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LEARNING MODULE-1

in

ENT 13
INTERNATIONAL BUSINESS AND TRADE

(Bachelor of Science in Entrepreneurship)

2ND Semester, AY 2021-2022

Prepared by:

Jackylou Hingpit Canta

Instructor

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 1

 TABLE OF CONTENTS

Module 1 Topics Pages

Background of International Business ------------------------------------------------ 3

Types of International Business ------------------------------------------------------- 4
The Rise of Globalization --------------------------------------------------------------- 7
Globalization and Interdependence between Countries --------------------------- 7
Implications for Businesses and Marketing Framework ---------------------------- 8

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 2

TITLE: A. BACKGROUND FOR INTERNATIONAL BUSINESS AND TRADE

Learning Objectives
In this lesson, the learners will be able to:
a. Define international business;
b. Know the various types of international business;
c. Exemplify the globalization and international trade in our daily
life situation.

Learning Activities
Read and comprehend the whole concept.

Background for International Business and Trade

What is International Business?
International business encompasses all commercial activities that take place to
promote the transfer of goods, services, resources, people, ideas, and technologies
across national boundaries.
 International business occurs in many different formats;
 International Business refers to the exchange of goods and services between two
parties of different countries.
 International Business may be understood as those business transactions involve
crossing of national boundaries.
 International Business is the process of focusing on the resources of the globe
and objectives of the organization on the global business opportunities and
threats in order to produce/buy/sell or exchange of goods and services
worldwide
 The movement of goods from country to another (exporting, importing, trade)
 Contractual agreements that allow foreign firms to use products, services and
processes from other nations (licensing, franchising)
 The formation and operations of sales, manufacturing, research and
development, and distribution facilities in foreign markets
International business encompasses a full range of cross-border exchanges of
goods, services, or resources between two or more nations. These exchanges can go
beyond the exchange of money for physical goods to include international transfers of
other resources such as people, intellectual property (e.g., patents, copyrights, brand
trademarks and data), and contractual assets and liabilities (e.g., the right to use some
foreign assets, provide some future service to foreign customers, or execute a complex
financial instrument). The entities involved in international business range from large
multinational firms with thousands of employees doing business in many countries
around the world to a small one-person company acting as an importer or exporter.
This broader definition of international business also encompasses for-profit border-
crossing transactions as well as transaction motivated by non-financial gains (e.g., triple

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 3

bottom line, corporate social responsibility, and political favor) that affect a business’s
future.

What is a Business?
A business is defined as an organization or enterprising entity engaged in
commercial, industrial, or professional activities. Business can be for-profit entities or it
can be non-profit organizations that operate to fulfil a charitable mission or further a
social cause.
The term “business” also refers to the organized efforts and activities of
individuals to produce and sell goods and services for profit. Businesses range in scale
from a sole proprietorship to an international corporation. Several lines of theory are
engaged with understanding business administration including organizational behavior,
organization theory, and strategic management.

What is trade?
Trade is a basic economic concept involving the buying and selling of goods and
services, with compensation paid by a buyer to a seller, or the exchange of goods or
services between parties. Trade can take place within an economy between producers
and consumers.
International trade allows countries to expand markets for both goods and
services that otherwise may not have been available to it. It is the reason why an
American consumer can pick between a Japanese, German, or American car. As a result
of international trade, the market contains greater competition and therefore, more
competitive price, which brings a cheaper product home to the consumer.

Types of International Business

A. Licensing
When considering strategic entry into an international market, licensing is a
low-risk and relatively fast foreign market entry tactic.
 A licensor (i.e. the firm with the technology or brand) can provide their
products, services, brand and/or technology to a licensee via an
agreement. This agreement will describe the terms of the strategic
alliance, allowing the licensor affordable and low risk entry to a foreign
market while the licensee can gain access to the competitive advantages
and unique assets of another firm. This is potentially a strong win-win
arrangement for both parties, and is a relatively common practice in
international business.
 Licensor: In a licensing relationship, the owner of the produce, service,
brand or technology being licensed.
 Licensee: In a licensing relationship, the buyer of the produce, service,
brand or technology being licensed.

B. Franchising
Franchising enables organizations a low cost and localized strategy to
expanding to international markets, while offering local entrepreneurs the
opportunity to run an established business. In franchising, an organization (the
franchiser) has the option to grant an entrepreneur or local company (the
franchisee) access to its brand, trademarks, and products. In this arrangement,

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 4

 the franchisee will take the majority of the risk in opening a new location (e.g.
capital investments) while gaining the advantage of an already established brand
name and operational process. In exchange, the franchisee will pay a certain
percentage of the profits of the venture back to the franchiser. The franchiser
will also often provide training, advertising, and assistance with products.
 Franchisee: A holder of a franchise; a person who is granted a franchise.
 Franchiser: A franchisor, a company or person who grants franchises.

C. Exporting
Exporting is the practice of shipping goods from the domestic country to a
foreign country. This term “export” is derived from the concept of shipping goods
and services out of the port of a country. The seller of such goods and services is
referred to as an “exporter” who is based in the country of export whereas the
overseas based buyer is referred to as an “importer”. In international trade,
exporting refers to selling goods and services produced in the home country to
other markets.
 export: to sell (goods) to a foreign country
 exporting: the sale of capital, goods, and services across international
borders or territories

D. Importing
Imports are the inflow of goods and services into a country’s market for
consumption. The term “import” is derived from the concept of goods and
services arriving into the port of a country. The buyer of such goods and services
is referred to as an “importer” and is based in the country of import whereas the
overseas-based seller is referred to as an “exporter.” Thus, an import is any good
(e.g. a commodity) or service brought in from one country to another country in
a legitimate fashion, typically for use in trade. It is a good that is brought in from
another country for sale.
 Import: To bring (something) in from a foreign country, especially for sale
or trade.

E. Contract Manufacturing
In contract manufacturing, a hiring firm makes an agreement with the
contract manufacturer to produce and ship the hiring firm’s goods. Contract
manufacturer (“CM”) is a manufacturer that enters into a contract with a firm to
produce components or products for that firm. It is a form of outsourcing. In a
contract manufacturing business model, the hiring firm approaches the contract
manufacturer with a design or formula. The contract manufacturer will quote the
parts based on processes, labor, tooling, and material costs. Typically a hiring
firm will request quotes from multiple CMs. After the bidding process is complete,
the hiring firm will select a source, and then, for the agreed-upon price, the CM
acts as the hiring firm’s factory, producing and shipping units of the design on
behalf of the hiring firm.

F. Joint Ventures
A joint venture is a business agreement in which parties agree to develop
a new entity and new assets by contributing equity. They exercise control over
the enterprise and consequently share revenues, expenses and assets.
When two or more persons come together to form a partnership for the
purpose of carrying out a project, this is called a joint venture. In this scenario,
both parties are equally invested in the project in terms of money, time and

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 5

 effort to build on the original concept. While joint ventures are generally small
projects, major corporations use this method to diversify. A joint venture can
ensure the success of smaller projects for those that are just starting in the
business world or for established corporations. Since the cost of starting new
projects is generally high, a joint venture allows both parties to share the burden
of the project as well as the resulting profits.
G. Outsourcing
Outsourcing is the contracting out of a business process, which an
organization may have previously performed internally or has a new need for, to
an independent organization from which the process is purchased back as a
service. Though the practice of purchasing a business function—instead of
providing it internally—is a common feature of any modern economy, the term
outsourcing became popular in America near the turn of the 21st century. An
outsourcing deal may also involve transfer of the employees and assets involved
to the outsourcing business partner. The definition of outsourcing includes both
foreign and domestic contracting, which may include offshoring, described as “a
company taking a function out of their business and relocating it to another
country.”
The opposite of outsourcing is called insourcing, and it is sometimes
accomplished via vertical integration. However, a business can provide a contract
service to another business without necessarily insourcing that business process.

 Offshoring: The location of a business in another country for tax purposes.

 Outsourcing: The transfer of a business function to an external service
provider.
 Insourcing: The obtaining of goods or services using domestic resources
or employees as opposed to foreign.

H. Offshoring
“Offshoring” is a company’s relocation of a business process from one country
to another. This typically involves an operational process, such as manufacturing,
or a supporting process, such as accounting. Even state governments employ
offshoring. More recently, offshoring has been associated primarily with the
sourcing of technical and administrative services that support both domestic and
global operations conducted outside a given home country by means of internal
(captive) or external (outsourcing) delivery models. The subject of offshoring,
also known as “outsourcing,” has produced considerable controversy in the
United States. Offshoring for U.S. companies can result in large tax breaks and
low-cost labor.

I. Multinational Firms
With the advent of improved communication and technology, corporations
have been able to expand into multiple countries.
Multinational Corporation is a corporation or enterprise that operates in
multiple countries. A multinational corporation (MNC) or multinational enterprise
(MNE) is a corporation registered in more than one country or has operations in
more than one country. It is a large corporation which both produces and sells
goods or services in various countries. It can also be referred to as an
international corporation. The first multinational corporation was the Dutch East
India Company, founded March 20, 1602.
Multinational corporations are important factors in the processes of
globalization. National and local governments often compete against one another
to attract MNC facilities, with the expectation of increased tax revenue,
employment and economic activity. To compete, political powers push toward

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 6

 greater autonomy for corporations. MNCs play an important role in developing
economies of developing countries.

J. Direct Investment
Foreign direct investment (FDI) is investment into production in a country
by a company located in another country, either by buying a company in the
target country or by expanding operations of an existing business in that
country. FDI is practiced by companies in order to benefit from cheaper labor
costs, tax exemptions, and other privileges in that foreign country.
FDI is done for many reasons including to take advantage of cheaper
wages in the country, special investment privileges, such as tax exemptions,
offered by the country as an incentive to gain tariff-free access to the markets of
the country or the region. FDI is in contrast to portfolio investment which is a
passive investment in the securities of another country, such as stocks and
bonds.

K. Countertrade
Countertrade is a system of exchange in which goods and services are
used as payment rather than money. Countertrade means exchanging goods or
services which are paid for, in whole or part, with other goods or services, rather
than with money. A monetary valuation can, however, be used in counter trade
for accounting purposes. Any transaction involving exchange of goods or service
for something of equal value.

There are five main variants of countertrade:

1. Barter: Exchange of goods or services directly for other goods or services
without the use of money as means of purchase or payment.
2. Switch trading: Practice in which one company sells to another its obligation
to make a purchase in a given country.
3. Counter purchase: Sale of goods and services to one company in another
country by a company that promises to make a future purchase of a specific product
from the same company in that country.
4. Buyback: This occurs when a firm builds a plant in a country, or supplies
technology, equipment, training, or other services to the country, and agrees to take a
certain percentage of the plant’s output as partial payment for the contract.
5. Offset: Agreement that a company will offset a hard currency purchase of an
unspecified product from that nation in the future. Agreement by one nation to buy a
product from another, subject to the purchase of some or all of the components and
raw materials from the buyer of the finished product, or the assembly of such product
in the buyer nation.

The Rise of Globalization

 Globalization refers to the process of interaction and integration among people,
companies, and governments worldwide. Globalization has accelerated since the
19th century due to advances in transportation and communication technology.
This increase in global interactions has caused a growth in international trade

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 7

 and the exchange of ideas and culture. Globalization is primarily an economic
process of interaction and integration that is associated with social and cultural
aspects. However, conflicts and diplomacy are also large parts of the history of
globalization, and of modern globalization.
 The official definition of “globalization” is the process by which businesses or
other organizations develop international influence or start operating on an
international scale.
 More simply, globalization refers to an open flow of information, technology, and
goods among countries and consumers. This openness occurs through various
relationships, from business, geopolitics, and technology to travel, culture, and
media.
 Because the world is already so connected, most people don’t notice
globalization at work every single day. But the world is getting smaller, and
companies need to understand what this means for the future of doing business.
Companies that don’t embrace globalization risk losing a competitive advantage,
which allows other businesses to take over new opportunities in the global
marketplace.

Benefits of Globalization
Globalization impacts businesses in many different ways. But those who decide
to take on international expansion find several benefits, including:

1. Access to New Cultures

Globalization makes it easier than ever to access foreign culture, including
food, movies, music, and art. This free flow of people, goods, art, and information is
the reason you can have Thai food delivered to your apartment as you listen to your
favourite UK-based artist or stream a Bollywood movie.

2. The Spread of Technology and Innovation

Many countries around the world remain constantly connected, so knowledge
and technological advances travel quickly. Because knowledge also transfers so fast,
this means that scientific advances made in Asia can be at work in the United States
in a matter of days.

3. Lower Costs for Products

Globalization allows companies to find lower-cost ways to produce their products.
It also increases global competition, which drives prices down and creates a larger
variety of choices for consumers. Lowered costs help people in both developing and
already-developed countries live better on less money.

4. Higher Standards of Living across the Globe

Developing nations experience an improved standard of living—thanks to
globalization. According to the World Bank, extreme poverty decreased by 35%
since 1990. Further, the target of the first Millennium Development Goal was to cut
the 1990 poverty rate in half by 2015. This was achieved five years ahead of
schedule, in 2010. Across the globe, nearly 1.1 billion people have moved out of
extreme poverty since that time.

5. Access to New Markets

Businesses gain a great deal from globalization, including new customers
and diverse revenue streams. Companies interested in these benefits look for

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 8

 flexible and innovative ways to grow their business overseas. International
Professional Employer Organizations (PEOs) make it easier than ever to employ
workers in other countries quickly and compliantly. This means that, for many
companies, there is no longer the need to establish a foreign entity to expand
overseas.

6. Access to New Talent

In addition to new markets, globalization allows companies to find new, specialized
talent that is not available in their current market. For example, globalization gives
companies the opportunity to explore tech talent in booming markets such
as Berlin or Stockholm, rather than Silicon Valley. Again, International PEO allows
companies to compliantly employ workers overseas, without having to establish a
legal entity, making global hiring easier than ever.

ACTIVITY #1:
Do and explain the following questions below. Encode your answers.
1. What is international business and trade?
2. What is globalization in international trade?
3. How does globalization and international trade affect in our daily lives?
4. Enumerate at least 10 largest companies who operate internationally. Attach
pictures or logo of a specified company.
5. Cite some reasons that have caused globalizations.

REFERENCES:
Chase-Dunn, C., 2002. Globalization: A World-Systems Perspective, in Preyer, G., M.
Bös, 2002. Borderlines in a Globalized World: New Perspectives in a Sociology of the
World-System. Kluwer Academic Publishers.

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 9

Czinkota, M., Ronkainen, I., 2007. International Marketing, 8th Edition, Thomson Higher
Education, Thomson South-Western, Mason, USA.
Rinne, A., 2013. Young Global Leaders Sharing Economy Dialogue Position Paper 2013,
Circular Economy Innovation & New Business Models Dialogue, World Economic Forum,
Geneva.
https://courses.lumenlearning.com/boundless-business/chapter/types-of-international-
business/
https://velocityglobal.com/blog/globalization-benefits-and-challenges/

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