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Created By:

Santhosh Anvekar

International Trade
International trade is an exchange of capital,

goods and services across international borders.


In most countries, it represents a significant
share of gross domestic product (GDP).
International trade has been present throughout
the history, its economic, social and political
importance has been on the rise in recent
centuries.

International Trade
The 2008 global financial crisis and subsequent slowdown

in the world economy has clearly demonstrated that


tremor originating in one corner of the world can quickly
reach other parts among others via the trade channel.
The 2008 crisis left world trade (both goods and services)
shattered with a steep fall to a negative 19.8% in 2009.
For five years before the crisis (20032007) world trade
value grew at a robust 16.6% (compound annual growth
rateCAGR) and for five years after the crisis (2009-2013)
it grew at a subdued 9.9%.
Indias exports (goods and services) which also had robust
growth of 30.1% in the five pre-crisis years (2003-2007)
decelerated to 16.0% in the five post-crisis years (20092013).

Importance of International Trade


Without

international trade, nations would be


limited to the goods and services produced within
their own borders.
International trade is the backbone of modern
commercial world, as producers in various nations
try to profit from an expanded market, rather than
be limited to selling within their own borders.
There are many reasons that trade across national
borders occurs, including lower production costs in
one region versus another, specialized industries,
lack or surplus of natural resources and consumer
tastes.

Risk in International Trade


Buyer insolvency (purchaser cannot pay);
Non-acceptance (buyer rejects goods as different

from the agreed upon specifications);


Credit risk (allowing the buyer to take possession of
goods prior to payment)
Regulatory risk (e.g., a change in rules that prevents
the transaction)
Intervention (governmental action to prevent a
transaction being completed)
Political risk (change in leadership interfering with
transactions or prices)
War and other uncontrollable events.
In addition, international trade also faces the risk of
unfavorable exchange rate movements

Trade in India
Trade and commerce have been the backbone of
the Indian economy right from ancient times.
Textiles and spices were the first products to be
exported by India.
The Indian trade scenario evolved gradually after
the countrys independence in 1947. From the
1950s to the late 1980s, the country followed
socialist policies, resulting in protectionism and
heavy regulations on foreign companies conducting
trade with India.

Merchandise Trade

Indias ranking in the top merchandise exporters


and importers in the world has also improved from
31st in 2000 to 19th in 2013 in exports and from 26th
to 12th for imports in the same years, as per the
World Trade Organization (WTO).

Also an improvement in Indias total merchandise


trade to GDP ratio from 21.8% in 2000-01 to 44.1%
in 2013-14.

Services Trade

In commercial services trade, India was the sixth


largest exporter with 3.4% share of world exports
and seventh largest importer with 3.0% share of
world imports in 2012.
The 2008 global financial crisis gave a big jolt to
Indias service exports. In the five years prior to
2008 (i.e. 2003-04 to 2007-08) service export
growth (CAGR) at 35.4% was faster and way above
the merchandise export growth at 25.8%.
In the five years post crisis (2008-09 to 2012-13),
service export growth at 8.3% was below the 12.8%
merchandise export growth.
In 2012-13, service exports at US$ 145.7 billion
showed a lower growth of 2.4% compared to the
14.2% in the preceding year. They improved

Indias Trade - Imports


Indias major imports comprise of crude oil, machinery,
military products, fertilizers, chemicals, gems, antiques and
artworks. Imported goods are divided into the following
categories:
Freely importable items: For these items, no import license is

required. They can be freely imported by an individual or a


firm.
Canalized items: These items can only be imported by public

sector firms. For example petroleum products fall under this


category.
Prohibited items: Items such as unprocessed ivory, animal

rennet and tallow fat cannot be exported to India.

Indias Import Performance

Indias Trade - Exports


Indian exports comprise mainly of engineering and

textile products, precious stones, petroleum products,


jewelry, sugar, steel chemicals, zinc and leather
products. Most of the exported goods are exempt
from export duties.
India also exports services to several countries,
primarily to the US. In fact, India is among the worlds
largest exporters of services related to information
and communication technology (ICT). It is also the key
destination for business process outsourcing (BPO).

Indias Exports Performance

EXIM Bank
Set up by an act (Export-Import Bank of India) of
parliament in September 1981
Wholly owned by Government of India
Commenced operations in march, 1982
Established for providing financial assistance to
exporters and importers and for functioning as
the principal financial institution for coordinating
the working of institutions engaged in financing
export and import of goods and services with a
view to promoting the countrys international
trade

Indias Foreign race

(As per the RBI Press Release dated 15th September,


2014)
A. EXPORTS (Receipts)
Exports during July, 2014 were valued at US $
13344
Million (Rs. 80142.20 Crore).
B. IMPORTS (Payments)
Imports during July, 2014 were valued at US $
6822 Million (Rs. 40971.98 Crore).
C. TRADE BALANCE
The trade balance in Services (i.e. net exports of
Services)
for July, 2014 was estimated at US $ 6522
Million.

Trade Barrier
What is a trade barrier? What is a physical trade

barrier?
A trade barrier is an obstacle to (or
something that stops) trade
A physical trade barrier is a natural barrier like
mountains, rainforests, deserts

Trade Barrier 1: Tariffs


A tariff is a tax on imported products or

services. In the case of tariffs imposed by the


United States, the business that imports or
produces the foreign product must pay the tax to
the U.S. government. The tariff revenue goes
directly to the U.S. Treasury.

Draw a dollar sign


next to tariff so you
remember, Tariff =
taxes = money

Example of a Tariff
Two companies sell athletic shoes in the US.
Company 1 is located in Brazil.
Company 2 is in Hershey, Pennsylvania.
A tariff must be paid on all shoes made outside

the US and sold in the US. The tariff is 10% of all


sales. Both companies sell shoes at a price of
$100 per pair
1. Which company must pay the tariff? Which
company benefits from the tariff?
2. How much will the tariff cost the company?
3. Who receives the revenues generated by
the tariffs?

Trade Barrier 2 - Quota


A quota is a limit on the amount of

goods that can be imported. Putting a


quota on a good creates a shortage (or a
scarcity), which causes the price of the good
to rise and allows domestic (inside the
country) producers to raise their prices and to
expand their production.
Draw a slow
down sign so
you remember
Quota is a way
to limit or slow
down trade

Example of Quota
Germany has imported 2 million tons of steel from

France every year for the past decade.


Germany then started an import quota on steel.
Germany now only imports around 1 million tons of
steel from France, but the country of Germany still
uses around 3 tons of steel a year.
1.How will this impact German steel

companies?
2.How will this impact French steel companies?
3.Why would a country do this?

Embargo
An embargo stops exports or imports

(sending goods to another country and getting


goods from another country) of a product or
group of products. Sometimes all trade with
a country is stopped, usually for political
reasons.
Draw a stop sign
so you remember
that an embargo
means countries
stop trading with
others

Example of Embargo
Last year Spain had some political
disagreements with Greece, so they enacted
an embargo against Greece. With the
embargo, no Greek ships are allowed in
Spanish ports.
1. How will this impact Greece?
2. Why would Spain want to do this?
3. Will Spain benefit from this decision?

Decide what kind of barrier is being


imposed in the following examples
1.A tax of 15% makes jewelry from Mexico more

expensive than jewelry make in the United States.


2.2. The European Union prohibits the importing of
meat products from animals treated with growthpromoting hormones.
3.Korea may export only 15,000 automobiles a year
to the United States.

Going Global Case about Small


Business
When describing the global company, many people continue to think
of a multinational corporation with operations in every metropolitan
area around the world. How the reason described above now come
into many shapes and forms.
A processed food business in San Francisco specializing in favorite
dishes decides to export its product to Hongkong to tap into Asian
population
A manufacturer of popular dolls in Minnesota contracts with local
distributor in Scandinavia for promotion and sale of its doll in the
region. The manufacturer is able to capitalize demographics and
opportunities for using its own promotional assets (TV commercials)
A producer of animated televisions series in New York localizes the
content for distribution in Japan
A local dressmaker in the Carolinas uses parts imported from China
The point is that most companies are already linked to the global
economy, even if they dont spend a whole lot of time thinking about
it

Going Global Case about Small


Business
Every small town has its small business. Most sell rather with
in limited area. The customers of the laundry usually live with
in few blocks, groceries are neighborhood oriented; even large
furniture stores only caters to those in their metropolitan area.
However in towns around US, small business are turning to
foreign market as a means of increasing sales.
At times, international sales are conscious decision based on
considerable thought and sales.
At other times, companies accidentally and suddenly with out
much forethought find that they are doing business global

Going Global Case about Small


Business
One Real World example illustrates how a small local business can
suddenly Go Global.
Dining plates was a small manufacturer of dental plates that employed
less than 50 people . The company started its international marketing
by experiment at a marketing meeting ,a junior member suggested
the company run an ad in a foreign trade journal she had picked
up an vacation and see if there was any interest in its products .
Essentially the same as its US ads, the only difference was that the ads
was translated to appropriate language.
The next year, it received several inquiries. These inquiries led to sales.
In less than 2 years, nearly 10% of sales order came from overseass.
Soon company found that it was faced with dilemma. Competitors had
heard about and became impressed with its foreign sales and were
attempting to attract the foreign customers. Dining plated had to fight
back or lose customers.

Going Global Case about Small


Business
The real questions was, what would be the most effective way
of not only retaining customers but expanding sales ?
After series of internal discussions, true potential for growth
was overseas where similar manufacturers were less
technologically developed and less experienced in marketing.
Dining Plates made decision to broaden its international sales
through Indirect marketing. An overseas agent was
sought. If this proved profitable, company would look
for establishing the joint venture or overseas
subsidiaries.
The results were favorable for the company to launch
full involvement in attractive foreign markets through
creation of it own sales office.

Going Global Case about Small


Business
The Success of Dining plate has important lesson
It demonstrates that small companies can be involved

in international sales and make profit


Any company can trade abroad as long as it has a

marketable product
In some cases, companies may wake up and

unexpectedly discover that they are global companies.


Below is the statement made by one of the successful
President of a small business
Little fellow with careful research, planning and

perhaps some unorthodox moves can successfully


enter

Going Global Case about Small


Business
Some points to consider
Doing business in remote location carries higher risk for

smaller companies
Minor mistake can cause disaster to the small companies,

but only small loss o bigger companies


If a small business makes a misstep in new foreign, it may

not be able to support even a minor drain on available


financial resource and the distraction caused by overseas may
cause the firm to fall behind the competitors that have elected
to focus solely on their own backyards.