INTERNATIONAL TRADE
- Exchange of goods and services across international borders.Purchase or sale of goods
or services outside geographical boundaries
https://www.youtube.com/watch?v=HfN8BnRJryQ&t=12s
Historical Overview and Development of International Trade
https://www.youtube.com/watch?v=Q7xp1-VvtZ0&t=6s
- Incense route
- The Silk Road
- Roman Empire
- Arabs
- Italian Merchant
- Sea Route to India
- The Manila Galleon
- Triangular Trade
- Industrial Revolution
- Canals
- Globalization
- New Silk Road
- Current Situation
Major Component Elements of International Trade ( 4Ts )
➢ Transaction cost
○ Related to economic exchange; information gathering, negotiation, enforcing
contracts, letters of credit and other transaction cost
➢ Tariff and non-tariff cost
○ Levied imposed by government in the flow of trading
➢ Transport cost
○ Cost involving movement of good from production to destination
➢ Time cost
○ Delay on delivery known as Inventory in transit
Each of the cost has the following:
● Exogenous cost
○ Distance, transportation cost, travel time.
○ Part of trade agreement
● Endogenous cost
○ Customs procedures
○ Performance of national transport and logistics
Reason for International Trade:
● Reduced dependence in local market
● Increased chances of success
● Increased efficiency
● Increased product
● Economic advantage
● Innovation
● Growth
Mode of Trading Internationally:
https://www.youtube.com/watch?v=Ylhk0XdNS6g&t=142s
● Export
○ Sale of goods and services produced by local firm to the customers of another
county
● Import
○ Purchased of goods and services by a buyer in one country
Types of Exporters:
● Non-exporter
○ Non engage in exporting but products produce domestically are appealing to
customers anywhere which the primary target of export promotion program
● Occasional exporters - occasional or passive exporting.
● Regular exporter
○ Company that aggressively pursues export sales as a productive, profitable and
strategic activity
Approaches to Exporting:
● Direct exporting
○ Directly sells its products to an independent intermediary such as agent
distributor or retailer outside its home country
● Indirect exporting
○ Use distributors, agents or export management to export its products
● Passively Filling Orders from Domestic Buyers Who Then Export the Product.
○ Buyer from home country contacts the company, submits and order, takes
delivery, and export the products
● Selling to Domestic Buyer Who Represent Foreign End Users or Customers
○ Contractors, foreign trading companies, foreign government, and foreign
distributors and retailers to purchase goods and export.
Advantages:
● Ownership advantages- Core competencies shapes how firm enters foreign markets
● Location advantages- Favorable business environment attracts sales opportunities
● International advantages– economies of scale by spreading out the fixed cost resulted
to more profit
Disadvantages:
● High transportation cost/high cost
● Risk of loss due to transportation of goods
● Currency risk
● May not be achievable by smaller entities due to lack of knowledge and resources
● Operational risk due to unknown political or geographical risks
Reason to Export:
● Profitability
● Productivity – tied up with economies of scale
● Diversification – diversifying activities
Types of Importers:
● Input Optimizer
○ Uses foreign sourcing to optimize, in terms of price or quality, the input fed into its
supply chain.
● Opportunistic
○ Looks for products around the world that it can import profitably sell to local
market
● Arbitrageurs
○ Look for foreign sourcing to get the higher quality product at the lowest possible
price
■ The agent take advantage of price or quality difference between two or
more markets, transacting deals that exploit the imbalance and profiting
from the difference
Reason to Import:
● Specialization of labor
● Global rivalry
● Local unavailability
● Diversification
● Top management outlook
Importing and Exporting Problems and Pitfalls:
● Financial risks
● Customer management
● International business expertise
● Marketing challenges
● Top management commitment
● Government regulations
● Trade documentation
Importing and Exporting Resources and Assistance:
● Government agencies
○ Public agencies help in the import and export processing
● Export intermediaries
○ Third party firm that market products and services abroad on behalf of domestic
companies
● Customs brokers
○ Helps an importer navigate the regulations imposed by customs agencies
● Freight forwards or Travel agent of Cargo
○ Specializes in moving goods from sellers to buyers
○ Arranging the fastest and cheapest transportation cost
● Third party logistics or the 3PLs
○ Same as freight forwarders however, they collaborate with manufacturers,
shippers and retailers. Overall operations
Advantages of Import and Export:
● Easy
● Low cost
● Quick means to engage foreign markets
● Impose minimum business risk
● Require relatively low resource commitment
● Improve marketplace flexibility
● Increase sales and profit
● Tap points of innovation
● Stabilize seasonal fluctuations
International Transaction Chain:
Outsourcing:
● Business practices in which a company hires a third party to perform task, handle
operations or provide services for the company
● A strategic decision of the company to reduce cost and increase efficiency
Advantages:
● Lower cost – due to economies of scale or lower labor rate
● Increased efficiency
● Variable capacity
● Increased focus on strategy/ core competencies
● Access to skills or resources
● Access to innovation, intellectual property and thought leadership
● Possible cash influx resulting from transfer of assets to the new provider
● Mitigating risk by sharing risks with external parties and building meaningful partnership
Disadvantages:
● Lack of business knowledge
● Language and culture barrier
● Time zone difference
● Lack of management control
● Risk of losing data
● Outsourcing company may impose hidden or unexpected cost
● Lack of quality control due to profit-driven
