INTERNATIONAL BUSINESS & TRADE
the trader of one country and the trader
 With international trade, the market
became more competitive which result
in more competitive pricing which
brings a cheaper product that the
consumer enjoyed
 It allows countries to expand their
market.
 Access in goods and services that may
not have been available domestically.
 Export (X) – a product that is sold to the
global market
 Import (M) – a product that is bought
from the global market
 Income (Y) – wages (blue collar) and
salaries (white collar)
 Trade – exchange of goods and
services
2 TYPES OF TRADE
1. Foreign/ International trade (External
Trade) – theory of comparative
advantage (a country should export the
products in which it has greatest
advantage, import the products in
which it has greatest disadvantage).
Ex: ph (agriculture) and jp (technology)
2. Domestic/Local trade (Internal Trade) –
exchange of goods within the country.
Ex: Baguio (strawberry) and Davao
(durian). It is conducted between
different regions and geographical
locations of the same country. It helps
to maintain a level of coordination and
exchange of goods between every city
of the state.
Types of Internal Trade
1. Wholesale Trade – it is the process of
buying products in huge quality from
manufactures and then distributes to
retailor so that they sell it to consumers.
2. Retail Trade – Retailers buy a small
number of goods from wholesalers and
sell it to the end consumers. There are
two types of retailor i.e., large and small
retailers.
 Export Trade – trading occurs between
of another country by selling any
product. For example, traders in
America sell any product to the trader
in Germany
 Import Trade – a trader of one country
buys any goods from the trader of any
other country. For example, traders
located in England buy any products
from traders in America to sell it in its
region.
INTERNATIONAL TRADE
- It allows countries to expand their
market, advantage to consumers
(household). Access in goods and
services that may not have been
available domestically. Promotes
consumer welfare
ADVANTAGES OF INTERNATIONAL
TRADE
1. Increased revenues
2. Decreased competition - product and
services may have to compete in a
crowded in the U.S, but you may find
that you have less competition in other
countries.
3. Longer product lifespan – selling a
product to an overseas market can
extend the life of an existing product as
emerging markets seek to buy
American products.
4. Easier cash-flow management - when
trading internationally, it may be a
general practice to ask for payment
upfront, whereas at home you may
have to be more creative in managing
cash flow while waiting to be paid.
Expanding your business overseas
could help you manage cash flow
better.
5. Better risk management - market
diversification. Focusing only on the
domestic market may expose you to
increased risk from downturns in the
economy, political factors,
environmental events and other risk
factors. Becoming less dependent on a
single market may help you mitigate
potential risks in your core market.
6. Benefiting from currency exchange -
 benefit from currency conversion
7. Access to export financing – able to
leverage export financing. Disposal of
surplus goods – outlet to dispose of
surplus goods that was unable to sell in
the home market.
8. Enhanced reputation – doing business
in other countries boost company's
reputation. Successes in one country
can influence success in other adjacent
countries, which can raise company's
profile. It increase company's
credibility, both abroad and at home
9. Opportunity to specialize – International
markets can open up avenues for a
new line of service or products. It can
also give an opportunity to specialize in
a different area to serve that market.
DISADVANTAGES OF
INTERNATIONAL TRADE
1. Shipping Customs and Duties – most of
the destination countries' customs
agencies charge extra fees on items
shipped to them. The item description
may also affect these fees based on
what it is made of or used for. A
company needs to understand what the
end consumer will be charged by the
international shipping company. This is
sometimes referred to as the landed
cost.
2. Language Barriers – the marketplace is
filled with examples of poorly translated
products with names that got
misconstrued in another language.
3. Cultural Differences – there are
unwritten rules of commerce in the
country that are hard to uncover and
can be even more difficult to solve.
4. Servicing Customers – language and
cultural differences need to be
considered to overcome one of the
major disadvantages of international
trade.
5. Returning Products – physical shipment
can be just as complicated and costly
as it was originally, but now in reverse.
6. Intellectual Property Theft – the wider a
product is distributed, the more likely
that it may be illegally copied by a
competitor. This can be in the form of
proprietary information or market
branding.
CONSUMER BENEFITS FROM
INTERNATIONAL TRADE
1. Boosting economic growth – trade
tends to raise GDP by as much as two
percent for every percentage point
increase in the ratio of trade-to-GDP,
according to Frankel and Romer
(1999).
2. Increasing overall consumer welfare
3. Lowering prices for consumers –
trade lowers domestic prices;
improves resource allocation through
specialization; lowers profit margins of
domestic producers and increases
operating efficiency of domestic firms
through increased competition.
4. Expanding product variety available
to consumers – trade increases
product variety particularly among
trading countries with similar resource
endowments and technologies.
5. Benefiting lower-income households
6. Increasing overall employment –
trade liberalization can increase
overall employment in the long run
and during recessions, which is not
surprising given that trade enhances
economic growth and the damage
increasing trade barriers did in the
Great Depression.
INTERNATIONAL BUSINESS
- Relates to any situation where the
production or distribution of goods or
services crosses country borders.
OBJECTIVE OF INTERNATIONAL
BUSINESS
 To promote social and cultural
exchange among the nations.
 To assist developing countries in
their economic and industrial
growth by inviting them to the
international market thus
eliminating the gap between the
developed and the developing
countries.
 To assure sustainable
management of resources globally.
FEATURES OF INTERNATIONAL
BUSINESS
 Large scale Operations
 Immobility of Factors
 Heterogeneous Markets
 Integration of Economies
 Dominated by developed countries
and MNCs
 Beneficial to Participating Countries
 Keen Competition
 Special Role of Science and
Technology
 International Restrictions
 Sensitive Nature
 The Removal of Trade Barriers
and the Development of Trading
Blocs
 Different Policies and Different
 Perfect competition – is an ideal type of
market structure where all producers
and consumers have full and symmetric
information, no transaction costs,
where there are a large number of
producers and consumers competing
with one another.
 Mixed Economy - economic system
combining private and public enterprise
 Closed economy – completely self-
sufficient, with no imports or exports
from international trade. Ex. China
(communism)
 Combined products from local and
foreign – there is an advantage for
households
2 FUNDAMENTAL ECONOMIC
PROBLEMS
1. unlimited satisfaction – not satisfied
with one product
2. limited resources – scarcity
 Allocation – the action or process of
allocating or distributing something to
look for, to search and to study
 Scarcity – refers to the basic economic
problem, the gap between limited that
is, scarce resources and theoretically
limitless wants
5 FACTORS OF SCARCITY IN 2011
1. Increase of number of population – the
consumption and demand.
2. Increase of different business
3. Increase of different technology
4. Unlimited satisfaction
5. Illegal activities of people
3 TYPES OF RESOURCES
1. Man made resources
- gadgets, cell, etc – major
- tools, equipment, machines – capital in
economics.
- money – capital in finance
- 2 types of goods: Free goods (no
money involved, no price) and
economic goods (money involved,
price)
- 2 types of assets: current and fixed
assets
2. Human resources – people,
businesses, sellers, producers. Role of
people: to monitor and supervise
3. Natural resources – anything and
everything that is available naturally on
earth
ECONOMIC ACTIVITIES
1. Production – the first phase of the
economic activity that involves the
transformation of inputs into final
products
2. Distribution – the systematic way or
process of how commodities and
incomes are properly allocated among
economic resource owners
3. Exchange – requires transfer of money
or trading of products between buyers
(households) and sellers (producers) in
a marketplace
4. Consumption – the end phase of any
economic activity, which involves the
utilization of goods and services to
provide satisfaction to people
ECONOMIC RESOURCES
- Are the inputs or resources used in the
production of goods and service also
called the factors of production,
Categories include land, labor, capital
and entrepreneurships
1. Land – the physical space or area on
which production takes place it also
includes economy’s natural resources
E.g., farm land, tress, oil deposits, gold,
water resources
2. Labor – the time, physical and mental
skills that people contribute in
producing goods and services E.g.,
farmer, teachers, nurse, carpenters,
call center
3. Capital – tools and other productive
equipment utilized in producing
consumer goods and services. E.g.,
money, industrial robots, computers
4. Entrepreneurship – human resource
responsible for combining or organizing
the land, labor and capital resources
into a good or service. E.g., CEO,
manager, company president,
entrepreneur, product innovator
3 CLASSIFICATION OF COUNTRIES
1. LDCs – less developed countries
2. IMCs- intermediate countries
3. HDCs – highly developed countries
GLOBALIZATION
- Speed up of movement and exchange
of human being not only in terms of
transactions of the people but in
transactions of goods and services,
capital technology and other cultural
practices
- Promotes and increase interaction
between different regions and countries
and population around the globe
- Process when the world increases its
interconnectedness with one another
- Key factor of International business
- Brings competition to international
market
 Global Village – interaction between
different countries which increases
personal understanding and friendship
between the world citizens
IMPACTS OF GLOBALIZATION
1. Economic Impact – improvement of
standard of living, increased
competitions among different
regions/ nations and widening gap
between the rich and the poor. Ex:
Vaccine
2. Social Impact – increased of
awareness of foreign/ different
culture, dominates the products of
local industry.
3. Environmental Impact – induces
different problems such as global
warming and environmental
management
ADVANTAGES OF GLOBALIZATION
1. Increased competitiveness –
consumers are looking for cheaper
price but with good quality
2. Increased international mobility –
increased in different skilled
workers
3. Lower cost of production – price
will also become low
4. Improvement of education system
– internet spread cultural diversity,
improvement of different gadgets
5. Lead tremendously because of the
transport services of the world –
transportation by land, air and
water
DISADVANTAGES OF GLOBALIZATION
1. Increased commodity price –
maintain a good quality product
2. Exploitation of lower labor –
because of lower wages in the
Philippines
3. Cause of diseases – such as
Covid-19
4. Increase relative poverty
5. Disparity
6. Uneven wealth distribution
EXAMPLES OF GLOBALIZATION  Quota – is a type of trade restriction
where a government imposes a limit on
1. Economic Globalization – the number or the value of a product that
development of trade between another country can import
corporations around the world - Government-imposed trade restriction
2. Financial Globalization – linked that limits the number or monetary
with the rise of financial system, value of goods that a country can
with the international financial import or export during a particular
exchange. Ex. IMF, World Bank period.
3. Cultural Globalization – different
regions that adapt cultural system THREE PRIMARY FUNCTIONS OF
4. Political Globalization – TARIFF
development of growing influences
by the international organizations. 1. to serve as a source of revenue –
Ex. UN, WHO income from tariff provides the
5. Sociological Globalization – mixing government with the source funding
different member of society 2. to protect domestic industries
6. Technological Globalization – 3. to remedy trade distortions
digital world (punitive function for product dumping)
7. Geographical Globalization –
NEGATIVE EFFECT OF TARIFF
demanding visas in entering
countries  Tariffs make imported goods more
8. Ecological Globalization – ideas of expensive, which obviously makes
common good of society/ safety of consumers unhappy if those costs
the people result in higher prices.
BENEFITS OF GLOBALIZATION  Domestic companies that may rely on
imported materials to produce their
1. Free trade goods could see tariffs reducing their
2. Free movement of labor profits and raise prices to make up the
3. Increase economic scale difference, which also hurts consumers.
4. Greater competition  The benefits of tariffs may not be
5. Increase investment evenly distributed across the
population, so benefits for workers (and
TARIFF AND QUOTA political consequences for elected
officials imposing tariffs) may be
 Tariff – political tool that has been used uneven as well.
throughout the history of nation in order  Countries are free to retaliate with
to control the volume and quality of tariffs of their own and if the retaliation
imports that will enter in a country to escalates enough, it’s known as a
determine which nation that will be “trade war.
granted with favorable trading
conditions TARIFFS ARE GENERALLY IMPOSED
- High tariff create protectionism that it FOR ONE OF FOUR REASONS
shields domestic industries products
into foreign competition  To protect newly established domestic
- Kind of tax imposed by government to industries from foreign competition.
an imported product
 To protect aging and inefficient
domestic industries from foreign
competition.
 To protect domestic producers from
"dumping" by foreign companies or
governments. Dumping occurs when a
foreign company charges a price in the
domestic market which is below its own
cost or under the cost for which it sells
the item in its own domestic market.
 To raise revenue. Many developing
nations use tariffs as a way of raising
revenue. For example, a tariff on oil
imposed by the government of a
company that has no domestic oil
reserves may be a way to raise a
steady flow of revenue.
DISADVANTAGES OF TARIFF
 Tariffs raise the price of imports. This
impacts consumers in the country
applying the tariff in the form of costlier
imports.
 When trading partners retaliate with
their own tariffs, it raises the cost of
doing business for exporting industries.
 Some analyst believes that tariffs cause
a decrease in product quality.
Businesses look for ways to cut
production costs to account for tariffs.
 Tariffs are more transparent and easier
to administer than quotas. This makes
it easier for trading partners to
negotiate them down or eliminate them.
BENEFITS OF TARIFF
 Tariffs produce revenue on goods and
services brought into the country.
 Tariffs can also serve as an opening
point for negotiations between two
countries. The GATT, WTO, and other
trade agreements use regulation of
tariffs as a way to bring nations
together to determine economic policy.
 Tariffs can also support a nation’s
political goals, and help the country
stabilize or regulate its own industries.
A government can set taxes
on domestic products that are in line
with international tariffs to level the
playing field.
 Tariffs can make a market predictable.
A prime example of this is the
agricultural trade, which is subject to
quotas, import limitations, and tariffs.
EXAMPLES OF QUOTA
 Trade quotas – governments set the
quota limiting the import of a particular
product, restricting the access to the
domestic market by an offshore
producer, and giving the domestic
producers the opportunity to improve
their position in the market. Such
protectionist policies in industries
including steel, autos, and many
consumer electronics products, have
protected domestic industry from
international competition.
 Production quotas – a government or a
group of producers, limit the supply of a
particular product in order to maintain a
certain price level. For example, the
Organization of Petroleum Exporting
Countries sets a production quota for
crude oil in order to "maintain" the price
of crude oil in world markets
EFFECT OF IMPORT QUOTAS
 Import quota – is a limit on the amount
of imports that can be brought into a
particular country.
- For example, the US may limit the
number of Japanese car imports to
2 million per year.
 Quotas will reduce imports, and help
domestic suppliers. However, they will
lead to higher prices for consumers, a
decline in economic welfare and could
lead to retaliation with other countries
placing tariffs on our exports.
 Quotas will lead to lower sales for
foreign companies, but it could push up
prices and make sales more profitable.

TYPES OF QOUTAS

 Absolute quota – a simple physical limit

on the number.
 Tariff rate quota – These allow a certain
number of imports to gain a discount on
the usual tariff rate
 Voluntary export restraints (VER) –
This is when a government limits the
amounts of exports from one country to
another for a particular type of good. In
the early 1980s, there was a VER on
exports of Japanese cars to the US.
The cap on export of Japanese cars
lasted from 1981 to 1994 because the
US government wished to protect the
US car industry.