Understanding International Trade: Barriers, Strategies, and Options
1. Balance of Payments, Trade Deficit, and Trade Coverage Ratio
Balance of Payments (BOP): A statement summarizing all transactions between one country and the rest of the world over a specific period.
Trade Deficit: Occurs when a country’s imports exceed its exports, representing an outflow of domestic currency.
Trade Coverage Ratio: The ratio of export value to import value between two countries or zones.
2. International Trade Barriers
Economic Barriers: Government-imposed restrictions on trade, such as tariffs and quotas, often considered detrimental to economic efficiency.
Infrastructure Barriers: Inadequate physical facilities like transportation networks, utilities, and communication systems can hinder trade.
Exchange Rate Barriers: Fluctuations in currency exchange rates can impact the cost of imports and exports.
Legal Barriers: International trade laws and agreements set rules for conducting business across borders.
3. Tariffs
Fixed Tariff: A set price per unit of imported goods, providing price stability.
Ad Valorem Tariff: A percentage of the imported goods’ value, adjusting with price fluctuations.
4. Quotas, Embargoes, and Dumping
Quota: A limit on the quantity of a specific product that can be imported.
Embargo: A complete ban on trade with a particular country or on a specific product.
Dumping: Selling goods in a foreign market at a price lower than their production cost, often considered unfair competition.
5. Cultural Barriers
Differences in religion, social norms, language, and communication styles can create challenges in international business.
6. Multidomestic and Global Strategies
Multidomestic Strategy: Focuses on adapting products and marketing to each local market for greater market share.
Global Strategy: Emphasizes economies of scale and standardized products for cost efficiency and global reach.
7. International Business Options: Direct vs. Indirect Export
Direct Export: Selling directly to foreign companies or consumers.
Indirect Export: Using intermediaries or middlemen to reach international markets.
8. International Business Options: Licensing and Franchising
Franchising: Granting the right to operate a business using an established brand and system.
Licensing: Granting the right to use intellectual property, such as patents or trademarks, in exchange for royalties.
9. International Business Options: Contract Manufacturing and Outsourcing
Contract Manufacturing: Outsourcing production activities to a third-party company.
Outsourcing: Contracting with another company to perform specific business functions.
10. International Business Options: Joint Venture
A business agreement where two or more parties pool resources to achieve a specific goal.
11. International Business Options: Strategic Alliance
A collaborative arrangement between companies from different countries to achieve mutual benefits while remaining independent entities.