What is international business and trade

International business

1. International business

2. Why Study International Trade? Because national governments can—and do—restrict international movement of goods/services and factors of production International movements of production factors (immigration, foreign direct investment) are most severely restricted (relative to trade in goods and services) ... with the most severe restrictions imposed on labor /immigration

3. International trade (just like other forms of trade) almost always represent a mutually beneficial transaction between buyer and seller So buyers (consumers who buy imports) and sellers (firms that export) find this trade beneficial Countries go to great length to reduce internal trade barriers. However, it does matter whether countries are similar or very different because Different technologies Different factor prices ( labor , capital, raw materials)

4. Production technologies do not flow easily across borders There are massive differences in production technologies across countries (Not just tied to differences in the availability of physical factors of production) The use of some technologies is tied to human capital ... which can not be transferred across countries Government institutions have a huge impact on the effectiveness of different technologies Infrastructure for transport/communication Legal system Labor market institutions

5. In contrast, governments often protect and enable the free flow of goods and factors within borders Covers all movements of people, goods, and services across state lines ... as well as communication and transportation between states In effect, states are prohibited from interfering with any form of interstate commerce So why is international trade so different than intra-national trade? Because factors of production and production technologies are most often specific to countries Countries have the ability to restrict trade

6. What does the world trade? Mostly manufactured goods Trade in services is the next most important segment Though mining (including fuels, i.e. oil & gas) are the dominant segment for some countries Changes in the composition of trade over time As economies develop, the share of manufacturing goods in merchandise trade increases The United Kingdom (the first country to industrialize) already concentrated 75% of its exports in manufacturing in 1910! (it is also a country where natural resources are relatively scarce) The same pattern holds for developing countries over the last 50 years

7. Need for International Business The world is fast becoming a global village where there are no boundaries to stop free trade and communication. More and more firms around the world are going global, including: Manufacturing firms, Service companies (i.e. banks, insurance), Art, film, and music companies First-mover advantage Opportunity for growth Small local markets Increase of customers Discourage local competitors

8. International business: causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level

9. International business International business encompasses a full range of cross-border exchanges of goods, services, or resources between two or more nations . Exchange of money for physical goods International transfers of other resources , such as people, intellectual property (e.g., patents, copyrights, brand trademarks , and data ) Contractual assets or liabilities The entities involved range from large multinational firms to a small one-person company acting as an importer or exporter. Includes profit transactions as well as nonfinancial gains that affect a business’s future. It is interdisciplinary. It draws, among others, on economics, politics, sociology, marketing, management (human resources, strategic).

10. Origins of International Business IB starts with the evolution of Human Civilisation The integration and growth of economies and societies Industrial revolution and Globalisation Establishment of international institutions 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 ( ‘ globalisation ’ ) involves international capital flows, international trade of commodities (exports-imports) and Foreign Direct Investment (FDI) by MNCs.

11. Origins of MNCs Until the 1980s, there has been a tendency towards concentration of industry, and oligopolistic 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.

12. The Stakeholders of International Business Stakeholder significantly influence the success of an activity, project, or business . Employees Business firms Managers Government Industry associations T rade groups S uppliers L abor NGOs

13. International Business from an individual firm’s angle Managing the risk Geographic expansion as a growth strategy Strategic plans to multiply its sales turnover Technology advantage Building a corporate image Fiscal, physical and infrastructural incentives Advantages like economies of scale, access to import inputs , competitive pricing and aggressive promotion Lobour advantage New business opportunities

14. International Business from a Government Angle Earning valuable foreign exchange/ balance of payments Interdependency of nations/ No single country is endowed with all the resources to survive on her own A bsolute advantage, comparative advantage and competitive advantage of trade theories Diplomatic relations Core competency of nations Investment for infrastructure National image WTO and international agencies for promoting trade, especially amongst developing economies

15. International Forms of Government (e.g., NAFTA, EC, WTO) NGOs were formed to emphasize humanitarian issues, developmental aid, and sustainable development

16. The Forms of International Business International businesses can take on a variety of forms Exports and imports Investments Licensing Franchising Management contracts

17. Reason for recent international growth Rapid increase in and expansion of technology Liberalisation of government policy on cross-border movement of trade and resources Development of institutions that support and facilitate international trade Increased global competition

18. Features of International Business Large scale operations Integration of economies (uses different resources from different countries ) Dominated by developed countries and MNCs (as they have the best financial, human and technical resources ) Benefits to participating countries (foreign capital, technology, industrial development, employment ) Keen competition (weak position of developing countries) Special role of science and technology International restrictions (on capital and technology flow; barriers, duties, trade blocks are there ) Sensitive nature (any changes in the economic policies, technology, political environment, etc. have a huge impact) 

19. Fundamental Differences Between Domestic and International Business Environment Plan and strategy Competitive forces and their intensity Currencies and their movements Business risks Research Human resources Organizational vision and objective Product and usage Legal aspects Investment and Sourcing Pricing strategy Distribution channels Promotion Logistics