INTERNATIONAL TRADE &

GLOBALIZATION

WHAT IS GLOBALIZATION?

The transfer of products,

services, technology, capital,
and/or information across
national borders and on a global
or transnational scale is referred
to as international business.

It entails the exchange of

commodities and services across
national borders between two or
more nations. Globalization is
another term for international
commerce.

WHAT IS THE PURPOSE OF

INTERNATIONAL BUSINESS AND
TRADE?

International commerce enables countries

to extend their markets and get access to
commodities and services that might
otherwise be unavailable in their own
country.

The market has become more competitive

as a result of international commerce.

As a result, pricing becomes more

competitive, and the consumer receives a
lower-cost product.

TERMS AND DEFINITIONS

Imports - are products or services that are brought into a nation to be sold.

Exports - are products or services that are sent to another country for sale.

Exchange rates - are the prices of one country's currency in relation to

another country's currency.

Balance of trade - The difference in value between a country's imports and

exports
Free Trade – International trade left to its natural course without tariffs,
quotas, or other restrictions.

Tariff – Tax on imported goods or services.

Quota – A numerical limit on imports or exports. Sanction – A trade

penalty imposed by one nation onto one or more other nations.

Embargo – The partial or complete prohibition of commerce and trade with

a particular country or a group of countries.

WHAT IS THE ROLE OF

INTERNATIONAL BUSINESS?

International trade also boosts

competitiveness in home
markets while opening up new
chances in international
markets.

Companies are encouraged to

become more inventive and
resource efficient as a result of
global competition.

International trade exposes

customers to a wide range of
goods and services.

IMPORTANCE OF INTERNATIONAL
BUSINESS – BENEFITS OF
INTERNATIONAL BUSINESS

For a production or
manufacturing company,
international business provides
several advantages and
benefits. Because local
markets are saturated, many
businesses consider expanding
internationally.

1. INCREASED MARKET SIZE

Everyone wants to increase

their market share and
increase the number of items
they sell. International
business is significant since it
provides you with a new
market to explore and develop
within. Whatever your
position was in the previous
market, the new market is a
whole different ballgame for
every firm.

2. NON-AVAILABILITY OF PRODUCT
IN NEW MARKET

One of the company's key advantages

is that the product it produces is not
accessible in the worldwide market it
is pursuing. As a result, the company
has a "production advantage" that it
may maximize.

As a result, one of the advantages of

international business is that the
company may develop a monopoly or
duopoly in the target market,
resulting in significant income.

3. COST ADVANTAGE

Exporting items to a foreign nation has

a cost benefit in many cases. The way
China operates in today's commercial
climate reflects this cost advantage.

Because China's production costs are

so cheap, the benefits of international
commerce are enormous. One of the
primary factors is their cheap labor
costs, which allows Chinese equipment
to compete with any rate on the global
market.

4. PRODUCT
DIFFERENTIATION

If you have distinct items that can

only be distinguished inside your
own country, you should
absolutely extend to other
markets.
Furthermore, if a firm is capable
of product creation, execution,
and the establishment of new
goods and services, it already has
access to a variety of international
commercial benefits. If you can
differentiate your items from
existing market offerings,
expanding to an overseas market
seems sensible.

5. ECONOMIC RECESSION IN ONE’S

OWN COUNTRY

If a firm is worried about a recession

in their home country, international
business becomes four times more
important. Mitsubishi, Daikin, Blue
Star, and other companies have
operations in many nations and areas.
This is to help them deal with the
consequences of a slowing economy
in their own nation.

Just like variety of goods is vital,

diversification of markets may also
help the firm. As a result, one of the
reasons international business is vital
is the security it gives to a firm in the
event of an economic crisis.

6. LOSS OF DOMESTIC
MARKET SHARE

Even if the external business climate is stable, there are still

worse things that might happen to a firm, emphasizing the
necessity of international trade. A firm may be losing market
share in its own country and seek refuge in a new foreign
market. This would greatly revitalize the firm and provide new
income, which will aid it in competing in the local market.

There are two primary reasons why domestic market share

might be lost.

Because the market is becoming saturated and competition is rising.

Due to the company's product being outdated in the present market

yet appealing in a new market (developed vs underdeveloped
economy)

7. GROWTH IN DEMAND IN
OTHER MARKETS

There was no business in South Africa when it

belonged to the primitives and local tribes.
Globalization, on the other hand, has resulted
in the expansion and development of Ghana
and Nigeria, as well as other African cities.

The importance of international business is

further demonstrated by the rise of these cities
and their thriving trade.

As demand grows in new markets, new

businesses are attracted to fill the need. If your
firm is the first to arrive on time, it will
instantly increase its market share, which is
exactly what every business wants.

8. EXCESS CAPACITY OF
PRODUCTION

It's critical to make the most of your

productivity potential when you have
it. As a result, many businesses take
advantage of the advantages of
international trade by leveraging their
manufacturing capabilities and
beginning to sell their brand in
international markets.

This helps the brand make income

while also allowing them to move
massive amounts of product out of
their enormous factories.

One reason major businesses seek to

foreign business is to make use of
their manufacturing plants' surplus
production capacity. Ultratech, Blue
Star, garment makers, and chocolate
producers all have large
manufacturing capacities.

9. ECONOMIES OF SCALE
Economies of scale, of course, are one aspect that supports
the company's profitability to a large extent when it comes
to operations and expansion. We have a great post on
economies of scale with examples.

The notion of economies of scale kicks in as your company

grows and your fixed costs rise. In other words, as
manufacturing increases from the same assets, the fixed
cost decreases. This is advantageous to the firm since it
gives them a cost edge over rivals. It also expands its own
operational size.

10. PURCHASING POWER

One closing cause for the Importance of doing International enterprise is the buying
energy growing in goal markets.

The high-quality instance of that is Dubai which as a rustic has grown exponentially
withinside the closing numerous years and these days is a large visitor marketplace.

The buying energy in Dubai is excellent and you may locate showrooms of all
pinnacle manufacturers found in Dubai markets.

Thus, if there's buying energy of clients in a marketplace, it makes logical feel that
the manufacturers will goal that marketplace as well.

Overall, there are numerous advantages to global enterprise growth and all of the
above factors show that when you have the capital and the ability to expand, you
then definitely need to achieve this due to the fact there are numerous advantages
related to it.

globalization is a widely discussed

0:12
topic it is therefore not all that easy
0:15
to explain such a complicated term in
0:17
simple words let's start from the
0:20
beginning with a background to
0:22
globalization advances in technology
0:25
such as mobile phones aeroplanes
0:27
telephones and the Internet have made
0:29
the growth of Trump food and
0:31
communication networks possible amongst
0:34
other things this means that people and
0:36
countries can exchange information and
0:38
goods more quickly and in a less
0:41
complicated way this process is called
0:44
globalization globalization comes from
0:48
globe and means the worldwide coming
0:50
together of countries and nations let's
0:54
look at an example companies used to
0:57
manufacture products in their home
0:59
countries just like the company's
1:00
profile vie and super color who produce
1:03
televisions in country a their products
1:07
are in direct competition with each
1:08
other but both companies pay the same
1:10
salaries and production costs they have
1:13
the same customers use similar suppliers
1:15
and sell televisions at similar prices
1:18
in short the same conditions apply to
1:21
both companies so far so good due to
1:25
technical cultural and economic
1:27
developments that have come about
1:28
through globalization other companies
1:31
which manufacture products under
1:32
different conditions can now offer their
1:35
products in country a to that's why a
1:38
company from country B can sell
1:41
televisions here at a lower price
1:43
because they were produced for less
1:45
their local firms super color and prophy
1:48
TV have to react to withstand the
1:50
competition and so the world grows
1:53
closer together and there is an active
1:55
exchange of goods between countries more
1:58
affordable products are available for
2:00
more people however not only does an
2:03
exchange of products and economic goods
2:05
take place but also of services
2:07
knowledge cultural Goods and even
2:10
languages all of these individual
2:13
elements are
2:14
closely linked and influence each other
2:16
but where there is light there is also
2:19
shadow because of globalization and thus
2:22
intends exchange of goods people and the
2:25
environment often suffer if a company
2:28
decides to move production to an
2:30
economically disadvantaged country
2:32
people in industrialized countries lose
2:35
their jobs at the same time job
2:37
opportunities open up to many locals in
2:40
the economically disadvantaged country
2:42
many people in these countries work for
2:45
very little money in comparison to those
2:47
in industrialized countries therefore
2:50
they often remain poor and more often
2:52
they're not do not have sufficient
2:54
insurance social insurance or health
2:57
insurance cover
2:59
a further disadvantage of globalization
3:03
is ecological problems such as climate
3:05
change the use of aeroplanes ships and
3:09
lorries to transport goods over
3:11
international borders is constantly on
3:13
the increase this causes more carbon
3:16
dioxide to be released into the
3:18
atmosphere which in turn is the main
3:21
cause of global warming even national
3:25
environmental standards are ignored this
3:28
is a further cost factor in the
3:30
worldwide international site competition
3:32
which should be kept as low as possible
3:34
to be attractive for a company there are
3:38
therefore many sides to globalization
3:40
which affect almost all aspects of life
3:43
causing me to think that the chain of
3:45
positive and negative effects will
3:47
continue to grow further what's
3:51
important is to realize that
3:52
globalization itself is neither good nor
3:55
bad it just depends how people deal with
3:59
all the new possibilities in the future

economies of scale is a term frequently

0:02
used in microeconomics to describe
0:04
situations in which as your business
0:06
grows you can produce at a lower cost
0:08
per unit a lot of times this happens
0:11
thanks to fixed costs working in your
0:12
favor let's assume John starts a
0:14
business which involves making small
0:16
wooden airplanes and selling them at 20
0:18
bucks each for the sake of simplicity
0:20
we'll also assume with that a he does
0:22
everything himself be his only fixed
0:25
cost is the one thousand dollars monthly
0:27
he pays to rent the space he needs with
0:29
utilities included free of charge see
0:31
his variable costs are the various parts
0:33
he uses for his airplanes which amount
0:35
to five dollars per plane his first
0:37
month is awful with only ten orders he
0:40
generates $200 but has to pay a thousand
0:42
and fifty dollars to make those planes a
0:44
thousand bucks to cover his rent and $50
0:46
in variable costs as such he loses money
0:49
because his per plane cost is a whopping
0:51
a hundred and five dollars his second
0:54
month however is great with him
0:55
receiving five hundred orders he
0:58
generates ten thousand dollars and pays
0:59
thirty five hundred dollars a thousand
1:01
dollars for rent and twenty five hundred
1:03
dollars in variable costs securing a
1:05
more than decent sixty five hundred
1:07
dollar profit his per plane cost is now
1:09
a much lower seven dollars the fact that
1:12
his rent didn't go up along with the
1:14
order volume so the fixed cost dimension
1:16
helped a lot however economies of scale
1:18
can also work in his favor by for
1:20
example negotiating bulk deals on
1:21
materials and bringing his variable cost
1:23
down unfortunately there are limits
1:25
involved such as one John eventually
1:27
needing more space to his supplier
1:30
running out of inventory
1:31
forcing him to buy from more expensive
1:33
vendors three the local market being
1:35
saturated making it necessary to find
1:37
customers in other regions with shipping
1:39
costs added to the mix and so on

purchasing power parity in order to

0:03
understand what purchasing power parity
0:05
or PPP is let's first see what
0:07
purchasing power is purchasing power
0:10
simply means the amount of goods and
0:12
services you can buy with a certain
0:14
amount of money for instance it's before
0:17
you were able to buy five chocolates
0:19
with five euros but now with the same
0:21
five euros you can only buy four
0:23
chocolates
0:24
your purchasing power has declined the
0:27
second thing you need to know to
0:29
understand PPP is of all at one price it
0:32
pretty much says that one good in one
0:34
country should have the same price of an
0:36
identical good in another country when
0:38
converting into different currencies
0:40
therefore the purchasing power of two
0:43
currencies should be the same for the
0:44
identical products purchasing power
0:47
parity is based on the law of one price
0:49
in refers to situation where your income
0:52
has the same purchasing power in all
0:54
countries hence given that PPP holds and
0:57
all prices are equal a person should be
1:00
able to purchase what his/her income the
1:02
same basket of goods everywhere no
1:05
matter what currency he uses there are
1:07
two versions of purchasing power parity
1:10
one of absolute PPP and the other one is
1:13
relative PPP absolute PPP says that the
1:16
same product in different countries
1:18
should be equal so let's say that one
1:21
pizza in u.s. costs 3.8 zero dollars and
1:24
the same pizza in Italy costs 3.4 five
1:27
euros
1:28
according to the law of one price or
1:31
also known as the absolute peak impede
1:33
the purchasing power of two currency it
1:35
should be the same and the exchange rate
1:38
should be a matter of finding the ratio
1:40
of the two prices thus if you divide the
1:43
price of the pizza and us with the price
1:45
of the pizza in Italy we get the
1:47
exchange rate for US dollars and euros
1:49
this means that each euro is equal to
1:52
one point one zero dollars let's apply
1:56
the purchasing power parity to Kosovo
1:58
and Albania if ten candies and COS of a
2:01
cost two euros in the same ten candies
2:04
in Albania costs 260 left then the
2:07
exchange rate would be one euro equals
2:09
two 130 left 10 no matter what currency
2:13
we use the purchasing power is the same
2:15
in both countries but what happens when
2:18
prices of candies are not the same in
2:20
Kosovo and in Albania if the candies are
2:23
cheaper in Kosovo
2:24
some people come Albania would come to
2:26
Kosovo convert the Leki to euros in
2:29
order to buy the candies with cheaper
2:31
price this new demand for euros would
2:34
ride the value of the euro until average
2:36
prices of goods are the same in each
2:38
country when converted at the new
2:40
exchange rate but can we buy the same
2:43
amount of goods with our income
2:45
everywhere around the world does the
2:47
absolute PPP hold well actually it does
2:51
not here are some of the reasons why
2:53
absolute PPP does not hold non tradable
2:56
goods transportation cost and trade
2:59
restrictions and perfect information etc
3:02
as we said earlier when goods our traded
3:05
prices will become equal however there
3:08
are non tradable goods which cannot be
3:10
imported or exported so there are lots
3:13
of reasons for the prices to equalize
3:15
for instance you cannot trade the price
3:18
of publics
3:19
recessions water supply and local
3:21
transportation or the prices of hotel
3:23
accommodations the absolute purchasing
3:26
power parity makes the assumption that
3:28
taxes as most transportation costs do
3:31
not exist which is not true so because
3:35
of the different transportation costs
3:37
prices will be different also countries
3:40
have different tariffs and taxes that
3:42
prevent crises from equalizing across
3:44
countries the absolute purchasing power
3:47
parity also assumes perfect information
3:49
about what our goods prices and other
3:52
markets with perfect information one
3:55
would be able to export goods to the
3:57
market with the high price whereas
3:58
import goods form the market with a low
4:00
price however not everyone is informed
4:03
and hence prices are different since
4:07
absolute purchasing power parity does
4:10
not look at reality we now move on to
4:12
the relative purchasing power parity
4:14
relative PPP takes inflation into
4:17
account it does so by considering the
4:20
relationship between the changes of the
4:22
exchange rate and the changes of the
4:23
prices ratio note that the price levels
4:26
will increase if there is inflation
4:29
therefore the exchange rate is
4:31
determined by the difference in the
4:33
national price levels between the two
4:35
countries let's take an example let's
4:38
say that the current exchange rate is
4:40
one point one zero dollars per euro now
4:43
suppose that the inflation rate in u.s.
4:45
is predicted to be five percent in the
4:48
upcoming year while in Kosovo we predict
4:50
zero percent inflation rate what would
4:53
be the exchange rate in the upcoming
4:55
year if we expect a US prices to
4:58
increase by five percent we calculate
5:00
the following one point one zero US
5:03
dollars times 1.05 equals to one point
5:06
one five five US dollars per one euro
5:09
which is the new exchange rate now you
5:12
need more US dollars to get one Europe
5:15
therefore the US dollar is depreciating
5:18
while the euro is appreciating as a
5:21
result there is a reverse relationship
5:23
between the national price levels and
5:25
current
5:26
where there is inflation the value of
5:28
the currency depreciates and vice versa
5:31
what if we expect Kosovo's inflation to
5:34
be 3% in the upcoming year relative to
5:37
the prices in kosovo prices and new s
5:39
are rising at a rate of 2% so the new
5:43
exchange rate would be one point one
5:45
zero US dollars times one point zero to
5:48
an equal to one point one to two US
5:50
dollars for one euro therefore the
5:53
relative purchasing power parity
5:55
examines their relative changes in price
5:57
levels between two countries and
5:59
maintain that exchange rates will change
6:01
according to inflation so it is a better
6:04
measure than the absolute purchasing
6:07
power parity finally why do we need to
6:10
measure such as PPP we need PPP to
6:13
compare purchasing power of different
6:15
countries currency PPP currency rates
6:18
are considered more accurate than market
6:20
exchange rates market exchange rates
6:23
tend to be influenced by other factors
6:25
such as government interventions a
6:27
different interest rates speculation
6:30
trading and hedging on the other hand
6:33
PPP rates are often difficult to
6:35
determine because of differences in
6:37
purchasing habits among the citizens of
6:39
different countries unequal quality of
6:41
goods in those countries and differences
6:43
in each countries economies but once the
6:46
PPP rate is determined it remains
6:48
relatively constant over the long run
6:51
PPP is often used to make more accurate
6:54
comparison between two countries GDP
6:56
than can be made when using market
6:58
exchange rates for example let's look at
7:01
country a and Country beef where each of
7:04
them produces the same amount of goods
7:06
in a given year
7:07
thus the GDP should be the same for each
7:10
country but because country be
7:12
manipulated currency on the world market
7:15
its currency is artificially high when
7:17
compared to country as currently it
7:19
takes three countries dollars to buy one
7:22
country B's euro
7:23
so using the market exchange rates to
7:26
compare GDP it would look as country B's
7:28
GDP were three times the size of the
7:31
country's GDP when expressed in the same
7:34
currency using the PPP exchange rate it
7:36
would eliminate this bias and put
7:38
the GDP of each country is the same

the concept of globalization and the

0:02
potential benefits aren't hard to
0:04
understand by eliminating trade barriers
0:06
in an honest manner everyone could
0:08
theoretically win one poor countries
0:11
would receive a significant influx of
0:13
capital as international companies take
0:15
advantage of the lower wages and in time
0:17
this could even lead to a gradual
0:19
eradication of poverty to those who live
0:22
in rich countries can take advantage of
0:24
greater product variety as well as
0:26
better prices thanks to imports 3 the
0:29
world would move towards a more
0:31
efficient allocation of capital based on
0:33
whatever it is each country can produce
0:35
better than others if a country cannot
0:37
produce let's say clothing in a
0:39
cost-effective manner it can simply
0:41
import clothes and focus on the products
0:43
it's better at making unfortunately
0:45
things haven't exactly gone as planned
0:47
for several reasons 1 most countries
0:50
don't practice what they preach when it
0:52
comes to being fair for example rich
0:55
countries which encourage poorer
0:56
countries to sell them resources but
0:58
discourage them from selling actual high
1:00
value-added products too everyone wants
1:04
to game the system by artificially
1:06
weakening their currency to boost
1:07
exports subsidizing industries and so on
1:10
3 whenever something's wrong with the
1:13
economy local politicians and citizens
1:15
love blaming globalization it sure beats
1:18
looking in the mirror the end result is
1:20
that more and more people claim
1:22
globalization doesn't work however is
1:24
what we have today truly globalization
1:27
or just one big masquerade

iPhones, umbrellas, shoes. These are just some of the common items that make up
0:04
the $505 billion worth of goods that are made here in China.
0:09
And are imported here to the United States.
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President Trump is unapologetically adding and increasing tariffs
0:16
on many imports, prompting retaliation from China and others.
0:20
So how do tariffs work, and what do they mean for the economy?
0:27
A tariff is a tax on items entering or leaving a country.
0:30
The money collected under a tariff is called a duty or a customs duty.
0:34
And in the United States those duties are collected by the U.S. Customs and Border
Protection.
0:39
Last year, U.S. import duties totaled up to $33.1 billion. That's 1.4% of the total value of
all imported goods.
0:48
That makes U.S. tariffs among the lowest in the world.
0:51
But that doesn't mean every item entering the U.S. is facing a 1.4% tariff. There's a huge
range.
0:57
Some items aren't taxed at all, while others, like shoes, are taxed at around 11%.
1:03
And upping that 11% to something like 25 or 30% can cost the makers of these products
a lot.
1:09
Especially when you consider that 98% of shoes sold in the U.S. are made overseas.
1:15
Let's say I'm buying watches from China to sell at big-box retail stores here in the U.S.
1:20
Say each watch costs me $10. Add in a 20% tariff to that, and I now have to pay $12 per
watch.
1:27
$2 doesn't sound like much but if my order is 15,000 watches,
1:31
my total cost has now gone from $150,000 to $180,000.
1:37
That 20% tariff on watches cost me an unexpected $30,000 on goods.
1:42
So if tariffs cost businesses so much money, why have them in the first place?
1:47
Well, there's two main reasons. First they raise money. That revenue goes to the
1:51
general fund of the U.S. Treasury, which helps pay for running the government.
1:55
Last year, the U.S. collected almost $35 billion in duties.
1:59
Number two, tariffs can help protect some domestic industries from competition
abroad.
2:03
Think of it this way: if you're charging Made in China more money
2:07
that makes Made in America suddenly seem more affordable.
2:10
Let's go back to our watch example.
2:12
If my manufacturer in China is sending over a batch of watches that cost me $12
instead of $10,
2:18
I might find a cheaper way to make them here in the U.S. to avoid paying that 20% tariff.
2:23
But my supplies used to make the watch are likely going to need to be imported,
2:28
likely, still from China. And those supplies probably will have their own tariffs too.
2:33
You can see how this can get complicated.
2:36
There's another option.
2:37
I could also potentially buy from another country that's not subject to the tariffs
2:41
on products from China, like India or Vietnam. That's bad news for China.
2:46
But it's not just China that Trump has been after.
2:49
When the U.S. president introduced billions of dollars in new tariffs,
2:52
countries like Canada and Mexico, as well as the European Union, were quick to react
and retaliate.
2:58
So why is he kicking up the controversy with America's biggest allies?
3:02
Trump says he wants to dramatically reduce the U.S.' trade deficit with other countries.
3:07
A trade deficit is the amount by which a country's imports exceed the value of its
exports.
3:12
Trump is hoping that by introducing drastic tariffs it will reduce the size
3:15
of the U.S.' trade deficit, and he's particularly focused on China.
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The U.S.-China trade deficit is estimated to be $370 billion.
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He hopes to reduce it to $200 billion by 2020.
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So what does all this mean for consumers?
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When tariffs are put into effect, the person likely paying for that increase in cost is you
and I.
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A number of American companies have said increased tariffs will hurt their businesses,
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and ultimately they'll have to increase prices for consumers.
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In the weeks following Trump's announcement, prices went up on items
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ranging from a can of Coke to toilet paper and kitchen towels.
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And some companies like Kimberly-Clark, which makes Huggies and Kleenex,
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have even lowered their annual forecasts.
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And the tariffs could badly hurt Chinese companies and their products too.
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Some of the largest items that the U.S. is shipping to China
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include things like soybeans, aircraft and electrical machinery.
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So, when China retaliated by announcing a 25% tariff on U.S.-made airplanes.
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That was a direct hit to Boeing, and the company's stock price fell on the news.
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Boeing is selling planes to China Southern Airlines Group,
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which plans to buy more than 300 aircraft in the next three years.
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So with higher tariffs on U.S. planes, it could buy a larger share of airplanes from say
France's Airbus instead.
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The vast majority of economists surveyed by a Reuters poll said that
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import tariffs would do more harm to the U.S. economy than good.
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Yet, like most things with President Trump, he's standing his ground,
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as governments, companies and consumers scramble to see what's next.
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