Chapter 10

INTERNATIONAL
BUSINESS
 Objectives:
 To explain the importance of international
trades as one of a business strategies.
 To explain the “methods” of entering the
global market.
 To explain preparatory steps before
exploring into international market.
 To identify “barriers” to international
trades.
 To discuss some “trade agreements” &
“trade blocks” & their effects on
 Introduction
 We are living in the era of
globalization.
 Globalization? – increasing
connectivity & interdependence
between countries of the world in
economic, political, social,
technological & cultural matters -
Introduction
 Ineconomic term, globalization is
the internationalizing of businesses
& markets. Through trade
liberalization, barriers to
international trades are removed,
all countries should open their
markets, so the world will become
a single market – a market without
borders, a really big market.
Globalization; Threats &
Opportunities?
 International market- the biggest business
opportunity to entrepreneur

 Several factors that encourage the

involvement in global market:
 Abolishing barriers trade
 The existence of Main Trade Block such as
NAFTA, EU and AFTA
 The position/location of Asia Continent itself
- Limited concentration in domestic market,
need to expand the market segmentation.
- International market-space for entrepreneur
to expand their business.
- The entrepreneur starting their
business/engage in international trade known
as “Global start-up”.
International Environment
 Entrepreneur in Borderless world need to have
contemporary thinking.

 Example: sophisticated technology of ICT- customers

can access product/idea from anywhere.

 ‘Global Thinking’ is important because today’s

consumers can select products, ideas and services from
many nations and cultures.

 Entrepreneurs who expand into foreign markets must

be global thinkers in order to design and adopt
strategies for different countries based on social, politic
and economy of the country.

 Therefore, the customers can made the best selection-

types, quality, service level, competitive price, etc.
Why Global Business?
To balance the declining sales in local market
-Less dependant on local market
-Unattractive local market
To increase Sales and Profits
To extend product life cycle
-Product at the last stage of PLC will be extended
to international market
Production Cost
-Lesser cost by lessen fixed cost. Achieve
economies of scale-> production unit
Increasing competitive ability and quality of
product
 Methods of Going International
 Exporting
The shipping of a domestically produced good to a foreign
destination for consumption.
Simple method
Lesser risk compared to others

 Importing
Buying and shipping foreign-produced goods for domestic
consumption.
> to high technology product
Because of different weather and appropriateness of soil.

 Joint venture
Methods of Going
International
 Licensing
• Is a business agreement in which the
manufacturer of a product (or a firm
with proprietary rights over certain
technology or trademarks) grants
permission to some other group or
individual to manufacture that product
in return for specified royalties or other
payments.
 Methods of Going
International
 International franchise

 Foreign Direct Investment

Involve investment made by foreign co on other firm in a
country. Usually, this type of investment will involve
approximately 10 to 25% ownership in that particular
co.
FDI have been chosen because of 2 factors:
6. the existence of trade barriers or prohibitions of import
goods
7. the probability that the foreign investor will be given
an incentive by the country itself.

 Barter System
Example: exchange oil palm with corn and wheat from
 international market
exploration
1. Conducting preliminary research

3. Conducting ‘detailed’/comprehensive research

-Entrant strategy, legal system, government
policy, Market profile and characteristics,
population size, weather, exchange rate, tax
rate, labour power culture, language, etc.

5. Providing sufficient financial resources - the

safe method of payment & financial
transaction, financial resources from local or
international bank if possible
international market
exploration
1. Documentation procedure
– due to different language and different legal
procedure, Getting the service from agent or local
lawyers to manage the problems.
-Appoint agent/lawyer

5. Providing & implement planning

-policy determination that undertake international
laws and locally, as a guidelines to achieve
mission, planning and implementation plan.
The important part is to have the implementation
plan showing the core task and people
responsible to undertake it.
For example: Gantt Chart.
 International Trade
Barriers
 Barriers from within the entrepreneur
Lack of confidence- because of behavior,
financial, thinking, information.

 Barriers from Foreign Country

5. Multiple of regulations imposed, tax imposed,
limited entry, etc.
6. The reinforcement of those regulations can
make the prices of the imported goods
becoming expensive and incompetitive
compared to the local ones.
International Trade
Barriers
 Trade barriers can be divided into 2 :

 Tariff - direct tax imposed on imported

goods. Aim: to increase the price of
that goods.
 Specific Tariff -fixed tax amount
imposed on each unit of the imported
goods
 Ad-valerom Tariff -Tax imposed on
value of the imported goods

 Non tariff- Quotas, Subsidy,

govt.standard procedure, politics and
legality
International Trade Barriers
 Quotas- trade barrier in the form of a limit on the
numbers of product can be imported
To protect domestic market
 Subsidy- payment by the govt to protect the local firm
from the high competition with foreign firm.
Can be in the form of long term loan at a lower rate,
grant, tax examption, etc.
 Politic and Legal – Any country can hinder/prevent
goods to be exported to their country. Example:
Malaysia are not allowed to do any kind of trading with
Israel.
 Govt standard procedure- To protect the health and
safety of its own people, entry barriers for goods that
does not comply with the standard- worried can cause
International Trade Agreement
 In
order to encourage world trade,
several types of agreement have been
AGREED UPON by several country in
the world.

 Amongthem are:
GATT, WTO, NAFTA & AFTA.
 GATT (General Agreement
on Tariffs and Trade)
 Was established in 1947-the first tariff global
agreement
 Main objectives: To provide 1 set of basic
regulations for trade agreement
 As a mechanism to monitor the implementation
of trade regulation that has been agreed.
 Multilateral agreement with the objective of
liberalizing trade by reducing tariffs between
country member and encouraging world trade.
 Consist of 124 country and nearly covered up to
90% trade in the world.
Organization (Pertubuhan
Perdagangan Dunia)
 Was established on January 1, 1995.
 WTO is the umbrella organization governing the
international trading system.
 Is designed to monitor & enforce trade agreements.
 The job is to oversee international trade agreements
 Agreements are based on General Agreement on Tariffs
& Trade (GATT)
 Membership in the WTO is 147 in 2004 that virtually
consist mostly of developing countries which
collectively account for > than 90 % of the world’s trade
and virtually all of its investment.
North American Free Trade
Agreement (NAFTA)
 Is an international agreement among US,
Canada and Mexico.
• Economic interconnection between US, Mexico, and
Canada
 Established in January 1994.
 No trade barriers will exist among the three
nations.
 The countries involved has agreed to
abolish/eliminate trade barriers (tariff and
non-tariff) between them.
 To encourage investment among the 3
countries.
 However, these countries still be allowed to
The European Union (EU)
 Founded in 1957.
 Formerly known as European Economic
Community (EEC)
 In 1992 become a full-fledged economic union.
 Objectives of EU:
 The elimination of custom duties among all
member states
 The free flow of goods and services among all
members
 The creation of common trade policies toward all
countries outside EU
 The free movement of capital and workers within
the bloc
 The encouragement of economic development
Asia Free Trade Agreements (AFTA) –
ASEAN (Association of Southeast
Asian Nations)
 Known as Asian Tigers.
 Trading bloc consisting / alliances between 10 countries in
Asia; Brunei, Cambodia, Indonesia, Malaysia, Laos,
Myanmar, Philippines, Singapore, Vietnam, & Thailand.
 To reduce or eliminate tariff between state members
 Promoting the role of private investment, stimulating the
free flow of capital and assisting in access to technology.
 Implementation of agreement phase by phase according to
category of product
Asia, Africa and Transition
Country (Transition
Economies)
 Rich and developing country such as Japan,
South Korea, Taiwan and China

 Economies transition country - Hungary,

Slovenia, Republic Czech, Poland, Romania –
becomes the potential market to Malaysia.

 Economic system in these countries having a

transition from federal to laissez faire
economic system.
CONCLUSION
International Trade is one of the key to
success of an organization. It can be
achieved through exports, joint
ventures, licensing, franchising and
barter trading.

However, one must consider the trade

barriers such as tariffs, quotas,
subsidies, health quarantine and
currency exchange that exist in order to
ensure smooth transactions.