INTERNATIONAL BUSINESS AND TRADE

MODULE 1: INTRODUCTION TO INTERNATIONAL BUSINESS

INTRODUCTION
The advancements in technology, infrastructure, communication
and even artificial intelligence have shifted how countries and economies
produce and market various products and services. In contrast to how
companies and entrepreneurs conduct their business before– self-reliance
and internal – countries and businesses today are increasingly
becoming interdependent and global. Given the emergence of new
technologies that made communication and logistics more efficient,
countries who were separated geographically and differentiated
socio-economically before are now able to share information, skills,
manpower, products, services, etc. Together with the shift to the digital
world, international and national policy makers have also been
contributory to the increasing cooperation and business relations
amongst countries. This has integrated national economies into the bigger
world economy.

GLOBALIZATION
● Globalization is the interdependent relationships among people from
different regions and countries. This has dramatically changed the
way people behave and conduct their lives – including business and
trade. In business, it’s the force that eliminates the separation of
countries and allows each one free movement of goods, services,
capital, technology and people, integrating each country into the
global economy.

I. Factors in Increased Globalization

A. Increase in and application of technology
B. Liberalization of cross-border trade and resource movements
C. Development of services that support international business
D. Growth of consumer pressures
E. Increase in global competition
F. Changes in political situations and government policies
 G. Expansion of cross-national cooperation

A. Domestic Business – are business transactions happening within

the geographical boundaries of a nation; also referred to as domestic
or national business.
B. International Business – According to Daniels, Radebaugh &
Sullivan (2015), International business comprises all commercial
transactions, including sales, investments, and transportation, that
take place between two or more countries. In simpler terms, this
refers to business transactions beyond a nation’s geographical
scope.
This involves international movement of:
● Products
● Services
● Information and data
● Skills
● Manpower / human resources
● Technology (infrastructure or software)
● Patents, licenses, etc.

Key Differences between Domestic and International Business

Domestic Business International Business

Nationality of buyers People buy and avail People or companies
and sellers their own country’s from different countries
products and services participate in
international business
transactions
Nationality of other Other stakeholders Other stakeholders
stakeholders such as suppliers, such as suppliers,
employees, employees,
shareholders and shareholders and
investors are usually investors are from
 citizens of the same different nations.
country
Mobility of factors of Materials and labor are The degree of mobility
production relatively more within a of factors of production
country. like materials, labor
across nations is
relatively less.
Customer Domestic markets are International markets
heterogeneity across relatively more lack homogeneity due
markets homogeneous in to differences in
nature. environmental factors,
language, preferences,
beliefs, etc., across
markets.
Differences in business Business systems and Business systems and
systems and practices practices are relatively practices vary
more homogeneous considerably across
within a country. countries.
Political system and Businesses within the Different countries
risks same country are only have different forms of
subject to that political systems and
country’s political different degrees of
system and risks. risks. These often
became a barrier to
international business
and trade.
Business regulations Domestic businesses International business
and policies are subject to rules, transactions are
laws and policies, subject to rules, laws
taxation system, etc., and policies, tariffs and
of a single country. quotas, etc. of multiple
countries where they
conduct their
transactions.
Currency used in The country’s currency Different countries
business transactions is used in transactions. have different forms of
political systems and
different

Differentiating International Business from International Trade

● International Trade – international movement of products (imports

and exports).
● International Business – is broader and more comprehensive and
has a bigger scope. It comprises other forms of transactions such as
investments, tourism, travel, transportation, communication, banking,
distribution, advertising, etc.

INTERNATIONAL ENVIRONMENT
● Environment as used here is the sum of all forces surrounding and
influencing the life and development of the firm. The forces
internal

themselves can be classified as external or external. Furthermore,

management has no direct control over them, though it can exert
influences such as lobbying for a change in a law and heavily
promoting a new product that requires a change in a cultural attitude
(Don B. and Wendell M, 1999).
● International Environment – Involves interactions between the
domestic and foreign environmental forces or between sets of foreign
environmental forces.(Don B. and Wendell M, 1999).

1.) Main Factors / Forces Impacting the International Environment

● Demographics and Socio Cultural forces
● Physical and Environmental
● Political and Legal Forces
● Financial Forces (Currency and Capital)
 2.) Benefits of International Business and Trade
● Benefits to Countries
1. Earning of Foreign Exchange
2. More efficient use of Resources
3. Improving growth prospects and employment potentials
4. Increased standard of living

● Benefits to Firms
1. Prospects for higher profits
2. Increased capacity utilization
3. Prospects for growth
4. Way out to intense competition in the domestic market
5. Improved business vision

3.) Modes of Operations in International Business (Overview)

● Merchandise Exports and Imports
● Service Exports and Imports
● Direct and portfolio Investments
- Joint Ventures, Subsidiaries

● Contract Manufacturing
● Licensing and Franchising
● Turnkey Operations

4.) Risks and Challenges for International Business

l. Demographics and Sociocultural
a. People from different countries have different preferences, beliefs
and needs depending on their location, religion, etc.

b. Language and communication differences

II. Physical and geographical
a. Transportation and logistics may pose a significant challenge
depending on the nature of transactions

b. High cost of distance

III. Political and Legal

a. Laws and policies in each country may differ and may have conflict
with one another.
b. Monetary and financial policies affecting trades are usually
influenced by the prevailing political opinion in each country.
c. Taxation and other agreements differ with each country.

As Business Administration Majors, why is it important to study

International Business?
1. Most companies either are international or compete with international
companies.
2. Modes of operations used In International Businesses may differ from
those used domestically.
3. The best way of conducting business may differ by country.
4. An understanding helps you make better career decisions.
5. An understanding helps you decide what governmental policies to
support.