Question

Formal Trade Barriers

Identify formal trade barriers (tariffs and other taxes, foreign exchange controls, ownership restrictions) that might require a company to adapt its business strategy.

This is based on a sports franchise in Oklahoma USA

Answer 1

Trade barriers are a hindrance for fostering growth and competition in economy.Imposing lower tariffs would attract investment, create employment opportunities and hence improves social climate. By imposing higher tariffs developing countries could protect domestic industries up to some time. Beyond a point it becomes not sensible  in imposing higher tariffs which are being offered to consumers at lowest prices. For Example Walmart has incurred heavy lobbying costs to enter the  Indian market.

Inspite of those efforts Walmart was'nt given a choice but has to act as per the directions of Indian govt to enter into a joint venture with Bharti Enterprises putting a limit on capital contribution by foreign companies and also their ownership in the company. The recent Walmart Flipkart deal has also attracted the attention of Indian Govt issuing new guidelines on the operation of e-commerce companies and their business model. Inspite of following a different strategy Walmart has to face severe consequences due to these new guidelines. If higher tariffs are being imposed on goods sold by a company it can avoid the tariffs burden by manufacturing the goods within the country in which the goods are being sold . For example Isuzu motors has opened 2 new branches one in Telangana and the other in Andhra pradesh (states of India).