International Trade and Business
International trade is the exchange of goods and services across international boundaries or territories.
It represents a significant share of GDP in most of the countries. Most of the countries are engaging in international trade to overcome the various deficiencies in the resources not abundant in their home country and sourcing those resources from the neighboring/other countries to produce the goods and services for their needs and wants.
The three common classifications of international trade are:
Capital-intensive products
Like cars, industrial and construction equipments, and commercial vehicles are produced by developed nations having a solid industrial base. For example, Japan being a highly developed industrial nation is a leading producer of high quality cars for exports around the world.
Labor-intensive products
Like clothing (garments), shoes and other consumer goods are manufactured in countries that have relatively low labor costs and modern production facilities. The examples of which are countries like India, China, Indonesia, Philippines etc.
Land- intensive products
These products are produced from the countries having vast amounts of suitable land comprising of latest farming technologies and skilled manpower to make these products. For example, the United States is one of the leading exporters of wheat.
The important factors influencing the international trade are:
- Economic environment - Tariff, excise tax, protective tariff, import quota etc,
- Political environment - Investment incentives, counter trade, foreign currency fluctuations, Government stability.
- Cultural environment - Customs, norms, taboos and values of the investing countries.
- Physical environment - natural physical barriers.
Theoretically, there are different trade models proposed to facilitate international trade across countries involving different patterns and policies such as Ricardian Model, Heckscher- Ohlin Model, Specific Factors and Gravity Model. The regulation of international trade led to the birth of GATT (General Agreement on Trade and Tariffs) and WTO (World Trade Organization) to create a globally well-regulated trade structure. There are risks involved in international trade like economical and political.
The roles of key organizations in International trade are:
- The World Trade Organization (WTO) is an international organization, which came into existence on 1st January 1995 and is the successor to General Agreement on Trade and Tariffs (GATT). It defines the trade rules globally between nations to facilitate smooth and transparent trade among the member nations. The WTO's headquarters is in Geneva, Switzerland.
- The International Monetary Fund (IMF) is an international organization offering financial guidance to all its members comprising of 185 countries. Its headquarters is located in Washington, D.C., USA.
- The International Trade Center (ITC) is a consulting arm of United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organization (WTO), which will help the countries in the areas of exports and imports operations.
International business is a term used to collectively describe topics relating to the operations of firms with interests in several countries.
There are different factors to be addressed before starting up an operation:
- Law and legal systems
- Language barriers
- Standard of living index
- Climatic conditions
- Cultural differences and a lot more
In a modern business world due to globalization international business ventures are rapidly eyeing to establish their reputation firmly. Globalization is a term referring to sharing, inter-dependence, integration of knowledge and resources between the nations globally, which leads to opening up of the country's economy resulting in the improvement of balance of payments of different countries which results in a prospering economy and improves the quality of living of the citizens.
Academically in recent years, international business has been emerged as a favorite subject among the student community. The subject itself helps the student to get exposure to different spheres such as cross- cultural communication, business etiquette, law and legal systems etc., being followed in the countries, which in turn improves their knowledge horizon (Summer training in host country, learning a new foreign language etc.,). A large number of institutions in USA have started offering international business courses at diploma, under-graduate and post-graduate level.
