinded by the Common Trade Policy of the
European Union. The EU strives for the harmonious development of fair and sustainable world trade.
As a consequence, trade barriers have disappeared within the EU. Through liberalized trade, the most
efficient producers in the EU are able to compete with producers in other countries in a fair manner.
Free trade is restricted in two ways:
1. By regional trading arrangements among a number of countries
2. By limiting trade to protect the home economy (protectionism)
2.2 Regional trading arrangements
There are various forms of economic cooperation. The objective of a regional trading arrangement is
to reduce trade barriers. The most common forms of cooperation will be discussed in the following
sections.
2.2.1 Free-trade bloc
In this intrabloc trades area there are no trade restrictions among the participant countries. Countries
strive for free trade because this form of trade offers a number of advantages:
- Efficient use of production factors
- Stimulation of competition
- Prevention of trade wars
- Promotion of trade and investment
- Promotion of welfare
Examples of Regional Integration Agreements are the European Free Trade Association (EFTA) and the
North American Free Trade Agreement (NAFTA)
2.2.2 Customs union
A customs union exists when two or more countries abolish all mutual import tariffs. Besides mutual
free trade, the participating countries have a joint external tariff; that is to say, with respect to non-
member countries the same import duties are levied.
A custom union is required because otherwise importers would import goods into the country at the
lowest tariffs possible and would subsequently transport them to a country at the highest import
tariff.
Examples of customs unions are Mercosur and the union between the EU and Turkey:
• Mercosur
The goal of the organization is to promote free trade traffic of goods, people and capital. Bolivia, Chile,
Colombia, Ecuador, Peru and Venezuela are associate members. It is now the fourth largest economic
power in the world after the EU, USA and Japan.
• Turkey and the EU
As a result of de customs union between the EU and Turkey no import duties are levied on Turkish
trade with the EU. However, an exception is made for olive and certain agricultural products.
2.2.3 Common market
A common market is a customs union supplemented by provisions concerning the stimulation of
mutual trade. The EU is an example of such a common market. On all products originating in the EU,
Chapter 2 Political and economic environment ................................................................................................................................................................ 4
2.1 Free trade ............................................................................................................................................................................................................ 4
2.2 Regional trading arrangements ......................................................................................................................................................................... 4
2.2.1 Free-trade bloc ............................................................................................................................................................................................. 4
2.2.2 Customs union .............................................................................................................................................................................................. 4
2.2.3 Common market........................................................................................................................................................................................... 4
2.3 Economic and Monetary Union .......................................................................................................................................................................... 5
2.4 Protectionism ...................................................................................................................................................................................................... 5
2.4.1 Tariff measures ............................................................................................................................................................................................. 5
2.4.2 Non-tariff measures ..................................................................................................................................................................................... 7
2.5 International organizations ................................................................................................................................................................................ 8
2.5.1 United Nations .............................................................................................................................................................................................. 8
2.5.2 Global Compact ............................................................................................................................................................................................ 8
2.5.3 The World Trade Organization (WTO) ........................................................................................................................................................ 8
2.5.4 The International Monetary Fund (IMF) ..................................................................................................................................................... 9
2.5.5 The World Bank ............................................................................................................................................................................................ 9
2.5.6 The BRICS bank and the Contingency Reserve Package............................................................................................................................. 9
2.5.7 The Organization for Economic Cooperation and Development (OECD) .................................................................................................. 9
Chapter 3 Culture ............................................................................................................................................................................................................. 9
3.1 What is culture .................................................................................................................................................................................................... 9
2.5.8 Layers of culture ......................................................................................................................................................................................... 10
2.5.9 Cultural levels ............................................................................................................................................................................................. 10
3.2 Elements of culture ........................................................................................................................................................................................... 10
3.2.1 Language ..................................................................................................................................................................................................... 10
3.2.2 Religion........................................................................................................................................................................................................ 11
3.2.3 Social structure ........................................................................................................................................................................................... 11
3.2.4 Cultural diagrams ....................................................................................................................................................................................... 11
3.3 Classification of cultural differences ................................................................................................................................................................ 12
3.3.1 Hall’s context approach ............................................................................................................................................................................. 12
3.3.2 Hofstede’s six dimensions.......................................................................................................................................................................... 12
3.3.3 Trompenaars’ seven dimensions ............................................................................................................................................................... 14
3.4 Ethics.................................................................................................................................................................................................................. 15
3.3.4 What are ethics? ........................................................................................................................................................................................ 15
3.3.5 Corruption................................................................................................................................................................................................... 15
3.3.6 Code of conduct ......................................................................................................................................................................................... 15
Chapter 4 Management and organization in an international environment ................................................................................................................... 16
4.1 Internationalization........................................................................................................................................................................................... 16
4.2 Strategic management ..................................................................................................................................................................................... 16
4.2.1 Vision, mission and values ......................................................................................................................................................................... 17
4.2.2 SWOT analysis and growth engines........................................................................................................................................................... 17
4.2.3 Strategic goal formulation ......................................................................................................................................................................... 17
4.2.4 Tactical goals and planning ........................................................................................................................................................................ 17
4.2.5 Evaluating and monitoring system ............................................................................................................................................................ 18
4.3 Value chain analysis .......................................................................................................................................................................................... 18
4.3.1 Differential advantage................................................................................................................................................................................ 18
4.4 Strategic planning ............................................................................................................................................................................................. 18
4.5 Internal organization......................................................................................................................................................................................... 19
4.5.1 Level 1 product-oriented ........................................................................................................................................................................... 19
4.5.2 Level 2 Market-oriented simple ................................................................................................................................................................ 19
4.5.3 Level 4 Market-oriented complex ............................................................................................................................................................. 19
4.5.4 Level 4 market-oriented absolute ............................................................................................................................................................. 20
4.6 Human resource management ......................................................................................................................................................................... 20
4.6.1 Global organization .................................................................................................................................................................................... 20
4.6.2 Levels of working in the company ............................................................................................................................................................. 21
Chapter 5 External analysis in an international environment.......................................................................................................................................... 22
, 5.1 What is an external analysis? ........................................................................................................................................................................... 22
5.2 Initial analysis .................................................................................................................................................................................................... 22
5.2.1 Basic demand analysis................................................................................................................................................................................ 22
5.2.2 Trade figures analysis ................................................................................................................................................................................. 23
5.2.3 Business Climate ......................................................................................................................................................................................... 23
5.3 Environment analysis ........................................................................................................................................................................................ 23
5.3.1 DESTEP analysis .......................................................................................................................................................................................... 24
5.3.2 Competition analysis .................................................................................................................................................................................. 25
5.3.3 Supplier analysis ......................................................................................................................................................................................... 25
5.3.4 Distribution analysis ................................................................................................................................................................................... 26
5.4 Market research ................................................................................................................................................................................................ 26
5.4.1 Primary data ............................................................................................................................................................................................... 26
5.4.2 Secondary data ........................................................................................................................................................................................... 26
5.5 Determining market potential .......................................................................................................................................................................... 26
5.5.1 Estimation by analogy ................................................................................................................................................................................ 27
5.5.2 Lead-lag analysis ......................................................................................................................................................................................... 27
Chapter 6 Market entry and international marketing ..................................................................................................................................................... 27
6.1 International cooperation ................................................................................................................................................................................. 27
6.1.1 Market entry strategy ................................................................................................................................................................................ 27
6.1.2 Strategic alliances ....................................................................................................................................................................................... 27
6.2 Modes of cooperation ....................................................................................................................................................................................... 28
6.2.1 Participatory cooperation .......................................................................................................................................................................... 28
6.3 Direct mode of entry ......................................................................................................................................................................................... 31
6.4 Mergers and acquisitions.................................................................................................................................................................................. 32
6.5 Outsourcing & out-tasking................................................................................................................................................................................ 32
6.6 International marketing strategy ..................................................................................................................................................................... 33
6.6.1 Standardize or adapt? ................................................................................................................................................................................ 33
6.6.2 Think globally, act locally ........................................................................................................................................................................... 34
6.7 International marketing mix ............................................................................................................................................................................. 34
6.7.1 Product........................................................................................................................................................................................................ 34
6.7.2 Price............................................................................................................................................................................................................. 34
6.7.3 Promotion ................................................................................................................................................................................................... 36
6.7.4 Place ............................................................................................................................................................................................................ 36
6.7.5 Personnel .................................................................................................................................................................................................... 36
6.7.6 Physical evidence........................................................................................................................................................................................ 36
6.7.7 Process ........................................................................................................................................................................................................ 36
Chapter 7 Intercultural communication and management ............................................................................................................................................. 37
7.1 Preparing for intercultural communication ..................................................................................................................................................... 37
7.1.1 Intercultural communication ..................................................................................................................................................................... 37
7.1.2 Preparation for cultural differences .......................................................................................................................................................... 37
7.2 Cross-cultural negotiating ................................................................................................................................................................................ 38
7.2.1 The process of cross-cultural negotiations ............................................................................................................................................... 38
7.2.2 Negotiating strategy ................................................................................................................................................................................... 39
7.2.3 Negotiations and agreement ..................................................................................................................................................................... 40
7.3 Intercultural management................................................................................................................................................................................ 41
7.3.1 International manager ............................................................................................................................................................................... 41
7.3.2 Multicultural team...................................................................................................................................................................................... 42
7.3.3 Virtual team ................................................................................................................................................................................................ 42
Chapter 8 International commercial law ........................................................................................................................................................................ 42
8.1 The principle legal systems ............................................................................................................................................................................... 42
8.2 Precontact negotiations .................................................................................................................................................................................... 43
8.2.1 Initial negotiation phase ............................................................................................................................................................................ 43
8.2.2 Consensus ad idem phase.......................................................................................................................................................................... 43
8.3 International contracts ..................................................................................................................................................................................... 44
8.3.1 The Vienna Sales Convention .................................................................................................................................................................... 44
8.3.2 General conditions ..................................................................................................................................................................................... 45
8.3.3 International commercial terms (INCO terms 2010) ................................................................................................................................ 45
8.4 Applicable law under Rome I ............................................................................................................................................................................ 46
8.5 Product liability.................................................................................................................................................................................................. 46
8.5.1 CE marking .................................................................................................................................................................................................. 46
, 8.5.2 Packaging requirements ............................................................................................................................................................................ 46
8.6 Intellectual Property Rights .............................................................................................................................................................................. 46
8.6.1 Industrial property...................................................................................................................................................................................... 47
8.6.2 Copyright..................................................................................................................................................................................................... 47
8.6.3 Company (trade) name .............................................................................................................................................................................. 47
8.6.4 Maintaining intellectual property rights ................................................................................................................................................... 48
8.6.5 Registering the Intellectual Property right abroad? ................................................................................................................................. 48
8.6.6 Parallel importation and exhaustion ......................................................................................................................................................... 49
8.7 Arbitration, settlements and jurisdiction ......................................................................................................................................................... 49
Chapter 9 Risk management, insurance and finance ...................................................................................................................................................... 50
9.1 Risks ................................................................................................................................................................................................................... 50
9.1.1 Political risks ............................................................................................................................................................................................... 50
9.1.2 Commercial or business risks..................................................................................................................................................................... 50
9.2 Risk management.............................................................................................................................................................................................. 51
9.2.1 CSR Risk management ................................................................................................................................................................................ 52
9.3 Insurance ........................................................................................................................................................................................................... 52
9.4 Types of insurance............................................................................................................................................................................................. 53
9.4.1 Quality risk .................................................................................................................................................................................................. 53
9.4.2 Transport risk .............................................................................................................................................................................................. 54
9.4.3 Exchange rate risk ...................................................................................................................................................................................... 54
9.4.4 Risk of kidnapping, hostage-taking or extortion ....................................................................................................................................... 55
9.4.5 Non-payment risk ....................................................................................................................................................................................... 55
9.5 Finance............................................................................................................................................................................................................... 55
9.5.1 Clean payment ............................................................................................................................................................................................ 56
9.5.2 Clean collection .......................................................................................................................................................................................... 56
9.5.3 Documentary collection ............................................................................................................................................................................. 56
9.5.4 Documentary credit ................................................................................................................................................................................... 57
9.5.5 International bank guarantees .................................................................................................................................................................. 57
9.6 International financing...................................................................................................................................................................................... 57
Chapter 10 Logistics and customs .................................................................................................................................................................................. 59
10.1 Logistics for international business .................................................................................................................................................................. 59
10.1.1 The position of Europe in logistics ...................................................................................................................................................... 59
10.2 Transport strategy............................................................................................................................................................................................. 60
10.2.1 Parties involved in transport ............................................................................................................................................................... 60
10.2.2 Transport activities .............................................................................................................................................................................. 60
10.3 Modes of transport ........................................................................................................................................................................................... 61
10.3.1 Road transport ..................................................................................................................................................................................... 61
10.3.2 Rail transport........................................................................................................................................................................................ 61
10.3.3 Air transport ......................................................................................................................................................................................... 62
10.3.4 Water transport ................................................................................................................................................................................... 62
10.3.5 Pipeline transport ................................................................................................................................................................................ 62
10.4 International transport law .............................................................................................................................................................................. 62
10.5 IT and logistics ................................................................................................................................................................................................... 63
10.5.1 ERP ........................................................................................................................................................................................................ 63
10.5.2 RFID (e.g. the passport) ....................................................................................................................................................................... 63
10.5.3 EDI......................................................................................................................................................................................................... 63
10.6 Customs ............................................................................................................................................................................................................. 63
10.6.1 Trade within the EU ............................................................................................................................................................................. 64
10.6.2 Trade outside the EU ........................................................................................................................................................................... 64
10.6.3 Customs regulations ............................................................................................................................................................................ 64
10.6.4 Documents for international business ............................................................................................................................................... 65
, Chapter 2 Political and economic environment
2.1 Free trade
Free international business benefits from the free movement of goods and services. As a result, the
consumer is offered a wider choice of products. The European Union (EU) is the world’s biggest
trader. The trade policy of EU members is primarily determinded by the Common Trade Policy of the
European Union. The EU strives for the harmonious development of fair and sustainable world trade.
As a consequence, trade barriers have disappeared within the EU. Through liberalized trade, the most
efficient producers in the EU are able to compete with producers in other countries in a fair manner.
Free trade is restricted in two ways:
1. By regional trading arrangements among a number of countries
2. By limiting trade to protect the home economy (protectionism)
2.2 Regional trading arrangements
There are various forms of economic cooperation. The objective of a regional trading arrangement is
to reduce trade barriers. The most common forms of cooperation will be discussed in the following
sections.
2.2.1 Free-trade bloc
In this intrabloc trades area there are no trade restrictions among the participant countries. Countries
strive for free trade because this form of trade offers a number of advantages:
- Efficient use of production factors
- Stimulation of competition
- Prevention of trade wars
- Promotion of trade and investment
- Promotion of welfare
Examples of Regional Integration Agreements are the European Free Trade Association (EFTA) and the
North American Free Trade Agreement (NAFTA)
2.2.2 Customs union
A customs union exists when two or more countries abolish all mutual import tariffs. Besides mutual
free trade, the participating countries have a joint external tariff; that is to say, with respect to non-
member countries the same import duties are levied.
A custom union is required because otherwise importers would import goods into the country at the
lowest tariffs possible and would subsequently transport them to a country at the highest import
tariff.
Examples of customs unions are Mercosur and the union between the EU and Turkey:
• Mercosur
The goal of the organization is to promote free trade traffic of goods, people and capital. Bolivia, Chile,
Colombia, Ecuador, Peru and Venezuela are associate members. It is now the fourth largest economic
power in the world after the EU, USA and Japan.
• Turkey and the EU
As a result of de customs union between the EU and Turkey no import duties are levied on Turkish
trade with the EU. However, an exception is made for olive and certain agricultural products.
2.2.3 Common market
A common market is a customs union supplemented by provisions concerning the stimulation of
mutual trade. The EU is an example of such a common market. On all products originating in the EU,
