Business in A Borderless

World

Website: www.wto.org International

Trade Statistics 2015

Global Growth in Trade and

GDP

Website: www.wto.org International

Trade Statistics 2015

Website: www.wto.org International

Trade Statistics 2015

Globalization: Driving Factors

Improvements in the cost
and efficiency of
communications and travel
technologies.
Development of regional
economic unions and
multilateral trade
agreements as a method of
cooperation between
nations..
The effect of the
globalization of consumer
interest in variety, quality,
and price efficiency in
products and services.
-

Trade
The buying and selling of goods and services across national borders

Understanding Trade Data

Import purchases
from external
sources
Export sales to
external sources.
Balance of Trade
Exports - Imports
Deficit (-)
Surplus (+)
Website: www.wto.org International
Trade Statistics 2015

Merchandise Trade
Total Merchandise
$18,494 billion.
Manufactured $12,
250
Fuels & Mining $
$3,783
Chemicals $2,057
Agriculture $1,765
Food $1,486

Website: www.wto.org International

Trade Statistics 2015

Trade in Services
Total Commercial
Services $4,940
billion.
Transportation $955
Travel $1,240
Goods related
services $160
Other $2,585

Website: www.wto.org International

Trade Statistics 2015

Trade Theory: Mercantilism

Trade theory that
nations should
acquire wealth
through exports
and discourage
imports.

Maintained by government
interventions ;
Tariffs
Quotas
Bans

Militaristic raw materials resource

acquisition strategies
Colonialism

Decreased ability of economies to

grow
Limited beneficial trade
opportunities.

Trade Theory
Absolute Advantage
A country has an
absolute advantage in
the production of a
good relative to
another country if it
can produce the good
at lower cost or with
higher productivity.
Absolute advantage
compares industry
productivities across
countries.

Comparative
Advantage
A country has a
comparative advantage
in the production of a
good if it can produce
that good at a lower
opportunity cost
relative to another
country.
Opportunity cost the
loss when choosing
between alternatives.

Website: www.wto.org International

Trade Statistics 2015

Comparative Advantage

http://www.economicsonline.co.uk/
Global_economics/Comparative_ad
vantage.htmlWebsite

International Trade Theories

Factor Proportions
Theory
Nations produce
and export goods
that require
resources that are
abundant and
import goods that
are in short supply.
Focus of efficiency
is on productivity of
labor and capital,
not goods.

New Trade Theory

Consumption gains
to be made from
specialization and
increasing
economies of scale;
First to market
companies can
create barriers to
entry;
Government
involvement is
important.

International Trade & Competitive

Advantage
National Competitive
Advantage Conditions.
Factor Conditions labor,
capital, physical resources
Demand Conditions
Related and Supporting
Industries
National, firm and industry
policies that stress

Cost reduction
Quality
Productivity
Innovation

Global Organizations
IMF

World Bank

The IMF, also known as the Fund, was

conceived at a UN conference in Bretton
Woods, New Hampshire, United States,
in July 1944. The 44 countries at that
conference sought to build a framework
for economic cooperation to avoid a
repetition of the competitive
devaluations that had contributed to the
Great Depression of the 1930s.
The IMF's responsibilities : The IMF's
primary purpose is to ensure the
stability of the international monetary
systemthe system of exchange rates
and international payments that
enables countries (and their citizens) to
transact with each other. The Fund's
mandate was updated in 2012 to
include all macroeconomic and financial
sector issues that bear on global
stability

Also established in 1944

The World Bank is a vital source of
financial and technical assistance to
developing countries around the world.
We are not a bank in the ordinary sense
but a unique partnership to reduce
poverty and support development.
We provide low-interest loans, zero to
low-interest credits, and grants to
developing countries. These support a
wide array of investments in such areas
as education, health, public
administration, infrastructure, financial
and private sector development,
agriculture, and environmental and
natural resource management. Some of
our projects are cofinanced with
governments, other multilateral
institutions, commercial banks, export
credit agencies, and private sector
investors.

Website: www.wto.org International

Trade Statistics 2015

Regional Agreements
Most trade is Regional
In 1993, trilateral trade within
the North American region, as
measured by each nations
imports from its two NAFTA
partners, was over US$288
billion while in 2015 it amounted
to over US$1.0 trillion.
As of 2015, the North American
economy has more than doubled
in size since 1994. The
combined gross domestic
product (GDP) for Canada, the
U.S., and Mexico was US$20.6
trillion in 2015 up from just
below US$8.0 trillion in 1993.
.

Trade Agreements, Alliances

and Organizations
Types of Integration
Free Trade
Tariffs among
members removed.

Customs Union
Common trade policy
towards non
members

Common Market
Mobility of production
within union

Economic Union
Full integration of
economic policies

North American Free Trade

NAFTA

The
North American Free Trade Agreement
(NAFTA)
is a comprehensive agreement that
sets the rules for international trade
and investment between Canada, the
United States, and Mexico.
Market Access for Goods
The elimination of duties.
Phased-in tariff reductions now
complete and special rules for
agricultural,automotive, and
textile and apparel products.
Special commitments regarding
telecommunications and financial
services.
Formal dispute resolution
processes
Protection for Foreign Investment
Commitment to fairness in
representation.
Website:
www.wto.org International
Commitment to provide
NAFTA
Trade
investors with the best treatmentStatistics 2015

North American Free Trade

NAFTA
Protection for Intellectual Property
Adequate and effective protection and
enforcement of a broad range of
intellectual property rights (including
through patents, trademarks,
copyrights, and industrial designs),

Easier Access for Business

Travelers
Easier access for business professionals
in hundreds of different professions.
Access to Government Procurement
Access to government procurement
opportunities at the federal levels in
Canada, Mexico, and the United States.
Rules of Origin
NAFTA rules of origin are used to
determine whether a good is eligible for
preferential treatment under NAFTA.

European Union
The European Union is a
unique economic and
political union between
28 European countriesthat
together cover much of the
continent.
In the EUs single market
(sometimes also called the
internal market)
people,goods,services,
andmoneycan move
aroundthe EU as freely as
within a single country.
Mutual recognitionplays a
central role in getting rid of
barriers to trade.
Website: www.wto.org International
Trade Statistics 2015

European Union

Website: www.wto.org International

Trade Statistics 2015

European Union

Website: www.wto.org International

Trade Statistics 2015

European Union

European Union
Many obstacles remain, however, in areas
where integration is taking longer:
fragmentednational tax
systemsimpede market integration
and undermine efficiency
separate national marketsstill exist
for financial services, energy and
transport
e-commercebetween EU countries has
been slower to take off than at national
level, and rules, standards and practices
vary considerably
theservices sectoris lagging behind
the goods markets (although it has been
possible since 2006 for companies to
offer a range of services abroad from
their home base)
rules on therecognition of vocational
qualificationsneed to be simplified to
make it easier for qualified workers to
find a job in another EU country.

ASEAN Trade Statistics

Table17

ASEAN Trade,2013-2014

asof17June2015

Country

2013
Exports

Totaltrade

Exports

Imports

valueinUS$
million;change

inpercent
Year-on-yearchange

2014/p

Imports

ASEANStatistics

Totaltrade

Exports

Imports

Totaltrade

BruneiDarussalam

11,445.4

3,611.8

15,057.2

10,584.1

3,596.6

14,180.7

(7.5)

(0.4)

(5.8)

Cambodia

9,148.2

9,176.0

18,324.2

10,681.4

18,973.2

29,654.6

16.8

106.8

61.8

Indonesia

182,551.8

186,628.7

369,180.5

176,292.7

178,178.8

354,471.5

(3.4)

(4.5)

(4.0)

LaoPDR

2,592.8

3,292.0

5,884.9

2,639.9

2,748.9

5,388.8

1.8

(16.5)

(8.4)

Malaysia

228,331.3

205,897.4

434,228.7

234,161.2

208,918.2

443,079.4

2.6

1.5

2.0

Myanmar

11,436.3

12,009.1

23,445.4

11,030.6

16,226.1

27,256.7

(3.5)

35.1

16.3

Philippines

53,978.3

65,130.6

119,108.9

61,809.9

67,756.9

129,566.9

14.5

4.0

8.8

Singapore

410,249.7

373,015.8

783,265.5

409,768.7

366,247.3

776,016.0

(0.1)

(1.8)

(0.9)

Thailand

228,730.2

249,517.1

478,247.3

227,573.6

227,952.3

455,525.9

(0.5)

(8.6)

(4.8)

VietNam

132,664.1

132,109.9

264,774.0

148,091.5

145,685.6

293,777.1

11.6

10.3

11.0

1,271,128.1

1,240,388.4

2,511,516.5

1,292,633.6

1,236,283.8

2,528,917.4

1.7

(0.3)

0.7

ASEAN

SourceASEANMerchandiseTradeStatisticsDatabase(compiled/computedfromdatasubmission,publicationsand/orwebsitesofASEANMemberStates'national
ASEANFreeTradeArea(AFTA)units,nationalstatisticsoffices,customsdepartments/agencies,orcentralbanks)
Symbolsused

Datainitalicsarethelatestupdated/revisedfigures

Notes

Detailsmaynotadduptototalsduetoroundingofferrors.

General Agreement on
Trade and Tariffs
GATT
General Agreement on
Trade and Tariffs
Purpose
Reduce or eliminate
trade barriers such as
tariffs and quotas.

Encouraged nations to
protect domestic
markets within limits
and to engage in
negotiation regarding
unresolved issues.
Predecessor to the WTO
Lacked a serious
enforcement
mechanism
Uruguay Round Lead to
WTO

World Trade
Organization
WTO
The only global
international
organization
dealing with the
rules of trade
between nations.
Accomplish goals
through WTO
agreements,
negotiated and
signed by the
bulk of the
worlds trading
nations and
ratified in their
parliaments.

World Trade Organization

Multilateral trading system

- essentially contractsguaranteeing member
countries important trade
rights.
Non-discrimination, e.g.

They also bind

governments to keep their
trade policies through a
binding conflict resolution
process.

Global Growth in Trade and

GDP

Website: www.wto.org International

Trade Statistics 2015

Trouble with
Trade(Agreements)
Brexit

TPP

Non-Equity Options
Non-Equity

Exporting

Licensing

Franchising

Contract
Manufacturing

Turnkey
Operation

Management
Contract

Exporting

Export- A function of
international trade
whereby goods
produced in one
country are shipped
to another country for
future sale or trade.

Contractual Methods
Contract
An agreement between
two or more parties to
do something
In return for a valuable
benefit known as
consideration.
Legally enforceable

Licensing

A contractual arrangement
whereby a company

transfers the right to distribute or

manufacture a product or service
in a foreign country,
or the right to use any type of
expertise that may include
patents, trademarks, company
name, technology and
technological know-how, design
and/or business methods.

The licensee pays a fee and/or

percentage of sales in exchange
for the rights.
Licensing is a good choice in
cases where there are

barriers to import and investment,

where legal protection is possible
in the target environment, and
where there is a low sales
potential in the target country.

Licensing

The advantages of a
licensing arrangement
include:

quick, easy entry into foreign

markets, allowing a company to
jump border and tariff barriers
lower capital requirements
potential for large return on
investment (ROI), which can be
realized fairly quickly
low risk, since you enter with an
established product and you take
fewer financial and legal risks.

On the downside:

You will have only a low level of

control.
Your licensee may become a
competitor.
You may lose intellectual property.
The license period is usually
limited.
Poor quality management can
damage your brands reputation
in other license territories.

Franchising
Arrangementwhere
oneparty(thefranchiser)grantsanother
party (thefranchisee) therightto use its
trademark or trade-name as well as
certainbusiness systemsandprocesses,
toproduceandmarketa good
orserviceaccording to certainspecifications.
The franchisee usuallypaysa onetimefranchise feeplusa percentage ofsales
revenueasroyalty, andgains
(1) immediatename recognition,
(2) tried and testedproducts, (3)standardbuilding
designand dcor,
(4)detailedtechniquesin running
andpromotingthebusiness,
(5)trainingofemployees, and
(6) ongoing help in promoting and upgrading of
the products.

The franchiser gains rapid expansion of

business andearningsat minimumcapital
outlay.

Turnkey Operations
A Turnkey operation
a product or service concept that is
complete, installed and ready to use
upon delivery or installation.
The product or service is then leased
or sold to an individual to run as
his/her own venture.

Manufacturers of industrial plants

like electric generating plants,
cement plants, oil refineries, and
many others usually make their
sales on this basis.
Uncertainties
The seller has to protect himself to
be able to collect upon delivery while
the buyer has to make sure that he is
not buying a lemon.

Contract Manufacturing
Contract manufacturing is a
process that establishes a
working agreement between two
companies.
As part of the agreement, one
company custom produces parts
or other materials on behalf of
their client.
In most cases, the manufacturer
also handles the ordering and
shipment processes for the client.
As a result, the client does not
have to maintain manufacturing
facilities, purchase raw materials,
or hire labor in order to produce
thefinished goods.

Management Contract
A Management contract is an
agreement whereby one
company provides
management personnel, who
perform general or specialized
management functions to
another company for a fee.

It is used primarily when the

foreign company can
manage better than the
owners.
The management talents the
company transfers
internationally, primarily to
its own foreign investment.

Factors Affecting International Entry Mode

Firm Factors

International

Experience
Core Competencies
Core Capabilities
National Culture of Home Country
Corporate Culture
Firm strategy, goals, motivation

Industry Factors

Industry

Location Factors

Extent

Venture Specific Factors

Value

globalization
Industry growth rate
Technical intensity of industry
of scale and location economies
risk
Cultural Distance
Knowledge of local market
Potential of local market
Country

of assets risked in foreign location

Cost of making and enforcing contracts
Size of planned foreign venture
Intent to conduct research and
development

AfterInternational Management: Concept and Cases

by A.V. Phatak, Southwestern Publishing Cincinnati Ohio

Questions
What is globalization?
What role does international trade play in
globalization?
Why do nations trade?
Which sectors of the economy have the greatest
impact in international trade?
How does export trade vary with region of the
world?
How does import trade vary with region of the
world?
How are the worlds largest industries distributed
by geography and what are the reasons for this
distribution?
How is trade measured?