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- 1. 1 Chapter One Introduction to International Business
- 2. 2 Chapter One Outline Introduction to International Business Barriers to International Business International business enablers The Reasons for International Business Role of International Business Summary
- 3. 3 Introduction International business and multinational corporate activities have grown significantly during the past two decades. The rapid and continuous growth of cross- border economic linkages have contributed to the importance of the study of international business What is International Business?
- 4. 4 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Definition International business is described as any business activity that crosses national boundaries. The economic system of exchanging goods and services, conducted among individuals and businesses in multiple countries
- 5. 5 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d The entities involved in business can be Private, Governmental, or A mixture of the two International business can be broken down into four types: Foreign trade Trade in services Portfolio investments, and Direct investments
- 6. 6 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Foreign trade Foreign trade, visible physical goods or commodities move between countries as exports or imports. Exports consist of merchandise that leaves a country. Imports are those items brought across national borders into a country
- 7. 7 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Trade in services Trade in services, such as insurance, banking, hotels, consulting, and travel and transportation. The international firm is paid for services it renders in another country.
- 8. 8 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Portfolio investments Portfolio investments are financial investments made in foreign countries. The investor purchases debt or equity in the expectation of financial return on the investment. Resources such as equipment, time, or personnel are not contributed to the overseas venture.
- 9. 9 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Direct investments Direct investments are differentiated by much greater levels of control over the project or enterprise by the investor. The level of control can vary from full control, when a firm owns a foreign subsidiary entirely, to partial control, as in arrangements such as joint ventures with other domestic or foreign firms or a foreign government
- 10. 10 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d WHY DO YOU STUDY IN INTERNATIONAL BUSINESS? Many businesses succeed by expanding Markets globally Production operations supply chains internationally.
- 11. 11 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d WHY DO YOU STUDY IN INTERNATIONAL BUSINESS? Doing international business requires practical knowledge of business leadership bolstered by economic knowledge, an understanding of markets, and the ability to learn political and cultural trends. Understanding international business is important to the global economic opportunity
- 12. 12 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d WHY DO YOU STUDY IN INTERNATIONAL BUSINESS? Business professionals who have a successful career in international business need various skills and expertise. Acquiring these combined skills along with international business experience, can lead to long-term career success.
- 13. 13 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d WHY DO YOU STUDY IN INTERNATIONAL BUSINESS? Some of these important skills include: Strong communication skills Emotional intelligence Cultural awareness Knowledge of finance and accounting Entrepreneurship skills Understanding of global economics
- 14. 14 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d In 21st Century enhancing growth and Development through international business To achieve this objective, trade is an instrumental To that end, countries need to go for interanational business because they are not self seficient/autarky Hence, countries trade with each other because they obtain some benefits in terms of absolute or comparative advantage.
- 15. 15 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d The benefits of international business are: Increases in domestic production and consumption as a result of specialization Specialization is the production by a country of a range of goods and services it can produce at a low cost. If you are efficient in producing something, you will be able to produce more of it.
- 16. 16 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Therefore, if a country specializes increase total output will increase and consumption will increase Economies of scale involve the ability of a firm to decrease average costs by increasing its size and quantity produced. If a country trades its potential market becomes larger and so the possibility of achieving economies of scale certain.
- 17. 17 Generally trade makes possible the flow of new ideas, new technologies and skills. Makes countries interdependent, decreasing possibility of wars. Free trade can lead to a more efficient allocation of resources. All these advantages imply increase domestic output and therefore greater economic growth. 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d
- 18. 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Example Even the IBM PC Isnt All-American Total manufacturing cost: US$860 Portion made overseas: US$625 $860 $625 73%
- 19. 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Distribution of Manufacturing Parts Monitor Korea Semiconductors Japan Power supply Japan Graphics Printer Japan Floppy Disk Drives Singapore Assembly of disk drives U.S Keyboard Japan Case and final Assembly U.S
- 20. 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Even the Boeing 777 Isnt All American The suppliers come from U.S. ,Japan, France, Canada, Italy, Australia, South Korea, United Kingdom So it is increasingly difficult to say what is a U.S. product; what is Japanese product.
- 22. 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d The modern era of international trade began in the 19th century, especially during the second half. Trade as a percent of GDP quadrupled between 1850 and 1913. Growth was interrupted and disrupted by two world wars and the great depression of the 1930s. Over the two centuries, world trade has grown from about 5 per cent of global GDP to about 40 per cent.
- 23. 23 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d Ethiopian global trade performance is disapprovingly low compared to other countries According WTO report of 2017, Ethiopian import share in the global market around 0.09% While the export is 0.02% The total import-Export share of the country is 0.1% Given the policy focus to international trade particularly export performance is low
- 24. 24 鴛稼岳姻看糸顎界岳庄看稼C看稼岳d The economic growth and other benefits from international trade can happen through trade facilitation But in reality, there are a number trade barrier which can obstacle international trade. What are trade barriers to international trade?
- 26. 26 International Trade Barriers Protectionism: Protectionism is an ideology that views international trade as threatening to a nation and that promotes the adoption of protectionist policies policies that restrict trade. The restriction policies can be grouped into two major groups: Tariff Protection Non-tariff protection
- 27. 27 International Trade BarriersContd Tariff Protection Tariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports.
- 28. 28 International Trade BarriersContd Tariffs are widely used to protect domestic producers incomes from foreign competition This protection comes at an economic cost to: domestic consumers who pay higher prices for import-competing goods and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry
- 29. 29 International Trade BarriersContd Non-Tariff Protection: Non-tariff protection can take different form: Procedural barriers or lengthy customs procedures Restrictive licenses Over-valued currency Foreign exchange controls Fixation of a minimum import price Additional trade documents like Packaging conditions Quality conditions imposed Bribery and corruption
- 30. 30 International Trade BarriersContd To eliminate or reduce trade barriers different measures have been taken by developed economies as well as developing nations. What are the mechanisms to reduce or eliminate international trade barriers discussed above briefly ?
- 31. 31 International Trade BarriersContd The instruments can take two forms: Multilateral trade conventions and agreements Regional trade agreements
- 32. 32 International Business Enablers
- 33. 33 International Business Enablers Transportation Communication Trade agreements and government policies International trade legal and commercial institutes
- 34. 34 The motives to international business Why we go for international business?
- 35. 35 The Reasons for International Trade The reasons for international trade are many. It can be Political Economy Social Technological To understand the models of international trade it is important to classify internal trade reasons into discreet groups. The following five category are as follows
- 36. 36 The Reasons.. Reason for Trade #1: 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). The basis for trade in the Ricardian model of comparative advantage "The Ricardian Theory of Comparative Advantage" is differences in technology.
- 37. 37 The Reasons.. Reason for Trade #2: Differences in Resource Endowments Advantageous trade can occur between countries if the countries differ in their endowments of resources. Resource endowments refer to: the skills and abilities of a countrys workforce, the natural resources available within its borders (minerals, farmland, etc.), and the sophistication of its capital stock (machinery, infrastructure, communications systems).
- 38. 38 The basis for trade in both the pure exchange model in and the Heckscher-Ohlin model in is differences in resource endowments. Reason for Trade #3: 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.
- 39. 39 The Reasons.. For example, the Chinese are likely to demand more rice than Americans, even if consumers face the same price. Canadians may demand more beer, the Dutch more wooden shoes, and the Japanese more fish than Americans would, even if they all faced the same prices. Ethiopian demands more teff more than any country in the world. Ethiopian demand for Petroleum and other industrial products as well. There is no formal trade model with demand differences, although the monopolistic competition model does include a demand for variety that can be based on differences in tastes between consumers.
- 40. 40 The Reasons.. Reason for Trade #4: 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. This feature of production is also known as increasing returns to scale.
- 41. 41 The Reasons.. Reason for Trade #5: 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. In these circumstances, advantageous trade may arise solely due to differences in government policies across countries.
- 42. 42 The Reasons.. The analysis indicates that domestic policies can be a cause of trade even in the absence of other reasons for trade. In other words, even if countries were identical with respect to their resource endowments, their technology, and their preferences and even if there were no economies of scale or imperfectly competitive markets, domestic policies could induce trade between countries.
- 43. 43 Role of International Business
- 44. 44 Role of International Business The role of international business in terms economic, political and social development is important Developing countries raise significant share of public revenue from international business For example Ethiopia significant share of public budged comes from the intonation business
- 45. 45 Role of Customs ..Contd The public source of finance can be grouped in external and domestic sources Domestic sources of tax revenue can categorized into tax and non-tax In the developing countries indirect taxes are main source of central government revenue Domestic resources also can be grouped into: Tax Revenues (85%) Non Tax Revenue (15%,)
- 46. Ratio of Direct vs Indirect Taxes 46 35% 65% Ratioof Direct Tax to TotalTax Ratioof Indirect Tax to TotalTax Role of Customs ..Contd
- 47. Role of Customs ..Contd 47 Tax to GDP Ratio Average over the Period (1999/2000- 2012/2013) Direct Tax Domestic Indirect Tax International Trade Tax Ethiopia 3.70 2.42 4.82 Kenya 7.53 8.50 1.89
- 48. Ratio of Domestic indirect vs International Trade Taxes 48 33% 67% Ratio of Direct Tax to Total Tax Ratio of Indirect Tax to Total Tax Role of Customs ..Contd
- 49. 49 Role of Customs ..Contd There are 24 developing countries members of the World Customs Organization The Customs receipts amount to more than 20% 12 states Customs receipt is more than 30% of total government revenue.
- 50. 50 Role of Customs ..Contd In the case of Ethiopia: Customs import duties and other levies on international trade constitute more than 40% of total tax revenues. This shows the significance of Ethiopian Customs revenues from international trade in the country economic development
- 51. 51 Summary Introduction to International Business Barriers to International Business International business enablers The Reasons for International Trade Role of International Business
- 52. 52 The End of Chapter One