INTERNATIONAL BUSINESS AND TRADE

Background for International Business and Trade

What is International Business?

International business encompasses all commercial activities that take place to promote the transfer
of goods, services, resources, people, ideas, and technologies across national boundaries.

 International business occurs in many different formats:

 The movement of goods from country to another (exporting, importing, trade)
 Contractual agreements that allow foreign firms to use products, services, and processes from
other nations (licensing, franchising)
 The formation and operations of sales, manufacturing, research and development, and
distribution facilities in foreign markets

s International business encompasses a full range of cross-border exchanges of goods, services, or

resources between two or more nations. These exchanges can go beyond the exchange of money for
physical goods to include international transfers of other resources, such as people, intellectual
property (e.g., patents, copyrights, brand trademarks, and data), and contractual assets or liabilities
(e.g., the right to use some foreign asset, provide some future service to foreign customers, or
execute a complex financial instrument). The 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. This broader definition of
international business also encompasses for-profit border-crossing transactions as well as
transactions motivated by nonfinancial gains (e.g., triple bottom line, corporate social responsibility,
and political favor) that affect a business’s future.
What Is a Business?
A business is defined as an organization or enterprising entity engaged in commercial, industrial, or
professional activities. Businesses can be for-profit entities or they can be non-profit organizations
that operate to fulfill a charitable mission or further a social cause.
The term "business" also refers to the organized efforts and activities of individuals to produce and
sell goods and services for profit. Businesses range in scale from a sole proprietorship to an
international corporation. Several lines of theory are engaged with understanding business
administration including organizational behavior, organization theory, and strategic management.
What is trade?
Trade is a basic economic concept involving the buying and selling of goods and services, with
compensation paid by a buyer to a seller, or the exchange of goods or services between parties.
Trade can take place within an economy between producers and consumers.
International trade allows countries to expand markets for both goods and services that otherwise
may not have been available to it. It is the reason why an American consumer can pick between a
Japanese, German, or American car. As a result of international trade, the market contains greater
competition and therefore, more competitive prices, which brings a cheaper product home to the
consumer.
The rise of globalization
Globalization defined
It refers the process of interaction and integration among people, companies, and
governments worldwide. Globalization has accelerated since the 19th century due to advances
in transportation and communication technology. This increase in global interactions has caused a
growth in international trade and the exchange of ideas and culture. Globalization is primarily an
economic process of interaction and integration that is associated with social and cultural aspects.
However, conflicts and diplomacy are also large parts of the history of globalization, and of modern
globalization.

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History of globalization
The historical origins of globalization are the subject of ongoing debate. Though many scholars
situate the origins of globalization in the modern era, others regard it as a phenomenon with a long
history. Some authors have argued that stretching the beginning of globalization far back in time
renders the concept wholly inoperative and useless for political analysis.
Archaic globalization
Perhaps the extreme proponent of a deep historical origin for
globalization was Andre Gunder Frank, an economist associated
with dependency theory. Frank argued that a form of globalization has
been in existence since the rise of trade links between Sumer and
the Indus Valley Civilization in the third millennium BC. Critics of this
idea contend that it rests upon an over-broad definition of globalization.
Thomas L. Friedman divides the history of globalization into three
periods: Globalization 1.0 (1491–1800), Globalization 2.0 (1800–2000) and Globalization 3.0
(2000–present). He states that Globalization 1.0 involved the globalization of countries,
Globalization 2.0 involved the globalization of companies and Globalization 3.0 involves the
globalization of individuals.
Even as early as the Prehistoric period, the roots of modern globalization could be found.
Territorial expansion by our ancestors to all five continents was a critical component in
establishing globalization. The development of agriculture furthered globalization by
converting the vast majority of the world's population into a settled lifestyle. However,
globalization failed to accelerate due to lack of long-distance interaction and technology. The
contemporary process of globalization likely occurred around the middle of the 19th century
as increased capital and labor mobility coupled with decreased transport costs led to a
smaller world.
The 13th century world-system
An early form of globalized economics and culture, known as archaic globalization, existed
during the Hellenistic Age, when commercialized urban centers were focused around the axis
of Greek culture over a wide range that stretched from India to Spain, with such cities
as Alexandria, Athens, and Antioch at its center. Trade was widespread during that period,
and it is the first time the idea of a cosmopolitan culture (from Greek "Cosmopolis", meaning
"world city") emerged. Others have perceived an early form of globalization in the trade links
between the Roman Empire, the Parthian Empire, and the Han Dynasty. The increasing
articulation of commercial links between these powers inspired the development of the Silk
Road, which started in western China, reached the boundaries of the Parthian empire, and
continued onwards towards Rome.
The Islamic Golden Age was also an important early stage of globalization,
when Jewish and Muslim traders and explorers established a sustained economy across
the Old World resulting in a globalization of crops, trade, knowledge and technology. Globally
significant crops such as sugar and cotton became widely cultivated across the Muslim
world in this period, while the necessity of learning Arabic and completing the Hajj created a
cosmopolitan culture.
The advent of the Mongol Empire, though destabilizing to the commercial centers of the
Middle East and China, greatly facilitated travel along the Silk Road. This permitted travelers
and missionaries such as Marco Polo to journey successfully (and profitably) from one end
of Eurasia to the other. The Pax Mongolica of the thirteenth century had several other notable
globalizing effects. It witnessed the creation of the first international postal service, as well as
the rapid transmission of epidemic diseases such as bubonic plague across the newly unified
regions of Central Asia.[8] These pre-modern phases of global or hemispheric exchange are
sometimes known as archaic globalization. Up to the sixteenth century, however, even the
largest systems of international exchange were limited to the Old World.

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Proto-globalization
The next phase is known as proto-globalization. It was
characterized by the rise of maritime European empires, in the
16th and 17th centuries, first the Portuguese and Spanish
Empires, and later the Dutch and British Empires. In the 17th
century, globalization became also a private business
phenomenon when chartered companies like British East India
Company (founded in 1600), often described as the
first multinational corporation, as well as the Dutch East India Company (founded in 1602)
were established.
The Age of Discovery brought a broad change in globalization, being the first period in which
Eurasia and Africa engaged in substantial cultural, material and biologic exchange with
the New World. It began in the late 15th century, when the two Kingdoms of the Iberian
Peninsula – Portugal and Castile – sent the first exploratory voyages around the Cape of Good
Hope and to the Americas, "discovered" in 1492 by Christopher Columbus. Shortly before the
turn of the 16th century, Portuguese started establishing trading posts (factories) from Africa
to Asia and Brazil, to deal with the trade of local products like slaves, gold, spices and timber,
introducing an international business center under a royal monopoly, the House of India.
Global integration continued with the European colonization of the Americas initiating
the Columbian Exchange, the enormous widespread exchange of plants, animals, foods,
human populations (including slaves), communicable diseases, and culture between
the Eastern and Western hemispheres. It was one of the most significant global events
concerning ecology, agriculture, and culture in history. New crops that had come from the
Americas via the European seafarers in the 16th century significantly contributed to the
world's population growth.
Age of Discovery (15th-18th centuries)
Truly global trade kicked off in the Age of Discovery. It was in this era, from the end of the
15th century onwards, that European explorers connected East and West – and accidentally
discovered the Americas. Aided by the discoveries of the so-called “Scientific Revolution” in
the fields of astronomy, mechanics, physics and shipping, the Portuguese, Spanish and later
the Dutch and the English first “discovered”, then subjugated, and finally integrated new
lands in their economies.
The Age of Discovery rocked the world. The most (in) famous “discovery” is that of America
by Columbus, which all but ended pre-Colombian civilizations. But the most consequential
exploration was the circumnavigation by Magellan: it opened the door to the Spice islands,
cutting out Arab and Italian middlemen. While trade once again remained small compared to
total GDP, it certainly altered people’s lives. Potatoes, tomatoes, coffee and chocolate were
introduced in Europe, and the price of spices fell steeply.
Yet economists today still don’t truly regard this era as one of true globalization. Trade
certainly started to become global, and it had even been the main reason for starting the Age
of Discovery. But the resulting global economy was still very much siloed and lopsided. The
European empires set up global supply chains, but mostly with those colonies they owned.
Moreover, their colonial model was chiefly one of exploitation, including the shameful legacy
of the slave trade. The empires thus created both a mercantilist and a colonial economy, but
not a truly globalized one.

First wave of globalization (19th century-1914)

This started to change with the first wave of globalization, which
roughly occurred over the century ending in 1914. By the end of the
18th century, Great Britain had started to dominate the world both
geographically, through the establishment of the British Empire, and
technologically, with innovations like the steam engine, the industrial
weaving machine and more. It was the era of the First Industrial
Revolution.
The “British” Industrial Revolution made for a fantastic twin engine of global trade. On the one hand,

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steamships and trains could transport goods over thousands of miles, both within countries and
across countries. On the other hand, its industrialization allowed Britain to make products that were in
demand all over the world, like iron, textiles and manufactured goods. “With its advanced industrial
technologies,” the BBC recently wrote, looking back to the era, “Britain was able to attack a huge and
rapidly expanding international market.”
The resulting globalization was obvious in the numbers. For about a century, trade grew on average
3% per year. That growth rate propelled exports from a share of 6% of global GDP in the early 19th
century, to 14% on the eve of World War I. As John Maynard Keynes, the economist, observed: “The
inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of
the whole Earth, in such quantity as he might see fit, and reasonably expect their early delivery upon
his doorstep.”
And, Keynes also noted, a similar situation was also true in the world of investing. Those with the
means in New York, Paris, London or Berlin could also invest in internationally active joint stock
companies. One of those, the French Compagnie de Suez, constructed the Suez Canal, connecting
the Mediterranean with the Indian Ocean and opened yet another artery of world trade. Others built
railways in India, or managed mines in African colonies. Foreign direct investment, too, was
globalizing.
While Britain was the country that benefited most from this globalization, as it had the most capital
and technology, others did too, by exporting other goods. The invention of the refrigerated cargo ship
or “reefer ship” in the 1870s, for example, allowed for countries like Argentina and Uruguay, to enter
their golden age. They started to mass export meat, from cattle grown on their vast lands. Other
countries, too, started to specialize their production in those fields in which they were most
competitive.
But the first wave of globalization and industrialization also coincided with darker events, too. By the
end of the 19th century, the Khan Academy notes, “most [globalizing and industrialized] European
nations grabbed for a piece of Africa, and by 1900 the only independent country left on the continent
was Ethiopia”. In a similarly negative vein, large countries like India, China, Mexico or Japan, which
were previously powers to reckon with, were not either not able or not allowed to adapt to the
industrial and global trends. Either the Western powers put restraints on their independent
development, or they were otherwise outcompeted because of their lack of access to capital or
technology. Finally, many workers in the industrialized nations also did not benefit from globalization,
their work commoditized by industrial machinery, or their output undercut by foreign imports.

The world wars

It was a situation that was bound to end in a major
crisis, and it did. In 1914, the outbreak of World War I
brought an end to just about everything the burgeoning
high society of the West had gotten so used to,
including globalization. The ravage was complete.
Millions of soldiers died in battle, millions of civilians
died as collateral damage, war replaced trade,
destruction replaced construction, and countries
closed their borders yet again.
In the years between the world wars, the financial
markets, which were still connected in a global web, caused a further breakdown of the global
economy and its links. The Great Depression in the US led to the end of the boom in South America,
and a run on the banks in many other parts of the world. Another world war followed in 1939-1945. By
the end of World War II, trade as a percentage of world GDP had fallen to 5% – a level not seen in
more than a hundred years.

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Modern globalization
The 19th century witnessed the advent of globalization approaching
its modern form. Industrialization allowed cheap production of
household items using economies of scale, while rapid population
growth created sustained demand for commodities. Globalization in
this period was decisively shaped by nineteenth-century imperialism.
After the First and Second Opium Wars, which opened up China to
foreign trade, and the completion of the British conquest of India, the
vast populations of these regions became ready consumers of European exports. It was in this period
that areas of sub-Saharan Africa and the Pacific islands were incorporated into the world system.
Meanwhile, the conquest of parts of the globe, notably sub-Saharan Africa, by Europeans yielded
valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment
between the European imperial powers, their colonies, and the United States.[12]
The inhabitant of London could order by telephone, sipping his morning tea, the various products of
the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and
imperialism of racial and cultural rivalries were little more than the amusements of his daily
newspaper. What an extraordinary episode in the economic progress of man was that age which
came to an end in August 1914.
Between the globalization in the 19th and in the 20th there are significant differences. There are two
main points on which the differences can be seen. One point is the global trade in this centuries as
well as the capital, investment and the economy.

Second and third wave of globalization

The story of globalization, however, was not over. The end of the World War II marked a new
beginning for the global economy. Under the leadership of a
new hegemon, the United States of America, and aided by the
technologies of the Second Industrial Revolution, like the car
and the plane, global trade started to rise once again. At first,
this happened in two separate tracks, as the Iron Curtain
divided the world into two spheres of influence. But as of 1989,
when the Iron Curtain fell, globalization became a truly global
phenomenon.
In the early decades after World War II, institutions like the
European Union, and other free trade vehicles championed by the US were responsible for much of
the increase in international trade. In the Soviet Union, there was a similar increase in trade, albeit
through centralized planning rather than the free market. The effect was profound. Worldwide, trade
once again rose to 1914 levels: in 1989, export once again counted for 14% of global GDP. It was
paired with a steep rise in middle-class incomes in the West.
Then, when the wall dividing East and West fell in Germany, and the Soviet Union collapsed,
globalization became an all-conquering force. The newly created World Trade Organization (WTO)
encouraged nations all over the world to enter into free-trade agreements, and most of them did,
including many newly independent ones. In 2001, even China, which for the better part of the 20th
century had been a secluded, agrarian economy, became a member of the WTO, and started to
manufacture for the world. In this “new” world, the US set the tone and led the way, but many others
benefited in their slipstream.
At the same time, a new technology from the Third Industrial Revolution, the internet, connected
people all over the world in an even more direct way. The orders Keynes could place by phone in
1914 could now be placed over the internet. Instead of having them delivered in a few weeks, they
would arrive at one’s doorstep in a few days. What was more, the internet also allowed for a further
global integration of value chains. You could do R&D in one country, sourcing in others, production in
yet another, and distribution all over the world.

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The result has been a globalization on steroids. In the 2000s, global exports reached a milestone, as
they rose to about a quarter of global GDP. Trade, the sum of imports and exports, consequentially
grew to about half of world GDP. In some countries, like Singapore, Belgium, or others, trade is worth
much more than 100% of GDP. A majority of global population has benefited from this: more people
than ever before belong to the global middle class, and hundred of millions achieved that status by
participating in the global economy.

Globalization
That brings us to today, when a new wave of globalization is once again upon us. In a world
increasingly dominated by two global powers, the US and China, the new frontier of globalization is
the cyber world. The digital economy, in its infancy during the third wave of globalization, is now
becoming a force to reckon with through e-commerce, digital services, 3D printing. It is further
enabled by artificial intelligence, but threatened by cross-border hacking and cyberattacks.
At the same time, a negative globalization is expanding too, through the global effect of climate
change. Pollution in one part of the world leads to extreme weather events in another. And the cutting
of forests in the few “green lungs” the world has left, like the Amazon rainforest, has a further
devastating effect on not just the world’s biodiversity, but its capacity to cope with hazardous
greenhouse gas emissions.

Why Companies Engage in International Business?

To Expand Sales
The first and foremost reason is that western multinationals would like to expand their sales and
acquire newer markets so that they can record impressive growth rates. Considering the fact that the
developing countries are peopled with consumers who have aspirations to western lifestyles, it is, but
natural that the western companies would like to target this need and hence, expand into these
markets. Moreover, with declining sales in one region, the western companies hope to recoup the
losses by expanding into other markets. Further, the attractive rates of return in the emerging markets
are another reason as well.
Acquire Resources
This is one of the most important reasons for companies to expand internationally. Because the
developing and emerging countries have large deposits of minerals, metals and land for agricultural
production, the western multinationals eye these markets in order to get access to the resources. This
is the reason why many international businesses operate in Africa and South Asia where the
humungous deposits of minerals and metals are attractive for the profits that these multinationals can
make. Many emerging markets and developing countries do not have the expertise or the resources
needed to tap their reserves of these minerals and metals. Hence, they welcome the multinationals
with open arms as it gives them royalties and other payments to grow their economies. As can be
seen from the expansion of Vedanta and the South Korean steel company (POSCO) into India, the
eagerness to tap the resources is one of the most important reasons for expansion.
Minimize Risk
Often, businesses expand internationally to offset the risk of stagnating growth in their home country
as well as in other countries where they are operating. For instance, ever since the Western countries
saw their growth rates slip to below 3% (in cases recording negative growth i.e. depression), the
Western multinationals have made a beeline to the emerging markets that are growing in excess of
5%. Since firms exist to make profits and grow their bottom lines, it is but natural for them to expand
internationally into countries that have better growth rates than their home country. Further, by
operating in a basket of countries as opposed to a few, they are able to manage political, economic,
and societal risks better. We had discussed the characteristics of these risks in earlier articles.
Because they vary from country to country, it makes sense to spread risk across countries and
diversify the portfolio rather than placing all eggs in one basket.
The U.S. position in international trade

As the United States enters the 21st century, it stands unchallenged as the world’s economic leader,
a remarkable turnaround from the 1980s when many Americans had doubts about U.S.
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“competitiveness.” Productivity growth—the engine of improvement in average living standards—has
rebounded from a 25-year slump of a little more than 1 percent a year to roughly 2.5 percent since
1995, a gain few had predicted.

Economic engagement with the rest of the world has played a key part in the U.S. economic revival.
Our relatively open borders, which permit most foreign goods to come in with a zero or low tariff, have
helped keep inflation in check, allowing the Federal Reserve to let the good times roll without hiking
up interest rates as quickly as it might otherwise have done. Indeed, the influx of funds from abroad
during the Asian financial crisis kept interest rates low and thereby encouraged a continued boom in
investment and consumption, which more than offset any decline in American exports to Asia. Even
so, during the 1990s, exports accounted for almost a quarter of the growth of output (though just 12
percent of U.S. gross domestic product at the end of the decade).

Yet as the new century dawns, America’s increasing economic interdependence with the rest of the
world, known loosely as “globalization,” has come under attack. Much of the criticism is aimed at two
international institutions that the United States helped create and lead: the International Monetary
Fund, launched after World War II to provide emergency loans to countries with temporary balance-
of-payments problems, and the World Trade Organization, created in 1995 during the last round of
world trade negotiations, primarily to help settle trade disputes among countries.
The attacks on both institutions are varied and often inconsistent. But they clearly have taken their
toll. For all practical purposes, the IMF is not likely to have its resources augmented any time soon by
Congress (and thus by other national governments). Meanwhile, the failure of the WTO meetings in
Seattle last December to produce even a roadmap for future trade negotiations—coupled with the
protests that soiled the proceedings—has thrown a wrench into plans to reduce remaining barriers to
world trade and investment.

For better or worse, it is now up to the United States, as it has been since World War II, to help shape
the future of both organizations and arguably the course of the global economy. A broad consensus
appears to exist here and elsewhere that governments should strive to improve the stability of the
world economy and to advance living standards. But the consensus breaks down over how to do so.
As the United States prepares to pick a new president and a new Congress, citizens and
policymakers should be asking how best to promote stability and growth in the years ahead.

The Philippine Globalization

Globalization is the interaction and integration among nations which is
driven by international trade. For the Philippines Globalization can be
seen in the increase of literacy. The influence of the United States and
“Uncle Sam” lead to high levels of English literacy in the Philippines
after World War II. This is considered globalization because the
influence of the United States created an increase of English literacy; it
introduced a new culture to the Philippines. The increase in literacy
allowed the Philippines to communicate and trade with more countries.

Another example of Globalization in the Philippines can be seen in the increase of industry. After the
Philippines joined the WTO, World Trade Organization, there has been several opportunities for other
countries to trade and create work for those in the Philippines. These foreign companies have helped
boost the economy. This example of globalization because through foreign trade countries have
helped boost each other’s economies. A third example of Globalization in the Philippines is the
remittance sector of the economy. Overseas workers send about 10.7 billion dollars back home to
their families. Which in return helps the Philippine’s economy. This is considered an example of
globalization because it opened the economy to foreign trade and policy.

Some of the pro's of globalization in the Philippines are, in my opinion, the boost to the developing
economy. Employment rates have increased and national debts have decreased since the
industrialization of the Philippines. I feel like globalization has helped the Philippines grow
economically and given them that boost they need to compete globally as a developed country.
The only downside to globalization, In my opinion, is that many of Filipino workers have been sent
overseas and separated from their families. This conflicts with their values as a family oriented
society.

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In the Philippines, countless Filipino lives have improved from the gainful employment of family
members overseas, or in business outsourcing firms and electronics companies that have flourished
here at home.

The same globalization has widened the choice of commodities and lowered and stabilized prices,
especially of basic commodities, that Filipino consumers now enjoy.

In its latest Economic Policy Monitor focused on the “New Globalization,” the Philippine Institute for
Development Studies (PIDS) notes how the global financial crisis of 2008 provoked a slowdown in
world trade.

Cosmopolitanism and international cooperation have been replaced by nationalism and confrontation,
and the recent rise in populist leaders has been part of this new twist.

Extreme positions of hatred, violence and ignorance are finding wider audiences with the proliferation
of social media, threatening to unravel the social fabric in dangerous ways.
PIDS notes that the new globalization is marked by
(1) economic restructuring,
(2) worsening inequality,
(3) dampened international cooperation on “global public goods” like communicable disease control,
counterterrorism measures and climate change mitigation, and
(4) weakening of social cohesion and trust.

LEARNING RESOURCES

Online resources
https://www.internationalrelationsedu.org/what-is-international-business/
https://www.investopedia.com/terms/b/business.asp
https://en.wikipedia.org/wiki/Globalization
http://philippines.weebly.com/globalization
https://opinion.inquirer.net/126356/the-new-globalization

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LEARNING ACTIVITIES

This activity is an individual activity;

A. Watch the following videos before you open the information input;

1. Introduction to International Businesshttps://www.youtube.com/watch?v=qyp7OZ0SJlA

a. What are the examples of business activities?
b. What comprises commercial business?
c. Differentiate international business from domestic business
d. How does business become international?
e. How important is it to be an international business in today’s world
(Note: your answer must be limited to 3 paragraphs with 100-200 words)

2. Basic concept of businesshttps://www.youtube.com/watch?v=qyp7OZ0SJlA

a. What Is a Business?
b. Explain the concept of business?
(Note: your answer must be limited to 3 paragraphs with 100-200 words)

3. Basic concept of trade https://www.youtube.com/watch?v=EfIi79C18aE

a. What is trade and how does it work?
b. What are those activities related to trade?
c. Explain the concept of trade?
d. How can we distinguish barter from trade?
e. What is barter trade? Mention any of its problem?.
f. Substantiate, in your own words, why do you pay for movie ticket and then go inside the
theatre?
g. What is international trade?
(Note: your answer must be limited to 3 paragraphs with 100-200 words)

4. The rise of globalization https://www.youtube.com/watch?v=JJ0nFD19eT8

a. What is globalization? https://www.youtube.com/watch?v=xPD477FuqtY
b. Substantiate, in your own words, what is the basic concept of globalization?
c. What are the examples of globalization?
d. Differentiate the disadvantages and advantages of globalization
(Note: your answer must be limited to 3 paragraphs with 100-200 words)
Note: Individual: Submit your answer via google classroom

Points to Ponder

B. Using your learning portfolio, Answer the following question;

1. What part of the module captured your attention?
2. Why do you like the topic?
3. How will you apply the topic to your daily life?
(Note: your answer must be limited to 3 paragraphs with 100-200 words)

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