CHAPTER VII THE STATUS OF THE FOREIGN MARKET Knowledge of General Conditions The exporter's study of his prospective market cannot be considered complete until he has investigated the conditions which surround it. He must know not only the details of supply and demand and the general points of structure, but also the status of the market both within and without its own country. The principal lines of study are the following: 1. The political status 2. The governmental status 4. The economic status. 5. The financial status 6. The social status 7. The commercial status The Political Status The political status of a market has two aspects-the international and the domestic. To understand the international status the prospective trader must determine the state of cordiality existing between his country and the country with which he proposes to trade. On this point the information can be secured from the Department of State. He should examine the treaty rights to find whether or not they contain the "favored nation" clause. Most important of all are the tariff schedules, so far as they refer to his products. If the schedules are very high he may well consider whether or not they are prohibitive. There are several kinds of international complications the existence of which-if they do exist-should be determined before the exporter ventures into the new field. For instance, there may be a reciprocal arrangement with some other country by virtue of which the country under investigation levies no import duties on certain articles supplied by the preferred nation. Should the exporter find his products in the list of such articles he may decide to withdraw rather than try to compete under the handicap of an import duty which is not paid by the preferred nation. The internal political situation of the country is always deserving of study and has an important bearing upon business conditions. If the government is stable and if there is intelligent and friendly co-operation between political parties, the conditions may be considered favorable. If the political atmosphere is highly charged and the stability of the government is doubtful, the conditions for the establishment of any permanent business are far from favorable. One should learn something about the political structure of the foreign country and its bearing upon trade in general and international commerce in particular. Especially should the exporter decide whether or not political conditions or contingencies can affect his business, and if they can, how and to what extent. Generally speaking, an international trader must acquire an intimate knowledge of such conditions pertaining to or prevailing in the country in which he is to seek trade. The study of the political status of a nation should include a study of its institutions. The observer should learn the degree of religious toleration. If there are privileged classes he should know their attitude toward the common people. All this may be of great importance to the trader in his particular line. In Russia, for example, semipolitical, co-operative associations called "Zemstvos" are an important factor in the commercial life of the country inasmuch as all of them give close study to various lines of products, especially agricultural lines, and to a great extent make or influence the purchases for the community over which they preside. If any countries still retain censorship, it is well to know what formalities one must be prepared to undergo before distributing commercial literature, such as catalogues and general advertising material. The Governmental Status Every government is a purchaser of certain commodities to a greater or lesser extent, and some governments are very large buyers. It is well, therefore, "to know the ropes." This not only means that one should learn what official or officials to approach in order to sell or buy from the government; it means also that one must know the character, habits, usages, temperaments, and tendencies of the officials in a particular country so as to deal with them successfully. The government of every country has its distinct political structure as well as the usual legal functions. It is advisable to know both in a general way, and to be familiar with their policies. If, for instance, one is interested in the sale of motor vehicles, it might be well to know beforehand whether it is the policy of the local governments to build good roads and to tax passenger cars. If one is interested in the sale of agricultural machinery, he should know how much encouragement the government affords to the agricultural interests of the country. The Legal Status Upon the laws of the country rests the security of commerce. If the laws are bad, business is likely to be bad. Every exporter to be thorough and scientific in his foreign trade should familiarize himself with the fundamental legal requirements which relate to his business in the country with which he proposes to trade-especially those legal principles with which he is or will be obliged to come in contact every day. He who makes a bill, a note, or a draft, should know something of the commercial laws involved-whether protest is required or not and within what time after maturity the note must be presented for payment. In some countries the principal is responsible for all the business acts of his agent; in other countries the registration of all business concerns is required under severe penalties. Some countries demand a license from commercial travelers. There are different laws regarding partnerships and different requirements governing corporations. No knowledge connected with international trade is complete without some knowledge of the commercial law of the country with which one has or expects to have constant business dealings. Yet there is no knowledge which is more neglected, because many people have not yet learned that an ounce of prevention is worth a pound of cure. The Economic Status As international trade is based upon the exchange of commodities, a country which produces nothing of value for export, cannot be of great value as an importing country. It is advisable to know the principal sources of the wealth of the country, as such information will not only help to approximate the value of the field as a trading center, but it will also assist in estimating correctly the demand for any particular product. The knowledge of the economic conditions of the country and its people may likewise be obtained through the study of labor conditions. The prevailing scale of wages, the number of men employed in various lines of enterprise, the degree of thrift as shown by savings and bank statistics (though in Russia and China people do not usually keep their savings in banks), the number of paupers and unemployed-all these are important. One should learn the nature and the number of industries and the amount of capital invested in such enterprises. He should know also the state of the distribution of wealth, the amount per capita, and the principal sources of national wealth. This is purely statistical data, easily obtainable. The Financial Status The exporter should know beforehand if there is much governmental interference in trade, if money has an inflated value, if the banks are poorly regulated and unsafe, if panics are frequent-in short, if a country is unsound financially. The only safe method of trading in such circumstances is— cash in advance. The commonest sources of statistical information will show the value of a country's currency, its revenues, the amount of national debt, whether the interest is being paid or not, the extent of the banking business, and the value of weights and measures—all of which are good indicators of the degree of financial stability. Gold and credit substitutes for gold, which in normal times are accepted with equal readiness, like other commodities, are sent to the dearest market. The dearest market for gold or money is not the market where the prices of commodities are the lowest, or the exchange value of gold is the highest, but where the rate of interest is the highest. The ordinary fluctuation of the foreign exchanges about the gold par affect foreign trade only indirectly on the adverse balance of indebtedness, but it may affect the exchanges directly and effectively by raising the rate of discounts. Countries of different monetary standards in which there is no limit to fluctuations may present a serious situation in hard times. As a general rule, it is better to leave questions pertaining to the currency problem and exchange to the judgment of |