Lesson 1: International Business and Trade

Overview
The rationale for the first kind of trade is very clear. So long as the importing country can
afford to buy the products or services they are able to acquire things which, otherwise they
would have to do without. Examples of differing significance are the import of bananas into the
UK, in response to consumer demand, or copper to China, an essential for Chinese
manufacturing industry. The second kind of trade is of greater interest because it accounts for a
majority of world trade today and the rationale is more complex. The UK imports motor cars,
coal, oil, TV sets, domestic appliances and white goods, IT equipment, clothing and many more
products which it was well able to produce domestically until it either transferred production
abroad or ceased production as local industries became uncompetitive. At first sight, It would
seem a waste of resources to import goods from all over the world in which a country could
perfectly well be self-sufficient.

Learning Outcomes

 Define International Business and Trade

Course Materials
I. DEFINITION OF INTERNATIONAL BUSINESS
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. Normally, this involves business transactions between
two countries or more involving goods and services. At the current conditions, international
business is primarily guided by the systems of globalization. International trade on the other
hand is the trading of goods and services commonly known as exports and imports across
international borders or territories because of differences in need and resources and the cost of
production of a product or service. In most countries, trade represents a sizable amount of their
GDP.
II. THE DIFFERENCE BETWEEN INTERNATIONAL BUSINESS AND INTERNATIONAL
TRADE
International trade is an industrial concept or category. An international business constitutes
one of the many component parts (organizations) that make up international trade. For
example, international banking is a type of industry in the field of international trade. Deutsche
Bank exists as one component of international banking. International trade also means the
aggregation of ALL of the various industries playing in the international trade sandbox.
International business refers to international trade whereas a global business is a company
doing business across the world. For example the trading of oil by oil producers and oil
consumers is an international business involving mostly OPEC countries and countries that buy
oil and facilitated by global business entities like Shell and Chevron.
III. IMPORTANCE OF INTERNATIONAL BUSINESS AND TRADE
The importance of international trade for different countries is that it is an important factor in
raising living standards, providing employment and enabling consumers to enjoy a greater
variety of goods. World exports of goods and services have increased to $2.34 trillion ($23,400
billion) in 2016. International Business on the other hand takes the job of facilitating export and
import; it arranged international loans for countries for growth and development and is an
influential factor in growth and development.
IV. BENEFITS OF INTERNATIONAL BUSINESS AND TRADE
There are advantages which may be accrued from international business and trade enumerated
as follows:
 Increased revenues – the firm‘s scope of market practically will increase when there is
trade with other countries because a firm can sell its products world-wide.
 Enhances competition – since a firm now sells in other countries must expect that
competition is intense and thus is forced to make its operation highly efficient and
quality.
 Improvement in product quality – since foreign markets are highly competitive firms
need to improve quality and be efficient in order to survive and be profitable.
 Low capital cost – capital cost in a highly liberalized market is cheap because of
competition.
 Better risk management – risk arising from higher cost is minimized due to enormous
number of suppliers selling similar materials or merchandize.
 Benefiting from currency exchange – when a country is observing free trade, its
companies are basically into foreign enabling them to earn more dollars thus making the
exchange rate of our Peso is more stable.
 Access to export financing- because of intense export activities in the economy,
normally, because of the government desire to help export firms with their financing
needs, the government in most cases open a highly subsidized loans to these firms.
 Wider market for domestic product – a country which is in free trade can create a much
bigger size of markets for its firms.
CASE:
An X& Y enterprise is exporting desiccated coconut to Russia. Its buyer is a Russian-owned
company that produces detergents, soap products, shampoo and some cosmetics. Its market is
the whole of Russia including the Asian part of the country and some to former soviet states in
central Asia. The company has been making sales equivalent to 50million US dollars per year.
However the problem of shipment has been perennial since the COVID-19 pandemic started
and became worst at the height of the health crisis in Russia. However when China opened up
and began to schedule train trips to Russia via the Trans Siberian Railway, goods are
accommodated and therefore Russian shipment can be transported through this route. But
there is big problem for its transportation from Manila to China and a sea transport company
offered services but the freight is so expensive. Russia has been the biggest market but the
earnings from continuing business with the Russian company has been turning negative. If you
owned X&Y what will you do and why?

ASSESSMENT:
1. Are business and trade inseparable in actual setting? Why?
2. How do you attribute international trade to the growth of the nation economy? Explain
3. Identify some of the benefits which may be deriving from engaging in international
trade.
4. Identify the elements of the firm‘s business environment, political environment, and
technological environment.
5. What factors are the most to affect a firm‘s operation? Explain.