International Business Trade

• International business trade involves the exchange of goods, services, and capital across international borders
• It allows countries to specialize in the production of goods and services where they have a comparative advantage
• This enhances overall economic efficiency and growth

Trade

• Trade has been around since before civilization
• Initially, items were bartered between neighboring communities
• As civilizations grew and transportation improved, trade allowed for learning about others and spurred growth elsewhere

International Trade

• Trade evolved over the last 5000 years
• The Dutch developed shipping trade routes in the 17th century from Europe through Asia
• International trade took off in the 20th century due to ships, trucks, trains, and airplanes

Importance of Trade

• Dominant because no national economy produces all goods
• It helps with cost of labor and the availability of natural resources
• Countries are importers when they buy goods and services
• Countries are exporters when they sell products

Importance of Trade

• It is a large and growing part of the world's total business
• Companies are affected by global events and competition

Trade

• The concept of exchanging goods and services between two people or entities
• International trade is the exchange between people or entities in different countries

International Trade Theories

• Analyze and explain the patterns of international trade
• Include Classical country-based theories and Modern firm-based theories

Classical Country-Based Theories

• Classical economists focused on growth economics
• Their main concern was how to increase the wealth of nations
• Examples include Mercantilism, Absolute Advantage, Comparative Advantage, and Heckscher-Ohlin theories.

Mercantilism

• A country's wealth is determined by its gold and silver holdings
• A country should increase its holdings of gold and silver by promoting exports and discouraging imports
• Countries like Japan, China, Singapore, Taiwan, and Germany still favor exports and discourage imports through neo-mercantilism
• Neo-mercantilism combines protectionism through tariffs and import barriers with domestic industry protection through subsidies and tax exemptions

Absolute Advantage

• A producer can produce a good or service better, faster, more efficiently, at a greater volume, and with fewer resources
• Absolute advantage is a comparative term
• Compares the output capacity of a country, business, or individual in relation to another entity
• The entity that produces more with less inputs has the absolute advantage
• Countries should export products they have an absolute advantage in and import goods where they do not have an absolute advantage

Comparative Advantage

• Refers to a country’s ability to produce specific goods or manufacture types of goods with limited resources at a lower marginal and opportunity cost
• David Ricardo introduced the theory of comparative advantage in 1817
• Comparative advantage focuses on relative productivity differences
• Absolute advantage looks at absolute productivity
• Relative productivity compares the productivity of different entities/countries
• Absolute productivity looks at an entity’s/country’s productivity without regard to other entities/countries productivity
• Law of Diminishing Marginal Returns: there is a point where output is no longer worth the input
• Heckscher-Ohlin Theory (H-O Theory)
• Also called factor proportions theory or resources and trade theory
• Based on a country’s production factors land, labor, and capital
• Developed by Bertil Ohlin (1899–1979) based on work by Eli Filip Heckscher (1879–1952)
• Ohlin received the Nobel Prize for Economics in 1977
• Hecksher and Ohlin determined that the cost of any factor or resource was a function of supply and demand

Modern Firm-Based Theories

• Can help with international trade
• Help businesses determine the right country to expand into and make goods more efficiently
• Includes Porter’s National Competitive Advantage Theory and the Product Life Cycle Theory

Competitive Advantage

• Refers to the ability of a country or company to offer greater value to customers
• Achieved either through lower prices or more benefits and services at the same price
• Puts a country or company in a favorable or superior business position
• Absolute Advantage produces more of a good with better quality, while Comparative Advantage produces at a lower marginal cost, and Competitive Advantage is the combination of lower costs of material/labor or easy access to raw materials

Porter's Diamond Model

• A nation’s competitiveness in an industry depends on its capacity to innovate and upgrade

Four Stages of Development

• Based on factors, investments, innovation, and prosperity

Four Determinants in Porter's Diamond

• Considers a nation’s resources as key determining factors
• The products a country will export or import rely on human and material resources, investments in education, technology, and infrastructure
• Companies with markets that are innovative and sophisticated will develop new products and technology
• Firms need a strong support network
• The growth of a buyer industry enhances supplier industry growth
• Strategies help set goals, structure helps manage operations, and rivalry helps generate innovation

Product Life Cycle

• The length of time a product is introduced until it is removed from shelves
• Raymond Vernon developed the marketing strategy in 1966 to help companies plan the progress of new products

Four Stages in the Product Life Cycle

• Introduction means it is important to create awareness not profits
• The goal is to gain product awareness and brand recognition as consumers try the product
• Companies expect low sales and negative profitability because potential customers are still learning

Introduction stage

• Price skimming means charging a high price initially and gradually reducing the price as the market grows
• Price penetration means charging a low price to capture market share and then increasing prices in relation to market growth
• Growth means sales go up, the market knows the product, other companies are attracted, profits begin to come in, and market shares stabilize
• Products are being purchased by lower income groups, and profitability is at it's highest level
• Maturity is when intense competition is due to the presence of competitors in the market
• Differentiation, price wars, and sales promotion are common and eventually, weaker players exit
• Market saturation occurs when a specific market has no new demand for a product or service
• Decline of a product enters this stage since no amount of marketing or promotion can prevent the sales figures to drop

Globalization

• The increasing connectedness, integration, and interdependence of world cultures, economies, politics, and environment
• Brings about increased interconnectedness, due to interconnection technology (internet)

Positive Effects of Globalization

• Increase in employment
• Increased local economic growth
• Government policies to support local industry

Increase employment

• Foreign investment and expansion of local businesses can create new jobs
• The capital, technology, and management provided by foreign investment can increase the production capacity and efficiency

Local Economic Growth

• Applying new technology and improving workforce skills can increase productivity
• Export volumes increase when a local economy produces products able to compete

Government Policy to Support Local Industry

• Domestic industrial growth supported by government policies

Negative Effects of Globalization

• Dependence on export
• Culture and international business
• Environmental degradation

Dependence on Export

• A local economy’s dependence, is a risk, especially with international market threats

Culture and International Business

• Culture is the system of shared beliefs, values, customs, and behaviors that govern interactions of society members
• Cultural differences can create challenges to affairs

Overcome Problems

• Study foreign languages
• The spread of global brands may lead to a loss of cultural identity

Environmental Degradation

• The drive for growth can lead to overexploitation of natural resources and climate change

Glocalization

• A system linguistic hybrid of globalization popularized by Roland Robertson
• Refers to marketing strategies and business methodologies of companies in a foreign market
• Creation of products or services for the global market by adapting to cultures

International Marketing

• Application of marketing principles for needs of people residing across national borders
• Marketing covers the 7Ps of marketing - product, price, place, promotion, people, process, and physical evidence
• For vital competitive advantage across the globe while customizing to the preferences of different people
• The concept represents the performance of business activities to address the 7Ps and direct flow of goods/services

Marketing Segments

• Dividing a market into groups to better understand the target market
• Market targeting selects the target market
• Market positioning is a tool to establish the image of a brand in the consumer's minds

7Ps of Marketing

• A product is a commodity to satisfy needs
• Price is critical because it dictates the company term's of profit
• Place is how a product brought and where it is bought
• Promotion informs customers with the product and publicize it
• Critical and is most expensive of the mix
• Employees are important since they deliver the service
• Humans are the most critical
• Process is when interaction the customers with the businesses
• Evidence is environment experienced by customers
• Branding is the image of the brand

International Marketing

• Promotes worldwide to attract more customers and earn
• Increases the number of global firms manufacturing leading to marketing

Levels of International Marketing

• Include: International/export, multinautonal, transnational and global marketing
• International centers based in another country if foreign direct investment

Companies

• Increase sales by exporting to improve production
• Exporters can initiate contacted through marketing

Types of exports

• Indirect is common of what new firms does and contact in marketing
• Some agents of exporting are in the home country that are contact with markets
• International is not always direct and other firms are in assistance

Multinational Marketing

• MNCs operate in different countries and operates with foreign direct investments

Types of MNC

• Operate domestic through subsidiary and operate through country of origin

Decentralization

• Is under management system and decisions operate to which where are able to glocalized

Global Marketing

• Is the highest level of activity. It does note
• Does not identify with a particular
• Controllable tools need to manipulate

Participants in International Marketing

• Includes individuals as households workers and buying from different locations
• Any business is for all forms of marketing

Governments

• All kinds of participants with assistance
• Also NGOs are not nonprofit and is to help with development