International Business and Trade MIDTERM.pdf

International Business and Trade  Silver and copper was minted in 1670 in Midterm Reviewer French colonies in the Americas  Livre (pound) was the currency of the Evolution Internationa...

International Business and Trade  Silver and copper was minted in 1670 in Midterm Reviewer French colonies in the Americas  Livre (pound) was the currency of the Evolution International Trade Theory Kingdom of France and its predecessor state of  Division of Labor – a separation of work West Francia from 1781 – 1794. process into a number of tasks.  In 1685, Jacques de Muelles, Intendant of  Trade Surplus – is the amount by which value Justice, Police and Finance came up with the of a country’s exports exceeds the cost of its Card Money, which served as money in important. Canada.  Free Trade System – individuals benefit from  Legal tender means currency, such as coin and a greater choice of affordable goods paper money, is valid and sufficient for the  Mercantilism – restrict imports and reduces payment of debts. the choices available to consumers.  Inflation means increase in prices, reducing the purchasing power of money Barter  Copper coins were introduced in 1722.  Barter known as exchange of goods or  The government issued promissory notes called services without using money ordonnances, and treasury noted called acquits,  Bartering – direct trade/exchange of goods and which began to circulate as money services  Bills of exchange drawn on the treasury were  Formation of Groups – each group stayed used for payments of expenses in Canada. together while traveling and hunting  Cultivation and Farming – they began History of the Philippine Currency growing plants and raising farm animals  Barter Rings made in gold called piloncitos,  Evolution of the Barter System – traced back were the first local form of coinage. 6000BC, when the barter system was  The cobs or macuquinas (silver coins) were introduced by the tribes of Mesopotamia, the earliest coins brought by the galleons from adopted by Phoenicians, improved by Mexico and other Spanish Colonies. Babylonians  The barilla, a crude bronze or copper coin  Salt – valuable at that time that the salary of worth about one centavo, was the first coin Roman soldiers was paid in salt. struck in the country as ordered by the Royalty of Spain. The Filipino Term ‘barya’, referring Origin of Money to small change.  The first metal coins appeared in China, during  Gold coins with the portrait of Queen Isabela 1000 BC were minted in Manila  770 BC, miniature replicas and weapons cast in  Silver pesos with the profile of young Alfonso bronze were used by the Chinese as a medium XIII were the last coin minted in Spain. of exchange  The El Banco Español de Isabel ll, were the  In modern times fishhook currency used as a first paper money circulated in the country. medium of exchange.  The Philippine Republic of 1898 under  Eventually the daggers, spades and hoes were General Emillo Aguinaldo issued its own coins abandoned for objects in the shape of circle, and paper currency backed by the country’s and these objects became the first coins. natural resources.  700 BC, the Chinese moved from coins to  One-peso and Five-peso revolutionary notes paper money, by the time of Marco Polo. were printed as Republika Filipina Papel  Minting the process of making coin by Moneda de Un Peso and Cinco Peso. stamping metal  American in 1898, the Philippines became one  The first Mint manufacture coins, established of the most prosperous country in the east Asia. in Lydia The Americans instituted the gold standard and  600 BC, China started using paper money pegged the Philippine peso to the American  King Alyattes minted the first official Currency Dollar at the ratio of 2:1. Two pesos = One US (alloy of gold and silver) Dollar.  King Croesus credited with installing the  The US Congress approved the Coinage Act worlds first bimetallic monetary system of pure for the Philippines in 1903. The coins issued gold and pure silver coins under the system bore the designs of Filipino engraver and artist, Melecio Figueroa.  El Banco Español Filipino was renamed Bank Virtual Currency of the Philippines Islands in 1912. All notes  Cryptocurrency, digital currency – any type and coins issued up to 1933 used English. of digital unit that is used as a medium of exchange or a form of digitally stored value Mobile Payments and Internet Payments generated by agreement within the community  Mobile Payments – are money rendered for a or virtual currency. product or service through a portable electronic  Cryptocurrencies use cryptography, the device, such as cellphones, smartphone, or a process of protecting information by using tablet) device. coeds, for security.  Near Field Communication (NFC) –  Fiat currency – coins and paper money bills payments is the technology that allows issued and printed by the central bank of the contactless payments using close proximity country radio frequency identification  E-money – digital presentation of fiat currency  Sound wave-based (SWB) or Sound signal- stored in digital wallets or e-wallets based (SSB) – mobile payments or pay by  Virtual Currency – stored digitally, would sound uses an advanced, ultra-low power, still need be converted first to Philippine peso, wireless transmission technology. then transferred to a destination wallet  Magnetic Secure Transmission (MST) –  Blockchain is a special kind of database, a makes use of a magnetic signal to process distributed ledger, or a global ledger built on a payment using a secure tokenization system. data structure known as blocks.  Mobile Digital Wallets – work through complex encryption and tokenization to process CHAPTER 2: CLASSICAL COUNTRY-BASED specific transactions. THEORIES OF INTERNATIONAL TRADE  Quick Response – codes are trademark of a type of matrix barcode readable by International Trade Theories smartphones used in e-commerce to process  International Trade Theories – are various payments theories that analyze and explain the patterns  Short Message Service – also called premium and mechanism of international trade. SMS payments, simply means paying for  Trade – is the concept of exchanging goods products or services via a text message and services between two people or entities  Direct Carrier Billing – is similar to SMS  International Trade – is the exchange goods payments where you enter your phone number and services between people or entities in two on a payment page or in app and the payment different countries will then be added to you phone bill or prepaid  Modern theories – are useful and can help Sim card with international trade by helping a business  Internet Payments – can be done on desktop, determine the right country to expand laptops, or even phones  Wireless Application Tool – payments used to Main points of the classical theories of International be the most common facility on smartphones Trade through a more limited capacity app  Economic Growth  Auto Pay – is done when payments to credit  Equality cards or other bills, like for water, electricity,  Development or whatever bills need to be paid, are scheduled  National Welfare to be automatically paid  Participation  Payment links or pay by link – is most commonly referring to a link sent in email, text Mercantilism messages, or over social media, to process a  Mercantilism also knowns as ‘bullionism’ it is transaction the goal of the economy politics to ensure that  Neobank – is an umbrella term for the new the state is enriched by increasing the entry of generation of cutting edge, fully digital banking gold and silver services classified as a type of financial  Protectionism – the country tried to protect the technology solution. export industries that brings in the gold and silver.  Colonization – where one country takes control of another country or region.  Entrepreneurship – is the one that combines  Giovanni Botero and Antonio Serra – of the factors in the correct proportion and Italy did not directly touch on mercantilism, but mobilizes them developed theories using the city as unit of  Capital Goods – these consist of those goods analysis and finding development to be the which are produced by the economic system. result of industrialization.  Capital – this refers to the money or funds used to purchase the goods in the production Theory of Absolute Advantage process  Absolute Advantage – means a producer,  Natural resources – these are found in nature, which could be a person, a group, a company, including land, trees and mines. or a country, can produce a good or service  Labor – this refers to the work performed by a better, faster, more efficiently, at a greater person for a monetary consideration. volume, and a fewer resources than others. It is  Neo-mercantilism – combines protectionism also a comparative term used in economics through tariffs and import barriers when comparing the output capacity of a  Free trade – free from barriers country, business, or individual in relation to  Laissez faire – economics is a theory that another similar entity. restricts government intervention in the  Marginal Cost – is the cost incurred in economy producing an additional unit of a product.  Economies of scale – increasing output leads  Adam Smith – is recognized as the founder of to lower long-run average costs. modern economics, considered as father of  Jean Baptiste Colbert – was considered as a economics. He is credited with using the word more profound influence on the development of mercantilism first and that his book, The mercantilism in France, where it was known as Wealth of Nations, marked the birth of modern Colbertism capitalism.  Sir William Petty – posited that surplus gain  Capitalism – also called free market economy or surplus value is the fundamental originator of free enterprise economy is an economic of expanded reproduction. system, where most means of production are  Expanded production – is a model in which a privately owned. capitalist economy smoothly reproduces itself.  Modern Capitalism – emerged as a result of  Philipp Wilhelm von Hornick – detailed a the appearance of the physiocrats in France nine-point program of what he deemed  Physiocracy – the first well developed theory effective national economy. of economics.  Sir Thomas Mun – a famous economic thinker,  Net product – a measure of the income was most closely associated with the idea of generated in a production process, is the value mercantilism in England. of outputs minus the value of inputs  Antoine de Montchretien – published a book  Theory of absolute advantage – believes that titled A track on Political Economy in which he countries should produce and export such laid great emphasis on development of products which they have an absolute agriculture and described it as the basis of all advantage on and imports those goods that they wealth produce relatively less efficiently and at a  Richard Cantillon – another French scholar, is higher cost considered by many to be the first economic  Free trade – promotes international division of theorist. His contributions span such diverse labor through specialization giving certain topics as methodology, value and price theory, countries absolute advantage paving the way population, money, international trade, for international trade that will bring about business cycles, and the circular flow model of economic development. the economy.  Vent for Surplus – doctrines states that a  Physiocrats – is an eighteenth-century group nation can exchange its overproduction for of French economists who believed that other goods which are in demand in other agriculture was the source of all wealth and that countries. agricultural products should be highly priced  John Law’s Mississippi Bubble – one of the Theory of Comparative Advantage grandest attempts to actualize the mercantilist  Comparative Advantage – refers to the dream of increasing the supply of money. country’s capability to produce specific goods or manufacture.  Industrial Capitalism – is an economic Porter’s Diamond-Advanced Factors system in which trade, industry, and capital are  Human Resources privately controlled and operated for profit.  Material resources  Opportunity Cost – described as the sacrifice  Investments in education of the highest value of a good that one has to  Technology forgo to obtain another.  Infrastructure  David Ricardo – an English economist, introduced the theory of comparative advantage Country-Similarity Theory in 1817. Comparative advantage occurs when a  The country similarity theory was developed by country can produce a product better and more Swedish economist Steffan Linder in 1961, as efficiently than it does other goods. Developed he tried to explain the concept of Intra Industry monetarism, the theory or practice of trade. controlling the supply of money as the chief  This theory describes the idea that countries method pf stabilizing the economy. with comparable qualities are mainly like to trade with each other. Heckscher Ohlin Theory  Heckscher-Ohlin Theory – is based on a Two Types of Trade: country’s production factors-land, labor, and 1. Inter-industry trade – It is the exchange of capital; It is called the factor proportions theory goods produced in different industries among or the resources and trade theory countries. The exchange be by one industry in  Eli Heckscher and his student Bertil Ohlin in country A for goods produced by a dissimilar the 1920s studied how a country could gain industry in country B. comparative advantage by producing products 2. Intra-industry Trade – It is the exchange of that utilized factors that were in abundance in goods produced in the same industry. the country. Six Dimensions to Compare Countries CHAPTER 3: MODERN FIRM-BASED 1) Power distance – is power in the country THEORIES OF INTERNATIONAL TRADE distributed unequally 2) Individualism – it is the degree of Porter’s National Competitive Advantage independence of the members of a society  Competitive Advantage refers to the ability of 3) Masculinity – It is the want to be the best the country or company to offer greater value versus liking what you do (feminine) to customers, either by means of lower prices, 4) Uncertainty avoidance – are members of a or offering more benefits and services at the society feeling threatened by unknown same price situations  Micheal Porter – known as Porter’s diamond. 5) Long-term orientation – the society has links Porter’s theory stated that a nation’s with the pas and deals with the challenges of competitiveness in an industry depends on the the present and the future capacity of the industry to innovate and 6) Indulgence – do members of a society control upgrade. their impulses and desires Four Stages of Development Product Life Cycle Theory  Development based on Production  Life cycle is the series of stages through which  Development based in investments a living thing passes from the beginning of its  Development based on innovation life until its death  Development based on prosperity  Product life cycle refers to the length of a time a product is introduced in the market until it is The Four Determinants removed from the shelves  Local market resources and capabilities  Product life cycle theory is a marketing  Local market demand conditions strategy developed by Raymond Vernon in  Local suppliers and complementary industries; 1966 to help companies plan out the progress and of their new products.  Local firm characteristics Four Stage of PLC they get a competitive advantage by taking 1. Introduction - to create awareness, not profits. advantage of the barriers to entry for a This stage is to gain widespread product particular industry. awareness and brand recognition as consumers  Barriers to entry refer to the obstacles a new try the product. Two price setting strategies at firm may face when trying to enter into a this stage: industry or a new market. a) Price Skimming – charging an initially Research and Development - are activities high price and gradually reducing the price engaged in by companies for the invention as the market grows of new products or services to remain b) Price penetration – charging a low price to competitive. penetrate the market and capture market Ownership of a intellectual property share, before increasing prices in relation rights - is a creation of the mind, a work or to market growth. invention that is the result of creativity, 2. Growth - sales usually grows exponentially such as a manuscript (book) or a design, to and profitability reaches the highest level. which one has rights and for which one Economies of scale are now in order as sales may apply for a patent, copyright, revenue increases faster than costs and trademark, brand name, and the like. production reaches capacity. Economies of scale - means a 3. Maturity - sales increase continues in a proportionate saving in costs (cost decreasing pattern, but the sales curve tends to advantage) gained by an increased volume decrease after the top selling point is reached. of production. Retaining customer brand loyalty is the key.  Internal Economies of Scale – refers The biggest challenge is maintaining the to economies that are unique to a firm profitability and preventing sales from further  External Economies of Scale – refers decline. to economies of scale enjoyed entire 4. Decline - when no amount of marketing or industry promotion can keep the sales figures from Unique business processes or methods declining. Strategies that can be employed in Extensive experience in the industry or the decline stages: exploiting the experience curve a) Milking or harvesting – which means Control of resources or favorable access to reducing market efforts and attempt to raw materials maximize the life of the product for as long as possible CHAPTER 4: OTHER THEORIES OF b) Slowly reducing distribution channels and INTERNATIONAL TRADE pulling the product from underperforming geographic areas  Real income is simply inflation adjusted c) Selling the product to niche operator or income. It measures the amount of disposable subcontractor to allow the company to income available to consumer. Real income dispose of a low-profit product represents purchasing power.  The gross national income (GNI) is the sum  Product life cycle management (PLM) – is of the value added by all the goods and services the process of managing a products life cycle produced within a particular country, including from inception, through design and, foreign investment, to which are added any manufacturing, to sales, service, and eventually product taxes (excluding subsidies), and the to retirement. When a product moves on this value earned by the nation through overseas curve, strategies related to competition, ventures. distribution, pricing promotion, and market intelligence are periodically assessed and TYPES OF EXPENSE & THEIR SYMBOLS modified as needed. a) Personal consumption expenditures - Consumption Global Strategic Rivalry Theory b) Gross Private domestic investment -  Global Strategic Rivalry Theory is a theory Investment forwarded in 1980 by economists Paul c) Gross government spending - Government Krugman and Kelvin Lancaster that focused spending on multinational corporations (MNCs) and how d) Net Export - NX  Ronald Jones and Paul Samuelson studied, Jones and Paul Samuelson specific factors countries rich in capital will mean an increase model, and the Heckscher Ohlin (H-O) model. in marginal productivity from the manufacturing sector, while an increase in CHAPTER 5: INTERNATIONAL BUSINESS territory will increase the production of food. AND TRADE AND OVERVIEW  Factor of Production - land, labor, capital.  Factor production is any resource that is used  International – involves more than one by firms to produce goods and services. country or relates to or affecting two or more  The specific Factor (SF) model is sometimes nations. Synonyms of international include referred to as the Ricardo Viner model. It was foreign, global universal, intercontinental, and originally advanced by Jacob Viner, and it is a world. variant of the Ricardian model.  Business – is generally defined as an endeavor  The Ricardian model of trade was developed to make profit. by English political economist David Ricardo  Occupation – is a person’s usual or principal in his magnum opus On the Principles of work as a means of earning a living. Political Economy and Taxation (1817).  Profession – refers to a paid occupation,  The law of diminishing marginal returns is a especially one that involves specialized theory in economics that predicts that after educational training and a formal qualification some optimal level of capacity is reached, and license. Professionals can form adding an additional factor of production will partnerships for the exercise of their profession. actually result in smaller increases in output.  Trade is a basic economic concept involving the buying, selling, or exchange of goods and Standard Model of Trade services.  The standard model of trade (Paul Krugman- Maurice Obsfeld model) implies the existence Four Types of Business According to Nature and of the relative global demand curve resulting Scope from the different preferences for a certain 1. Service – those rendering service like barber good and relative global supply curve resulting shops, spas, restaurants, hotels, schools, and from the different production possibilities. other recreational services.  According to Paul Krugman and Maurice 2. Trading or merchandising – buying or selling; Obsfeld, the exchange rate, the rapport between they sell what they buy the export prices and the import prices, is 3. Manufacturing – converting raw materials determined by the intersection between two into finished products curves, which is equilibrium. 4. Hybrid business – e-commerce or a business  Global demand or total demand refers to geared toward socially beneficial goals amount of money, which subjects (Consumer) of an economy plan to spend goods and Four Types of Business According to Ownership services at the different size of income or at 1) Sole proprietorship – owned by only one given prices in a given period. person  Net exports are a measure of a nation’s total 2) Partnership – owned by two or more persons trade. The formula for net exports is a simple 3) Corporation – generally owned by five or one. The value of nation’s total export of goods more persons and services minus the value of all the goods 4) Cooperative – composed of members and services it imports. established to serve their common good  Market equilibrium – is the intersection of the global demand curve and the global supply  Triple bottom line – in economics, believes curve. that companies should commit to focusing as  Aggregate demand curve – shows how many much on social and environmental concerns as goods and services consumers can and are they do on profits. willing to buy at different total price levels  Corporate social responsibility – means that  Supply Curve – represents the relationship businesses has an obligation to society and the between price and quantity supplied. environment beyond that prescribed by a law  Standard trade model – is a general model above and beyond making a profit. that includes the Ricardian model, the Ronald  Foreign direct/investment – means that a firm is investing assts directly into a foreign  country’s buildings, equipment, or  The Philippines Japan Economic organizations. Partnership Agreement (PJEPA) – the first bilateral free trade agreement of the Philippines. Major Ways of Entering a Foreign Market  The Philippines and European Free Trade a) Exporting/importing - exporting simply Association (EFTA) – members Iceland, means selling products to foreign markets. Liechtensein, Norway and Switzerland signed a Importing means buying foreign products. free trade agreement in 2016 which became b) Licensing - is a contractual arrangement where effective in 2018. the licensor sells the right to use intellectual property or manufacture a product to the Glocalization licensee for royalty.  Glocalization – is an amalgamation or two c) Franchising - is a contractual arrangement in level linguistic hybrid of globalization and which the franchisor permits the franchisee to localization popularized by the sociologist use the business model or brand name for a fee. Roland Robertson. d) Forming joint ventures - is a joint  Glocalization – in a three level system involves undertaking by two or more parties, which the subnational or local, national, and otherwise retain their distinct identities. supranational or global levels. e) Establishing a branch - means maintaining an office in the foreign country. Factors that can maximize global opportunities: f) Establishing a wholly owned subsidiary - is a  Leadership – not only of the local chief company whose common stock is 100% owned executives but also of the private sector and by the parent company civil society organizations g) International investing - refers to selecting  The ability to use, process, and analyze data on global financial instruments as part of resource inputs to the locality, specifically, geographically diversified portfolio to spread information and communications technology investment risk.  Education that meets global labor demands h) Labor migration - means residents of one  A mindset that is global in orientation, but country goes to another country to work. grounded on local realities i) Technology transfer – refers to the process of conveying results stemming from scientific and technological research to the market place and to wider society, along with associated skills and procedures. Globalization - is the increasing connectedness, integration, and interdependence of world cultures, economies, politics, and environment. It also brings about increased interconnectedness with the advent of interconnection technology. 1) The first stage of global development, what Friedman calls “Globalization 1.0” started with Columbus discovery of the New World, ran from 1492 to about 1800, and characterized by how much industrial power countries could produce and apply. 2) Globalization 2.0 – from about 1800 to 2000, was largely shaped by the emerging power of huge, multinational corporations. 3) Globalization 3.0 – which Friedman says is today’s globalization, began around 2000, with advances in global electronic interconnectivity that allowed individuals to communicate as never before.