International Business
International Trade & FDI
International Trade occurs when a firm exports goods or services to
consumers in another country
FDI Occurs when a firm invests resources in business activities outside
its home country
Export & Import
Export: Selling to foreign markets.
Import: Purchasing from outside areas.
Organizing for export import operations
Export Department: For many companies, the export department begins in the
sales or marketing department. That department may develop leads or identify
customers located in other countries. Inquiries or orders may come from potential
customers through the company’s web site where the destination is not identified.
Import Department: A manufacturer’s import department often grows out of the
purchasing department, whose personnel have been assigned the responsibility
of procuring raw materials or components for the manufacturing process.
Combined Export & Import Department: In many companies, some or all of the
functions of the export and import departments are combined in some way. In
smaller companies, where the volume of exports or imports does not justify more
personnel, one or two persons may have responsibility for both export and import
procedures and documentation. As companies grow larger or the volume of
export/import business increases, these functions tend to be separated more into
export departments and import departments.
Internationalisation Motives
(Source: Albaum et al, 1994)
Proactive Motives Reactive Motives
Profit and growth goals Competitive pressure
Managerial Urge Domestic market-small and
saturated
Technology competence /unique
product Overproduction/excess capacity
Foreign market Unsolicited foreign orders
opportunities/market information Extend sales of seasonal products
Economies of scale Proximity to international
Tax benefits customers/psychological distance
Changes in the World Economy
Emergence of global markets
Integration of world economy
Increased volume of capital movements
End of the Cold War
Diminishing importance of national boundaries due to
technological advancements
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Barriers to International Trade
Lack of Management commitment
Ignorance of and uncertainty over foreign trade requirements- lack of knowledge and /or
finance
Ethnocentricity-lack of connection/understanding
Focus on domestic market- no observed need to expand
Insufficient capacity
Increased costs of operation
Economic and political risk
General Market
Language
Culture
Competition
Market structure
Commercial
Unfavourable exchange rates
Non-payment –lack of export financing
Damage to goods in transit
Political
Lack of home country government support/incentives
Barriers by host country governments- quotas, import tariffs
International Trade-Management Orientations
Ethnocentric
Polycentric
Regiocentric
Geocentric
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Ethnocentric Orientation
Assumes home country is superior to the rest of the world;
associated with attitudes of national arrogance and supremacy
Management focus is to do in host countries what is done in the home
country
Sometimes called an international company
Products and processes used at home are used abroad without
adaptation
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Polycentric Orientation
Management operates under the assumption that every country is
different; the company develops country-specific strategies
Sometimes called a multinational company
Company operates differently in each host country based on that
situation
Opposite of ethnocentrism
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Regiocentric Orientation
Region becomes the relevant geographic unit (rather than by country)
Management orientation is geared to developing an integrated regional
strategy
European Union
NAFTA
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Geocentric Orientation
Entire world is a potential market
Managerial goal is to develop integrated world market strategies
Global companies serve world markets from a single country and tend
to retain association with a headquarters country
Transnational companies serve global markets and acquire resources
globally; blurring of national identity
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Types of International Business Involvement
Orientation Focus
Ethnocentric Home/Domestic country
Polycentric Multidomestic
Regiocentric Regional market groups, e.g. ASEAN
Geocentric World/global
Leading Exporters and Importers
Exporters
Importers
United States
Germany
Japan Kingdom
United
China
France
France
Japan
United Kingdom
Netherlands
Canada
Italy
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Import Plan, Procedures & Strategies
An effective import strategy must take into account all the factors you would
consider in any form of purchasing. At the same time, you need to plan how you
will deal with extra challenges, such as dealing with long delivery times and the
financing burden this can impose. Your import objectives. Importing action plan.
In general, documents required for importation include a letter of credit
authorization form, a bill of lading or airway bill, commercial invoice or packing
list, and a certificate of origin.
Must-have Shipping Documents for Imports
• Bill of Lading. This is the most important document not only for exporters but for
importers too. ...
• Commercial Invoice cum Packing List. Again, the importer needs this document
just as much as the exporter. ...
• Bill of Entry. The third must-have document for importers is a bill of entry.
Partner/Key Partners
Top Import Partners
China (69%), India (17%), Singapore, United States, Japan
Top Export Partner
United States (16.5%), Germany (14.1%), United Kingdom (9.4%), Spain
(6.4%), France
Transaction
Transaction consists of a trade of values between two parties.
International Commercial Terms 2000
Ex-Work (EW)
Free Career (FCA)
Free Alongside Ship (FAS)
Free on Board(FOB)
Cost and Freight (C&F or CFR)
Cost Insurance Freight (CIF)
Carriage Paid To (CPT)
Carriage and Insurance Paid (CIP)
Deliver at Frontier (DAF)
Delivered Ex-Ship (DES)
Delivered Ex-Quay (DEQ)
Delivered Duty Unpaid (DDU)
Delivered Duty Paid (DDP)
FOA/FOB Airport
Letter of Credit (L/C)
Parties to a L/C Types of L/C
Applicant/Importer Revocable credit
Applicant/Importer’s Bank Irrevocable credit
Beneficiary/Exporter Irrevocable confirmed credit
Intermediary/Confirming Bank With or without resource credit
Paying/negotiating Bank
L/C-How the L/C Works
Figure: Economic Systems
Resource Allocation
Market Command
Private Centrally
Market Planned
Capitalism Capitalism
Resource
Ownership
Centrally
Market Planned
State Socialism Socialism
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Market Capitalism
Economic system in which individuals and firms allocate resources:
Production resources are privately owned
Consumers decide what goods are desired and firms determine
what and how much to produce
Role of state is to promote competition and protect consumers
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Centrally Planned Socialism
Opposite of market capitalism
State holds broad powers to serve the public interest; decides
what goods and services are produced and in what quantities
Consumers can spend on what is available
Government owns entire industries
Demand typically exceeds supply
Little reliance on product differentiation, advertising, pricing
strategy
e.g. North Korea, Cuba
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Centrally Planned Capitalism
Economic system in which command resource allocation is used
extensively in an environment of private resource ownership
Examples:
Sweden, Japan, South Korea
A centrally planned economy is an economic system in which the state or
government makes economic decisions rather than the interaction
between consumers and businesses.
State- Directed Economy
The state plays a significant role in directing the investment activities of
private enterprises through industrial policy and in otherwise regulating
business activity in accordance with national goal.
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Market Socialism
Economic system in which market allocation policies are permitted
within an overall environment of state ownership
Examples:
China, Vietnam
India
It involves the public, cooperative, or social ownership of the means of
production in the framework of a market economy.
Socialist-oriented market economy
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Pure Market Pure Centrally
Economy Planned Economy
US Canada UK France Brazil India China Cuba/N. Korea
Fig: Continuum of Economic System,
Source: John Wild et al, International Business
