International Business and

Trade
AB COLLEGE SCHOOL OF BUSINESS MANAGEMENT AND EDUCATION
COURSE CODE : AE 315
TUESDAY AND THURSDAY 9:00 AM TO 10:30 AM
Class Rules
 Be online 5 minutes before the scheduled class, 15 late log in is considered absent.
 Always check our Virtual Class stream for Announcement and Update
 Make sure to mute your microphone when log-in, wait for further instruction when to
unmute.
 Talking to your classmate when the class discussion is ongoing is prohibited.

Course Requirements

 Reaction paper, portfolio, etc.

 Grading System
Prelim/Midterm/Final Exam 33.3%
Quizzes 33.3%
Group or individual paper, presentation, portfolio 33.4%
International Business and Trade,
defined
 can be defined as the process of acquiring global resources and
utilizing these resources to achieve the objectives of an organization
by exploring the opportunities and challenges of a globalized
economy.
 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).
Introduction on International
Business and Trade, Importance
 Extensive knowledge about international business helps youngsters
explore job and business opportunities in the competitive world of
multinational and transnational corporations as these companies
source their human resources globally.
 Knowledge of international business enables customers to identify
the quality of a brand and to know other information such as where
it is manufactured and about its competitors.
 The study of international business enables companies to
understand the environment (economic, technological, political,
social and legal and culture of other (target) countries and to
initiate strategies to get a competitive edge over their rivals.
cont.…

 Studying international business helps to know how global players

work or interact to increase competitive advantages and how they
influence decisions of their rivals.
 As we are living in global economy, it is important to know about
new available opportunities, new human resource practices, new
technologies, new production processes, new inventory
management techniques and operation management principles to
become a key player in the international market. This can be done
with the knowledge of international business (eg wineries)
Significance of studying
International Business
1. To Achieve Growth and Profits - The main objective of every business
organization is to achieve optimum growth and profits. As international
business deals with global markets, geographic expansion can be used
as a business strategy to increase both growth and profits. When firms
are not satisfied with profits in their home countries, they search for
newer markets. For example, international sales accounted for 58 per
cent of the revenue of Apple in the first quarter of 2010'.
2. Helps in Managing Product Life - Cycle International business helps in
managing product life cycles by exploring available opportunities in
different markets. In real life, every product has to pass through the
different stages of a product's life cycle. While a product might have
reached saturation, maturity or a state of decline in one market, it
might enjoy introductory or growth stage in other markets. This strategy
helps the company ko survive in the global market for a long time.
Many US software firms expand their markets by entering into
developing countries. For example, when Enfield
Significance of studying
International Business, cont.
3. Technological Capacities Some companies possess outstanding
technological capabilities to explore their core competencies. This
strategy helps the company in targeting and capturing other markets.
Microsoft for instance, always captures new markets because of its
technological capabilities. Infosys and Tata Consultancy Services have
made their mark in the software development area.
4. New Business Opportunities Business opportunities in overseas
markets attract companies and help in their expansion and growth.
Companies can face challenges in domestic markets like market
saturation, small size of population or low purchasing power backed by
international demand for their products. For example, most Japanese
automobile companies entered the US, Asian and European markets
due to the small size of their home market.
Significance of studying
International Business, cont.
5. Efficient use of Resources- International business facilitates the
proper and efficient use of resources. At times, industrial resources such
as labor, minerals, skilled human resources, technology and
infrastructural facilities are available in a country but are not
productively utilized. By expanding production or manufacturing
facilities to another country, companies can efficiently utilize available
resources and reduce costs by specialization and competitive
advantage.
6. Large-scale Economies -Companies benefit by economies of scale.
When the markets are open and larger, multinational companies
produce greater quantities that provide advantages of economies of
scale such as reduction in cost and better quality. International
business gives a company an opportunity to establish production and
manufacturing.
Significance of studying
International Business, cont.
7. Earning Foreign Exchange Reserves - International business helps in
earning foreign currencies that yield foreign exchange reserves.
Foreign reserves are crucial for the economic and political stability of a
country. Foreign exchange reserve is an important indicator of the
ability of a country to repay foreign debt and for currency defense
and is used to determine its credit rating. Foreign exchange is also used
for strategic imports. India needs foreign exchange to import crude oil,
purchase defense equipment, raw material and machinery.
8. Helps in Mutual Growth - International business helps a company to
source the best from around the world and countries depend upon
each other for meeting their requirements. International operations
help knit various countries as a single society that helps them for an
integrated and mutual growth.
Significance of studying
International Business, cont.
9. Investment in Infrastructure - International business necessitates proper
and significant infrastructural facilities. To allow international trade to
flourish, countries have to invest large amounts in building airports, sea
ports, economic zones and transportation systems so that major global
players can choose the country as a good option of investment. For
example, smaller countries like Hong Kong and Singapore have invested
large amounts to build a sound infrastructure system and are reaping the
benefits of this investment.
10. High Living Standards- with Quality Products at Low Prices International
business provides a comparative advantage in every aspect of business
operations. Countries can produce goods according to their specialization
and availability of resources. These goods are available at low cost and
are of high quality, which indirectly increase the purchasing power of
consumers and further adds their standard of living.
Significance of studying
International Business, cont.
11. Reduced Risk - International business helps to reduce economic,
commercial and political risks for engaged companies. Such
companies are less affected by business cycle fluctuations, political
instabilities and commercial risks as they are not dependent on a single
country. They can manage their business operations through other
countries in the case of any economic or political fluctuations.
Types of International Trade

Export Trade : selling of goods and services out of the

country
Import Trade : goods and services flowing into the country.

Entrepot Trade : is a combination of export and import

trade and is also known as Re-export. It means importing
goods from one country and exporting it to another
country after adding some value to it.
Evolution of international business
can be divided into the following ;
1. Phase I-Early Stage
2. Phase II - Pre World War II Stage
3. Phase III - Post World War II Stage
Phase I
As the name suggests, this is the most ancient phase of international
business This phase relates to the ancient times when particularly
Mesopotamian, Greek and Phoenician merchants carried out trading
activities in various other countries. According to ancient literature, the
sea-borne trade was main controlled by Phoenicians, who exported Indian
spices and textiles to Egypt Turkey, Greece and Rome mainly through the
west coast of India. Apart from Phoenicians, Roman merchants were
actively involved in international business. In the Roman Empire, trade was
facilitated by the construction roads, development of the banking system
and other infrastructural facilities The decay of the Roman Empire and the
rise of Turks and Arabian merchant brought about a major change in the
operations of international business. The major part of international trade
was now in the hands of Arabs who controlled strategic ports, overseas
trade and markets. They used to purchase goods from India, especially
from Sind trading ports and operated mainly in the region o Malaysia,
Indonesia and Philippines.
Phase I, cont.
With the passage of time, merchants found new trading avenues
and the European revolution led to different trade passages. The
discovery of America by Columbus and the arrival of Vasco da Gama
at Calicut in 1498 gave a new direction to international business and
trade.

Several developments in the field of international business such as

new trade instruments, payment methods, credit institutions, banking
facilities and infrastructural facilities gave a new direction to
international business. By the 16th century, Holland developed into an
international financial center and Dutch banks facilitated business
throughout Europe. Around the same time, business ties between north
African tribes and some parts of the Middle East gave a new direction
to international trade. During the pre-World War I period from 1870 to
1914. integration of economies at a rapid pace resulted.
Phase II - Pre World War II Stage

 Before the second World War, international capital movements

were highly influenced by the industrial revolution, which resulted
into a significant effect on international business. The industrial
revolution occurred in the United Kingdom and made the
production of manufacturing goods convenient and cheaper
through mechanization of the production process. Surplus goods
were available for export to other countries. Innovations caused
large-scale production of a variety of goods that required more
raw materials from other countries. As a result, capital began to
flow out, manufactured goods were exported by the European
countries and food and raw materials by the less developed
countries.
Phase III - Post World War II Stage

 After World War II came severe Economic recession.

 It was only after the mid-1940s that international business began to
grow rapidly. The international business scenario can be divided into
three phases since 1945 or after the Second World War.
 The first phase started from the late 1940s to the early 1960s. In this
phase, multinational companies from the UK and US dominated the
global market with their focus on the extraction of petroleum,
minerals and other raw materials.
 In the next phase from 1960s to 1970s, firms from continental Europe
and Japan entered into the international trade arena and
weakened the dominance of the United States and United
Kingdom.
Phase III cont.

 After World War II. there was a drive to increase integration among
nations for the purpose of facilitation of trade and business. Most
developing countries that gained independence from colonial rule
in the post-World War II era followed import substitution strategies to
achieve steady growth and economic stability.
 Economic welfare of the society was also a major focus for these
countries. Multilateral organizations like World Bank, IMF and GATT
were set up in the post-world war phase to facilitate economic
independence. These organizations have contributed significantly
to the economic integration of countries towards a global
economy.
Phase III cont.
 Economic welfare of the society was also a major focus for these
countries. Multilateral organizations like World Bank, IMF and GATT were
set up in the post-world war phase to facilitate economic
independence. These organizations have contributed significantly to
the economic integration of countries towards a global economy.
 The third phase started from 1970s and saw the European players
become a significant source of Foreign Direct Investments, which made
a significant impact on international trade. Before 1970s, global trade
flows were mainly dominated by North America, Western Europe and
Asia Pacific. A clear distinction was observed between developed and
developing countries as raw materials were flowing north and finished
goods were flowing south. From the 1970s, this situation changed as
industrial development took place in many developing countries in
Latin America (Mexico). Southeast Asia (Malaysia, Thailand, Indonesia),
East Asia (China, South Korea, Taiwan)
Significance of International
Business
International business and trade plays a vital role
in shaping the economic, social and technical
prospects of countries around the world, especially
those of developing nations. Although the
significance of international trade depends on the
environment it operates in and the objectives it
serves, it can be said that trade is necessary for the
development of an economy in the following ways:
Significance of International
Business
1. To Achieve Growth and Profits. The main objective of every business
organization is to achieve optimum growth and profits. As international
business deals with global markets geographic expansion can be used as
a business strategy to increase both growth and profits. When firms are
not satisfied with profits in their home countries, they search for new
markets. For example, international sales accounted for 58 per cent of
the revenue of Apple in the first quarter of 2010
2. Helps in Managing Product Life Cycle International business helps in
managing product life cycles by exploring available opportunities in
different markets. In real life, every product has to pass through the
different stages of a product's life cycle. While a product might reached
saturation, maturity or a state of decline in one market, it might enjoy
introductory or growth stage in other markets. This strategy helps the
company to survive in the global market for a long time. Many US
software firms expand their markets by entering into developing countries.
Significance of International
Business .. Cont.
3. Technological Capacities Some companies possess outstanding
technological capabilities to explore their core competencies. This
strategy helps the company in targeting and capturing other markets.
4. New business Opportunities. Business opportunities in overseas markets
attract companies and help in their expansion and growth.
Companies can face challenges in domestic markets like market
saturation, small size of population or low purchasing power backed
international demand for their products.
5. Efficient use of resources International business facilitates the proper
and efficient use of resources. At times, industrial resources such as
labor, minerals, skilled human resources, technology and infrastructural
facilities are available in a country but are not productively utilized.
Significance of International
Business .. Cont.
6. Large-scale Economics, Companies benefit by economies of scale. When
the markets are open and larger multinational companies produce
greater quantities that provide advantages of economies of scale such as
reduction in cost and better quality.
7. Earnings Foreign Exchange Reserves - International business helps in
earning foreign currencies that yield foreign exchange reserves. Foreign
reserves are crucial for the economic and political stability of the country.

8. Helps in Mutual Growth - International business helps a company to source

the best from around the world and countries depend upon each other
for meeting their requirements. It helps knit various countries as a single
society that helps them for an integrated and mutual growth. Eg. cocoa
from the Philippines and chocolate from Switzerland.
Significance of International
Business .. Cont.
9. Investment in Infrastructure - International business necessitates proper
and significance infrastructural facilities. To allow international trade to
flourish, countries have to invest in large amounts in building airports,
sea ports, economic zones and transportation system.
10. High Living Standards with Quality Products at Low prices -
International business provides a comparative advantage in every
aspect of business operations.
11. Reduced Risk - International business helps to reduce economic,
commercial and political risk for engaged companies. Such
companies are less affected by business cycle fluctuations, political
instabilities and commercial risk as they are not dependent on single
country.
Modes of Entry into the
International Market
The mode of entry into an international market is decided by the
expansion strategy and resources of a company;
1. Exporting
2. Licensing :
3. Franchising
4. Joint Ventures
5. Wholly owned subsidiaries
6. Contract Manufacturing
7. Management Contract
8. Turnkey Projects
9. Direct Investments
10. Joint ventures mergers and Acquisition
Modes of Entry..Cont.
Exporting
Modes of Entry..Cont.
Licensing