Ibm Introduction

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International Trade

U

INTERNATIONAL BUSINESSMANAGEMENT

UNIT-I


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Definition of international trade

the process of exchanging goods of services betweentwo or more countries, involving the use of two ormore currencies.

Alan Branch the exchange of capital, goods, and services across

international borders or territories.

Wikipedia

the activities of exchanging goods or servicebetween a country or region and other country orregions.

textbook


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Why Companies Engage in International

Business

A) To Expand Sales: companies sales are dependent on twofactors: the consumers interest in their product or servicesand the consumers ability and willingness to buy them.

B) Acquire Resources: products, services, technology, andinformation

C) Diversify Sources of Sales and Supplies

D) Minimize Competitive Risk: companies move internationallyfor defensive reasons. Profits from one market can be used toexpand operations in other markets


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Studying international business is

important because:

Most companies are eitherinternational or compete with

international companies.

Modes ofoperation may differ from those used

domestically.

The best way of conducting business may differ by country.

An understanding helps you make bettercareerdecisions.

An understanding helps you decide what governmental

policies to support.
http://en.wikipedia.org/wiki/Internationalhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Careerhttp://en.wikipedia.org/wiki/Governmentalhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Governmentalhttp://en.wikipedia.org/wiki/Careerhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/International


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The Nature of International Business.

Levels of International Activity:

a domestic business acquires essentially all of its resources andsells all of its products or services within a single country

an international business is primarily based in a single country butacquires some meaningful share of its resources or revenues from

other countries. a multinational business transcends national boundaries - it has a

worldwide marketplace from which it buys raw materials, borrowsmoney, manufactures its products, and to which it subsequentlysells its products.

More and more companies are following this path. Domesticcompanies are becoming international, and international companiesare becoming multinational.

This pattern is prompting the evolution of a worldwide phenomenoncalled globalizationthe evolution of an integrated global economythat comprises interrelated markets.


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Interdependence of Nations

Economic interdependence happens whencountries must rely on each others help to

produce all the goods they need to survive.Different countries can produce specific goodssuch as:

U.S. and Canada: Agriculture

Saudi Arabia and Russia: Oil

India and Japan: Computer science andTechnology

Marketing Essentials Chapter 4, Section 4.1


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Absolute Advantage and

Comparative Advantage

There are two types of advantages in internationaltrade:

Absolute

Comparative

Absolute advantage occurs when a country hasnatural resources or talents that allow it toproduce an item at the lowest cost possible. Chinahas an absolute advantage in the production ofsilk.



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Benefits of International Trade

Consumers benefit because competitionencourages the production of high-quality goods

with lower prices.Producers gain higher profit by expanding theiroperations into international markets.

Workers benefit because international trade leadsto higher employment rates.

Nations benefit because foreign investment in acountry often improves the standard of living forthat countrys people.



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Government Involvement in

International Trade

All nations control and monitor their trade withforeign businesses. In the U.S., the customs

division of the Treasury Department monitors allimports whether carried by individuals or shippedby trading firms.



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Balance of Trade

The difference in value between the exports andimports of a nation is called its balance oftrade X. A positive balance happens when a nation

exports more than it imports. A negative balance,also called a trade deficit, results when a nationimports more than it exports.

balance oftrade

The difference invalue between anations exports

and its imports.



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Balance of Trade

A negative balance of trade reduces a nationsrevenue. When more money leaves a country than

comes in, the country is in debt or is a debtornation.

Unemployment can also be another negative resultof a large trade deficit.



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Trade Barriers

Many countries favor and practice free trade X, or

trade that is done purely on free market principles,without restrictive regulations.

Other nations impose controls and restrictions toregulate the flow of goods and services. There arethree main types:

Tariffs

Quotas

Embargoes

free trade

Commercialexchangebetween nationsthat is conducted

on free marketprinciples,without tariffs,import quotas, orother restrictiveregulations.



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Trade Barriers

A tariffX is a tax on imports. Tarrifs come in two

different types:

Revenue-producing: a source of federal income

Protective: raises the price of imports toencourage consumers to buy locally madegoods.

An import quota Xlimits either the quantity or the

monetary value of a product that may beimported. These help local business compete withforeign companies.

tariff

A tax onimports; alsoknown as a duty.

quota

A limit on eitherthe quantity ormonetary valueof a product thatmay beimported.



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Trade Barriers

An embargo X is a total ban on specific goods

coming into and leaving a country. An embargocan be imposed for different reasons:

Poisoned or defective goods

Political reasons

Protectionism Xis a governments establishment

of economic policies that systematically restrictimports in order to protect domestic industries. Itis the opposite of free trade.

embargo

A total ban onspecific goodscoming into andleaving a

country.protectionism

A governmentsestablishment ofeconomic policiesthat restrict

imports toprotect domesticindustries.



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Trade Agreements and Alliances

Governments make agreements with each other toestablish guidelines for international trade and toset up trade alliances.

The World Trade Organization (WTO) X was

formed in 1995 and is designed to:

Open markets and promote global free trade

Reduce tariffs

Standardize trade rules

Study important trade issues

Evaluate the health of the world economy

World TradeOrganization(WTO)

A global coalitionof more than 140

governmentsthat makes rulesgoverninginternationaltrade.



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The North American Free Trade Agreement(NAFTA) X is an international trade agreement

among the United States, Canada, and Mexico.Founded on January 1, 1994, its goal is to get ridof all trade barriers between the countries by2009.

NorthAmericanFree TradeAgreement(NAFTA)

An internationaltrade agreementamong theUnited States,Canada, andMexico.



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The European Union (EU)Xis Europes tradingbloc. It was established to:

Establish free trade among its member nations

Create a single European currency and centralbank

Maintain competitive practices

Maintain environmental and safety standards

Provide security

EuropeanUnion (EU)

European tradingbloc.



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SECTION 4.1 REVIEW


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SECTION 4.1 REVIEW

- click twice to continue -


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The Global Marketplace

Objectives

List forms of international trade

Identify political, economic, socio-cultural, andtechnological factors that affect internationalbusiness

Suggest global marketing strategies

Key Terms

licensing

contractmanufacturing

joint venture

foreign directinvestment(FDI)

multinationals

mini-nationalsglobalization

adaptation

customization



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The Global Marketplace

Study Organizer

Create a chart like this one to list factors that

affect international business.



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Doing Business Internationally

Trade agreements by governments set theguidelines for business to operate in the globalmarketplace. Getting involved in internationaltrade can mean:

Importing

Exporting

Licensing

Contract manufacturing

Joint ventures

Foreign direct investment



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Importing

Importing involves purchasing goods from anothercountry. The products must meet the samestandards as domestic products.

The rules governing importing are complex. MostU.S. businesses hire customs brokers to keep thebusiness within the laws and procedures affectingimports.



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Exporting

A domestic company that wishes to enter into theglobal marketplace with minimal risk and controlmight consider exporting. These companies canget help from the U.S. government in their trade.



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Licensing

Licensing X involves letting another company use

one of the following for a fee:

Trademark

Patent

Special formula

Company name

Intellectual property

A franchise is a different kind of licensing whereprivate investors can operate under the companyname.

licensing

The process ofletting anothercompany(licensee) use a

trademark,patent, specialformula,company name,or some otherintellectualproperty for a

fee or royalty.



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Contract Manufacturing

Contract manufacturing X involves hiring a

foreign manufacturer to make your products,according to your specifications. The finishedgoods are sold in that country or exported.

The major benefit of this technique is lower wages,but the risk is that production information can belost or stolen in the production countries.

Ajoint venture X is a business enterprise thatcompanies set up together.

contractmanufacturing

The process ofhiring a foreignmanufacturer tomake products

according to certainspecifications.

joint venture

A businessenterprise thatdifferent companiesset up together;often, the ventureinvolves a domesticcompany and aforeign company.



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A foreign direct investment (FDI) X is the

establishment of a business in a foreign country.This process can include:

Setting up a small office in another country

Constructing manufacturing plants and retailstores abroad

foreign directinvestment(FDI)

Investments infactories, offices,

and otherfacilities inanother countrythat are used fora businesssoperations.



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Multinationals X are large corporations that have

operations in several countries.

Mini-nationals X are mid-size or smallercompanies that have operations in foreigncountries.

multinationalsLargecorporations thathave operationsin multiplecountries.

mini-nationalsMidsize orsmallercompanies thathave operationsin multiplecountries.



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Global Environmental Scan

A global environmental scan includes analysis of:

Political factors

Economic factors

Socio-cultural differences

Technological levels

This scans acronym is PEST.



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Political Factors

Political factors include:

A governments stability

Its trade regulations and agreements

Any other laws that impact a companysoperation



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Political Factors

Political uprisings can endanger a businesss well-being, and even when the governments are stable,companies must be aware of local trading laws toavoid complications. For example:

Chile has strengthened its standards for theprotection of intellectual property rights.

Toys cannot be advertised in Greece.



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Economic Factors

Key economic factors relevant to doing business inanother country include:

Infrastructure: The reliability of a nationsroads, communication, and energy plants, etc.

Labor force: The quality, cost, and educationlevel of local workers.

Employee benefits: Some countries have

different policies for employees, such as Francewhere the work week is only 35 hours insteadof 40.



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Economic Factors

Taxes: Taxes on property and profits vary indifferent nations.

Standard of living: Companies consider thisfactor more when eyeing a country as a marketto see what kind of consumers are there, andhow many.

Foreign exchange rate: Changes in an exchange

rate positively or negatively affect businessesthat sell abroad.



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Socio-cultural Factors

Marketers need to conduct a cross-culturalanalysis in order to understand:

Languages and symbols: Businesses take intoconsideration aspects such as the aversion tothe number thirteen in the U.S. and the numberfour in China and Japan.

Holidays and religious observances: Companies

need to know local religious beliefs if they areto attract customers.

Social and Business Etiquette: Actions such asgift-giving or receiving can have differentundertones in different cultures.



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Technological Factors

Studying a countrys technology means taking intoconsideration even the most basic factors such as:

Measurement systems

Electric voltage standards



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Globalization

Globalization X is selling the same product and

using the same promotion methods in allcountries. Examples would be:

Coca-Cola

Nike

globalization

The process ofselling the sameproduct andusing the samepromotionmethods in allcountries.



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Adaptation

Adaptation Xis a companys use of an existing

product/promotion to which changes are made tobetter suit the characteristics of a country.

Products and promotions can be changed tobetter fit languages or cultural boundaries.

adaptation

Changing anexisting productand/orpromotion tobetter suit thecharacteristics ofa targetedcountry orregion.



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Customization

Customization X involves creating products or

promotions for certain countries or regions.

customization

The process ofcreating productsor promotions forcertain countriesor regions.



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SECTION 4.2 REVIEW


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SECTION 4.2 REVIEW


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Section 4.1

International trade is necessary because of the

interdependence of nations. It benefitsconsumers, producers, workers, and nations indifferent ways.

Governments are involved in international tradethrough monitoring trade between countries and

establishing trade regulations. Currently, theUnited States has a negative balance of trade,also called a trade deficit.

continued


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Section 4.2

Businesses can get involved in international trade

through importing, exporting, licensing, contractmanufacturing, joint ventures, and foreign directinvestments.

A global environmental scan analyzes political,economic, socio-cultural, and technological

factors. Global marketing strategy options include

globalization, adaptations of product and/orpromotion, and customization.


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This chapter has helped prepare you to meet thefollowing DECA performance indicators:

Explain the nature of international trade

Identify the impact of cultural and socialenvironments on world trade

Explain the principles of supply and demand

Orient new employees

Address people properly


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CHAPTER 4 REVIEW


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CHAPTER 4 REVIEW

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