International Business and Trade (Chapter 1) | Summaries International Business

1.1 Mercantile

International Trade – exchange of goods and services

between countries.

Mercantilism – form of economic nationalism that sought to

increase the prosperity and power of a nation through

restrictive trade practices

Mercantilism

× 16th to 18th century

× Adam Smith released his book which is Wealth of Nation

in 1776

× Adam Smith coined “mercantile system”

× System of political economy to enrich country by import

and exports

× Period of religious and commercial warfare

× Age of discovery which british, French, and Spanish

empires expand

Gold 2 reasons why important

× Needed to fund the empires military

× Considered as sign of wealth and power

Principles of Mercantilism

1. amount of wealth in the world is steady

2. country counts wealth by amount of gold

3. mercantilist favor exports but restrict import

4. value of country’s population is a key to self-reliance and

state power

5. in mercantile system, leader such as kingdom or state is

seen as dominant role to lead his country to welfare

Favor export but limit import

× For building up industries and strengthened economy

× Exporting – beneficial (positive)

× Importing – harmful (negative)

Japan – fortress of mercantilism

1.2 ADAM SMITH’S WEALTH OF NATIONS

18th century - Great Britain - largest empire in the world.

steam machine - brought Britain to a higher throne.

Industrial Revolution

× brought human to a more sophisticated production,

distribution, and consumption.

× encouraged the cycle of commerce to a larger market.

× led the way of human to a greater commerce.

Britain - current hegemon and had powerful allies not only

within Europe but widening to US continent and Asia.

United States - became the supplier, replacing the throne who

was before seated by the Great Britain.

The 3 Main Points of Wealth of Nations

× Pursuit of self-interest

× Division of labor

× Freedom of trade

PURSUIT OF SELF-INTEREST

× Adam Smith believed humans promote public interest

× Self-interest and the division of labor result in mutual

interdependencies that promote stability and prosperity

through the market mechanism.

× This pursuit of self-interest leads to the “invisible hand”

DIVISION OF LABOR

× specialization helps country to gain absolute advantage

FREEDOM OF TRADE

× free market economy wherein, the government has little or

no control at all.

× Invisible hand - metaphor for the unseen forces that make

the free market economy move.

LAISSEZ-FAIRE

× It is an economic theory from the 18th century that opposed

any government intervention in business affairs.

× a French term that translates to "leave alone" (literally, "let

you do")

× the less the government is involved in the economy, the

better off business will be, and by extension, the society

as a whole

GOVERNMENT INTERFERENCE

× when governments interfere with this process, unwanted

shortages and surpluses tend to occur.

× invisible hand limits government

× invisible hand - the market mechanism that we need is

to have a process that turns this ‘inequality’ into equality

1.3 ASIA AND ECONOMIC GROWTH

India

× world's fastest-growing major economy

× expected to be one of the top three economic powers

× world’s 9th largest importer.

Information and computer services, travel, and financial

services

China

× one of the fastest economic transformations.

× economy has grown significantly due to industrialization

and achieved similar economic growth become the the

manufacturing hub of the world and the 2nd biggest

economy after US.

× China is the top exporter of finished goods to the world.

David Ricardo

× comparative advantage theory, when one country has an

absolute advantage over the other, both countries need

each other to help boost their economies. A country must

concentrate on areas where it has a comparative

advantage.

Michael Porter's

× national competitive theory, a country's economy can grow

on the basis of its factor endowments, such as

demographics, climate, and natural resources.

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1.1 Mercantile International Trade – exchange of goods and services between countries. Mercantilism – form of economic nationalism that sought to increase the prosperity and power of a nation through restrictive trade practices Mercantilism × 16 th^ to 18th^ century × Adam Smith released his book which is Wealth of Nation in 1776 × Adam Smith coined “mercantile system” × System of political economy to enrich country by import and exports × Period of religious and commercial warfare × Age of discovery which british, French, and Spanish empires expand Gold 2 reasons why important × Needed to fund the empires military × Considered as sign of wealth and power Principles of Mercantilism

amount of wealth in the world is steady
country counts wealth by amount of gold
mercantilist favor exports but restrict import
value of country’s population is a key to self-reliance and state power
in mercantile system, leader such as kingdom or state is seen as dominant role to lead his country to welfare Favor export but limit import × For building up industries and strengthened economy × Exporting – beneficial (positive) × Importing – harmful (negative) Japan – fortress of mercantilism

1.2 ADAM SMITH’S WEALTH OF NATIONS

18 th^ century - Great Britain - largest empire in the world. steam machine - brought Britain to a higher throne. Industrial Revolution × brought human to a more sophisticated production, distribution, and consumption. × encouraged the cycle of commerce to a larger market. × led the way of human to a greater commerce. Britain - current hegemon and had powerful allies not only within Europe but widening to US continent and Asia. United States - became the supplier, replacing the throne who was before seated by the Great Britain. The 3 Main Points of Wealth of Nations × Pursuit of self-interest × Division of labor × Freedom of trade

PURSUIT OF SELF-INTEREST

× Adam Smith believed humans promote public interest × Self-interest and the division of labor result in mutual interdependencies that promote stability and prosperity through the market mechanism. × This pursuit of self-interest leads to the “invisible hand” DIVISION OF LABOR × specialization helps country to gain absolute advantage FREEDOM OF TRADE × free market economy wherein, the government has little or no control at all. × Invisible hand - metaphor for the unseen forces that make the free market economy move. LAISSEZ-FAIRE × It is an economic theory from the 18th century that opposed any government intervention in business affairs. × a French term that translates to " leave alone " (literally, "let you do") × the less the government is involved in the economy, the better off business will be, and by extension, the society as a whole GOVERNMENT INTERFERENCE × when governments interfere with this process, unwanted shortages and surpluses tend to occur. × invisible hand limits government × invisible hand - the market mechanism that we need is to have a process that turns this ‘inequality’ into equality 1.3 ASIA AND ECONOMIC GROWTH India × world's fastest-growing major economy × expected to be one of the top three economic powers × world’s 9th largest importer. Information and computer services, travel, and financial services China × one of the fastest economic transformations. × economy has grown significantly due to industrialization and achieved similar economic growth become the the manufacturing hub of the world and the 2nd biggest economy after US. × China is the top exporter of finished goods to the world. David Ricardo × comparative advantage theory, when one country has an absolute advantage over the other, both countries need each other to help boost their economies. A country must concentrate on areas where it has a comparative advantage. Michael Porter's × national competitive theory, a country's economy can grow on the basis of its factor endowments, such as demographics, climate, and natural resources.

1.4 BREXIT AND ITS BUSINESS EFFECTS

BREXIT

× Referendum decision by the people of UK to withdraw its membership from the EU. × BRITAIN’S EXIT A single market would ensure standardized methods of consumer protection, the rights of employees are put into consideration, and a fair competition is enhanced Negative Effects × Brexit can make Britain unwelcome in the customs union × NTBs will create obstacles to trade with countries in the EU × Creation of jobs in Britain will be affected × Cost of imported final and intermediate products increased × Free movement of people will cease from happening Immigrants working in Britain will have a difficult time Safeguarding the rights of temporary employees will not be guaranteed Positive Effects × China supports BREXIT × Will receive more tariff revenues × Businesses will grow × Trade diversion will be reduced International Economic Order Global Economic Organizations - IMF IBRD Global Trade Organizations - ITO 'Provisional’ Mechanism Governing International Trade in Goods - GATT World Trade Organizations × Global trade system has continuously developed over 65 years but Regional Economic Integration is now becoming the most appropriate foreign trade policy. × European Union(hereinafter the 'EU'), × the North American Free Trade Area (hereinafter the 'NAFTA'), × ASEAN Free Trade Area (hereinafter the 'AFTA') 1.5 International Trade and Trade Policy International Trade × buying and selling of goods between foreign countries. International trade express country’s market to goods and services. International Trade Policy × are rules define how imports and imports are conducted. × the governments rules and regulations guiding and controlling trade with foreign countries. × tariffs, subsidies, and regulations 2 REASONS WHY STARTED TRADE WITH EACH OTHER

1. Economic reason “Free trade is not a new idea” Comparative Advantage × is a concept concept central to international trade theory; it holds that a country should specialize in the production and export of those goods and should concurrently import those goods in which has a comparative disadvantage ABSOLUTE ADVANTAGE VERSUS COMPARATIVE ADVANTAGE × A country enjoys an absolute advantage over another country in th production of a product if it uses fewer resources to produce that product than the other country does. × A country enjoys a comparative advantage in production of a good if that good can be produced at a lower cost in terms of other goods 2. Political reason “If goods do not cross frontiers, soldiers will” 1st political reason - protect jobs and overall industries from international business 2nd political reason - for government intervention in trade is the protection of national security trade restrictions - to protect companies and workers in the home economy from competition by foreign firms states decisons - focus on international trade,as political logic often prevails over economic logic International Trade Law × includes the appropriate rules and customs for handling trade between countries. × it also used in legal writings as trade between private sectors 1.6 International Business Transactions International Business Transactions involves taking business operations, products, and services from a home market into target markets abroad. International Business Law is the law governing international business transactions. It is the study of how laws and regulations impact business dealings between companies based in different countries. Various Forms of International Business Transactions a) direct sales done with a client abroad (importation and exportation) b) use an intermediary for the sale of goods or provision of services to or from a foreign supplier Two intermediaries in international business: 1) Agency 2) Distribution Various Forms of IPRs Transfer a) licensing of objects of industrial property rights (ex: patents or trademarks) b) licensing of copyright c) technology transfer d) franchising

Outsourcing – contracting workout to external org Risk: misaligned interests of clients and vendors Adv: specialized skills, cost efficiencies and labor flexibility Offshoring – getting work done in diff country Risk: criticized for transferring hobs to other countries Adv: lower costs, better availability of skilled people, and getting work done faster International marketing

× exchange of goods and services between different national

markets involving buyers and sellers.

× International Marketing is the Multinational process of

Planning and executing (American Marketing Association) Stages of International Marketing × No direct foreign marketing × Infrequent foreign marketing × Regular foreign marketing & international marketing/multinational marketing Mercantilism (commercialism) × is a system a country attempts to a wealth through trade with other countries × outdated system International relations - study of an international system composed of territorial states. Deals with the nature of the changing relations between states and with non-state actors. Outsourcing - arrangement in which one company provides services for another company Advantages of outsourcing

swiftness and expertise
concentrating on core process rather than the supporting ones
Risk-sharing
Reduced operational and recruitment costs
Focus on core activities
Cost and efficiency savings Disadvantages of Outsourcing
Risk of exposing confidential data
Synchronizing the deliverables
Hidden cost
Lack of customer focus Advantages of Joint Venture
Sufficient resources •Ability and experience
Spreading of risk
more resources
- access to new markets
new and improved technology
use of existing marketing arrangement or existing distribution network of one of the party is possible
sharing of cost and risk - diversification of business
increased productivity and profits
exchange of product Disadvantages of Joint Venture
- It takes time and efforts to form the right relationship
- The objective of each partner may differ
- Imbalance may cause friction
- Differences may lead to poor cooperation
- Lack of assuming
- Lack of communication Domestic law is important in international legal practice. includes law of foreign countries Sources of domestic law × Legislation × Domestic case law × Other sources of domestic law (mercantile customs and usages) A. International mercantile customs and usages 1. International mercantile customs and usages
- a whole of unwritten rules generated from the acts/behaviors of merchants and were considered as 'the law by them. For example, International Commercial Terms (hereinafter the 'INCOTERMS). 2. Lex mercatoria (Merchant Law) 3. International Chamber of Commerce (ICC) and Compilation of IMCU B. Treaties dominant source of international trade and business law C. International Cases WTO cases and decisions/judgments passed by international jurisdiction such as international courts, international arbitrations, are very important in the legal source system. D. other sources 'Soft law is popularly mentioned by academics. 'Soft law' is rules which are not legally binding, but which in practice will normally be adhered to by those who subscribe to them. The 'Calvo Doctrine is a foreign policy doctrine which holds that jurisdiction in international investment disputes lies with the country in which the investment is located

International Business and Trade (Chapter 1), Summaries of International Business

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Download International Business and Trade (Chapter 1) and more Summaries International Business in PDF only on Docsity!

1.2 ADAM SMITH’S WEALTH OF NATIONS

PURSUIT OF SELF-INTEREST

1.4 BREXIT AND ITS BUSINESS EFFECTS

BREXIT

× exchange of goods and services between different national

× International Marketing is the Multinational process of