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Chapter 1: Evolution of International Trade LESSON 1.1: EVOLUTION OF INTERNATIONAL 3. It settles trade disputes between its TRADE: A GLIMPSE members. World Trade Organization (WTO) - the only global...

Chapter 1: Evolution of International Trade LESSON 1.1: EVOLUTION OF INTERNATIONAL 3. It settles trade disputes between its TRADE: A GLIMPSE members. World Trade Organization (WTO) - the only global 4. It supports the needs of developing international organization dealing with the rules of countries. trade between nations. The main historical theories are called Roles of WTO: classical and are from the perspective of a 1. It operates a global system of trade rules. country, or country-based. 2. It acts as a forum for negotiating trade The theory is a classical, country-based agreements. international trade theory that states that a country’s wealth is determined by its holdings of gold and silver. ADVANTAGE DISADVANTAGE Division of labor - is the separation of a work process into a number of tasks, with each task It does not involve However, it is difficult to performed by a separate person or group of money and is very find people who need persons to boost productivity and efficiency and simple. what other people enhance specialization. have, and there is no standard measure of value. Trade surplus - is the amount by which the value of a country’s exports exceeds the cost of its imports. Even today, there are swap markets, online auctions, and numerous websites In a free trade system, individuals benefit from a that offer online bartering arrangements. greater choice of affordable goods, while The history of bartering can be traced mercantilism restricts imports and reduces the back to 6000 BC, when the barter system choices available to consumers. was introduced by the tribes of Mesopotamia, then adopted by the Absolute advantage - is the country’s inherent Phoenicians, and improved by the ability to produce specific goods efficiently and Babylonians. effectively at a relatively lower marginal cost. Salt was so valuable at that time that the salary of Roman soldiers was paid in salt. Comparative advantage - refers to the country’s capability to produce the specific good at a lower LESSON 1.3: ORIGIN OF MONEY marginal cost and opportunity cost. The first recognizable metal coins appeared in China in 1000 BC. Marginal cost - is the cost incurred on Sometime around 770 BC, miniature producing an additional unit of a product. replicas of tools and weapons cast in bronze were used by the Chinese as a Opportunity cost - means the value you will get medium of exchange. The small bronze from an alternative that you did not choose. celts and bronze rings played a monetary role. LESSON 1.2: BARTER Objects in the shape of circles became Bartering - involves a direct trade or exchange some of the first coins. of goods and services. Around 700 BC, the Chinese moved from coins to paper money.  The first mint, an industrial facility to Barter was the means of trade long before manufacture coins, was established in the Spaniards came to the Philippines. Lydia (now western Turkey). Barter rings - made of gold called piloncitos, Minting is the process of making a coin were the first local form of coinage. These had a by stamping metal. flat base that bore an embossed inscription of the In 600 BC, around the time China started letters “MA” or “M,” believed to be the name by using paper money, Lydia’s King which the Philippines was known to Chinese Alyattes minted the first official traders. currency. King Croesus installed the first bimetallic The cobs or macuquinas (silver coins) - were monetary system. the earliest coins brought in by the galleons from The first regular system of exchange in Mexico and other Spanish colonies. Canada occurred in Tadoussac, where French traders bartered with Montagnais The barrilla, a crude bronze or copper people. coin worth about one centavo, was the The first colonial settlement in Quebec first coin struck in the country as was established by Samuel de ordered by the Royalty of Spain. Champlain (1608). The beaver pelt was The Filipino term “barya,” referring to the universally accepted medium of small change, had its origin in barrilla. exchange in the colony. As economic and Gold coins with the portrait of Queen financial needs became more complex, Isabela were minted in Manila. coins from France came to be widely used. Silver and copper coins designed especially The pesos fuertes, issued by the for the colonies were minted in 1670. country’s first bank, the El Banco Español Filipino de Isabel II, were the Spanish dollars (piastres) - represented the first first paper money circulated in the distinctive Canadian coins during the country. mid-1600s. The Philippine Republic of 1898 issued its own coins and paper currency, livre (French for “pound’) - was the currency of backed by the country’s natural resources. the Kingdom of France and its predecessor With the coming of the Americans in 1898, state of West Francia from 1781 to 1794. the Philippines became one of the most prosperous countries in East Asia. The 1685 - Jacques de Meulles, Intendant of Justice, Americans instituted the gold standard. Police, and Finance, came up with the temporary issuance of paper money printed on playing Gold Standard - is a monetary system where a cards. Card money served as money in Canada, country’s paper money has a value directly just as coin did in France. linked to gold; countries agreed to convert paper money into a fixed amount of gold per unit of Copper coins - were introduced in 1722, but they currency. were not well received by merchants. Bills of exchange drawn on the Treasury Coinage Act - The US Congress approved the were used for payments of expenses in act for the Philippines in 1903. The coins issued Canada. under the system bore the designs of Filipino The advent of paper money led to an engraver and artist, Melecio Figueroa. increase in international trade. El Banco Español Filipino - was renamed Bank LESSON 1.4: HISTORY OF PHILIPPINE of the Philippine Islands in 1912. CURRENCY May 1918 - treasury certificates replaced the Near field communication (NFC) payments - are silver certificates series, and a one-peso note the technology that allows contactless payments was added. using close-proximity radio frequency identification. Two kinds of notes circulated in the country during the outbreak of World War II Sound wave-based (SWB) or sound 1. war notes in high denominations issued by signal-based (SSB) mobile payments or the Japanese Occupation Forces, dubbed pay-by-sound - use an advanced, ultra-low as “Mickey Mouse” money power wireless transmission technology. 2. guerrilla notes or resistance currencies in low denominations issued by different Magnetic secure transmission (MST) - makes provinces and municipalities. use of a magnetic signal to process payment using a secure tokenization system. Central Bank of the Philippines - established in 1949, the first currencies issued were the Quick response (QR) codes - are the trademark English series notes and the coins minted at the of a type of matrix barcode (type 2D barcode) US Bureau of Mint. readable by smartphones. The “Filipinization” of the republic coins and Short message/messaging service (SMS), or notes - began in the late 60s. premium SMS payments - pay for products or services via text message. The Ang Bagong Lipunan (ABL) series notes were circulated starting in 1978. Direct carrier billing (DCB) - is where the payment will be added to your phone bill or 1983 - the Flora and Fauna coin series was prepaid SIM card. initially issued. Internet payments - can be done on desktops, New Design Series - the new design of banknotes laptops, or even phones (as in mobile payments). were issued in 1985 replaced the ABL series. Wireless application protocol (WAP) payments - Ten years later, a new set of coins and used to be the most common facility on notes was issued, carrying the logo of smartphones, through a more limited-capacity the new Bangko Sentral ng Pilipinas. WAP browser or app. LESSON 1.5: MOBILE PAYMENTS AND “Autopay” - is scheduled to be automatically INTERNET PAYMENTS paid on a certain date. Mobile payments - are money rendered for a product or service through a portable electronic Payment links or pay by link - is most commonly device. referring to a button or link sent to process a transaction for a specified merchant. Neobank - is an umbrella term for the new digital unit that is used as a medium of generation of cutting-edge, fully digital banking exchange or a form of digitally stored value services classified as a type of financial generated by agreement within the community of technology (fintech) solution. virtual currency users. LESSON 1.6: VIRTUAL CURRENCY Fiat currency or fiat money or cash - is the real Cryptocurrency, virtual or digital currency, currency, coins, and paper money (bills) issued “digital gold,” or “altcoins” - are any type of and printed by the central bank of a country.  Cryptocurrencies - use electronic coins as their E-money - is a digital representation of fiat form of exchange, which is nothing more than currency stored in digital wallets or e-wallets. slots in the blockchain. Virtual currency - which is stored digitally, would Cryptography - the process of protecting still need to be converted first to Philippine information by using codes, for security. peso, then transferred to a destination wallet or withdrawn as cash through different mediums that The more users a coin has, the more useful it are accepted in the country done through a virtual becomes, and the higher its price goes. But currency exchange. when a coin falls out of favor, there is nothing to stop it from going to zero. Chapter 2: Classical Country-Based Theories of International Trade LESSON 2.1: INTERNATIONAL TRADE 2. Trade tends to promote greater international THEORIES and domestic equality. International trade theories - are various theories 3. Trade helps countries achieve development. that analyze and explain the patterns and 4. In a world of free trade, international prices mechanisms of international trade, how and costs of production determine how countries exchange goods and services, and much a country should trade in order to help countries in deciding what should be maximize its national welfare. exported and what should be imported. 5. Participation in a world of free unlimited trade is economically far better than Trade - is the concept of exchanging goods and complete isolation to promote economic services between two people or entities. development. International trade - is the exchange of goods LESSON 2.2: MERCANTILISM and services between people or entities in two “Commercial Revolution” - saw the transition different countries. from local economies to national economies, from feudalism to capitalism, and from a International trade theories - were initially rudimentary trade to a globally larger company-based and were called classical international trade. theories. Mercantilism - also known as “bullionism,” it is Classical economists were oriented the goal of economy politics to ensure that the primarily toward growth economics, and state is enriched by increasing the entry of gold their main concern was to explain how the and silver. “wealth of nations” could be increased. In the mid-twentieth century, economists New nation-states practiced shifted from country-based to firm-based colonization, where one country took or company-based theories, which were control of another country or region. called modern theories. These nation-states expanded their wealth by using their colonies around the world in The main points of the classical theories of an effort to control more trade and amass international trade are the following: more wealth. 1. Trade is an important stimulator of economic growth. Entrepreneurship – The entrepreneur is the one degree of efficiency that would lead to the that combines the factors in the correct development of economies of scale. proportion and mobilizes them. Economies of scale - occur when increasing Capital goods – These consist of those goods output leads to lower long-run average costs. It which are produced by the economic system means that as firms increase in size, they become and used as inputs in the production of further more efficient. goods and services. Jean-Baptiste Colbert - was considered a more Capital - refers to the money or funds used to profound influence on the development of purchase the goods used in the production mercantilism in France, where it was known as process. “Colbertism.” Natural resources - are found in nature, including Antoine de Montchrestien - laid great emphasis land, trees, and mines. on the development of agriculture and described it as the basis of all wealth. Labor - the work performed by a person for a monetary consideration. It is the monetary Richard Cantillon - was considered by many to consideration that forms part of the cost of be the first economic theorist. He emphasized production. the need for importing raw materials and exporting finished products to maintain a In our modern times, the four factors of favorable balance of trade. production are: 1. Land, Physiocrats - believed that agriculture was the 2. Labor, source of all wealth and that agricultural 3. capital, and products should be highly priced. 4. Entrepreneurship. Giovanni Botero and Antonio Serra of Italy - Neo-mercantilism - combines protectionism developed theories using the city as a unit of through tariffs and import barriers and domestic analysis and finding development to be the industry protection through subsidies and tax result of industrialization. exemptions. LESSON 2.3: THEORY OF ABSOLUTE Free trade - is when international trade is free ADVANTAGE from barriers, such as tariffs, quotas, or other Absolute advantage - means that a producer can restrictions, and can flourish on its natural produce a good or service in greater quantity growth free from government regulatory for the same cost or the same quantity at a intervention. It is a system that allowed for lower marginal cost. liberalization, which paved the way for a freely initiated trade and engaged the maximum possible Marginal cost - is the cost incurred on number of people, bringing benefits to most parties. producing an additional unit of product. Laissez-faire economics - is a theory that Adam Smith - is recognized as the father of restricts government intervention in the economics. economy. Capitalism - also called free market economy or Specialization - is a method of production free enterprise economy, is an economic system, whereby an entity focuses on the production of where most means of production are privately a limited number of goods to gain a greater owned and production is distributed through the operation of markets, which determine prices, For Smith, the specialization and division products, and services. of labor provided the base for lowering labor costs, which ensured a Physiocrats - a group of economists who comparative advantage for a country. believed that the wealth of nations was derived solely from agriculture. Industrial capitalism - is an economic system in which trade, industry, and capital are privately Theory of absolute advantage - believes that controlled and operated for profit. countries should produce and export such products on which they have an absolute Comparative advantage - warranted complete advantage and import those goods where they specialization in the specific commodity with a do not have an absolute advantage. comparative advantage in terms of labor hours used per unit of output. The theory of absolute advantage, the theory of international trade, and the David Ricardo started out as a successful theory of economic development are stockbroker, making $100 million in today’s closely interwoven. dollars. After reading Adam Smith’s The Wealth of Nations, he became an economist. Free trade - promotes the international division of labor through specialization, giving certain Monetarism - the theory or practice of controlling countries an absolute advantage and paving the the supply of money, as the chief method of way for international trade that will bring about stabilizing the economy. economic development. Law of diminishing marginal returns - states that Vent for surplus doctrine - states that a nation there is a point in production where the can exchange its overproduction for other increased output is no longer worth the goods which are in demand in other countries, additional input. which will result in the fullest utilization of idle productive capacity. LESSON 2.5: HECKSCHER-OHLIN THEORY (H-O THEORY) An additional beneficial aspect of David Ricardo’s theory of comparative international trade is that it transfers advantage - posits that countries export the knowledge and technology between goods they have abundant production factors different nations. for, while they import the goods for which they have scarce production factors, which determine LESSON 2.4: THEORY OF COMPARATIVE the comparative advantage of a country. ADVANTAGE Comparative advantage - means a producer can Swedish economists, Eli Heckscher and his produce a good or service at a lower student, Bertil Ohlin - studied how a country opportunity cost than others. could gain a comparative advantage by producing products that utilized factors that Opportunity cost - is what is lost or missed out were in abundance in the country, and on when choosing one possibility over another. propounded the Heckscher-Ohlin theory or H-O theory, also called the factor proportions theory. Adam Smith was among the first to put in Hecksher and Ohlin determined that the writing the theory of comparative advantage, cost of any factor or resource was a but the theory of comparative advantage was function of supply and demand. formulated by David Ricardo. Countries with cheap labor would specialize in labor-intensive industries,  while countries that have large pools of redistribution of income among different factors capital would specialize in of production; some will gain from trade, and capital-intensive industries. some will lose, but the net effects are still likely to be positive. International trade can improve economic efficiency, but that trade will also cause a Chapter 3: Modern Firm-Based Theories of International Trade LESSON 3.1: PORTER’S NATIONAL Competitive advantage - refers to the ability of COMPETITIVE ADVANTAGE the country or company to offer greater value to customers, putting the country or company in a favorable or superior business position than its Linder’s theory proposed that the following competitors. features common to certain countries will make them trade with each other: Absolute advantage + comparative advantage = competitive advantage stage of development; cultural milieu; Cost advantage + quality advantage = geographical features; and competitive advantage political and economic interests. Four Stages of Development in the Evolution of Inter-industry Trade - the exchange of goods a Country by Michael Porter produced in different industries among countries. 1. development based on factors; 2. development based on investments; Intra-industry Trade is the exchange of goods 3. development based on innovation; and produced in the same industry. 4. development based on prosperity. Porter added a new list of advanced factors: To determine the similarity of countries, the Geert-Hofstede Model - a tool that was developed 1. human resources, including skilled labor; to compare countries. 2. material resources, including natural resources, vegetation, space, and the like; 3. investments in education, including LESSON 3.3 PRODUCT LIFE CYCLE THEORY knowledge and research on universities; Life Cycle - the series of stages through which a 4. technology; and living thing passes from the beginning of its life until 5. infrastructure. its death. LESSON 3.2: COUNTRY SIMILARITY THEORY Traditional Trade Theories speak of differences in Product Life Cycle - the length of time a product is resources and demand or supply conditions as a introduced in the market until it is removed from the necessary condition for trade between countries. shelves. Country Similarity Theory is built upon similarities Product Life Cycle Theory - a marketing strategy or identical features of nations for them to trade developed by Raymond Vernon in 1966 to explain with each other. The country similarity theory, the pattern of international trade and foreign direct developed by Swedish economist Steffan Linder, investment that follows the product life cycle. tried to explain the concept of intra-industry trade between and among countries with identical Product Life Cycle Management (PLM) - the characteristics. process of managing a product’s life cycle from inception, through design and manufacturing, to market, and these barriers to entry are the exact sales, service, and eventually retirement. means by which companies can gain a competitive advantage. Introduction stage, the underlying goal is to gain widespread product and brand recognition, and Research and Development (R&D) - are big money is spent on distribution and promotion, activities engaged in by companies for the but sales are low, and profitability is negative. invention of new products or services to remain competitive. Price Skimming - is charging an initially high price and gradually reducing (“skimming”) the price as Intellectual Property - a creation of the mind, a the market grows. work or invention that is the result of creativity, such as a manuscript (book) or a design, to Price Penetration is charging a low price to which one has rights and for which one may apply “penetrate” the market and capture market share. for a patent, copyright, trademark, brand name, and the like. Growth Stage, sales usually grow exponentially Patent - an exclusive right granted for a new, and profitability reaches the highest level. inventive, and useful product, process, or technical improvement to an existing invention. Maturity Stage - sales increase continues in a decreasing pattern, product differentiation and Trademark or Brand Name is a word, a group of generating brand awareness become a must, and words, a sign, a symbol, or a logo that retaining customer brand loyalty is the key. distinguishes your business’s goods or services from those of other traders. Decline Stage - when no amount of marketing or promotion can prevent the sales figures from Economies of Scale mean a proportionate saving declining. in costs (cost advantage) gained by an increased volume of production. LESSON 3.4: GLOBAL STRATEGIC RIVALRY THEORY Internal Economies of Scale - economies that are Competitive Advantage - a way that a firm can unique to a firm. obtain a sustainable edge over competitors and break down the barriers to entry in a particular External Economies of Scale - economies of industry. scale enjoyed by an entire industry. Global Strategic Rivalry Theory - a theory Experience - a competitive advantage over forwarded in 1980 by economists Paul Krugman those without experience in any endeavor. and Kelvin Lancaster that focused on Multinational Corporations (MNCs) and how they Modern International Trade-based Theories - get a competitive advantage over other firms in show how a firm can gain a competitive advantage their industry. over others in different countries. According to CJ Cherryh, “Trade isn’t about goods. Trade is about Barriers to Entry - the obstacles a new firm may information. Goods sit in the warehouse until face when trying to enter an industry or a new information moves them.” Chapter 4: OTHER THEORIES OF INTERNATIONAL TRADE China is becoming great in international business Trade - raises the real incomes of trading and trade. countries. LESSON 4.1: THE SPECIFIC FACTOR MODEL Real Income - simply inflation-adjusted income, Standard Model of Trade (Paul the amount of disposable income available to Krugman-Maurice Obstfeld Model) - implies the consumers (e.g., households and individuals). existence of the relative global demand curve resulting from the different preferences for a Gross National Income (GNI) - the sum of the certain good and the relative global supply value added by all the goods and services curve resulting from the different production produced within a particular country. possibilities. Goods - are produced using a mix of the factors Exchange Rate - determined by the intersection of production—land, labor, and capital. between the global demand curve and the global supply curve, which is the equilibrium. Factor of Production - any resource that is used by firms to produce goods and services. Global Demand or Total Demand - the amount of money, which subjects (consumers) of an Ricardian Model of Trade - was developed by economy plan to spend on goods and services David Ricardo and was the first formal model of at the different size of income or at given prices international trade. The modern version of the in a given period. Ricardian model assumes that owners (countries) of factors of production for products that are in Total Demand - consists of personal demand will receive an increasing part of the consumption of households and individuals, world’s global income. gross private domestic investment by businesses, gross government spending, and SF Model - sometimes referred to as the net exports. Ricardo-Viner Model. The model was later developed and formalized Net Exports - a measure of a nation’s total mathematically by Ronald Jones and Paul trade, are the value of a nation’s total export of Samuelson, two American economists who goods and services minus the value of all the elaborated the SF model based on specific goods and services it imports. factors—territory or terrain (T) (terra means land), labor (L), and capital (K). Market Equilibrium - the intersection of the global demand curve and the global supply Mobile Factor - one that can be used in curve. producing different products, like labor. Aggregate Demand Curve - shows how many Specific Factor - one that can only be used for a goods and services consumers can and are particular product, like steel. willing to buy at different total price levels, with other conditions remaining the same. Law of Diminishing Marginal Returns - a theory in economics that predicts that after some Supply Curve - represents the relationship optimal level of capacity is reached, adding an between price and quantity supplied, with all additional factor of production will actually other factors affecting supply held constant. result in smaller increases in output. Quantity Supplied (supply curve) - a function of Country Rich in a particular factor of production price. will produce products using that factor of production to increase its national income. Standard Trade Model - a general model that includes the Ricardian model, the Ronald Jones LESSON 4.2: STANDARD MODEL OF TRADE and Paul Samuelson specific factors model, and the Heckscher-Ohlin (H-O) model.  According to the Heckscher-Ohlin Theory (Factor Isovalue Lines - lines along which the market Proportions Theory) - a country rich in a value of output is constant. particular resource should be exporting products that use that resource and importing A country’s Production Possibility Frontier (PPF) products made from resources that the country - determines its relative supply function lacks. because it shows what the country is capable of producing. Leontief Paradox - in the international division of labor, the US specialized in labor-intensive rather World Relative Supply Function & World than capital-intensive goods. Relative Demand Function - determine the market equilibrium under international trade. The Paradox -a seemingly absurd or self-contradictory best point to produce is where PPF is tangent to statement or proposition that, when investigated or the isovalue line equal to the relative prices. explained, may prove to be true. Terms of Trade (TOT) - the price of a country’s Wassily Leontief - received the Nobel Prize in exports divided by a country’s imports. Generally, a 1973 for his contribution to input-output rise in the TOT increases a country’s welfare, while analysis. Three of his students, Paul Samuelson a decline in the TOT reduces its welfare. The (specific factor model), Robert Solow, and Vernon relationship between TOT, the total price of Smith, also received Nobel Prizes. production, and a country’s welfare is direct. Theories are useful and can help with LESSON 4.3: LEONTIEF PARADOX international trade. They can help a business determine the right country to expand into and make goods more efficiently than other firms. Chapter 5: International Business and Trade: An Overview LESSON 5.1: INTERNATIONAL BUSINESS AND 1. Service TRADE 2. Trading International - involves more than one country or 3. manufacturing, and relates to or affects two or more nations. 4. hybrid Business - generally defined as an endeavor to There are also four types of business according make a profit. to ownership: 1. sole proprietorship Occupation - a person’s usual or principal work 2. Partnership as a means of earning a living. 3. corporation, and 4. cooperative Profession - involves specialized educational training and a formal qualification and license. International business and trade - any activity or endeavor among nations around the globe Trade - a basic economic concept involving the involving the buying, selling, and exchanging of buying, selling, or exchange of goods and goods, services, capital, labor, resources, services. technology, and the like. There are four types of business according to Triple bottom line (TBL) - profit (economy), nature or scope: people (society), and the planet (environment).  International investing - refers to buying global Corporate social responsibility - that businesses financial instruments or foreign direct investment have an obligation to society and the by putting up a business in a certain country. environment beyond what is prescribed by law and above and beyond making a profit. Labor migration - residents of one country go to another country to work. Foreign direct investment - a firm is investing assets directly into a foreign country’s Technology transfer - the process of conveying buildings, equipment, or organizations. results stemming from scientific and technological research to the marketplace and Exporting - selling products to foreign markets. to a wider society, along with associated skills and procedures. Importing - buying foreign products. LESSON 5.2: GLOBALIZATION Total trade = exports + imports The basic principles of international trade that seem to underpin greater prosperity among nations are Trade agreements or treaties - contractual the following: arrangements between countries concerning their A. investment (particularly foreign direct trade relationships. investment); B. the spread of technology; Licensing - a contractual arrangement where the C. strong institutions; licensor sells the right to use intellectual D. sound macroeconomic policies; property or manufacture a product to the E. an educated workforce; and licensee for royalty. F. the existence of a market economy. Royalty - a certain percent of the sales of the Globalization - the increasing connectedness, product or intellectual property. integration, and interdependence of world cultures, economies, politics, and environment. Franchising - a contractual arrangement in which the franchisor permits the franchisee to According to the World Health Organization use the business model or brand name for a fee (WHO), globalization is generally to conduct business as an independent branch of understood to include two interrelated the franchisor. elements: the opening of international borders and the changes in institutions Joint venture (JV) - a joint undertaking by two or and policies that facilitate the flows of more parties, which otherwise retain their distinct goods, services, finance, people, and identities. It is a business arrangement in which ideas. two or more parties agree to pool their resources for the purpose of accomplishing a The first stage of global development, what specific task or project. Friedman calls “Globalization 1.0,” started with Columbus’ discovery of the New World in 1492. Establishing a branch - maintaining an office in a foreign country. “Globalization 2.0,” - from about 1800 to 2000, was largely shaped by the emerging power of huge, Wholly owned subsidiary - a company whose multinational corporations. common stock is 100% owned by the parent company. “Globalization 3.0,” which Friedman says is today’s globalization, began around 2000 with advances in global electronic interconnectivity LESSON 5.3: GLOCALIZATION through the internet. Glocalization - the creation of products or services for the global market by adapting them Philippines-Japan Economic Partnership to local cultures and environment. Agreement (PJEPA) - the first bilateral free trade agreement of the Philippines, signed in Helsinki, The opportunistic reaction is the creation of Finland, by then President Gloria hybrids, where mixed cultures take advantage of Macapagal-Arroyo and former Prime Minister the opportunities provided by international business Junichiro Koizumi on September 9, 2006. and trade. The Philippines and the European Free Trade The rebellious reaction is to foster a resistance Association (EFTA) members identity defending local history, traditions, and 1. Iceland authentic cultures. 2. Liechtenstein 3. Norway In France, McDonald’s replaced its familiar 4. Switzerland Ronald McDonald mascot with Asterix, a They signed a free trade agreement in 2016, popular French cartoon character. In India, which became effective in 2018. the beef burger of McDonald’s is replaced by McAloo Tikki burgers. Some of its local Under ASEAN, the Philippines has preferential favorites around the world include the trade agreements with: McItaly burger in Italy, the Maharaja Mac in China India, the McLobster in Canada, and the Ebi Hong Kong Filet-O in Japan. India Japan Companies cluster in specific city-regions South Korea resulting in geographic concentration, like the Australia financial districts of London and New York and the New Zealand Silicon Valley in California for the computer industry. The current process of globalization is basically characterized by: The enabling factors that can maximize global 1. increasing worldwide active communication opportunities are: systems Leadership 2. increasing fluent economic conditions, information and communications technology especially those circumstances and factors (ICT) regarding the mobility of financial resources Education and trade. global mindset Chapter 6: NATURE AND SCOPE OF INTERNATIONAL MARKETING International Marketing Group (IMG) - a transformed a great number of individuals from pioneering global company that serves as an being nobody to somebody. avenue toward the ease of financial security. It also caters to the financial needs of every individual and LESSON 6.1: INTERNATIONAL MARKETING family who wishes to access financial International Marketing - represents the independence. IMG has collaborated with the performance of business activities designed to world’s top-tier financial services firms. With their address the 7Ps of marketing and direct the flow licensed financial educators and wide array of of goods or services to consumers or users around financial products and services, IMG has the globe for profit. Market Segmentation - the practice of dividing LESSON 6.2: FACTORS AFFECTING the entire market into groups and creating subsets INTERNATIONAL MARKETING of a market based on demography, needs, Economic Integration - consistent with the free priorities, common interests, and other trade economic theory, revolves around the trade psychographic or behavioral criteria. agreements or treaties between countries that usually include the elimination of trade barriers and Market Targeting - the process of selecting the aligning monetary and fiscal policies, leading to a target market and the segment(s) the company more interconnected global economy. wants to serve. Technological Advances - a driving force for Market Positioning - a strategic tool used to development, making consumers worldwide establish the image of a brand or product in the aware of products, services, and entertainment, minds of the consumer. creating demand for such trade wares. Extended Marketing Mix - 7Ps Efficient Transportation - due to containerization Product - a commodity or good and just-in-time (JIT) technology is creating produced or manufactured to satisfy the more international business opportunities. wants and needs of customers. Price - the product is basically the amount Transition to Market Economy - leads to that customers pay so they can have the economic development and prosperity. product and enjoy it. Place - covers the distribution channel, a International Business and Trade - stimulates reliable combination of middlemen, such as long‐term World Economic Growth through distributors, wholesalers, and retailers, and multiple channels, the most conducted trades being the location where the products should be in the money market and financial system. distributed. Promotion - a marketing communication Converging Consumer Needs - dictate process that helps the company acquaint international business and trade participants on customers with the product and publicize what to produce and sell in the international it and its features to the public. markets. People - the most important resource of a company as the company’s success PESTLE Analysis - a useful scanning tool. depends, to a large extent, on the quality of Political its people. Economic Process - refers to the flow of activities or Sociocultural mechanisms that take place when there Technological is an interaction between the customers Legal and the businesses, and, in the case of Environmental Factors from the manufacturing companies, the process of external environment. manufacturing the product. Physical Evidence (environment) - refers Infrastructure - all the essential physical to the physical environment experienced systems and facilities needed for the smooth by the customer. flow of a country’s day-to-day activities, enhancing the people’s standard of living, including Branding - when people hear the name of the basic facilities like roads, water supply, power and company or the products and services that a energy, transportation, telecommunication, health company offers, a logo or image of your brand infrastructure, educational infrastructure, would easily come to mind. recreational infrastructure, and political infrastructure. Multinational Companies (MNCs) - operate in more than one country, having foreign direct Soft Infrastructure - all the institutions investment in all of them with management that help maintain a healthy economy, headquarters in the country of origin, known as the including human capital (workforce), health home country operating in several other countries, infrastructure, educational infrastructure, known as host countries. They are centralized financial infrastructure, law and order, and (directly managed by the home office). governmental systems. Hard Infrastructure - covers all the Transnational Corporations (TNCs) - a type of physical systems crucial to running a multinational corporation operating in multiple modern, industrialized economy, countries larger than most multinationals but including transport systems and are decentralized. They are able to glocalize. telecommunication services. Global Business - operations worldwide but does Critical Infrastructure - makes up all the not identify with any home country, focusing on assets used for shelter and heating, public the selection and exploration of global marketing health, telecommunication, agricultural opportunities to achieve a global competitive facilities, natural gas, drinking water, and advantage. medicine. Indirect Exporting - a common practice by going Michael Porter’s Five Competitive Forces - through international marketing intermediaries, identified five factors present in the competitive companies (could be domestic or foreign) that market: will help the domestic company exporter find Competition in the Industry buyers in the foreign markets. Threat of New Entrants Threat of Substitute Products Semi-direct Exporting - an exporter usually Bargaining Power of Customers initiates contact through agents, merchant Bargaining Power of Suppliers middlemen, or other manufacturers (domestic) in the home country where the exporter resides. Distribution Channels - the links between sellers and buyers, the marketing intermediaries Direct Exporting - where the company generally or middlemen. establishes an export department to sell directly to a foreign market. Distribution Process - the physical handling and movement of goods or services from the Piggyback Exporting - where one manufacturer producer to the customer and the passage of (carrier) that has export facilities and overseas ownership (title). channels of distribution handles the exporting of another firm’s (rider) noncompeting but Geography - the study of the physical features complementary products. and environment of the earth and its atmosphere, including the impact of human activity LESSON 6.4: PARTICIPANTS IN on these factors and vice versa. INTERNATIONAL MARKETING International Marketing or International Trade and LESSON 6.3: LEVELS OF INTERNATIONAL Business participants include individuals, MARKETING businesses, governments, and nonprofit International or Export Marketing - based in a organizations. single home country, with no foreign direct investment in other countries. The World Wide Web and the internet International Marketing - important because it empowered individuals and small firms to start opens your business to larger, international businesses and expand their business horizons audiences. On a brand level, international by becoming participants in international marketing. marketing is an opportunity for wider exposure, product awareness, and increased sales. Intra-company Transfers - trade between affiliates or divisions of companies located in different countries. Trading Companies - simply buy items that other companies manufacture; they sell what they buy. Merchant Exporters - those who export products manufactured by other firms. Governments - are participants in international marketing when they buy products, machinery and equipment, and services, and when they borrow money directly or sell bonds and other securities in the foreign capital market. North American Free Trade Agreement (NAFTA) - an agreement signed by the governments of the United States, Canada, and Mexico to create a trade bloc in North America to reduce or eliminate tariffs among the member countries. European Community (EC) - agreements span trade, the environment, labor, and many other subjects related to business, social, and environmental issues. Kyoto Protocol - an agreement aimed at combating global warming among participating countries. State Trading Enterprises - governmental and nongovernmental enterprises, including marketing boards, which deal with goods for export and/or import. Canalized Item - can be exported or imported only by a public sector undertaking. Nongovernmental Organizations (NGOs) - any nonprofit, voluntary citizens’ groups that are organized on a local, national, or international level.