COMPETITION

THE BASIS FOR INTERNATIONAL BUSINESS- YOU MUST HAVE SOMETHING!

- International business= engage when you buy or sell from and to other countries

 Absolute advantage?
- Ability to produce specific goods more efficiently than another country
- requires fewer resources—generally raw materials, manpower, or time—to produce a
given item
- Absolute advantage is when a country can produce particular goods at a lower cost
than another country.
= ABILITY OF A COUNTRY TO PRODUCE MORE GOODS WITH THE SAME
AMOUNT OF RESOURCES THAN ANOTHER COUNTRY
 Relative/competitive/comparative advantage?
- Comparative advantage: the ability to produce another product more efficiently than
another product
- A person has a comparative advantage at producing something if he can produce it
at lower cost than anyone else.
- Countries should specialize in goods that they can produce more efficiently and trade
in those that they cannot produce as well
- Comparative advantage is based on the opportunity cost of producing a good. If a
Country can produce a particular good at a lower opportunity cost (by losing an
opportunity for the production of other goods) than any other country then it is said to
have a comparative advantage.
=ABILITY OF COUNTRY TO PRODUCE GOOD BETTER THAN OTHER COUNTRY
WITH SAME AMOUNT OF RECOURSES
 What about SA?
- Better position in terms of diamonds
- Sa absolute advantage= diamonds

THE BASIS FOR INTERNATIONAL BUSINESS

 Countries trade when they each have a surplus of ( products which they have a
comparative advantage of) the product they specialize in and want a product the
other country specializes in
- Exporting---- export surplus product to another country (wine)
o Advantage to GDP in a country
- Importing ----- import products which we don’t specialize in (computers)
 COVID 19 has major impact on importing and exporting:
o SA wine exports banned

 Balance of trade
o Exports-imports over a period of time
o Negative trade balance= trade deficit
o Positive trade balance= trade surplus
 Trade deficit
 o More imports than exports
o Not always a bad thing  indication in rise in domestic demand
 Balance of payments
o Total inflow of money into country -total outflow of money out of country

RESTRICTIONS TO INTERNATIONAL BUSINESS

 Reasons for restricting trade:

o internal political and economic pressures
o mistrust of other nations
 Nations are generally eager to export their products
 Therefore most trade restrictions are applied to imports from other nations

TYPES OF TRADE RESTRICTIONS

1. Import duty (tariff)

- Tax levied on a particular foreign product entering a country
o Revenue ---- gov imposes to generate income for gov
o Protective tariffs( against dumping) ------ protect domestic industry against
foreign competitors thus raise prices to protect local economy
 Dumping: dump/export large quantities of a product at a price lower
than that of the same product in the home product
 Investigations the minute you assume dumping is taking place

2. Nontariff barriers
- Nontax measures imposed by a government to favour domestic over foreign
suppliers
- Trade can be used as a political weapon
o Import quota
 Limit amount of particular good that will be imported into a country (in
terms of quantity or R value)
o Embargo
 Completely halt trade with specific nation or with specific product
 Used as political weapon
o Foreign exchange control
 Place restriction on amount of particular foreign currency that can be
purchased or sold
 More expensive if have to import something in own currency
(becomes more expensive to import)
o currency devaluation
 increase/decrease money relative to currency relative to other nations
 manipulating imports ( either more or not so expensive depending on
how currency is devaluated

REASONS FOR AND AGAINST TRADE RESTRICTIONS

For Against
- to equalize a nations balance of - higher prices for consumers
payments  going to increase prices for
  necessary to restore confidence n
countries monetary system
 to ensure in position to pay debts
- to protect new or weak industries
 Problem: that industry might get used
to that and will be in comfort zone –
why need to grow? Thus must be
temp
- to protect national security
 defence related goods
- to protect the health of citizens
 products that might be embargoed
because present health risk (
meat/farming products)
- to retaliate for another country’s
trade restrictions
 you restricting us so we are going to
restrict you
- to protect domestic goods
consumers in home country if
imposing high tariffs
- restriction of consumers choices
- misallocation of international
resources
 if gov is so focused on protecting a
weak industry, gov is using limited
resources that they have to protect
an industry that will never be strong
o waste of money
- loss of jobs
 if country is dependent on exporting a
product, will lead to loss of jobs in
that industry if they can now not carry
on with exporting

INTERNATIONAL TRADE AGREEMENTS

 the general agreement on tariffs and trade and the world organisation

- general agreement of tariffs and trade (GATT) (first body established)

o international organization of 164 nations dedicated to reducing or eliminating
tariffs and other trade barriers
o Kennedy, Tokyo, Uruguay and Doha rounds involved
- world trade organisation (WTO)
o created in the Uruguay round
o WTO oversees GATT provisions, has judicial powers to resolve trade
disputes arising from GATT rules and exerts more binding authority that
GATT

INTERNATIONAL ECONOMIC ORGANIZATIONS WORKING TO FOSTER TRADE

 Economic communicates (trade blocks)

- An organisation of nations formed to promote the free movement of resources and
product among its members and to create common economic policies
- Diff smaller communities that focus on creating a healthy world economy but just on
a smaller scale

ECONOMIC COMMUNITIES (TRADE BLOCKS)

 European union (EU) – Brexit

o They operate in single market with 28 countries
o Participating in currency: euro
o UK exit= Brexit
 North American Free Trade Agreement
 Common Market of the Southern Cone (MERCOSUR)
  South African Customs Union (SACU): five countries of Southern Africa: Botswana,
Lesotho, Namibia, South Africa and Eswatini (formerly SWAZILAND)
 South African Development community (SADC)

All of these difference communities look after one another and foster good relationships

BRICS

 Developing or newly industrialised countries

 Brazil, Russia, India, China (started initially with these countries as largest emerging market
economies)
o Expected to grow faster than developed countries and to play increasing role in world
o SA became a part of this  BRICS
o Main objective to cooperate between member nations for development, providing
financial support, assistance and to support various projects and infrastructure
 Distinguishing according to size, growth rate economy and influence on provincial and
national act
 2013: represented 3 billion people, total GDP of trillion, US$ 4 trillion foreign reserves

BRICS new development bank is ready to lend SA $1 billion ( R18 billion) to tackle the COVID-19
public health crisis

METHODS OF ENTERING INTERNATIONAL BUSINESS

1. Licensing
- A contractual agreement in which one firm permits another to produce and market its
products and use its brand name in return for a royalty or other compensation
o Calvin klein: when buying a calvin klein underwear—its not actually made by calvin
klein
o The only clothing that calvin klein company manufactures itself is some of its
womens lines
o Every other calvin klein branched garment you buy are a result of a licencing
agreement
o The makers of these products have licensed calvin klein name and logo to help sell
their own products

2. Exporting
- Low risk in engaging in international business
- Manufacturer produce in own country and export for sale in foreign markets
o Sa 34th largest export company in world
o Positive trade balance
o Top exports: gold, diamonds, platinum, cars

3. Joint ventures
- A partnership formed to achieve a specific goal or to operate for a specific period of time
- Provides with market knowledge access and reduces risk if dint understand country want to
enter
o Heineken said they agreed to form two new joint ventures in SA to combine their
drinks business and also build a brewery

4. totally owned facilities

- a lot more risk involved
- direct investment
- establish production and marketing facilities in one or more foreign nations
- two forms:
1. building new facilities in the foreign country
2. purchasing an existing firm in the foreign country
o mercedez-benz cars invest 600 million euro in expansion of east London plant

5. strategic alliances
- similar to joint ventures
- partnerships formed to create competitive advantage on a worldwide basis
- better competitive position (sharing rents)
o starbucks and barnes and noble

6. trading companies
- firms that provide a link between buyers and sellers in diff countries
- trade in specific products
o Gallagher trade corp
o Trading quality affordable products

7. countertrade
- an international barter transaction taking place
- if a specific country or developing nation applies restrictions on converting domestic
currency to foreign currency, the exporters need to resort to barter agreements with
importers = countertrade takes place
o when pepsiCO wanted to enter the indian market, the gov stipulated that part of
PepsiCos local profits had to be used to purchase tomatoesby establishing this
agreement, the indian gov was able to help local agricultural industry, thereby
mitigating criticism of letting a foreign beverage company into the country

8. multinational enterprise
- a firm that operates on a worldwide scale without ties to any specific nation or region
- highest level of involvement in international business
o lipton
o dove
o omo
o lux