COLLEGE OF BUSINESS MANAGEMENT

LEARNING MODULES IN CAS 23 (International Business and Trade)

First Semester, AY 2022-2023

A. Learning Outcomes
At the end of each lesson, the students should have:
 Recognized the main drivers of globalization
 Explained the main arguments in the debate over the impact of globalization

B. Key Concepts

MODULE 1

Lesson 1: GLOBALIZATION

 Refers to the shift toward a more integrated and interdependent world economy.
 The process by which businesses or other organizations develop international influence
or start operating on an international scale.
 It is the process of moving toward a world in which barriers to cross-border trade
investment are declining; perceived distance is shrinking distance is shrinking due to
advances to look similar the world over; and national economies merging into an
interdependent, integrated global economic system

FACETS OF GLOBALIZATION

1. Globalization of markets
 Refers to the merging of historically distend and separate national markets into
one huge global marketplace.
 Example:

2. THE Globalization of production

 Refers to the sourcing of goods and services from location around the globe to take
advantage of national differences in the cost and quality of factors of production
(such as labor, energy, land and capital).
 Example:

The Emergence of Global Institutions

1. General Agreement on Tariffs and Trade (GATT)

1.1. World Trade organization (WTO)

 Primary responsible for policing the world trading system and making sure nation
states adhere to the rules laid down in trade treaties signed by WTO member
states.
 Responsible for facilitating the establishment of additional multinational
agreements between WTO member states

1.2. The International Monetary Fund (IMF)

 Established to maintain order in the international monetary system
 Is seen as the lender of last resort to nation states whose economies are in turmoil
and whose currencies are losing value against those of other nations.

1.3. World Bank

 Set up to promote economic development.
 Is the less controversial of the two sister institutions.
 Focused on making low-interest loans to cash strapped governments in poor
nations that wish to undertake significant infrastructure investments such building
dams or roads.

1.4. United Nations (UN)

  Established October 24, 1945 by 51 countries committed to preserving peace
through international cooperation and collective security.
 It has four (4) purposes to maintain international peace and security, to develop
friendly relations among nations.

Drivers of Globalization

Two macro factors towards greater globalization

 The decline in barriers to the free flow of goods, services, and capital that has
occurred since the end of World War II.

 Technological change, particularly the dramatic developments in recent decades in

communication, information processing, and transportation technologies.

1. Declining Trade and Investment Barriers

 International trade occurs when a frim exports goods or services to consumers in
another country.
 Foreign direct investment (FDI) occurs when a firm invest resources in business
activities outside its home country.

TARIFF
- Barrier to international trade took the form of high tariffs on imports of
manufactured goods.
- The typical aim of such tariffs was to protect domestic industries from foreign
competition.

The role of technological change

 The lowering of trade barriers made globalization of markets and production a
theoretical possibility.
 Technological change has made it a tangible reality.
 Telecommunications is creating a global audience.
 Transportation is creating a global village.

1. Microprocessors and telecommunications

- Microprocessors – enabled the explosive growth of high power, low-cost

computing, vastly increasing the amount of information that can be processed
by individuals and firms.
- Underlies many recent advances in telecommunications technology.

- Global communication have been revolutionized by developments in satellite,

optical fiber, wireless technologies and the internet and the World Wide Web
(WWW).
- TECHNOLOGIES rely on the microprocessor to encode transmit, and decode the
vast amount of information that flows along these electronic highways.

- Illustration: According to Moore’s Law, predicts that lowers the costs of

coordinating and controlling a global organization.as this happens the cost of
global communication falls, thus between 1930 and 1990, the cost of three-
minute phone call between New York and London fell from 244.65 to 3.32 and by
1998 it had plunged to just 36 cents for consumers, and much lower rates were
available for businesses. Indeed, by using the internet, the cost of an
international phone call is rapidly falling toward zero.

2. The Internet and World Wide Web

- Has developed into the information backbone of the global economy.
- E – Commerce retail sales reached $165 billion in 2010 in the United States.
- WEB
o is emerging as an equalizer which rolls back some of the constraints of
location, scale
and time zones. It makes it easier for buyers and sellers to find each
other, wherever they may be located and whatever their size.
o it allows businesses, both small and large, to expand their global presence
at a lower cost than ever before.
 o it enables enterprises to coordinated and control a globally dispersed
production system in a way that was possible in 20 years ago.

3. Transportation Technology
- In economic terms, the most important are probably the development of
commercial jet aircraft and super freighters and the introduction of
containerization which simplifies transshipment from one mode of transport to
another.

- JET AIRCRAFT
o it reduces the time needed to get from one location to another and it has
effectively shrunk the globe.

- CONTAINERIZATION
o Has lowered the cost of shipping goods over long distances. Before it tools
days and several people to unload a ship and reloads goods onto trucks and
trains.
o in the usage of this the whole process can now be executed by a handful of
longshoremen in a couple of days.
o THEREFORE, as a result of the efficiency gains associated with
containerization, transportation costs have fallen, making it much more
economical to ship goods around the globe.

THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE

 Multinational enterprise (MNE) – is any business that has productive activities in two (2)
or more countries. Trend of international business

1. The rise of non-U.S. Multinational

 In 1960’s first is U.S Firms
 United Kingdom
 Japan
 In 2008 first is U.S. Firms
 France
 Germany
 British
 Japan

2. The rise of Mini-Multinationals

 The growth of medium-size and small multinationals (mini-multinationals).
 Medium size and small businesses ae becoming increasingly involved in international
trade and investment.
 The rise of internet is lowering the barriers that small firms face in building
international sales.
 Examples are: Lubricating Systems, Inc. in Washington that only employs 25 employee
but generate an income of $6.5 million.

INTERNATIONAL BUSINESS – is any firm that engages in international trade or investment.

A firm do
not have to become a multinational enterprise, investing directly in operations in
other countries, to engage in international business. Firms has to do is export and
import products from other countries.

LESSON 2: National Differences in Political Economy (explained the implications for

management practice of national differences in political economy.

 Countries have different political, economic, and legal systems that vary significantly in
their level of development and future economic growth

 Political, economic and legal systems of a country are interdependent, they interact
and influence each other and in doing so they affect the level of economic well-being.

1. POLITICAL SYSTEMS
- It shapes the economic and legal systems of a country.
 - It refers to the system of government in a nation.
- Dimensions
1.1. Collectivism and individualism

Collectivism – refers to a political system that stresses the primacy of

collective
goals over individual goals.
 the needs of society as a whole are generally viewed as
being more important than individual freedoms.
 an individual’s right to do something may be restricted on
the grounds that it runs counter to “the good of society” or to
“the common good”.

Individualism
 refers to a philosophy that an individual should have freedom in
his or her economic and political pursuits.
 stresses that the interest of the individual should take
precedence over the interest of the state.

Note: According to Aristotle, communal property receives little care, whereas property that is
owned by an individual will receive the greatest care and therefore be most productive.
 it emphasis on the importance of guaranteeing individual freedom and self-expression
 the welfare of society is best served by letting people pursue their own economic self-
interest
 the central message of individualism is that individual economic and political freedoms
are the ground rules on which a society should be based.

1.2. Democracy and totalitarianism

- Democracy – refers to a political system in which government is by the people,
exercised either directly or through elected representatives.
o Is based on a belief that citizens should be directly involved in decision
making.
o Representative democracy – is the most modern democratic practice of
countries. Citizens periodically elect individuals to represent them.
Elected representatives who fail to perform this job adequately will be
voted out of office at the next election.
 an individual’s right to freedom of expression, opinion, and
organization
 a free media
 regular elections in terms for elected representatives
 a fair court system that is independent from the political
system
 a nonpolitical state of bureaucracy
 a nonpolitical police force and armed service
 relatively free access to country information

- Totalitarianism – is a form of government in which one person or political party

exercises absolute control over all spheres of human life and prohibits opposing
political parties.
1. Communist totalitarianism – states that deny many basic civil liberties to
their populations just like in china, Vietnam and Laos are communist in
name only since those nations how adhere to market based economic
reforms. It collapsed since 1989
2. Theocratic totalitarianism – is found in states where political power is
monopolized by a party, group, or individual that governs according to
religious principles. It is based on Islam and is exemplified by states such
as Iran and Saudi Arabia.
3. Tribal totalitarianism – occurs when a political party that represents the
interest of a particular tribe monopolizes power. It has arisen from time to
time in African countries such as Uganda, Kenya, Zimbabwe.
4. Right-wing totalitarianism – it permits some individual economic freedom
but restricts individual political freedom, frequently on the ground that it
would lead to the rice of communism. It is backed by the military
dictatorships, were common throughout Latin America and found also in
South Korea, Taiwan, Singapore, Indonesia and Philippines before.
 2. ECONOMIC SYSTEMS
2.1 Market economy
 All productive activities are privately owned.
 The goods and services that a country produces are not planned by anyone.
 Production is determined by the interaction of supply and demand and signaled to
producers through the price system.
2.2 Command Economy
 The government plans the goods and services that a country produces, the
quantity in which they are produced and the prices at which they are sold.
 Government to allocate resources for “the good of society”.
 All businesses are state owned, the rationale being that the government can then
direct them to make investments that are in the best interest of the nation as a
whole rather than in the interest of private individuals.

2.3 Mixed Economy

 Between market economies and command economies
 Certain sectors of the economy are left to private ownership and free market
mechanism while other sectors have significant state ownership and government
planning.
 In 1980s Great Britain, France and Sweden were in this mixed economy.
 Governments tend to take into state ownership troubled firms whose continued
operation is thought to be vital to national interests.
o For example: The French Automobile company Renault was taken over by
the government when it ran into serious financial problems.

3. LEGAL SYSTEMS

 Refers to the rules, or laws that regulate behavior along with the processes by which
the laws are enforced and through which redress for grievances is obtained.
 The country’s laws regulate business practice, define the manner in which business
transactions are to be executed, and set down the rights and obligations of those
involved in business transactions.
 Differences in legal systems can affect the attractiveness of the country as an
investment site or market.
 The government of a country defined the legal framework within which firms do
business and often the laws that regulate business reflect the ruler’s dominant political
ideology.

DIFFERENT LEGAL SYSTEMS

1. Common Law
- Is based on tradition, precedent, and custom. Tradition refers to a country’s
legal history, precedent to cases that have come before the courts in the past,
and custom to the ways in which laws are applied in specific situations.
- Common law is interpreted with regard to that characteristics.
- It gives a degree of flexibility that other system lack.
- Judges have the power to interpret the law so that it applies to the unique
circumstances of an individual case.
- Found in most of Great Britain including the United States.
- The contracts tend to be relatively ill specified, contracts drafted under a
common law framework tend to be very detailed with all contingencies spelled
out.

2. Civil Law
- Is based on a detailed set of laws organized into codes. It is interpreted with
regard to these codes.
- Judges rely upon detailed legal codes. They have the power to apply the law.
- Contracts tend to be much shorter and less specific because many of the issues
are already covered in a civil code.

3. Theocratic Law
- It is based on religious teachings, Islamic law is the most widely practiced
theocratic legal system in the modern world.
 - Islamic law is primarily a moral rather than a commercial law and is intended to
govern all aspects of life. It is concerned with moral behavior; it has been extended
to cover certain commercial activities.
Example: the receipt or payment of interest, is considered usury and
outlawed by
the Koran, acceptance is seen as a grave sin; the giver and the taker
are equally damned.

Differences in Contract Law

Note: International businesses need to be sensitive to these differences; approaching a
contract dispute in a state with a civil law system as if it had a common law system may
backfire, and vice versa.
Contract
 Is a document that specifies the conditions under which an exchanges is to occur and
details the rights and obligations of the parties involves that regulates many business
transactions.

Contract Law
 It is the body of law that governs contract enforcement. The parties to an agreement
normally resort to contract law when one party feels the other has violated either the
letter or the spirit of an agreement.

If there is a contact disputes arise in international trade, there is always the question of which
country’s law to apply.
SOLUTION:
- A number of countries including the United States, have ratified the United Nations
Convention on Contracts for the International Sale of Goods (CIGS).
- This establishes a uniform set of rules governing certain aspects of the making and
performance of everyday commercial contracts between Sellers and buyers who have
their places of business in different nations.
- It applies automatically to all contracts for the sale of goods between firms based in
countries’ that have ratified the conventions except for the countries who have not ratified
it like Japan and the UK
- Countries who did ratified the CIGS they often opt for arbitration by a recognized
arbitration court to setter contract disputes, which is call the International Court of
Arbitration of the International chamber of Commerce in Paris who handles more than 500
request per year from over 100 countries.

Property rights

Property
 Refers to a resource over which an individual or business holds a legal title, that is a
resource that it owns that includes land, building, equipment, capital, mineral rights,
businesses and intellectual property (ideas).

Property Rights
 Refers to the legal rights over the use to which a resource is put and over the use
made of any income that may be derived from that resource.
 Law to protect the rights of private property holders in 2007 (the law gives individuals
the same legal protection if their property as the state has)

The Protection of Intellectual Property

Intellectual Property
 Refers to property that is the product of intellectual activity, such as computer
software, a screenplay, a music score, or the chemical formula for new drug.
 Patents, copyrights and trademarks establish ownership rights over intellectual
property.
PATENT – grants the inventor of a new product or process exclusive rights for a defined
period to the manufacture, use, or sale of that invention.

COPYRIGHT – are the exclusive legal rights of authors, composers, playwrights, artists
and publishers to publish and disperse their work as they see fit.
TRADEMARKS – are designs and names, often officially registered, by which merchants
or manufacturers designate and differentiate their product.
Product Safety and Product Liability
Product safety laws
 Set certain safety standards to which a product must adhere.

Product liability
 Involves holding a firm and its officers responsible when a product causes injury, death
or damage.
 Liability can be much greater if a product does not confirm to required safety
standards.
 Civil laws call for payment and monetary damages
 Criminal liability laws result in fines or imprisonment