4381395 Etr Chapter 10 English

Chapter 10

INTERNATIONAL BUSINESS

Objectives:  To

explain the importance of international trades as one of a business strategies.  To explain the “methods” of entering the global market.  To explain preparatory steps before exploring into international market.  To identify “barriers” to international trades.  To discuss some “trade agreements” & “trade blocks” & their effects on

Introduction  We

are living in the era of globalization.  Globalization? – increasing connectivity & interdependence between countries of the world in economic, political, social, technological & cultural matters -

Introduction  In

economic term, globalization is the internationalizing of businesses & markets. Through trade liberalization, barriers to international trades are removed, all countries should open their markets, so the world will become a single market – a market without borders, a really big market.

Globalization; Threats & Opportunities?

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International market- the biggest business opportunity to entrepreneur

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Several factors that encourage the involvement in global market: Abolishing barriers trade The existence of Main Trade Block such as NAFTA, EU and AFTA The position/location of Asia Continent itself Limited concentration in domestic market, need to expand the market segmentation. International market-space for entrepreneur to expand their business. The entrepreneur starting their business/engage in international trade known as “Global start-up”.

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International Environment 

Entrepreneur in Borderless world need to have contemporary thinking.

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Example: sophisticated technology of ICT- customers can access product/idea from anywhere.

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‘Global Thinking’ is important because today’s consumers can select products, ideas and services from many nations and cultures.

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Entrepreneurs who expand into foreign markets must be global thinkers in order to design and adopt strategies for different countries based on social, politic and economy of the country.

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Therefore, the customers can made the best selectiontypes, quality, service level, competitive price, etc.

Why Global Business? To balance the declining sales in local market -Less dependant on local market -Unattractive local market To increase Sales and Profits To extend product life cycle -Product at the last stage of PLC will be extended to international market Production Cost -Lesser cost by lessen fixed cost. Achieve economies of scale-> production unit Increasing competitive ability and quality of product

Methods of Going International Exporting The shipping of a domestically produced good to a foreign destination for consumption. Simple method Lesser risk compared to others 

Importing Buying and shipping foreign-produced goods for domestic consumption. > to high technology product Because of different weather and appropriateness of soil. 

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Joint venture

Methods of Going International 

Licensing

• Is a business agreement in which the manufacturer of a product (or a firm with proprietary rights over certain technology or trademarks) grants permission to some other group or individual to manufacture that product in return for specified royalties or other payments.

Methods of Going International 

International franchise

Foreign Direct Investment Involve investment made by foreign co on other firm in a country. Usually, this type of investment will involve approximately 10 to 25% ownership in that particular co. FDI have been chosen because of 2 factors: 6. the existence of trade barriers or prohibitions of import goods 7. the probability that the foreign investor will be given an incentive by the country itself. 

Barter System Example: exchange oil palm with corn and wheat from 

international market exploration 1.

Conducting preliminary research

3.

Conducting ‘detailed’/comprehensive research -Entrant strategy, legal system, government policy, Market profile and characteristics, population size, weather, exchange rate, tax rate, labour power culture, language, etc.

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Providing sufficient financial resources - the safe method of payment & financial transaction, financial resources from local or international bank if possible

international market exploration 1.

Documentation procedure – due to different language and different legal procedure, Getting the service from agent or local lawyers to manage the problems. -Appoint agent/lawyer

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Providing & implement planning -policy determination that undertake international laws and locally, as a guidelines to achieve mission, planning and implementation plan. The important part is to have the implementation plan showing the core task and people responsible to undertake it. For example: Gantt Chart.

International Trade Barriers 

Barriers from within the entrepreneur Lack of confidence- because of behavior, financial, thinking, information.

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Barriers from Foreign Country Multiple of regulations imposed, tax imposed, limited entry, etc. The reinforcement of those regulations can make the prices of the imported goods becoming expensive and incompetitive compared to the local ones.

5. 6.

International Trade Barriers 

Trade barriers can be divided into 2 :

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Tariff - direct tax imposed on imported goods. Aim: to increase the price of that goods. Specific Tariff -fixed tax amount imposed on each unit of the imported goods Ad-valerom Tariff -Tax imposed on value of the imported goods

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Non tariff- Quotas, Subsidy, govt.standard procedure, politics and legality

International Trade Barriers 

Quotas- trade barrier in the form of a limit on the numbers of product can be imported To protect domestic market

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Subsidy- payment by the govt to protect the local firm from the high competition with foreign firm. Can be in the form of long term loan at a lower rate, grant, tax examption, etc.

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Politic and Legal – Any country can hinder/prevent goods to be exported to their country. Example: Malaysia are not allowed to do any kind of trading with Israel.

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Govt standard procedure- To protect the health and safety of its own people, entry barriers for goods that does not comply with the standard- worried can cause

International Trade Agreement  In

order to encourage world trade, several types of agreement have been AGREED UPON by several country in the world.

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them are: GATT, WTO, NAFTA & AFTA.

GATT (General Agreement on Tariffs and Trade)    

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Was established in 1947-the first tariff global agreement Main objectives: To provide 1 set of basic regulations for trade agreement As a mechanism to monitor the implementation of trade regulation that has been agreed. Multilateral agreement with the objective of liberalizing trade by reducing tariffs between country member and encouraging world trade. Consist of 124 country and nearly covered up to 90% trade in the world.

Organization (Pertubuhan Perdagangan Dunia) 

Was established on January 1, 1995.

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WTO is the umbrella organization governing the international trading system.

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Is designed to monitor & enforce trade agreements.

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The job is to oversee international trade agreements

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Agreements are based on General Agreement on Tariffs & Trade (GATT)

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Membership in the WTO is 147 in 2004 that virtually consist mostly of developing countries which collectively account for > than 90 % of the world’s trade and virtually all of its investment.

North American Free Trade Agreement (NAFTA) 

Is an international agreement among US, Canada and Mexico. • Economic interconnection between US, Mexico, and Canada

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Established in January 1994. No trade barriers will exist among the three nations. The countries involved has agreed to abolish/eliminate trade barriers (tariff and non-tariff) between them. To encourage investment among the 3 countries. However, these countries still be allowed to

The European Union (EU)         

Founded in 1957. Formerly known as European Economic Community (EEC) In 1992 become a full-fledged economic union. Objectives of EU: The elimination of custom duties among all member states The free flow of goods and services among all members The creation of common trade policies toward all countries outside EU The free movement of capital and workers within the bloc The encouragement of economic development

Asia Free Trade Agreements (AFTA) – ASEAN (Association of Southeast Asian Nations) 

Known as Asian Tigers.

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Trading bloc consisting / alliances between 10 countries in Asia; Brunei, Cambodia, Indonesia, Malaysia, Laos, Myanmar, Philippines, Singapore, Vietnam, & Thailand.

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To reduce or eliminate tariff between state members

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Promoting the role of private investment, stimulating the free flow of capital and assisting in access to technology.

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Implementation of agreement phase by phase according to category of product

Asia, Africa and Transition Country (Transition Economies) 

Rich and developing country such as Japan, South Korea, Taiwan and China

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Economies transition country - Hungary, Slovenia, Republic Czech, Poland, Romania – becomes the potential market to Malaysia.

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Economic system in these countries having a transition from federal to laissez faire economic system.

CONCLUSION International Trade is one of the key to success of an organization. It can be achieved through exports, joint ventures, licensing, franchising and barter trading. However, one must consider the trade barriers such as tariffs, quotas, subsidies, health quarantine and currency exchange that exist in order to ensure smooth transactions.