Divine Word College of Legazpi

SCHOOL OF BUSINESS, MANAGEMENT AND ACCOUNTANCY

Legazpi City

BA CORE 06
International Business and Trade

Lesson 1 – Introduction to International Business

Learning Objectives: At the end of the lesson, the student is expected to:

1. Define and discuss the concepts of International Business.

2. Differentiate Domestic from International Business.
3.Identify the factors that impact International Business.
4.Appreciate the benefits of International Business and Trade.

Lesson Presentation

Definition and Concepts of International Business

Business activities done across national borders is International Business. International

business is the purchasing and selling of goods, commodities, and services outside its
national borders. Such trade modes might be owned by the state or privately owned
organization.

In which, the organization explores trade opportunities outside its domestic national
borders to extend its own particular business activities, for example,
manufacturing, mining, construction, agriculture, banking, insurance, health, education,
transportation, communication and so on.

International business encompasses all commercial activities that take place to promote
the transfer of goods, services, resources, people, ideas, and technologies across
national borders. International trade is the exchange of capital, goods, and services
across international borders or territories.
It involves cross-border transactions of goods and services between two or more
countries. Commodity means a raw product used to make goods. And goods go to the
end-users. For example, flour is a commodity and bread is goods. Transactions of
economic resources include capital, skills, and people for the purpose of the
international production of physical goods and services such as finance, banking,
insurance, and construction. International business is also known as globalization.
To conduct business overseas, multinational companies need to bridge separate
national
markets into one global marketplace. There are two macro-scale factors that underline
the trend of greater globalization. The first consists of eliminating barriers to make
cross-border trade easier (e.g. free flow of goods and services, and capital, referred to
as "free trade"). The second is technological change, particularly developments in
communication, information processing, and transportation technologies.
Purpose:
International trade allows countries to expand their markets and access goods and
services that otherwise may not have been available domestically. As a result of
international trade, the market is more competitive. This ultimately results in more
competitive pricing and brings a cheaper product home to the consumer.
Difference between Domestic and International Business

Business is the act that results from trading between any two given entities for the value
of goods, products, or services. In every business deal, currency is the medium of
leverage that gives a willing buyer the power to acquire a product or service that is
available from a willing supplier.
Geographical limitations can define how a business scales in the local context and in
the international context as well. In the current days where the internet has empowered
the process of globalization, more and more international business activities have taken
place. The local business remains in the context of practicing trade within your country.

Domestic business is the kind of trade that is limited geographically within a country. A
domestic business involves commercial exchanges that are only done within that
country (1). A domestic business which can also be referred to as an internal business
involves a producer and a client, who live within the same nation. This means that the
laws, business practices and customs used in a business transaction shall be of the
designated country.

International business on the other hand is a business whose production and consumer
base is drawn from more than one country (1). An international business does not fall so
much to the dispensation of local law, but within international agreements for business
practice. International business involves transactions between two or more two
countries.

Comparison between Domestic and International Business

Both types of business involve a trade exchange between a willing buyer and a willing
seller. Unless the two entities of the supplier and the consumer agree to do business,
there will not be any transaction proceeding.
Also, business in both disciplines is completed after an agreement is made over the
currency to be used.
Some local businesses may opt to receive payments in foreign currencies, just as how
international businesses depend on foreign currency to harmonize trade.
Factors that affect International Business
Political factors:
Various political factors affect international businesses. Political factors such as
changes in tax rates, policies, and actions of government, political stability of the
country, foreign trade regulations etc. affects the working of an international business
firm. Lack of political stability in the country directly impacts the operations of business
firm. Also, various tax policies and government initiatives sometimes hinder the
expansion of business in other countries. Thus, the effective political environment of
business influences the growth of a business firm (Shaw, 2018).
Economic factors:
Economic factors relates to the economic system of the country where the firm has its
operations. Various economic factors such as inflation rate, interest rate, income
distribution, employment level, allocation of the government budget, etc., directly impact
the operations of a business firm (NDUNGU, 2012). Various economic factors such as
purchasing power of customers also determine the demand for various products and
services.
.
Legal factors:
Legal factors relate to the legal environment of the country in which the firm operates.
Different laws prevail in different countries and international business firms have to
abide by the laws of each country. Laws relating to age and disability discrimination,
wage rates, employment, and environmental laws affect the working of business firms.
Along with this, various international lending agencies affect the legal culture and
working policies of a business firm
Social factors:
Social factors such as education, awareness, and trends, and status of people in the
society affects the consumer behavior to purchase various goods and services. Also,
Social environment and culture such as customs, lifestyles, and values differs from
country to country which further directly impacts international business.
Environmental factors:
Environment factors such as weather, climate change, temperature etc. affects the
business firm and the demand pattern of various goods and services. increasing
environment awareness has made this external environment factor a significant issue to
be considered by business firms. Move towards environment friendly products and
services also has affected the demand pattern of various goods and services.
Example: Rising awareness among customers about environmental
sustainability has influenced various operations of retail firms. Various environmental
laws have also been established to reduce negative impacts on the environment.
Woolworths has adopted number of environment friendly business practices with the
aim to reduce negative impacts on environment. Various recycling and ethical sourcing
practices have also been adopted by Woolworths to comply with various environmental
regulations.
Technical factors:
Technological changes in the industry has both positive and negative impacts on the
working of business firms. Technological changes and development of automated work
processes helps in increasing the efficiency of business processes. However,
technological changes also threaten the demand of various products and services in the
industry.
Benefits of International Trade
1. New Revenue Potential
By taking your business global, you get access to a much larger base of customers. If
your product or service is a success, you can enjoy increased revenues from these new
customers even if you have saturated your markets domestically. Globalizing could be
exactly the shot of life your company needs to take its revenues to new heights.
2. The Ability to Help More People
The solutions your business offers undoubtedly have the potential to help your
customers improve their lives in some way. When you take your business global, you
can help an exponentially greater number of people find the answers to the questions or
challenges your company helps solve.
3. Greater Access to Talent
Another excellent benefit of taking your business global is that you get access to a new
pool of potential employees with unique skills and mindsets. You may even find that
these potential hires have skills that are hard to find in your home country, which gives
you an edge on other organizations in your field that have not yet gone global.
4. Learning a New Culture
Getting information about a new place can help make your organization more well-
rounded. Having an understanding of people who are not from your country will give you
a new perspective on relations with customers, and may even help you work better with
domestic customers and business partners. Hiring a cultural consultant will help guide
you in creating marketing content that takes into account culture and any linguistic
nuances.
5. Exposure to Foreign Investment Opportunities
Foreign investment can be extremely valuable for your business as many companies
already know. This may be the reason why in 1997, foreign investment was up to seven
times the level it was in the 1970s. When you go global, you can more easily learn
about these investment opportunities and how beneficial they can be for your company.
6. Improving Your Company’s Reputation
Businesses that can successfully go global and market their offerings to a totally
different population will enjoy the prestige of calling themselves an international
company. It is not an easy feat to accomplish, meaning prospects and potential
business partners will instantly think more highly of your company when they know you
have an international presence.

7. Diversifying Company Markets

If your business only has one or two areas where it can sell services or products, what
would happen if these markets experienced a dramatic shift because of a natural
disaster or other unforeseen circumstance? Taking your business global allows you to
diversify your markets so your revenue sources are more stable: even if your domestic
activity is slow, your business will not take as large of a hit since your global market will
make up the difference.