Introduction To International Business And Trade PDF

MODULE INTRODUCTION TO INTERNATIONAL 1: BUSINESS AND TRADE CAE 323  INTERNATIONAL BUSINESS & TRADE: International Trade: International trade focuses specifically on the exchange of goods and services between countries. It involves exports (selling goods/services to othe...

MODULE INTRODUCTION TO INTERNATIONAL 1: BUSINESS AND TRADE CAE 323  INTERNATIONAL BUSINESS & TRADE: International Trade: International trade focuses specifically on the exchange of goods and services between countries. It involves exports (selling goods/services to other countries) and imports (buying goods/services from other countries). International Business: International business refers to all business activities and transactions such as buying, selling, investing, and producing that occur across national borders. This includes not only trade but also activities such as establishing factories, offices, and partnerships in foreign countries. Difference Between International Business and International Trade Aspect International Business International Trade Scope Broader, includes trade, investments, Narrower, limited to the exchange of joint ventures, and other cross-border goods and services between business activities. countries. Involves managing business Focuses solely on the import and Focus operations across countries export of goods and services. Activities like franchising, licensing, Involves Buying (importing) and selling foreign direct investments, and (exporting) goods/services. partnerships. Complexit More complex, requiring knowledge of Less complex, primarily concerns y foreign markets, cultures, and legal trade laws, tariffs, and international systems. agreements.  INTERNATIONAL TRADE: International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer. Trade promotes economic growth, efficiency, technological progress, and what ultimately matters the most, consumer welfare. Lowering prices and increasing product variety. REASON OF INTERNATIONAL TRADE: 1. Reduced dependence on your local market - Engaging in international trade helps businesses and nations diversify their market base, minimizing reliance on domestic markets that might be limited in size, demand, or purchasing power. 2. Increased chances of success - Access to international markets significantly broadens the customer base, providing opportunities to sell to regions with high demand or emerging economies with strong growth potential. 3. Increased efficiency - The pressure to compete in the global market pushes companies to optimize their processes, reduce costs, and deliver high-quality products to remain competitive. 4. Increased Productivity - International trade encourages countries and businesses to focus on their strengths, specializing in the production of goods or services they can produce most efficiently. 5. Economic advantage - Countries benefit from trading goods and services. They produce more efficiently for those they lack, leveraging comparative advantage (producing goods at a lower opportunity cost) or absolute advantage (producing goods with fewer resources).  REASON OF INTERNATIONAL TRADE: 6. Innovation - Global trade fosters innovation as businesses and countries are exposed to new ideas, technologies, and practices. The drive to meet global standards often results in the development of better products and services. 7. Growth - International trade serves as a catalyst for economic growth by providing businesses access to larger markets, increasing export revenues, and encouraging foreign investments. 8. Uneven Distribution of Natural Resources - Natural resources such as oil, minerals, and arable land are not distributed evenly across the globe, making trade essential for countries to acquire what they lack. 9. Division of Labor and Specialization - By focusing on the production of goods and services that a country or region excels at, international trade encourages division of labor and specialization, leading to greater efficiency and lower production costs. Example: If the Philippines grows bananas more efficiently and Japan makes cars more efficiently, the Philippines can export bananas to Japan, and Japan can export cars to the Philippines. Both benefit because they focus on what they’re best at. 10. Differences in Economic Growth Rate - Countries with varying rates of economic growth benefit from trade by meeting each other’s needs. Fast-growing economies demand more goods, while slower-growing ones may have excess production capacity. ADVANTAGES OF INTERNATIONAL TRADE: 1. Increased revenues - Selling products to international markets expands the customer base, leading to higher sales and increased revenue. 2. Decreased competition - Expanding into international markets allows businesses to escape intense local competition and tap into less saturated markets. 3. Longer product lifespan - International trade provides opportunities to sell products in markets where demand still exists, even when local demand has declined. 4. Easier cash-flow management - Exporting to different countries with varying seasons or economic cycles helps maintain consistent sales throughout the year. 5. Better risk management - A business exporting to multiple countries is less affected if one market faces a recession or economic downturn. ADVANTAGES OF INTERNATIONAL TRADE: 6. Benefiting from currency exchange - Companies can benefit from favorable currency exchange rates when exporting goods and services. 7. Access to export financing - Many governments and financial institutions provide support to exporters, such as loans, grants, or tax incentives. E.g. Export-import banks offering loans for small businesses expanding to international markets. Example: Export-import banks offering loans for small businesses expanding to international markets. 8. Disposal of surplus goods - International markets provide a way to sell excess inventory that may not sell domestically. 9. Enhanced reputation - Being a global player improves a company’s reputation and credibility, making it more attractive to customers and investors. E.g. A brand known internationally gains prestige and trust, which can also boost domestic sales. Example: A brand known internationally gains prestige and trust, which can also boost domestic sales. 10. Opportunity to specialize - International trade allows businesses and countries to focus on producing goods and services they excel at, leading to greater efficiency. E.g. Switzerland focusing on luxury watch production and exporting globally. Example: Switzerland focusing on luxury watch production and exporting globally. DISADVANTAGES OF INTERNATIONAL TRADE: 1.Shipping Customs and Duties - Transporting goods across borders involves high shipping costs, delays, and complex customs regulations. Additionally, import/export duties can significantly increase the cost of goods. 2.Language Barriers - Communication can be difficult when dealing with foreign partners, customers, or suppliers who speak a different language. Misunderstandings can lead to errors in contracts or product specifications. 3.Cultural Differences - Differences in customs, traditions, and business practices can lead to misunderstandings or strained relationships. Marketing strategies that work locally may fail internationally due to cultural misalignment. 4.Servicing Customers - Providing after-sales service, support, and warranties can be challenging when customers are located in different time zones or regions. 5.Returning Products - Handling returns is more complicated in international trade due to higher shipping costs, longer timelines, and stricter regulations. 6.Intellectual Property Theft - Expanding into global markets increases the risk of intellectual property (IP) theft, such as counterfeiting or unauthorized use of trademarks and patents.  KINDS OF TRADE: 1.Foreign Trade/International Trade exchange of goods and services between one country to another. 2.Local Trade/Domestic Trade exchange of goods and services inside the Philippines (only one country).  IMPORTATION AND EXPORTATION: Export - products that are transported as trade to other countries (sold by the country) Import - products that are transported as trade into the country (bought by the country) Greatest advantage - these are the easiest products to produce. Greatest disadvantage - these are the products that are hardest to produce Theory of Comparative Advantage: A country should export the products on which it has the greatest advantage and import the products on which it has the greatest disadvantage.  SUPPLY AND DEMAND: Demand → Refers to the quantity of a good or service that consumers are willing and able to purchase at different prices over a specific period of time. Key Principle: As the price of a good decreases, consumers are typically willing to buy more of it (law of demand). Supply → Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices over a specific period of time. Key Principle: As the price of a good increases, producers are typically willing to supply more of it (law of supply). The relationship between supply and demand determines the price and quantity of goods or services in a market. Competition is always present at the part of the sellers, especially when international trade and business are present. Equilibrium: The point where supply equals demand, meaning the quantity producers want to sell matches the quantity consumers want to buy.  DEMAND CURVE DETERMINANTS: 1. Event or Price expectation 2. Change in number of buyers 3. Change in prices of related goods - Substitution. - Complementary products. 4. Change in consumers income 5. Consumer expectation  SUPPLY DETERMINANTS: 1.Change in number of sellers 2.Change in cost of productions 3.Change in technology 4.Change in price expectation 5.Change in calamities - Positive and Negative effect. 6.Taxes and subsidies. - If the tax increases, the cost of products will increase and the products will become more difficult to sell.  ECONOMICS AND ECONOMICS ACTIVITIES: Scarcity - refers to the basic economic problem that arises because resources (such as time, money, labor, and natural resources) are limited, while human wants and needs are virtually unlimited. Scarcity forces individuals, businesses, and governments to make choices about how to allocate their resources efficiently. Key Points: Limited Resources: Resources, such as land, labor, and capital, are finite and cannot satisfy all of society's wants and needs. Unlimited Wants: Humans have infinite desires, whether it's for goods, services, or opportunities, but we do not have enough resources to fulfill them all. Choice and Opportunity Cost: Because of scarcity, decisions must be made about how to allocate resources. The next best alternative that is foregone when a choice is made is known as the opportunity cost.  ECONOMICS AND ECONOMICS ACTIVITIES: ECONOMICS- “Economics is a branch of social sciences concerning the allocation of scarce resources in order to achieve the unlimited satisfaction of all consumers.” ECONOMIC ACTIVITIES: 1.) Production It is the first stage of economic activity. Involves the transformation of inputs (raw materials) into finished goods or products. 2.) Distribution the systematic way or process of how commodities and incomes are properly allocated among economic resource owners 3.) Exchange the activity that requires any transfer of money or trading of products between buyers and sellers in a marketplace. 4.) Consumption an economic activity that involves the utilization of goods and services to provide satisfaction to the consumers or the buyers.  2 FUNDAMENTAL ECONOMIC PROBLEMS: 1. Unlimited satisfaction Members of the society are never content with the products or resources they have at hand. 2. Limited resources People are still searching, looking for, continuously discovering limited resources / scarce resources to be used for the good or satisfaction of the population. If we are able to allocate, proper usage is the solution to make sure there is enough to go around.  3 KINDS OF RESOURCES: 1.Man-made resources or Capital resources Example: Machinery, tools, building, computers, etc. 2.Human resources Refers to manpower e.g. Factory workers, farmers, doctors, businessman 3.Natural resources - Provided by the Earth/God - Land, water, forest, minerals etc…  5 FACTORS THAT CAUSE SCARCITY: 1. Increase of the number of populations → A higher population means larger consumption of resources. 2. Increase of different businesses → Factories, enterprises, subdivisions, etc. have increased in number over the decades to cater to the population’s needs. However, this rapid expansion can contribute to scarcity, as the demand for resources (land, labor, capital, etc.) often outpaces their availability, leading to competition and limited access to essential goods and services." 3. Increase of the different technologies → The constantly increasing standard of living of the population leads to development and urbanization as well as construction of cell sites on agricultural/forest land. It leads to competition for Limited Land Resources, Strain on Natural Resources, and Environmental Impact and Reduced Ecosystem Services 4. Unlimited satisfaction → Will be solved if people learn to limit their contentment. 5. Illegal activities of human → Crimes performed to unjustly enrich oneself that damages/induces imbalance in the distribution of resources. E.g. illegal logging, mining, etc…  ECONOMIC RESOURCES AND ALSO KNOWN AS FACTORS OF PRODUCTION: Economic resources inputs or resources used in the production of goods and called the factors of production. Categories include land, labor, capital, and entrepreneurship. 1. Land → Refers to all natural resources found in nature that are used in the production of goods and services. Farmland, oil deposits, trees, water resources, gold. 2. Labor → Refers to the people who contribute their physical effort, skills, and time to produce goods or services. 3. Capital → Refers to the material goods created by humans and used to produce other goods and services. Plant, money, industrial robots, machine, computer 4. Entrepreneurship → Refers to the ability and initiative of entrepreneurs to combine the factors of production to create goods or services. Example: An entrepreneur who starts a factory, An inventor who creates a new product, A start-up founder who launches a new business. Goal of these people is to gain and maximize profit Profit = total revenue - total cost Revenue > total cost = profit Cost per unit = total cost / total units sold Revenue < total cost = loss Revenue per unit = Total revenue / total units sold Revenue = total cost = breakeven  2 TYPES OF INCOME (LABOR): 1. Wages People who earn income from blue-collar jobs. - Blue-collar workers are those in factories, constructions, etc. 2. Salaries People who earn income from white-collar jobs. - Mostly professionals Any Questions  INTERNATIONAL BUSINESS: International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale. It involves cross-border transactions of goods and services between two or more countries. Transactions of economic resources include capital, skills, and people for the purpose of the international production of physical goods and services such as finance, banking, insurance, and construction.  IMPORTANCE OF INTERNATIONAL BUSINESS: it increases the competition in domestic markets and introduces new opportunities to foreign markets. Global competition encourages companies to become more innovative and efficient in their use of resources. For consumers, international business introduces them to a variety of goods and services.  OBJECTIVES OF INTERNATIONAL BUSINESS: 1. To promote social and cultural exchange among the nations. 2. To assist developing countries in their economic and industrial growth by inviting them to the international market and eliminating the gap between the developed and the developing countries. 3. To assure sustainable management of resources globally.  FEATURES OF INTERNATIONAL BUSINESS: 1.Large scale Operations International business involves production, trade, and distribution activities on a massive scale, often requiring significant investment in global infrastructure and resources. Example: Amazon 2.Immobility of Factors (difficulty of moving factors) Factors of production like labor, capital, and natural resources are not easily transferable across borders due to legal, cultural, and economic barriers. Example: Natural resources like crude oil 3.Heterogeneous Markets International markets are diverse in terms of consumer preferences, income levels, cultures, and buying behaviors, making it necessary to adapt products and strategies to suit local needs. Example : Nike  FEATURES OF INTERNATIONAL BUSINESS: 4.Integration of Economies (An agreement among nations to reduce or eliminate trade barriers and to coordinate monetary and fiscal policies.) International business fosters interdependence among nations by integrating their economies through trade, investments, and partnerships. Example : The production of iPhone - China handles assembly. Japan provides advanced camera components. The U.S. designs the product. If one country stops contributing, the entire production process could be affected. 5.Dominated by developed countries Developed nations often lead international business activities due to their advanced technology, infrastructure, and financial resources. Example: Developed countries like the U.S. dominate industries like pharmaceuticals (Pfizer, Johnson & Johnson), while Germany leads in automobiles (BMW, Mercedes-Benz). Their advanced research facilities and capital give them a competitive edge. 6.Beneficial to Participating Countries Participating countries gain access to better goods and services, technology transfer, foreign investments, and employment opportunities, fostering economic growth. (E.g. European Union, European Economic Area, European Free Trade Association) Example: The Impact of the European Union (EU) on Eastern European Countries (e.g. Poland, Hungary, and the Czech Republic) Access to Better Goods and Services Foreign Investments Employment Opportunities  FEATURES OF INTERNATIONAL BUSINESS: 7.Keen Competition (a situation where competitors are trying very hard to win) Global markets are highly competitive as businesses strive to capture international market share, leading to innovation and better products. Example: Coca-Cola and Pepsi compete aggressively in global markets. This competition forces them to constantly improve their products, offer better prices, and create innovative marketing campaigns. 8.Special Role of Science and Technology Advances in technology and science play a critical role in improving efficiency, communication, and logistics in international business operations. Example: Artificial Intelligence: Shoppee use AI by exercising online transactions and to ease the delivery process. Global Connectivity: Tools like video conferencing (e.g., Zoom, Microsoft Teams) enable seamless communication among international teams. 9.International Restriction International business faces restrictions like business regulations imposed by governments to protect domestic industries. Example: The country may impose additional taxes for imported products. 10.Sensitive Nature International business is highly sensitive to political, economic, and social changes, such as trade wars, inflation, or diplomatic tensions. Example: During the COVID-19 pandemic, many global companies like Toyota and Apple experienced disruptions because their supply chains depended on factories in China, which were forced to shut down temporarily.  FEATURES OF INTERNATIONAL BUSINESS: 11.Different Policies and Different Currencies Countries have varying trade policies, tax regulations, and currencies, making exchange rate fluctuations and compliance a critical part of international business. Example: A company exporting products from the Philippines to Europe deals with different taxes, regulations, and currencies (Philippine Peso to Euro). If the Euro weakens, the company earns less profit, even though its costs remain the same. 12.The Removal of Trade Barriers and Development of Trading Blocs The creation of free trade agreements and trading blocs like the ASEAN has reduced trade barriers, facilitating smoother international business operations. Example: Within ASEAN, member countries like Thailand and Vietnam trade without tariffs, making it cheaper to export goods like rice or electronics.  ADVANTAGES OF INTERNATIONAL BUSINESS EXPANSION: Reaching New Customers Expanding internationally allows businesses to access new and potentially untapped markets, increasing their customer base and revenue opportunities. Spreading Business Risk Operating in multiple countries diversifies a company’s risk profile, reducing the impact of localized economic downturns or market-specific challenges. Accessing New Talent International expansion offers access to a diverse pool of talent, including specialized skills and perspectives that can enhance innovation and operations. Amplifying Your Brand Entering foreign markets increases global brand recognition and credibility, making the business more competitive on an international scale. Securing Foreign Investment Operating internationally often makes businesses more attractive to foreign investors, providing additional capital for growth and innovation. Lowering Costs Expanding globally can help businesses lower costs through cheaper raw materials or more affordable labor markets. Increased Immunity to Trends Global operations make businesses less vulnerable to short-term trends or market shifts in a single region, providing more stability. Improved Consumer Confidence A strong international presence signals credibility, reliability, and success, which can increase consumer trust and loyalty worldwide.  DISADVANTAGES OF INTERNATIONAL BUSINESS EXPANSION: Foreign Rules and Regulations Expanding into other countries requires navigating complex legal, tax, and compliance systems, which can be time-consuming, costly, and subject to frequent changes. Handling Logistics Managing supply chains across borders can be challenging, with higher transportation costs, customs duties, and potential delays impacting operations. Speaking the Language Language barriers can create communication issues with customers, employees, and partners, potentially leading to misunderstandings or reduced efficiency. Coordinating Time Zones Operating across different time zones complicates communication, project coordination, and customer service, especially for teams spread globally. Monitoring Currency Fluctuations Exchange rate volatility can impact profit margins and create financial unpredictability, especially for businesses dealing with multiple currencies. Mitigating Credit Risk Evaluating and managing the creditworthiness of international clients or partners can be difficult, increasing the risk of delayed payments or defaults. Following Foreign Politics Political instability, trade restrictions, or abrupt changes in foreign policy can disrupt business operations and lead to significant losses. Gathering Market Research Understanding the needs and preferences of foreign markets often requires significant investment in market research, and misjudging cultural or market differences can lead to poor outcomes. DOMESTIC VS. INTERNATIONAL BUSINESS:  INTERNATIONAL BUSINESS APPROACHES: Ethnocentric Approach: Under this approach, the domestic company does not formulate any different marketing strategy for the foreign market. It views foreign market as an extension to domestic market just like a new region. Polycentric Approach: In this approach, the company formulates strategies according to the environment of the foreign country or host country. Regiocentric Approach: In this approach, the company views regions as unique and seek to develop an integrated regional strategy. (e.g., Asia-Pacific, Europe, Latin America) Geocentric Approach: Under this approach, the company views the entire world as a potential market and tries to develop integrated world market strategies. It views the entire world as a single market and focuses on creating a unified brand experience for consumers worldwide.  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: As political, legal, economic, and cultural norms vary from nation to nation, various ethical issues rise with them. A normal practice may be ethical in one country but unethical in another. Multinational managers need to be sensitive to these varying differences and able to choose an ethical action accordingly. In an international business, the most important ethical issues involve employment practices, human rights, environmental norms, corruption, and the moral obligation of international corporations. Employment Practices and Ethics Human Rights Environmental Pollution Corruption Moral Obligations  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: 1. Employment Practices and Ethics Child Labor: In some developing countries, child labor is still prevalent in certain industries, which is an ethical concern for international businesses sourcing goods from these regions. Labor Rights and Fair Wages: In many cases, companies might exploit cheaper labor in foreign countries by paying low wages or imposing unsafe working conditions, violating basic labor rights. Discrimination and Equal Opportunity: Ethical concerns arise when businesses fail to provide equal opportunities for all employees, disregarding issues related to gender, race, or disability..  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: 2. Human Rights Worker Exploitation: Companies might turn a blind eye to human rights abuses in the regions they operate. This includes forced labor, unsafe working conditions, or violation of workers' basic rights to unionize or protest. Cultural Sensitivity: In some regions, businesses may engage in practices that conflict with local customs or values, leading to accusations of cultural insensitivity or disrespect for human dignity. Access to Basic Needs: Companies may be criticized for contributing to inequality by prioritizing profit over community development, such as denying access to clean water, healthcare, or education in their local operations.  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: 3. Environmental Pollution Resource Depletion: Multinational corporations, especially in industries like mining and manufacturing, may exploit natural resources unsustainably, contributing to environmental degradation. Pollution: Companies may disregard environmental regulations or standards to cut costs, leading to air, water, or soil pollution, which harms local ecosystems and public health. Waste Management: Improper disposal of industrial waste or toxic materials in developing countries can lead to long-term environmental damage, creating health hazards for local populations.  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: 4. Corruption Bribery and Kickbacks: In some regions, businesses may face pressure to pay bribes to government officials or other authorities to secure contracts, avoid regulations, or expedite processes. This can contribute to corrupt practices and hinder fair competition. Money Laundering: International businesses may become involved, knowingly or unknowingly, in money laundering activities, using illicit financial systems to disguise the origin of illegal funds. Unethical Business Practices: Corruption can extend beyond government relations to unethical practices within businesses, including falsification of records or misleading advertising to manipulate consumers.  ETHICAL ISSUES IN INTERNATIONAL BUSINESS: 5. Moral Obligations Corporate Social Responsibility (CSR): Ethical issues often arise when companies fail to take responsibility for their impact on society. This includes issues like under-investment in communities where they operate, poor employee welfare, or not addressing the environmental impact of their activities. Fair Trade: Ethical businesses are expected to ensure fair trade practices, which include ensuring that producers in developing countries receive fair wages, working in ethical conditions, and that the business doesn’t exploit local resources unfairly. Supply Chain Ethics: Companies have a moral obligation to ensure that their supply chains are free of unethical practices such as exploitation of workers or environmental damage, and that they take active steps to monitor and improve conditions. Any Questions