• International business refers to business activities among various business entities world- wide that involved the trading of goods, services, technology, capital and/or knowledge across international boundaries and borders.
• International trade on the other hand is the trading of goods and services commonly known as exports and imports. Simply means that international business is a broader concept in various activities beyond trade, while international trade specifically deals with the import & exports between countries.
IMPORTANCE OF INTERNATIONAL IMPORTANCE OF INTERNATIONAL
BUSINESS TRADE
• Raising living standards • It arranged international loans
• Providing employment for countries • Enabling customers to enjoy • It is influential factor in growth and development
BENEFITS OF INTERNATIONAL BUSINESS AND TRADE
• Increased revenues - because a firm can sell its products world-wide. • Enhances competition - sells in other countries must expect that competition is Intense.
• Improvement in product quality - in order to survive and be profitable.
• Low capital cost - because of competition.
• Better risk management - due to enormous number of suppliers selling similar materials or merchandize. • Benefiting from currency exchange - enabling them to earn more dollars thus making the exchange rate of our Peso is more stable. • Access to export financing - the government in most cases open a highly subsidized loans to these firms. • Wider market for domestic product - can create a much bigger size of markets for its firms. LESSON 2: THE INTERNATIONAL BUSINESS ENVIRONMENT
I. ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL BUSINESS
• Wide market – the business organization‘s markets are considered the entire world. • Minimal business risk - since the market is enormous there is no problem about buyers • More human talent may be accessed because of your world-wide operation thus enabling the firm to lower its managerial and labor cost • Easier to develop your brand –a good quality product may easily be known world-wide because your product has presence in many countries • Attaining Economies of Scale production – your fixed cost may reduce substantially because of your high-volume production. • Susceptibility to consumers taste and fashion – any change in consumer demand worldwide especially on designs, style, prices, quality among others, the firm will have to follow otherwise it will loss markets. • Improved consumer confidence
DISADVANTAGES • Foreign rules and regulations – since your operation is world-wide, you need to adhere to various laws in countries where you operate. • Handling logistics – logistical problem can be one of the serious problems a firm may encounter due to shipping delays and loss of shipments. • Speaking the language – communication problem can be problematic for your expats and even the domestically hired may have some difficulty communicating with their bosses. • Coordinating time zones – coordinating with various offices world-wide becomes problematic due to variation in time zone. • Foreign exchange rate – this affects the value of local branches profits due to fluctuation in exchange caused by a rise in the value of the US dollar. • Mitigating credit risk – credit risk is justified because of the trend with regards to payment practices; If you don‘t adopt such you‘ll have a restricted sale. • It poses greater risk for unpaid international sales – the risk of having unpaid receivables are greater for foreign accts than domestic. • Following Foreign Politics – the governments of your foreign buyers can order your importer not to purchase your products because only of political differences with the government. • Gathering market research – if a local firm has business outside of the country it would be easier to gather data through its businesses for use in business and market analysis. • The desire to expand can be done easily because of the big markets offered by foreign countries.
International business plan
• is a development plan of a new business proposal to start a new business abroad. The steps in an international business plan 1. Identify the business strategy goal – (what is what he wants to achieve?) 2. Decide on what product or service to market 3. Conduct feasibility study for such product. 4. Ascertain the level of competition in your target market – (who are your opponents?) 5. Determine the needed organizational structure for your international business.
TYPES OF INTERNATIONAL BUSINESS
A. Exporting - selling finished products outside B. Licensing - about giving permission C. Franchising - is a form of business arrangement between the owner of the franchise (franchisor) and the one to franchise called the franchisee
THE FACTORS AFFECTING INTERNATIONAL BUSINESS
1. Political 2. Economic 3. Legal 4. Social 5. Environmental 6. Technical
1. Liberalization 2. Multi-National Companies (MNCs) 3. Technology 4. Transportation and Communication revolutions 5. Product development and efforts 6. Rising aspirations and wants 7. World economic trends - fast-growing, fast-changing condition 8. Regional Integration - countries are joining hands together to promote 9. Leverages 10. Experience transfers BARRIERS AND CONSTRAINTS IN INTERNATIONAL BUSINESS Trade barriers are government-induced restrictions on international trade. Man-made trade barriers come in several forms, including:
LESSON 3: THE INTERNATIONAL BUSINESS OPERATIONS
FACTORS TO CONSIDER IN INTERNATIONAL OPERATIONS
- Geographical Factors - The climate, terrain, seaports, and natural resources of a country influence business activities. - Cultural and Social Factors - Culture is the accepted behaviors, customs, and values of a society - Political and Legal Factors - Each day, we encounter examples of government influence on business. - Economic Conditions - Everyone faces the problem of limited resources to satisfy numerous needs and wants.
Joint Venture - is a shared ownership stake with equal share in a foreign business.
LESSON 4: THE INTERNATIONAL TRADE
TYPES OF INTERNATIONAL TRADE
1. Export Trade 2. Import Trade 3. Entreport
ELEMENTS OF INTERNATIONAL TRADE
• Transaction costs - The costs related to the economic exchange behind trade. • Tariff and non-tariff costs - Levies imposed by governments on a realized trade flow. • Transport costs - The cost of transporting products from one country to another country. • Time costs - The time needed to move them.
REASON FOR INTERNATIONAL TRADE
1. Differences in technology. This allows one country to acquire a product which it does not have the technical knowledge to produce but other countries have and vice versa 2. Differences in resource endowments. The differences in the availability of resources compel countries to trade with one another 3. Differences in demand. There are countries which supply of a given product is enormous and thus surpasses demand. Because demand in such countries becomes lower vis-à-vis demand these countries will have to sell their extra products to other countries. 4. The presence of economies of scale. If you can sell your products more in a big market your cost of production becomes cheaper because of fixed cost. 5. The presence of government policies. The current government has friendlier relations with China thus we are buying now more goods from China like trucks, cars and Machineries similarly for China also buys more our export product
BUSINESS OPERATIONS ON EXPORT, IMPORT AND OUTSOURCING
• Export • Import • Distributors are export intermediaries who represent the company in the foreign market. • Outsourcing is the act of a company replying on the external provider for a business process that otherwise would be internal
SPECIALIZED ENTRY MODE: CONTRACTUAL
Contractual modes involve the use of contracts rather than investment
Licensing - defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names, or technology, under defined conditions.
Franchising – a joint venture between franchisor and franchisee.
Investment – is an asset or item accrued with the goal of generating income or recognition. Joint venture – a combination of two or more parties that seek the development of a single enterprises or project for profit.
RISK OF JOINT VENTURE
- Finding the right partners - Local partners may gain the know-how to products its own competitive products to fival the multinational firm Wholly Owned Subsidiaries - operates as a separate and distinct corporation from its parent company. This benefits the company for the purposes of taxation, regulation, and liability. The sub can sue and sued separately from its parents Establishing or purchasing a wholly subsidiaries requires the highest commitment on the part of the international firm, because the firm assume all the risk- financial, currency economic and political
GLOBAL PRODUCTION, OUTSOURCING AND LOGISTICS
1. Location 2. Long-term strategic role 3. Outsourcing 4. Supply chain 5. Locally managed or outsourced
Objectives 1. Country factors - Availability of skilled labor and supporting industries - Formal and informal trade barriers - Future exchange rates changes - Transportation cost - Regulations affecting the business
2. Technological factors 3 characteristics of a manufacturing technology: 1. Level of fixed cost 2. Minimum efficient scale 3. Flexibility of the technology a) Fixed cost are substantial b) Production in multiple location
3. Product factors Locating Production facilities 1. Concentrating them in the optimal location that can serve the world market 2. Price
Strategic role of foreign Factories
a) Pressure to lower costs or respond to local market b) Strategic role of Foreign Factories
2. The essence of Make-or-buy decisions (gawa or bili)
Advantages of Make Decision
- It lower cost - Market protect technology - Cost structure - Strategic Alliances - Just in time Inventory
ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL TRADE
Advantages: 1. Optimal Use of natural resources 2. Availability of all types of goods 3. Specialization 4. Advantages of large-scale production 5. Stability in prices 6. Exchange of technical know-how and establishment of new industries 7. Increase in efficiency 8. Development of the means of transport and communication 9. International co-operation and understanding 10. Ability to face natural calamities
Disadvantages: 1. Impediment of home Industries 2. Economic Dependence 3. Political Dependence 4. Mis-utilization of Natural resource 5. Import of Harmful Goods 6. Storage of Goods 7. Danger 8. World Wars
• Unilateral Agreement - a one-sided contract agreement in which an offer or promises to pay
only after the completion of a task by the offeree. In this type of agreement, the offer or is the only party with a contractual obligation. • Bilateral Agreement - also called a clearing trade or side deal, refers to an agreement between parties or states that aims to keep trade deficits to a minimum. It varies depending on the type of agreement, scope, and the countries that are involved in the agreement. A binding agreement between two parties where they both exchange promise to perform and fulfill one side of a bargain.
• Trilateral Agreement the trilateral meeting is only the beginning of more extensive cooperation and stronger alliances among the US, Japan and the Philippines.
• Marketplaces - is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods.
• Globalization - the growth in international exchange of goods, services, and capital, and the increasing levels of integration that characterize economic activity.
(means kapag nag-globalize tayo naglalabas tayo ng mga produkto natin at tumatanggap tayo ng produkto galing sa labas ng Pilipinas) Example products: Sugar, hem, mangoes and banana
• World Economy - the sum of activities that take place both within a country and between different countries. Each country is a separate unit, with its own industrial production. labor market, financial market, resources and environment.
• Investment - involves putting capital to use today in order to increase its value over time. An investment requires putting capital to work, in the form of time, money, effort, etc., in hopes of a greater payoff in the future than what was originally put in.
(investment means it's not only money, but also men. We invest that, just like we send people overseas, whether it be in the United States, in Europe, in the USA, in terms of our skilled workers, in terms of our professionals)
• Foreign Exchange or forex - is the conversion of one country's currency into another. In a free economy, a country's currency is valued according to the laws of supply and demand. In other words, a currency's value can be pegged to another country's currency, such as the US. dollar, or even to a basket of currencies.
(This is the equivalent, or the value of a foreign currency in exchange for Philippine money)
(In Philippines, mango or banana, none of rotten can get out of the Philippines when sheltered. Specifically, in the states, those with ribs are not allowed.)
• Foreign Market - are any markets outside of a company's own country. Selling in foreign markets involves dealing with different languages, cultures, laws, rules, regulations and requirements. Companies looking to enter a new market need to carefully research the potential opportunity and create a market entry strategy. • Exporting - the practice of producing a good or service in one country and selling it to consumers in another country.
• Importing - the act of introducing new goods, customs, or ideas into a country from another country; something that is introduced in this way. He opposed efforts to allow the importation of prescription drugs from other countries. The treaty restricts the importation of cultural artifacts.
(example of imported are some of our apple, orange. In Japan, the electronics and in India, aside from their tea, the generic drugs.)
• Entrepot - trade refers to a trade in one country for the goods of other countries
• Decision Making - the process of making choices by identifying a decision, gathering
information, and assessing alternative resolutions.
• Tariff – a tax or duty to be paid on a particular class of imports or exports.
• Embargo – an official ban on trade or other commercial activity with a particular country
• Liberalization – the removal or loosening of restrictions on something, typically an economic
or political system.
TOP 10 EXPORT PRODUCTS OF THE PHILIPPINES
(based on the Philippines Export Data for 2021)
- Electrical machines and gadgets, with their accessories
- Mechanical items, boilers, and nuclear reactors - Articles made from copper - Optical, medical, and precision items - Ores, slag, and ash of products - Eatables like fruits, nuts, and melons - Animal and vegetable fats and oils - Plastic articles - Automobiles, especially four-wheelers, and cars - Precious metals like gold, diamonds, and silver
TOP 10 EXPORT PARTNERS OF THE PHILIPPINES
The United States China Japan Hong Kong
Singapore Thailand Germany Korea Chinese Taipei The Netherlands
