International Business PPT

Created By:

Santhosh Anvekar

International trade is an exchange of capital, goods and services across international borders. In most countries, it represents a significant share of gross domestic product (GDP).

International trade has been present throughout the history, its economic, social and political importance has been on the rise in recent centuries.

International Trade

The 2008 global financial crisis and subsequent slowdown in the world economy has clearly demonstrated that tremor originating in one corner of the world can quickly reach other parts among others via the trade channel.

The 2008 crisis left world trade (both goods and services) shattered with a steep fall to a negative 19.8% in 2009.

For five years before the crisis (2003–2007) world trade value grew at a robust 16.6% (compound annual growth rate—CAGR) and for five years after the crisis (2009-2013) it grew at a subdued 9.9%.

India’s exports (goods and services) which also had robust growth of 30.1% in the five pre-crisis years (2003-2007) decelerated to 16.0% in the five post-crisis years (2009-2013).

International Trade

Without international trade, nations would be limited to the goods and services produced within their own borders.

International trade is the backbone of modern commercial world, as producers in various nations try to profit from an expanded market, rather than be limited to selling within their own borders.

There are many reasons that trade across national borders occurs, including lower production costs in one region versus another, specialized industries, lack or surplus of natural resources and consumer tastes.

Importance of International Trade

Buyer insolvency (purchaser cannot pay);Non-acceptance (buyer rejects goods as different from the agreed

upon specifications);Credit risk (allowing the buyer to take possession of goods prior to

payment)Regulatory risk (e.g., a change in rules that prevents the

transaction)Intervention (governmental action to prevent a transaction being

completed)Political risk (change in leadership interfering with transactions or

prices)War and other uncontrollable events. In addition, international trade also faces the risk of unfavorable

exchange rate movements

Risk in International Trade

Trade and commerce have been the backbone of the Indian economy right from ancient times.Textiles and spices were the first products to be exported by India.The Indian trade scenario evolved gradually after the country’s independence in 1947. From the 1950s to the late 1980s, the country followed socialist policies, resulting in protectionism and heavy regulations on foreign companies conducting trade with India.

Trade in India

• India’s ranking in the top merchandise exporters and importers in the world has also improved from 31st in 2000 to 19th in 2013 in exports and from 26th to 12th for imports in the same years, as per the World Trade Organization (WTO).

• Also an improvement in India’s total merchandise trade to GDP ratio from 21.8% in 2000-01 to 44.1% in 2013-14.

Merchandise Trade

• In commercial services trade, India was the sixth largest exporter with 3.4% share of world exports and seventh largest importer with 3.0% share of world imports in 2012.

• The 2008 global financial crisis gave a big jolt to India’s service exports. In the five years prior to 2008 (i.e. 2003-04 to 2007-08) service export growth (CAGR) at 35.4% was faster and way above the merchandise export growth at 25.8%.

• In the five years post crisis (2008-09 to 2012-13), service export growth at 8.3% was below the 12.8% merchandise export growth.

• In 2012-13, service exports at US$ 145.7 billion showed a lower growth of 2.4% compared to the 14.2% in the preceding year. They improved slightly in 2013-14 with a 4% growth the same as merchandise export growth

Services Trade

India’s major imports comprise of crude oil, machinery, military products, fertilizers, chemicals, gems, antiques and artworks. Imported goods are divided into the following categories:

Freely importable items: For these items, no import license is required. They can be freely imported by an individual or a firm.

Canalized items: These items can only be imported by public sector firms. For example petroleum products fall under this category.

Prohibited items: Items such as unprocessed ivory, animal rennet and tallow fat cannot be exported to India.

India’s Trade - Imports

India’s Import Performance

Indian exports comprise mainly of engineering and textile products, precious stones, petroleum products, jewelry, sugar, steel chemicals, zinc and leather products. Most of the exported goods are exempt from export duties.

India also exports services to several countries, primarily to the US. In fact, India is among the world’s largest exporters of services related to information and communication technology (ICT). It is also the key destination for business process outsourcing (BPO).

India’s Trade - Exports

India’s Exports Performance

Set up by an act (Export-Import Bank of India) of parliament in September 1981

Wholly owned by Government of India Commenced operations in march, 1982 Established “for providing financial assistance to exporters

and importers and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade…”

EXIM Bank

A. EXPORTS (Receipts)Exports during July, 2014 were valued at US $ 13344

Million (Rs. 80142.20 Crore).

B. IMPORTS (Payments)Imports during July, 2014 were valued at US $ 6822

Million (Rs. 40971.98 Crore).

C. TRADE BALANCEThe trade balance in Services (i.e. net exports of Services)

for July, 2014 was estimated at US $ 6522 Million.

(As per the RBI Press Release dated 15th September, 2014)India’s Foreign race

What is a trade barrier? What is a physical trade barrier?A trade barrier is an obstacle to (or something that stops)

tradeA physical trade barrier is a natural barrier like mountains,

rainforests, deserts

Trade Barrier

Trade Barrier 1: TariffsA tariff is a tax on imported products or services. In the case

of tariffs imposed by the United States, the business that imports or produces the foreign product must pay the tax to the U.S. government. The tariff revenue goes directly to the U.S. Treasury.

Draw a dollar sign next to tariff so you remember, Tariff = taxes = money

Example of a Tariff• Two companies sell athletic shoes in the US.

• Company 1 is located in Brazil. • Company 2 is in Hershey, Pennsylvania.

• A tariff must be paid on all shoes made outside the US and sold in the US. The tariff is 10% of all sales. Both companies sell shoes at a price of $100 per pair

1. Which company must pay the tariff? Which company benefits from the tariff?

2. How much will the tariff cost the company?3. Who receives the revenues generated by the tariffs?

Trade Barrier 2 - QuotaA quota is a limit on the amount of goods that can be

imported. Putting a quota on a good creates a shortage (or a scarcity), which causes the price of the good to rise and allows domestic (inside the country) producers to raise their prices and to expand their production.

Draw a slow down sign so you remember Quota is a way to limit or slow down trade

Example of QuotaGermany has imported 2 million tons of steel from France

every year for the past decade. Germany then started an import quota on steel. Germany now only imports around 1 million tons of steel

from France, but the country of Germany still uses around 3 tons of steel a year.

1.How will this impact German steel companies?2.How will this impact French steel companies?3.Why would a country do this?

EmbargoAn embargo stops exports or imports (sending goods to

another country and getting goods from another country) of a product or group of products. Sometimes all trade with a country is stopped, usually for political reasons.

Draw a stop sign so you remember that an embargo means countries stop trading with others

Example of EmbargoLast year Spain had some political disagreements with

Greece, so they enacted an embargo against Greece. With the embargo, no Greek ships are allowed in Spanish ports.

1. How will this impact Greece?2. Why would Spain want to do this? 3. Will Spain benefit from this decision?

Decide what kind of barrier is being imposed in the following examples…

1. A tax of 15% makes jewelry from Mexico more expensive than jewelry make in the United States.

2. 2. The European Union prohibits the importing of meat products from animals treated with growth-promoting hormones.

3. Korea may export only 15,000 automobiles a year to the United States.

Going Global – Case about Small BusinessWhen describing the global company, many people continue to think of a multinational corporation with operations in every metropolitan area around the world. How the reason described above now come into many shapes and forms.A processed food business in San Francisco specializing in favorite dishes decides to export its product to Hongkong to tap into Asian population A manufacturer of popular dolls in Minnesota contracts with local distributor in Scandinavia for promotion and sale of its doll in the region. The manufacturer is able to capitalize demographics and opportunities for using its own promotional assets (TV commercials)A producer of animated televisions series in New York localizes the content for distribution in JapanA local dressmaker in the Carolinas uses parts imported from China

The point is that most companies are already linked to the global economy, even if they don’t spend a whole lot of time thinking about it

Going Global – Case about Small BusinessEvery small town has its small business. Most sell rather with in limited area. The customers of the laundry usually live with in few blocks, groceries are neighborhood oriented; even large furniture stores only caters to those in their metropolitan area.

However in towns around US, small business are turning to foreign market as a means of increasing sales.

At times, international sales are conscious decision based on considerable thought and sales.

At other times, companies accidentally and suddenly with out much forethought find that they are doing business global

Going Global – Case about Small BusinessOne Real World example illustrates how a small local business can suddenly “Go Global”.

Dining plates was a small manufacturer of dental plates that employed less than 50 people . The company started its international marketing by experiment – at a marketing meeting ,a junior member suggested the company run an ad in a foreign trade journal she had picked up an vacation and see if there was any interest in its products .

Essentially the same as its US ads, the only difference was that the ads was translated to appropriate language.

The next year, it received several inquiries. These inquiries led to sales. In less than 2 years, nearly 10% of sales order came from overseas’s.

Soon company found that it was faced with dilemma. Competitors had heard about and became impressed with its foreign sales and were attempting to attract the foreign customers. Dining plated had to fight back or lose customers.

Going Global – Case about Small BusinessThe real questions was, what would be the most effective way of not only retaining customers but expanding sales ?

After series of internal discussions, true potential for growth was overseas – where similar manufacturers were less technologically developed and less experienced in marketing.

Dining Plates made decision to broaden its international sales through Indirect marketing. An overseas agent was sought. If this proved profitable, company would look for establishing the joint venture or overseas subsidiaries.

The results were favorable for the company to launch full involvement in attractive foreign markets through creation of it own sales office.

Going Global – Case about Small BusinessThe Success of Dining plate has important lesson

It demonstrates that small companies can be involved in international sales and make profit

Any company can trade abroad as long as it has a marketable product

In some cases, companies may wake up and unexpectedly discover that they are global companies.

Below is the statement made by one of the successful President of a small business

Little fellow – with careful research, planning and perhaps some unorthodox moves – can successfully enter

Going Global – Case about Small BusinessSome points to consider –

Doing business in remote location carries higher risk for smaller companies

Minor mistake can cause disaster to the small companies, but only small loss o bigger companies

If a small business makes a misstep in new foreign, it may not be able to support even a minor drain on available financial resource and the distraction caused by overseas may cause the firm to fall behind the competitors that have elected to focus solely on their own backyards.