Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Business Administration
Department of Human Resource Management
Anonas St., Mabini Campus, Sta. Mesa Manila, Philippines

Nature of International Business

and Trade

A Written Report
Submitted to the College of Business Administration
Human Resource Management Department
PolytechnicUniversity of the Philippines –Manila

By
BSBA HRM 2-1N

Group 1

Acosta, Christine L.
Agaloos, Krishia Marie L.

Dela Cruz, Princess Lucky C.

Nazarita, Bea M.

Reyes, Jezreel Mae G.

Sequijor, Rolando Jose N.

Prof. Elena Rodil

Adviser
 Business

It is an organization or economic system where goods and services are exchanged for one another or
for money. Every business requires some form of investment and enough customers to whom its
output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned,
not for profit or state-owned.

A business, international or domestic, requires the application of effective management process in

order to achieve its set goals and objectives.

History of Business

Let's start in the eighth century BC In India, where early organizations, called shreni, were the first
firms that could independently enter into contracts or own property, which also meant they could
sue and be sued. Some things in business never change.

By 960 AD, China's Song dynasty saw the advent of gunpowder, printing presses, the first paper
money, and the first partnerships and joint stock companies to resemble our own modern capital
structures. Things were booming.

Beginning in 1500 AD, government-backed firms, like the Dutch East India Company and British East
India Company, began building global trading empires, floating stocks and bonds on new exchanges
as their goods floated around the world. Their tea trade alone reshaped the world map.

By about 1790, the Industrial Revolution was underway. And with all that tea to brew, firms like
Wedgwood found ways to standardize processes once done by hand. Artisans who used to make
one whole teapot at a time now focused on making parts of it. It was the company, not one person
that actually made the pot.

In the 1830s, US railroad companies became the first truly modern management organizations, with
ranks of salaried middle managers expanding almost as quickly as the tracks themselves.

By 1870, as those early superhighways lowered the cost of moving goods and information, a new
type of company, founder-led trusts, emerged, spawning monopolies in so many industries that the
booming needed a little busting. With trusts outlawed by the 1920s, those founder-led firms were
replaced by professionally managed corporations, owned by retail investors and run by powerful
executives.

Management became a career. And by the 1960s, those managers were running a rapidly expanding
universe of sprawling conglomerates.

The turmoil of the 1970s came a new way of thinking. They also wanted to unlock the value trapped
in companies by making sure investors and managers shared the same interests. This launched a
wave of leveraged buyouts. It also created a focus on short-term results that remains a problem
which brings us to today.

A. International Business

International business is defined as all business activities, including the creation and transfer of
resources, goods, services, know-how, skills, and information, which transcend national boundaries.
This relates to any situation where the production or distribution of goods or services crosses
country borders.It does not only includes International trade and foreign manufacturing, but also the
growing service industry in such areas as transportation, tourism, banking, advertising, construction,
retailing, wholesaling and mass communication.

A broader definition of international business may serve you better both personally and
professionally in a world that has moved beyond simple industrial production. International business
encompasses a full range of cross-border exchanges of goods, services, or resources between two or
more nations. These exchanges can go beyond the exchange of money for physical goods to include
international transfers of other resources, such as people, intellectual property (e.g., patents,
copyrights, brand trademarks, and data), and contractual assets or liabilities (e.g., the right to use
some foreign asset, provide some future service to foreign customers, or execute a complex financial
instrument).

Globalization—the shift toward a more interdependent and integrated global economy—creates

greater opportunities for international business. Such globalization can take place in terms of
markets, where trade barriers are falling and buyer preferences are changing. It can also be seen in
terms of production, where a company can source goods and services easily from other countries.

International Business relationship to Strategic Management and Entrepreneurship

Strategic management is the body of knowledge that answers questions about the development and
implementation of good strategies and is mainly concerned with the determinants of firm
performance. Because strategic management is concerned with organizational performance, your
understanding of a company’s SWOT (strengths, weaknesses, opportunities, threats) helps you better
assess how international business factors should be accounted for in the firm’s strategy.
Entrepreneurship on the other hand, is the recognition of opportunities (i.e., needs, wants, problems,
and challenges) and the use or creation of resources to implement innovative ideas.
Entrepreneurship helps you think about the opportunities available when you connect new ideas
with new markets.
Strategic management is concerned with the long-term decisions aimed to improve the competitive
position of the business. However, there is a limit to achieve competitiveness from the existing
product mix, because product and business model become obsolete, that’s why there is a need to
seek new business opportunity to maintain competitiveness.Entrepreneurship also prioritises the role
of entrepreneur as a key factor in the internalisation process of the business. Strategic management
and entrepreneurship are both important to international business because internal business
environment continues to evolve, company must develop new strategies to compete in changing
national and global landscapes.

Who is interested in International Business?

A stakeholder is an individual or organization whose interests may be affected as the result of what
another individual or organization does. Stakeholder analysis is a technique you use to identify and
assess the importance if key people, groups of people, or institutions that may significantly influence
the success of your activity, project, or business. Individuals or organizations will have an interest in
international business if it affects them in some way-positively or negatively.

Forms of International BusinessBusiness

Importing&Exporting
Imports: a good or service brought into one country from another.
Exports: a good or service produced in one country then get marketed to other country.

Licensing
Licensing is an agreement whereby a licensor grants the rights to intangible property (patents,
inventions, formulas, processes, designs, copyrights, and trademarks) to another entity (licensee) for
a specified period and in return the licensor receives a royalty/fee from the licensee.

Franchising
Franchising is basically a specialized form of licensing in which the franchiser not only sells the
intangible property to franchisee but also insists that the franchisee agrees to abide by strict rules as
how it does business.

Strategic Partnerships & Joint Venture

A strategic partnership or alliance is a positive aspect of the cooperation of two or more companies
in different countries are joined together for mutual gain. A joint venture is a special type of strategic
alliance, where the partners across globe collectively found a company to product goods and
services.

Foreign Direct Investment (FDI)

Foreign direct investment is a company’s physical investment such as into the building and facilities
in the foreign country, and acts as a domestic business with a full scale of activity.
 4 Risks of International BusinessBusiness

Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some
human value at stake. Cross-cultural risk is posed by differences in language, lifestyles, mindsets,
customs, and/or religion. Values unique to a culture tend to be long-lasting and transmitted from
one generation to the next. These values influence the mindset and work style of employees and the
shopping patterns of buyers. Foreign customer characteristics differ significantly from those of
buyers in the home market. Language is a critical dimension of culture. In addition to facilitating
communication, language is a window on people’s value systems and living conditions.

Commercial risk refers to the firm’s potential loss or failure from poorly developed or executed
business strategies, tactics, or procedures. Managers may make poor choices in such areas as the
selection of business partners, timing of market entry, pricing, creation of product features, and
promotional themes. While such failures also exist in domestic business, the consequences are
usually more costly when they are committed abroad. For example, in domestic business a company
may terminate a poorly performing distributor simply with advance notice. In a foreign market,
however, terminating business partners can prove costly due to regulations that protect local firms.
Marketing inferior or harmful products, falling short of customer expectations, or failing to provide
adequate customer service may harm the firm’s reputation and international performance

Country risk (also known as political risk) refers to the potentially adverse effects on company
operations and profitability caused by developments in the political, legal, and economic
environment in a foreign country. Country risk includes the possibility of foreign government
intervention in firms’ business activities. For example, governments may restrict access to markets,
impose bureaucratic procedures on business transactions, and limit the amount of earned income
that firms can bring home from foreign operations. The degree of government intervention in
commercial activities varies from country to country.

Currency risk (also referred to as financial risk) refers to the risk of adverse fluctuations in exchange
rates. Fluctuation is common for exchange rates, or the value of one currency in terms of another.
Currency risk arises because international transactions are often conducted in more than one
national currency.

B. International Trade and Its Difference to International Business

International Trade

International trade is exchange of capital, goods, and services across international

borders or territories. In most countries, it represents a significant share of gross domestic product
(GDP). While international trade has been present throughout much of history (for
example Uttarapatha, Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its
economic, social, and political importance has been on the rise in recent centuries.
International Trade can be traced back in 19th Century BCE to explain the existence of Assyrian
merchant colony in Cappadocia. Silk Road is the established after the diplomatic travels across
Chinese Dynasty to Central Asia, India, Perse, Roman Empire and vice versa.

It is a subset of international economics as it directly focuses on the issue of cross

border trade such as effect of tariffs or embargoes, the advantages of trade and its facet like import
and export, bank and bills and any aspects in the international commerce that makes it up.

Difference between International Business

On the other hand, International Business covers all the possible topics that one engaged in trade
across borders to know or to be aware of. Some of these includes key constraints like culture, laws
and regulations, strategies, investment and currency transaction.

International Trade International Business

(i) International Trade means movements Business transaction that takes place
of goods only (import and export) between two or more countries
(ii) It involves only the movements of It involves not only the international
goods and international currency is movements of goods and services but also
used for dealing capital, personnel, technology and
intellectual property like trademarks of
patents
(iii) International Trade is a narrow term. International business is much broader than
Part of International Business international trade

Example of International Trade : World Trade Organization

To smoothen and justify the process of trade between countries of different economic standing,
some international economic organisations were formed, such as the World Trade Organization.
These organisations work towards the facilitation and growth of international trade. Statistical
services of intergovernmental and supranational organisations and national statistical agencies
publish official statistics on international trade

The World Trade Organization (WTO) establishes rules of trade among its membernations. To this
end, the WTO also handles trade disputes, monitors trade policies, provides technical assistance for
developing countries and cooperates with other international trade organizations. The WTO was
created on January 1, 1995, and is headquartered in Geneva, Switzerland. The WTO replaced the
General Agreement on Tariffs and Trade (GATT), which was created in 1948. GATT primarily regulated
the trade of goods; the WTO regulates the trade of services and intellectual property as well. GATT
still exists as the WTO's umbrella treaty for trade in goods.
 Limitations in International Trade

1. Rapid Depletion of Exhaustible Natural Resources – Desctruction of Ecosystem leading to

loss biodiversity (mining of minerals and oils, tree cutting, pollution and contamination,
technological and industrial development)
2. Import of Harmful Goods – The use of chemicals mixed upon creation of goods can be
detrimental to the health of people such as mercury substance, preservatives, GMO foods,
and parabens.
3. Over Specialization – Focusing on an extremely narrow field and disregarding other areas of
concern to work out with
4. Danger of Starvation – Can cause permanent organ damage and eventually leading to
death. Central-African Republic with 46% of the population – 2.1 Million people suffering
from food insecurity, which is a 10% increase from last year according to 2019 Global Hunger
Index.
5. Language Diversity – Requires more awareness, understanding and skill to prrovide great
communication among and between individuals who shares the same thoughts

C. Global Business and Its Difference to International Business

A Global Business is a company that operates facilities (such as factories and distribution centers) in
many countries around the world. This is different from an international business, which sells
products worldwide but has facilities only in its home country.

Global Business refers to international trade whereas a global business is a company doing business
across the world.It is not intended here to discuss another and related subject covered separately in
this volume: globalization.

Globalization is a long-standing program advocated by the economically advanced nations to free

up international trade across the globe through treaties. It has also come to mean the relocation of
production or service activities to places that have much lower labor costs.

Global business in the past—or currently—does not require what advocates of globalization seek,
namely a so-called level playing field. International trade has always had a mixed character in which
national organizations and private enterprises have both participated, in which monopolies have
been imposed, frequently defended by armed forces, in which all manner of restraints and tariffs
have been common and participants have made all sorts of efforts to counter such interference or to
profit from it.
 Why Is Global Business Important?

1. Market Share

Through global business, businesses can access new markets and customers. For example, if the
United States enters into a Trans-Pacific Partnership with China and other Asia-Pacific countries -
which was still being negotiated as of June 2015 - U.S.-based businesses will have a greater
incentive to export and sell their products in these countries. With a wider customer base and
market reach, a business has a higher potential to make more sales and earn more profits, which it
can then use to expand operations into other foreign markets.

2. Production Costs

Sure, a business needs capital to establish and run operations in other countries. In the long run,
however, globalization can lead to lower business costs. Labor intensive businesses in high-wage
countries can achieve lower production costs when they shift operations to lower-wage nations. This
is one of the reasons many American manufacturers are sending work offshore to countries with low
wages, such as China and Vietnam.

3. Business Competition

Global business enhances business competition. As enterprises enter foreign markets, a face-off with
local businesses is inevitable. To outperform competitors and gain a larger market share, businesses
are forced to create products of higher quality and sell them at relatively cheaper prices. This is
advantageous to consumers, as they are able to access a wider variety of quality products at lower
prices.

4. Developing Nations

Developing economies also can benefit from global business. As foreign companies from
industrialized nations enter new markets in developing nations -- whether it is through foreign direct
investment or franchising -- new job opportunities are bound to be created for the locals. For
example, the Economic Policy Institute notes that between 2001 and 2013, the U.S. created at least
2.4 million manufacturing jobs in China as a result of major companies shifting their operations there.
The creation of more jobs stimulates economic development, which can make it easier for
developing nations to attract more foreign investors.

Successful Global Business Examples

1. Dunkin Donuts

In case you missed it, National Donut Day was last June. And while we were getting our hands dirty
with a Boston creme (or two) here in the states, Dunkin Donuts China was serving up a fresh batch of
dry pork and seaweed donuts.
With over 3,200 stores in 36 countries outside of the U.S., Dunkin Donuts has evolved its menu to
satisfy the sweet tooth of its global customers.

From Korea's Grapefruit Coolata to Lebanon's Mango Chocolate Donut to Russia's Dunclairs, it's clear
that Dunkin Donuts isn't afraid to celebrate cultural differences in an effort to strengthen its
international presence.

2. McDonald's

While keeping its overarching branding consistent, McDonald's practices "glocal" marketing efforts.
No, that's not a typo. McDonald's brings a local flavor, literally, to different countries with region-
specific menu items. In 2003, McDonald's introduced the McArabia, a flatbread sandwich, to its
restaurants in the Middle East. This "glocal" approach has helped put McDonald's at #9 on
Interbrand's Best Global Brands 2014.

Differences of Global Business and International Business

Global companies have offices and branches as well as investments in other countries
while international companies export their products and import the products of the country with
which they have international trade relations but hold no investments in each other's economies.

Global Business :Red Bull

Austrian company Red Bull does such a great job with global marketing that many Americans
assume it’s a local brand. How?

One of its most successful tactics is to host extreme sports events all over the world. From the Red
Bull Indianapolis Grand Prix to the Red Bull Air Race in the United Kingdom to the Red Bull Soapbox
Race in Jordan, the brand's powerful event marketing strategy takes them here, there, and
everywhere.

International Business Machines

IBM is a technology corporation that manufactures hardware and software for computers. It
has been in business for over one hundred years. It was founded in 1911 as Computing-Tabulating-
Recording Company (C-T-R), a name which was later changed to International Business Machines, or
IBM. It's one hundredth anniversary has come and gone during which time the company's annual
profits were at record highs. IBM was one of the first companies involved in the computing industry.
It was the first company to produce computers for governments, and then educational facilities and
large businesses. IBM entered the personal computer market in 1981 with the IBM PC, which helped
start the personal computer revolution. A part of the original reason for IBM's success is the fact that
other companies began making computers that were compatible with IBM, which made IBM PCs the
industry standard. IBM has invested heavily in artificial intelligence, having developed
supercomputers that play chess, as well as self-healing computer technology.
 IBM's more recent success is due to its ability to adjust and adapt during changes in the
computer and technology industry. This is also one of the ways in which it differs from its
competitors, many of which are struggling financially. IBM integrated a social business and social
computing structure that allow it to build relationships and networks as well as expand on the
company's credibility. It has deployed process improvements, business analytics, and cloud
computing which has resulted in improvements in productivity. In adjusting to the changing times,
IBM also recognized what needed to be eliminated, and divested products and markets that they
had developed for years and in some cases had even invented. IBM is heavily focused on innovation,
achieving more patents per year than any other company. Other factors that contribute to the
company's continuing success and help it to stand apart from its competitors include continuing
efforts to create solutions for world problems, such as the management of water, Smarter Planet, and
positive growth in Brazil, India, China, and Russia.

D. Benefits and Importance of International Business and Trade

A Framework for Ethical Decision Making

The relationship between ethics and international business is a deep, natural one. Definitions
of ethics and ethical behavior seem to have strong historical and cultural roots that vary by country
and region.

Ethics
 The field of ethics is a branch of philosophy that seeks virtue.
 Ethics deals with morality about what is considered “right” and “wrong” behavior for people
in various situations.
 Ethics is not the same as feelings. Feelings provide important information for our ethical
choices. Some people have highly developed habits that make them feel bad when they do
something wrong, but many people feel good even though they are doing something wrong.
And often our feelings will tell us it is uncomfortable to do the right thing if it is hard.
 Ethics is not following culturally accepted norms. Some cultures are quite ethical, but others
become corrupt—or blind to certain ethical concerns (as the United States was to slavery
before the Civil War). “When in Rome, do as the Romans do” is not a satisfactory ethical
standard.

While business ethics emerged as a field in the 1970s, international business ethics didn’t
arise until the late 1990s. Initially, it looked back on the international developments of the late 1970s
and 1980s, such as the Bhopol disaster in India or the infant milk-formula debate in Africa. Today,
those who are interested in international business ethics and ethical behavior examine various kinds
of business activities and ask, “Is the business conduct ethically right or wrong?”

While ethical decision making is tricky stuff, particularly regarding international business
issues, it helps if you start with a specific decision-making framework, such as the one summarized
from the Markkula Center for Applied Ethics at Santa Clara University.
 1. Is it an ethical issue? Being ethical doesn’t always mean following the law. And just because
something is possible, doesn’t mean it’s ethical—hence the global debates about
biotechnology advances, such as cloning. Also, ethics and religion don’t always concur. This is
perhaps the trickiest stage in ethical decision making; sometimes the subtleties of the issue
are above and beyond our knowledge and experience. Listen to your instincts—if it feels
uncomfortable making the decision on your own, get others involved and use their collective
knowledge and experience to make a more considered decision.
2. Get the facts. What do you know and, just as important, what don’t you know? Who are the
people affected by your decision? Have they been consulted? What are your options? Have
you reviewed your options with someone you respect?
3. Evaluate alternative actions. There are different ethical approaches that may help you make
the most ethical decision. For example, here are five approaches you can consider:

o Utilitarian approach. Which action results in the most good and least harm?
o Rights-based approach. Which action respects the rights of everyone involved?
o Fairness or justice approach. Which action treats people fairly?
o Common good approach. Which action contributes most to the quality of life of the
people affected?
o Virtue approach. Which action embodies the character strengths you value?

E. Benefits of International Trade

International trade allows countries to exchange good and services with the use of money as a
medium of exchange. The benefits of international trade have been the major drivers of growth for
the last half of the 20th century.

Nations with strong international trade have become prosperous and have the power to control the
world economy. The global trade can become one of the major contributors to the reduction of
poverty.

1) Greater Variety of Goods Available for Consumption:

International trade brings in different varieties of a particular product from different destinations.
This gives consumers a wider array of choices which will not only improve their quality of life but as a
whole it will help the country grow.

2) Efficient Allocation and Better Utilization of Resources:

Efficient allocation and better utilization of resources since countries tend to produce goods in which
they have a comparative advantage. When countries produce through comparative advantage,
wasteful duplication of resources is prevented. It helps save the environment from harmful gases
being leaked into the atmosphere and also provides countries with a better marketing power.
3) Promotes Efficiency in Production:

International trade promotes efficiency in production as countries will try to adopt better methods of
production to keep costs down in order to remain competitive. Countries that can produce a product
at me lowest possible cost will be able to gain larger share in the market.

Therefore an incentive to produce efficiently arises. This will help to increase the standards of the
product and consumers will have a good quality product to consume.

4) More Employment:

More employment could be generated as the market for the countries’ goods widens through trade.
International trade helps generate more employment through the establishment of newer industries
to cater to the demands of various countries. This will help countries to bring-down their
unemployment rates.

5) Consumption at Cheaper Cost:

International trade enables a country to consume things which either cannot be produced within its
borders or production may cost very high. Therefore it becomes cost cheaper to import from other
countries through foreign trade.

6) Reduces Trade Fluctuations:

By making the size of the market large with large supplies and extensive demand international trade
reduces trade fluctuations. The prices of goods tend to remain more stable.

7) Utilization of Surplus Produce:

International trade enables different countries to sell their surplus products to other countries and
earn foreign exchange.

8) Fosters Peace and Goodwill:

International trade fosters peace, goodwill, and mutual understanding among nations. Economic
interdependence of countries often leads to close cultural relationship and thus avoid war between
them.
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