AM ITY GLO BAL                         BUSINESS SCHO O Lashishpillai@gmail.com
AM ITY GLO BAL                         BUSINESS SCHO O Lashishpillai@gmail.com
AM ITY GLO BAL                         BUSINESS SCHO O LLet Us First Answer…..ashishpillai@gmail.com
AM ITY GLO BAL                                 BUSINESS SCHO O LWhat is the Logic of Business?ashishpillai@gmail.com
AM ITY GLO BAL                                                            BUSINESS SCHO O LWhat is Business?      An organ...
AM ITY GLO BAL                         BUSINESS SCHO O Lashishpillai@gmail.com
AM ITY GLO BAL                                                   BUSINESS SCHO O LSome of Those Changes…     Evolution of ...
AM ITY GLO BAL                         BUSINESS SCHO O LOne Such Changeashishpillai@gmail.com
AM ITY GLO BAL                         BUSINESS SCHO O LDiscuss….ashishpillai@gmail.com
AM ITY GLO BAL                                              BUSINESS SCHO O L What Then is International Business?Internat...
AM ITY GLO BAL                                                     BUSINESS SCHO O LEffects of International Business     ...
AM ITY GLO BAL                                                     BUSINESS SCHO O L             Then “International Busin...
AM ITY GLO BAL                                                      BUSINESS SCHO O LHow Does Int. Eco Come Into the Pictu...
AM ITY GLO BAL                                 BUSINESS SCHO O LInt. Trade as a % of US National Incomeashishpillai@gmail....
AM ITY GLO BAL                              BUSINESS SCHO O LIndia’s International Tradeashishpillai@gmail.com
AM ITY GLO BAL                                         BUSINESS SCHO O LWhat Forms Can IB Take?     Export – Import     Ow...
AM ITY GLO BAL                                         BUSINESS SCHO O LIssues Arising Out of Int. Business     Gains From...
AM ITY GLO BAL                                                          BUSINESS SCHO O LGains From Trade       When a buy...
AM ITY GLO BAL                                                                          BUSINESS SCHO O LGains From Trade1...
AM ITY GLO BAL                                                                BUSINESS SCHO O LGains From Trade1.      Whe...
AM ITY GLO BAL                                                      BUSINESS SCHO O LPatterns of Trade     Differences in ...
AM ITY GLO BAL                                                                   BUSINESS SCHO O LCoordinating Govt. Polic...
AM ITY GLO BAL                                                       BUSINESS SCHO O LCoordinating Govt. Policies     Econ...
AM ITY GLO BAL                                                        BUSINESS SCHO O LBalance of Payments     Governments...
AM ITY GLO BAL                                                             BUSINESS SCHO O LExchange Rate Determination   ...
AM ITY GLO BAL                                                                BUSINESS SCHO O LInternational Capital Marke...
AM ITY GLO BAL                                                  BUSINESS SCHO O LTheory Of Mercantilism  The economic doct...
AM ITY GLO BAL                                                     BUSINESS SCHO O LTheory Of Mercantilism     States that...
AM ITY GLO BAL                                                      BUSINESS SCHO O LTheory Of Mercantilism     Trade was ...
AM ITY GLO BAL                                                               BUSINESS SCHO O LAbsolute Advantage     The a...
AM ITY GLO BAL                                                          BUSINESS SCHO O LTheory of Comparative Advantage  ...
AM ITY GLO BAL                                                      BUSINESS SCHO O LTheory of Comparative Advantage     A...
AM ITY GLO BAL                                                                      BUSINESS SCHO O LWhy Do US Companies O...
AM ITY GLO BAL                                                      BUSINESS SCHO O LTheory of Comparative Advantage     T...
AM ITY GLO BAL                                                     BUSINESS SCHO O LThe Heckscher Ohlin Model     The mode...
AM ITY GLO BAL                                                         BUSINESS SCHO O LAssumptions of H-O Model     The p...
AM ITY GLO BAL                                                                   BUSINESS SCHO O LAssumptions of H-O Model...
AM ITY GLO BAL                                                        BUSINESS SCHO O LHO Model & The Outsourcing Example ...
AM ITY GLO BAL                                                                BUSINESS SCHO O LEmpirical Evidence of the H...
AM ITY GLO BAL                                                 BUSINESS SCHO O LPorter’s Diamond                          ...
AM ITY GLO BAL                         BUSINESS SCHO O LPorter’s Diamondashishpillai@gmail.com
AM ITY GLO BAL                                                 BUSINESS SCHO O LPorter’s Diamond     Porter claims that fo...
AM ITY GLO BAL                                                               BUSINESS SCHO O LPorter’s Diamond     Demand ...
AM ITY GLO BAL                                                                BUSINESS SCHO O LPorter’s Diamond     Relate...
AM ITY GLO BAL                                        BUSINESS SCHO O L               Instruments of International        ...
AM ITY GLO BAL                                                    BUSINESS SCHO O LInstruments of Int. Trade Policy     Ta...
AM ITY GLO BAL                                                       BUSINESS SCHO O LTariffs     Tariff is the fixed mone...
AM ITY GLO BAL                                                        BUSINESS SCHO O LTariffs     A specific tariff is le...
AM ITY GLO BAL                                                   BUSINESS SCHO O LSupply, Demand, and Trade     Let’s cons...
AM ITY GLO BAL                                                  BUSINESS SCHO O LSupply, Demand, and Trade     An export s...
AM ITY GLO BAL                          BUSINESS SCHO O LThe Home Import Demand Curveashishpillai@gmail.com
AM ITY GLO BAL                              BUSINESS SCHO O LForeign Export Supply Curveashishpillai@gmail.com
AM ITY GLO BAL                                                  BUSINESS SCHO O LSupply, Demand, and Trade     In equilibr...
AM ITY GLO BAL                         BUSINESS SCHO O LWorld Equilibriumashishpillai@gmail.com
AM ITY GLO BAL                                                BUSINESS SCHO O LInternational Trade Can Occur When…     Pro...
AM ITY GLO BAL                                                        BUSINESS SCHO O LEffects of Tariffs     A tariff can...
AM ITY GLO BAL                         BUSINESS SCHO O LEffects of Tariff “t”ashishpillai@gmail.com
AM ITY GLO BAL                                                         BUSINESS SCHO O LEffects of Tariff “t”     Because ...
AM ITY GLO BAL                                                                   BUSINESS SCHO O LEffects of Tariff “t”   ...
AM ITY GLO BAL                                                  BUSINESS SCHO O LCosts and Benefits of Tariffs     A tarif...
AM ITY GLO BAL                                                   BUSINESS SCHO O LExport Subsidy     An export subsidy can...
AM ITY GLO BAL                                                    BUSINESS SCHO O LExport Subsidy     An export subsidy ra...
AM ITY GLO BAL                                                        BUSINESS SCHO O LImport Quota     An import quota is...
AM ITY GLO BAL                                                         BUSINESS SCHO O LImport Quota     When a quota inst...
AM ITY GLO BAL                                                                 BUSINESS SCHO O LExport Restraint     A vol...
AM ITY GLO BAL                                                          BUSINESS SCHO O LLocal Content Requirement     A l...
AM ITY GLO BAL                                                       BUSINESS SCHO O LLocal Content Requirement     From t...
AM ITY GLO BAL                                                      BUSINESS SCHO O LLocal Content Requirement     Local c...
AM ITY GLO BAL                                                                 BUSINESS SCHO O LAdministrative Policies   ...
AM ITY GLO BAL                                                 BUSINESS SCHO O LAnti Dumping Policies     Dumping is said ...
AM ITY GLO BAL                                        BUSINESS SCHO O L               Instruments of International        ...
AM ITY GLO BAL                                                      BUSINESS SCHO O LHow is International Business Differe...
AM ITY GLO BAL                                 BUSINESS SCHO O LManagement Orientations     Ethnocentric        Regiocentr...
AM ITY GLO BAL                                                    BUSINESS SCHO O LEthnocentric Orientation     Assumes ho...
AM ITY GLO BAL                                             BUSINESS SCHO O LRegiocentric Orientation     Region becomes th...
AM ITY GLO BAL                                                       BUSINESS SCHO O LPolycentric Orientation     Manageme...
AM ITY GLO BAL                                                          BUSINESS SCHO O LGeocentric Orientation     Entire...
AM ITY GLO BAL                                                     BUSINESS SCHO O LWhat Then is a Multinational?     Has ...
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International Business (Mod 1 & 2)

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International Business (MBA 203) AGBS Chd

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International Business (Mod 1 & 2)

  1. 1. AM ITY GLO BAL BUSINESS SCHO O Lashishpillai@gmail.com
  2. 2. AM ITY GLO BAL BUSINESS SCHO O Lashishpillai@gmail.com
  3. 3. AM ITY GLO BAL BUSINESS SCHO O LLet Us First Answer…..ashishpillai@gmail.com
  4. 4. AM ITY GLO BAL BUSINESS SCHO O LWhat is the Logic of Business?ashishpillai@gmail.com
  5. 5. AM ITY GLO BAL BUSINESS SCHO O LWhat is Business?  An organization engaged in the trade of goods, services, or  both to consumers (Sullivan & Sheffrin, 2003). An economic system in which goods and services are  exchanged for one another or money, on the basis of their  perceived worth. Every business requires  some form of investment and a sufficient number  of customers to whom its output can be sold at profit on  a consistent basis ( http://www.businessdictionary.com/definition/business.html)ashishpillai@gmail.com
  6. 6. AM ITY GLO BAL BUSINESS SCHO O Lashishpillai@gmail.com
  7. 7. AM ITY GLO BAL BUSINESS SCHO O LSome of Those Changes… Evolution of human needs… Transaction to Selling to Marketing And now from Marketing to Relationships and Partnerships! The emergence of institutions of business… Increased complexity and competitiveness… Technology…… Movement of goods and people….  Movement of Information!ashishpillai@gmail.com
  8. 8. AM ITY GLO BAL BUSINESS SCHO O LOne Such Changeashishpillai@gmail.com
  9. 9. AM ITY GLO BAL BUSINESS SCHO O LDiscuss….ashishpillai@gmail.com
  10. 10. AM ITY GLO BAL BUSINESS SCHO O L What Then is International Business?International  business  consists  of  transactions that are devised and carried out across national borders  to  satisfy  the  objectives  of  individuals, companies, and organizations ashishpillai@gmail.com
  11. 11. AM ITY GLO BAL BUSINESS SCHO O LEffects of International Business Creates NEW: Markets, customers, products, opportunities Creates FLOW: Of Capital, Of Ideas, Of Technology, Of  Knowledge, Of Labor, Of Employment Theoretically, international business is supposed to enable  all round development by removing scarcities and  inefficiencies, providing employment, better earning  potential, better products.ashishpillai@gmail.com
  12. 12. AM ITY GLO BAL BUSINESS SCHO O L Then “International Business” is a subset of “International Economics”ashishpillai@gmail.com
  13. 13. AM ITY GLO BAL BUSINESS SCHO O LHow Does Int. Eco Come Into the Picture? International Business (IB) entails interaction between  sovereign states through trade of goods and services,  through flows of money and through investment. International Economics (IE) is devoted to the study of such  interactions The need for appreciation of IE in the study of IB has  increased with the increased quantum of IB and the  consequent increase in interdependence of national  economiesashishpillai@gmail.com
  14. 14. AM ITY GLO BAL BUSINESS SCHO O LInt. Trade as a % of US National Incomeashishpillai@gmail.com
  15. 15. AM ITY GLO BAL BUSINESS SCHO O LIndia’s International Tradeashishpillai@gmail.com
  16. 16. AM ITY GLO BAL BUSINESS SCHO O LWhat Forms Can IB Take? Export – Import Ownership Licensing Strategic Alliance Franchising Management Contract Joint Venturesashishpillai@gmail.com
  17. 17. AM ITY GLO BAL BUSINESS SCHO O LIssues Arising Out of Int. Business Gains From Trade Pattern of Trade Volume of Trade Balance of Payments Exchange Rate Determination International Policy Coordination International Capital Marketashishpillai@gmail.com
  18. 18. AM ITY GLO BAL BUSINESS SCHO O LGains From Trade When a buyer and a seller engage in a voluntary  transaction, both receive something that they want and  both can be made better off. • Norwegian consumers could buy oranges through international trade that they otherwise would have a difficult time producing. • The producer of the oranges receives income that it can use to buy the things that it desires.ashishpillai@gmail.com
  19. 19. AM ITY GLO BAL BUSINESS SCHO O LGains From Trade1. How could a country that is the most or least efficient  producer of everything gain from trade? With a finite amount of resources, countries can use those resources to  produce what they are most productive at, then trade those products for  goods and services that they want to consume. Countries can specialize in production, while consuming many goods and  services through trade. Trade is predicted to benefit a country by making it more  efficient when it exports goods which use abundant resources and imports goods which use scarce resources.ashishpillai@gmail.com
  20. 20. AM ITY GLO BAL BUSINESS SCHO O LGains From Trade1. When countries specialize, they may also be more  efficient due to large scale production Trade is predicted to benefit countries as a whole in  several ways, but trade may harm particular groups within a country.   International trade can adversely affect the owners of resources  that are used intensively in industries that compete with imports. Trade may therefore have effects on the distribution of income  within a country. Conflicts about trade should occur between groups within  countries rather than between countries.ashishpillai@gmail.com
  21. 21. AM ITY GLO BAL BUSINESS SCHO O LPatterns of Trade Differences in climate and resources can explain why Brazil  exports coffee and Australia exports iron ore.  But why does Japan export automobiles, while the U.S.  exports aircraft? Differences in labor productivity may explain why some  countries export certain products. How relative supplies of capital, labor and land are used in  the production of different goods and services may also  explain why some countries export certain products.ashishpillai@gmail.com
  22. 22. AM ITY GLO BAL BUSINESS SCHO O LCoordinating Govt. Policies Policy makers affect the amount of trade through  Tariffs: A tax on imports or exports,  Quotas: A quantity restriction on imports or exports, Export Subsidies: A payment to producers that export, Or through other regulations (ex., product specifications)  that exclude foreign products from the market, but still allow  domestic products. What are the costs and benefits of these policies?ashishpillai@gmail.com
  23. 23. AM ITY GLO BAL BUSINESS SCHO O LCoordinating Govt. Policies Economists design models that try to measure the effects  of different trade policies. If a government must restrict trade, which policy should it  use? If a government must restrict trade, how much should it  restrict trade? If a government restricts trade, what are the costs if foreign  governments respond likewise?ashishpillai@gmail.com
  24. 24. AM ITY GLO BAL BUSINESS SCHO O LBalance of Payments Governments measure the value of exports and imports, as  well as the value of financial assets that flow into and out of  their countries. Related to these two measures is the measure of official settlements balance, or the balance of payments: the  balance of funds that central banks use for official  international payments. All three values are measured in the government’s national income accounts.ashishpillai@gmail.com
  25. 25. AM ITY GLO BAL BUSINESS SCHO O LExchange Rate Determination Besides financial asset flows and the official  settlements balance, exchange rates are also an  important financial issue for most governments. Exchange rates measure how much domestic currency can be  exchanged for foreign currency. They also affect how much goods that are denominated in   foreign currency (imports) cost. And they affect how much goods denominated in domestic  currency (exports) cost in foreign markets.ashishpillai@gmail.com
  26. 26. AM ITY GLO BAL BUSINESS SCHO O LInternational Capital Markets International trade focuses on transactions of goods  and services across nations.  These transactions usually involve a physical movement  of goods or a commitment of tangible resources like labor  services. International finance focuses on financial or monetary  transactions across nations.  For example, purchases of U.S. dollars or financial assets by  Europeans.ashishpillai@gmail.com
  27. 27. AM ITY GLO BAL BUSINESS SCHO O LTheory Of Mercantilism The economic doctrine  in  which  government  control  of foreign  trade is  of  paramount  importance  for  ensuring  the  prosperity  and  military  security  of  the  stateashishpillai@gmail.com
  28. 28. AM ITY GLO BAL BUSINESS SCHO O LTheory Of Mercantilism States that nations should accumulate financial wealth,  usually in the form of gold, by encouraging exports and  discouraging imports. Other measures of a nation’s well-being, such as living  standards or human development, are irrelevant. Practiced from around 1500 to  the late 1700s by European  nations, including Britain, France, the Netherlands,  Portugal, and Spain.ashishpillai@gmail.com
  29. 29. AM ITY GLO BAL BUSINESS SCHO O LTheory Of Mercantilism Trade was to benefit mother countries, colonies like India  were sources of exploitable resources. Nations increased wealth through a  trade surplus Trade deficits were to be avoided at all costs Governments intervened in international trade to maintain a  trade surplusashishpillai@gmail.com
  30. 30. AM ITY GLO BAL BUSINESS SCHO O LAbsolute Advantage The ability of a nation to produce a good more efficiently  than any other nation Adam Smith claimed that market forces, not government controls  should determine the direction, volume, and composition of  international trade. Each nation should specialize in producing goods it could produce  most efficiently In absolute advantage, both nations would gain from trade.ashishpillai@gmail.com
  31. 31. AM ITY GLO BAL BUSINESS SCHO O LTheory of Comparative Advantage The ability of a person, company or country to produce a  particular good or service at a lower marginal and  opportunity cost Comparative advantage is the inability of a nation to  produce a good more efficiently than other nations, but an  ability to produce that good more efficiently than it does any other good Trade is still beneficial even if one country is less efficient in  the production of two goods, as long as it is less inefficient in the production of one of the goods.ashishpillai@gmail.com
  32. 32. AM ITY GLO BAL BUSINESS SCHO O LTheory of Comparative Advantage A country has a comparative advantage in producing a  good if the opportunity cost of producing that good is lower  in the country than it is in other countries.   A country with a comparative advantage in producing a  good uses its resources most efficiently when it produces  that good compared to producing other goods. Country has a comparative advantage in producing the  good in which its absolute disadvantage is less.ashishpillai@gmail.com
  33. 33. AM ITY GLO BAL BUSINESS SCHO O LWhy Do US Companies Outsource to India? Approximately 1.2 Billion people Comparative advantage in production of goods or services that require  large amounts of labor Indians speak English, don’t we?? Low labor costs due to large workforce Internet and telephone communications much less expensive Industries off-shoring include software engineering, telemarketing,  banking, medical services, claims processing, IT jobs, financial services,  insurance Jobs created in India should help generate jobs in USAashishpillai@gmail.com
  34. 34. AM ITY GLO BAL BUSINESS SCHO O LTheory of Comparative Advantage The U.S. has a comparative advantage in computer  production: it uses its resources more efficiently in  producing computers compared to other uses. Ecuador has a comparative advantage in rose production: it  uses its resources more efficiently in producing roses  compared to other uses. Suppose initially that Ecuador produces computers and the  U.S. produces roses, and that both countries want to  consume computers and roses. Can both countries be made better off?ashishpillai@gmail.com
  35. 35. AM ITY GLO BAL BUSINESS SCHO O LThe Heckscher Ohlin Model The model says that countries will export products that use  their abundant and cheap factors) of production and import  products that use the countries scarce factors Relative endowments of the factors of production  (land, labour, and capital) determine a countrys  comparative advantage Aka 2X2X2 model as it considers 2 countries, 2 products &  2 factors of productionashishpillai@gmail.com
  36. 36. AM ITY GLO BAL BUSINESS SCHO O LAssumptions of H-O Model The preferences of all consumers in the world are identical.  The preferences of any individual are such that the  Marginal Rate of Substitution is independent of the scale of  consumption. • The MRS of Wine for Cheese is the additional amount of Wine that would keep the individuals level of happiness unchanged even after the consumption of Cheese is reduced by one unit. Under this assumption, if the amounts of Cheese and Wine being consumed are, say, doubled, then the MRS remains unchanged. In other words, the MRS does not change if the ratio of the amounts of Cheese and Wine consumed, Cheese/ Wine, does not change.ashishpillai@gmail.com
  37. 37. AM ITY GLO BAL BUSINESS SCHO O LAssumptions of H-O Model Individuals make decisions so as to maximize happiness,  whereas  Firms make decisions so as to maximize profits  All markets are perfectly competitive Governments do not interfere with the smooth functioning  of markets There are no taxes, subsidies, tariffs, quotas, etc.  However, although there is free trade in goods and  services, there is no cross-border movement of resources,  such as laborashishpillai@gmail.com
  38. 38. AM ITY GLO BAL BUSINESS SCHO O LHO Model & The Outsourcing Example The HO Theory states that international and interregional  differences in production costs occur because of  differences in the supply of production factors.  Therefore, India should export labor intensive goods. USA with relatively more capital than labor should  specialize in capital intensive productsashishpillai@gmail.com
  39. 39. AM ITY GLO BAL BUSINESS SCHO O LEmpirical Evidence of the HO Model Tests on US data Leontief found that U.S. exports were less capital-intensive than  U.S. imports, even though the U.S. is the most capital-abundant  country in the world: Leontief paradox. Tests on global data Bowen, Leamer, and Sveikauskas tested the Heckscher-Ohlin  model on data from 27 countries and confirmed the Leontief  paradox on an international level. Tests on manufacturing data between low/middle  income countries and high income countries. This data lends more support to the theory.ashishpillai@gmail.com
  40. 40. AM ITY GLO BAL BUSINESS SCHO O LPorter’s Diamond Firm Structure & Rivalry Factor Demand Conditions Conditions Related & Supporting Industriesashishpillai@gmail.com
  41. 41. AM ITY GLO BAL BUSINESS SCHO O LPorter’s Diamondashishpillai@gmail.com
  42. 42. AM ITY GLO BAL BUSINESS SCHO O LPorter’s Diamond Porter claims that four kinds of variables will impact  a local firm’s ability to use a country’s resources to  gain a competitive advantage. Demand conditions Factor conditions Related and supporting industries Firm strategy, structure, rivalryashishpillai@gmail.com
  43. 43. AM ITY GLO BAL BUSINESS SCHO O LPorter’s Diamond Demand Conditions If customers are demanding, firms will produce high-quality and  innovative products gaining competitive advantage Factor Conditions Level and consumption of factors of production Lack of natural endowments has caused nations to invest in the  creation of advanced factorsashishpillai@gmail.com
  44. 44. AM ITY GLO BAL BUSINESS SCHO O LPorter’s Diamond Related & Supporting Industries Suppliers and industry support services tend to form a cluster in a  given location Firm Structure & Rivalry Extent of domestic competition, The existence of barriers to entry The firm’s management style and organization.ashishpillai@gmail.com
  45. 45. AM ITY GLO BAL BUSINESS SCHO O L Instruments of International Trade Policyashishpillai@gmail.com
  46. 46. AM ITY GLO BAL BUSINESS SCHO O LInstruments of Int. Trade Policy Tariffs Subsidies Local content requirements Administrative policies Anti dumping policies Political and economic arguments for interventionashishpillai@gmail.com
  47. 47. AM ITY GLO BAL BUSINESS SCHO O LTariffs Tariff is the fixed monetary tax per physical unit of the good  imported The biggest advantage of tariffs are that they are easy to  administer as they are easy to calculate Problems arise when the cost of the good being imported  rises….. Then the tariff’s effectiveness in protecting  domestic industry falls as price of imported good rises……  Because the proportion of tariff in the total cost keeps  reducing.ashishpillai@gmail.com
  48. 48. AM ITY GLO BAL BUSINESS SCHO O LTariffs A specific tariff is levied as a fixed charge for each  unit of imported goods. For example, $1 per kg of cheese An ad valorem tariff is levied as a fraction of the  value of imported goods. For example, 25% tariff on the value of imported cars.ashishpillai@gmail.com
  49. 49. AM ITY GLO BAL BUSINESS SCHO O LSupply, Demand, and Trade Let’s construct a model measuring how a tariff  affects a single market, say that of wheat. Suppose that in the absence of trade the price of  wheat in the foreign country is lower than that in the  domestic country.ashishpillai@gmail.com
  50. 50. AM ITY GLO BAL BUSINESS SCHO O LSupply, Demand, and Trade An export supply curve is the difference between the  quantity that foreign producers supply minus the  quantity that foreign consumers demand, at each price. An import demand curve is the difference between the  quantity that domestic consumers demand minus the  quantity that domestic producers supply, at each price.ashishpillai@gmail.com
  51. 51. AM ITY GLO BAL BUSINESS SCHO O LThe Home Import Demand Curveashishpillai@gmail.com
  52. 52. AM ITY GLO BAL BUSINESS SCHO O LForeign Export Supply Curveashishpillai@gmail.com
  53. 53. AM ITY GLO BAL BUSINESS SCHO O LSupply, Demand, and Trade In equilibrium, the quantities of Import demand = Export supply Domestic demand – Domestic supply =  Foreign supply – Foreign demand In equilibrium, the quantities of World demand = World supplyashishpillai@gmail.com
  54. 54. AM ITY GLO BAL BUSINESS SCHO O LWorld Equilibriumashishpillai@gmail.com
  55. 55. AM ITY GLO BAL BUSINESS SCHO O LInternational Trade Can Occur When… Production of Wheat in country A is more than the  domestic demand. Production in Country B is less than the domestic  demand. In the absence of trade the price of wheat in country  A is lower than that in country Bashishpillai@gmail.com
  56. 56. AM ITY GLO BAL BUSINESS SCHO O LEffects of Tariffs A tariff can be viewed as an added cost of  transportation, making sellers unwilling to ship goods  unless the price difference between the domestic and  foreign markets exceeds the tariff. If sellers in Country A are unwilling to export wheat,  there is excess demand for wheat in the domestic  market and excess supply in country A. And when  traded… The price of wheat will tend to rise in A. The price of wheat will tend to fall in B.ashishpillai@gmail.com
  57. 57. AM ITY GLO BAL BUSINESS SCHO O LEffects of Tariff “t”ashishpillai@gmail.com
  58. 58. AM ITY GLO BAL BUSINESS SCHO O LEffects of Tariff “t” Because the price in domestic markets rises (to PT),  domestic producers should supply more and  domestic consumers should demand less. The quantity of imports falls from QW to QT Because the price in foreign markets falls    (to P*T),  foreign producers should supply less and foreign  consumers should demand more. The quantity of exports falls from QW to QTashishpillai@gmail.com
  59. 59. AM ITY GLO BAL BUSINESS SCHO O LEffects of Tariff “t” The quantity of domestic import demand equals the  quantity of foreign export supply when PT – P*T = t In this case, the increase in the price of the good in  the domestic country is less than the amount of the  tariff. Part of the effect of the tariff causes the foreign country’s export  price to decline, and thus is not passed on to domestic  consumers. But this effect is sometimes not very significant:ashishpillai@gmail.com
  60. 60. AM ITY GLO BAL BUSINESS SCHO O LCosts and Benefits of Tariffs A tariff raises the price of a good in the importing  country, so we expect it to hurt consumers and  benefit producers there. In addition, the government gains tariff revenue  from a tariff.ashishpillai@gmail.com
  61. 61. AM ITY GLO BAL BUSINESS SCHO O LExport Subsidy An export subsidy can also be specific or ad valorem A specific subsidy is a payment per unit  exported. An ad valorem subsidy is a payment as a  proportion of the value exported.ashishpillai@gmail.com
  62. 62. AM ITY GLO BAL BUSINESS SCHO O LExport Subsidy An export subsidy raises the price of a good in the  exporting country, while lowering it in foreign countries. In contrast to a tariff, an export subsidy worsens the  terms of trade by lowering the price of domestic  products in world markets.ashishpillai@gmail.com
  63. 63. AM ITY GLO BAL BUSINESS SCHO O LImport Quota An import quota is a restriction on the quantity of a good  that may be imported. This restriction is usually enforced by issuing licenses to  domestic firms that import, or in some cases to foreign  governments of exporting countries. A binding import quota will push up the price of the import  because the quantity demanded will exceed the quantity  supplied by domestic producers and from imports.ashishpillai@gmail.com
  64. 64. AM ITY GLO BAL BUSINESS SCHO O LImport Quota When a quota instead of a tariff is used to restrict  imports, the government receives no revenue. Instead, the revenue from selling imports at high prices  goes to quota license holders: either domestic firms or  foreign governments. These extra revenues are called quota rents.ashishpillai@gmail.com
  65. 65. AM ITY GLO BAL BUSINESS SCHO O LExport Restraint A voluntary export restraint works like an import quota,  except that the quota is imposed by the exporting country  rather than the importing country. However, these restraints are usually requested by the  importing country. The profits or rents from this policy are earned by foreign  governments or foreign producers. Foreigners sell a restricted quantity at an increased price.ashishpillai@gmail.com
  66. 66. AM ITY GLO BAL BUSINESS SCHO O LLocal Content Requirement A local content requirement is a regulation that requires a  specified fraction of a final good to be produced  domestically. It may be specified in value terms, by requiring that some  minimum share of the value of a good represent domestic  valued added, or in physical units.ashishpillai@gmail.com
  67. 67. AM ITY GLO BAL BUSINESS SCHO O LLocal Content Requirement From the viewpoint of domestic producers of inputs, a local  content requirement provides protection in the same way  that an import quota would. From the viewpoint of firms that must buy domestic inputs,  however, the requirement does not place a strict limit on  imports, but allows firms to import more if they also use  more domestic parts.ashishpillai@gmail.com
  68. 68. AM ITY GLO BAL BUSINESS SCHO O LLocal Content Requirement Local content requirement provides neither government  revenue (as a tariff would) nor quota rents. Instead the difference between the prices of domestic  goods and imports is averaged into the price of the final  good and is passed on to consumers.ashishpillai@gmail.com
  69. 69. AM ITY GLO BAL BUSINESS SCHO O LAdministrative Policies Export credit subsidies A subsidized loan to exporters SIDBI provides subsidized loans to exporters. Government procurement Government agencies are obligated to purchase from domestic  suppliers, even when they charge higher prices (or have inferior  quality) compared to foreign suppliers. Bureaucratic regulations Safety, health, quality, or customs regulations can act as  a form of protection and trade restriction.ashishpillai@gmail.com
  70. 70. AM ITY GLO BAL BUSINESS SCHO O LAnti Dumping Policies Dumping is said to have taken place when an exporter  sells a product to a country at a price less than the  price prevailing in its domestic market. The price at which like articles are sold in the  domestic market of the exporter is referred to as the  “normal value” of those articles. So…. If export price is less than normal value, then  it is dumping!ashishpillai@gmail.com
  71. 71. AM ITY GLO BAL BUSINESS SCHO O L Instruments of International Trade Policyashishpillai@gmail.com
  72. 72. AM ITY GLO BAL BUSINESS SCHO O LHow is International Business Different? Markets and customers are different – So experiences in  the domestic industry may be rendered irrelevant  International business climate is much more complex with  different currencies, regulatory systems, cultures and risks Often extremely large, multi-market and multi-product, and  must be managed across vast distances and time  differences. Globalization and Glocalization – Think Global, Act Localashishpillai@gmail.com
  73. 73. AM ITY GLO BAL BUSINESS SCHO O LManagement Orientations Ethnocentric Regiocentric Polycentric Geocentricashishpillai@gmail.com
  74. 74. AM ITY GLO BAL BUSINESS SCHO O LEthnocentric Orientation Assumes home country is superior to the rest of the  world; associated with attitudes of national  arrogance and supremacy Management focus is to do in host countries what is  done in the home country Sometimes called an international company Products and processes used at home are used abroad  without adaptationashishpillai@gmail.com
  75. 75. AM ITY GLO BAL BUSINESS SCHO O LRegiocentric Orientation Region becomes the relevant geographic unit  (rather than by country) Management orientation is geared to developing an  integrated regional strategy European Union  NAFTAashishpillai@gmail.com
  76. 76. AM ITY GLO BAL BUSINESS SCHO O LPolycentric Orientation Management operates under the assumption that  every country is different; the company develops  country-specific strategies Sometimes called a multinational company Company operates differently in each host country  based on that situation Opposite of ethnocentrismashishpillai@gmail.com
  77. 77. AM ITY GLO BAL BUSINESS SCHO O LGeocentric Orientation Entire world is a potential market Managerial goal is to develop integrated world  market strategies Global companies serve world markets from a single  country and tend to retain association with a  headquarters country Transnational companies serve global markets and  acquire resources globally; blurring of national identityashishpillai@gmail.com
  78. 78. AM ITY GLO BAL BUSINESS SCHO O LWhat Then is a Multinational? Has polycentric orientation A corporation that has its management headquarters in  one country, known as the home country, and operates  in several other countries, known as host countries. A  Transnational  Corporation  (TNC)  differs  from  a  traditional MNC in that it does not identify itself with one  national home. Traditional  MNCs  are  national  companies  with  foreign subsidiariesashishpillai@gmail.com

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