RIZAL TECHNOLOGICAL UNIVERSITY

Cities of Mandaluyong and Pasig

MODULE No. 3 Applications

3.1. International Trade Barriers
3.2 International Business Environment

3.1 International Trade Barriers

What is the difference between International Business & International Trade?
International Business - may be defined simply as business transactions that take place across national
borders. Any business transaction between parties from more than one country is a part of international business.
The buying and selling of goods, product or services across the national boundaries of a country are known as
international business.
International Trade - is the exchange of goods and services between countries. This type of trade gives rise
to a world economy, in which prices, supply and demand are affected by global events.

Imports and Exports - Two components of International Trade.

Import refers to goods that a country buys from another country, whereas exports are goods that a county
sells to another country.

Why do business countries enter into international trade?

1. Difference in Technology
Technology- refers to the techniques used to turn resources (labor, land & capital) into outputs ( goods &
services).
2. Difference in Resources
Each country also has its own unique resources, some even only uniquely confined in their confined in their
borders. Advantageous trade can occur between countries if the countries differ in their endowments of resources.
Resource endowments refer to the skills and abilities of a country’s workforce, the natural resources
availability within its borders( minerals, farmland)etc.), and sophistication of its capital stock( machinery,
infrastructure, communications system).
3. Differences in Demand
Different countries equal to different cultures. Advantageous trade can occur between countries if demands
or preferences differ between countries . Individuals in different countries may have differ preferences or demands
for various products.
4. Existence of economies of scale in production
Economies of scale is the term referring to the relationship between production costs and scale of
production: when costs decrease, scales of production increase.
5. Existence of Government Policies
Government tax and subsidy programs alter the prices charged for goods & services. These changes can be
sufficient to generate advantages in production of certain products, advantageous trade may arise solely due to
differences in government policies across countries.

International Trade Barriers

Any regulation or policy that restricts international trade, especially tariffs, and others.
Trade barriers are government-induced restrictions on international trade, which generally decrease overall
economic efficiency.
4 Types:
1. Borders Barriers
2. Technical Barriers to Trade
3. Government Influence Barriers
4. Business Environment Barriers

COURSE TITLE : MGT 104

 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig
Tariff
A system of government-imposed duties levied on imported or exported goods; a list of such duties,
or the duties themselves. Is a type of trade barrier imposed by a government that acts as a tax on imports.
Forms of Tariff:
1. Specific – taxes that are on a per unit basis; example; Php 500 for each imported pair of shoes
2. Ad Valorem – taxes that work on a percentage basis; example; sales tax at 5%
3. Compound – combine the two; example; a set of clothes worth 1500, with specific tax of Php 150 and
sales tax of 5%. Compound tax is = Php 225.

Commonly Used Types of Trade Barriers

1. Price-based barriers -Imported goods & services sometimes have a tariff added to their price.
This is based on the value of the goods. Tariffs raise revenues for the government, discourage
imports and make local goods more attractive. Tariffs are paid to the customs authority of the
country imposing the tariff. The taxes owed on imports are paid by domestic consumers, and not imposed
directly on the foreign country’s exports.
2. Quantity Limits
Quantity limits, also known as quota’s, restrict the number of units that can be imported or the
market share that is permitted.
Quota is a quantity limit imposed on goods, embargo is a quota set at zero, meaning goods and
products on embargo status cannot be imported.
3. International Price Fixing
Sometimes a host of international firms will fix prices or quantities sold in an effort to control price.
This is known as cartel. Cartel is a group of firms that collectively agree to fix prices or quantities
sold in an effort a product’s price. Example: OPEC
4. Non-Tariff Barrier
These are rules, regulations and policies identified and imposed by a country that aids in delaying
procurement of imported and foreign goods.
A. Voluntary Export Restraints – this non-tariff barrier involves two countries agreeing on the limits
of the quantity of business they can export or import in a certain period of time.
B. Regulatory Barriers- these are legal methods used by countries, using the hands of the law to
regulate importation policies.

Subsidies – are defined as a form of support given to producers of a product that helps to reduce the cost
of production.
Types of Subsidies:
1. Production Subsidy – encourages suppliers to increase the production of a particular products by
offsetting part of the production costs or losses.
2. Consumption Subsidy – helps to encourage specific consumer behaviour, usually in the form of food,
water, healthcare and education.
3. Export Subsidy – it is a form of support from the government for products that are exported, as a means
of assisting the country’s balance of payments.
4. Employment Subsidy – serves as an incentives for businesses to provide more job opportunities to
reduce the level of unemployment in the country or to encourage research
and development.

3.2 International Business Environment

Cultural Dynamics
Increasing global trade comes with an increase in foreign employment. For the past 20 years, the
multicultural workforce has significantly grown in number, a feat that only makes it more important to develop
cultural awareness and understanding.
Culture - the sum total of the beliefs, rules, techniques, institutions , and artifacts that characterize human
populations or the collective programming of the mind. It can be develop through socialization process, or people of
a community influencing each other resulting in a shared pattern of behavior within their society.
COURSE TITLE : MGT 104
 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig
 A system of values and norms that are shared among a group of people and that when taken
together constitute a design for living.
 Values – abstract ideas about what a group believe to be good, right and desirable
 Norms – the social rules and guidelines that prescribe appropriate behavior in particular situations.
 Society – refer to a group of people who share a common set of values and norms.

Cultural Aspects that majorly influences business and trade.

1. Language one of a defining characteristics of a culture. Both the spoken and unspoken means of communications.

2.Religion a system of shared beliefs and rituals that are concerned with the realm of the sacred.

Ethical System refers to the set of moral principle, or values that are used to guide and shape behavior.

Christianity – is the most widely practiced religion in the world.

3. Cross-Cultural Management

4. Behavior & Preferences of clients

5. Ethnocentrism – is the belief that one’s own culture is far superior than anyone else’s.

HOFSTEDE’S FOUR (4) Dimensions of Culture (Geert Hofstede )

1. Power Distance
In this dimension, power is power. Employer-employee relationships are heavily one sided, with all favors
often leaning to the employer. This is a cultural dimension that measures the degree to which less powerful
members of organizations and institutions accept the fact that power is not distributed equally.
2. Uncertainty Avoidance
This cultural dimension is the extent to which people threatened by sudden and unusual situations tha
challenge their long-standing beliefs and institution.
3. Individualism
This cultural dimension refers to the tendency of people to look after themselves and their immediate family only.
4. Masculinity
This is a cultural dimension wherein the dominant priorities of a country relates to achievements,
assertiveness and material success, as opposed to countries with the opposite feminine values of relationships,
quality of life and modesty.

TROMPENAARS’S SEVEN (7) Dimension of Culture

1. Universalism versus Particularism
In this dimension, Universalistic culture, rules and regulations are applied in all situations,
regardless of particular conditions or circumstances.
2. Individualism versus Collectivism
This dimension, clearly building on Hofstede, centers on whether individual rights and values are dominant
or subordinate to those of the collective society.
3. Neutral versus Emotional
This reflects how much emotions are displayed in the workplace. This indicates whether emotional
or subjective , rather than objective forms of assessment are thought to be the basis for good decision making in the
organization.
4. Specific versus Diffuse
Do work relationship ( such as the hierarchical relationship between a senior Manager and a subordinate
exist just in the workplace ( are they specific) or do they extend into the social context outside the workplace

COURSE TITLE : MGT 104

 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig
5. Achievement versus Ascription
This dimension refers to one’s status within the organizations, contrasting those cultures where status,
credibility, authority, and ultimately power tend to be based on merit (achieved) against those were class, gender,
education or age tend to be the defining characteristics ( status is ascribed).
6. Attitudes towards Time
Sequential versus synchronic views of time to relate to punctuality for meetings and deadlines.
7. Attitudes towards the Environment
This dimension reflects the emphasis a particular culture places on people’s relationship with nature and the
natural environment.

The Global Leadership and Organizational Behavior Effectiveness ( GLOBE) 1992- This project is heavily
based on Hofstede and Trompenaars’s studies and has involved 150 researchers across 62 countries

GLOBE Project’s Nine (9) Dimensions of Culture

1. Assertiveness
2. Future Orientation – A propensity for planning, investing, delayed gratification.
3. Gender Differentiation - The degree to which gender role differences are maximized
4. Uncertainty Avoidance – A reliance on societal norms and procedures to improve predictability; a preference for
order , structures and formality.
5. Power Distance –
6. Institutional Collectivism – Promoting active participation in social institution
7. In-group /family collectivism – a pride in small group membership, family, close friends
8. Performance Orientation – much like achievement orientation
9. Human Orientation – an emphasis on fairness, altruism, and generosity

POLITICAL CONSIDERATIONS & ECONOMIC DIMENSIONS

Two Forms of Political System:
1. Democracy - gives the power to the people, either directly or through elected officials.
Common features of democracy
1. the right to express opinions freely
2. election or representatives for limited terms of office
3. an independent court system that protects individual property and rights, and
4. a relatively non political bureaucracy and defense infrastructure that ensure the continued operation of the system.
2. Totalitarianism – puts the power on one individual or political party. This party controls all aspects of running the
country and could either recognize or suppress other parties.
3. Communism – an economic system in which the government owns all property and makes all decisions regarding
the production and distribution of goods and services.
4. Free-Enterprise - is a business governed by the laws of supply and demand, where the government has no
involvement in its decisions or actions. This economic system is based solely on private ownership as the means of
production. It is a private system in which all means of production are privately owned and operated.

Economic system is the combination of the various agencies, entities (or even sectors as described by some
authors) that provide the economic structure that defines the social community.
Three Basic Economic System
1. Capitalism - Capitalism is generally considered to be an economic system that is based on private ownership of the
means of production and the creation of goods or services for profit by privately-owned business enterprises.
2. Socialism: Any of various economic and political philosophies that support social equality, collective decision-
making, distribution of income based on contribution and public ownership of productive capital and natural
resources, as advocated by socialists.
3. Mixed Economies - A system in which both the state and private sector direct the way goods and services are
bought and sold.
COURSE TITLE : MGT 104
 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig
THE FINANCIAL MARKET SYSTEM
Financial Market system affects all businesses, whether or not they are international firm or not. Today all
businesses deals with resources importation, foreign exchange and even exchange risks.

Foreign Exchange Market – is simply a mechanism through which transactions can be made between one country ‘s
currency and another.
 Is a market for the exchange of financial instruments denominated in different currencies.
 Any financial instruments that carries out payment from one currency to another.

Commercial bank – the most common location for foreign exchange transaction, which agrees to “make a market”
for the purchase and sale of currencies other than the local one.
Exchange Rate – is the value of one currency in terms of another.

2 Fundamental economic relationship

1. Purchasing Power Parity – is a theory of exchange rate determination that states that differences in prices of the
same goods between countries will be eliminated by exchange rates changes.
2. International Fisher Effect states that differences in nominal interest rate on similar risk deposits will be
eliminated by changes in the exchange rates.

Exchange Risk – is the possibility that a firm will be unable to adjust its prices and costs to exactly offset exchange
rate changes.
Alternatives to minimize or avoid Exchange Risk
 Risk Avoidance is the strategy of trying o avoid foreign currency transactions.
 Risk Adaptation - this strategy includes all methods of “hedging” against exchange rate changes.
 Risk Transfer – this involves the use of an insurance contract or guarantee that transfer the exchange risk to
the insurer or guarantor.
 Currency Diversification – final strategy for reducing the risk. A firm can reduce the risk of unexpected local
currency devaluations by spreading its assets and liabilities across several currencies.

International Monetary Fund

International Monetary System is a financial market in which only central banks and the International Monetary
Fund (IMF) operate, so private business plays no active role in it.
Refers to the system and rules that govern the use and exchange of money around the world and between
countries.
World Bank -Is an international development organization owned by 187 countries. Its role is to reduce poverty by
lending money to governments of its poorer members to improve their the standard of living of their people.
Central Bank - is a financial institution that is responsible for overseeing the monetary system and policy of a
nation or group of nations. _ regulating its money supply, and setting interest rates.
 Responsible for the formulation of monetary policy and the regulation of member banks.

References:
Nicholson, Grace A (2020). International Business and Trade Theory Application and Practice). International
Business, Lumen Learning

COURSE TITLE : MGT 104

 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

COURSE TITLE : MGT 104