International Business and Trade (Chapter 20 | Summaries International Business

INTRODUCTION TO INTERNATIONAL TRADE

There is no first world nor third world but only one world

× Coined by French writers in the 1950s,

× le Tiers Monde (Third world)

× majority of humankind that was in neither the Western

capitalist First World nor the communist Second World.

× collapse of communism in Eastern Europe and the ex-

Soviet Union, the Third World is simply everything “that is

not the west, meaning Europe, the United States, Canada

Australia and now Japan’.

× from 1970-2000 - moving from “rags to riches”. the Five

Dragons: Taiwan, South Korea, Singapore, Hongkong,

Japan.

× the Nation System was introduced world wide only in the

mid-twentieth century. Nation there for should not be

equated to societies.

THE DIFFERENT WAYS OF CLASSIFYING THE

WORLD

× 1st - Europe

× 2nd - North America and Australia

× 3rd - Poor Countries e.g. India

× 4th – Very poor countries e.g. Somalia

North and South

× North – wealthy and industrialised countries

× South – poorer, less mature and more agricultural

× MEDC – More Economically Developed country

× LEDC - Less Economically Developed country

× NICs – Newly Industrialised country

Wealth – fivefold division

1. Rich industrialised countries

2. Oil-exporting countries

3. Newly industrializing countries

4. Former communist countries

5. Heavily indebted poorer countries

INTERNATIONAL TRADE

International trade - influence in development of a country where

transactions are done by means of export and import

*two senses in international business, namely: international

trade and international markets.

INTERNATIONAL TRADE VS. INTERNATIONAL MARKETING

International trade - cross-border transaction

International marketing - a business transaction other countries

and market the production to another countries.

INTERNATIONAL MARKETING

Business transaction can be done in various ways:

× Licensing

× Franchising

× Management Contracting

× Marketing in home country by host country

× Joint Venturing

× Multinational Corporation

FACTORS AFFECTING INTERNATIONAL BUSINESS

1) Competitive

2) Distributive

3) Variable that impacts the economy

4) Socio-economics characteristics and distribution of

human population

5) Finance factors

6) Legal factors

7) Physical factors

8) Politics

9) Socio-cultural

10) Composition Expertise

11) Technology Expertise

INTERNATIONAL BUSINESS

× economy in the country and abroad create a relationship of

mutual influence between one country and another, in the

form of exchange of goods and services between countries.

× International business affects economic growth of a country

GLOBALIZATION

× Culture, Society, Politics, Economy , Environment

Why a company to exercise or plunge into international business

are;

a. The products in the country is experiencing saturation level

and stage of declined (decline phase); abroad it is growing

(growth ).

b. The potential of the international market is more expansive

than the domestic market.

c. Utilizing the capacity of the machine are still under-utilize

d. Competition is happening in the country, even sharper with

the products coming abroad.

e. Developing new markets (abroad) is an action that is easier

than developing new products (in the country)

As for the stage, in chronological order are as follows:

× Export Incidental

× Export Active (Purchasing)

× Sales License

× Franchising

× Marketing Abroad

× Production and Marketing

ADVANTAGE OF INTERNATIONAL TRADE

× Understanding the cornerstone of the international economy

as a whole is the idea of trading gains that is, if a country sells

goods and services to other countries, the benefits almost

certainly can realize by both parties.

× MNC - Multinational Company is a company based in one

country (the parent), but the company had a production or

marketing activities of branches in another country – other

countries (state branch).

LG - Lucky Chemical Industrial Company

× now called LG Chemical is established in 1947, the first

chemical company in Korea.

× The company is a partnership between families who already

have a business competing with one another for several

generation.

× This group expands to household appliances in 1958 under

the name of Goldstar Electronics Company GeumSung being

Planet Venus, now called LG Electronics was the first

Electronics Company in the country.

× LG Indonesian was established on December 15 1990 based

on Garuda Indonesian Building Donuts

DUNKIN’ DONUTS

× In 1940, grew and developed in the city of Boston, USA, with

first name Open Kettle.

× In 1970, keeps growing and growing. Dunkin’ Donuts

become a company with an international brand.

× In 1983 the company bought by Allied Domecq. under Allied

Domecq international market expansion Dunkin’ Donuts

intensified.

× In 1985, in Indonesia Dunkin’ Donuts began reaching the

market with the first outlet set up in Jalan Hayam Wuruk,

central Jakarta.

× Dunkin’ Donuts first entered the Philippines, at the time,

when there is still military bases of United State in the

Philippines.

INTERNATIONAL BUSINESS

International Business

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INTRODUCTION TO INTERNATIONAL TRADE There is no first world nor third world but only one world × Coined by French writers in the 1950s, × le Tiers Monde (Third world) × majority of humankind that was in neither the Western capitalist First World nor the communist Second World. × collapse of communism in Eastern Europe and the ex- Soviet Union , the Third World is simply everything “that is not the west, meaning Europe, the United States, Canada Australia and now Japan’. × from 1970- 2000 - moving from “rags to riches”. the Five Dragons : Taiwan, South Korea, Singapore, Hongkong, Japan. × the Nation System was introduced world wide only in the mid-twentieth century. Nation there for should not be equated to societies. THE DIFFERENT WAYS OF CLASSIFYING THE WORLD × 1 st^ - Europe × 2 nd^ - North America and Australia × 3 rd^ - Poor Countries e.g. India × 4 th^ – Very poor countries e.g. Somalia North and South × North – wealthy and industrialised countries × South – poorer, less mature and more agricultural × MEDC – More Economically Developed country × LEDC - Less Economically Developed country × NICs – Newly Industrialised country Wealth – fivefold division

Rich industrialised countries
Oil-exporting countries
Newly industrializing countries
Former communist countries
Heavily indebted poorer countries INTERNATIONAL TRADE International trade - influence in development of a country where transactions are done by means of export and import *two senses in international business, namely: international trade and international markets. INTERNATIONAL TRADE VS. INTERNATIONAL MARKETING International trade - cross-border transaction International marketing - a business transaction other countries and market the production to another countries. INTERNATIONAL MARKETING Business transaction can be done in various ways: × Licensing × Franchising × Management Contracting × Marketing in home country by host country × Joint Venturing × Multinational Corporation FACTORS AFFECTING INTERNATIONAL BUSINESS

Competitive
Distributive
Variable that impacts the economy
Socio-economics characteristics and distribution of human population
Finance factors
Legal factors
Physical factors
Politics
Socio-cultural
Composition Expertise
Technology Expertise

INTERNATIONAL BUSINESS

× economy in the country and abroad create a relationship of mutual influence between one country and another, in the form of exchange of goods and services between countries. × International business affects economic growth of a country GLOBALIZATION × Culture, Society, Politics, Economy , Environment Why a company to exercise or plunge into international business are; a. The products in the country is experiencing saturation level and stage of declined (decline phase); abroad it is growing (growth ). b. The potential of the international market is more expansive than the domestic market. c. Utilizing the capacity of the machine are still under-utilize d. Competition is happening in the country, even sharper with the products coming abroad. e. Developing new markets (abroad) is an action that is easier than developing new products (in the country) As for the stage, in chronological order are as follows: × Export Incidental × Export Active (Purchasing) × Sales License × Franchising × Marketing Abroad × Production and Marketing ADVANTAGE OF INTERNATIONAL TRADE × Understanding the cornerstone of the international economy as a whole is the idea of trading gains that is, if a country sells goods and services to other countries, the benefits almost certainly can realize by both parties. × MNC - Multinational Company is a company based in one country (the parent), but the company had a production or marketing activities of branches in another country – other countries (state branch). LG - Lucky Chemical Industrial Company × now called LG Chemical is established in 1947, the first chemical company in Korea. × The company is a partnership between families who already have a business competing with one another for several generation. × This group expands to household appliances in 1958 under the name of Goldstar Electronics Company GeumSung being Planet Venus, now called LG Electronics was the first Electronics Company in the country. × LG Indonesian was established on December 15 1990 based on Garuda Indonesian Building Donuts DUNKIN’ DONUTS × In 1940 , grew and developed in the city of Boston, USA, with first name Open Kettle. × In 1970, keeps growing and growing. Dunkin’ Donuts become a company with an international brand. × In 1983 the company bought by Allied Domecq. under Allied Domecq international market expansion Dunkin’ Donuts intensified. × In 1985 , in Indonesia Dunkin’ Donuts began reaching the market with the first outlet set up in Jalan Hayam Wuruk, central Jakarta. × Dunkin’ Donuts first entered the Philippines, at the time, when there is still military bases of United State in the Philippines. INTERNATIONAL BUSINESS International Business

× any business that operates across international borders. × includes sale of goods and services between countries. × Yet, other forms of international business do exist. For example, a business that produces components or products overseas but sells them domestically can be considered an international business Nature of International Business

Accurate Information
Information not only accurate but should be timely
The size of the international business should be large
Market segmentation based on geographic segmentation
International markets have more potential than domestic markets Objective of International Business

To achieve higher rate of profits
Expanding the production capacity beyond the demand of the country
Severe competition in domestic market
Limited home market
Political stability vs. political instability
Availability of technology and competent human resources
High cost of transportation
Nearness to raw material
Liberalization and globalization
To increase market share Reasons for recent International Business Growth
Expansion of technology
Business is becoming more global because transportation is quicker; communications enable control from afar; transportations and communications costs are more conducive for international operations
Liberalization of cross-border movements
Lower governmental barriers to the movement of goods, services, and resources enable Companies to take better advantage of international opportunities Problems in International Business
Political factors
High foreign investments and high cost
Exchange instability
Entry requirements
Tariffs, quota etc.
Corruption and bureaucracy
Technological policy The Crusade of Frederick Barbarossa Michalos - people are driven by a personal picture of the future, an image of what life should be for them. Marx and Engles - argued that capitalism itself tends to produce scarcity and that the capitalists want a large reserve army of unemployed people to keep down the wages, and they want shortages to keep up prices. From the 1960s to the 1980s, Japan achieved one of the highest economic growth rates in the world. This growth was led by:
High rates of investment in productive plant and equipment
The application of efficient industrial techniques
A high standard of education
Good relations between labour and management
Ready access to leading technologies and significant investment in research and development × Countries with widest gap between rich and poor are developing nations such as Turkey, Mexico, and Brazil. × In 1964 when President Lyndon Johnson declared the war on poverty, 36.1 million Americans or 19% of the population were poor. × Most Americans live in a metropolitan area. The two largest cities, New York and Los Angeles , together are home to more than twenty percent of the total population of the country. × These refugee accepted the sovereignty of the Eastern Emperor, but in the eight century took part in the general revolt against the Emperor Leo III (717-714). × Leo had ordered that all icons and holy images throughout the empire should be destroyed. Leo, also called as Orso, has a significant place in history since he was the first of 117 doges who were to reign Venice. × When Otto III arrived in Italy in 966, en route to Rome for his coronation, Orseolo was quick to reach an agreement by which Venice secured trading rights in the Italian Mainland. × The year after consecration of St Mark, Pope Urban II called for the First Crusade to recapture the Holy Land from Moslems. × The Second Crusade (1147-1149) was organized by the Emperor Conrad III and Louis VII of France and managed to murder some ten thousand Jews in the Rhine Valley. COMPARISON BETWEEN DOMESTIC MINDSET AND GLOBAL MINDSET DOMESTIC MINDSET × knowledge structures of the top management team prior to starting international activities, based on their managerial experience and learning in domestic markets. Global mindset × combination of an " openness to and awareness of diversity across cultures and markets with a propensity and ability to see common patterns across countries and markets. ” Domestic Mindset Global Mindset Functional expertise Broader and bigger picture Prioritization Balance between contradictions Structure Process Individual responsibility Teamwork and diversity No surprises Change as opportunity Trained against surprises Openness to surprises Domestic mindset: × Expertise in a function.

(TNC) which, together with its subordinate negotiating bodies, organizes the Doha Development Round negotiations. × Article IV of the WTO Agreement provides that the WTO has a secretariat , which is headed by a Director-General who is, in turn, appointed by the Ministerial Conference. Decision Making in WTO The normal decision-making procedure for WTO bodies is provided in Article IX (1) of the WTO Agreement in the following terms: The WTO shall continue the practice of decision-making by consensus followed under GATT 1947. 2 STEP APPROACH TO DECISION MAKING IN WTO: × The members must try to take decisions by consensus. × When consensus cannot be reached, voting on a one- country/one-vote basis is needed. 3 major basic agreements of the WTO Agreement × contain a set of rules dealing with trade in goods and services as well as with the protection of IPRs. 5 principles constituting the foundation of the world trading system: × Trade without discrimination × Free trade (through negotiation). × Predictability (binding and transparency) × Promoting fair competition × Encouraging development and economic reform. TRADE WITHOUT DISCRIMINATION OR PRINCIPLES OF NON- DISCRIMINATION NON- DISCRIMINATION × central to WTO law and is reflected in all of the key treaties of the WTO. × "the elimination of discriminatory treatment in international trade relations' is one of the mean to attain the objectives of the WTO. 2 PRINCIPLES OF NON-DISCRIMINATION × MFN OBLIGATION - single most important rule in WTO law, without multilateral trading system could not exist. × NT OBLIGATION - contains a WTO member from discriminating against foreign products in favor of 'like' domestic product, services and service suppliers. GATT (or "the General Agreement”) × is described in the final Uruguay Round package as "GATT". They are the most-favoured-nation (MFN) rule,the principle of reduction and binding of national tariffs,the rule of national treatment, and the prohibition subject to defined exception to protect measures other than tariffs. 2 MAJOR EXCEPTION THAT HAVE BEEN CARRIED OVER INTO THE GATT 1994

The provisions on regional trading arrangement.
Restriction to protect the balance of payments it will considered separately in conjunction with the Uruguay Round. MFN TREATMENT UNDER GATT × The MFN rule is basic to the whole edifice of the GATT. Stated in Article I of the GATT2, it requires that if one GATT (now WTO) signatory grants to another country “more favourable treatment” (such as a reduction in the customs duty payable on imports of a particular product), it must immediately and unconditionally give the same treatment to imports from all signatories. × MFN or non-discrimination, obligation applies to customs duties and charges of any kind connected with importing and exporting, as well as to internal taxes and charges , and to all the rules by which such duties, taxes, and charges are applied

TARIFF REDUCTION AND BINDINGS

× These commitments or "bidings" may result initially from bilateral negotiations in which the government concerned has agreed to another country's request that it reduce the import duty on certain products. However, the commitments are the recorded in national schedules which through the provisions of Article II become part of each country's obligations under GATT and the operation of the MFN rule apply to import from any member. Developing countries to a great extent stood aside from this process, and many had no schedule of bindings at all. Under the WTO all members are required to have schedules, and the proportion of products subject to bindings is generally much higher than before. The Article II and XXVIII rules will continue to guide negotiations under the WTO for the reduction of barriers to trade in goods WHAT IS GATS? The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. Negotiated in the Uruguay Round, it was developed in response to the growth of the services economy and the increasing importance of services in world trade. 3 Elements of GATS

The main text containing general obligation and disciples
Annexes containing provisions on specific sectors
Individual provide guarantees of access to their market and non-discriminatory treatment MFN TREATMENT UNDER GATS The MFN treatment test is a three-tier one. 3 Necessary questions to be answer

Whether the measure is covered by GATS
Whether the sevices or service suppliers are 'like'
Whether less favorable treatment occurs with regard to the services or service suppliers of a member Whether the measure is covered by GATS A measure by member is a broad concept and covers as defined by Article I (3) of the GATS, measusers take by (i) central,regional or local governments and authority;and (ii) non-governmental bodies in the exercise of power delegated by central, regional or local governments or authorities Whether the services or service suppliers are 'like' service suppliers - any person who supplies a service', including natural and legal persons as well a service suppliers providing their services through forms of commercial presence. 'service includes' any service in any sector except services supplied in the exercise of governmental authority. The GATS as the GATT, does not define concept of 'likeness' in the case of 'services’ and 'service suppliers' Bossche 3 following reasonable criteria to determine the 'likeness of service' and 'service suppliers'

The characteristics of the service or the service supplier
The classification and description of the service in the United Nations Central Product Classification (CPC) system
Consumer habit and preferences regarding the service or the service supplier Whether less favorable treatment occurs with regard to the services or service suppliers of a member × The GATS defines 'treatment no less favorable'not in the context of MFN , but in the context on NT (Article XVII) × should be interpreted to include both 'de facto' and 'de jure' discrimination

International Business and Trade (Chapter 20, Summaries of International Business

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INTERNATIONAL BUSINESS

TARIFF REDUCTION AND BINDINGS