INTERNATIONAL

BUSINESS AND TRADE

Prepared by: Prof. Noriel Jim Pineda

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 Chapter 1
The International Business Imperative

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 Learning Objectives
 To understand the history and impact of
international business.
 To learn the definition of international business.
 To recognize the growth of global linkages today.
 To understand the U.S. position in world trade
and the impact international business has on the
United States.
 To appreciate the opportunities and challenges
offered by international business.

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 Need for International Business
 More and more firms around the world are going global, including:
 Manufacturing firms
 Service companies (i.e. banks, insurance, consulting firms)
 Art, film, and music companies

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 Need for International Business
 International business:
 causes the flow of ideas, services, and
capital across the world
 offers consumers new choices
 permits the acquisition of a wider
variety of products
 facilitates the mobility of labor,
capital, and technology
 provides challenging employment
opportunities
 reallocates resources, makes preferential
choices, and shifts activities to a global
level 5
What is International Business?

International business consists of transactions that are devised and

carried out across national borders to satisfy the objectives of
International business consists of
individuals, companies, and organizations.
transactions that are devised and carried
out across national borders to satisfy the
objectives of individuals, companies, and
organizations.

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Types of International Business

Export-import trade
Foreign direct
investment

Licensing

Franchising

Management contracts
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International Business Questions
 How will an idea, good, or service fit
into the international market?
 Should trade or investment be used to
enter a foreign market?
 Should supplies be obtained
domestically or abroad?
 What product adjustments are
necessary to be responsive to local
conditions?
 What are the threats from global
competitors, and how can these threats
be counteracted? 8
 International Business and the Roman
Empire
 Pax Romana, or Roman Peace ensured that
merchants were able to travel safely and
rapidly.
 Common coinage simplified business
transactions.
 Rome developed a systematic law, central
market locations, and an effective
communication system; all of which enabled
international business to flourish in the Roman
Empire.
 The growth of the Roman Empire occurred
mainly through the linkages of business
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 International Business and the Roman
Empire (cont.)

 The decline of the Roman Empire can be

attributed in part to:
 infighting and increasing decadence
 the Pax Romana being no longer enforced
 the decline of use and acceptance of the common
coinage
 declining levels of communication
 Asa result, former Roman allies
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cooperated with invaders.

 United States: A Global Leader

 TheUnited States has developed a world

leadership position due to:
 itsuse of market-based transactions in the
Western world
 a broad flow of ideas, goods, and services
across national borders
 an encouragement of international
communication and transportation
 Pax Americana, an American sponsored and
enforced peace 11
 The Smoot-Hawley Act
 The the 1930’s, the U.S. passed the Smoot-
Hawley Act, which raised import duties to
reduce the volume of goods coming into the
U.S.

 Theact was passed in the hope that it would

restore domestic employment.

 Theresult was a worldwide depression and

the collapse of the world financial system.
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 Expansion of International Trade
 In the past 30 years, the volume of
international trade has expanded from
$200 billion to over $7.5 trillion.

 The sales of foreign affiliates of

multinational corporations are now twice
as high as global exports.

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 Global Links Today
 International business has created a network
of global links that bind countries,
institutions, and individuals with trade,
financial markets, technology, and living
standards.
 For example, a reduction in coffee production in
Brazil would affect individuals and economies
worldwide.

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 Recent Changes in International
Business
 Total world trade declined dramatically
after 2000, but is again on the rise.

 The rate of globalization is accelerating.

 Regionalization is taking place, resulting in

trading blocs.

 The participation of countries in world

trade is shifting. 15
 The Composition of Trade
 Between the 1960’s and the 1990’s the
importance of manufactured goods
increased while the role of primary
commodities (i.e. rubber or mining) had
decreased.
 More recently, there has been a shift of
manufacturing to countries with emerging
economies.
 There has been an increase in the area of
services trade in recent years.
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 The Current U.S. International Trade
Position

Exports and Imports of Goods and Services per Capita

for Selected Countries

Country Exports per Capita Imports per Capita

Australia $4,296 $4,525
Brazil 379 428
China 222 199
Japan 4,165 3,622
Kenya 91 125
United Kingdom 4,767 5,500
United States 3,472 17 4,962
The Impact of International Business on
the United States

 U.S.international business outflows are

important on the macroeconomic level in
terms of balancing the trade account.

 On the microeconomic level, participation

in international business can help firms
achieve economies of scale that cannot be
achieved in domestic markets.
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Average Plant Salary and Wages (per
worker, dollars per hour)

30

25

20
$ per hour

15

10

0
All Plants Small Plants Large Plants

Non-Exporters Exporters 19
 Globalization
 Because of globalization, for the first time in history, the availability
of international products and services can be accessed by individuals
in many countries, from diverse economic backgrounds.

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 The Structure of this Book

 Part One introduces the importance of international

business and its global linkages.
 Part Two presents the environment of international
business, addressing culture, policies, politics, and
law.
 Part Three provides coverage of the theory of
international trade and investment and presents
balance of payments issues.
 Part Four discusses markets, financial systems,
economic integration, and emerging market
concerns. 21
 The Structure of this Book (cont.)

 Part Five presents the strategy considerations

surrounding international business.
 Part Six targets the operational issues surrounding
international business, using an implementation-
oriented perspective.
 Part Seven concludes the book with a focus on the
future of the field and the reader’s career.

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