COURSE TITLE: INTERNATIONAL BUSINESS AND TRADE

COURSE CODE: CBA 102

COURSE DESCRIPTION: This course focuses on the core concepts and techniques for entering the
international market place. Socio cultural, demographic, economic, technological, and political-legal
factor in the foreign trade environment is the core of this study. It also includes topic on world trade,
currency exchange and international finance, globalization of the firm, international marketing and
operating procedure of the multinational enterprise.

PRE-REQUISITE/CO-REQUISITE:

COURSE OBJECTIVES

: Students will understand international management-and investment strategies

: Provide students with knowledge to international business opportunities with

diversified culture

: Evaluate marketing management under the ecommerce global marketing

: Asses financial management strategies to combat market imperfections

COURSE CONTENTS:

Module 1: International Business and Trade

Topic 1: Strategic Management and Entrepreneurship: Benefits of International Trade to Nation

and Firms

Topic 2: Global Business Opportunities

Topic 3: Licensing, Franchising and Foreign Direct Investment

Module 2: Global Culture

Topic 1: Types of Global Culture, Global Agents

Topic 2: Economic Integration

Module 3: International Business Strategies

Topic 1: Strategies of International Business

Topic 2: Global Marketing Management

Topic 3: Global Financial Management

MODULE 1

Module Title: INTERNATIONAL BUSINESS AND TRADE: Strategic Management and Entrepreneurship

Overview:
 This module will cover topics on globalization and how it benefits the nation and the firm in the
international market. The discussion will also include strategies of management and how an
entrepreneur bring his product in the international market. Analyzing business condition using SWOT
Analysis is very relevant in the planning process to formulate an action while working in a very
competitive market. As an entrepreneur, he must have the ability to recognize business opportunities by
utilizing the available resources.

Lecture Objectives

After module 1, you are expected to:

-Know the definition of international business

-Comprehend how strategic management is related to international business

-Understand how entrepreneurship is related to international business

-Understand the importance of global business leading to a high –level competition among
foreign business.

- Demonstrated the benefit of international trade both to nation and firm

Coverage:

Lecture 1: International Business and Trade

Topic 1: Benefits of International Trade to Nation and Firm

Topic 2: Global Business Opportunities

Topic 3: Licensing, Franchising and Foreign Direct Investment

A. Topic 1

Topic Title: Introduction to International Business and Trade and Its Benefit to Nation and Firm
Introduction:

Different nations all over the world are experiencing an essential change in the way they deliver
and market various items, products and services. The national economies that were accomplishing the
objectives of self-sustainability are currently developing route towards International Business. The factor
for this crucial change is the development of correspondence, innovation, communication,
infrastructures and so on.

Business activities done across national borders is International Business. The international
business is the purchasing and selling of the goods, commodities and services outside its national
borders. Such trade modes might be owned by the state or privately owned organization.

The organization explores trade opportunities outside its domestic national borders to extend
their own particular business activities, for example, manufacturing, mining, construction, agriculture,
banking, insurance, health education, transportation, communication and so on.

Topic Objectives

After Topic 1, you are expected to:

: Know the definition of international business

: Comprehend how strategic management is related to international business

: Understand how entrepreneurship is related to international business

: Understand the importance of global business leading to a high –level competition among
foreign business.

: Defines and explain international business and what business opportunities in the market

: Demonstrated the benefit of international trade both to nation and firm

Topic Contents

What is International Business and Trade? (1)

International business refers to the trade of goods, services, technology, capital and /or
knowledge across national borders and at a global or transnational scale. It involves cross-border
transactions of goods and services between two or more countries. International Business is also known
as globalization.

Globalization-the shift toward a more interdependent and integrated global economy-creates

greater opportunities for international business. Such globalization can take place in terms of markets,
where trade barriers are falling and buyer preferences are changing.

International business encompasses a full range of cross-border exchanges of goods and

services, or resources between two or more nations. These exchange can also go beyond the exchange
of money for physical goods, services, or resources such as people, intellectual property (e.g., patents,
copyrights, brand trademarks, and data) and contractual assets or liabilities (e.g., the right to use some
foreign asset, provide some future service to foreign customers, or execute a complex financial
instrument).

Example of International Business firms include Apple, a company that produces consumer
electronics such as computers, tablets etc. Apple sells its products around the world, but the
headquarters and all product development are located within the U.S.

Strategic Management and Entrepreneurship

A knowledge of both strategic management and Entrepreneurship will enhance understanding

of international business. Strategic Management is the body of knowledge that answers questions about
the development and implementation of good strategies and is mainly concerned with the determinants
of firm performance. One of the basic tools of strategy is the SWOT (Strength, Weakness, Opportunities
and Threats). The SWOT helps you stock of an organization’s internal characteristics – to formulate an
action plan that builds on what it does well while overcoming or working around weaknesses.
Entrepreneurship is the recognition of opportunities (i.e., needs, want, problems and challenges) and
the use or creation of resources to implement innovative ideas. Entrepreneurship help you think about
the opportunities available when you connect new ideas with new markets.

Benefits of International Trade to Nation

1. It encourages a nation to obtain foreign exchange that can be utilized to import

merchandize from the global market
2. It prompts specialization of a country in the production of merchandise which it creates in
the best and affordable way.
3. Also, it helps a country in enhancing its development prospects and furthermore make
opportunity for employment.
4. International business makes it comfortable for individuals to utilize commodities and
services produced in other nations which help in improving their standard of life.

Benefits of International Trade to Firms

1. It helps in improving profits of the organizations by selling products in the nations where
costs are high.
2. It helps the organization in utilizing their surplus resources and increasing profitability of their
activities.
3. Also, it helps firms in enhancing their development prospects.
4. International business also goes as one of the methods for accomplishing development in the
firms confronting extreme market conditions in the local market.
5. And it enhances business vision as it makes firms more aggressive and diversified.

B.Topic 2

Topic Title: Global Business Opportunities

Introduction:
 The fact that nations exchange billions of dollars in goods and services each year demonstrates
that international trade makes good economic sense. For an American company wishing to expand
beyond national boarders, there are variety of ways it can get involved in international business.

Topic Objectives:

After Topic 2, you are expected to:

: Define Importing and Exporting

: Explain how companies enter the international market through licensing agreements or
franchises
: Describe how companies reduce costs through contract manufacturing and outsourcing.
: Understand how foreign companies expand their businesses through foreign direct
investment and international subsidiaries.
: Understand the arguments for and against multinational corporations

Topic Content

Global Business Opportunities

1. Importing and Exporting (3)

Import: a goods and services brought into one country from another (buying products overseas
and reselling them in one’s own country)
Export: a goods or services produced in one country then get marketed to another country
(selling domestic products to foreign customer)

Import-Export is the most fundamental and the largest international business activity, and it is
after the first choice when the business decide to expand. It is the easiest way to enter the
market with some outlay of capital. For many companies, importing is the primary link to the
global market. Other companies get into the global arena by identifying an international market
for their products and become exporters.

Importance of Export and Import

Export and import are important for the development and growth of national
economies because not all countries have the resources and skills required to produce certain
goods and services. If a country imports more than it exports, it has a trade deficit. Countries
want to be net exporter rather than net importer. Importing is not necessary bad thing because
it gives us access to important resources and products not otherwise available or at a cheaper
cost. However, if you import more than you export, more money is leaving the country than is
coming in through export sales.

Philippines foreign trade represented 76.1% of the country’s GDP in 2018 (WTO). Main
exports include electronic and electrical equipment, electrical machines and apparatus,
automatic data processing machines, diodes, transistors, electrical transformers, business
services and travel. Goods trade during 2018 is $21.2 billion, goods exports totaled $8.7; goods
 imports totaled $12.6 billion. The U.S. trade deficit with the Philippines was 3.9 billion in 2018.
https://ustr.gov>southeast-asia-pacific

Top imports sources of the Philippines 2018

1. Electrical machinery and equipment: US$ 27billion (23.9% of total imports)

2. Mineral fuels including oil: $13.6 billion (12%)
3. Machinery including computers: $12.5 billion (11.1%)
4. Vehicles: $8.5billion (7.5%)
5. Iron, steel: $3.9 billion (3.25%)
6. Plastics, plastic articles: $3.7 Billion (3.3%)
7. Cereals: 2.9 billion (2.6%)

Barriers to Trade (4)

Trade barriers are restrictions on international trade imposed by the government. They are designed to
impose additional costs or limits on imports and/ or exports in order to protect local industries. These
additional costs or increased scarcity result in higher price of imported products and thereby make local
goods and services more competitive.

Exporting is not always an easy endeavors, importing and exporting countries often faces formal
and informal trade barriers that hinders transactions. Formal trade barriers are barriers to trade that
are intentionally created for the express purposes of making it harder for an exporter to sell goods in a
foreign market. Informal Trade Barriers are not necessarily created to hinder imports of goods but have
the effect of doing so. Tariff is an example of Formal Trade Barriers which is a special type of tax that is
imposed on imported goods to make it more expensive. Countries import and export the same goods
are variations in transportation costs and seasonal effects. In the example of the United States and
Canada both importing and exporting construction materials, transportation costs are the likely
explanation.

The three types of Trade Barriers (5)

Tariffs are taxes that are imposed by the government on imported goods or services. They are
sometimes also referred as duties. Tariffs can be implemented to raise the cost of products to
consumers in order to make them expensive or more expensive than local goods or services (i.e.
scientific tariffs). In many cases, tariffs are used to protect local industries that could otherwise not
compete with foreign producers (i.e.peril point tariffs). The countries affected by those tariffs usually
don’t like being economically disadvantaged, which often leads them to impose their own tariffs to
punish the other country (i.e. retaliatory tariffs).

Scientific Tariff is a concept in which duties would fluctuate and levied on an item-by-item, shipment-by-
shipment basis, so as to equalize the cost of imports and domestic counterparts. The object of this plan
is to put imported and domestic products on an equally competitive basis.

Peril point tariffs the lower limit of a tariff on a commodity at which import of that commodity would
have seriously adverse effect on the local producers.
Retaliatory tariffs is a tax that a government charges on imports to punish another country for charging
tax on its own exports.

For example, let’s assume there are only two countries in the world that produce candy bars. The US
and Japan, in the US, local candy bars currently sells at a price of USD2.50. Meanwhile, candy bars from
Japan only cost USD2.00 to restricts imports, US can impose a tariff of USD1.00 on every candy bar so
the Japanese candy bars increases to USD3.00 this makes the US candy bar relatively cheaper.

Another example is the Trade War between US and China an ongoing economic conflict between the
world’s two largest national economies and the world’s two superpowers, China and United States.
President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of
forcing to make changes to what the US says are “unfair trade practices”. Among those trade practices
and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer
of American technology to China.

Non-Tariffs are barriers that restrict trade through the measures other than the direct imposition of
tariffs. This may include measures such as quality and content for imported goods or subsidies to local
producers. By establishing quality and content requirements the government can restrict imports
because only products can be imported that meet certain criteria. The government can grant subsidies,
i.e. direct financial assistance to local producers in order to keep the price of their goods and services
competitive.

Revisit the example above, the US government could restrict trade by passing a law that requires all
candy bars sold within the US to contain at least 50% locally produced sugar. These prevents many
Japanese producers to sell their products to US as it requires higher cost of production. The US
government could also directly support local companies by paying them USD 0.50 for each candy bar
this allows local producers to sell their candy bars at USD 2.00 instead of USD 2.50 and match the price
of Japanese candy.

Quotas are restrictions that limit the quantity or monetary value of specific goods or services that can be
imported over a certain period of time. The idea behind this is to reduce the quantity of competitive
products in local markets which increases the demand for local goods and services. This is usually done
by handling out government-issued licenses that allow companies or consumers to import a certain
quantity of a good or service. The most restrictive type of quota is an embargo, i.e. entire ban of trade
and/or commercial activity concerning a specified good or service.

For example, the US government could decide to limit the number of candy bars that can be imported
from Japan to 100,000 every year. Once those bars are sold, there are only US products available for the
rest of the period, even though they may be more expensive than their counterparts.

Topic 3

Topic Title: Licensing, Franchising and Foreign Direct Investment

Introduction: Licensing is the arrangement between a firm called licensor, the licensor gets benefits in
terms of the royalty. Advantages of licensing: opportunity for passive income, new business opportunity,
entry to foreign market, self-employment opportunities. It has also disadvantages when intellectual
property rights is exposed to theft. Franchising is different from the licensing in terms of the franchisees
terms and condition, franchisor is heavily involved on how the service is provided.

Topic Objectives

After Topic 3, you are expected to:

-Understand the business opportunities in the international market

-Evaluate the terms and conditions of franchising and licensing
-Identify the benefits of Foreign Direct Investment among countries
Topic Contents

Definition of Licensing (6)

Licensing is one of other ways to expand the business internationally. Licensing is the arrangement
between a firm called licensor, allows another one to use its intellectual property such as brand name,
copy right, patent, technology, trademark and so on for specific period of time. The licensor gets
benefits in term of the royalty. The company may choose to sell the product under the licensing when
domestic production costs are too high, strict government regulations on the company who wants to sell
or produce standardized products everywhere. International licensing agreement involves two firms
from different countries, with the licensee receiving the rights or resources to manufacture in the
foreign country.

Advantages of Licensing
1. It creates an opportunity for passive income- if you are the owner of an intellectual property,
then licensing is an opportunity to create an ongoing stream of passive revenues.
2. It creates new business opportunity – a licensee can benefit from this type of arrangement
because it requires less money from them to start a business opportunity.
3. It reduces risk for both parties – from a licensee standpoint, there are fewer risks in product
development, market testing, manufacturing and distribution. From a licensor standpoint, there
are fewer risks in the selling and service of what is being offered.
4. It creates an easier entry to foreign market- Licensor is able to get their product into new
markets much easier than if they were doing the work on their own.
5. It creates self-employment opportunities- Licensor get all the advantages of setting their own
hour, from the licensee standpoint, there is the opportunity to gain a monopoly over
a product or service in specific territory at a lower investment rate.
6. It offers a freedom to develop unique marketing approach – It allows an intellectual property to
be marketed in a way that is more attractive to the average consumer. It is a chance to expand
the reach of a message, product, or concept without the need of full investment.

Disadvantages of Licensing
1. It increase opportunities for Intellectual Property (IP) theft – Once the IP and product is license,
the exposure will have more opportunities for theft, piracy, and misuse because you don’t have
the full control over how the licensee conducts the operation.
2. It creates a dependency upon the licensor – The licensee is dependent upon the quality of the IP
being used to make their profits. There is no guarantee of exclusivity with many licenses, which
means multiple businesses could be competing in the same marketplace, using the same tools
and products, to generate revenues.
 3. It creates added competition in the marketplace – An e-commerce platforms makes it easy to be
competitive without intending to be.
4. It is offered for a limited time – There is an expiration date which must be considered by the
licensee although that time period maybe 5-10 years.
5. It could damage the reputation – If multiple licenses are offered, then the reputation may
suffered globally, the only way to resolve this problem is good quality management practices.
6. It is not a guarantee of revenues – There is no guarantee that licensing agreement will generate
cash.
7. It takes time for royalty payment to arrive – It could be 5-6 months before you see your first
meaningful royalty payment as a licensor, even your product is doing well in other markets
8. It may lead to royalty litigation- The biggest issues that licensors face with licensing agreement is
a refusal by the licensee to validate royalty statements. The licensee may not allow the licensor
their statements at all for accuracy
.

Definition of Franchising (7)

Franchising is closely related to licensing. Franchising is a parent company (franchiser) gives the right to
another company(franchisee) to do business using the franchiser’s name and product in a prescribed
manner Franchising is different from the licensing in terms of the franchisees how to follow more
stricter guidelines. Moreover, licensing is more about the manufacturers wile franchising is more
popular with restaurants, hotels and rental services.

Examples: Mc Donald, KFC, Pizza Hut, Burger King, Dominos, A & W

Three types of Franchises

1. Business Format Franchise – the franchisor gives the rights to trademarks, trade names,
business process and the system in order for the franchisee to sell the product for a fee.
The franchisor is heavily involved on how the service is provided and the business is run.
There is a long binding contract between the two parties for a certain period of time. The
great thing for franchisees is that ongoing support, advice and training is given by
experienced franchisors. This is the most popular type of franchise system chosen by the
franchisees.
2. Product Distribution Franchise – this franchise concept is similar to a supplier-distributor
relationship. The franchisor is responsible for providing the product and the distributor is
then able to sell the product. The main thing given by the franchisor is the product whereas
the business format includes training support. With this type of franchise, the franchisee
can be much more independent in terms of not having the restrictions and guidelines that a
business format has. This method is often used for larger products, such as vending
machines and cars.
3. Management Franchise – this type of franchise would be ideal for somebody with previous
managing experience as it allows individuals with transferable skills to really take ownership
of a business and lead it to success. Management franchising is great for resale franchises,
which are franchises that are bought from an existing franchisee.

Strategic Partnerships and Joint Venture- (8)

 A strategic partnership or alliance is a positive aspect of cooperation of two or more
companies in different countries are joined together for mutual gain. The four basic reasons for
entering into such strategic alliance: learning partner skills, upgrading and improving skills,
seeking vertical integration, shaping future industry evolution. A joint venture is a special type
of strategic alliance, where the partners across globe collectively found a company to produce
goods and services. The cooperation between companies allow them to share the production
cost, technologies, developments and sales networks. The resources will be pooled to market
advantages and put the companies in win-win situations Example: Sonny. Toshiba, Hitachi
Google parent company and the pharma company Glaxo and Smith decided to enter into a joint
venture agreement to produce bioelectric medicines the ratio of the ownership was 45%-55%.
The joint venture lasted and was committed for 7 years with a capital Euro of 540million.
Another example is the joint venture of taxi giant UBER and the heavy vehicle manufacturer
Volvo. The joint venture goal was to produce driverless cars. The ratio of ownership is 50%-50%.
The business worth was $530 million as per agreement in the joint venture.

Foreign Direct Investment (9)

It means a company’s physical investment such as into the building and facilities in the
foreign country and acts as a domestic business with a full scale of activity. Companies practice
FDI to get benefits from cheaper labor cost, tax exemptions, and other privileges in that foreign
country will get benefits by the introduction of new products, services, technologies and
managerial skills. Also, FDI helps formulate progressive international policy reforms of the host
country and enhance the economic situation. Many countries encourage FDI as a way to create
jobs, expand local technical knowledge, and increase their overall standards. In most instances,
government seek to limit or control FDI to protect local industries and key resources (oil,
minerals etc.), preserve the national and local culture, protects segments of their domestic
population, maintain political and economic independence, and manage or control economic
growth.

Types of international investment

1. Portfolio Investment refers to the investment in a company’s stocks, bonds, or assets but not
for the purpose of controlling or directing the firm’s operations or management. Investors in
this category are looking for a financial rate of return as well as diversifying investment risk
through multiple markets.
2. Foreign Direct Investment – refers to an investment in or the acquisition of foreign assets
with the intent to control and manage them. FDI includes the purchasing of assets of a
foreign company or in new property, plants, or equipment or participating in a joint project.