Globalization and Mercantilism

Introduction

• Globalization breaks national borders, showing humanity's progress from approximately 600,000 polities in 15,000 BC to 200 nations today
• Trade is an early human practice that flourished after the Roman Empire, centered in Europe during the 12th-13th centuries
• Explorers such as Columbus, Da Gama, and Dias discovered fresh routes in the 15th century, improving navigation and cutting trade costs
• Land routes like the Silk Road, founded during China's Han Dynasty by the 1800s, linked regions for global exchange of silk, gold, and ivory

Mercantilism (16th–18th Century)

• European nations relied on international trade for income, using gold and silver as the primary currency
• Mercantilism focuses on increasing national wealth by maximizing exports and minimizing imports to build up precious metal reserves
• Mercantilism's principles include wealth measured in gold and silver reserves, prioritizing exports while restricting imports, importance of population size for economic self-reliance, and vital role of strong leadership
• Mercantilists valued the export of manufactured goods while aiming to limit imports, especially finished items, to boost domestic industries and the economy

Adam Smith’s Wealth of Nations

• The term "mercantilism" was created in 1763 by Victor de Riqueti and popularized b Adam Smith in The Wealth of Nations
• Smith advocated for free trade and specialization to drive economic growth, revolutionizing economic thought
• According to Adam Smith concept of laissez-faire, let the people act freely
• Jean-Baptiste Colbert, finance minister, supported commerce this approach in France during Louis XIV's era

Expansion of the British Empire (16th–20th Century)

• By the 19th century, Britain had the largest empire in history
• Britain ruled a quarter of the Earth's surface
• During Queen Victoria's reign, expansion peaked with colonial wars and missionary activities
• "The empire on which the sun never sets" is a term describing the power of Britain

Economic impact

• The Navigation Acts regulated trade, and increased demand for British goods like coal, cotton, and iron
• Factories rose, widening the gap between the bourgeoisie and proletariat
• Karl Marx criticized Adam Smith’s liberal capitalism through socialism

Global Trade and Power Shifts

• Industrial Revolution: Nations competed for economic dominance, leading to global commerce and political rivalry
• World War I: Britain's trade dominance decreased, and the US became the top global supplier
• In the Aftermath of WWII: Liberalism and economic integration resulted in the creation of:
  • International Monetary Fund (IMF)
  • World Bank (International Bank for Reconstruction and Development)
  • General Agreement on Tariffs and Trade (GATT) in 1948

Hegemony and Globalization

• Hegemonic Stability Theory: Proposes that international economic stability is best achieved with one dominant state.
• The best way to understand global economic ties, especially post-1945 global economic relations is by using the Hegemonic Stability Theory
• Global Business Expansion: U.S. multinational firms led global economic growth
• This required adaptability to cross-national and cultural forces
• Challenges of Globalization: Cultural differences impede the realization of a "global village"
• It causes concerns about preserving ethnic identities amidst modernization
• Emerging Market Trends: Asia, the Middle East, and Latin America's firms challenge developed economies
• Role of International Management: Vital for navigating cultural and systemic complexities
• This is especially true for Filipino OFWs and businesses in global markets
• Business Failures: Cultural misalignment caused the Daimler-Chrysler merger to fail
• It showcases the importance of aligning cultural dynamics with strategy
• Globalization's Impact: Borders fade, enhancing interdependence, but cultural, political, and economic differences still make unique markets
• Cultural Complexity: Culture affects behavior requiring businesses to understand diversity
• Culture requires businesses to understand and respect diversity while avoiding stereotypes
• Historical Insight: Internal divisions often weaken empires
• It emphasizes unifying with understanding in global leadership

In-Groups and Out-Groups in Global Business

• In-Groups: Groups with which people identify and feel loyalty
• Out-Groups: Groups seen as competitors or opposites, often due to lacking valued traits
• Bridging Divides: Living in a global village with cultures require accepting and adapting to differences
• Cultural Sensitivity: Understanding what topics to discuss, and what to avoid is crucial
  • For example, in Spain, soccer is a common conversation starter, while in China, education is a safer and more relevant topic
• International Trade: Trade is a key driver of global economic growth, but countries must handle challenges and promote cooperation in a multi-polar world

Asian Growth and Opportunities

• Asia is expected to contribute nearly 40% of global output by 2030, growing at 5.6% annually
• Pacific trade with Asia significantly from $2 billion in 2000 to over $19 billion in 2012, driven by rising demand for resource-based commodities
• Countries with low economic growth can leverage comparative advantage to boost their economies, according to David Ricardo's theory
• India, for example, can improve its export balance by focusing on its mineral and agricultural strengths, rather than comparing itself to China
• Michael Porter’s National Competitive Advantage Theory states that a country’s economic growth depends on factors like natural resources, environment, and demographics
• India can compete globally by addressing its environmental challenges, controlling population growth, and improving education and skilled labor

Brexit and Business Effects

• Brexit is raising concerns about Britain’s future in the single market, with the possible implementation of tariffs, quotas, and non-tariff barriers could hinder trade with the EU.
• Brexit could impact job creation, as the UK previously benefited from EU immigration and job opportunities
• The free movement of people will cease, complicating the situation for temporary workers
• Brexit could benefit trade with non-EU countries including China, and the UK could see increased tariff revenues while reducing competition from EU imports
• These points may lead to economic growth, though challenges remain
• Brexit resulted in the EU losing the UK's contributions: 13% of EU population, 15% of EU GDP, 12% of EU budget
• Nations are shaped by cultural and regional differences
• Understanding these differences is key, as behaviors vary based on language or region
• Post WWII, global economic institutions like the IMF and IBRD were created
• The ITO was replaced by GATT 1947, which governed trade until the World Trade Organization (WTO) was established
• Global trade is evolving since WWII, with the WTO's future and trade liberalization remaining uncertain
• Regional integration models like the EU, NAFTA, and AFTA, along with bilateral agreements (BTAs), are gaining importance

FTAs Pros

• Economic growth
• Technology transfer
• Lower government spending

FTAs Cons

• Job outsourcing
• Poor working conditions
• Resource degradation

International Trade and Trade Policy

• States trade for two main reasons: enhancing wealth and efficiency, and strengthening international relations and stability
• Mercantilism seeks to accumulate wealth through exports and restricting imports in the 15th-18th centuries
• Adam Smith's Absolute Advantage advocates that specialization increases efficiency and productivity (1776)
• Countries should focus on producing what they do most efficiently
• David Ricardo's Comparative Advantage (1817): countries should export goods where they possess a relative cost advantage, even if another country has an absolute advantage
• There are mutual benefits from trade, even for less developed nations

Absolute vs. Comparative Advantage

• Absolute Advantage is when one country produces more of a good using fewer resources (e.g., the U.S. produces more wheat per acre)
• Comparative Advantage is when one country produces a good at a lower opportunity cost (e.g., India focuses on IT while importing machinery)

Political Reasons Why State Trade

• Trade reduces the likelihood of war (“If goods do not cross frontiers, soldiers will").
• Protectionist policies led to the economic collapse and World War II in the 1930s
• The GATT (1947) promoted free trade by lowering tariffs
• Trade strengthens a country's global influence, in particular for developing nations, by Enhancing Economic Power
• Economic strength determines a state’s position in international affairs
• Trade fosters cooperation and interdependence among nations by promoting Global Integration
• Trade plays a key role in globalization and diplomatic relations
• Trade drives Economic Growth & Prosperity through economies, creates jobs, and living standards
• Trade is essential for peace, stability, and development
• Free trade faces criticism, including concerns over inequality and dependence on foreign markets

Reasons which States Restrict International Trade

• National Security & Self-Sufficiency: Protecting key industries (e.g., steel, agriculture) for national defense
• Infant Industry Protection helps Shield emerging industries from foreign competition until they are competitive
• Beggar-Thy-Neighbor Policy - Benefits on country but cause trade retaliation
• Societal & Public Interests: Restrictions address public health, consumer safety, environmental protection, and cultural identity

What is International Trade?

• International trade law governs trade relations through Policies on tariffs, trade agreements, and economic integration
• Governed by treaties, economic agreements, and national trade laws at global, regional, bilateral, or unilateral levels
• Developing and least developed countries play a growing role alongside major economies (U.S., EU, China, etc.).
• Key Actors are States & International Economic Organizations such as WTO, IMF, WB, EU, ASEAN
• Key Actors are Emerging Powers like China, India, Brazil, and regional economic blocs
• There are also Non-State Actors like Corporations (e.g., pharmaceutical, entertainment, and tech industries) influence trade agreements
• Territories such as Non-state regions like Hong Kong and Macau act as full WTO members.

International Trade Rules

• The framework for fair competition, which regulates tariffs, trade barriers, intellectual property, and economic policies, and is Governed by WTO agreements, regional trade treaties, and national trade laws

International Business Transactions

• Expand Abroad to increase turnover and profits, access new markets, strengthen their global reputation, and secure raw material sources

What is International Business Law

• It governs transactions between businesses across borders and is connected to international commercial law
• Forms of international business transactions:
  • Direct Sales: Direct selling to customers
  • Intermediaries: Using agents or distributors to reach foreign clients
  • Foreign Production: Making goods abroad instead of exporting
  • Intellectual Property Rights (IPRs): Licensing patents for foreign firms to make and sell goods

Subjects/actors/players that participate in driving international

• Foreign Direct Investment (FDI): Opening branches and entering market
• International Transactions: Managing logistics, banking, and IPR transfers Key people include organizations like UNCITRAL, ICC, and FIATA, drive international trade
• There is Cultural Awareness: Cultural understanding is crucial, so avoid assuming and ask questions for successful collaboration
• Globalization connects Businesses through production, e-commerce, and real time communication
• The 6 rules determining what is going on in another culture: don't assume, be quiet, look, listen, follow your feelings, and ask questions

Religion and secularism

• Europe has long been predominantly Catholic, but religious tensions, including conflicts between Eastern and Roman Christians, Catholics and Protestants, and Christians and Jews, have resulted in significant violence, such as the Holocaust
• Recent events include the ETA conflicts in Spain and the violence in Northern Ireland and London.
• The arrival of Muslim immigrants has exacerbated tensions and contributed to events like Brexit.
• Similar challenges arose in France, though the outcome was different with the election of the French president.

International Trade

• Organizations enter international markets through the channels of the internet, exporting, licensing, international agents, distributors, strategic alliances, joint ventures, manufacturing, and international sales subsidiaries

Channels organizations use to enter international markets

• Licensing: Granting access to technology, brand, or expertise in exchange for a fee or royalty
• Franchising: Providing support, and experience with management control which includes McDonald's, Domino’s, and Coffee Republic
• Turnkey Contracts: Building key plants and training in regions with limited skills, with examples such as Toyota’s plant in Turkey
• International Agents: Marketing with commissions in a new country represent multiple businesses
• International Distributor: Taking ownership and taking profit

Partnerships

• Strategic Alliances (SA): Partnerships between companies that stay separate and often share manufacturing, R&D, distribution, or marketing
• Toyota partner with Citroen and Peugeot
• Joint Ventures (JV): Two or more companies who jointly create a new equity based business where the parties share the ownership, risks, and rewards
• JV provides access to technology, entering foreign markets and gaining access to distribution and R&D capabilities
• Honda’s partnership with Rover for example
• A company might set up manufacturing in a foreign market to localize production by following Foreign Direct Investment - Overseas Manufacture/International Sales Subsidiary
• Subs provides lower risks and lowering local involvement

Company Strategies during Internationalization

• There are five stages that take a company to enter international markets:
  • First, start with indirect exporting or licensing
  • Second, direct exporting thru a distributor
  • Third, setting up foreign presence
  • Fourth, combining local manufacturer combined with with components from the home manufacturer
  • Fifth, local manufacture through foreign assembly
• It is important to consider all entry modes for foreign markets
• Internet: Great way to launch well established and new online companies
• Exporting: - Can market the company directly and retain the benefits - Combine third parties like agencies, piggybacking, export management houses, or trading companies to handle exports.

International Business vs International Trade

• International Trade: Commercial transactions beyond political boundaries
• This can include the sale, logistics, and investment between two or more regions
• The exchange of goods occurs across international boarders or territories
• Fundamentally International trade is a narrow set of activities including importing and exporting
• Business is conducting various activities across countries done by an entity

Business vs multinational

• multinational company has a worldwide approach to markets including
• They give product in new markets for customers
• Trading globally gives opportunity to be exposed to more products
• International marketing happens with buyers and sellers in two national markets
• The american marketing Association aims to plan and execute the conception with exchange of goods and services

Stages of International Marketing

• Direct Marketing
• Infrequent Foreign
• Regular or Multi National Foreign Marketing

Mercantilism (Commercialism)

• This is an outdated economic system where countries accumulate wealth by increasing reserves of precious metals.
• Study between territorial states and non state actors including elements to the environment
• Out sourcing is where a business helps manage another business
• Most occur with IT management or temp hires

Advantages of Outsourcing

• There is expert fast help with equipment
• The business can focus of core competencies
• Risk is transferred and vendors can help
• Reduces cost and reduces cost with vendors
• More core activities ensure good service
• With reduced costs and efficiencies it will save money overtime

Diasdvantages of Outsourcing

• Exposed Confidential Data: Payroll can be exposed to other parties
• Synchronizing Deliverable: If the outsourcing partner is lacking things could get delayed
• Hidden Costs: International contract can lead to unneeded expenses with contracts
• Bad customers, where the org has been unspecific and affects quality

Risk of International Business involved with

• Key risk with entering various places in a new economy will cause the the loss profit to abroad

Joint Venture Advantages

• Resources sufficient to pool capital
• Abilities and experience to have skills to expertise across business skills
• Risks sharing by profits shared
• Access to new markets and help market better
• Better technology for marketing and using staff
• Sharing costs
• Diversification to new product lines
• A boost in productivity to higher productivity
• Product exchange and having company share

Joint Venture Disadvantages

• Time to start work with partners
• There imbalance in capital causes issues
• Culture shock will happen
• Not assuming responsibility and lack of communication

Domestic Law

• This will involve foreign law with sources of legislation and statues with the government
• With case law they are guidelines of businesses across borders
• In regards to international trading you can set rules with the government
• Multinational cooperation make it essential to protect abroad with the companies they help

International Law

• Customs usage for business and merchants for international trade
• LEX MENTORIA or merchants law to determine how fair merchants across Europe are with court systems
• To incorporate local law like in the UK to determine how fair all products or for international sales

(ICC) or Internal chamber of commerce

• Helps harmonize custom across Europe with safety and quality

Treaties

• Is how and when global or region deals are agreed with agreements and trading rules
• Trade in trade a military plan can be created with two sides and it is voluntary
• Can create free-trade

The following international cases shape international trade

• WTO (Japan beverage for how it applied)
• PCI extraction
• Barcelona national origin
• van gent and loos set a precedent
• Metalclad and thunderird or rules in mexico

There is no first world or third world, its one world

• There bad terms created about the western world that doesn't define culture
• Internal trade through border transactions influence country
• Its not the same as international marketing

Forms of international businesses

• Franchising
• Marketing
• Joint venture
• MNC
• Licensing

Key influences factors within each type

• Economics
• Social
• Financial
• Political and government related
• Society based and education
• Labor

Types of marketing as follows

Accurate and information Size and type Segmentation

High performance

• Profits
• Beyond domestic competition
• More limited markets
• The political state

Global business

• Tech use is widespread
• Trade is controlled and cost is managed
• Reduced border crossing with movement
• Lower government trade barriers

Problems internally

• Political
• Cost
• Instability
• Requirements

The concept of Teaching

• The honorable teacher and the French teacher as one

Rules of engagment

• War will continue with battle
• Milan in the 1980s had great hope in Argentina
• The Canadian cultural preference success with less credit

Buisness

• Culture with multinational companies
• Resistance of culture
• It is a similar process to balance others

Become Cosmopolitan

• This has removed any form of bias with the world that create free communicator

International Trade

• High contacts are important with Japan
• Low contacts are import for America
• This allows you to be a good global communicator

In a Trade Organization

• Traces back to 1961 GATT and international Dynamics

Origins of WTO

• Churchhill and Roosevelt sought a limit to economic and political stability
• They propose this framework with trade, as well as establishing another group

Gatt in 1947

• This opened to signature on oct 1 1947
• Has 23 members, with agreements from trade
• Five rounds over the years to reduce barriers

Rounds

Tokyo expanded trade but had issues

• Uruguay lead the creation and it is 1995

Uruguay and the birth of the world trade

• Started in 1996 to reach trade in 100 companies and trade
• the Marrakech deal replaced GATT, and it made frameworks
• Structure of agreement ANNEX 1: Trade in all the major aspects
• Annex two made understanding
• Annex 3 looked at trade policy
• Annex 4 had plurilateral deal

WTOs Objectives: with members it

• Raises Standards
• Employment is full
• Income will rise
• trade can make country grow

Function

• Agreement for trade with a place
• Negotiation to be a part of world trade
• Settle disputes
• Review policy
• Cooperate with others like IMF

Structure of member organization in the WTO

• States and territories must have trade autonomy
• General must run operations
• Trade body manages dispute
• Body overseas body
• Trade negotiate to be had

To make a decision

• Members must be able to come to a consensus
• Decisions happen under the consensus

Core principal

• Trade must be free
• This trade must be free and binding
• Fair
• Supporting to progress