Ian S.

Competente June 13, 2022

BSAME 3-2 BUMA (20043) International Business and Trade

REVIEW QUESTIONS

1. Define exporting and importing.

 Exporting is the transfer or shipping of goods to a foreign country. Goods are exported
out of a country.
 Importing is the transfer or shipping of goods into a country. Good come into the
country.

2. What does the absolute advantage theory explain?

 Absolute advantage is a theory that states that a country has the ability to produce
more of a good or service using the same amount of resources than another country
would. It is based upon the idea that a country has a certain specialty and does this
specialty better than another and thus can produce more of this product with less
labor than another country – giving them an advantage and they should produce this
for trade.

3. What does the comparative advantage theory explain?

 The theory of comparative advantage posits that a country has an ability to produce a
good or service at lower levels of opportunity cost than other countries. The country
should produce what they are more efficient at doing compared to another country,
increasing overall production.

4. What are the potential benefits of free trade?

 Free trade may restrain the power of the state and empower individuals, bring people
together across distance and cultures leading to peace, make everyone wealthier and
encourage basic human rights.

Individual freedom and empowerment often emerge as the primary benefit of free
trade. Consumers retain the ability to choose from a globe-wide range of products
instead of governmental forces leveraging power to reduce choice.

5. In global trade, what is meant by the term integration?

 Integration allows governments to facilitate trade. Integration refers to the process of

using agreements between countries to lower limits on the movements of products,
capital, and/or labor. There are different levels ranging from a free trade area to a
political union.
6. Briefly describe free trade zones, custom unions, common markets, economic unions,
and political unions.

 A political union is the complete integration of political and economic policy. It

represents the final level before the creation of a new country. Presently, no examples
of a political union exist, although some nations in the European Union have expressed
the goal of becoming one
 Free trade zones are specially designated areas within a country that have separate
laws designed to encourage trade
 Custom unions are a group of countries that have entered into an agreement to
remove barriers to the movement of goods and services and to have a uniform tariff
policy towards non-member countries.
 Common markets are a group of countries that have entered into an agreement to
remove barriers to the movement of goods and services, to have a common tariff for
non-members, and to allow the free movement of capital and labor within the market.
 Economic unions follow common markets and are even more integrated. For countries
in such a union, economic policy should be harmonized between members, meaning
the union attempts to follow the same economic policy. A common currency is also
introduced as is a central bank for the entire union. The European Union currently
serves as an economic union.
 Political union is the complete integration of political and economic policy, represents
the final step before the movement to a new country. Presently, no examples of a
political union exist.

7. Briefly describe offshoring and outsourcing.

 Offshoringrefers to the movement of a business activity to another country. Offshoring

often involves the use of a third party when entering a foreign country. The process is
moved “offshore.” Company leaders establish facilities that remain under the overall
organizational umbrella.

Outsourcing refers to relinquishing organizational control of a business process and

hiring a third party external to conduct the process. Companies outsource the software
development function if a third party, not a group within the company, designs
software for the company. This would be considered outsourcing, whether the third
party resides in the same or in a different country.

8. What are the primary activities of the World Trade Organization (WTO)?

 The WTO primarily focuses on opening member countries to trade. Member countries
utilize the WTO as a forum for the negotiation of trade agreements and as the
arbitrating party for settling trade disputes. While the WTO is often associated with
the removal of trade barriers, the organization supports some trade barriers. The
barriers may be established to protect consumers, prevent the spread of disease, serve
 as punishment for failing to follow WTO trade rules, or, to assist developing markets. In
cases where barriers exist, the WTO encourages transparency and consistency.
Together, these forces increase predictability for outside businesses and investors.
 The WTO helps establish tariff rates.
 The WTO adjudicates trade disputes.

9. Outline the primary activities of the European Union (EU).

 The European Union is headed by the European Council. The Council of the European
Union is the main decision-making body of the EU. There is a single currency in the EU,
the Euro. The EU agrees on the four freedoms – the free movement of goods, services,
people, and capital. All goods that enter in any country have access to the entire EU.
Labor moves freely within the European Union. Many outside countries have free
trade agreements with European Union members. The EU tries to keep all members
happy by resolving disputes in the Court of Justice.

10. What are the three members of the North American Free Trade Agreement (NAFTA)?

 The United States, Canada, and Mexico.

11. On what continent is the Southern Cone Common Market (Mercado Comun del Sur;
MERCOSUR) located?

 South America

12. What are the names of the Asian trade-related agreements?

 Association of Southeast Asian Nations Free Trade Area

 Asia-Pacific Economic Cooperation
 Trans-Pacific Strategic Economic Partnership Agreement
 South Asian Association for Regional Cooperation

13. What is protectionism?

 Protectionism refers to the desire to protect domestic businesses from the exports of
foreign firms through governmental policy.
14. What methods can government use to limit trade?

 Government policies limiting trade: tariffs, embargoes, quotas, subsidies, import,

licenses, other administrative barriers, currency convertibility.

15. What arguments are made in favor of protectionism practices?

 In general, the arguments for protectionism focus on protecting a country’s well-being.

Arguments for protectionism:

i. Protect local industry, especially infant industry

ii. Respond to local pressure
iii. National security
iv. Revenue
v. Consumer safety
vi. Discourage immoral business practices
vii. Protect the environment with sustainable practices
viii. Cultural protection

DISCUSSION QUESTIONS

1. Write an argument for free trade and a counterargument for protectionism. Regardless
of your initial perspective on the topic, try equally hard for both arguments. Can you build
a legitimate case for both approaches?

 Free Trade - If I were a citizen of my country, I would advocate for free trade because it
gives people more power and opens the door to the greatest number of personal
freedoms. People now have access to a wider variety of products sourced from across
the globe. Free trade should be beneficial to the country when we get goods from
elsewhere, when other countries can produce them at a more efficient rate, allowing
my country to produce the goods that we produce best and most efficiently, freeing up
my country to produce goods from other countries.

 Protectionism - Protectionism is being implemented in my nation against the goods of

another nation in order to safeguard its domestic commercial sector. If I can prevent
goods from entering the country from other countries, then my own people will be
able to manufacture those goods, and the profits will stay in this country rather than
going to other countries. This may result in the creation of additional jobs across the
country.

2. Trace the history of the European Union, highlighting how each step increased the level
if integration. Then consider the organizational structure of the EU. How does the structure
reflect the history?

History of the European Union

- 1950 European Coal and Steel Community founded by Belgium, France, Germany, Italy,
Luxembourg, and the Netherlands
- This was the first step of integration. These countries agreed to run all coal and steel
industries under common management.
- 1957 The Treaty of Rome signed by Belgium, France, Germany, Italy, Luxembourg, and the
Netherlands
- On March 25, 1957 the members of the European Coal and Steel Community signed the
Treaty of Rome to establish the European Economic Community. A common market, the
treaty pushed for the removal of barriers to the flow of people, goods and services
between the countries. This was a really big step in increasing the integration of the
countries.
- 1962 A common agricultural policy introduced
- In 1962, a common agricultural policy was established, which set a standard food price
and policy across member countries. This was a smaller step in integration, but it still tied
the countries closer together.
- 1968 All custom duties removed
- In 1968, the members removed all custom duties or tariffs between each other and set a
common tariff for imports from non-member countries. In effect, the European Economic
Community became a customs union. This was a really big step in integration. This allowed
for free trade among nations and reduced the barriers between countries.
- 1972 Currency exchange rates for member countries linked
- The currencies of members were linked together in 1972. While each country maintained
a separate currency, the fluctuations or movements of value between member currencies
were allowed to move only within a set band, which linked currency values. This was
another big move towards integration. Now the countries’ economies were linked
together.
- 1973 Denmark, Ireland, and the United Kingdom join
- More countries were added to the agreement
- 1981 Greece joins
- 1982 Spain and Portugal join
- 1986 The Single European Act passed
- To increase the flow of trade, the Single European Act, passed in 1986, started a program
to normalize trade regulations across members. This increased the integration of the
countries.
- 1992 Treaty on European Union passed
- The treaty set the ground work for a single currency and increased ties regarding foreign
defense policy. This increased the integration of the countries and started the process of
creating the Euro. With a single currency the countries would be significantly tied together
and travel between the countries would be the easiest it had ever been.
- 1993 The European Union agrees on the four freedoms – the free movement of goods,
services, people, and capital
- By agreeing upon these four freedoms the countries had free trade of goods and people
for jobs.
- 1995 Austria, Finland, and Sweden join
- Austria, Finland, and Sweden joined in 1995, and the Schengen Agreement in the same
year allowed for passport-free travel for many European Union members.
- 2002 Euro coins and notes begin circulation
- With a single currency the countries were now even closer.
- 2004 The Czech Republic, Cyprus, Estonia, Latvia, Lithuania, Hungary, Malta, Poland,
Slovenia and Slovakia join
- 2004 Bulgaria, Romania, and Turkey become candidate countries
- 2004 Treaty establishing a European Constitution
- The European Constitution in 2004 was designed to reform management of the EU and to
create a European Foreign Minister to speak with one voice for members on foreign affairs.
With France and the Netherlands voting against the proposed constitution, the treaty was
not unanimously approved. The treaty represented the first major setback toward
continual integration.
- 2007 Bulgaria and Romania join
- 2007 Croatia and the Former Yugoslav Republic of Macedonia become Candidate
Countries
- 2007 Treaty of Lisbon passed
- With 27 members, the Treaty of Lisbon was passed in 2007 with the goal of streamlining
operations and to increase integration.
- 2010 Iceland becomes a Candidate Country
- The European Union is the world's most integrated union of countries. I think that the EU
is step up very diplomatically because of its history. The councils are voted upon by the
countries and speak for the entire group. The member nations started out wanting to work
together and this has continued throughout the development of EU.

3. Consider the history of integration in the Americas. How do MERCOSUR and the Andean
Community compare to NAFTA? How are all three similar and how do all three affect
integration in the region?

 The Mercado Comun del Sur, or Southern Cone Common Market, was established in
1991 by the Treaty of Asuncion. The organization aims the eventual elimination of
trade obstacles, the creation of unified policies toward non-members, and the
adoption of a common currency. The Andean Community established a free trade zone
and took steps to facilitate trade among its members. The North American Free Trade
Association (NAFTA) is the only continental trade deal. On January 1, 1994, the United
States, Canada, and Mexico joined NAFTA, creating the largest free trade area in the
world. Similar to NAFTA, MERCOSUR and the Andean Community are agreements that
promote integration. All nations continue to use distinct currencies. NAFTA is the
largest and has made significant progress in establishing free trade between the United
States, Canada, and Mexico. The Andean Community has had significant and positive
effects on the member economies. MERCOSUR is still in its developmental stages, and
numerous obstacles remain. However, through the application of tariffs, it has
protected its member states.

4. Examine the list of African economic agreements in Table 3.18. What do you learn from
looking at this list? What does the list say about what steps governments need to actually
begin to integrate?

 In Africa, there have been many various approaches tried to achieve integration. Many
of these integrations are made possible because of the geographic location of the
 countries involved or their close proximity to one another. Only a few countries have
signed agreements with various organizations at the same time. There is not a single,
comprehensive economic integration that everyone agrees with. In general, the results
of these rankings indicate that there is a great deal of potential in Africa for further
economic and political integration.
To begin the process of integration, countries must first establish governments that are
stable and secure. For the integration to go forward, there must be a set of norms, and
these laws must be enforced in a just manner. Integration with other countries
requires a certain level of political stability.

5. The Federal Corrupt Practices Act outlaws bribery. Does this law give American
businesses an unfair advantage or create a disadvantage when working with foreign
governments and businesses?

 In my opinion, this act presents American businesses with a mixed bag of benefits and
drawbacks to consider. The possibility that American companies would be unable to
secure contracts with companies and governments in other countries is one of the
potential drawbacks. When making an offer in some countries, it is common practice
to offer something of monetary value as a bribe. On the other hand, the benefits might
include reputations as well as the quality of the work. When an American company is
awarded a contract, it is generally assumed that the decision was made not due to
bribery but rather on the basis of the offer made and the quality of the work that was
performed.

CASE 3

DHL and FACILITATING SMALL BUSINESS TRADE

DHL began as a small document courier between the West Coast of the United States and
Hawaii. The company has grown into one of the leading logistics and shipping companies
in the world. Named for the three businessmen that founded the company in 1969, Adrian
Dalsey, Larry Hillblom, and Robert Lynn, DHL has looked for new opportunities from
inception. Recognizing a gap in the market, the company started by shipping papers to and
from San Francisco and Honolulu.

The company also focused in international growth. The early 1970s witnessed growth in
shipping to the Far East and Pacific Rim, including services in Japan, Hongkong, Singapore,
and Australia. The company expanded into Europe in the 1970s, opening an office in
London in 1974 and in Frankfurt in 1977. At the same time, DHL expanded shipping into
the Middle East, Latin America, and Africa. In 1983 the company began shipping to and
from Easter Europe. In 1986, DHL became the first express shipping company in China.
The 1990s led to more changes. The German company Deutsche Post became a
shareholder in 1998, laying the foundation for eventually becoming the 100% owner in
2002. The company invested aggressively in expansion by opening a $60 million facility in
Bahrain in 1993 and by introducing a major information technology center in Kuala Lumpur,
Malaysia, in 1998. DHL spent more than $1 billion on a fleet of airplanes for the European
and African markets in 1999.

Deutsche Post took over greater operational control in the 2000s and the organization
focused more on emerging markets. From 2003 to 2008, DHL invested more than $200
million to improve operations in China. In 2004, the company opened an information
technology facility in Prague and in the Czech Republic, and also became majority owner of
Blue Dart, an Indian express shipping company. By the end of the decade. DHL was
conducting business activities in more than 220 countries and territories, with more than
3,000 customers and 300,000 employees, and was generating revenue of more than 46
billion euros per year.

A substantial part of DHL’s growth resulted from facilitating trade for small-or-medium
sized Businesses. These organizations often offer products that consumers in other
countries would purchase, if the product could successfully reach that market. DHL offers
networking events, websites resources, and specialized computer software to support
companies that want to trade. A dedicated website (www.DHL.smallbusiness.com)
provides additional assistance. The website facilitates the sharing of knowledge between
businesses.

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1. Consider the expansion pattern of DHL. How might this relate to the integration
activities discussed in this chapter?

 Due to DHL's history of rapid growth, I surmised that the company was engaging in
integration initiatives to better serve a broader customer base. Because they wanted
to extend their business in Germany, they joined forces with the DeutscheCompany.
According to what I've read, Deutsche Post started buying DHL stock in 1998. In 2001, it
had a controlling position in the company, and by December 2002, it had acquired all
of the company's stock. After then, DHL was integrated into the Express division, and
the DHL brand was extended to other Deutsche Postdivisions, business units, and
subsidiaries. As a result, the German firm was able to become a shareholder in DHL
and eventually possess all of the company's shares by 2002. Currently, DHL Express
shares its DHL name with business divisions such as DHL GlobalForwarding and DHL
Supply Chain. After purchasingAirborne Express, it established itself in the United
States. It also gained market dominance by becoming the primary stakeholder of a
shipping firm called "Blue Dart," which allowed the corporation to expand its reach.
Integrating operations have a significant impact on the growth and expansion of a
 corporation, especially in the worldwide market, thus creating relationships and
negotiating more effectively are essential in international commercial dealings.

2. Does the reduction of barriers to trade help or hurt DHL’s business? Justify your answer.

 I personally believe that reducing trade obstacles within countries helps DHL's
company since it helps create strong relationships across countries and provides
services or resources not generally available to one country. DHL can take
 advantage of this situation because it will assist them reach new markets or countries
for trading. It will lead to business expansion, but only if done properly by following
norms and agreements. Example: NAFTA. These countries could trade cheaply or freely.
As I've heard, "the lowering of trade ad obstacles gives a chance for corporations to
reach bottom-of-the-pyramid consumers" Several agreements and organizations
monitor trade policies and advocate free trade. The two most important are GATT and
WTO. GATT regulated and reduced tariffs and provided a forum for settling trade
disputes. WTO supports worldwide business, lowers trade barriers, enforces
international trade laws, and resolves disputes. It can evaluate if a member country's
trade policies violate WTO regulations. These agreements help firms expand,
particularly DHL.

3. Visit the DHL small business website (www.DHLsmallbusiness.com). What are four
activities on the website that facilitate small business trade?

 When I visited their website I determine they have a small business shipping solutions,
small business shipping software, small business loans, and small business lines of
credit were included on the company's website. Each service category included on the
website is connected to a page that elaborates on the specific activities and offers that
DHL provides to small company customers in order to expedite the shipping of their
products via DHL. DHL offers Microsoft 365 as part of their small business shipping
solutions so that their clients have access to the greatest Office programs, cloud
services, and device management. They aid in the management of ICT, Microsoft Azure,
the data center, and cyber security. They also provide a rapid, low-priced, and
hidden-fee-free USA fulfillment service that can ship to all nations. They stock, select,
pack, and ship products for their clients. DHL can also create an online store for small
enterprises within minutes, allowing them to reach millions of clients. However, in
terms of shipping software, they have developed VeriShip, a free parcel auditing
service that helps to cut shipping expenses. With Salesforce CRM, they are able to sell
smarter and faster, which contributes to the growth of the business and increases sales
productivity. DHL offers small business financing as well. There are several processes
and conditions, rates and periods, purchase order financing, and invoice financing, as
specified on the page. In terms of DHL small business lines of credit, various lending
and payment options are made available. Through these platforms, they will be able to
reach international small enterprises and assist in their expansion.
4. Would a supporter of protectionism view DHL’s activities as positive or negative? Do you
agree with that perspective?

 We have a different views and perception regarding to this topic because

protectionism is defined as the aim to safeguard home enterprises from the exports of
foreign firms through the implementation of government policy. I feel that someone
who advocates for protectionism would have a negative opinion of the actions of DHL.
I disagree with this point of view due to the fact that the expansion of DHL makes it
simpler to carry goods across nations and solves various challenges, such as sending
rice and different types of freight. DHL provides businesses that engage in trading with
help in the form of networking events, web resources, and computer software. The
webpage for DHL provides additional assistance. Sharing expertise is made easier as a
result. Because it focuses in both shipping and trade, DHL is able to offer assistance to
small enterprises. They are actively promoting the idea that small businesses in all
nations should trade with one another rather than internationally. As I've already
indicated, I believe those who support protectionist policies will view it negatively
since it goes against their interests.