International Business

and Trade
Introduction:

• International trade acts as a major contributing factor in global economic

activity and a catalyst of economic growth in developing as well as
developed countries.
Differences in various conditions, like resource availability, natural
climatic conditions, cost of production, etc., act as the motive
behind trade between the countries.

International trade has made it all possible and has provided a large
number of employment opportunities as well as several goods and
services for the consumer..
▪ With International trade, it has been a major reason for the rising living
standards of people all over the globe.

▪ International trade has been a part of human civilization for a very long
time; however, the past few decades have seen rapid development in
cross-border trading.
Imports and exports have largely contributed to the growth of
GDP, and the credit for the same goes to imports and exports.
International trade : an overview

International trade
is the exchange of goods and services between different countries.
• the term “exchange” includes the import as well as export of goods
and services.

transactions among the inhabitants of different countries.

Edgeworth, an Irish-based statistician, defined the term as the phenomenon

of trade between countries.
• The term ‘international trade’ is an example of economic linkage and
can be referred to as an economic transaction between countries.
Significance of International trade

stands as a crucial determinant of openness among countries and has

been a remarkable factor in economic growth.

overseas trade has become a strategy of paramount importance for the

growth of the national economy.

helps in encouraging social and international relations among

countries.
• Increased foreign trade has augmented the process of
globalization.
Significance of International trade

Global trade gives consumers the opportunity to experience and enjoy

a variety of goods and services that, for whatever reason, are not
available in their country or which might be a bit costly in their country
compared to others

Foreign trade also, to a great extent, curbs the issue of irregular

availability and distribution of resources all over the world by
facilitating a smooth flow of raw materials as well as finished products.

Enhances the optimum use of abundant raw materials

Reasons for Trade

▪ Differences in Technology
Advantageous trade can occur between countries if the countries differ in
their technological abilities to produce goods and services.
• Technology refers to the techniques used to turn resources (labor,
capital, land) into outputs (goods and services).

▪ Differences in Resource Endowments

Resource endowments refer to the skills and abilities of a country’s
workforce, the natural resources available within its borders (minerals,
farmland, etc.), and the sophistication of its capital stock (machinery,
infrastructure, communications systems).
Reasons for Trade

▪ Differences in Demand
Advantageous trade can occur between countries if demands or
preferences differ between countries.
Individuals in different countries may have different preferences or
demands for various products.

▪ Existence of Economies of Scale in Production

The existence of economies of scale in production is sufficient to generate
advantageous trade between two countries.
❖ Economies of scale refer to a production process in which production
costs fall as the scale of production rises.
❖ cost advantages reaped by companies when production becomes
efficient.
Reasons for Trade

▪ Existence of Government Policies

Government tax and subsidy programs alter
the prices charged for goods and services.
• These changes can be sufficient to
generate advantages in production of
certain products.
International trade
is a method of economic interaction
between international entities and is an
example of economic linkage such as
(1) foreign financial investment, (2)
multinational corporations, and (3)
foreign employees.
International trade

international trade is an exchange of a

good or service involving at least two
different countries.

Its comparative advantage allows for

gains from international trade,
ultimately leading to increased
consumption of goods.
Why Does International Trade Occur?

International trade occurs because

one country enjoys a comparative
advantage in the production of a
certain good or service,
specifically if the opportunity cost
of producing that good or service
is lower for that country than any
other country.
International Trade Policies

the government's rules and regulations guiding and controlling trade with
foreign countries.

refers to the set of regulations and agreements that govern the exchange of
goods and services between countries
International Trade Policies

Most economists favor free trade agreements because of the potential for
gains from trade and comparative advantage.
▪ This is because these economists believe that government
intervention will reduce the efficiency of the markets.

▪ Yet, many governments introduce protectionist policies to protect

domestic producers from foreign producers.

❖ Under protectionism, the government regulates the trade flowing

in and out of a country to protect domestic industries and limit its
reliance on other countries
Examples of International Trade Policies

1. Tariffs
A tariff is an excise that is paid on the sale of imported goods.
▪ Tariffs are put in place to discourage imports and protect domestic
producers and are a source of government revenue.

A tariff raises the price received by domestic producers and the price paid by
domestic consumers.
▪ Tariffs generate deadweight losses because they increase inefficiencies, as
some mutually beneficial trades go unexecuted, and an economy’s
resources are wasted on inefficient production.

Tariffs are fees applied to specific products from specific countries for specific
time
Examples of International Trade Policies

2. Import quotas
an import quota refers to a legal limit on the quantity of a good that can
be imported within a country.
▪ Generally, import quotas are administered through licensing
agreements.

▪ an import quota leads to a similar result as a tariff; however,

instead of generating tax revenue, the fees are paid to the license
holder as quota rent.
Influences and Goals of International Business

Companies engage in international business to…

▪ Expand sales
compared to one country, the number of people and the levels of their
purchasing powers are higher for the international level

▪ Acquire resources
businesses look for foreign resources such as capital technologies d
information because those are either not available in their country or
those can reduce the costs of the company
Influences and Goals of International Business

Companies engage in international business to…

▪ Minimize risk
companies who seeks out foreign markets minimize
swings in sales and profits arising out of business cycles,
recessions and expansions which occur differently in different
countries
Problems of International Business

▪ Political and Legal Differences

the complexity generally increases as the number of countries in which a
company does business increases

▪ Economic Differences
the economic environment may vary from one country to another
Problems of International Business

▪ Differences in the currency unit and Inflation Rates

differences in currency unit cause problems of currency convertibility
and the problem of exchange rate fluctuations

it’s also important to monitor inflation rates, which are the rates that general
price levels in an economy increase year over year, expressed as a percentage.
• Inflation rates vary across countries and can impact materials and labor
costs, as well as product pricing.
Problems of International Business

▪ Differences in the language

even when the same language is used in different countries, the same
terms may have different meanings
it’s important to consider the languages spoken in the countries to which
you’re looking to expand.

▪ Difference in the marketing infrastructure

the availability and nature of the marketing facilities available in
different countries may vary widely
Problems of International Business

▪ Trade Restrictions
import controls is a very important problem which an international
marketer faces

Business doesn’t exist in a vacuum—it’s influenced by politics, policies,

laws, and relationships between countries.

Political leaders’ decisions can have a significant impact on various

aspects of a country, including taxes, labor laws, raw material costs,
transportation infrastructure, and educational systems.
Problems of International Business

▪ High cost of distance

when the markets are far removed by distance, the
transport cost becomes high and the time required
for effecting the delivery tends to become longer

▪ Differences in trade practices

trade practices and customs may differ between two countries
Culture consists of the holidays, arts, traditions, foods, and social norms
followed by a specific group of people.
• It’s important and enriching to learn about the cultures of
countries where you’ll be doing business.
Problems of International Business
▪ Managing Global
Another challenge of international business is
managing employees who live all over the world.
• When trying to function as a team, it can be difficult to account for
language barriers, cultural differences, time zones, and varying levels
of technology access and reliance.
▪ Differences in trade practices
trade practices and customs may differ between two countries
Culture consists of the holidays, arts, traditions, foods, and social norms
followed by a specific group of people.
• It’s important and enriching to learn about the cultures of
countries where you’ll be doing business.
Benefits of International Business

▪ International trade not only results in increased efficiency but also allows countries
to participate in a global economy, encouraging the opportunity for foreign direct
investment (FDI).

***economies can grow more efficiently and become competitive

economic participants more easily.

*** FDI is also a means by which foreign currency and expertise

can enter the country.
• It raises employment levels and, theoretically, leads to a growth in the
gross domestic product (GDP).
• For the investor, FDI offers company expansion and growth, which
means higher revenues.
Benefits of International Business
.

▪ For a business, international trade are a larger potential

customer base, meaning more profits and revenues,
possibly less competition in a foreign market that hasn't
been accessed as yet, diversification, and possible benefits
through foreign exchange rates.
Barriers to International Business
.

▪ are policies that governments implement to prevent

international trade and protect domestic markets.
✔ include subsidies, tariffs, quotas, import and
export licenses, and standardization.
Reasons for International Trade

▪ Reduced dependence on your local market

Your home market may be struggling due to economic pressures, but if you
go global, you will have immediate
access to a practically unlimited range of customers in
areas where there is more money available to spend, and because different
cultures have different wants and needs, you can diversify your product range
to take advantage of these differences.

▪ Increased chances of success

the higher the volume of products you sell, the more profit you make, and
overseas trade is an obvious way to increase sales.
Reasons for International Trade

▪ Increased efficiency
Benefit from the economies of scale that the export of your goods can bring
– go global and profitably use up any excess capacity
in your business, smoothing the load and avoiding the
seasonal peaks and downs of a product

▪ Increased productivity
companies involved in overseas trade can improve their productivity by 34%
Reasons for International Trade

▪ Economic advantage
Take advantage of currency fluctuations
• watch out for import tariffs in the country you
are exporting to, and keep an eye on the value of sterling

▪ Innovation
exporting to a wider range of customers gain a wider range of feedback about
your products, and this can lead to real benefits.
exporting leads to innovation – increases in break-through product
development to solve problems and meet the needs of the wider customer
base.
Reasons for International Trade

▪ Growth
The holy grail for any business is more
overseas trade
= increased growth opportunities, to
benefit both your
business and our economy as a whole.
Strategies for Selecting International Market

▪ Market Concentration

refers to the number of competitors in the market.

• If many businesses are already selling similar
products or services, it may be challenging to
break
into the market.

• on the other hand, if there are only a few

competitors, you may have a better chance of
success.
Strategies for Selecting International Market

▪ Market Diversification
refers to the number of different markets you're selling
to.
• if you're only selling to one or two countries,
you're more reliant on those markets and more
vulnerable to changes in them.
however….

• if you're selling to a large number of countries,

you're more diversified and less vulnerable to
changes in any one market.
Main Criteria for Selecting International Market

▪ Market and Environment Analysis

before you enter any new market, it's important to do
a thorough market and environment analysis.
• This will help you understand the opportunity
that exists in the market and what the potential risks are.

Includes the following factors:

• size of the market
• growth rate of the market
• level of competition
• regulatory environment
• political and economic stability of the country
• infrastructure
• consumer trends
 Main Criteria for Selecting International Market

▪ Competition Analysis
understand who your main competitors are
• their strengths and weaknesses, and how they are
positioned in the market.
✔ This will help your product/company
develop a competitive advantage and be
successful in the market.

you will need to find a way to differentiate your

business and stand out from the crowd.
Main Criteria for Selecting International Market

▪ Demand Analysis
understand the level of demand for your products
or services.
• This will help you determine whether there's a potential market for
your business and how much you can expect to sell.
Taking a look at your target audience can help you understand their needs and
wants.
• This will help you develop a product or service that meets their needs
and is in demand.
use market research to understand the level of demand for your products or
services.
• This will help you understand whether there's a potential market for
your business and how much you can expect to sell.
 Main Criteria for Selecting International Market

▪ Distribution Channels
determine how you reach your target market.

different distribution channels that can be used:

• Direct selling
• Online selling
• Retailers
• Wholesalers
❖ What is direct selling?

is a sales transaction with no intermediary

between you and your customer.
• Sales take place over the phone or email,
cold calling or cold messaging potential
customers, or at events or temporary
pop-up stores.
• Sales also occur in homes, offices, or on
social media.
Types of direct sales

▪ Single-level sales
also known as single-level marketing,
these are one-on-one sales, from you to
your customer.

• You’ll buy products directly from a

parent company or manufacturer and
resell them to your client base, keeping
the difference as a profit
Types of direct sales

▪ Party-plan sales
These sales happen during social events or
other group gatherings in customers’ homes
or businesses.

With this model, there is the potential for

recruitment, as guests host parties and other
events.
• In that case, your income would come
both from sales and from
commissions on the sales of people
you recruit.
Types of direct sales

▪ Multi-level marketing (MLM)

the focus of MLM is less on sales and more on
recruiting other salespeople.
• Your income will come mostly from
commissions earned by the sales team
you recruit.
MLMs are often conflated with pyramid
schemes, since they’re similar in structure, but
MLMs are legal and they sell a legitimate
product, whereas pyramid schemes exclusively
generate revenue from new recruits.
Advantages of direct sales

• Total control.
You can successfully run a direct sales
company with a small staff and have
complete creative control of all aspects of
your brand.

In direct sales, you are your own marketing

department, so you get to set the direction
of your sales pitch.
Advantages of direct sales

• Opportunity for passive income.

If you’re operating an MLM model, you

might be able to sit back and cash in, taking
percentages of the sales made by the sellers
you recruit, also known as your “downline.”
Advantages of direct sales

• Flexible schedule

Unlike a typical 9-to-5 job, you can create

your own schedule.
✔ With no set hours and no set location,
you can work anywhere, any time.
Disadvantages of direct sales

• Always be closing

The drawback of having no set hours is you

might end up working long days.

If you sell online, you might feel tied to

your computer, chasing new customers
across time zones through the night.
Disadvantages of direct sales

• Long road

While direct sales are easy and quick to

start, building a network can take a long
time.
✔ Successful direct sales companies
have large, loyal, trusting customer
bases.

✔ These can pay off in the long run, but

take many months, if not years, to
cultivate.
❖ On-line selling

• An online selling is a digital platform

where you can list and sell your products
or services to a wide audience.

• Online selling provide you with tools you

need to create your own online store,
establish your online presence and reach
potential customers.
Types of On-line selling Platforms

▪ Ecommerce website builders

enable you to create your own online store,
which could take the form of a website or
app, and sell directly to your customers.

Having your own online store gives you

more control over pricing and branding,
but you need to set up systems to fulfil
orders, while also taking care of your own
marketing activity.
Types of On-line selling Platforms

▪ Marketplaces
Ecommerce platforms like Amazon allow you to list
your products.
You can attract customers searching for a wide
range of products without investing too much in
marketing, as these platforms take care of it for you.
They also handle payment processing and shipping,
making it easier for you to get started.

✔ However, on marketplaces, you have to pay high

commissions, which can gnaw at your profit
margins, while the amount of competition often
forces you to sell at low prices.
Types of On-line selling Platforms

▪ Social media

Today, you can use social media to sell

online, leveraging platforms like Facebook,
TikTok, Instagram and Snapchat.

You can set up a shop on these platforms or

use them to promote products and drive
traffic to your website or app.
Types of On-line selling Platforms

▪ Business-to-business (B2B) platforms

Examples are Alibaba and Thomas

Net

▪ They often cater to specific industries

and niches.
Types of On-line selling Platforms

▪ Niche marketplaces

These platforms attract a targeted

audience interested in particular
product categories.

Examples are:
▪ Etsy for handmade items and vintage items
or Houzz for home decor.
Benefits of online selling Platforms

▪ Wider customer reach

Online selling platforms give you
access to a vast global audience.

You can reach potential customers

from different geographic locations,
increasing your chances of finding
buyers for your products.
Benefits of online selling Platforms

▪ Lower overhead costs

Operating an online store typically
involves lower overhead costs
compared to a physical
brick-and-mortar shop.

You can avoid expenses such as rent

and hiring in-store staff, allowing you
to allocate more resources to growing
your business.
Benefits of online selling Platforms

▪ Convenience and flexibility

You have the flexibility to manage

your online store from anywhere with
an internet connection.

▪ This convenience allows you to set

your own working hours and adapt
to changing circumstances easily.
Benefits of online selling Platforms

▪ 24/7 availability

Your online store never closes.

• It remains open 24/7, enabling
customers to browse and make
purchases at their convenience,
regardless of time zones or
holidays.

This continuous availability can lead

to increased sales.
Benefits of online selling Platforms

▪ Easy product management

Most online selling platforms provide
user-friendly interfaces for adding,
updating and organizing your product
listings.

You can easily showcase product

details, images, reviews and pricing,
making it simpler for customers to
make informed decisions.
Benefits of online selling Platforms

▪ Customer insights
You can access valuable data and
analytics on customer behavior,
purchasing patterns and
demographics.

This information allows you to make

data-driven decisions and tailor your
marketing strategies.
Benefits of online selling Platforms

▪ Scalability
Online selling platforms can easily
accommodate business growth.

As your sales increase, you can

expand your product range, add more
listings and even explore international
markets without major infrastructure
changes.
❖ Retailers

retailers are the mediator between wholesaler

and customers.
• They purchase goods from the
wholesaler and sell them to the
ultimate customers in small quantity.

Retailers offer a wide variety of goods and

are in direct communication with a large
chain of suppliers, giving them an
opportunity to manufacture and develop more
sustainable goods.
❖ Retailers

A retailer does not manufacture any product

they sell, but they are the final link in the
distribution chain and the one who connects
and delivers the goods and services directly
to the customers.
❖ Importance of Retailers

▪ Provide Assortments-
Supermarkets or small shops sell
different product items manufactured
by different companies.

These places enable and give choices

to customers to pick from a vast
assortment of goods, sizes, brands,
and prices at one location.
❖ Importance of Retailers

▪ Breaking Bulk Orders

retailers sell products to the customers in
smaller and more useful quantities.

▪ Holding Inventory
is maintaining an inventory, so the items
are available whenever the customers
want.
▪ This action allows the customer to
buy products in a small quantity
as required.
❖ Importance of Retailers

▪ Providing Services-
Retailers implement services that
make customers shopping journey
favorable.

Example, retailers showcase all the

products so that the customers can see
and buy them. Retail store’s employee
salesperson to assist the customers.
❖ Wholesalers

Wholesalers buy goods from manufacturers

or producers in bulk and resell them to
retailers.

Basically, they’re middlemen between

manufacturers and retailers, offering bulk
products at a discount.
❖ Types of wholesalers

▪ Distributors
Distributors acquire products in large
volumes from manufacturers and then sell
them off (also in bulk) to retailers.
They play no role in the production
process of the merchandise.
Oftentimes, they also own their own
storage facilities to hold these products.
❖ Types of wholesalers

▪ Manufacturers

wholesalers are manufacturers who make

the goods themselves.

Manufacturers selling wholesale

products are both suppliers and makers,
so they can sell to distributors or deal
directly with retailers.
❖ Types of wholesalers

▪ Suppliers

A supplier in business can be described

as a person or an entity that supplies
goods and services.

Wholesale suppliers typically engage in

B2B (business-to-business)
ecommerce—that is, they sell to other
businesses (like a distributor or a
retailer).
❖ Types of wholesalers

▪ Merchant wholesalers

It’s the most popular method of

wholesaling, which involves a
distributor purchasing goods in volume
from a supplier/manufacturer, storing
them in their own facilities, and then
reselling them in smaller bulk quantities
to retailers.

merchant wholesalers do not produce the

goods themselves.
❖ Types of wholesalers

▪ Agents/brokers

A broker or agent is an independent

intermediary, just like a merchant
wholesaler.

Agents and brokers don’t own any of

the wholesale products they deal in,
unlike merchant wholesalers.
❖ Types of wholesalers

▪ Agents/brokers

Their job is to set up deals between

wholesalers and businesses interested
in buying from them (like distributors
or retailers) while making a
commission
❖ Types of wholesalers

▪ Manufacturers’ sales and distribution teams

This type of wholesale selling is similar to

wholesale agents and brokers in that they
are in charge of securing buyers for the
manufacturer and have a vested interest in
doing so.
They’re owned by the manufacturer
themselves and are responsible for
distributing the merchandise on a
wholesale level (to distributors or retail
stores).