Introduction to international Business- III BBM,III B.Com

Introduction to international Business:-

                Meaning of trade: Trade is exchange of surplus with necessary or exchange of goods.

Why do people, communities, companies trade because no country produce everything  to meet the needs.

                All regions, countries, industrial units produce that for which they are best suited. Hence every one specializes, specialization means concentrating on the production of one product.

For Ex: America ha specialization in production of Machineries and India has specialization in production of wheat and rice. According to its labor, capital an availability of resources. So trade is exchange of surplus with necessary.

·         International trade enables the sellers to maximize their sales and revenue by obtaining the best prices in the world.

·         The buyers buy the best at the cheapest rates and hence buyer maximizes their use values or utilities or satisfaction.

·         Both exports and imports maximized, the government get maximum tax revenues.

Difference in trade and Business:-

·         Trade is exchange of visible items Ex: purchase and sale of cars, computers, food grains.

·         Business is trade between visibles and invisibles

·         Ex: when a truck operator is carrying goods for a company from one place to another the service is being provided. This is business as the truck is not sold.

·         Trade is narrow term and business is wider term.

Reasons for national and international business: National trade is with in the political boundaries of the country and trade between two countries becomes international trade.

Unless the interntional trade is with all the continents of the world. It will not become global.

Ex:Trade between kerala and assam involves long distance thousands of Kilometers it’s a domestic trade, trade between india from bihar to Nepal is international trade but it’s a shortest distance.

For global trade, there should be trade with all the countries and should  open for all countries even if there is no actual trading.

                International trade have greater depth in trade large quantities and products of same kind and also have great scope in trading more commodities and services also.

                International business can be in only currencies without trading in commodities or goods and services. There is a business of buying and selling of foreign currencies when buying exchange rate is low and selling when exchange rate is high.

Bothe the national and international trade are based on specialization and the sellers maximizing their exchange values.

Here trading is barter with the help of money an it a medium of exchange.

In a wide market the sellers do not suffer from infirmity of seling at lowe prices if demand abroad is elastic, the sellers can sell their in other markets.

Ex: if the price offered to the products is low a sellers can shift to the other nation where he gets good price.

Both types of trade depend on the factor endowment – every country differs in factors endowment by nature. Like congo produces copper and gulf countries has petroleum products.

India export jute, tea, jewellery, iron ore, specialization is depends on factor endowment.

Trade is because of immobility of factors of production:

Land and natural resources cannot be moved from one country to another. Labour and capital are mobile but not perfectly mobile.

·         Immobility leads to specialization and specialization leads to trade and trade leads to motilities.

·         Difference in transport cost: Both national and international trae have wider market in the inverse ratio of the cost of transport. Ex: movement of goods is high when transport cost is cheaper and vice versa.

·         Elasticity of demand and supply: if the demand is elastic prie can be raised much , they have tobe  kept low to sell more.

·         If the demand is inelastic abroad higher prices can be changed.

·         If the supply in elastic i.e can be taken  any where and higher prices can be charged.

·         If the supplies are inelastic ( cannot be takes to other market or stored) then lower prices will have to be charged.

Evolution and Stages of international business:

1.       Mercantilism

2.       Physiocrats

3.       Colonization of countries by European nations developed a lot of international trade like India and Brittan before independence, colonial masters used to take out precious metals and raw materials to their countries and used process and manufacturer finished goods through their advanced technology and used to sell at higher prices.

4.       Globalization started from 1991 after the collapse of soviet union and over through of socialistic economies in eastern Europe. There are no socialistic countrie now except cuba  and north korea, china. India used to have nehruvian ideology “Democratic nationalism” or mixed economy concept.

5.       Regulation were diluted or abolished like the permit  and license raj ended, MRTP act abolished, FERA become FEMA.

6.       Fixed exchange rate system diluted, earlier there used to be fixed exchange rate system i.e$ 1=26.5 early in 1970-71.The rate remained same in the open market also. Very frequently inflation used to bring down the exchange rate of rupee in the open market. It adjusted after some time lag to new rate. Now after the reforms fluctuating exchange rate came into force—where rate can change several times during a day.

7.  Non-convertibility was changed to convertibility:- Earlier if India exports goods worth of $1 billion the rate exchange is 26 per dollor.Exchanging  a dollar in the market would invite imprisonment. Now Indian currency is fully convertible on current account, now the dollar can be exchanged. Even the government purchases dollar from authorized dealers.

8. FDI& FII allowed

FDI in production capacities up to 49%, 51%,74% and even 100% in few sectors.

FII in bonds, debentures, derivatives..There are some restrictions improved joint ventures like Hero Honda, Maruthi Suzuki.

9. Globalization then improved to joint ventures, hero Honda, maruthi suzuki are joint ventures previously maruthi was public sector, then  Govt sells all its shares to Suzuki it becomes sole private venture .Rules for mergers, acquisitions, amalgamations, demergers etc. liberalized. Licensing is almost done away with, abolished, licensing remains.

10. Technological co-operations: technological co-operation is now common everywhere..Technology is the single most important reason for globalization. Globalization started to diffuse to technology all over the world.

Indian firms freely buying modern technology on payment of royalty or on profit sharing basis.

Every country prepared to absorb technology, which has vast skilled manpower.

Technological up gradation secures comparative advantage in production and reduces cost of production, quality of the product improves.

MNC’s are free to trade and produce.

11. There is franchising, outsourcing and in sourcing ( If Honda motor cycles produced in India its  in sourcing to India and outsourcing of Japan).All countries of the world trading in large volumes.

12. Funds are flowing freely, no restrictions on remittance, payments for imports and exports can flow freely. Funds for speculation in exchange rate also flow freely in the world.

Advantages of free globalized international trade& Business:-

1.       First it is the exchange of surplus with the necessity.in the home country surplus stock with the producer or seller have low marginal utility asthey are more than the personal requirement –it is getting scarce and necessary imports in lieu of the exports.

2.       Maximises both the use valueand the exchange value—buyers can get the cheapest thing at the most competitive prices, their level of living, satisfaction & welfare improves. The sellers can other hand maximizes sales.  Forex reserves rise with globalization if BOP as surplus.

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