8

Global links
Globalisation is not a new process. Trade, exploration, and movement
of people and ideas around the world have been occurring for
centuries. However, it is only since the 1950s and, in particular,
the last 20 years that the world has experienced such rapid and
widespread globalisation. The current process of globalisation is
remarkable for its phenomenal speed and reach, especially in
relation to flows of finance and information. Not only has the
world economy been transformed, but new communications,
information and transportation technology have redefined our
concepts of distance and time.

focus
On completion of this chapter, you will have learned about
the effects of globalisation on our commercial and legal
environment and be able to assess the impact on the
individual, the economy and society.

outcomes
A student can:
5.2 Analyse the rights and responsibilities of individuals in a
range of consumer, financial, business, legal and employment
contexts
5.4 Analyse key factors affecting commercial and legal decisions
5.5 Evaluate options for solving commercial and legal problems
and issues
5.7 Research and assess commercial and legal information using
a variety of sources
5.8 Explain commercial and legal information using a variety of
forms
5.9 Work independently and collaboratively to meet individual
and collective goals within specified timelines.

glossary
appreciation: an upward movement of the Australian
dollar (or any currency) against another currency
bicultural: able to appreciate and understand the
business practices and customs in a host country, and
speak the language of both home and host country
cultural diversity: the multitude of individual differences
that exist among people
depreciation: a downward movement of the Australian
dollar (or any currency) against another currency
e-commerce: the buying and selling of goods and
services via the Internet
equities (shares): ownership entitlements in a
company
e-tailer: an online retailer
exports: goods and services sold to
another country
foreign aid: financial and technical
assistance by government and nongovernment (private) organisations
from developed (high income)
nations to developing (low income)
nations
foreign exchange rate: the ratio of
one currency to another; it tells
how much a unit of one currency
is worth in terms of another
globalisation: a trend that sees
people, goods, money and
ideas moving around the world
faster and more cheaply than
before
imports: goods and services
bought from another country
intellectual property: property
that is created by an individuals
intellect; a song, poem, novel
etc.
international trade: the buying and
selling of goods and services
between nations
labour standards: those conditions
that affect a businesss employees, or
those of its suppliers, subcontractors,
or others in the production chain
managed (investment) fund: money from
a large number of smaller investors is
pooled together and managed as one large
investment portfolio by a professional
investment manager
political risk: any political event which results in a
drastic change to the countrys business
environment and which ultimately has a negative
impact on business operations and profit
subsidiary: a company controlled by another company
transnational (multinational) corporation (TNC):
a large business organisation that has a home base in
one country, and operates partially owned or wholly
owned businesses in other countries.

8.1
The global consumer
The Internet provides you with a whole new
shopping experience. It increases the range of products available, which increases your choice. You can
shop around the world from the comfort of your
home. However, the basic rules of wise shopping
still apply, especially because NSW consumer protection laws are not normally enforceable if you
purchase a product from overseas.

Here is what happened in the average

Australian household this morning.
Jake, the youngest member of the family, awoke first
and switched on the Philips flat screen TV and
watched Teletubbies while he ate a plateful of
Kelloggs Fruit Loops. Sam tuned to Triple J on his
Sony Midi Hi Fi System. Yasmin washed her hair using
Palmolive Naturals shampoo and later dressed in her
Levi jeans, Nike sweatshirt and Reebok joggers. For
breakfast, she decided to have a cup of Dilmah tea
and Sara Lee croissants covered with Kraft Singles
cheese slices. Sam was playing soccer that morning
so he cleaned his Adidas soccer shoes and got out his
Nike tracksuit. For his breakfast, he decided to have a
cup of Nescaf coffee and Vogel cereal. Dad finally
emerged from the bathroom after shaving with his
Remington and caught a glimpse of the latest CNN
news report. He grabbed the Hyundai car keys before
gulping down a cup of coffee made on the General
Electric percolator.
Another day of global interdependence had just
begun.

Taiwanese cap

Italian sunglasses

French shirt

Japanese
MP3 player

Brazilian belt

South
Korean
watch

Sourcing products internationally

Improved technologies and communications have
changed how consumers shop. Consumers around
the world will just as readily browse an Internet
shopping site as examine a catalogue delivered to
their private letterboxes. As the world has evolved
into a global marketplace, the worlds consumers
have become global in their buying behaviour.

American
soft drink

Swedish
mobile phone

Trends towards a global market

American
jeans

The development of mass communications has

increased the uniformity of consumers around the
world. For example, the same television commercials are shown across the globe. Internationally,
millions of people want to purchase a particular
brand of soft drink, jeans, sunglasses, computer,
DVD player or car.
Purchasing products internationally online
shopping
Over the last decade, e-commerce (online shopping
via the Internet) has become the most commonly
used method of purchasing products from overseas.

Italian shoes
Chinese socks

The global consumer

186
New Concepts in Commerce

and more cheaply than before. In the commercial

world, globalisation refers to:
globalisation of production businesses
becoming transnational by operating in many
countries
globalisation of markets consumers purchasing
products from around the world.

Business-to-consumer (B2C) transactions cover

products sold or distributed over the Internet.
By 2010, B2C sales are expected to reach about
$50 billion per year.

Amazon.com an e-tailer
Amazon.com is one of the best known of all online
e-tailers. Originally only selling books, it now sells
music, gifts, electronics, DVDs, videos, tools and
hardware.

Globalisation has not been welcomed by everyone.

Critics of the process point to exploitation of workers,
especially in developing countries, and the loss of
jobs in developed countries.

UNDERSTAND
1 What do the letters B2C represent?
2 What is meant by the term globalisation?
3 List two advantages and three disadvantages of

using the Internet to purchase a product from

overseas.
4 Outline how the development of global consumers
encourages the process of globalisation.
5 How has information communication technology
changed existing consumer shopping practices?
INVESTIGATE
6 List five different products you regularly use, such

Amazons home page

as your computer, DVD player or shoes.

(a) What is the brand name of the product?
(b) What company made the product?
(c) In which country was the product made?
(d) Why do you think the product was made there?
Compare your list with those of other class
members, noting similarities and differences. You
may wish to use a word-processing package to
prepare your list.
7 Set up a class debate to consider the topic
Globalisation is good for all Australians. Share roles
so that those not debating are involved either in
assisting with research or in running the debate and
keeping notes on the arguments on both sides.

Tips for online purchasing

Check the details regarding product return, refund
and exchange.
Ensure that the site is secured and that credit card
details are encrypted.
Convert the displayed price to Australian dollars.
Receive confirmation of your order and follow its
progress.

The relationship between domestic

and international trade

E-LEARNING
8 Use the Internet to investigate the process of

We live in a global world, rather than a world

limited by national borders. Consider the news and
entertainment we receive from around the world,
the clothing and footwear brands being sold worldwide, the rapid telecommunications access to all
parts of the globe, and the large number of products
Australia buys and sells on the world market.
This process has been strengthened by the impact
of globalisation: a trend that sees people, goods,
money and ideas moving around the world faster

187
Global links

purchasing a product from overseas. To help you, go

to www.jaconline.com.au/commerce, select
weblinks and click on the Amazon link for this
textbook.
(a) What features are used to make the site secure?
(b) Outline Amazons refund, return or exchange
policy.
WORKSHEETS

8.1

Globalisation ezine

8.2
Australias patterns of trade
Australians live in a large, wealthy country. However, we cannot produce all the goods and services we
require. Also, our population and our domestic
market are small compared with those of many other
countries. These two factors mean that we need to
trade with the rest of the world. International
trade has always played an important part in
Australias economic development.

Australias export trade by broad category 200102

Items

Items of trade
What does Australia export?
Billabong, Holden Ltd and the University of
Western Sydney all have one thing in common.
They all sell their products on the world market;
that is, they export to overseas countries. An
export is a good or service sold to another country.
Australian businesses now export a huge variety of
goods and services.

A$ million

% share

Primary
e.g. coal, wool, mineral ores,
meat, cereal grains

77 432

50.8

Secondary
e.g. motor vehicles, machinery,
foodstuffs

43 768

28.8

Tertiary
e.g. tourism, education, financial
services

31 039

20.4

152 239

100.0

Total exports

Source: Derived from Composition of Trade Australia 200102,

Department of Foreign Affairs and Trade

What does Australia import?

Imagine all the Subaru cars, Nike sports shoes and
IBM personal computers sold in Australia during the
past year. They are just a small part of all the imports
which Australian consumers buy. An import is a
good or service bought from another country. We
import goods and services either because we can purchase them more cheaply from overseas or because
we cannot produce them ourselves.

Motor vehicles are one of Australias main imports.

Australias import trade by broad category 200102
Items

Tourism is one of Australias

main exports, earning
$16.3 billion in 2002.

Tourism is classified as an export

because tourists visiting Australia
spend their overseas money (foreign
exchange) on accommodation, food,
tours and souvenirs.

A$ million

% share

Primary
e.g. food, beverages, crude
petroleum

17 909

11.8

Secondary
e.g. computers, machinery,
transport equipment

101 745

67.0

32 257

21.2

151 911

100.0

Tertiary
e.g. travel, transportation,
insurance
Total imports

Source: Derived from Composition of Trade Australia 200102,

Department of Foreign Affairs and Trade

188
New Concepts in Commerce

Australias changing trading

partners past and present
Who are Australias main customers?
Due to Australias historical links with the United
Kingdom and Europe, the majority of our trade
used to be with these regions. However, since the
end of the 1940s:
as new markets began to emerge, the general
emphasis of Australias exports has shifted to
Asia and the United States
exports to the United Kingdom and countries
belonging to the European Union (EU) have
declined relative to the total
exports to Japan have grown steadily and it is
now Australias main customer, followed by the
United States.
On current trends, China will become Australias
biggest export customer by 2012.

UNDERSTAND
1 Why does Australia need to trade with the rest of

the world?
2 Explain the difference between exports and imports.
3 Examine the tables on page 188. Draw a bar graph

to represent Australias (i) export, (ii) import of

goods and services using a horizontal scale of
1 cm = 10 per cent (therefore the bars will be
10 cm long). Shade in each sector of the bars.
Provide a title and key for the graph.
4 What generalisation can you make about the
composition of Australias main imports? Share
your answer with the rest of the class.
5 Should Australia be concerned about its reliance
on secondary imports? Explain your view.
6 Outline the main changes since the late 1940s to
Australias:
(a) export markets
(b) sources of imports.
CREATE
7 Work in pairs to create a poster publicising

In 1992, one in every 34 boats to leave Australia

with raw materials went to China. In 2004,
the ratio was one in every 13.

E-LEARNING
9 Imagine you are the business reporter for a daily

er
%

.1

26

9.4%

China

4.0
%

.1%

N8

Ze
ala
nd

AS
EA

n
io
Un
an
pe %
ro 1.7
Eu ) 1
U
(E

Source: Derived from Composition

of Trade Australia 200102,
Department of Foreign Affairs and
Trade

.8%
Taiwan 2 .9%
ia 2 4.0%
s
A
th
rea
Sou
Ko
. of
p
Re
Ne
w

Australias main suppliers

percentage of total imports,
2002

newspaper. Your editor has asked you to write a

story about Australias future exports. In
your article, refer to emerging exports
such as biotechnology and information
communication technology (ICT).
To help you, go to
www.jaconline.com.au/commerce,
select weblinks and click on the
Japan 13.0%
Austrade link for this textbook.

%
US

th

the sources of our imports. A dramatic decrease in

the importance of the United Kingdom has been
offset by an increase in the importance of the
Pacific countries namely Japan and the
United States and the growing
significance of the South-East
Asia region.

18
.0

Rep
. of

%
USA 9.6

Kor
ea
8.3
%

Ja
pa
n

8.3
r1

18
.6

he

Ot

Australias main export items. Find as

many pictures, newspaper headlines
and brief articles as you can. Display
your poster in the classroom. You
may wish to use computer graphics
Australias main customers
Sout
software to design the poster.
h
A
s
percentage of total exports,
ia 3.0
%
8 In groups of three or four, design
ion
Un
2002
an
pe
Taiwan 4.0%
ro
Eu
either a 60-second commercial or a
%
(EU) 12.4%
d 6.6
n
la
a
e
three-minute
PowerPoint
Z
Source: Derived from Composition
AS
New
presentation for the Tourism
EA
of Trade Australia 200102,
N
7%
Department of Foreign Affairs and
Council of Australia, publicising the
12
a
in
.2
h
Trade
%
importance of overseas tourism
C
to the Australian economy.
During your commercial or
presentation, make reference to the income and
Who are Australias main suppliers?
jobs generated by this important service export.
Changes in the direction of Australias exports over
Present your commercial or presentation to the
the last century have been matched by changes in
rest of the class.

189
Global links

WORKSHEETS

8.2 Who are Australias main customers?

8.3 Changes in trade patterns services
trade

8.3
The global investor
You could be excused for thinking that you will probably never invest money in another country. However,
unknowingly, you may already be indirectly involved
in this activity. For example, superannuation funds
trade on the international market. Alternatively, you
may decide to become a global investor and trade
directly on overseas markets something that is
becoming a reality for many Australians.

Investing money in the global

financial market
Money is now more mobile and flows relatively
easily between countries due to the globalisation
of equity (share) markets. This has come about
because financial services companies such as
Deutsche Bank, Citibank, Goldman Sachs and
Nomura Securities have expanded into many
countries. These businesses are keen to arrange
finance deals and provide advice for customers
anywhere around the world.

Your financial questions with

Helena Dunlop
financial adviser at Dent Equities
Q. I have just inherited $10 000 and
want to invest it. I would like to buy
some shares in overseas companies.
Is that possible? What are the risks of
buying international shares?
P. J., Crookwell

A. The Australian share market makes up less than

Many Australian financial institutions provide assistance
regarding international investments.

two per cent of the worlds stock markets. Investing

internationally, therefore, gives you access to a wider
range of investment options. You can buy shares in
companies such as Microsoft, IBM and
Toyota, which are traded in the worlds
largest economies, or in companies in
newly emerging economies such as China
and India. Also, by diversifying your
investments you spread the risk, which is a
good investment strategy. If one market is
not performing well, you have the others
to fall back on. One other benefit of buying
international shares is that they can
protect you against falls in the Australian
dollar (AUD). Of course, should the AUD
rise in value, then the value of your
international shares will fall. All
investments contain some risk so select
The New York Stock Exchange (NYSE) on
Wall St is one of the worlds largest stock
exchanges.

190
New Concepts in Commerce

(c) Which market performed the best? You may wish

to use a database to record the measurements.
UNDERSTAND
1 What is the difference between buying shares directly

E-LEARNING
6 List five brokers offering ASX World Link. To help you,

and using a managed fund?

go to www.jaconline.com.au/commerce, choose
weblinks and click on the Australian Stock Exchange
link for this textbook.

2 What is meant by the term equities?

3 Why does money flow more easily between countries

today than it did 20 years ago?

COMMUNICATE
7 In groups of three or four, brainstorm the advantages

4 How have improvements in ICT influenced global

investment?
INVESTIGATE
5 (a) List the stock market index measurements used in

Japan, Hong Kong, England and the USA.

(b) Record the movement of these measurements
over a four-week period.

your shares carefully. I advise

you to research thoroughly
the companies you wish to
invest in.

and disadvantages of investing money internationally

compared with Australian investments. Share your
answers with the rest of the class.
8 Prepare a one-minute radio commercial explaining
how consumers can invest internationally. Record
your commercial and play it back in class.

A. The Internet now

makes it easy to directly

buy and sell shares in
international companies,
Q. What are the The Nikkei Index, Hang Seng
especially if you use the
Index, FTSE (Financial Times Stock
Q. I own my own home and
ASX World Link service
Exchange) Index and Dow Jones?
I have just received my
provided by the
superannuation payout of
Australian Stock
A. They are stock market index measurements
$135 000. I would like to
Exchange (ASX).
for Japan, Hong Kong, England and the USA
invest $50 000 in
Alternatively, you can
respectively. They have become familiar
international shares but I do
use a stockbroker who
segments in our news programs, a reflection
not know which shares to
has access to
of the free flow of money in todays global
purchase. I have never
international stock
marketplace.
bought shares before. What
exchanges. The cost of
should I do?
international purchase is
H. W., Moss Vale
higher than for
Australian shares so calculate the total cost before you
A. Deciding which international shares to purchase
decide to buy.
can be risky, especially if this is your first time. My advice
is to use a managed (investment) fund that deals in
Q. I have recently sold some assets and have $38 000
international equities. This is the easiest option for most
to invest internationally. I do not want to buy shares as I
people. You place your money with a fund and they
consider them too risky. Is there any other way I could
decide which companies to invest in. Their knowledge
invest overseas?
of global markets should provide you with a better
T. M., Sydney
return. As with all managed funds, you will have to pay
entry, exit and ongoing management fees for this
A. To minimise your exposure (risk) you can
service. Make sure you know how much these are
deposit your money in a fixed interest account in
before committing yourself.
almost any country. I would recommend that you
visit a financial planner who has expertise in this area
Q. Over the last few years, I have bought and sold a
before committing yourself. You will need to compare
few shares in Australian companies. I have always used
the interest rates of Australia and your selected
an online broker for my transactions. I now feel
country to determine which provides the better
confident enough to purchase some international shares
return. However, a word of caution. If the AUD rises
directly. Which method do you recommend? Is it more
in relation to the currency of your selected country,
expensive than buying shares in local companies?
the value of your investment will fall. You need to
E. M., Dubbo
keep this in mind.

Todays quick quiz

191
Global links

8.4
Transnational organisations
Features of businesses with global
links

Operations the main activities of

a TNC in the Australian economy

A transnational (multinational) corporation

(TNC) is a large business organisation that has a
home base in one country, and operates partially
owned or wholly owned businesses in other countries. The TNC represents the highest level of
involvement in global business where national borders do not represent barriers to trade but are seen
as merely lines drawn on a map. Consequently,
TNCs conduct a large percentage of their business
outside their home country.
TNCs come in many different forms. LG,
McDonalds, Unilever, Ford, News Corporation and
BHP Billiton are just a few of the well-known
foreign and Australian transnational corporations.
However, all TNCs have a number of features in
common. In a fully developed TNC, finance, assets,
technology, information, employees, patents, goods
and services all flow freely from one country and
one subsidiary to another. These resources may be
shared within the corporation. For example, information may be pooled through corporation-wide
databases, and patents and technologies may be
utilised on a global scale.

Billabong International Limited

One example of an Australian TNC is Billabong
International Limited, manufacturer of surf and
extreme sports apparel and accessories. Established in Queensland in 1973 by Gordon Merchant,
Billabong originally manufactured only boardshorts. Today, Billabong designs, produces and distributes a wide range of surf
and extreme sports wear
including swimwear,
jewellery, belts, backpacks,
skateboards and sunglasses.
It is currently the leading
surfwear apparel brand in
Australia.

According to the United Nations Committee on Trade

and Development (UNCTAD), the value of global
production from 53 000 TNCs and their 450 000
subsidiaries is more than US$10 trillion.

Fewer government regulations.

This may result in lower
production costs.

Ashley Cheadle and

Meredyth Saunders,
Billabong-sponsored surfers

Minimise the risk of competition. Overseas sales

can provide another source of revenue.

Economies of scale.
Mass production can lower
the cost of production.
Cushioning
economic cycles.
If the Australian
economy is in a
recession,
overseas markets
may be booming.

Diversification.
This spreads the
risk in case of
difficulties
experienced in
one country.

Tax minimisation.
Some countries impose
little or no tax.

Acquiring resources and

technology. This provides a
Increasing sales and finding
constant supply of raw
material and latest ideas. new markets. For example, China offers
a market of about 1.4 billion people.

Reasons for expansion

192
New Concepts in Commerce

From its head office

in Burleigh Heads,
Queensland, the company controls its major
brands Billabong,
Element and Vonzipper.
Billabong products are
distributed to over 3000
outlets worldwide. The
product range consists
of over 2200 items in
Australasia, over 1300
items in North America
and 1200 items in
Europe.

Employment issues

Why does Billabong manufacture

overseas?

A businesss success is very much determined by

the abilities and performance levels of its
employees. Therefore, the quality, quantity and
composition of the available labour force are important considerations for any business as it undergoes global expansion, as well as establishing and
maintaining effective employment relations.

The company now generates revenue in more than

60 countries throughout the world. Naturally, this
requires a vast range of production sources to take
account of various climates, quota and duty
systems, freight and delivery lead schedules, etc.
Accordingly, the company produces products in
more than a dozen countries throughout the world
including Australia, the USA and various countries
in Asia and Europe but in all instances does
everything practically and legally possible to
ensure the quality of its products, delivery certainty
for its customers and safe working conditions for
those employed in its production sources.

Staffing
In a global business, finding the right people can be
difficult, especially for senior management positions. These positions require people who are preferably bicultural, able to appreciate and
understand the business practices and customs in
the host country, and who can speak the language
of both home and host country.
Minimum standards of labour
Each country has specific labour laws that outline
the minimum wage and non-wage conditions for
employees. Obviously, there are regional and cultural differences in labour standards. Labour
standards refer to those conditions that affect a
businesss employees, or those of its suppliers, subcontractors, or others in the production chain.
In some developing countries, sweatshop conditions exist, in which adults and children work
long hours in extreme heat for very low wages and
with virtually no safety precautions. There is
increasing pressure to ensure employees who work
for low wages in many developing countries are not
exploited by unscrupulous businesses.

Where does Billabong

manufacture?
Billabong sources manufactured produce from
numerous countries including Australia, China,
Vietnam, Korea, Indonesia, Fiji, India, Myanmar,
Mexico, Turkey and Jordan. Over 98 per cent of
product is manufactured by contracted factory
suppliers. Billabong has a central sourcing division
based in Hong Kong that provides most products
to Australia and New Zealand and which competes
at arms length for business from our European and
North American divisions.
Source: www.billabongcorporate.com

Increasingly, consumers are showing concern about unethical business practices, such as poor working
conditions and wages in the sweatshops of the textile and clothing industry.

193
Global links

Cultural diversity
Cultural diversity means the multitude of individual differences that exist among
people. With the pressure to globalise, businesses must find
new approaches to
staffing. Workplace diversity
in terms of
gender, race,
ethnicity and
religion is a permanent feature
of todays workplaces. Managers,
therefore, are required to effectively
manage a culturally
diverse workforce.
Workplace cultural
diversity is now a key factor
in Australias international
business success.

Management issues
The demands on global managers have never been
greater than they are today. They need to have a clear
understanding of how globalisation will influence
their business operation.

Commercial issues
Business practices and ethics
vary between countries
Tax obligations
Social and cultural differences

Ethical issues of international trade

Numerous TNCs have recognised the importance of
fulfilling their social responsibilities.
Environmental standards
There is growing pressure for businesses to adopt
ecologically sustainable operating practices. Concern for our environment operates at the local level
as well as on a global scale.
Over the last two decades, the global business
community has undertaken many initiatives to put
the principle of sustainable development into practice.
For example, the jeans manufacturer Levi Strauss and
Company has developed its own environmental policy.
Levi Strauss will conduct business only with partners
who share its commitment to the environment.

Billabongs supplier policy and corporate

social responsibility (CSR)
Billabong has a global quality assurance program in place,
based on QAL4 global standards which cover Factory
Inspection reports (general), Factory Inspection reports
(human rights), Factory Inspection reports (environmental
issues) and Lab Test standards. Suppliers are required to
abide by a comprehensive Quality Assurance Procedures
Manual and to operate their factory in compliance with all
legal and moral obligations that may apply to their
operations. Suppliers and their factories are evaluated using
Billabongs quality control processes before Billabong will
consider engaging a supplier. Re-evaluation of a suppliers
factory occurs annually. A factory evaluation involves an
inspection of the factory and detailed discussions with
management AND employees. The evaluation process looks
at physical facilities, quality performance (pre-production,
production and quality assurance policies and procedures)
and a compliance audit (employment ethics, working hours
and wages, environment, health and safety, fire prevention
and illegal transhipment).
Source: www.billabongcorporate.com

Legal issues

Financial issues

Unique legal systems

Need to understand local customs
Difficulty in resolving contractrelated disputes

Currency (exchange rate)

fluctuations
Methods of payment
Insurance costs
Credit risks

Employment issues
Approaches to staffing
Cultural diversity
Labour law variations
Shortage of skilled labour

Environmental issues
Ecologically sustainable practices
Location of facilities
Type of raw materials to be used

Management issues

Managing a global business is a challenge, but can also be a rewarding experience.

194
New Concepts in Commerce

Human rights code of conduct

A human rights code of conduct is one method of conducting business in a socially responsible way. Once a
code of conduct has been established, the organisation
may insist that all its suppliers conform to it.
Billabong, for instance, will only deal with suppliers
who live up to its code of conduct requirements (see
the text box on page 194). Some businesspeople doubt

whether such individual company codes can stop

labour abuses in other countries, in part because other
competitors may not abide by similar standards.

UNDERSTAND
1 What is meant by the term transnational corporation?
2 List five examples of TNCs with which you are familiar.
3 What features do all TNCs have in common?
4 Why do global businesses prefer to employ senior

managers who are bicultural?

5 What is meant by the term labour standards?
6 How does Billabong fulfil its ethical responsibilities

towards the employees of its suppliers?

7 List and provide an example for each of the key

management issues faced by TNCs.

8 Elaborate on the following statement: Transnational
corporations play a crucial role in our society.
Without them, consumers would not have such a
wide range of goods and services to select from.
9 What are the advantages for Billabong of producing
products in a number of countries?
INVESTIGATE
10 Collect from magazines, newspapers or the Internet

five articles dealing with Australian businesses that

are planning to expand overseas.
(a) Select one article and prepare a brief summary
of it.
(b) For each article, identify the reasons for the
expansion.
(c) Present your findings as an oral presentation to
the rest of the class. You may wish to prepare
this as a PowerPoint presentation.
11 (a) On a map of the world, shade in the countries
from which Billabong sources its products.
(b) Why does Billabong source its products from
these countries?
12 Research a social or ethical issue confronting a global
business. Write a short report addressing the following:
(a) What is the issue?
(b) How has the global business reacted to the situation?
(c) Do you think the businesss response was
adequate? Why?
You may wish to use a word-processing package to
write the report.
COMMUNICATE
13 In pairs, arrange an interview with the manager of a

local business that sells its products overseas.

Discuss the reasons for the business deciding to

expand overseas. Present your findings to the rest of

the class. You may wish to video the interviews and
view and discuss them as a class.
14 As a class, brainstorm the advantages and
disadvantages of hiring host country employees
when staffing an overseas operation.
15 Write and perform a song, aimed at high school
students, which highlights the problem of labour
exploitation in developing countries.
E-LEARNING
16 (a) In which countries are Billabong products sold?

(b) What is Billabongs most popular product?

(c) What year did Billabong go international?
To help you, go to www.jaconline.com.au/commerce,
choose weblinks and go to the Billabong link for this
textbook.
17 Many of the TNCs referred to in this chapter publish
their global activities on the World Wide Web. Go to
www.jaconline.com.au/commerce, choose weblinks
and find the websites of the following corporations,
then prepare a brief report on one of the corporations
global activities.
Ford
The Body Shop
Coca-Cola Amatil Limited
Levi Strauss and Company.
18 Reebok and Levi Strauss place a great deal of
importance on their corporate social responsibilities.
Both the companies have taken action against overseas
suppliers based on their human rights and
environmental codes of conduct. Using
www.jaconline.com.au/commerce, select weblinks
and access the webpage of one of these companies.
Research their commitment to their social obligations
with reference to global sourcing. Prepare either an oral
or written report and present it to the rest of the class.

195
Global links

8.5
Global business
Global business and environmental
issues
In many developing countries, environmental protection laws are often non-existent or very weak.
This has tempted a number of TNCs to use these
vulnerable countries as a means of engaging in
activities that are detrimental to the environment.

Of particular concern is the dumping of hazardous

materials, including nuclear waste, in developing
countries. Countries are often coerced into taking
such materials; they may receive financial or other
incentives and extra revenue may be used to repay
staggering foreign debts. Of course, transnational
corporations have little fear of any retaliatory actions
from individual citizens of developing countries.

Forests down the

mine shaft
Transnational mining companies and foreign governments
are lobbying the Indonesian government to open up protected forest areas, national parks and other protected
areas for mining. With approximately four hectares of
Indonesian rainforest disappearing every minute, local
communities and environmental justice groups have
responded by demanding that the protected forest areas
remain intact and free from mining.
Twenty-two of these projects proposed by transnationals are being fast-tracked through the committee
following British and Australian Embassy lobbying to
overturn environment protection laws. Now in the fast
lane is BHP Billitons plan to mine the protected forest of
Gag Island and dump the waste into a proposed World
Heritage marine site.
Well-organised resistance is springing up from
indigenous communities from Borneo to Sulawesi. In
North Maluku, 38 village heads and indigenous leaders of
the Kao and Malifut peoples are speaking out against
Australian Newcrest Minings push to mine their Toguraci
protected forest.

The imbalances
of market power

Risks associated with selling to

global markets
There are many advantages to be gained from
selling internationally. However, a business that
expands globally has to deal with more complex
factors than a business that operates only in a
domestic market.
Currency risks
Countries have their own currency, which they use
for domestic purposes. This means that when transactions are conducted on a global scale, one currency must be converted to another the foreign
exchange rate. For example, if an Australian
business (exporter) sells foodstuffs to Japan, the
Japanese firm (importer) will have to pay in
Australian dollars, not Japanese yen.
Exchange rates fluctuate over time due to variations in demand and supply. A currency depreciation lowers the value of a currency in terms of
foreign currencies. Therefore, a depreciation in the
Australian dollar makes our exports cheaper on
international markets but prices for imports will
rise. A currency appreciation has the opposite
affect. Consequently, exchange rate fluctuations
will affect the profitability and production costs.
Such fluctuations create risks for global business.

Source: New Internationalist, November 2003

Political risks
A political risk is defined as any political event
which results in a drastic change to the countrys

196
New Concepts in Commerce

business environment and which ultimately has a

negative impact on business operations and profit.
Political risks tend to be greater in countries
experiencing social and economic unrest, particularly terrorism, war or other violent conflict. In such
situations, businesses may have to find means to
directly influence politically powerful people in order
to obtain permission to operate in the country.

Social and cultural risks

International business is conducted on the world
stage. This means that people are working in
societies and cultures that differ from their own. It
is important that international businesspeople fully
understand and appreciate the customs and traditions of the countries they deal with. Failing to do
so may result in either an embarrassment or lost
business opportunities.

UNDERSTAND
1 What impact does a depreciation of the Australian

Severe social unrest often results in acts of violence.

Legal risks
Global business is affected by many thousands of
laws and regulations because each country has its
own unique set of laws and legal systems. These can
vary dramatically between countries. This poses a
number of risks for a global business in the areas of:
Contract law especially the methods of
enforcing contracts
Legal disputes resolving these can be very
complicated due to differences in legal systems
and culture
Intellectual property rights weak protection
can cost international businesses a great deal of
money.

dollar against the US dollar have on the price of

Australian:
(a) exports to the USA?
(b) imports from the USA?
2 Environmental policies are only clever marketing
strategies by transnational corporations. In reality,
profit maximisation will win out over any social
responsibility in decision making. Assess the
validity of this statement. Share your answer with
the rest of the class.
3 The term environmental racism has been used to
describe the deliberate siting of hazardous waste
sites in many poor countries of the world. If you
were the manager of a waste management
company, what factors would you take into
consideration in selecting a new facility site?
4 Look carefully at the cartoon on page 196.
(a) Who do the two characters represent?
(b) Who do you think has more influence within the
situation? How can you tell?
(c) Compare the appearances and body language of
the two characters. What does this tell you about
how they might be feeling? What does the cartoon
suggest about the imbalance of market power?
Do you think this suggestion is justified? Why?
COMMUNICATE
5 Add extra elements to the mind map started below

to summarise the risks associated with selling to

global markets. You may wish to use a wordprocessing application to prepare the mind map.
Curr

Customs and traditions some useful information

for the global businessperson
Dont pass documents with the left hand in Saudi Arabia.
The left hand is considered unclean.
Placing your hand on someones head in Singapore or
Thailand is highly offensive, as the head is considered
sacred.
When having a meal in Egypt, it is considered very
impolite not to leave some food on your plate.
It is considered rude to leave any food on your plate when
eating in Malaysia or Singapore.

WORKSHEETS

8.4

197
Global links

Currency converters

8.6
International aid programs
Role of aid
Foreign aid consists of financial and technical
assistance by government and non-government (private) organisations from developed (high income)
nations to developing (low income) nations. The
assistance comprises:
Loans involving the payment of an interest
rate to the donor country
Grants gifts which do not have to be repaid
Technical assistance trained personnel, such
as engineers, teachers and medical staff, to help
with development programs
Food and emergency aid donations of food,
clothing and shelter in response to natural or
human disasters
Education and training programs as part of a
project or education in the developed country
Technological aid machinery and equipment
Community-based projects construction
of schools, wells, health centres etc.

Recipient countries

Recipient countries of AusAID programs

The government aims to:

assist the economic development of the recipient
countries
promote political stability in the region
help develop investment and trade opportunities
for Australian businesses.

In 200405, Australia will provide approximately

$2 billion worth of official development assistance.
This is the equivalent of around $1.75 per week for
every Australian.
CARE Australia: a non-government aid agency

Sources of aid
1. Non-government aid. This is provided by over
110 Australian humanitarian, non-government
organisations (NGOs). These include religious
and voluntary organisations such as Christian
Blind Mission International, TEAR Australia and
World Vision, and non-religious organisations
such as CARE Australia and the Red Cross.
2. Government aid. The Australian Governments
overseas aid program is managed by AusAID, the
Australian Agency for International Development,
which provides assistance for over 60 million
people living in poverty around the world. These
programs play an important role in maintaining
the links with recipient countries, most of which
are located within the AsiaPacific region.

Role of foreign aid

Foreign aid is used to support economic development
in the recipient countries. Developing countries lack
the financial and technical assets to improve their
physical and human resources. The richer countries
are in a position to provide help to developing
countries. At the heart of all aid programs should be
the desire to encourage ecologically sustainable
economic development.
Successful aid programs will reduce poverty and
improve the standard of living, resulting in
stronger, more stable communities. From building
roads and bridges, providing healthcare and educational facilities, to delivering clean drinking
water, foreign aid is a crucial element in a developing countrys drive for economic development.
This is demonstrated in AusAIDs Cuu Long Delta
Rural Water Supply and Sanitation Project.

198
New Concepts in Commerce

Cuu Long Delta Rural

Water Supply and
Sanitation Project
Cuu Long Delta Rural Water Supply and
Sanitation Project
Country: Vietnam
Objective: To improve water and sanitation services in
disadvantaged district towns and rural
communities in Vietnam
Cost:
A$26 million
Duration: 19962006
Activity:

In Vietnam only about 40 per cent of Vietnamese rural households have access to clean water and in many districts, fresh
water is displaced by saline or brackish water for up to six
months of the year.
Fewer than 12 per cent of rural and district towns have
access to a hygienic toilet and many schools do not have
adequate water supplies and sanitation facilities.
These problems are particularly pronounced in the Cuu
Long (Mekong) Delta, which contains one-fifth of the
poorest people in Vietnam, the second highest proportion of
all regions in the country.
Not having access to clean water is one of the main
obstacles to social and economic development in the area.
The Cuu Long Delta Rural Water Supply and Sanitation
Project is engaging the people and governments of Vietnam
and Australia in working together to improve access to
water and sanitation services in the delta.
Local communities are participating in the design and
construction of the services, where appropriate, and local
Vietnamese are being trained in water and sanitation technology to ensure that the systems can be maintained well
after the project is completed.

Around 400 000 rural people will benefit from improved

water supply for households, water supply and toilet construction for commune level schools and solid waste disposal
and drainage facilities for clusters of rural households.
Another 200 000 in three district towns will have improved
and extended water sanitation services including toilets
for schools, and town drainage.
With better solid waste disposal and more drains, there will
be less stagnant wastewater and by using potable water, the
chances of people contracting water-borne diseases such as
diarrhoea will be reduced.
The changes are also expected to produce economic spinoffs in rural small-scale industries such as gardening, fish
farming and the processing of agricultural products.
By improving water supply and sanitation services Australia generates growth in developing countries and improves
the health and economic wellbeing of the poor.
The project is managed by the Australian company Sagric
International.
Source: www.ausaid.com.au

Thach Thi Kim

collects water
from a pond at the
back of her house.

supporting economic development in neighbouring

countries. You may wish to use computer graphics
software to design the poster. Display your poster in
the classroom.

REMEMBER
1 Use the term foreign aid in a sentence to

demonstrate its meaning.

2 Explain the difference between a loan and a grant.
3 List four non-government organisations involved with

providing foreign aid.

E-LEARNING
7 In groups of three or four, research Australias foreign

aid projects to developing countries. Case studies

of particular aid projects can provide information
on the role of foreign aid. To help you, go to
www.jaconline.com.au/commerce, select weblinks
and click on any of the AusAID, TEAR Australia, CARE
Australia or World Vision links for this textbook.
Present your report orally using multimedia
applications to enhance the information.

UNDERSTAND
4 Read about the Cuu Long Delta project above.

(a) How did the community benefit from the project?

(b) Evaluate the effectiveness of the project.
5 Examine the world map on page 198. What do you
notice about the location of countries to which
AusAID provides assistance?
CREATE
6 Using the information in this spread to give you ideas,

WORKSHEETS

8.5

design a poster to show the role of foreign aid in

199
Global links

Topic test global links