INTERNATIONAL TRADE

LEARNING OBJECTIVES

• Explain the concept of international business
• Define environmental factors of international business
• Describe strategic choices

LEARNING OBJECTIVES

• Understand the global business
• Explain nature, scope, need and problems for international business
• Understand the importance of international business

International trade was maintained since the dawn of time

Domestic trade - Is the purchase and sale of products within a particular nation’s borders.

Cyclical nature of international trade. Poorer nations, able to provide cheap labor and lower production costs, As productive nations gain wealth through their productivity, the consumer nations are forced to become productive themselves through the transfer of capital to productive nations

TRADE WAR

• Trump administration imposed tariffs on $34 billion worth of Chinese goods, including flat screen tv’s aircraft parts and medical devices.

TRADE WAR

• China immediately accused the US of starting “the largest trade war in economic history to date” and responded by imposing 25 percent tariffs on $34 billion worth of US goods, including soybeans, automobiles, and lobsters.

This is only the beginning

• More tariffs are coming. The US is expected to impose border taxes on an additional $16 billion worth of Chinese goods in two weeks. And Trump said on Thursday that, depending on how China responds to his tariffs, he’s considering hitting another $500 billion worth of Chinese goods

CONCEPT OF INTERNATIONAL BUSINESS

• Conducts business transactions all over the world.
• These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries
• It involves exports and imports

AN INTERNATIONAL BUSINESS HAS MANY OPTIONS FOR DOING BUSINESS

• Exporting goods and services
• Giving license to produce goods in the host country
• Starting a joint venture with a company
• Opening a branch for producing and distributing goods in the host country
• Providing managerial services to companies in the host country

SCOPE OF INTERNATIONAL BUSINESS ACTIVITIES

• International business occupies the broadest and most widespread study of the field of business
• The distinguishing feature of international business is that international firms operate in environments that are often ambiguous, contradictory, and subject to rapid change as compared to the domestic environment.

SCOPE OF INTERNATIONAL BUSINESS ACTIVITIES

• Think global act local
• Deals with multiple currency, legal, marketing, economic, political, and cultural systems.

FEATURES OF INTERNATIONAL BUSINESS

• Large scale operations
• Integration of economies
• Dominated by Developed Countries and MNCs
• Benefits to Participating Countries

FEATURES OF INTERNATIONAL BUSINESS

• Keen competition
• Special role of Science and Technology
• International restrictions
• Sensitive nature

INTERNATIONAL FACTORS OF IB

• Basic issues
• Economic environment
• Political environment
• Legal environment
• Social structure

REASONS AND BENEFITS WHY ORGANIZATIONS WANT TO INTERNATIONALIZE THEIR BUSINESS

• Growth or Expansion
• Employees
• Resources
• Ideas

STRATEGIC CHOICES

• Choice is the center of strategy formulation
• Sometimes it may be better to delay making a decision whereas at other times a wrong decision may be better than no decision.

International strategy

• Create value by transferring valuable skills and products to foreign markets where indigenous competitors lack those skills and products
• It makes sense if a firm has a valuable core competence that indigenous competitors in foreign markets lack.

MULTI-DOMESTIC STRATEGY

• Orient themselves toward achieving maximum local responsiveness.
• Multi domestic firms extensively customize both their product offering and their marketing strategy to match different national conditions.

GLOBAL STRATEGY

• Focus on increasing profitability by reaping the cost reductions that come from experience curve effects and location economies

TRANSNATIONAL STRATEGY

• Similar to multi domestic but the product itself does not change

FOREIGN DIRECT INVESTMENT

• Capital is a vital ingredient for economic growth, but since most nations cannot meet their total capital requirements
• FDI and Foreign portfolio investment or hot money
• Gestation period

NEED FOR INTERNATIONAL BUSINESS

• To achieve higher rate of profits
• Expanding the production capacity beyond the demand of the domestic country
• Severe competition in the home country
• Limited home market
• Political conditions
• Availability of technology and managerial competence
• Cost of manpower, transportation

NEED FOR INTERNATIONAL BUSINESS

• Nearness to raw materials
• Liberalization, Privatization and Globalization. (LPG)
• To increase market share
• Increase in cross border business is due to falling trade barriers, decreasing costs in telecommunications and transportation

PROBLEMS IN INTERNATIONAL BUSINESS

• Political factors
• High foreign investment and high cost
• Exchange instability
• Entry requirements
• Tariffs, quota etc
• Corruption and bureaucracy

COMPLEXITIES IN IB

• Controlling the market
• Exhausting natural resources
• Importance to luxuries
• Trade practices
• Economic development