Concepcion Holy Cross College
Minane Concepcion, Tarlac
Subject: International Business Trade
Professor: Mr. Mark Gerald Sarong
Lesson 1
International Business Trade Introduction The Industrial Revolution
Globalization is here. The traditional orientation of
Around the same time, the industrial revolution
companies working just within national borders is
happened. Its start is debated but it is generally
declining worldwide. The world has come a long way.
accepted that it happened from the mid-18th to the end
Some 700 generations ago, in 15000 BC, there may
of the 19th century. This point in history is called the
have been 600,000 polities on earth consisting of tens or
industrial revolution because it marked the shift from
hundreds of individuals, Today, there are 200 nations,
manual labor to machine-oriented labor and from
consisting of millions of people. we are in a rapid
agriculture-centered economies to industry-centered
process of conquering nature and we have embarked on
economies.
a process of massive morphing and expansion of our
moral circles. In ancient times, trade began as a barter GATT – the outbreak of WW2 totally changed the world
system in which people exchanged one object for entirely. This was because the international economy
another. Prehistoric humans traded animal skins or was integrated with each other and the spread of
services for food. Over time, coins and currencies began liberalism. In 1948, GATT or General Agreements of
to emerge. After the Roman Empire Collapsed, Europe Tariffs and Trade was established to control and
became the pulse of trade in the 12th and 13th centuries. manage the cycle of goods in the international trade
In the 14th to 15th centuries, the age of exploration system. The ideas to initiate a multilateral trade
occurred through the order of European kings in hopes organization took hold and then the ITO (International
of spreading Christianity, discovering new lands, gaining World Organization) was formed. This was followed by
more territory, and trading. Due to this, the Europeans the IMF (International Monetary Fund) and
also left their culture in the nations that they conquered. International Bank for Reconstruction and
From there, mercantilism has evolved and outlived most Development otherwise known as World Bank. These
monarchies and improved the lives of people as a whole. organizations were built to help the restoration of
In ancient and medieval times, if you are born a countries post-World War 2.
commoner, you will die as a commoner due to the strict
nobility systems in place. The life expectancy of the
common man in medieval times is only 31 years on Post-World War Era
average. This changed with the emergence of
industrialization and globalization in the 19th century. After the 2nd World War, the world was turned upside
Capitalism brought social mobility and technological down. The superpowers of the 19th century were
advancements with it and thus increasing the lifespan replaced by new emerging powers with different and
and improving the quality of life of the common folk. often contradicting economic and societal ideologies.
The world as a whole were divided into 3 types of
Adam Smith’s Wealth of Nations nations namely;
The term Mercantilism didn’t exist until 1763 by Victor de a. 1st World Nations – western bloc led by USA,
Riqueti, and as popularized by Adam Smith in his book UK, NATO, Japan, and their allies. These
The Wealth of Nations. Through his book, Smith countries are highly industrialized and are
changed the basic economic thinking in international capitalistic.
trade. Adam Smith was among the first philosophers of b. 2nd World Nations – eastern bloc led by USSR,
his time to declare that wealth is created through Warsaw pact, China, and their allies. These
productive labor, and that self-interest motivates people countries exercise communism.
to put their resources to the best use. He argued that c. 3rd world nations – neutral and non-aligned
profits flowed from capital investments and that capital countries.
gets directed to where the most profit can be made.
Free Trade Pros and Cons 4. Ensuring the sourcing of raw materials
Pros Cons How Does an Organization Enter an Overseas
Increased Economic Increased Job Market?
Growth Outsourcing
Lower Government Poor Working Conditions 1. Licensing – is where your own organization
Spending charges a fee and/or royalty for the use of its
Technology Transfer Degradation of Natural technology, brand, and/or expertise.
Resources a. Franchising - Franchising is a form of
marketing and distribution in which the
owner of a business system (the
Reasons for International Free Trade franchisor) grants to an individual or
1. Economic Reasons group of individuals (the franchisee) the
- Nations trade with each other in order to right to run a business selling a product
increase its wealth brought by capital or providing a service using the
investments and the jobs that they will franchisor's business system.
subsequently produce. Along with capital b. Turnkey Contracts - a contract in which
and employment, free trade also brings new a company is given full responsibility to
ideas and technology. According to Adam plan and build something that the client
Smith, “The tailor does not attempt to make must be able to use as soon as it is
his own shoes, but he buys them from the finished without needing to do any
shoemaker. The shoemaker does not further work on it themselves
attempt to buy his own clothes, but employs c. Contract Manufacturing - when one
a tailor… If a foreign country can supply us company enters into an agreement with
with a commodity cheaper than ourselves another to produce components or
can make it, better buy it for we have some products over a specific timeframe.
advantage.” 2. International Agents and International
Distributors
2. Political Reasons - Often an early step into international
- This reason differs from one nation to marketing. They are individuals or
another depending on their political beliefs. organizations that are contracted to your
Some nations believe in unrestricted and business, and market on your behalf in a
liberal free trade for its obvious economic particular country.
benefits while some tend to restrict it due to 3. Strategic Alliances
the following arguments; - Is a term that describes a whole series of
a. National Security Argument – some different relationships between companies
believe that unrestricted free trade will that market internationally. Sometimes the
pose a threat in their national security. relationships are between competitors.
b. Infant Industry Argument – some Essentially, strategic alliances are non-
believe that unrestricted free trade will equity-based agreements. For example,
cause small local businesses to shared manufacturing between companies,
deteriorate due to the massive influx of research and development arrangements,
foreign investments. etc.
c. Beggar Thy Neighbor Argument – this 4. Joint Ventures
often refers to international trade policy - JV’s tend to be equity-based. is a
that benefits the country that enacted it, combination of two or more parties that seek
while harming its neighbors or trade the development of a single enterprise or
partners. Protectionism is often seen as project for profit, sharing the risks
a key example of policies that are associated with its development.
intended to strengthen a domestic - Reasons for Joint Venture
economy, but which may negatively a. Access to technology, core
impact trading partners. competences, or management
skills
Reasons Why Businesses Expand Abroad b. Gain entry to a foreign market
c. Access to distribution channels,
1. Increase turnover and profit manufacturing, and R&D
2. Create new market
3. Strengthen the business’s reputation in the
international level
