“INTERNATIONAL BUSINESS AND ITS IMPLICATIONS”

Prepared by:

Ashan Silva

AFNI (UK), CMILT (UK), ACIM (UK),

Ex. MSc (Strategic Marketing), Ex. MBA, CIM(UK), MBA, DBA(ABD)

Discussed about the business implications which we are facing due to One Belt One Road (OBOR)program introduced by China. Through the discussion manage to explain and discuss about the new rout covering from this OBOR and the business opportunities, and developments which will create from this project for the regions which it will cross. The project will face various bottlenecks like economic, cultural, political, competitive when its crossing through those regions and same has been discussed under two sectors as “favorable” and “Unfavorable”. To maintain the quality of the discussion it has being backed up by various references, tables, figures from reliable sources.

Trading of goods, people, or government affairs across the borders is called as international business. The items can consider such as

· Knowledge

· Goods

· Technology

· Services

With present developments world became so close and international relationship became very strong in the present market. This is elaborating as globalization and as a result social, cultural, political, economic, environmental, will affect to countries at a rapid rate than earlier. Because the distance between countries became very less due to this globalization.

Said globalization became a real support for trading between countries and heavily contributing for their economic growth in various ways.

International trading rout concepts also a result of this globalization and Chinese concept of “one belt one road” (OBOR) became one of it.

The concept declared by china in 2013 and equally called as “Belt Road Initiative” (BRI). This was covered through two ways as in land and sea routes.

This is covering around 60 countries starting from Indonesia till Netherlands, 65% of world population, 1/3 of world GDP, ¼ of all goods and services.

Source (Belt and road economics - Opportunities and risks of transport corridors by world bank group - 2019

OBOR - Trade routes

Figure 01 – OBOR - Trade routes

Source (China’s Global Ambition: Balancing Opportunities And Risks In One Belt One Road)

As per above figure 01, the route is running through Asia, Middle east, Africa and Europe. In this some countries are physically on the rout and others showing interest for an agreement within this.

Ref:- On May 15, 2018, China and Oman signed a memorandum of understanding on the BRI. Thanks to this agreement, Oman is committed to participating in the realization of the new Silk Roads.

https://www.oboreurope.com/en/category/news/middle-east/oman-en/

So, its obvious the project will face various kind of micro & macro environment implications like obtaining government clearances, funding, transparency, economic stability, employment, financial instability, etc.

Top Constrains to economic diversification for partner countries

Figure 02 - Top Constrains to economic diversification for partner countries

Source (Aid for trade at a Glance 2019 Economic diversification and Empowerment by World Trade Organization – OCED)

With the actions of OBOR, the covered area will have economic zones, logistic hubs, innovation centers, industrial estates, free zones, cold chain logistics, etc.

Same time various sectors will involve within this project and will face various kinds of consequences within the process. Among those various sectors, we have chosen transport sector to discuss about the implications it faces within this project.

Investments will be there for Infrastructure development like roads, ports, railways, transportation services, etc. within above locations as an encouragement for investors to invest within those free zones, industrial estates, economic zones. Ref: - Appendix 01 – figure 21

With all above the mode of transport will be a multimodal transport option across those continents. Because of the development imbalance, availability of transport infrastructure also varies within the countries where the rout is passing through. So, it will be a combination of road, rail, sea.

Labor cost became one of the major issues in the world market to control the production cost. China came up with this silk rout as a solution for this. At present, Asia is very popular for low cost labor. Within China to make it more cost effective, production is pushing towards interior.

For productions, raw materials should move effectively and efficiently to those productions centers (industrial estates, free zones, economic zones, etc.). But due to rapid change of market expectations with the development of the technology, finish products should move back towards those desired markets as per customer demand.

“Infrastructure services including reliable electricity and transport are key enablers in supporting economic diversification and trade (Hoeffler, A., 1999)”

Above is all about international business, when we consider international business following will be the challenges they face

- Economic

- Political

- Cultural

- Competitive

So, through above challenges implications can escalate towards transport sector as well.

OBOR Implications for transport sector
Economic
Favorable	Unfavorable
· Economic growth of country is always sailing in parallel with transport infrastructure. Transportation is one of the main in the supply chain management to manage their distribution channel effectively and efficiently. Appendix 01 – figure 17	· Effect to domestic production Due to this silk rout the products will reach from one entity to the other very fast and cost effectively using its developed transport modes. So, this will create a bottle neck to the market of the other countries domestic products. It will demoralize the local production and will create a dependable economy within those countries. It will create a trade deficit and will increase unemployment for certain extent. As a result it might create a political and economic tension within the society.
· Trade between Asia and Europe Integration of economies between countries. In this goods will accept to cross the borders to reach their destinations as transit cargo without any duty payment.
Political
Favorable	Unfavorable
· Will help to resolve the problems and close each other. Political, cultural and environmental e.g. – China – Russia joint declaration on cooperation on the construction of joint Eurasian economic union and the silk toad projects (8^th May 2015)	· Political changes Changes in the political arena in certain countries within this project might change their stance about the project. They might introduce or change existing rules and regulations. It will create a bottleneck towards a smooth cross border transportation.
· Documentation requirements for cross border transportation. Improved customs clearance procedures. Due to understanding between cross border authorities, amount of required cross border transport documentation became less and border authorities will handle it in smart to mitigate the transport bottlenecks and delays. Appendix 01 – figure 22 Appendix 01 – figure 24 Appendix 01 – figure 25	· Complicated trade administrative procedures If the countries within this OBOR won’t agree for a common understanding, transportation sector will face bottlenecks through the countries with poor good governance. While crossing, they will face difficulties with officials like customs officials. e.g. complication in customs Clarence (complicated inspection procedures, various signatures, authentication letters, non-availability of customs officers, unnecessary coordination with other authorities, bribery demand, etc.) e.g. corrupt police departments
· Customs clearance procedures for transporting goods. Improved border procedures through digital platforms. To make it faster and smarter to mitigate usual resistance and complications because of different rules and procedures which countries are following within the rout. The new TFA common regulation for border Clarence greatly ease off the cross-border customs procedure within OBOR member states. Through this TFA they have created a single widow to their whole voyage and this one submission is mainly for the e-customs declaration and customs clearance. · So, with such customs procedure agreement among membership countries the goods will pass through this route without any bottle neck with its load point declaration.
Cultural
Favorable	Unfavorable
· Job opportunities Due to increased number of cross border movements more and more job opportunities will create within transport sector. E.g. Infrastructure maintenance staff, drivers, Support staff, Sea fares, etc.	· Effect to domestic labor market In this OBOR Chinese investment portion is very high due to lack of investment capacity from most of those countries. So, with that investment China is deploying their low-cost labor force to that project. This will shrink labor opportunities to that country.
	· Language barrier When we consider transport, most of the drivers speaks only their native language. They will face some practical bottlenecks when they do their communication at the borders and at the destinations.
	· Social resistance Due to new road projects planning through populated areas and environment sensitive areas society can protest against the environment damage, air pollution (high CO2 emission due to heavy vehicle movements), water pollution, etc.
Competitive
Favorable	Unfavorable
· Development of transport infrastructure (land roads, rail roads, ports). Due to efficiency enhancement of the transport sector, customer had a smart choice to use multimodal transport across the borders. e.g. 2014 agreement between China and Thailand for a railway project connecting both the countries. This is additionally to their sea rout connection.	· Low tariff declaration This can create an implication with the other operations within the country. As an example, if china invests in a sea port with in this silk rout and they will take over the control because of their investment power. With that back ground, they will adjust their port tariffs. This will attract other shipping customers towards that port and will badly effect the other ports in that country. e.g. port of Hambantota in Sri Lanka
· Competitive transport cost due to increase competition. With the demand operators, will commence their services within this silk rout by road, rail and sea. Then to win the volumes they will add some values to their services with better rates. For sea transport operators like Maersk, CMA CGM, Hapag Lloyd, Cosco, etc. Appendix 01 – figure 23
· Will create a quality transport modes Service providers will use new, reliable, standard vehicles to maintain their customer satisfaction levels to maintain business continuity without any interruption.
· Savings in transport cost & time Due to understand between countries and agreed trade routes, the distance became short from one end to the other. Distance is the main source for this high trade cost. Mean time land transport became much more faster than sea routs because of the low steaming concept following by vessel operators to save their cost. As a result trading volumes will increase. Appendix 01 – figure 26

APPENDIX – 01

Trade of the Belt and Road Corridor economics, by region, 1990 – 2016