INTERNATIONAL TRADE 1

WEEK I:
INTRODUCTION TO INTERNATIONAL TRADE
Lecturer:
Ono Supriadi, Ph.D.

FACULTY OF BUSINESS, PRESIDENT UNIVERSITY

Overview of International Trade
Class Arrangement
 15’
 50%+1
About the Lecturer
 Ono Supriadi
 Bachelor of Political Science (International
Relations), Pasundan University
 MBA (International Business), Flinders University
 Ph.D. (Management), University of Newcastle
 Email: ono.supriadi@president.ac.id
 Mobile: 081220834596
Introduction

 International trade is an important part of overall business

activities
 Countries rely on foreign countries for much of their raw
materials
 Countries sell a signnificant portion of their output overseas
 Trade is “an axchange, interchang, or barter” (Webster’s
New Encyclopaedic Dictionary)
 So, international trade means the commercial transaction or
exchange that occurs between two or more countries
 International trade is different from domestic trade
Learning Objectives

 Define and explain international trade

 Examine the nature and scope of international trade
 Briefly, trace the historical development of international
trade
 Discuss the basic concepts and reasons for international
trade
 Examine the comparison between international trade and
international business
 Identify the prevailing problems of international trade
 Explain the various forms of international trade
Definition and Means of International
Trade
 International trade is the exchange of capital, goods
and services across international borders or territoris.
 International trade involves the use of international
currency (ies).
 The most important currencies are held as foreign
reserve by governments abd central banks.
 The most sought-after currency is the US dollar, with
the Euro is strong demand as well.
The Nature and Scope of International
Trade
 For most countries, international trade represents a
significant share of Net National Product and Gross
Domestic Product.
 Industrialisation, advanced transportation, globalisation,
multinational corporations and outsourcing are all having
a major impact on international trade.
 International trade is different from domestic trade in cost
and factors of productions.
 International trade is mostly restricted to trade in goods
and services.
Brief Historical Development of
International Trade
 The barter of goods or services among different people is an
age-old practice, probably as old as human history.
 Current international trade begin only with the rise of the
modern nation-state at the close of the European middle age.
 With the increase in civilisation and travelling added to the
known benefits of specialisation and division of labour,
international trade has even increased tremendously.
 Trade between countries developed first where one country
could produce something desirable which others could not.
 International trade, therefore, owes its origin to the varying
resources and climate of different regions.
Basic Concepts and Reasons for
International Trade (1)
Basic Concepts
 Buying and selling of goods and services between countries
 Trade across the borders of a country
Reasons
 Opportunity cost – No single country has the resources to
produce everything well.
 Comparative advantage – The ability to produce a given
product at a lower opportunity cost than its trading partners.
 Factor endowment – The differences in capital, labour, and
land.
Basic Concepts and Reasons for
International Trade (2)
 Absolute advantage – The sole producer of an item; or the
ability to make something more cheaply than its competitors;
or A nation’s ability to produce a particular product with
fewer resources (per unit of output) than any other nations.
 Competition – International trade give room to competitors.
 Access to capital – Capital flows from rich countries to
capital limited countries.
 Greater returns on capital – Derived from the benefits of
imported capital and technology investment overseas.
 Economic and social development – Increase the economic
and social development of the nations.
International Trade and International
Business Compared
 International trade is a business transaction between
the nations of two different countries.
 Doing international trade does not need to know
anything about the business environment about other
countries.
 But opening an international business in more
involving; You must study and understand its
environment such as culture, a legal, economic
factor, ect.
Prevailing Problems of International Trade

 Cultural differences
 Currency problem
 Legal protection
 Foreign political climates
 Foreign business climates and methods
Forms of International Trade

 Direct exporting
 Foreign Licensing & Franchising
 Joint Venture
 Turnkey Project
 Green-Field Investment
Conclusions and Summary

 We have learnt about the meaning of international trade, the

brief historcal development of international trade, the reasons
why countries are engaged in international trade.
 We also have learnt the role of international trade in a country
economy, the prevailing problems affecting trade and how it is
differentiated from international business.
 International trade is quite wide: merchandising, importing,
exporting, licensing, franchissing, and even foreign
investment.
 Through international trade, nations gain by wayt of earning
foreign exchange and greater utilisation of production
capacities.
Evaluation

Can you recall the followings:

 What do you understand by the term international trade?
 What are the two major forms of international trade?
 The different between a country absolute advantage and factor
endowment?
 What are the prevailing problems of international trade?
 What are the main differences between international trade and
domestic trade?
Thank you and Take care!

References:
Andy, C. E. (2001: Essential Economics, Tonad Publishers.
Akeke Niyi (2009): Introduction To Business, Rakson
Publishers, Isolo, Lagos.
Bakare I.A. O. (2003): Fundamentals and Practice of
Macro-Economics, Gutbbak Publishers, Fadeyi,
Lagos.
Jhingan M.L. (1998): Money, Banking and International
Trade, 5th Edition Vrinda Publication.