International Business and Trade

Posted on May 2, 2024 in Economy

International Business

The Global Marketplace

International business involves the buying, selling, and trading of goods and services across national boundaries. Global marketing requires a balance between establishing global brands and catering to the specific needs of local consumers.

Why Nations Trade

International trade enables countries to acquire raw materials and goods at favorable prices. There are two key concepts in international trade:

  • Absolute Advantage: A monopoly that exists when a country is the sole source, producer, or most efficient producer of a particular item.
  • Comparative Advantage: The basis of most international trade, where a country specializes in producing goods it can supply more efficiently or at a lower cost than other items.

Types of International Business Activities

  • Outsourcing: Transferring manufacturing or other tasks (e.g., data processing) to countries with lower labor and supply costs.
  • Exporting: Selling goods and services to foreign markets.
  • Importing: Purchasing goods and services from foreign sources.

Trade Balances

  • Balance of Trade: The difference in value between a nation’s exports and imports.
  • Balance of Payments: The difference between the flow of money into and out of a country.

Barriers to International Trade

Completely free trade is rare due to various barriers:

Economic Barriers

  • Economic development disparities
  • Infrastructure limitations
  • Fluctuating exchange rates
  • Challenges in Less-Developed Countries (LCDs):
    • Low per-capita income
    • Limited economic advantages
    • Potential for large and profitable markets
    • Concentration in Africa, Asia, and Latin America

Ethical, Legal, and Political Barriers

  • Complex international relations
  • Varying legal systems and intellectual property protections
  • Trade restrictions and political instability
  • Cultural and ethical differences

Technological Barriers

  • Unequal access to technological advancements
  • Rapidly developing markets in countries like China and India

Strategies for International Business

  • Countertrade Agreements: Bartering products instead of using currency.
  • Export Agents: Intermediaries facilitating international transactions.
  • Trading Companies: Buying goods in one country and selling them in another, handling all logistics.
  • Licensing: Granting another company the right to use a company’s name, products, patents, etc., for a fee.
  • Franchising: A form of licensing where a company (franchisor) provides a franchisee with a brand, operational guidelines, etc., in exchange for financial commitment and adherence to standards.
  • Contract Manufacturing: Hiring a foreign company to produce goods to specifications, carrying the domestic firm’s name.
  • Offshoring: Relocating a business process to another country while retaining control, distinct from outsourcing.
  • Joint Venture: Sharing operational costs with a local partner.
  • Strategic Alliance: Partnership to create a global competitive advantage.
  • Direct Investment: Owning overseas facilities.
  • Multinational Corporations (MNCs): Operating globally without strong ties to a single nation, often facing criticism for wealth disparity and resource usage.
  • Multinational Strategy: Customizing products and strategies based on cultural, technological, and regional differences.
  • Global Strategy (Globalization): Standardizing products and strategies for the entire world.

Managing Global Business Challenges

Despite reduced trade barriers, international business remains complex. Technology and rising living standards create opportunities, while governments and organizations offer support. Challenges include:

  • Embargoes: Trade prohibitions on specific products.
  • Dumping: Selling products below production cost.
  • Tariffs and Trade Restrictions: Part of a nation’s legal structure, often influenced by political factors.
  • Import Tariffs: Taxes on imported goods.
  • Exchange Controls: Regulations on currency exchange.

Business Organizations

Types of Business Ownership

  • Sole Proprietorship: A business owned and operated by one individual.
  • Partnership: An association of two or more individuals who co-own a business for profit. Types include:
    • General Partnership: Complete sharing of management and liability.
    • Limited Partnership: At least one general partner with unlimited liability and limited partners with liability limited to their investment.
  • Limited Liability Company (LLC): Provides limited liability and partnership-like taxation with fewer restrictions on members.
  • Corporation: A legal entity with separate assets and liabilities from its owners. Types include:
    • S Corporation: Taxed like a partnership with shareholder restrictions.
    • Quasi-Public Corporation: Owned and operated by the government.
    • Nonprofit Corporation: Focuses on providing services rather than profit.
    • Public Corporation: Stock is publicly traded.
    • Private Corporation: Owned by a few individuals closely involved in management.
  • Cooperative (Co-op): Individuals or small businesses collaborating for mutual benefit.
  • Joint Venture: A partnership for a specific project or limited time.

Corporate Structure and Financing

  • Common Stock: Owners have voting rights but no preferential treatment regarding dividends.
  • Preferred Stock: Owners have a claim to profits before common stockholders but typically no voting rights.
  • Board of Directors: Elected by stockholders to oversee operations and set long-range objectives.
  • Initial Public Offering (IPO): First-time sale of a corporation’s stock on public markets.
  • Corporate Charter: A legal document issued by the state.
  • Dividends: Profits distributed to stockholders.

Entrepreneurship and Small Business

Entrepreneurship

Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Small businesses play a vital role in the economy.

Challenges and Support for Small Businesses

  • Undercapitalization: Lack of sufficient funds.
  • Small Business Administration (SBA): Provides managerial and financial assistance.

Starting and Financing a Small Business

  • Business Plan: A detailed roadmap for the business.
  • Venture Capitalists: Investors who provide funding in exchange for ownership interest.
  • Franchising: Operating a business using another company’s brand and system.
  • Equity Financing: Using personal assets or selling stock to raise capital.
  • Debt Financing: Borrowing funds from lenders, often requiring collateral.
  • Trade Credit: Obtaining goods and services with delayed payment.
  • Bartering: Exchanging goods or services without using money.

Management and Leadership

Management Functions

Management involves planning, organizing, staffing, directing, and controlling resources to achieve organizational objectives.

Planning

  • Mission Statement: Defines the organization’s purpose and philosophy.
  • Strategic Plans: Long-range objectives and overall strategy.
  • Tactical Plans: Short-range plans to implement strategic objectives.
  • Operational Plans: Specific actions for individuals and groups.
  • Crisis Management: Planning for potential disasters.

Organizing

Structuring resources and activities to achieve objectives efficiently.

Staffing

Hiring and managing employees, including downsizing if necessary.

Controlling

Evaluating and correcting activities to stay on track.

Levels of Management

  • Top Managers: Responsible for overall organizational direction.
  • Middle Managers: Implement tactical plans and policies.
  • First-Line Managers: Supervise daily operations and workers.

Management Skills

  • Technical Expertise: Specialized knowledge and training.
  • Conceptual Skills: Ability to think abstractly and see the big picture.
  • Analytical Skills: Identifying and solving problems.
  • Human Relations Skills: Interacting effectively with people.

Leadership

The ability to inspire and motivate employees towards organizational goals.

Networking

Building relationships and sharing information to achieve goals.

Industry Overview

Retailing and Wholesaling

Retailers sell goods to consumers, while wholesalers sell to other businesses.

Services Sector

Businesses that provide intangible services, representing a significant portion of the economy.

Manufacturing

Producing tangible goods, offering opportunities for customization and innovation.

High Technology

Businesses relying on advanced scientific and engineering knowledge.