BC 202 International Business And Trade 1ST Semester PDF

BC 202 INTERNATIONAL BUSINESS AND TRADE 1ST SEMESTER AY 2024 - 2025  Module for International Business and Trade UNIT 1: Introduction to International Business and Trade Lesson 1: Evolution of International Business Lesson 2: Nature of International Business Lesso...

BC 202 INTERNATIONAL BUSINESS AND TRADE 1ST SEMESTER AY 2024 - 2025  Module for International Business and Trade UNIT 1: Introduction to International Business and Trade Lesson 1: Evolution of International Business Lesson 2: Nature of International Business Lesson 3: Influences and Goals of International Business Lesson 4: Problems of International Business Introduction This module introduces the students to the study of international business and trade – its short history and evolution, nature, inf luences and goals, and problems met in engaging with international business and trade. Study for international business and trade has become more relevant because all companies, whether big or start-ups, are somehow affected by global events and competition. And as the future f in ancial managers or business owners, the students must be completely aware of what are the trends in globalization, learn how to strategize and enhance their critical thinking with all the situations presented in the lesson. Video clips, case analysis which will help in enhancing the critical thinking of the students are the techniques and procedures to be used in this unit. UNIT 1: INTRODUCTION TO INTERNATIONAL BUSINESS AND TRADE DURATION: 3 hours / week OBJECTIVES: The student will be able to: 1. Understand how the concept of international business evolved; 2. Discuss the nature of international business; 3. Describe the influences and goals of international business; and 4. Identify and strategize on how to solve problems relating to international business especially in the pandemic situation of our country. Lesson 1: Evolution of International Business To start our lesson, let us f ir st def in e what international business is. According to saylor.org, international business relates to any situation where the production or distribution of goods or services goes beyond the country borders. This is mainly because of Globalization -- described as the transition toward a more collective and blended global economy—creates greater opportunities for international business (Mittal, 2012). In addition, all commercial negotiations, may it be private or within the government of two or more countries, besets an international business. Their exchanges are not only goods and services as well as transfers of other resources such as people, intellectual properties, and/or contractual assets or liabilities. There are also nonf inancial gains such as corporate social responsibility, triple bottom line and political favor (Sinha, 2012). Some of us may ask why it is important to study international business. Here are the reasons: it comprises a large growing portion of the world’s total business; and all companies are affected by global events and competition (Mittal, 2012). A c c ord in g to marke t b u sin e ssn e w s. c om, mu lt in at ion al companies are businesses with branches, of fices or production facilities in more than one country and are more focused on adapting their products and service to each individual local market. Examples are McDonalds, Procter and Gamble, and Toyota. On the other hand, global companies have a niche in multiple countries, but the product or service offerings and processes are the same in each country. Examples are Adobe, Hillton and Hyatt Hotels, and Google (Lazzari, 2019). Lastly, transnational companies have invested in foreign operations, have a central corporate facility but they give the decision-making, R&D and marketing powers to each individual foreign market (Mittal, 2012). One of the best examples is Nestle who employs senior executives from many countries and try to make decisions from a global perspective rather than from one centralized headquarters.  Objectives or Goals of International Business 1.To Achieve Higher Rate of Profits The basic objective of business is to achieve prof its. When the domestic markets do not promise a higher rate of profits, business f irms search for foreign markets that hold promise for higher rate of prof its. Thus, the objective of prof it affects and motivates the business to expand operations to foreign countries. 2. Expanding the Production Capacities beyond the Demand of the Domestic Country Some of the domestic companies expand their production capacities more than the demand for the product in domestic countries. These companies, in such cases, are forced to sell their excess production in foreign developed countries. Toyota of Japan is an example. 3. Severe Competition in Home Country The countries oriented towards market economies since 1960s experienced severe competition from other business f ir ms in the home countries. The weak companies which could not meet the competition of the strong companies in the domestic country started entering the markets of the developing countries. 4. Limited Home Market When the size of the home market is limited either due to the smaller size of the population or due to lower purchasing power of the people or both, the companies internationalize their operations. 5. Political Stability vs. Political Instability Political stability does not simply mean that continuation of the same party in power, but it does mean that continuation of the same policies of the Government for a quite longer period. Business f ir ms prefer to enter politically stable countries and are restrained from locating their business operations in politically instable countries. In fact, business firms shift their operations from politically instable countries to politically stable countries. 6. Availability of Technology and Competent Human Resources Availability of advanced technology and competent human resources in some countries act as pulling factors for business f ir ms from the home country. The developed countries due to these reasons attract companies from the developing world. 7. High Cost of Transportation Initially companies enter foreign countries their marketing operations. The home companies in any country enjoy higher profit margins as compared to the foreign firms on account of the cost of transportation of the products. Under such conditions, the foreign companies are inclined to increase their prof it margin by locating their manufacturing facilities in foreign countries through the Foreign Direct Investment (FDI) route to satisfy the demand of either one country or a group of neighboring countries. 8. To Increase Market Share Some of the large-scale business f ir ms would like to enh ance th eir market s h are in th e global market by expanding and intensifying their operations in various foreign countries. Companies that expand internally tend to be ‘oligopolistic’. Smaller companies expand internationally for survival while the larger companies expand to increase their market share. 9. Tariffs and Import Quotas It was quite common before globalization that governments- imposed tariffs or duty on imports to protect the domestic company. Sometimes government also f ixes import quotas i n order to redu c e th e c ompeti ti on to th e domes ti c companies from the competent foreign companies. These practices are prevalent not only in developing countries but also in advanced countries.  Importance and Advantages of International Business High Living Standards Increased Socio-Economic Welfare Wider Market Reduced Effects of Business Cycles Reduced Risks Large-scale Economies Potential Untapped Markets Provides the Opportunity for and Challenge to Domestic Business  Importance and Advantages of International Business Division of Labor and Specialization Economic Growth of the World at large Optimum and Proper Utilization of World Resources Cultural Transformation Knitting the World into a Closely Interactive Traditional Village Lesson 2: Nature of International Business  Nature of International Business International Restrictions In international business, there is a fear of the restrictions which are imposed by the government of the different cou n tries. Man y cou n tr y’s govern men ts don’t allow international businesses in their country. They have trade blocks, tariff barriers, foreign exchange restrictions, etc. These things are harmful to international business. Benefits To Participating Countries It gives benef it s to the countries which are participating in the international business. The richer or developed countries grow their business to the global level and they get maximum benef it s. The developing countries get the latest technology, foreign capital, employment opportunities, rapid industrial development, etc. This helps developing countries in developing their economy. Therefore, developing countries open their economy for foreign investments. Large Scale Operations International business contains many operations at a time because it is conducted on a large scale globally. Production of the goods at a large scale, they must fulf ill the demand at a global level. Marketing of the product is also conducted at a large scale to make them aware of the product. First, they fulf ill the domestic demand and then they export the surplus in the foreign markets. Integration of Economies International Business combines the economies of many countries. The companies use the f inance, labor, resources, and infrastructure of the other countries in which they are working. They produce the parts in different countries, assembles the product in other countries and sell their product in other countries. Dominated By Developed Countries International business is dominated by developed countries and their MNC’s. Countries like U.S.A, Europe, and Japan all are the countries that are producing high-quality products, they have people working for them on high salaries. They have large f in ancial and other resources like the best technology and Research and Development centers. Therefore, they produce good quality products and services at low prices. They help them to capture the world market. Market Segmentation International business is based on market segmentation based on the geographic segmentation of the consumers. The market is divided into different groups according to the demand of the consumers in different countries. It produces goods according to the demand of the consumers of the different market segmentations. Sensitive Nature International Business is highly affected by economic policies, political environment, technology, etc. It can play a positive role to improve the business and can also be negative for the business. It totally depends on the policies made by the government; it can help in expanding the business and maximizing the profits and vice-versa.  Characteristics of International business Large Scale Operations International businesses are conducted on a very large scale. They perform their operations in different countries globally. Their business activities are very large in size ranging from production, marketing & selling of their products. These businesses serve the demands of local markets also where they are present & also demands of different countries globally. That’s why they produce a large number of goods & services to cater to the large demands. Earns Foreign Exchange International businesses are served as an important source for earning foreign exchange. Foreign Currencies of different countries are involved in transactions in these businesses. This helps in getting enough foreign exchange reserves for the country. Integrates Economies Another important feature of international business is that it integrates the economies of different countries worldwide. It takes advantage of different economies & aims at providing its services economically. It takes labor from one country, technology from one country & finance from another country. Also, it designs, produces, assembles its products not only in one country but in different-different countries. This helps in taking advantage of different economies & becoming economical. Large Number of Middlemen International businesses are very large in size. Their scale of operations is not limited to one country but performs in different countries globally. There is a large number of middlemen involved in international businesses. These all person renders their services properly for the ef ficiency of the business. Their services help the business in easy expansion & growth. High Risk The degree of risk associated with international business is very high. These businesses require a large number of resources both in terms of money & manpower for carrying out its operations. These need to carry out trade in different countries at large distances. It requires a huge cost & time to carry these goods & services. Also, sometimes different economies face unfavorable conditions which affect the business conditions. Intense Competition International business faces many risks internationally. These businesses invest large amounts in advertising their products. There are many competitors in the international market. There is tough competition in terms of price, quality, design, packing, etc. Business needs to focus on these things to face the tough competition going on. International Restrictions International businesses face large restrictions while carr ying out their operations in different countries. Sometimes they are not allowed to inf low & outf low goods, technology & different resources. There are restricted by the government of different countries to not enter their countries. They face several foreign exchange barriers, trade barriers & trade blocks which are harmful for international business. Highly Sensitive Nature International businesses are highly sensitive in nature. Proper market research is very essential for carrying out these businesses effectively. Any unfavorable economic conditions in one country will adversely affect the business. If there is any economic, political or technological change will directly inf lu ence the functioning of the business. Therefore, these businesses should change their activities from time to time to survive the change.  Features of International Business Separates Producers From Buyers In international business, producers and buyers are at distant places. This business involves the production of products in one country and is sold in another country. Buyers and producers are not in close contact with each other like in case of Domestic business. They belong to different nations which make it dif ficult to contact with each other. Immobility of Factors Th e re i s a l arg e de g re e of i mmob i l i ty of fac tor s i n international business. Factors like labor and capital cannot move freely like in case of inland trade. There are certain laws and regulations like immigration laws, qualif ic ation, citizenship etc. which impose several restrictions on the movement of these factors. Government of different countries have different f is cal policies and therefore they accordingly prohibit the flow of capital in their countries. Heterogeneous Markets International markets are homogeneous in nature and differ from each other. These markets lack homogeneity due to difference in culture, tradition, climate, habits, preferences, weigh and measures etc. These markets are different from those which are in a single country. Behavior of buyers in international business differs from country to country due to difference in the socio-economic environment of different nations. Large Operations International businesses are conducted at a very large scale. They perform their operations in different countries globally. Their business activities are very large in size ranging from production, marketing and selling of their products. These businesses along with the demands of local markets where they are present also serve the demands of different countries globally. That’s why they produce a large amount of goods and services to cater to the large demands. Foreign Currency Payments International Business involves different currencies of different countries as all payments are done in foreign currency. These businesses serve as an important source of earning foreign exchange for the country. Foreign currencies of many countries are involved for transactions in these businesses. This helps in maintaining adequate foreign exchange reserve for country. International Rules And Regulations International businesses are bound to follow several international rules and regulations of different countries where they operate. They face large restrictions while carrying out their activities and are not allowed to inf lo w and outf lo w goods, technology and several resources in different countries. International businesses are also restricted by government of many countries to not enter their countries. They face several foreign exchange barriers, trade barriers and trade blocks which are harmful for international business. Large Middlemen There are large numbers of persons involved in International business for their proper functioning in different countries. These businesses are very large in size and their scale of operations is not limited to one country but performs in several countries globally. This requires a large no. of middlemen’s for performing different activities. These all person renders their services properly for the ef ficiency of bu s in es s. Th eir s er v ices h elp th e bu s in es s in eas y expansion & growth. Multiplicity of Documents International business requires large no. of documents from importing and exporting goods among different countries. These documents are like commercial invoice, shipping bill, Certif ic ate of origin, inspection and insurance certif ic ate, mate receipt etc. There is a series of documentation followed right from the point when an order for goods is received by exporter till the time when they are f in ally delivered at their destination. Lesson 3: Influences and Goals of International Business Companies engage in international business to: Expand Sales: Often, companies’ sales are dependent on (a) the consumers’ interest in their products or service and (b) the consumers’ willingness and ability to buy them. Compared to one country, the number of people and the level of their purchasing powers are higher for the international level. Consequently, companies build their business globally to cater their potential markets and increase their sales. Acquire Resources: Usually, businesses look for foreign resources such as capital, technologies and information because those are either not available in their country or those can reduce the costs of the company. Minimize Risk: Companies who seek out foreign markets minimize swings in sales and profits arising out of business cycle recessions and expansions which occur differently in different countries. Example: Sales decrease or grow more slowly in a country that is in recession and increase or grow more rapidly in one that is expanding rapidly in one that is expanding economically. Many companies enter international business for defensive reasons e.g. to counter advantages competitors might gain in foreign markets that in turn, can hurt them in the domestic market. The company forms its strategies and the means to implement them after examining the external environment. The company faces a different external environment in each country where it operates. Lesson 4: Problems of International Business What makes international business strategy different from the domestic are the differences in the marketing environment. Some problems being faced in international marketing are given below: 1. Political and Legal Differences: The political and legal environment of foreign markets is different from that of the domestic. The complexity generally increases as the number of countries in which a company does business increases. It should also be noted that the political and legal environment is not the same in all provinces of many home markets. 2. Cultural Differences: The cultural differences is one of the most dif fic ult problems in international marketing. Many domestic markets, however, are also not free from cultural diversity. 3. Economic Differences: The economic environment may vary from country to country. 4. Differences in the Currency Unit: The currency unit varies from nation to nation. This may sometimes cause problems of currency convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations may also vary. 5. Differences in the Language: An international marketer often encounters problems arising out of the differences in the language. Even when the same language is used in different countries, the same words of terms may have different meanings. The language problem, however, is not something peculiar to international marketing. One good example is the multiplicity of dialects here in the Philippines. 6. Differences in the Marketing Infrastructure: The availability and nature of the marketing facilities available in different countries may vary widely. For example, an advertising medium very effective in one market may not be available or may be underdeveloped in another market. 7. Trade Restrictions: A trade restriction, particularly import controls, is a very important problem, which an international marketer faces. 8. High Costs of Distance: When the markets are far removed by distance, the transport cost becomes high and the time required for affecting the delivery tends to become longer. Distance tends to increase certain other costs also. 9. Differences in Trade Practices: Trade practices and customs may differ between two countries. The End.