Business Education: Basics of International Business, Marketing, and Trade

Benefits of International Trade
There are many benefits to international trade. One advantage is that a company has an entirely new market to which to sell. It can increase its sales and thus its profits tremendously by reaching these customers. A company may have surplus supply that would otherwise not be utilized. Customers can enjoy products that are not available domestically. If international trade was not available, they may not be able to get that product. Also, opening up international trade can make those products available for less money. They may get the foreign product for less, and even domestic companies may lower their prices to become more competitive. Consumers who wouldn't have been able to afford the products may now do so. Also, there is less dependence on a single market, so if something goes wrong, the item will still be available. A foreign market may be more profitable for a domestic company.

Drawbacks of International Trade
There are a lot of arguments against free trade. It can lead to job losses and company failures domestically. New domestic companies may not have a chance to catch up with foreign companies. Some feel that getting products from rival countries is risky, and there are concerns about working conditions. In some countries, there is little regulation and people work in unsafe and unsanitary conditions. Workers, including children, may work many hours for little pay. Also, the manufacturing processes may damage the environment. There might not be the same quality control for the products, and some of the products may be of lower quality or even hazardous. Also, when jobs are outsourced, there will be less opportunity in the United States. Domestic companies that have good practices and fairly compensated employees may have difficulty competing with international companies that do not. A company may also face barriers to trade such as quotas, tariffs, and cultural resistance.

Historical Patterns of International Trade
The United States has engaged in international trade for many centuries. The triangular trade system was a system that ran from the late 1500s to the early 1800s. It connected Africa, the American colonies, and the Caribbean and consisted of slaves, crops, and manufactured goods. Many countries export raw goods and import manufactured materials. The United States trades with a wide variety of countries, and many companies have gone international through trade. The United States used to practice protectionism, but has gravitated towards free trade in modern days. Still, protectionism is not eradicated and can be seen in policies today.

Modern Trends in International Business
There have been many trends in international business. Much of the manufacturing has moved internationally to areas where the cost of labor is lower. China has emerged as a significant exporter, with many of the goods in the United States and other countries coming from there. Multinational businesses have a great impact on the growth and health of the economy, especially given their size. They add a lot to the growth of the GDP. Trade also plays a large part in economic growth, both in the United States and other countries. There have also been some trends specific to the United States. The US has increased the importation of oil. Approximately half of the oil import originates from the Western Hemisphere. Also, the United States currently has a negative balance of trade, also known as a trade deficit. This means the United
States is importing more than it is exporting.

Economic Factors That Influence International Trade
There are various economic factors that influence international trade. One is opportunity costs. Opportunity costs are what a producer gives up by choosing a different option. For instance, if a producer can make a dozen cookies in an hour or a dozen brownies in an hour for the same cost and he chooses to make the cookies, then the dozen brownies are the opportunity cost. Someone who has a higher opportunity cost for making a product may want to import that product so they do not have to incur the opportunity cost. Comparative advantage is given to the party with the lowest opportunity cost. It makes sense for them to produce and export the product. Absolute advantage is when a producer can make more of something with smaller inputs. For instance, if one country can make 10 shirts for the cost and effort that another country uses to make five shirts, then the country that can make more has the absolute advantage. It makes sense for the producer who can make it with the least inputs to make it.

Government Policies That Create Obstacles to International Trade
There are many government policies that create obstacles to international trade. These are done for different reasons, including protecting domestic businesses and raising revenues. Quotas put a restriction on the number of imports. Beyond that number, the products must be made by domestic means. This can make products more expensive because it may be more expensive to make domestically, although domestic companies gain because they can charge more. The government also wins with more tax revenues. Tariffs are taxes that apply to goods that are imported. Because the cost of imports is increased, domestic production is cheaper. This is advantageous for domestic manufacturers. Voluntary export restraints are self-applied rules that restrict what a country can export to another country. Oftentimes the importing country has requested the limit. Embargoes occur when a country restricts trade with a specific foreign country, often for political or economic reasons. These measures are often done concurrently.

Effects of Currency Exchange Rates on Trade
When a country purchases items from another country, they first change their money over to that currency. When the foreign currency is weaker, they can purchase more of it for their own money. They will then have more money and the items will be relatively cheaper. They will import more from the country with the weaker currency because these items are less expensive.
Alternatively, if a country is trading with a country that has a stronger form of currency, then they will be able to get less of that foreign money and thus the goods will be more expensive. They might import less in this case. Exchange rates change constantly, thus so does trade.

Benefits and Drawbacks of a Weak/Strong Dollar
Whether the dollar is weak or strong can make a big difference for the economy and everyday people. If the dollar is weak, it has less purchasing power and it becomes more expensive to import from foreign countries. As prices increase, consumers spend less. Fuel costs tend to go up, too. Inflation can occur because of this. Central banks might raise interest rates to attract investors, but this can be problematic for the economy. A benefit of a weak dollar is that a trade deficit could decrease and domestic job growth can occur, especially in industries like manufacturing. Demand will also increase for exports because they are cheaper, which will also increase jobs. There could be some lost jobs, however, from businesses that are paying more for supplies. A strong dollar makes the opposite occur. Foreign goods cost less, so importing may increase while exporting or domestically-produced items go down. Prices can go down as well. One is not necessarily bad or good.
Overall, a strong economy will have a strong dollar, but sometimes a weak dollar is best.

Elements That Influence International Trade
The balance of trade, the differential between a nation's imports and exports, can influence international trade. So can the balance of payments, which is a compilation of economic transactions of a nation and the global companies with which it trades. It includes loan repayment, capital movements, money spent by tourists, and more. International trade is also affected by changes in the supply of labor as well as demand for labor. If a lower supply of labor exists, a country may need to import more and vice versa. Some countries also have practices such as dumping. This is where a country exports products at an extremely low price compared to what they would be available for domestically. This can be catastrophic for manufacturers in that country. Sometimes countries will also take retaliatory actions that can affect international trade. The exchange rates and values of the different currencies also matter. If a country's currency is strong, it has more power and might import more; if it is weak, it might import less. All of these factors combine to affect international trade.

GATT
The General Agreement on Tariffs and Trade (GATT) is a treaty that was formed after World War II to help the economy. It strives to lower obstacles to global trade such as quotas, tariffs, and subsidies. It played a huge part in increasing free trade throughout the 20th century. The main part was for trade to occur without discrimination. A country had its markets opened equally to other countries. If a country made an agreement to lower tariffs with the countries it had a significant trade with, then those went to other GATT members, too. The nations would specify the tariff rates they would provide to the other member countries. GATT also strove to promote tariffs rather than a limit on the number of items traded. There was an escape clause in case a country lost a lot because of concessions in trade. It was in effect until the World Trade Organization took over in 1995, at which point it had 125 nations signed to it and governed 90 percent of international trade.

NAFTA
The North American Free Trade Agreement (NAFTA) became active in 1994 and has had a profound effect on trade ever since. The agreement was signed by the United States, Mexico, and Canada and, as part of it, number restrictions and duties were terminated on January 1, 2008. The largest international free trade area was formed, and trade between the three countries increased tremendously, going to 1.2 trillion for US goods and services in 2012. Canada benefited economically from the agreement. Mexico has a lot of factories known as maquiladoras that take raw goods and make them into finished products. The United States has seen trade increase tremendously, but there has been loss of manufacturing jobs to Mexico. There were some issues about environmental concerns, thus the North American Agreement on Environmental
Cooperation (NAAEC) was formed to address this. Despite some increases in pollution, there have been many benefits overall.

WTO
Started in 1995 by the Marrakesh Agreement, the World Trade Organization (WTO) is an international organization related to trade rules between different countries. WTO agreements are negotiated and created to form agreements that benefit producers, importers and exporters. It provides a place for companies to negotiate trade and work through problems, such as trade restrictions. It has formed trade rules. It works to promote safe and effective trade without conflicts between nations. If there is conflict, WTO works to resolve disputes and ensure nations comply with the agreements they have made. It also helps nations come up with their own trade agreements. The WTO has a staff of more than 600 people in Geneva, Switzerland.

IMF
Part of the United Nations, the International Monetary Fund (IMF) promotes economic stability in 188 member countries. It strives for international growth by giving policy advice and helping developing nations reduce their level of poverty. Some of its primary roles are to keep exchange rates stable, balance international trade, provide financing to struggling countries, and give training and technical assistance. It also works with research and tries to keep the international financial system stable and looks at worldwide economic trends. The IMF performs surveillance to keep track of economic or financial problems. It will appraise financial situations and help countries create policies that are best. There is some criticism of the organization based on several issues, like reports that the loan conditions are too intrusive and intervene too much by forcing privatization, for instance.
Critics also argue the policies of the Washington consensus are put forth without considering the special needs of that country, that policies are expected to be implemented together right away, and that the organization doesn't take criticism well.

World Bank
The World Bank works to reduce poverty by loaning money to developing countries for capital programs. This international financial organization is part of the United Nations and is based in Washington, D.C. It promotes foreign investment, international trade, and capital investment. It also works to improve health and fight diseases such as AIDS, tuberculosis, and malaria by sending vaccines internationally, along with other measures. It has also fought for environmental causes such as preventing climate change. It is now focused on 14 centralized global practices, including health and water. There has been some criticism, with some based on upcoming layoffs and lowered budgets.

Conducting International Business Through Licensing
International business is often conducted through licensing.
International licensing occurs when one business makes an agreement with another, giving special permission to make the product in a foreign country. It might involve the resources to do it or the right. This might include a copyright, skills of managers, patents, technology, and more. It is advantageous in that companies can get into new markets they may not have been able to enter otherwise, because of restrictions in trade. It is also a way to enter another market without spending too much money or incurring too much risk because the company is just giving the rights and resources to make the product and not actually going in and doing it itself. The disadvantage is that there is a risk that the foreign firm will not adhere to the agreement. Also, with lower financial involvement and risk comes a lower expected financial return.

Conducting International Business Through Franchising
One way to conduct international business is through franchising. This is where an individual leases the ability to replicate a business model and brand. Generally, the individual will create a business that is a replica of a successful one. For instance, a franchise restaurant will have the same look, food, etc. McDonald's is a common franchise. There are both advantages and disadvantages to conducting international business through franchising. The model has already been successful and people are accustomed to it, so it may already have a built-in audience, which can stimulate business from the beginning. Domestic success may not translate to international success, however. Tastes and preferences are different in other countries. One advantage is that much of the work is done—the person will already have the branding, products, and so forth created. The franchisee may be subject to laws and regulations in other countries, however. Also, the franchisee may have little control and be unable to change things. Entrepreneurs should consider all these factors when deciding whether to franchise.

Conducting International Business Through Contract Manufacturing
Contract manufacturing is a popular method of entering a foreign market. With contract manufacturing, the company designs the product but then hires another company to manufacture and ship it. This can be a very cost effective way of doing business, especially in foreign markets where it might be more expensive to do business. Also, companies can find a manufacturer that is able to make a product that they do not have the ability to make. It will also free the company to focus on designing the products and other things. There are risks as well. The company will not have as much control over the product and it may not come out with the desired quality.
Also, some foreign companies have poor practices with regard to working conditions or the environment. The company will also be sharing their intellectual property, which they risk losing. If there is a problem with the manufacturer, it will reflect on the company. Also, sometimes there are contract disputes or other issues with the relationship. Overall, contract manufacturing can be a great way to enter a foreign business as long as the risks are considered.

Conducting International Business Through Joint Ventures
One common method for conducting international business is through joint ventures. In this strategy, a company will form a partnership with a company in the international market it wants to enter. Both inputs and outputs, such as profits or losses, are shared. It can be short or long term, but is often temporary. It is advantageous in that the risk is shared, making it less risky to a business entering the foreign market. In addition, the business can take advantage of the fact that the foreign business is already familiar with the market in the other country. Also, consumers may be less resistant to them because they will seem to be part of the local business and not a foreign entity. Sometimes there are laws and regulations that would make it difficult for a foreign business to enter the market otherwise. The downside is the company will share the profits from the venture.
Also, the company may have to give up some decision-making power. Sometimes disagreements arise from partnerships. With proper research it can be an excellent way to enter an international market.

Conducting International Business Through Strategic Alliances
A common method of conducting international business is through strategic alliances. It is similar to a joint venture in that two companies—one domestic and one foreign—come to an agreement to work on a project to benefit both of them, perhaps sharing resources or knowledge.
Whereas in a joint venture the company may form an actual business entity together, with a strategic alliance they work together on a project, but the firms remain independent. Also, it is typically not as long or involved as a joint venture. It is advantageous because a company can get into a foreign market it may otherwise have difficulty entering. It can use the benefits of the foreign company's knowledge and reputation in that country and help avoid resistance to a foreign business. The businesses can also share the risk. Of course, the company will not have full control over the project and may be responsible if the other company does something wrong. They will also have to share the rewards, such as profit.

Conducting International Business Through Foreign Subsidiaries
When a company opens a new subsidiary in a foreign country, either by starting one or buying an existing company, it is called a foreign subsidiary. The advantage is that the parent company stays in charge of the subsidiary and makes the decisions. They can get the rewards of it, and also enjoy cost savings when the parent and subsidiary share the same resources, such as the same financial processes. A disadvantage is that they can be liable for the subsidiary's problems. If the parent company starts a business from the beginning, it will have to deal with the difficulties of establishing a business in a foreign country such as finding customers and suppliers. Buying an established business can ease some of these difficulties. It can be very expensive to get into international business this way, and it is a large commitment. Still, it can expand a business' customers, sales, and profit.

Factors to Consider When Entering International Business
There are many factors that businesses should consider when entering international business. First, they should think about how their product is likely to do overseas. Consumers have different tastes and preferences in different areas. The company should make sure there is a demand for their product by conducting market research. Sometimes a product can be successful but only with changes to the product, branding, pricing, or marketing. They should also consider the competition. Businesses should look at the laws, regulations, and licensing requirements, which may be very different from those in the United States. The company should consider the logistics and costs of expanding internationally. It may cost a lot more to ship products overseas.
The company needs to consider exactly how it will penetrate the international market. There are many methods for international penetration; the company should research these to find out what is best for them. They may want to research alliances with others in the foreign area. They should make a clear business plan for penetrating the market.

Influences of Cultural, Economic, Sociopolitical, and Language Differences
Laws and regulations, including those pertaining to business, can be different in different countries. Businessmen need to be sure to understand the laws in the country in which they are doing business. The culture can have a significant effect. Some cultures are much more formal than others. Certain practices, such as touching someone, are taboo in certain cultures. Businessmen need to know what is acceptable. Also, there can be language barriers, and someone may accidently convey the wrong meaning. It is important to have someone who knows the language well and can translate successfully. There can also be political issues as well. Some countries are more restrictive on what can be advertised and how. Businesses should understand how distribution channels work. When a business plans to enter a foreign market, they should do research to make sure they understand the cultural, economic, sociopolitical, and language factors at play.

Ethnocentrism and Stereotyping
Cultures across the globe are very different, and it can be difficult to communicate across these lines. This has led to some mistaken beliefs and practices. Ethnocentrism occurs when a people believe that they and their culture are superior to those of others. It is extremely common and can affect international business greatly.
People of one culture may be very resistant to businesses from other countries because they feel they are not as good. Stereotyping can occur in which people believe certain things about a people just because of who they are. They may believe everyone from a certain country is bad, for instance. When consumers are ethnocentric and have stereotypes, they may reject products from international companies and prefer those from their country. Certain countries display these characteristics more than others. This can affect international business greatly.