International Business and Trade

I.
CONCEPTS, THEORIES AND PRINCIPLES OF INTERNATIONAL BUSINESS AND

GLOBALIZATION
Learning Objectives:
At the end of this chapter, the students should be able to:
1. understand the different theories on international trade;
2. know the underlying concepts of globalization; and
3. trace the development of international trade.
WHAT IS INTERNATIONAL BUSINESS?
International Business refers to the performance of trade and investment

activities across national borders. Firms organize, source, manufacture, market, and
conduct other value-adding activities on an international scale.
The growth of international business activity coincides with the broader

phenomenon of globalization of markets. The globalization of markets refers to the
ongoing economic integration and growing interdependency of countries world-
wide. While internationalization of the firm refers to the tendency of companies to
systematically increase the international dimension of their business activities,
globalization refers to a macrotrend of intense economic interconnectedness
between countries.
WHAT ARE THE KEY CONCEPTS IN INTERNATIONAL TRADE AND INVESTMENT?
1. International Trade – refers to an exchange of products and services across

national borders. Trade involves both products (merchandise) and services
(intangibles).
2. Exporting – an entry strategy involving the sale of products or services to customers

located abroad, from a base in the home country or a third country.
3. Importing or Global Sourcing – the procurement of products or services from

suppliers located abroad for consumption in the home country or a third country.
4. International Investment – refers to the transfer of assets to another country, or

acquisition of assets in that country. With trade, products and services cross
national borders. With investment, by contrast, the firm itself crosses borders to
secure ownership of assets located abroad.
5. International Portfolio Investment – refers to the passive ownership of foreign

securities such as stocks and bonds for the purpose of generating financial returns.
6. Foreign Direct Investment (FDI) – refers to an internationalization strategy in which

the firm establishes a physical presence abroad through acquisition of productive
assets such as capital, technology, labor, land, plant and equipment.
HOW DOES INTERNATIONAL BUSINESS DIFFER FROM DOMESTIC BUSINESS?
Firms engaged in international business operate in business environments

characterized by unique economic conditions, political systems, laws and regulations,
and national culture. For example, the economic environment of Philippines differs
sharply from that of China. The legal environment of Canada does not resemble that
of Saudi Arabia.
1|Page
Four (4) Risks in Internationalization
1. Cross-cultural risk – refers to a situation or event where a cultural

miscommunication puts some human value at stake. Cross-cultural risk is posed by
differences in language, lifestyles, mindsets, customs, and/or religion.
2, Country risk (also known as political risk) – refers to the potentially adverse effects
on company operations and profitably caused by developments in the political,
legal, and economic environment in a foreign country. It includes the possibility of
foreign government intervention in firms; business activities.
3. Currency risk (also referred to as financial risk) – refers to the risk of adverse
fluctuations in exchange rates. Fluctuation is common for exchange rates, or the
value of one currency in terms of another. Currency risk arises because
international transactions are often conducted in more than one national
currency.
4. Commercial risk – refers to the firm’s potential loss or failure from poorly developed
or executed business strategies, tactics, or procedures. Managers may make poor
choices in such areas as the selection of business partners, timing of market entry,
pricing, creation of product features, and promotional themes.
WHO PARTICIPATES IN INTERNATIONAL BUSINESS?
1. Multinational Enterprises (MNE)
Multinational enterprises (also known as multinational corporations) have

historically been the most important type of local firm. A multinational enterprise is
a large company with substantial resources that performs various activities
through a network of subsidiaries and affiliates located in multiple countries.
2. Small and Medium-sized Enterprise (SME)
A company with 500 or fewer employees in the United States, although this
number may need to be adjusted downward for other countries.
3. Born Global Firm
One type of contemporary international SME is the born global firm, a

young entrepreneurial company that initiates international business activity very
early in its evolution, moving rapidly into foreign markets.
4. Non-Governmental Organizations (NGOs)
In addition to profit-seeking local firms in international business, there are

numerous non-profit organizations that conduct cross-border activities. These
include charitable groups and non-governmental organizations (NGOs). They
pursue special causes and serve as an advocate for the arts, education, politics,
religion, and research. They operate internationally to either conduct their
activities or raise funds.
WHY DO FIRMS PURSUE INTERNATIONALIZATION STRATEGIES?
1. Seek opportunities for growth through market diversification. Substantial market

potential exists outside the home country. When they diversify into foreign markets,
2|Page
firms can generate sales and profit opportunities that cannot be matched at
home.
2. Earn higher margins and profits. For many types of products and services, market
growth in mature economies is sluggish or flat. Competition is often intense, forcing
firms to get by on slim profit margins. On the other hand, less intense competition,
combined with strong market demand, implies that companies can command
higher margins for their offerings.
3. Gain new ideas about products, services and business methods. International
markets are characterized by tough competitors and demanding customers with
various needs. Unique foreign environments expose firms to new ideas for
products, processes and business methods.
4. Better serve key customers that have relocated abroad. In a global economy,
many firms internationalize to better serve clients that have moved into foreign
markets.
5. Be closer to supply sources, benefit from global sourcing advantages, or gain

flexibility in the sourcing of products. Companies in extractive industries such as
petroleum, mining, and forestry establish international operations where these raw
materials are located.
6. Gain access to lower-cost or better-value factors of production.

Internationalization enables the firm to access capital, technology, managerial
talent, labor, and land at lower costs, higher-quality, or better overall value at
locations worldwide.
7. Develop economies of scale in sourcing, production, marketing and R&D.

Economies of scale refer to the reduction of the per-unit cost of manufacturing
and marketing due to operating at high volume.
8. Confront international competitors more effectively or thwart the growth of

competition in the home market. International competition is substantial and
increasing, with international competitors invading markets worldwide. The firm
can enhance its competitive positioning by confronting competitors in
international markets or pre-emptively entering a competitor’s home markets to
destabilize and curb its growth.
9. Invest in a potentially rewarding relationship with a foreign partner. Firms often

have long-term strategic reasons for venturing abroad. Joint ventures or project-
based alliances with key foreign players can lead to the development of new
products, early positioning in future key markets, or other long-term, profit-making
opportunities.
WHY SHOULD YOU STUDY INTERNATIONAL BUSINESS?
1. Facilitator of the Global Economy and Interconnectedness
2. Contributor to National Economic Well-Being
3. A Competitive Advantage for the Firm
4. An Opportunity for Global Corporate Citizenship
5. A Competitive Advantage for You
3|Page
QUESTIONS:
1. Distinguish between international business and globalization of markets.
2. What is the difference between exporting and importing?
3. What makes international business different from domestic business?
4. Who are the major participants in international business?
5. Why should you care about international business?
REFERENCES:
Cavisgil, S., Knight, G, & Riesenberger, J. (2018). International Business: The New Realities
(4th Edition). Pearson Publishing
Cullen, J. & Parboteeah, K. (2010). International Business (2010 Edition). Taylor and Francis
Group
Dlabay, L. & Scott, J.C. (2011). International Business (2011 Edition). Philippines: Cengage
Learning Pte. Ltd. Reprinted
4|Page

International Business and Trade

Uploaded by

Copyright:

Available Formats

International Business and Trade

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Read this document in other languages

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Business and Trade

Uploaded by

Copyright:

Available Formats

What are the main concepts in international trade and investment?

What are the main concepts in international trade and investment?

What are some reasons why firms pursue internationalization strategies?

What are some reasons why firms pursue internationalization strategies?

I.

CONCEPTS, THEORIES AND PRINCIPLES OF INTERNATIONAL BUSINESS AND

WHAT IS INTERNATIONAL BUSINESS?

International Business refers to the performance of trade and investment

The growth of international business activity coincides with the broader

WHAT ARE THE KEY CONCEPTS IN INTERNATIONAL TRADE AND INVESTMENT?

1. International Trade – refers to an exchange of products and services across

2. Exporting – an entry strategy involving the sale of products or services to customers

3. Importing or Global Sourcing – the procurement of products or services from

4. International Investment – refers to the transfer of assets to another country, or

5. International Portfolio Investment – refers to the passive ownership of foreign

6. Foreign Direct Investment (FDI) – refers to an internationalization strategy in which

HOW DOES INTERNATIONAL BUSINESS DIFFER FROM DOMESTIC BUSINESS?

Firms engaged in international business operate in business environments

1. Cross-cultural risk – refers to a situation or event where a cultural

WHO PARTICIPATES IN INTERNATIONAL BUSINESS?

1. Multinational Enterprises (MNE)

Multinational enterprises (also known as multinational corporations) have

2. Small and Medium-sized Enterprise (SME)

3. Born Global Firm

One type of contemporary international SME is the born global firm, a

4. Non-Governmental Organizations (NGOs)

In addition to profit-seeking local firms in international business, there are

WHY DO FIRMS PURSUE INTERNATIONALIZATION STRATEGIES?

1. Seek opportunities for growth through market diversification. Substantial market

5. Be closer to supply sources, benefit from global sourcing advantages, or gain

6. Gain access to lower-cost or better-value factors of production.

7. Develop economies of scale in sourcing, production, marketing and R&D.

8. Confront international competitors more effectively or thwart the growth of

9. Invest in a potentially rewarding relationship with a foreign partner. Firms often

WHY SHOULD YOU STUDY INTERNATIONAL BUSINESS?

1. Facilitator of the Global Economy and Interconnectedness

2. Contributor to National Economic Well-Being

3. A Competitive Advantage for the Firm

4. An Opportunity for Global Corporate Citizenship

5. A Competitive Advantage for You

1. Distinguish between international business and globalization of markets.

2. What is the difference between exporting and importing?

3. What makes international business different from domestic business?

4. Who are the major participants in international business?

5. Why should you care about international business?

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.