Role Of Government In International Business

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International business is the engagement of trade and investment on an international scale.
National governments have an essential role in the facilitation and regulation of intern ational business. The interactions between economic, political and legal mechanisms of governments have a direct impact on the flow of trade and can have impacts for both domestic and international businesses. However, through these mechanisms governments commonly increase the risk and costs of engaging in international business as domestic business is generally protected to the detriment of firms seeking to internationalise. Conversely, governments also play a role in the creation of international business effectiveness through the policies implemented and the investment
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International business efficiency is the way in which international businesses interact to produce goods and services in the most resourceful way, thus reducing negative externalities associated with production and resource allocation. International business efficiency is not just dependent on the businesses themselves, but also on the government and the policies set which influence the flow of trade. In a world market context, the countries with the absolute advantage in an area of production should produce those goods and services (Dunning, 2013). A country has an absolute advantage when it is the most efficient in production of a particular good or service compared to other countries. Efficiency is characterised by the ability to produce more of a good or service with the same available resources through maximising available resources. This may be as a result of abundant resources within a country or particular skill sets particular to production, resulting in the most efficient production (Schumacher, 2012). The classic theory surrounding absolute advantage and comparative advantage suggests that the countries that are the most effective producers of a good or service should be the main producers of the product and import the goods they can not efficiently produce from a country that can. Governments play an essential role in facilitating international business efficiency as they should support national industries and firms that hold an absolute advantage to maintain the efficiency. The theory of new trade also reinforces the importance of efficient production through cost efficiency (Rugman & Verbeke, 1993). When a firm has the absolute advantage in an area and is the most efficient in producing, the cost per unit of production lowers as output levels increase. If governments do not allow the flow of trade in and out of their country,

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