Master of International Management

Dirk Boehe
dirk.boehe@um6p.ma
Managing International Trade

abs.um6p.ma
Managing International Trade – An Overview

I. Trade Theories

III. Foreign Exchange, Managing

II. Export Market Selection
Trade Risk, &Trade International & Interntional Marketing
Financing Trade

IV. Managing The Global

Value Chain

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Trade Barriers
 1. Gravity Model
I.
International Trade 2. Benefits from Trade

3. Trade Barriers, WTO,

& managing trade disputes

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 Source: Hill, C. & Hult, T. (2019). International Business – Competing in the Global Marketplace. 12th Ed. Chapter 7
Purpose (arguments) of Trade Policy

Political arguments
• Job creation and protection
• National security concerns
• Retaliation against “unfair” behavior of trade partners (e.g., dumping, violation of property rights)
• Consumer protection
• Foreign policy and geopolitics (i.e., build relationships with partner countries, and punish hostile
countries)
• Human rights and environmental protection
Economic arguments
• Tax revenue
• Infant industries
• Strategic trade policy
(e.g., supporting R&D investments, shifting profits from foreign to domestic firms)

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 Source: Hill, C. & Hult, T. (2019). International Business – Competing in the Global Marketplace. 12th Ed. Chapter 7
Instruments of Trade Policy
1. Tariffs
a. Specific
b. Ad valorem
2. Subsidies (cheap capital, tax rebates for exporters)
3. Import Quotas
4. Voluntary Export Constraints
5. Local Content Requirements
6. Antidumping duties
7. Administrative Policies (à case study)
a. Technical Barriers to Trade (TBT)
b. Sanitary and Phytosanitary Measures (SPS)
c. Export promotion (export risk insurance, facilitating imports for exporters, sponsoring trade
missions)

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Costs & Benefits of Tariffs
What do changes in tariffs mean for
competition & profits of domestic firms?

Change of tariffs Outcomes for domestic firms

• Lower import tariffs increase competition in the domestic market

• Higher import tariffs decrease competition in the domestic market

• Lower export tariffs Increase exporters’ profits

(i.e., tariffs charged by trade partner countries)

• Higher export tariffs (i.e., tariffs charged by trade

partner countries) decrease exporters’ profits unless they can pass
through higher tariffs to their clients)

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 Deriving Home Country’s Import Demand Curve

Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
 Deriving Foreign Country’s Export Supply Curve

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Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
 Home

Foreign
Home Demand – Home Supply = Foreign Supply – Foreign Demand

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Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
 Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
Due to a tariff (t),
the Prices in Home market rise, prices in Foreign market drop

à Tariff increases
prices in Home
country
à Demand shrinks
à Lower demand in
Home results in
excess supply in
Foreign country
à Price charged by
producers from
(large) Foreign
country
decreases.

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…deriving costs and benefits of tariffs…

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 Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
Consumer vs producer surplus

Consumer surplus

measures the amount a consumer gains from a purchase by computing the difference between the
price he actually pays and the price he would have been willing to pay.

Producer surplus

measures the amount a producer gains from a sale by computing the difference between the price at
which he actually sells and the price he would have been willing to sell.

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 Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
Benefits & costs of tariffs

Tariffs increase the price of an imported good from PW to PT.

Tariffs reduce the price of the foreign exporter from PW to P*T in
large exporting countries because supply > demand.
Hence, demand shrinks from D1 to D2 in the importing country.
Supply in the importing country increases from S1 to S2.

• Government of importing country gains: (PT-P*T) x (D2-S2)

Area c + e : tariff (PT-P*T) x imports (D2-S2)
• Producers in importing country increase their surplus by:
Area a: (PT-PW) x area above the supply curve

• Consumers of importing country loose consumer surplus:

Area a + b + c+ d: (PT-PW) x area below the demand curve

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 Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
Tariffs – Costs and Benefits

Small countries’ low production scale cannot

influence world market prices, their tariffs do not
lead to a lower (foreign) producer price (P*T).
Hence, they do not obtain the “terms of trade
gain” (e), and therefore,
for small countries, the losses (b+d) produced by
tariffs exceed gains.

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 Benefits & costs of tariffs

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Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
 Tariffs – Costs and Benefits

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Source: Krugman, P., Obstfeld, M., Melitz, M. (2018) International Economics – Theory & Policy, 11th Ed., Chapter 9
Case Study – Paditar Exports
 Case A00104 - Paditar Exports Private Limited

Assignment Questions

(1) What are the current export opportunities for Indian cotton in the world market?
(2) What are the major competitors (in cotton) for India in the international market?
(3) What are non-tariff barriers and what is the significance of such measures in the current
international trade regime?
(4) What are SPS and TBT and what is the importance of these measures for agricultural
exporters in developing countries?
(5) What is the political economy of non-tariff measures?
(6) Out of the three markets (Indonesia, Turkey, Thailand), which cotton import market is
ideal for Vishant Patel to maximise export revenue? Substantiate your argument?
(7) Which possible coping strategies can Vishant’s firm adopt to maintain and increase its
export revenue?

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Problem Statement – TOSCA

Trouble - What makes this problem real?

Owner - Whose problem is this?

Success criteria - What will success look like?

Constraints - What are the limits on the solution space?

Actors - Who has a say in the way we solve this problem?

è Use the TOSCA Worksheet

Source: Garrette, B., Phelps, C., & Sibony, O. (2018). Cracked it!: How to solve big problems and sell solutions like top strategy consultants. Springer.
https://cracked-it-book.com/wp-content/uploads/Cracked-It-TOC.pdf
What is Patel’s Dilemma or Trade-off?

High
Reconcile
opposing
choices?

……. Co
ns
t
…… rain
.. ts

Low

Low High

…..
 • Fill out the problem statement (TOSCA)
for Paditar Exports
Invidivual Work
• Identify an important tradeoff / dilemma
for Paditar Exports

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24
Risk Diversification

Implication for
Export Strategy:
Firms with uncorrelated
(or negatively correlated)
income streams
from several (>10) sizable
markets reduce their risk
(lower variation of total
sales and total profits).

Source: Statman, M. (2002). How much diversification is enough?.

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Trade Barriers

(a) Tariffs
(b) Import quotas
(c) Non-tariff measures (NTM) : “product standards” (quality requirements)
i. Technical Barriers to Trade (TBT)
à Product specifications, such as size, shape, weight, packaging,
labeling and safety requirements
à Social and environmental sustainability requirements

ii. Sanitary and Phytosanitary Measures (SPS)

à protection of human, animal and plant life or health from pests and diseases
arising out of food or agricultural imports

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Source: Kallummal, M. (2012). SPS measures and possible market access implications for agricultural trade in the Doha Round: An analysis of systemic
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issues (No. 116). ARTNeT Working Paper Series.
Sources – data on tariffs & non-tariff measures

https://unctad.org/topic/trade-analysis/non-tariff-measures/NTMs-data

https://data.wto.org/en

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 • Each group looks at all three countries.
• Analyse facts & data from the case and
try to find evidence for / against market
entry.
Group Work • Take a decision – which country should
Paditar enter with its cotton exports?
• Short presentation (1 minute)

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(6) Out of the three markets (Indonesia, Turkey, Thailand),
which cotton import market is ideal for Vishant Patel to
maximise export revenue? Substantiate your argument?

How can we analyse these market choices?

Build an issue tree!

Source: Garrette B, Phelps C, Sibony O. Cracked It!: How to Solve Big Problems and Sell Solutions like Top Strategy Consultants. Cham :
Springer International Publishing : Imprint: Palgrave Macmillan, 2018. 30
 like Top Strategy Consultants. Cham: Springer International Publishing: Imprint: Palgrave Macmillan.
Source: Garrette B, Phelps C, Sibony O. 2018. Cracked It!: How to Solve Big Problems and Sell Solutions
Mutually Exclusive and Collectively Exhaustive (MECE)

(1) “Collectively Exhaustive means that we have identified all possible conditions to
provide logical support for the hypothesis”
à Are the conditions – if supported – sufficient together to recommend that your hypothesis
should be accepted?
à Are they sufficient to answer your issue tree questions?
Check:
§ Ask this question: Does an “Others” category exist?
§ Example: UG Students, PG students – Are these two categories collectively exhaustive?
§ Suppose all conditions hold and still argue against the hypothesis.
(2) Mutually exclusive means that the conditions must not overlap.
§ Example: UG Students, PG students, MBA students – are these three categories mutually
exclusive?

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 like Top Strategy Consultants. Cham: Springer International Publishing: Imprint: Palgrave Macmillan.
Source: Garrette B, Phelps C, Sibony O. 2018. Cracked It!: How to Solve Big Problems and Sell Solutions
Mutually Exclusive and Collectively Exhaustive (MECE)

Cartesian Rules:

1. Accept nothing for true without questioning it thoroughly. (“critical thinking”)

2. Divide each issue into parts until you find adequate solutions to each
elementary issue. (disaggregation of problems)
3. Conduct analyses by starting with the simplest issues and ascending step by
step to reach more complex issues, while keeping a sense of order and
priority, especially when considering disconnected issues.
4. Make sure nothing is omitted.

Source:
Garrette B, Phelps C, Sibony O. Cracked It!: How to Solve Big Problems and Sell Solutions like Top Strategy Consultants. Cham : Springer International Publishing : Imprint: Palgrave Macmillan, 2018. 32
LIBRARY LINK
Problem-Solving - Which questions do you ask?
How has the market size evolved?

How has the market share of Indian exporters and

Indonesia
competitor countries evolved?

How have prices of all competitors evolved?

How large is the price gap between India’s exporters and

Diversify
its competitors?
Exports

Turkey

Thailand

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 Legend:

Measures (SPS)
shows that…

AVE = ad valorem equivalent

Evidence

TBS = Technical Barriers to Trade

SPS = Sanitary and Phytosanitary

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Source: Disdier, A. C., Fontagné, L., & Mimouni, M. (2008). The impact of regulations on agricultural trade:
evidence from the SPS and TBT agreements. American Journal of Agricultural Economics, 90(2), 336-350.
Discussions
What is the nature of the relationship between
importing and exporting?
How may importing affect export success?

• Imports of raw materials à into export products

• (-) nurture domestic industry ßà(+) competition à productivity
• Import components from low-cost countries to improve cost structure
• Import technology, machinery, etc. à increase productivity of the process
• Import (smart) people
• Imports of technology à product innovation à “quality”
• Imports of components à “variety” à broader range of products (one-sto—shop,
diversification)
• “natural Hedge” against currency fluctuations

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