INTERNATIONAL BUSINESS AND TRADE makes them participants in the international
market.
WEEK 1: GLOBALIZATION
Definition of International Business and Trade
 International
Cambridge English Dictionary defines international
as "involving more than one country." Merriam-
Webster defines it as "relating to or affecting two or
more nations" Synonyms of international include
foreign, global, universal, intercontinental and
world. It means that it is global and it is around the
world.
 Business
Is generally defined as an occupation, profession, or
trade. An occupation is a person ' s usual or principal
work or business especially as a means of earning a
living to support himself or herself or his/her family.
It is the activity engaged in by people, organizations
or countries covering any activity to earn income
and gain a profit.
 Trade
Means buying, selling, or exchanging of goods and
services. When one trades, he or she is doing
business and in the common parlance, trading is
"buying and selling," which is also called as
merchandising.
 International Business
Is any commercial transaction that crosses the
borders of two or more nations.
 International Trade
This can be traced back centuries as evidenced by
the ancient network of trade routes that comprised
the Silk Road that connected Asian markets to the
Mediterranean Sea. It is often a political tool as well
as an economic indicator of a country's global
presence.
 International Business and Trade
Means any activity/endeavor among nations around
the globe involving the buying, selling, exchanging
of goods, services, capital, labor, resources,
technology or any situation where the production
and trade links countries (governements),
organizations, institutions, and individuals and
Key Players in International Business
Companies of all types and sizes and in all sorts of
industries become involved in international
business; yet, they vary in the extent of their
involvement. Small and medium-sized companies
are also increasingly active in international
business, largely because of advances in
technology.
Multinational Corporations MNC - is a business
that has direct investments (in the form of
marketing or manufacturing subsidiaries) abroad in
multiple countries. Multinationals generate
significant jobs, investment, and tax revenue for
the regions and nations they enter.
Entrepreneurs and MSMEs - International business
competition has given rise to a new entity, the born
global firm—a company that adopts a global
perspective and engages in international business
from or near its inception. Many of these
companies become international competitors in
less than three years.
What is an MSME?
An MSME in the Philippines is defined as any
business activity or enterprise engaged in industry,
agri-business and/or services that has: (1) An Asset
size (less land) of up to PHP 100Million; and (2) An
employment size with less than 200 employees.
Globalization
Is the name we give to this trend toward greater
economic, cultural, political, and technological
interdependence among national institutions and
economies. Globalization is characterized by
denationalization (national boundaries becoming
less relevant) and is different from
internationalization (entities cooperating across
national boundaries)
National Geographic defines globalization as the
increasing interconnectedness and
interdependence of world cultures, and
economies.
With the advent of interconnection technology, ie.,
the internet, the world has been brought a lot
closer that it once was
According to World Health Organization (WHO),
globalization is generally understood to include
two interrelated elements.
 The opening of international borders to
increasingly fast flow of goods, services, finance,
people, and ideas.
 The changes in institutions and policies at
national and international levels that facilitate or
promote such flows.
Globalization of Markets
This refers to the convergence in buyer preferences
in markets around the world. This trend occurs in
many product categories, including consumer
goods, industrial products, and business services.
Global products are those products that are
marketed internationally under the same brand
name, features and specifications across countries.
Global products are different from regional
products or brands, which are specific to a
particular region
Benefits of Globalization of Markets
Reduces Marketing Costs
Companies that sell global products can reduce
costs by standardizing certain marketing activities.
A company selling a global consumer good, such as
shampoo, can make an identical product for the
global market and then simply design different
packaging to account for the language spoken in
each market.
Creates New Market Opportunities
A company that sells a global product can explore
opportunities abroad if its home market is small or
becomes saturated. The appeal of reaching such a
vast audience drives firms from relatively small
countries to explore doing business in the Chinese
market.
Level Uneven Income Streams
A company that sells a product with universal, but
seasonal, appeal can use international sales to level
its income stream. By supplementing domestic
sales with international sales, the company can
reduce or eliminate wide variations in sales
between seasons and steady its cash flow.
Local Buyers ' Needs
In southern Japan, Coca-Cola (www.cocacola.com)
sweetens its traditional formula to compete with
the sweeter-tasting Pepsi (www.pepsi.com). In
India, where cows are sacred and the consumption
of beef is taboo, McDonald’s
(www.mcdonalds.com) markets the “Maharaja
Mac”—two all-mutton patties on a sesame-seed
bun with all the usual toppings.
Global Sustainability
Another need that multinationals must consider is
the need among all the world’s people for
sustainability—development that meets the needs
of the present without compromising the ability of
future generations to meet their own needs.
Local Buyer's Needs
Glocalization = Globalization + Localization
Is the creation of products or services for the global
market by adapting them to local cultures and
environments.
Globalization of Production
Refers to the dispersal of production activities to
locations that help a company achieve its cost-
minimization or qualitymaximization objectives for
a good or service. This includes the sourcing of key
production inputs (such as raw materials or
products for assembly) as well as the international
outsourcing of services.
Access Lower-Cost. Workers Global production
activities allow companies to reduce overall
production costs through access to low-cost labor.
European and US businesses have moved their
customer service and other nonessential
operations to places as far away as India to slash
costs by as much as 60 percent.
Access Technical Expertise. Companies also
produce goods and services abroad to benefit from
technical know-how.
Access Production Inputs. Globalization of
production allows companies to access resources
that are unavailable or costlier at home. The quest
for natural resources draws many companies into
international markets.
Technological Innovation
Although falling barriers to trade and investment
encourage globalization, technology is accelerating
its pace. Innovations in information technology and
transportation methods are making it easier,
faster, and less costly to move data, goods, and
equipment around the world. Consumers use
technology to reach out to the world on the
Internet—gathering and sending information and
purchasing all kinds of goods and services.
Companies use technology to acquire materials
and products from distant lands and to sell goods
and services abroad.

Forces Driving Globalization

Local industries, once isolated by time and
distance, are increasingly accessible to large
international companies based many thousands of
miles away. Some small- and medium-sized local
firms are compelled to cooperate with one another
or with larger international firms to remain
competitive. Other local businesses revitalize
themselves in a bold attempt to survive the
competitive onslaught. And on a global scale,
consolidation is occurring as former competitors in
many industries link up to challenge others on a
worldwide basis.
Falling Barriers to Trade and Investment
In 1947, political leaders of 23 nations (12
developed and 11 developing economies) made
history when they created the General Agreement
on Tariffs and Trade (GATT)—a treaty designed to
promote free trade by reducing tariffs and nontariff
barriers to international trade. Tariffs are
essentially taxes levied on traded goods, and
nontariff barriers are limits on the quan tity of an
imported product. The treaty was successful in its
early years. After four decades, world merchandise
trade had grown 20 times larger, and average
tariffs had fallen from 40 percent to 5 percent.

Technological Innovation
 e-business (e-commerce) Use of computer
networks to purchase, sell, or exchange products; to
service customers; and to collaborate with partners.
 Email is an indispensable tool that
managers use to stay in contact with international
operations and to respond quickly to important
matters.
 Videoconferencing allows managers in
different locations to meet in virtual face-to-face
meetings.
 Companies use the Internet to quickly and
inexpensively contact managers in distant
locations—for example, to inquire about production
runs, revise sales strategies, and check on
distribution bottlenecks.
 Company Intranets and Extranets
 Advancements in Transportation
Technologies Global Positioning (GPS) satellites and
RFID.
Against Globalization
Groups opposed to globalization blame it for
eroding standards of living and ruining ways of life.
Specifically, they say globalization eliminates jobs
and lowers wages in developed nations and exploits
workers in developing countries
 ELIMINATES JOBS IN DEVELOPED NATIONS
 LOWERS WAGES IN DEVELOPED NATIONS
 EXPLOITS WORKERS IN DEVELOPING
NATIONS
For Globalization
Supporters of globalization credit it with improving
standards of living and making possible new ways of
life. They argue that globalization increases wealth
and efficiency in all nations, generates labor market
flexibility in developed nations, and advances the
economies of developing nations.
 INCREASES WEALTH AND EFFICIENCY IN ALL
NATIONS
 GENERATES LABOR MARKET FLEXIBILITY IN
DEVELOPED NATIONS
 ADVANCES THE ECONOMIES OF
DEVELOPING NATIONS
WEEK 2: Cross-Cultural Business
Culture
Refers to the shared beliefs, values, customs,
behaviors, and artifacts that characterize a
particular group of people.
Key Elements of Culture
 Language and Communication
Language is a fundamental component of culture. It
enables people to express ideas, emotions, and
thoughts.
 Social Norms and Values
Every cultures has its own set of norms (socially
accepted behaviors) and values (fundamental
beliefs)
 Religion and Beliefs
Religious practices and beliefs are integral to many
cultures. They can shape moral codes, guide daily
life, and influence art and architecture.
  Traditions and Rituals
Cultural traditions are practices and customs that
are passed down through generations.
 Art and Creativity
This can encompass visual arts, performing arts,
literature, film, and move
 Cuisine
Traditional dishes, cooking methods, and dining
etiquette can reveal a lot about a culture's history.
 Clothing and Fashion
Clothing choices can be influenced by culture,
climate, social status, and historical factors.
 Architecture and Design
Structures can reflect historical periods, religious,
beliefs, and practical considerations.
Characteristics of Culture
 Culture is learned, shared, and transmitted
from one generation to the next.
 Culture can be passed from parents to
children, by social organization, special
interest groups, the government, schools,
and churches.
 Cultures is multidimensional, consisting of a
number of common elements that are
interdependent.
National Culture
Nation-states support and promote the concept of
national culture by building museums and
monuments to preserve the legacies of important
events and people.
Subcultures
 A group of people who share a unique way
of life within a larger, dominant culture is
called a subculture.
 A subculture can differ from dominant
culture in language, race, lifestyle, values,
attitudes or other characteristics.
 There are around sixty-five cultural
minorities in the Philippines, which speak
their own dialects or languages. Among
these ethnic groups are Tagalog, Ilocano,
Pangasinense, Kapampangan, Bicolano,
Cebuano, llongo and, Waray. They
compromise 90 percent of all Filipinos and
are Christians.
Physical Environment
 Land features affect personal
communication in culture.
 Climate affects where people settle and the
distribution systems they create.
 Climate can also play a role in determining
work habits.
Need for Cultural Knowledge:
Ethnocentric- thinking your own culture is better
than another culture.
Developing cultural literacy- detailed knowledge
about a culture that enables a person to work
happily and effectively within it.
Values
 Ideas, beliefs and customs to which people
are emotionally attached.
 It includes concepts such as honesty,
freedom and responsibility.
 Values are important to business because
they affect a people's work ethic and desire
for material possessions.
Singapore- People in this country value hard work
and material success.
Greece- People in Greece value leisure and a
modest lifestyle.
UK & US- value individual freedom. CUSTOMS- Habits or ways of behaving in specific
Japan & South Korea- value group consensus. circumstances that are passed down through
generations in a culture.
Cultural Contrasts in Values
Quick Guide to Going Global
Americans- Freedom, independence, self-reliance,
equality, individualism
Japanese- belonging, group harmony, collectivism,
age/seniority, group concensus
Arabs- family security, family harmony, parental
guidance, age, authority

Cultural Attitudes towards Work

Europeans
- Relaxed
- Vacation during month of August
- Do not work on weekends or holidays
- The French take longer vacations than any other
country
Australians
- Value free time
- Value short work week
Japanese
- Work Monday through Friday, often 18hours a
day
- Work until their boss leaves

Aesthetics

• What a culture considered "good taste" in the arts,

the imagery evoked by certain expressions, and the
symbolism of certain colors."

• Aesthetics are important when a company does

business in another culture.

• The selection of the appropriate colors for

advertising, product packaging, and even work
uniforms can improve the odds for success.

Appropriate Behavior

When doing business in another culture, it is

important to understand what is considered
appropriate behavior.

MANNERS - Appropriate ways of behaving,

speaking, and dressing in a culture.
Social Structure and Education
Social Status. The process of ranking people into
social layer of classes is called social stratification
Education. Is crucial for passing on traditions,
customs and values. Each culture educated its young
people through schooling, parenting, religious
teachings, and group memberships.
Brain Drain. Departure of highly educated people
from one profession, geographic region or nation
to another.
What is the OECD? (Organization for Economic
Cooperation and Development)
• It is an association of 38 nations in Europe,
the Americas, and the Paci6c
• It helps member countries formulate
economic and social policies
• Members and key partners represent 80%
of world trade.
• It aids developing countries outside
membership and promotes reform.
Communication
 Communication is the exchange of
meaningful information between two or
more people.
 The effectiveness of communication is
measured by how well the message is
understood.
 Effective business communication
commonly accounts for the difference
between success and failure, or profit and
loss.
WEEK 3: Political Economy and Ethics
Politics is the way that people living in groups make
decisions and agreements, so they can live together.
A political system means the type of political
organization that can be recognized, observed or
otherwise declared by a state. It defines the process
for making official government decisions.
The major types of political systems are
democracies, monarchies, oligarchies and
authoritarian and totalitarian regimes.
Political Economy an interdisciplinary branch of
social sciences that focuses on the interrelationship
between political and economic systems.
Government
 Derived from the Latin word gubernaculum
meaning a "rudder" and gubernare which
means "to steer, direct or control"
 Is an essential element of the state.
 It is the agency wherein the will of the state
is manifested.
 It is in charge of making, implementing and
adjudicating laws.
The Philippine Government
"The Philippines is a democratic and republican
state. Sovereignty resides in the people and all
government authority emanates from them."
- 1987 Phil. Cons, Art II, Sec. 3
Philippine government is a Presidential-Unitary-
Bicameral government.
Political Systems- Structures, processes and activity
by which a nation governs itself.
 The USA is a Democracy- ideology which
allows people freedom of speech, right to
vote for different political parties if over 18.
 The Constitution set out 3 different
branches of government- President,
Congress & Supreme Court.
 Separation of powers designed to stop any
one branch or part of government
becoming too powerful.
Collectivist Culture
 Refers to situation where group values have
priority over individual preferences. When
this happens, group values function as
guidance and evaluation criteria for
personal achievements and actions.
 Collective needs hold high social value
 Responsibility to others is highly valued
 Deviance from norms and adulation of
individual heroes is seen with skepticism
 Common in non-western nations such as
Indonesia and China
Individualistic Culture
 Individual needs hold high social value
 Individual rights and liberties are highly
valued
 Deviance from norms and adulation of
individual success is celebrated.
 Western nations such as the US, UK, and
Australia.
Democracy vs Totalitarianism
Democracy- Government is by the people, exercised
either directly or through elected representatives
-Elected representatives are held accountable
through safeguards.
Totalitarianism- One personality exercises absolute
control over all spheres of human life (competing
political parties are banned)
- Communist Totalitarianism
- Theocratic Totalitarianism
- Tribal Totalitarianism
- Right Wing Totalitarianism
Totalitarian Governments tend to share three
features:
1. Imposed Authority- An Individual or Group of
people forms the political system without the
explicit or implicit approval of the people
2. Lack of Constitutional Guarantees- They limit,
abuse or reject concepts such as freedom of
expression, etc.
3. Restricted Participation- Political opposition is
completely banned and political dissidents are
severely punished.
 In a Totalitarian system, individuals govern
without the support of the people, tightly
control people's lives, and do not tolerate
opposing viewpoints.
Doing Business in Totalitarian Countries:
 On the negative side, international business
owners might need to pay bribes and
kickbacks to government officials.
 Refusal to pay could result in loss of market
access or even forfeiture of investments in
the country
 Doing business in a totalitarian countries
can be risky proposition.
 In totalitarian nations, the law can be either
vague or non-existent, and people in
powerful government positions can
interpret laws largely as they please.
 Communism is the belief that social and
economic equality can be obtained only by
establishing an all-powerful communist
party and by instituting socialism- as system
in which the government owns and controls
all types of economic activity.
What is Democracy?
The word democracy comes from the Greek words
"demos", meaning people, and "kratos", meaning
power; so democracy means "power of the people".
Democracy is a form of government in which people
have the authority to deliberate and vote for the
president. This allows citizens to decide how their
country or community will be run.
States with democratic governments guarantee
fundamental individual rights and ensure a range of
personal freedoms.
Representative democracies strive to provide
some or all of the following:
1. Freedom of Expression
2. Periodic Elections
3. Full Civil and Property Rights
4. Minority Rights
5. Non-political Bureaucracies
Democracy Pros and Cons

Pros:

1. Respects the will of the people

2. Promotes accountability

3. Encourage citizen participation

4. Allows for dissent

5. Often respects minorities and allows for the

representation

6. Has checks and balances on power

Cons:

1. Slow decision-making processes

2. Favoritism to donors

3. Tendency toward political turmoil

4. Reliance on respect for traditions and institutions

 The three major legal systems of the world
5. Elections are costly today consist of

Doing Business in Democracies Continental legal system (civil law)

Anglo-American legal system (common law)
 Maintain stable business environments Religious legal systems
primarily through laws that protect
individual property rights.  Each country often develops variations on each
 Commerce prospers when the private system or incorporates many other features
sectors includes independently owned firms into the system.
that seek to earn points.
 Capitalism- belief that ownership of the There are three branches of the Government
means of production belongs in the hands
of individuals and private businesses.  Executive
 Legislative
 Judiciary

BERNE CONVENTION, BERNE ALSO SPELLED BERN,
FORMALLY INTERNATIONAL CONVENTION FOR THE
PROTECTION OF LITERARY AND ARTISTIC WORKS,
INTERNATIONAL COPYRIGHT AGREEMENT
ADOPTED BY AN INTERNATIONAL CONFERENCE IN
BERN (BERNE) IN 1886 AND SUBSEQUENTLY
MODIFIED SEVERAL TIMES (BERLIN, 1908; ROME,
1928; BRUSSELS, 1948; STOCKHOLM, 1967; AND
PARIS, 1971). SIGNATORIES OF THE CONVENTION
CONSTITUTE THE BERNE COPYRIGHT UNION.
THE CORE OF THE BERNE CONVENTION IS ITS
PROVISION THAT EACH OF THE CONTRACTING
COUNTRIES SHALL PROVIDE AUTOMATIC
PROTECTION FOR WORKS FIRST PUBLISHED IN
OTHER COUNTRIES OF THE BERNE UNION AND FOR
UNPUBLISHED WORKS WHOSE AUTHORS ARE
CITIZENS OF OR RESIDENT IN SUCH OTHER
COUNTRIES
MANDATE & FUNCTION
IPOPHL is the government agency mandated to
administer and implement State policies on
intellectual property (IP) to strengthen the
protection of IP rights in the country.
Coined as the "DREAM" mandate, IPOPHL performs
the following functions to protect and secure the
exclusive rights of scientists, inventors, artists and
other gifted citizens to their intellectual property
and creations.
Products Liability
Holds manufacturers, sellers, individuals, and other
responsible for damage, injury, or death caused by
defective products. Injured parties can sue for
monetary compensation through civil lawsuits and
for fines or imprisonment through criminal lawsuits.
Consumer Protection Agencies:
 Bureau of Food and Drugs (BFAD)
 Department of Trade and Industry (DTI)
 Energy Regulatory Commission (ERC)
 Environmental Management Bureau
(DENR-EMB)
What is Business Ethics?
ETHICS- is the study of moral obligation involving
the distinction between right and wrong.
BUSINESS ETHICS -The rules about how
entrepreneurs ought to behave.
The moral principles, policies, and values that
govern the way businesses and individuals engage
in business activity
5 MOST COMMON UNETHICAL BEHAVIORS ETHICS
RESOURCE CENTER (ERC) SURVEY
1. Misuse of company time
2. Abusive Behavior.
3. Employee Theft.
4. Lying to employees
5. Violating Company Internet Policies

Free Trade, Fair Trade, Fairtrade- What's the

difference?

Free Trade: the belief that international trade

should not be restricted by tariffs, quotas, or other
restrictions. belief that the free market will allow
the best products to rise

Fair Trade (two words): the ideal of a fair economic

system where people are paid fair wages for their
work 'fair trade' is not a protected term-that means
anyone can use it, even if they aren't fair trade!

Fairtrade (one word): a trademarked term referring

to the Fairtrade International system. they certify
that goods from the Global South are produced
ethically and sustainably under fair trade principles.
Lesson 4:
ECONOMIC DEVELOPMENT OF NATIONS
How Infosys Is Contributing To India’s Growth Story?
- Infosys is a top IT service provider in India with over
200,000 employees and $10.2 billion in revenue. India's
commitment to free markets and advanced legal system
reflects its political systems.
- India relies on its people's brainpower instead of a
manufacturing base, while China relies on natural
resources and inexpensive factory labor. Economic
development can have a strong impact on a nation's
culture.
What is the difference between growth and development?
Can a country experience economic growth without
development?
1. Economic Growth
- Increase in real GDP
- Higher national income/output
2. Economic Development
- Economic growth +
- Increase in living standards
- Increase in educational standards
- Improved health care
- Improved infrastructure
- Diversification of economy
FACTORS AFFECTING ECONOMIC GROWTH IN DEVELOPING
COUNTRIES
1. Levels of infrastructure – e.g. transport and
communication
2. Levels of corruption – what percentage of tax rates are
actually collected and spent on public services.
3. Educational standards and labour productivity – basic
levels of literacy and education can determine the
productivity of the workforce
4. Levels of inward investment – for example, China has
invested in may African countries to help export raw
materials, that its economy needs
5. Labor mobility – is labour able to move from relatively
unproductive agriculture to more productive
manufacturing?
6. The flow of foreign aid and investment - Targeted aid, can
help improve infrastructure and living standards.
7. Level of savings and investment – Higher savings can fund
more investment, helping economic growth.
ECONOMIC GROWTH WITHOUT DEVELOPMENT
• Economic growth may only benefit a small % of the
population. For example, if a country produces more oil, it
will see an increase in GDP. However, it is possible, that this
oil is only owned by one firm, and therefore, the average
worker doesn’t really benefit
• Corruption. A country may see higher GDP, but the
benefits of growth may be syphoned into the bank
accounts of politicians
• Environmental problems. Producing toxic chemicals will
lead to an increase in real GDP. However, without proper
regulation, it can also lead to environmental and health
problems. This is an example of where growth leads to a
decline in living standards for many
• Congestion. Economic growth can cause an increase in
congestion. This means people will spend longer in traffic
jams. GDP may increase but they have lower living
standards because they spend more time in traffic jams
• Production not consumed. If a state-owned industry
increases output, this is reflected in an increase in GDP.
However, if the output is not used by any one then it
causes no actual increase in living standards
• Military spending. A country may increase GDP by
spending more on military goods. However, if this is at the
expense of healthcare and education it can lead to lower
living standards

WAYS TO CLASSIFY COUNTRIES
- Economic development e.g. per capita GDP, per capita
electrical power capacity
- Social development e.g. level of education, life
expectancy, infant mortality
- Political maturity e.g. level of corruption, established
electoral system
DEVELOPED/UNDEVELOPED COUNTRIES
- An older method that divided the countries into rich
developed countries and poor undeveloped countries
- Canada, USA and Germany: developed countries
- Brazil, Nigeria, China and Jamaica: underdeveloped
- But this method did not allow for any flexibility
DEVELOPED/DEVELOPING COUNTRIES
- Similar to the Developed/Undeveloped Model, but this
one allows that countries can change over time
- For example, in 60 years South Korea went from
Developing to Developed
- Grouped by economic development.
- System ignores culture. Countries such as Brazil, China
and India have a very rich and highly developed culture.
DEVELOPED COUNTRIES
- Highest level of economic and social development
- Even the poorest in these countries live well compared to
those in developing countries
- Economies are based on the service sector — e.g.
education, health care, banking, transportation and info
technology
- Manufacturing less important
- Primary industries (agriculture, fishing, forestry) least
important
- Use most of the world’s resources
DEVELOPING COUNTRIES
- Lowest level of economic and social growth
- Economies dominated by primary industries, especially
agriculture
- Few pay taxes so little money for government services
- Rely on foreign aid
One significant difference between developed and
developing countries lies in the way they manage their
garbage.
- Several developed countries have strict rules and
procedures in place regarding garbage disposal and
violators are fined heavily. Proper management of garbage
is a strong indicator of a developed society.
• FIRST WORLD nations are industrialized, developed,
capitalist countries such as Canada, the United Kingdom,
USA and Japan. These countries are most often within the
sphere of American influence. They share common
political and economic interests.
• SECOND WORLD nations are (former) communist-
socialist countries with strong industrial and social
development. Countries include Russia, Poland and
Hungary.
• THIRD WORLD countries are the underdeveloped nations
of the world, especially those with widespread poverty.
Sometimes they can be very rich (e.g., Saudi Arabia), but
are usually very poor (e.g., Mali). Most often the countries
are African, Asian or Latin American.
• NEWLY INDUSTRIALIZING COUNTRIES
- Transitioning to Developed Country characteristics
- Emerging economies
- Have been achieving economic growth rates that are
greater than that of the developed countries
- Examples: Taiwan, South Korea, China, Brazil, Chile
PURCHASING POWER - The value of a currency expressed in
terms of the number of goods or services that one unit of
money can buy.
What Is PURCHASING RE POWER PARITY?
- A theoretical exchange rate that allows you to buy the
same amount of goods and services in every country
- Government agencies use it to compare the output of
countries that use different exchange rates
- Example: If you want to live cheap, and you can move to
any country in the world, compare prices of a Big Mac
HUMAN DEVELOPMENT INDEX
UN indicator that measures quality of life:
• Life Expectancy
- munder-five mortality rates MANAGING POLITICAL RISK
- maternal mortality rates • Adaptation means incorporating risk into business
• Education: strategies, often with the help of local officials.
- mean of years of schooling for adults aged 25 years • Information Gathering International firms attempt to
- expected years of schooling for children of school entering gather information that will help them predict and manage
age political risk.
- number of students enrolled in particularly important • Political Influence Business law in most nations undergoes
fields of study, such as the mathematics and sciences frequent change, with new laws being enacted and
• Income existing ones modified.
- per capita income • International Relations To generate stable business
- unemployment environments, some countries have turned to multilateral
agreements -— treaties concluded among several nations,
each of whom agrees to abide by treaty terms even If
tensions develop.
• United Nations It was formed after 2nd world war to
provide leadership in fostering peace and stability around
the world.

POLITICAL RISK is risk that arises out of uncertainty &

instability within government framework or political
institutions in a country.

The International Information System

- An information system is the systematic and continuous
gathering, analysis, and reporting of data for decision-
making purposes.
- To be useful, the Information system must be:
✓ Relevant
✓ Timely
✓ Flexible
- Political risk is the probability of disruption of operation ✓ Accurate
from political forces or events and their correlates. ✓ Exhaustive
- Risk comes from instability, whether that IS political, ✓ Consistent
economic, regulatory, policy oriented, judicial, and conflict ✓ Convenient
oriented.
LOBBYING means, in a professional capacity, attempting to
influence, or advising those who wish to influence, the
Government, Parliament, the devolved legislatures or
Administrations, regional or local government or other public
bodies on any matter within their competence.
- The act of attempting to influence business and
government leaders to create legislation or conduct an
activity that will help a particular organization. People
who do lobbying are called lobbyists.
“LAGAY” SYSTEM OR BRIBERY
- The “lagay” system or the act of citizens to bribe
government officials occupying sensitive positions in
government is perpetuated due to bureaucratic red tape.
- The most frequently employed method is offering a
considerable amount of money to a government official
who can facilitate the 1ssuance of the desired documents
in agencies 1ssuing licenses, permits, clearances, and
those agencies deputized to make decisions on particular
issues.
REPUBLIC Act No. 3019
ANTI GRAFT AND CORRUPT. PRACTICES ACT

GRAFT AND CORRUPTION THE RISE OF CHINA

- Technically, corruption covers an entire host of abuses, of In a few decades, China has propelled itself into a global
which graft is one. Graft and corruption are charges that superpower
are typically leveled at highly- placed government officials,
who are able to use public funds to improve their own
fortunes due to increased access, influence, knowledge or
power that comes with an elevated position.

MULTILATERAL TRADE AGREEMENTS

- A multilateral trade agreement involves three or more
countries who wish to regulate trade between the nations
without discrimination.
- They are usually intended to lower trade barriers between
participating countries and, as a consequence, increase
the degree of economic integration between the
participants.
- Multilateral trade agreements are considered the most
effective way of liberalizing trade in an interdependent
global economy.

Emerging markets - EM are markets of countries that are In the

process of transformation.
- EM are markets of countries that are in a transitional
phase between developing and developed status.

A CUT ABOVE THE REST

China is just one piece of the puzzle— several other
economies are also making strides on the world stage.
PEOPLE’S REPUBLIC OF CHINA
- Mainland China has a reputation as being a low- cost
manufacturer, which caused notable disputes in global
markets.
- This is largely because Chinese corporations can produce
many products far more cheaply than other parts of Asia
or Latin America, and because expensive products
produced in developed countries like the United States are
in large part uncompetitive compared to European or
Asian goods.
- The government also focuses on a trade as a major vehicle
for economic growth, which led to 5 Special Economic
Zones
• (SEZ: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan) where
Investment laws are relaxed so as to attract foreign capital.
- There has been a significant rise in the Chinese standard
of living in recent years.
• Today, a rapidly declining 10 percent of the Chinese
population Is below the poverty line
• 90.9% of the population is literate compared to 20% in
1950.

SOUTH KOREAS
- In the 1950s, South Korea was one of the poorest
countries in Asia. This was partly due to the destruction of
much of the country's infrastructure during the Korean
War.
- In 1962, South Korea embarked on a series of ambitious
for economic development similar to the macro-economic
schemes of the Soviet Union.
- Emphasis shifted to foreign trade with the normalization
of relations with Japan in 1965, which resulted in a boom
in trade and investment. Rapid expansion, first into light
and then heavy industries, so in 1973 Korea became the
34th wealthiest country in the world.
- This growth is often called the "Miracle on the Han River”

RUSSIA
- Russia has the world's largest natural gas reserves, the
second largest coal reserves, and the eighth largest oil
reserves.
- lt is the world's a leading natural gas exporter and the
second leading oil exporter. =
- OIl, natural gas, metals, and timber account for more than
80% of Russian exports abroad.

ISRAEL
- Israel is considered one of the most advanced
countries in the Middle East In economic and
industrial development.
- It has the second-largest number of startup
companies in the world (after the United States) and
the largest number of NASDAQ-listed companies
outside North America.
- In 2007, Israel had the 44th-highest gross domestic
product and 22nd-highest gross domestic product
per capita.
BA 6 – INTERNATIONAL BUSINESS AND TRADE
Topic 5:
INTERNATIONAL TRADE THEORY
INTERNATIONAL TRADE
• The purchase, sale or exchange of goods and
services across national borders.
• In simple words, it means the export and import of
goods and services. Export means selling goods
and services out of the country, while import means
goods and services flowing into the country.
International Trade
Purchase, sale or exchange of goods and services across
national borders.
✓ People have larger selection of products
✓ Important engine for job creation
BENEFITS OF INTERNATIONAL TRADE
ECONOMIES OF SCALE
The cost advantages companies gain from increasing
their output.
WHAT IS GLOBAL INTERDEPENDENCE?
We all live in a global economy.
Mutual dependence at a global level. International trade
has made countries depend on one another for economic
survival.
Interdependence and Trade
Consider your typical day:
✓ You wake up to an alarm clock made in Korea. You
pour yourself some orange juice made from oranges
grown in Florida.
✓ You put on some clothes made of cotton grown in
Georgia and sewn in factories in Thailand.
✓ You watch the morning news broadcast from New
York on your TV made in Japan.
✓ You drive to class in a car made of parts.
✓ manufactured in a half-dozen different countries.
...and you haven't been up for more than two hours
yet!
ECONOMIC DEPENDENCE
A never – ending situation in which nations, economies,
economic agents, and entitles depend on one another
economically.
For example:
Japan – Saudi Arabia trade
Saudi Arabia Japan ($45.4bn petroleum products)
Japan Saudi Arabia ($7.5bn finished goods)
The two countries are interdependent.
Economic dependence is a fact of life, both at business &
national levels.
UNITED NATIONS CONFERENCE ON TRADE AND
DEVELOPMENT
As global trade has expanded, many poor countries have
increasingly specialized in export crops – at the expense
of food security for their populations.
In Africa, a continent with severe food insecurity
challenges, most food comes from abroad. Between
2016-2018, about 85% of food was imported from outside
the continent. And as its population grows, net food
imports to Africa are expected to triple by 2025 even as
undernourishment grows by one-third.
In the Caribbean, food imports as a proportion of
merchandise exports skyrocketed from 5% in 1995 to
32% in 2019. And overall, only four out of 12 developing
regions show a positive net balance in basic food trade.
The trade community cannot be oblivious to the human
suffering this implies. We must act fast.
TRADE THEORY TIMELINE
MERCANTILISM (YEAR 1500)
An economic system of trade that spanned from the 16th
century to the 18th century and was based on the idea that
BA 6 – INTERNATIONAL BUSINESS AND TRADE
a nation’s wealth and power were best served by • Labor
increasing exports and trade. • Land and Capital

INTERNATIONAL PRODUCT LIFE CYCLE (YEAR

1900)

A company begins by exporting its product and later

undertakes foreign direct investment as a product moves
through its life cycle.

Trade Surplus and Trade Deficit

NEW TRADE THEORIES (YEAR 1900)

• Increasing returns of specialization due to economies

of scale (unit costs of prod. decrease)
• First mover advantages (economies of scale such
that barrier to entry crated for second or third
company)
• Luck... first mover may be simply lucky.
• Government intervention: strategic trade policy.

First – mover advantage

ABSOLUTE VS. COMPARATIVE (YEAR 1700 – 1800)
It refers to competitive edge that may be garnered by a
✓ Absolute advantage (Adam Smith) – exists when
business that is the first to market a new product or
one nation can produce goods more cheaply than
service.
another nation.
✓ Comparative advantage (David Ricardo) – ability of NATIONAL COMPETITVE ADVANTAGE (YEAR 1900)
a nation to specialize in the production of the good for
which it has lowest opportunity cost.

Assumptions and Limitations

1. Nations strive only to maximize production and

consumption

2. Only two countries produce and consume just two

goods

3. No transportation costs of trading goods

4. Labor is the only resource used to produce goods

5. Ignores efficiency and improvement gains from

producing just one good

FACTOR PROPORTIONS THEORY (YEAR 1900)

Countries produce and export goods that require

resources (factors) in abundance and import goods that
require resources in short supply.

Two factor types: