International

Business &
Trade

LIZ MORALES
the economic basis
of business and
trade and theories
lesson 3
introduction

Countries and businesses nowadays are

interconnected, they rely on each other
on their economic and business
transactions or in other words this is
what we call "globalization".

International trade is the most important

and most profitable business nowadays
but there are some barriers to
international trade. for desiring to enter
into international trade, we face some
obstacles and those are discussed
below:
factors affecting
international business
Establishment of World Trade
Organization

It was established January 1995 to in order to

facilitate the implementation, administration and
operation and further the objectives of this
agreement and on the Multinational Trade
Agreements and shall also provide the
framework for implementation, administration
and operation of the plurilateral Trade
Agreements.
They rely on each other on their economic
and business transactions or in other words
this is what we call "globalization".
Regional
Integration
The agreement among nations who belongs in
the same region or area to reduce or eliminate
trade barriers, increase market size aggregate
demand for goods and services, and economic
activity. As an effect, people within the region is
able avail the goods and services at a lower price
which could improve their standard of living.
Declining Trade Barriers

Historically, nations used to impose strict trade

barriers like tariffs and quotas to protect local
business from international business. After
World War II, advance countries, agreed to lower
tariffs to promote free flow of goods through
General Agreement on Trade and Tariff (GATT).
Declining
Investment
Barriers
Global firms invest in capital to build their
facilities in foreign countries. For most countries,
there used to be a strict barrier to protect local
business. However, more and more countries
have been removing some barriers to encourage
global business growth.
Growth in Foreign Direct
Investment (FDI)

These are investments by foreign firms in

establishing or acquiring business to another
country. Due to the reduced barriers, FDIs are
able to increase their profit and sales, more are
able to enter growing markets, reduce costs,
protect foreign and domestic markets, and gain
new technological and managerial skills.
Strides in
Technology
If we compare the technology, we have 10-20
years ago, there are a lot of changes which also
affected tour lifestyle today. Firms are able to
share their latest technology faster which is able
to fasten the process of globalization.
 Growth of Multinational
Companies

Different multinational companies are growing

and increasing their operations worldwide. They
are also one of the major contributors of
globalization.
 ISSUES AND
CHALLENGES
 ISSUES AND CHALLENGES

Political Factors Huge Foreign

Indebtedness

government policies,
leadership, and change; Many developing countries
foreign trade policies; internal experiences debt trap
political issues and trends; because of the operations of
tax policy; regulation and de- MNCs in their country.
regulation trends
 ISSUES AND CHALLENGES

Exchange Instability Entry Requirements

Instability of exchange rates due

to several reason, foreign debts, With the establishment of
political instability, currency WTO, entry requirements of
depreciation because of not domestic countries to MNCs
balanced of payments. are not followed.
 ISSUES AND CHALLENGES

r Corruption
Tariffs, Quotas and Trade
Barriers

These tariffs, quotas, and trade Bribe and kickbacks

barriers are used to protect local discourage foreign firms to
firms. These barriers are expand to new territories.
imposed to countries depending
on the countries political and
diplomatic relationships.
 ISSUES AND CHALLENGES

Bureaucratic Practices of
High Cost the Government

●Before establishing a business

in a foreign country, they need to The process of local
make research, market survey governments to foreign firms
and other product improvement, which could cause delays in
which involves high cost and acquiring their permits and
risk. licenses.
 ISSUES AND CHALLENGES

Quality Technological Pirating

Maintenance

● Foreign firms could face

problems in the domestic if Copying the original
they are not able to meet technology, producing
their standard. Foreign firms imitative products,
need to maintain a product discourages foreign firms in
quality based on the expanding their business.
standard of each country
they operate in.
 ISSUES AND CHALLENGES

Boycotts
Cultural and Social Barriers

a nation's cultural and social forces can is an absolute prohibition on the

restrict international business. Culture purchase and importation of certain
consists of a country's general concept goods from other countries. As
and values and tangible items such as opposed to an embargo, a boycott
food, clothing, building, etc. Social forces is organized by individuals or non-
include family, education, religion and state organizations and has no legal
custom. Selling products from one power.
country to another country is sometimes
difficult when the culture of two countries
differ significantly.
Advantages of
International
trade
 High Living
Standards
Purchasing power of customers are maximized,
because they can buy more goods or services.
They also have more choices with what product
they want to purchase, thus their standard of
living could improve.
 Wider Market
Businesses are able to increase their market and
not depend on the demand of a single country
 Reduced Effects
of Business
Cycles
Business cycle varies from different countries,
thus MNCs may be able to lessen or escape the
impact of recession.
 Reduced Risks
Economic and political risks can be lessened
because risk is spread from different countries
 Large-Scale
Economies
MNCs has the capacity to be able to produce
larger quantities of outputs because they are able
to reduce cost, ability to have experts and
produce better quality of products.
 Potential
Untapped
Markets
There is a chance that MNCs can be able
to explore and exploit new markets that are not
yet tapped or discovered. As a result, they
could be able to market their products at a
higher price.
 Provides the
Opportunity for and Challenge
to
Domestic
Business
Provide opportunity to domestic market by
through the use of technology, expertise in
management, product developments, and so on.
A challenge also to help local companies to
develop and improve mostly in partnership with
local company and universities.
Economic Growth of the
World
International business particularly helped the
Asian countries like Japan, Taiwan, Korea,
Philippines, Singapore, Malaysia, and the
United
Arab Emirates.
 Optimum and
Proper
Utilization of World Resources

International trade provides a better flow of

resources (land. labor, capital, entrepreneurial
abilities). The excess supply resources could be
used by other countries who needed it the most.
 Cultural
Transformation
Other than economic benefits from international
trade, countries also transform their social and
cultural practices. As we notice, there is a lot of
influence from the west that is already being
accepted by cultures in the east and vice
versa.
Merging the World into a Closely
Interactive Traditional
Village

With international trade, slowly, borders are

disappearing and different societies are
becoming like a one big village.
THEORY OF ABSOLUTE ADVANTAGE
THEORY OF COMPARATIVE
ADVANTAGE
 references:
Subba Rao, P. (2008). International Business Environment
(2nd Revised ed.). Himalaya Publishing House

McConnell C., Brue S., Flynn S. (2009). Economics:

Principles, Problems, and Policies (18th ed). Mc Graw-
Hill Irwin: New York

Scribd (23 June 2017). 7 Major Barriers to International

Trade. Retrieved on April 17, 2021 from
https://www.scribd.com/document/352053233/7-
Major-Barriers-to-International-Trade
https://saylordotorg.github.io/text_international-
business/s06-01-what-is-international-trade-th.html

https://www.researchgate.net/publication
/329487447_International_Business_and
_Trade
 -BaluartedeSanDiego-

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