International Business & Trade: An Overview

Introduction to International Business and Trade

• International trade involves the exchange of goods or services between at least two different countries.
• Exchanges in international trade can be imports or exports.
• An import refers to a good or service brought into a domestic country.
• An export refers to a good or service sold to a foreign country.
• International trade enables countries to broaden markets and gain access to unavailable goods/services domestically.

Reasons for International Trade

• Reduces dependence on local markets
• Increases chances of overall success
• Efficiency and productivity are improved
• Creates economic advantages
• Encourages innovation and growth
• Addresses uneven distribution of natural resources, division of labor, and specialization
• Overcomes differences in economic growth rates

Advantages of International Trade

• Increased revenues and decreased competition
• Longer product lifespan, easier cash-flow management and better risk management
• Benefits from currency exchange and access to export financing
• Disposal of surplus goods and enhanced reputation
• Provides opportunities for specialization

Disadvantages of International Trade

• Shipping customs and duties requirements
• Language barriers and cultural differences
• Challenges in servicing customers and returning products
• Risk of intellectual property theft

Kinds of Trade

• Foreign/International Trade: Exchange between countries
• Local/Domestic Trade: Exchange within one country, such as the Philippines

Importation and Exportation

• Export: Products sold/transported to other countries
• Import: Products bought/transported into a country

International Trade

• Local/Domestic Trade occurs within the Philippines (e.g., Baguio strawberries, Davao durian)
• Globalization crosses international borders, involving transactions between two or more countries -International trade increases competitiveness, expands markets, and provides access to new goods/services.

Supply and Demand

• Demand is the quantity of commodities buyers are willing to purchase at different prices in a specific time/place.
• Supply represents the producers'/sellers' perspective.

Demand Curve Determinants

• Event/price expectations influence demand
• Number of buyers impacts demand
• Substitutes and complementary goods affect demand
• Changes in consumer income affect demand
• Expectations of consumers influence demand

Supply Determinants

• Change in the number of sellers affects supply
• Changes in production costs are a factor
• Changes in technology also affect supply
• Price expectations impact supply
• Calamities impact supply
• Taxes and subsidies are key determinants

Economics and Economic Activities

• Economics is a social science that concerns allocation of scarce resources to meet unlimited consumer satisfaction
• Production is the initial stage, converting raw materials into finished goods
• Distribution is the systematic allocation of commodities and income among resource owners
• Exchange involves transferring money or trading products between buyers/sellers
• Consumption involves using goods/services fulfilling consumer needs

Fundamental Economic Problems

• Unlimited satisfaction means society is never content with available resources
• Limited resources means people are always seeking/discovering scarce items

Kinds of Resources

• Man-made, human, and natural resources are the different kinds of resource available

Factors Causing Scarcity

• Population increase leads to higher resource consumption
• Increased business activity and technological advancements can lead to scarcity
• Unlimited desires need to be limited
• Illegal activities inducing imbalance in resource distribution causes scarcity

Economic Resources (Factors of Production)

• Economic resources are inputs used to produce goods (land, labor, capital, entrepreneurship)
• Land refers to the physical space including farmland, oil, trees, water, gold
• Capital includes tools/equipment like plants, money, robots, machines, computers
• Entrepreneurship organizes land, labor, capital aiming to maximize profit

Profit Calculation

• Profit equals total revenue minus total cost
• Key conditions include revenue exceeding cost for profit, revenue less than cost for loss, and revenue equaling cost to break even

Types of Income (Labor)

• Wages are income for blue-collar jobs
• Salaries are income for white-collar jobs.

International Business Explained

• International business includes trade in goods, services, technology, capital across national borders globally

Importance of International Business

• Increases domestic market competition and introduces opportunities in foreign markets
• Encourages company innovation, efficiency, and global competition
• Provides consumers with access to varied goods and services

Objectives of International Business

• Promotes cultural exchange between nations
• Assists developing countries' growth, reducing gaps
• Ensures sustainable global resource management

Features of International Business

• Large-scale operations, factor immobility, and heterogeneous markets
• Integrates economies and is dominated by developed nations
• Beneficial to participants and involves keen competition
• Uses science/technology and faces international restrictions
• Sensitive nature affected by different policies and currencies
• Removes trade barriers and develops trading blocs

Advantages of International Business Expansion

• Reaching new customers and spreading business risks
• Accessing new talent and amplifying brand reach
• Securing foreign investment is a key part of international expansion

Disadvantages of International Business Expansion

• Navigating foreign regulations, handling logistics, and language barriers
• Coordinating time zones and monitoring currency fluctuations
• Mitigating credit risk and following foreign politics is essential
• Gathering market research is another element to take into consideration

International Business Approaches

• Ethnocentric Approach: Domestic strategies are used in foreign markets without modification
• Polycentric Approach: Tailors strategies to the host country's environment
• Regiocentric Approach: Views regions as distinct and develops regional strategies
• Geocentric Approach: Integrates world market strategies across the world

Ethical Issues

• Ethical standards can change depending on the specific norms that are important for various countries
• Important issues involve employment, human rights, environment, corruption across global corporations

Theories and Policies in International Trade

• International trade theory studies patterns, origins, welfare implications
• International trade policy involves government regulations of trade with other countries

Importance of Trade Theories

• Support trade policies and predicts economic effects
• Develops international strategies and economic growth

Classical Trade Theories

• Goods exchange reflects embodied labor
• Trade viewed from a national perspective emerged when economies relied on agriculture/resources

Mercantilism

• Encourages countries to measure wealth by gold/silver holdings
• Countries should maximize exports and minimize imports, imposing tariffs and barriers
• Encourages trade surpluses achieved by restricting colonies from trading with other parties and levying taxes

Characteristics of Mercantilism

• Static Nature of Wealth
• The Need to Increase the Supply of Gold
• The Need to Maintain a Trade Surplus
• The Importance of a Large Population
• The Use of Colonies to Support Wealth
• The Use of Protectionism

Absolute Advantage (Adam Smith)

• Smith states that, countries gain with trade and improve economy
• Exports from one country will encourage the economic advancement of the other

Comparative Advantage (David Ricardo)

• Ricardo states that countries should export goods that they are more efficient in producing
• Ricardo supports open market trade, which allows an economy and its culture to advance

Modern Trade Theories

• Trade as a structure that depends on the changes in economic status of an economy
• Trade is evaluated depending on the company and their success, rather than countries

Heckscher-Ohlin Theory

• Two Swedish economists show that trade is influenced by products and expertise available for an economy

The Leontief Paradox

• The study showed that the United States imported capital-intensive goods, contrasting the Heckscher-Ohlin model- imports goods that they cannot manufacture efficiently

-Resolution of the Leontief Paradox

• Ignored human capital (skills, education, expertise) by over emphasizing physical capital
• Countries who export are rich in trained labour

Product Life Cycle Theory (Raymond Vernon)

• Suggests that a product is discovered in its relevant market

Raymond Vernon Categories

• Raymond Vernon splits his categories between new product, mature product, and standardized product

Five Stages of Product's Life Cycle

• Introduction, here the product is discovered and producers promote a product to simulate sales
• Growth, this stage allows sales to increase- allowing the product to be widely known
• Maturity, consumer own a product and levels demand
• Saturation, modifications are needed to the product
• Abandonment/Decline, occurs at the maturity stage and falls rapidly in sales

New Trade Theory

• Relies on growing returns to scale and network effects
• Suggest that the majority of world trade is due to similar factor endowments

Free Trade Vs Protectionism

• Free trade decreases global trade barriers, and increases economic growth
• Protectionalism creates laws that restrict import from international countries

Free Trade

• Allows the movement of goods and creates many opportunities for global economies

Free Trade Economics

• A wider assortment of goods and exports through international trade

Protectionalism

• Policies placed to restrict imports

Protectionalism Economics

• Local economies are prevented from foreign trade
• Unemployment lowers because an economy can be self sufficient
• Encourages entrepreneurship within countries

Philippines Policies and Agreements

• Supports WTO, and developing international countries
• The CMTA promotes efficiency and growth in operation

Bilateral Trade Agreements

• Simplifies customs procedures to promote efficiency and standards

Globalization and Philippine Economy

• Globalization relates to the expansion of cultures, and the movement of technology

Understanding Globalization

• Corporations can now gain a competitive edge on international trade

Pros and Cons of Globalization Impact

• Larger market that offers cheaper prices
• Outsourcing can benefit domestic and foreign labour

Cons of Globalization Impact

• Wealth is concentrated in richer countries
• Exploitations of poorer conditions
• Loss of culture

How Globalization Impacts Society

• Creates movement from rural to urban, and increases profits through trade

Features

• Trade barriers are removed which helps businesses move easier through different nations
• Advancements in technology that connect global trades
• Investments that allow traders to invest across various borders
• Cultural exchanges to explore lifestyles

Explore international business and trade. Understand imports, exports, and the reasons driving global commerce. Discover the advantages of international trade, including revenue growth and reduced competition.