History And Orgin Of International Trade Economics Essay

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International trade among different countries is not a new concept. History suggests that in the past there where several instances of international trade. Traders used to transport silk and spices through the silk route in the 14th and 15th century. In the 1700s fast sailing ships called clippers with special crew used to transport tea from China and spices from Dutch East Indies to different European countries.

The economic, political and social significance of international trade has been theorized in the industrial age. The rise in the international trade is essential for the growth of globalization. The limitations to international trade would limit the nations to the services and goods produced within its territories, and they would lose out on the valuable revenue from the global trade.

The benefits of international trade have been the major drivers of growth for the last half of the 20th century. Nations with strong international trade have become prosperous and have the power to control the world economy. The global trade can become one of the major contributors to the reduction of poverty.

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IMPORTANCE OF INTERNATIONAL BUSINESS

International business is all business transactions- private and government that engage two or more countries. International business comprises a large and growing segment of the world's total business. Today, almost all companies, large or small are exaggerated by globalization. More companies that engage in some form of international business are implicated in exporting and importing than in any other type of business transaction. . international business is important as it gives businesses better scope to sell the goods or services they produce. When a business is needy on just the home market, it is really wide open to failure should this market decline. Selling internationally deeply decreases the chances of such failure as it is unusual for all markets to decline at the same time, e.g. SONY company's performance is weak now in its home country Japan, but its products have great demand in Indian market. Globalization has brought with it opportunities for the weak, poor, and disposed. By the rapid expansion of IT sector make lot of opportunities for the physically challenged people to achieve high positions and yearn high salaries. It can be a force for liberation. It can be measured by the flow of goods, services, and capital.

DRIVING FORCES OF INTERNATIONAL BUSINESS

THE ROLE OF TECHNOLOGY

Advances in the technological innovations in Information and Communication Technologies such as microprocessors and telecommunications, the internet and World Wide Web, world wide e-commerce growth have contributed to the shaping of the world we live in and we are truly now in the era of the Information Revolution. Today, countries are increasingly judged by whether they are information-rich or information-poor with an estimated 50 percent of the world's economic growth and all new jobs will be IT driven. To operate efficiently, it is imperative to possess knowledge on a broad spectrum of issues and concepts that affect business activities around the globe. Successful management in the new millennium requires developing new methods and approaches to suit the challenges and opportunities of this new era of information revolution. Companies such as Dell computers are booking over 4 million US dollars per day in web-based sales , and the internet equipment giant Cisco Systems books more than 20 million $ a day in web-based sales.

FDI

FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly

MAIN OBJECTIVES

Foreign direct investment

As in the case of technology transfer, the existence of certain standards of IPR protection will be one of the elements taken into consideration by potential foreign investors with respect to their decisions on where to locate their production facilities. However, to the extent that the levels of protection are substantially harmonized under the TRIPS Agreement, IPRs are likely to become a less significant issue in investment decisions, except with respect to the effective enforcement of available rights. Moreover, as mentioned above, the reinforcement of IPRs (and, in the case of patents, the lack of obligation to work the protected technology locally) may lead to corporate decisions to locate production in the home country and to promote the export of products that incorporate protected innovations, rather than to engage in foreign direct investment for the purpose of manufacturing products in or near attractive foreign markets. The TRIPs Agreement, in the absence of other incentives, may, therefore, reduce the flow of foreign direct investment

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DECLINING TRADE & INVESTMENT BARRIERS

Communism was the major threat to globalization, after the collapse of communism many of the former communist nations of Europe and Asia seem to share a commitment to democratic politics and free market economies. Most part of a century, these countries were essentially closed to western international business. The economies of most of the former communist states are poor condition and their continued commitment to democracy and free market economics is a hope for a great change in world order. In the last quarter of century has been rapid changes in the global economy. These countries are lifting the barriers for free trade and investment. The volume of cross border trade and investment has been growing, free flow of goods and services, indicating the nations economies are become more closely integrated into a single, inter dependent, global economic system. As their economies are booming more nations are joining the ranks of the developed world.

FREE MARKET

A market economy is based on supply and demand with little or no government control. A completely free market is an idealized form of market economy where buyers and sellers are allowed to transact freely based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation. In free market stocks are securities that are widely traded and whose prices are not affected by availability. In foreign markets, it is a market where exchange rates are not pegged by government and rise and fall freely through supply and demand for currency.

WTO

WTO, An international agency which encourages trade between member nations administers global trade agreements and resolves disputes when they arise

The World Trade Organization (WTO) is the only body making global trade rules with binding effects on its Members. It is not only an institution, but also a set of agreements. The WTO regime is known as the rules-based multilateral trading system .The history of the Organization dates back to 1947, when the General Agreement on Tariffs and Trade (GATT), was set up to reduce tariffs, remove trade barriers and facilitate trade in goods. Over the years, GATT evolved through eight rounds of multilateral trade negotiations, the last and most extensive being the Uruguay Round (1986-1994). The WTO came into being at Marrakesh on 1 January 1995, following the conclusion of the Uruguay Round. GATT then

ceased to exist, and its legal texts were incorporated into the WTO as GATT 1994.

Main objectives

The WTO has six key objectives: (1) to set and enforce rules for international trade, (2) to provide a forum for negotiating and monitoring further trade liberalization, (3) to resolve trade disputes, (4) to increase the transparency of decision-making processes, (5) to cooperate with other major international economic institutions involved in global economic management, and (6) to help developing countries benefit fully from the global trading system.

GROWTH OF MNC'S

A multinational corporation is an enterprise that engages in foreign direct investment and that owns and controls value added activities in more than one country. Multinational corporations play an important role in globalization represents a cluster of affiliated firms located in different countries are linked through common ownership and a common strategy. MNC increase their presence in foreign countries by opening number of firms in which the firm has operations of various sorts foreign assets, revenues, employees over total proportion of foreign employees, managers, stockholders. The large number of US multinationals reflected their economic dominance in the three decades after World War 2. Looking to the future, we can surely expect new multinational enterprises from the worlds developing nations. South Korean firms are starting to invest outside their national borders.

Reasons for international trade

REASONS FOR EMERGING GLOBALISATION

Trade and investment barriers are vanishing

Apparent distances are lessening due to advances in transportation and telecommunications.

Material culture is beginning to look similar

National economies amalgamation into an co-dependent global economic system.

GLOBALISATION OF MARKET

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Globalization has had a progressively more considerable impact on international marketing. More and more markets become open to international organizations as the cost and convolution of operating overseas is abridged by globalization.

One of the key drivers of increased international marketing has been condensed costs as a result of globalization. Organizations are able to access cheap resources and labor in developing countries. This not only allows them to price their products lower, but also opens up a broader market of people with the disposable income to buy more goods and services. New and ever improving communications technology has spread throughout the world, allowing international marketing campaigns to be coordinated all from a domestic base. The internet and mobile phones have opened up entirely new international industries with endless potential. Globalization has changed the way people shop. Consumers are better able to shop around for good deals and are prepared to buy from overseas without necessarily viewing products first hand

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Globalization has also increased market competition , in turn increasing the importance of effective international marketing . Many organizations cannot rely on the fact that they are the only player in a long held domestic market , there are new competitors from overseas appearing all the time .

Transport and distribution systems are more efficient than ever before , making it easier, faster and cheaper for businesses to get their products to consumers. Electronic transfers have also made making and receiving international payments faster and more secure.

Finance is more ready available to both consumers and organizations , thanks to the globalization of many financial providers. Investors are interested in spreading their investments over a wider range of markets to reduce their overall level of risk .An increased availability of capital makes it easier for organizations to finance their international marketing efforts.

Globalization will continue to bring more and more buyers and sellers together into the future. The organizations that are able to make the most of the opportunities globalization provides stand to the best chance of succeeding in their international marketing campaigns.

MARKETING STRATEGY

Many of the international business experts disagree that exporting is a logical process with a natural structure, which can be viewed primarily as a method of understanding the target country's environment, using the appropriate marketing mix, developing a marketing plan based upon the use of the mix, implementing a plan through a strategy and finally, using a control method to ensure the strategy is adhered to. This exporting process is reviewed and evaluated regularly and modifications are made to the use of the mix, to take account of market changes impacting upon competitiveness. This view seems to suggest that much of the international business theory related to enterprises, which are internationally based and have global ambitions, does often change depending on the special requirements of each country.

International management

The management of business operations for

an organization that conducts business in more than one country. International management requires knowledge and skills above and beyond normal business expertise, such as familiarity with the business regulations of the nations in which the organization operates, understanding of local customs and laws, and the capability to conduct transactions that may involve multiple currencies.

ALLOCATION OF RESOURCES

The uneven distribution of resources around the world is the one of the basic reasons why nations began and continue to trade with each other.

(1) Favorable climatic conditions and terrain are very important for agricultural produces .The difference in these factors enables some countries to grow certain plants and leaves other countries with the only choice to import the produces they consume.

(2) Natural resources, some countries are the major suppliers of the certain natural resources because the distribution of natural resources around the world is some what haphazard. The middle East, for example, has rich oil reserves and is the main source of oil supply to the world.

(3) Skill workers, some developed countries have skilled workers who are able to manufacture sophisticated equipment and machinery. Other countries ,since they don't have well-trained engineers and workers, must import the equipment from these countries.

(4) Capital resources, Developing countries need to modernize their industries and economies with advanced machinery, equipment and plant that they are not able to manufacture because of the lack of capital. This has given rise to the need for developing international trade

(5) Favorable geographic location and transport costs,

(6) Insufficient production, some countries cannot produce enough items they need

2. Economic reasons

In addition to getting the products they need, countries also want to gain economically by trading with each other. It is made possible by varied prices for the same commodity around the world, reflecting the differences in the cost of production. 

Industrialization ,advanced transportation globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production.

Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrant but the trade effect was weakened when the immigrants became assimilated into their new country.

BENEFITS OF INTERNATIONAL TRADE

International trade has flourished over the years due to the many over the years due to the many benefits it has offered to the many benefits it has offered to different countries across the globe. International trade is the exchange of services , goods and capital among various countries and regions, without much hindrance . The international trade accounts for a good part of a country's gross domestic product. It is also one of important sources of revenue for a developing country .With the help of modern production techniques, highly advanced transportations, outsourcing of manufacturing and services and rapid industrialization, the international trade system is growing and spreading very fast.

SOME IMPORTANT BENEFITS OF INTERNATIONAL TRADE

Enhances the domestic competitiveness.

Take advantage of international trade technology.

Increase sales and profit

Extent sales potential of the existing products.

Maintain cost competitiveness in your domestic market.

Enhance potential for expansion of your business.

Gains a global market share.

Reduce dependence on existing markets.

Stabilize seasonal market fluctuations.

EARN FOREIGN EXCHANGE

International business exports its goods and services all over the world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay for imports. Foreign exchange helps to make the business more profitable and to strengthen the economy of its country.

INTERNATIONAL MARKETING

Globalization has had an increasingly significant impact on international marketing. More and more markets become open to international organizational as the cast and complexity of operating overseas is reduced by globalization. Organizations are able to access cheap resources and labors in developing countries. This not only allows them to price their products lower, but also opens up a broader market of people with the disposable income to buy more goods and services.

New and ever improving communications technology has spread throughout the world , allowing international marketing campaigns to be coordinated all from a domestic base. The internet and mobile phones have opened up entirely new international industries with endless potential. Globalization has changed the way people shop. Consumers are better able to shop around for good deals and are prepared to buy from overseas without necessarily viewing products firsthand and globalization has also increased market competition in turn increasing the importance of effective international marketing. Many organizations cannot rely on the fact that they are the only player in a long held domestic market; there are new competitors from overseas appearing all the time.

Transport and distribution systems are more efficient than ever before, making it easier, faster and cheaper for businesses to get their products to consumers. Electronic transfers have also made making and receiving international payments faster and more secure.

Finance is more, readily available to both consumers and organizations, thanks to the globalization of many financial providers. Investors are interested in spreading their investments over a wider range of markets to reduce their overall levels of risks. An increased availability of capital makes it easier for organizations to finance their international marketing efforts.

Globalization will continue to bring more and more buyers and sellers together into the future. The organizations that are able to make the most of the opportunities globalization provides stand to the best chance of succeeding in their international marketing campaigns.