Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment..
RALEIGH – There are tensions between developed countries and developing countries that are evident in many areas of international business. Although they function at a macro level, this conflict can affect the analysis of how to do business in a developing country and thus your corporate strategy.
This article addresses two of these tensions.
One of the principal areas where you will encounter the tensions between the industrialized and developing world centers on the issue of trade and tariffs.
The initial industries that a developing country enters in its development process are agriculture and textiles. Having an abundance of cheap labor, these countries are able to export the resulting products at a price far under the costs to produce these products in developed countries. The reaction in most developed countries is to impose tariffs on these products to protect their existing domestic textile and agricultural industries.
One of the primary focuses of developed countries is to export their products involving high levels of technology and research. The cost of many of these products is prohibitively high for many developing countries. This leads to the copying and illegal exploitation of the technology in developing countries, often the only way that the population can afford the product. Depending on the product and local industry, countries may also impose tariffs in order to protect an emerging high tech industry.
The result of these conflicting interests is an adversarial relationship with the imposition of retaliatory tariffs.
The reality in many countries considered to be developing countries or emerging markets is that these countries are in re-development. They were once advanced cultures that were subjected to periods of colonial occupation, contributing or causing the destruction of the underlying culture. This is the case in India and, to some extent, China.
The case of Brazil is entirely different, its colonialization being similar to that of the US in the eradication of the initial population with immigrant colonization and the creation of a new society and culture. Brazil however was subjected to colonial exploitation for a longer period of time with no revolution, resulting in a culture not entirely free of the embedded characteristics and also delayed in its creation as an independent culture.
One of the consequences of this colonialization is that there is a very strong negative and protective attitude in regards to foreign control and therefore foreign investment which could control the country’s economic or political independence. This nationalistic attitude is one of the root causes of instability for foreign businesses in these countries, and one of the cost factors that must be analyzed when deciding how to do business in developing countries.
Understanding is the First Step
The US government and people have been acting similarly to the preceding imperialistic powers when dealing internationally. Happily, I have seen a change in many attitudes of US business people, which I attribute to the fear of China and India, and consequences witnessed to date upon our economy. The current global trends will only continue. The first step in being successful in doing business in developing countries is to understand the causes underlying the environment or atmosphere of the business relationship.
As Brazil, China and India are all relationship-based cultures, understanding and respect are essential for building the necessary relationships and developing your business strategy.
About the Author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and firstname.lastname@example.org.