BUSINESS AND TRADE

CONCEPTS:
AN INTRODUCTION

__________
ROSALIA TAN BENOZA
Faculty, CBMA
Business and Trade Concepts
International business relates to any situation
where the production or distribution of goods or
services crosses country borders. Globalization
—the shift toward a more interdependent and
integrated global economy—creates greater
opportunities for international business.
Business and Trade Concepts
Such globalization can take place in terms of
markets, where trade barriers are falling and
buyer preferences are changing. It can also be
seen in terms of production, where a company
can source goods and services easily from
other countries.
Business and Trade Concepts
Exchanges beyond the exchange of
money for physical goods, to include
international transfers of other
resources,- people, intellectual property
(patents, brand trademarks), and
contractual assets or liabilities (the right
to use some foreign asset, provide some
future service to foreign customers,
Business and Trade Concepts
…or execute a complex financial
instrument).
Entities involved in international business
range from large multinational firms with
thousands of employees doing business in
many countries around the world to a small
one-person company acting as an importer
or exporter.
Business and Trade Concepts
International business also encompasses
for-profit border-crossing transactions as
well as transactions motivated by
nonfinancial gains (corporate social
responsibility, and political favor) that affect
a business’s future.
(Foreign foundations helping street
children.)
Business and Trade Concepts
1. Trading . Trade is exchanging goods
and services between two people or
entities. International trade is the concept
of this exchange between people or
entities in two different countries.
Business and Trade Concepts
Phil DTI give assistance to companies
aspiring to export goods. Exporting-
selling products overseas, while
Importing is buying products from
another country. A - trade surplus
happens when total value of exports
Business and Trade Concepts
exceeds total value of imports, while
unfavorable balance of trade- trade
deficit occurs when total value of exports
is lower than total value of imports. A
trade deficit means more US dollars (or
foreign earnings), going out, while a
Business and Trade Concepts
.. trade surplus means more inflows of
foreign currencies than outflows of foreign
currencies.
2. Foreign Direct Investing. Foreign
investment is buying of permanent
property and business in foreign countries
Business and Trade Concepts
…The most common form of investment is
a foreign subsidiary, a company owned in
a foreign country by another company
called parent company . One example is
Nestle Philippines, a subsidiary of Nestle
USA. It operates like a domestic firm with
 Business and Trade Concepts
Business in Global Markets

.. production, distribution, and other

business functions under the direction of
the subsidiary’s management. The
subsidiary follows legal requirement in the
country where it is located (host country),
and the country of its parent company.
 Business and Trade Concepts
Business in Global Markets

An advantage is that parent company has

complete control over its technology. But
possible problem of expropriation of
technology and capital assets of the
foreign company once relations with host
country becomes problematic.
 Business and Trade Concepts
Business in Global Markets
● Another form is portfolio investments. Foreigners
can buy ownership shares (equity stocks) in
another company overseas, like Saudis owning
shares in Petron Philippines. Foreigners can also
buy debt instruments (bonds) from a foreign
company, like Universal Robina Corp selling its
bonds abroad.
 Business and Trade Concepts
3. Franchising. A franchise agreement arrangement
wherein a person with good business idea
(franchisor) sells the rights to use the business name
and sell the product or service (the franchise), to
others (the franchisees) in a given territory. A franchise
can be formed as a sole proprietor, partnership or a
corporation. Example: McDonalds
 Trade Concepts and Theories
4. Outsourcing. One business phenomenon is the
growth of outsourcing in global markets. One type
of outsourcing is contract manufacturing. In this
set up, a foreign company (for example a Thai
company) produces private label goods to which a
domestic company (example, Japanese Honda
company) then attaches its own brand name or
trademark.
Trade Strategies of the Philippines
Major Policies in the Trade Sector
Since the 1980s, the Philippines has adopted
an export-oriented strategy. Government
agencies like DTI and DOST have worked
together to assist businesses to innovate, and
to develop products to penetrate foreign
markets. Trade exhibits were held in key cities.
showcase high quality export goods of the
 Trade Strategies of the Philippines
2. To support development of exports, an
import liberalization strategy was also
implemented. Private businesses can freely
import necessary inputs to their production. At
present, within the ASEAN Economic
Community, most of the taxes on imports were
lowered or lifted, such as the lower import
taxes on palm oil imports from Malaysia.
 Trade Strategies of the Philippines
3. To complement the free trade policy of the
Philippines, a flexible exchange rate system
was adopted. Since the 1990s, the Philippine
peso freely moves depending on the demand
and supply for foreign currencies. For
exporters, they received the real peso value of
export earnings, while true costs of imported
inputs are recorded.
Economic Systerms to Allocate Resources
Features of Capitalism
a.Market decisions based on the price system
and profit motive
b. People have private ownership of properties
like lands, buildings
c. Business has economic freedom to choose
business venture and earn profits
Economic Systerms to Allocate Resources
Features of Capitalism
d. Consumers and producers free to allocate
their own resources
e. Governments do not interfere in economic
decisions of consumers and businesses
f. Governments limited to providing public
services
Economic Systems to Allocate Resources
Features of Communism
a. All decisions, including business decisions,
are made by the Central Communist Party
(CCP) of the State.
b. CCP decides on the pricing of goods
c. State owned properties, citizens only lease
from the state
c.
Economic Systems to Allocate Resources
Features of Communism
d. Centrally planned system, CCP decides on
three economic questions- what to produce,
how to produce and for whom to produce
e. No profit incentives for the business sector
Trade Concepts and Theories
..
 Business and Trade Concepts
Business in Global Markets
4. Licensing. A firm (licensor) allows a foreign
company (licensee) to use its trademark and
produce its products in exchange for a fee
(royalty). Coca Cola has entered into global
licensing agreements, reaching 300 licenses.
 Business and Trade Concepts
Business in Global Markets
● Licensing … Service based companies also
used licensing. Fredericks of Hollywood
entered into licensing agreement with
Emirates Associated Bus Group to build and
operate Fredericks of Hollywood stores in the
Middle East.