International Trade Theories PDF

International Trade Theories Dr. Mary Ann E. Antenor 1- 1  International Business International Business is a mechanism to bring about globalization. International business consists of all commercial transactions—including sales...

International Trade Theories Dr. Mary Ann E. Antenor 1- 1  International Business International Business is a mechanism to bring about globalization. International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries 1- 3 ⚫ International Business (IB) deals with the nature, strategy and management of international business enterprises and their effects on business and national performance (e.g., efficiency, growth, profitability, employment). ⚫ IB is interdisciplinary. It draws, among others, on economics, politics, sociology, marketing, management (human resources, strategic). 1- 4  Origins of IB ⚫ IB is the result of the internationalisation of production and the emergence of the multinational corporations (MNCs), the subject matter of IB. ⚫ Internationalisation of production (‘globalization’) involves international capital flows, international trade of commodities (exports-imports) and Foreign Direct Investment (FDI) by MNCs. 5 Origins of IB ▶ Until the 1980s, there has been a tendency towards concentration of industry, and oligopolistic (market control by small number of producers who can influence price and affect competitors) market structures. Firms have observed a‘law of increasing size’ consisting of four stages:  First, the owner managed and controlled small firm (nineteenth century).  Second, the public limited ‘national’ company (limited liability, separation of ownership from management).  Third, the multidivisional organisation (division- based), separation of strategic (long term) and operational (day-to-day) decisions.  Fourth, multinational corporations (MNCs) with production activities outside (and including) their home-base. 6  Drivers of Globalization A. Technological advancement:(in terms of communication, production, and transportation) B. Comparative/ Competitive advantage C. Decreasing barriers to trade and investment D. International media exposure E. Increasing market size F. Growing consumer pressures 1- 7 Factors Contributing to Rapid Growth of International Business A. Increase in and Expansion of Technology Vast improvements in transportation and communications technology—including the development of the Internet— have significantly increased the effectiveness and efficiency of international business operations. B. Liberalization of Cross-Border Trade and Resource Movements Over time most governments have lowered restrictions on trade and foreign investment in response to the expressed desires of their citizens and producers. In addition, the General Agreement on Tariffs and Trade, the development of economic blocs such as the European Union, and other such facilitating mechanisms have provided increased access to many foreign markets. 8 C. Development of Services That Support International Business Services provided by government, banks, transportation companies, and other. Businesses greatly facilitate the conduct and reduce the risks of doing business internationally. D. Growing Consumer Pressures Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. Thus competitors the world over have been forced to respond to consumers’ demand for increasingly higher quality, more cost-competitive offerings. 9 E. Increased Global Competition The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness. F.Changing Political Situations The transformation of the political and economic policies of the former Soviet Union and the People’s Republic of China has led to vast increases in trade between those countries and the rest of the world. In addition, the improvements in national infrastructure and the provision of trade-related services by governments the world over have further led to substantial increases in foreign trade and investment levels. 10 G. Expansion of Cross-National Cooperation Governments have increasingly entered into cross- national treaties and agreements in order to gain reciprocal advantages for their own firms, to solve problems jointly that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries. Often, such cooperation occurs within the framework of international organizations such as the United Nations, the International Monetary Fund, the World Trade Organization, and the International Bank for Reconstruction and Development (World Bank). 11  Reasons for International Business Expansion ⚫ To Expand Sales: Pursuing international sales increases the potential market and potential profits (Companies may increase the potential market for their sales by pursuing international consumer and industrial markets.) ⚫ To Acquire Resources: IB may give companies lower costs, new and better products, additional operating knowledge (Foreign-sourced goods, services, components, capital, technology, and information can make a firm more competitive both at home and abroad.) ⚫ To Diversify or Reduce Risks: International operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage (Firms seek foreign markets in order to minimize cyclical effects on sales and profits. Defensively, they may also wish to counter the potential advantages that competitors might gain from participating in foreign market opportunities.) Domestic Vs International Business 1- 52 Suggested Activities for Students ⚫ Make an informal survey of objects in your home to determine where they were made.Observe and share what items are made from where. OR ⚫ Select a meal and list all the components of that meal.Where does each component come from? OR ⚫ Visit a local supermarket.Look at the labels and find out the geographic origin of each product on the shelves.Share your findings with the class. What conclusions can you draw? References 1. International Journal of Foreign Trade and International Business- [email protected]. (n.d.). International Journal of Foreign Trade and International Business. https://www.foreigntradejournal.com/ 2. Sthapit, A., & Vaidya, R. (2024). Corporate Governance practices in South Asia: A Comparative study of India and Nepal. Indian Journal of Commerce & Management Studies, XV(1), 19–25. https://doi.org/10.18843/ijcms/v15i1/03 3. DH, K., RP, B., NS, P., & N, G. (2012). REDD+ politics in the media: A case study from Nepal. https://doi.org/10.17528/cifor/003909 4. Nordhaus, W. (2019). Climate change: the ultimate challenge for economics. American Economic Review, 109(6), 1991–2014. https://doi.org/10.1257/aer.109.6.1991