International Business

1. “BASIS OF INTERNATIONAL TRADE AND PRINCIPLES
OF ABSOLUTE ADVANTAGES”

2. S. N0. CONTENT SLIDE No.
1. Introduction 03
2. Classifications of International Trade 04
3. Types of International Trade 05
4. Characteristics of International Trade 06
5. Role or Importance of International Trade 07
6. Benefits of International Trade 08
7. Barriers to International Trade 09
8. Reasons for International Trade 10
9. Problems & Challenges of International Trade 11
10. Advantages of International Trade 12
11. Disadvantages of International Trade 13
12. Theory of Absolute Advantage 14-15
13. Conclusion 16
14. Reference 17

3.  Trade between two or more countries is called foreign trade
or international trade. This involves the exchange of goods
and services between the citizens of two countries. When
citizens of one country exchange goods and services with the
citizens of another country, it is called foreign trade.
 “The aim of international trade is to increase production and
to raise the standard of living of the people. International
trade helps citizens of one nation to consume and enjoy the
possession of goods produced in some other nation.”

4. International trade must be classified into three ways:
1. Import Trade: The inflow of goods in a country is called
import trade.
2. Export Trade: The outflow of goods from a country is called
export trade.
3. Entrepot Trade: Many times goods are imported for the
purpose of re-export after some processing operations. This
is called entrepot trade.

5. There are four types of international trade transactions:
1. Direct Business: In direct business the importer places order
with manufacturer of the exporting country.
2. Consignment Business: Under consignment business the
exporter sends the goods to an agent in the importing country.
3. Indent Firms: The indent firms charge a commission for their
services. The indent firms are also called commission agents.
4. Merchant Shippers: This is a class of businessmen who buy
goods on their own account and sell them in a foreign country at
a profit.

6. International trade is characterized by the following features:
 Territorial specialization
 International competition
 Separation of sellers from buyers
 Long chain of middlemen
 International rules and regulations
 Mutually acceptable currency
 Government control
 Several documents

7. The Role and importance of international trade are as follows:
 Division of labor and specialization
 Optimum allocation and utilization of resources
 Raises Standard of Living of the people
 Generate employment opportunities
 Equality of prices
 Ensures quality and standard goods
 Facilitate economic development
 To improve quality of local products
 Availability of multiple choices

8. There are some benefits of international trade:
 Efficient Allocation and Better Utilization of Resources
 Variety of Goods Available for Consumption
 Promotes Efficiency in Production
 Utilization of Surplus Produce
 Consumption at Cheaper Cost
 More Employment
 Reduces Trade Fluctuations

9. There are some barriers to international trade:
 Cultural and social barriers
 Political barriers
 Tariffs and trade restrictions
 Standards
 Boycotts
 Anti-dumping Penalties
 Monetary Barriers

10. Here are seven reasons for growing globally:
 Reduced dependence on your local market
 Increased chances of success
 Increased efficiency
 Increased productivity
 Economic advantage
 Innovation
 Growth

11. The following are the special problems of international trade:
 Distance
 Different languages
 Risk in transit
 Intense competition
 Difficulties in Payments
 Import and Export Restrictions
 Transport and Communications
 Lack of information about International Traders

12. The main advantages of international trade are as follows:
 Optimal use of natural resources
 Availability of all types of goods:
 Advantages of large-scale production
 Stability in prices
 Increase in efficiency
 Promotes Competition
 Fall of Prices
 Speedy Industrialization

13. The main disadvantages of international trade are as follows:
 Exhaustion of Resources
 Effect on Domestic Industries
 Effect on Consumption Habits
 Times of Emergency
 Economic Dependence
 Political Dependence
 Import of Harmful Goods
 Mis-utilisation of Natural Resources

14.  According to Adam Smith. if one country has absolute
advantage over another in one line of product on and the
other country has an absolute advantage over the first
country in another line of production. then both
countries would gain by trading.
 Absolute advantage is the ability of a country, individual,
company or region to produce a good or service at a
lower cost per unit than the cost at which any other entity
produces that same good or service.

15. According to him, there are following advantages of this theory.
1. Absolute Cost Advantage: Trade between two countries
would be mutually beneficial if the cost of producing a
commodity in one country is lesser than the cost of
producing the same commodity in another country.
2. Natural Advantage: A country would produce those goods
that are naturally favoring its climatic conditions. The type
of goods produced would also depend upon the availability
of natural resources.
3. Acquired Advantage: This would include advantage in
technology and level of skill development.

16.  In conclusion it can be said that, international trade leads to
economic growth provided the policy measures & economic
infrastructure are accommodative enough to cope with the
changes in social and financial scenario that result from it.
 In order to face the cross border competition challenges, a
well functioning, national competition regime is insufficient.
 International trade opens up the opportunity for develop
countries whereby it increases their capacity to produce and
acquire goods. It should however be controlled so as to avoid
the closure of some local companies.

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