International Trade

Introduction
 Exchange of products and services
 Across national borders
 Larger selection of products
 Opportunity for job creation
 Through exporting and importing
Trade & Export - Import - Demand
 Export
 Sale of products or services to customers located abroad
 Base in the home country or a third country
 Import
 Procurement of products or services from suppliers located
abroad
 Consumption in the home country or a third country
 Demand
 Creates the capabilities
 Impacts quality and innovation
Trade & World
 Global links that bind countries, institutions, and
individuals with trade, financial markets, technology, and
living standards
 World trade
 80% merchandise
 20% services
 Global Leader - United States
 Market-based transactions
 Flow of ideas, goods, and services across national borders
 Encouragement of international communication and
transportation
Top Exporters
Features
 Large scale operations
 Integration of economies
 Dominated by developed countries and MNCs
 Benefits to participating countries
 Keen competition
 Special role of science and technology
Importance
 Earn foreign exchange
 Optimum utilization of resources
 Achieve its objectives
 To spread business risks
 Improve organization's efficiency
 Get benefits from Government
 Expand and diversify
 Increase competitive capacity
Growth
 Expansion of technology
 Business is becoming more global because
 Transportation is quicker
 Communications enable control from afar
 Transportation and communications costs are more conducive
 Liberalization of cross-border movements
 Lower Governmental barriers to the movement of goods,
services, and resources
 Companies to take better advantage of international
opportunities
Supports
 General agreement on Tariff and trade (GATT)
 Reduce or eliminate tariff and other barrier
 International Monetary Fund (IMF)
 Lend money to countries for international trade
 World Bank
Lend money to underdeveloped and developing
countries
 World Trade Organization (WTO)
 Economic Communities
Trade Theory
 16th and 17th centuries
 promoted the idea of encouraging exports and discouraging imports
 In 1776, Adam Smith promoted the idea of unrestricted free trade
 19th century
 export goods that make intensive use of locally abundant factors
 import goods that make intensive use of factors that are locally
scarce
 20th century
 New trade theory emerged
 Specialize in the production and export of particular products
 First to produce the good
Pattern of International Trade
 Trade theory helps explain trade patterns
 Product vs Countries

 Proportions vs Production

 Product and Production dominance

 Labor productivity

 First mover advantages

 Product’s life cycle

Trade & Product Life Cycle
 Introduction • Production Location
 Growth • Market Location
 Maturity • Competitive Factors
 Decline • Production Technology
International Product Trade Cycle Model

High Income Countries production

Exports Imports consumption

Q
u 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

a Medium Income Countries

Exports
n
t
i Imports
t 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

y Low Income Countries

Exports
Imports
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Time
New Product Maturing Product Standardized Product

Stages of Production Development

Free trade
 Government does not attempt to influence
through quotas or duties
 Citizens can buy from another country

 Can produce and sell to another country

 Benefits
 manufacture and export of products and services that it
can produce efficiently
 import products and services that can be produced
more efficiently
Firms & Internationalize
 Seek opportunities for growth through market
diversification
 Earn higher margins and profits
 Gain new ideas about products, services, and
business methods
 Better serve customers that have relocated abroad
 Be closer to supply sources, benefit from global
sourcing advantages, or gain flexibility in the
sourcing of products
Firms & Internationalize – Cont.
 Gain access to lower-cost or better-value factors of
production
 Develop efficient use of scale in sourcing,
production, marketing, and R&D
 Confront international competitors more effectively
or thwart the growth of competition in the home
market
 Invest in a potentially rewarding relationships with
foreign partners
Risks of International Business
 Cross-cultural risk: a situation or event where a
cultural miscommunication puts some human value
at stake
 Country risk: potentially adverse effects on
company operations and profitability holes by
developments in the political, legal, and economic
environment in a foreign country
 Currency risk: risk of adverse unexpected
fluctuations in exchange rates
 Commercial risk: firms potential loss or failure
from poorly developed or executed business
strategies, tactics, or procedures
International Financial Services Sector

 Banking and financial services are the most active

international services.
 Explosive growth of global capital markets is due to:
 Deregulation of world capital markets

 Falling investment barriers

 Banks/financial institutions are internationalizing in pursuit of

high returns to many previously untargeted countries

 Money is flowing internationally into portfolio investments

and pension funds

 Leading players include Citibank, Deutsche Bank, BNP
Paribas, and HSBC
Problems
 Political factors
 High foreign investments and high cost
 Exchange instability
 Entry requirements
 Tariffs, quota etc.
 Corruption and bureaucracy
 Technological policy
 Management quality and policy
Advantages & Disadvantages
 Advantages
 Faster growth
 Access to cheaper inputs
 Increased quality and efficiency
 New market opportunities
 Diversification
 Disadvantages
 Increased costs
 Foreign regulations and standards
 Delays in payments
 Complex organizational structure