International marketing Chapter-2

PROTECTIONISM

All actions by national and local

governments aimed at protecting
local markets from foreign
competitors.
 ARGUMENTS FOR PROTECTIONISM
Countless reasons to maintain government restrictions on trade are given as a
reason by protectionists, but essentially all arguments can be classified as
follows:
1) Protection of markets with excess productive capacity
2) Employment protection and Protection of markets with excess labor.
3) Infant industry arguments and Arguments related to the
industrialization of developing countries.
4) Natural resources conservation and Protection of the
environment.
5) Protection of consumers.
 ● PROTECTION OF MARKETS WITH EXCESS OF PRODUCTIVE
CAPACITY
The excess production capacity of some industries is rooted in local
government protectionism in the new industries and reliance on the
conventional industries.

● PROTECTION OF MARKETS WITH EXCESS LABOR

The erection of barriers to imports of products competing with local offerings in
an effort to protect local jobs.
EMPLOYMENT PROTECTION
Protection of local employment by not granting import licenses for products
competing with similar locally produced goods.

INFANT INDUSTRY ARGUMENTS

A protectionist strategy aimed at protecting a national industry in its infancy
from powerful international competitors.
PROTECTION OF THE ENVIRONMENT
Environmental protection is a practice of protecting the natural environment on
individual, organizational or governmental levels, for the benefit of both the
natural environment and humans.

PROTECTION OF CONSUMERS
Consumer protection is a group of laws and organizations designed to ensure
the rights of consumers as well as fair trade, competition and accurate
information in the marketplace.
The laws are designed to prevent businesses that engage in fraud or specified
unfair practices from gaining an advantage over competitors. They may also
provide additional protection for those most vulnerable in society.
 TOOLS OF GOVERNMENT
PROTECTIONISM
TARIFFS
● Discourage imports of particular goods
● Protect local industry
● Penalize countries that are not politically aligned with the importing country
● Generate revenues for the importing country

● US tariffs < 15%

● Other countries can impose tariffs > 100% for protected products
 NON TARIFF BARRIERS
Measures, other than traditional tariffs, that are used to distort international
trade flows.
-Raise prices of both imports and import-competing goods
-Favor domestic over foreign supply sources by causing importers to charge
higher prices and to restrict import volumes

-Examples:
•Orderly market arrangements
•Voluntary import expansion
•Voluntary export restraints
 IMPORT QUOTAS
● Specify maximum quantity (unit limit) or value of a product that may be
imported during a specified period.

● Administered either on a global first-come, first-served basis or on a

bilateral basis to restrict shipments from a specific supply source.
 LICENSES
•Non-automatic import licenses
Restrict volume and/or quantity of imports

•Automatic import licenses

Granted freely to importing companies

Facilitate import surveillance
Discourage import surges
Place administrative and financial
burdens on importer
May raise costs by delaying
shipments
 Voluntary Export Restraints - Price Controls:
Increasing Prices of Imports
● Voluntary Export Restraints:
A government’s self-imposed export quotas to a particular country.

1. To avoid more severe protectionist action.

2. To protect local industries.

● Price Controls: Increasing Prices of Imports:

Strategy to sell for a particular price in local market.

1. To increase the prices of imports.

 Price Controls: Antidumping and
Countervailing Duty Actions
● Antidumping: To offset dumping.

● Countervailing duty actions: Result of foreign

subsidies.

1. Protect the local market.

2. restrict trade.
Standards: As a Barrier to Trade - Local
Content Requirements and Foreign Ownership
● Standards: As a barrier to trade:
Imposes performance, environmental, or other requirement that
are primarily aimed imports.

1. Help local and international industry.

● Percentage Requirements:
A percentage of the products imported are locally produced.

1. Local content requirement.

2. Limit foreign ownership.
Boycott - Embargo - Sanctions
● Boycott:
Action calling for a ban on consumption all goods.

● Embargo:
Prohibiting all business deals with the target country.

● Sanctions
Punitive trade restrictions applied for noncompliance.
Currency and Capital Flow Controls
● Capital Flow:

1. Affect international businesses.

2. Restrict market dictated activity in the name of
protectionism.

● Currency Flow:

1. To influence the stability of national currency.

2. Affect the flow of imports into the country .
Currency and Capital Flow Controls
Among the currency controls used by governments we can find
the following :

● Blocked Currency:
Does not allow importers to exchange of local currency or a
currency
that the seller is willing to accept as payment.

1. It can be used as a political weapon.

2. Create obstacles for international businesses attempting to
enter
Currency and Capital Flow Controls
● Differential Exchange Rates:

1. To promote imports of desirable and necessary goods.

2. It can be the difference between the black market exchange
rate and the official government rate.

● Foreign Exchange Permit:

1. Such permits are provided by the central bank of the country.
2. Give priority to imports of goods that are in the national interest.
International Trade and Trade Facilitators
Severals important international and local institutions play an active
role in promote international trade and have a considerable impact on
the development of international trade and marketing operations.

● To increase the flow of good.

● Open access to products and services.
● To minimize cost to companies and final consumers.
The International Trade Imperative
Free Trade is essential to the economic development.
Arguments for:

● Economist David Ricardo’s theory comparative

advantage.
Free Trade = Benefits for all countries.

● Free trade suggest that opening up the home

market:
1. Increase competition.
2. Reduction of prices to local consumers.
International Trade and
Economic Development
Organizations
The General Agreement on Tariffs and
Trade
- It is a multilateral agreement regulating international
trade.
- It was signed by 124 nations.
- Promote trade.
- Eliminate barriers.
- Open markets.
 The World Trade Organization
- It is the only global international organization.

- Intends to supervise and liberalize international trade.

- It is run by its member governments.

 Group of Eight
- It is a group leading industrialised
countries.

- The members are: Canada, France,

Germany, Italy, Japan, the United
Kingdom, the United States and
Russia.

- The group addresses issues.

 The International Monetary Fund

- It is an organization of 188 countries.

- Foster global growth

- Economic stability

- Reduces poverty
 World Bank
- It is an financial and technical
assistance.

- Unique partnership to reduce

poverty.

- Comprises five institutions

managed
by their member countries.
 Other Development Banks

The African The Asian

Development Development
Bank
Bank
Poverty reduction Focuses on the
in Africa private sector
 Other Development Banks

The European Bank

The Inter-
for Reconstruction
American
and Development
Development
Bank
Clients companies that do
Reforming and not ordinarily deal with
strengthening the large development
markets bank
 United Nations Organizations

- It is an intergovernmental
organization.

- Maintain international peace and

security.

- Achieve international cooperation in

solving international economic
 GOVERNMENT ORGANIZATIONS

Promoting international trade constitutes one of the more important tasks of the
national and local governments of most countries.
Regardless of the level of country economic development, most international
trade issues are addressed by the national Department of Commerce, known
as the Ministry of Trade.
Frequently, the Ministry of trade works in tandem with the State Department,
known as the Ministry of Foreign Affairs which promotes the respective
country’s foreign policy.
 United States Agencies: Federal and State
Government
Many United States Federal, state, and local government agencies promote the
interests of U.S. businesses abroad, encouraging their international involvement
in the form of export promotion or by providing foreign direct investment support.
They also actively encourage foreign direct investment in the United States.

United States Agency for International Development (USAID): is an

independent agency of the federal government. USAID engages in economic
development-related operations. unlike the development organizations
previously discussed, is an arm of the United States Department of State.
 United States Agencies: Federal and State
Government
United States Department of Commerce: engages in many activities that
promote trade. It offers export assistance and counseling to businesses
involved in international trade, provides country information and the assistance
of country specialists, and helps bring buyers and sellers together through
trade shows and other trade-related events.

The department of Commerce also regulates trade by issuing export licenses

and by offering food, health, and safety inspections and certification.
 United States Agencies: Federal and State
Government
An example of government agencies that actively support international trade is
the state economic development offices. Most of the 50 U.S. states have a
department whose goal is to promote local firms internationally; this is typically
the Department of Economic Development.
Among the trade services that state governments provide often free of charge
are export counseling, full or partial sponsoring of trade promotion (primarily
trade shows), and dissemination of market information.
State and local governments also actively attempt to promote international
business.
for example, the state of South Carolina was able to draw substantial
investments from noteworthy international firms such as Michelin, Fuji,
BMW.
 Other institutions and Procedures
Facilitating International Trade

Foreign Trade Zones

A foreign trade zone, is a tax-free area in a particular country that is not
considered part of the respective country in terms of import regulations and
restrictions.

An FTZ is a site within a particular country that is considered to be an

international area; merchandise in the FTZ, both foreign and domestic, without
outside the jurisdiction of the host country’s customs services.
 The international firm operating in the FTZ
benefits from the following:
● Foreign goods that enter the foreign trade zone are exempt from the usual
customs duties, tariffs, and other import controls as long as the goods do
not enter the country.

● An FTZ lowers prices for goods sold in the importing country:

Unassembled goods are cheaper to transport, and duties are assessed at
lower rates for unassembled, than for assembled, goods.