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International trade
7
Welcome to
International
Trade
INTRO
What is international trade and why should we study it ?
TERM'S
SHEDULE
Term's schedule
Lect 1
Introduction to international trade.
Lect 2
Global business environment
Do the readings ahead of each lecture.
The textbook is available on IPAGORA
Lect 3
Internalization process
Lect 4
Mid term
Definition
Definition
Key aspects of international trade
Globalization
International Organizations
Trends
Economic systems
ROADMAP
Goal 1
Goal 3
ROADMAP
Goal 2
Understand Globalization
Goal 1
Ref. Chapter 1 and p 16-30 in the book
Understanding international Organizations in economics
Goal 2
Ref. Chapter 3 in the book
Understanding economic systems
Goal 3
Ref. Chapter 4 p. 100 to 120 in the book
DIVING IN
Key themes to explore
Patterns and trends
Other patterns include Growth in bilateral trade agreements, Growth in sovereign wealth funds
, and Growth in “defensive techniques “ to comabat global insecurity.
Rapid Growth
A. In world trade and investment
Rapid Growth
Rapid growth in Cross-borders and mergers and acquisitions
Rapid growth in Cross-borders and mergers a...
Between 1990 and 2013, growth in merger and acquisition (M&A) rose by eight times to reach 2007 to then slump into recession. Key areas of activity included financial services, insurance, life sciences, telecommunications and the media.
More liberalised markets on a global scale and More globally dispersed value chain
More liberalised markets on a global sca...
Several countries made national regulatory changes to favour Foreign Direct Investment flow.
Companies adapt to different markets.
National regulatory changes 1993-2013
National regulatory changes 1993-2013
A shift from bi-polar to tri-polar
A shift from bi-polar to tri-polar
The business poles have shifted from the bi-polar America-Europe relationship to tri-polar/triade relationship, America-Europe-South east Asia.
Growth of global economy
Growth of global economy
Changing patterns
Changing patterns
Although china has maintained its position ahead of the US with regards to cost advantages for manufacturing goods, it has experience a relative decline in cost competitiveness over the past decade.
Mexico is now less expensive than china as a manufacturing location .
We need to understand that overall business competiveness pf a country is not based solely on the wage of its workers, others factors such access to business clusters, access to legal protection of property rights or corruption free dealings.
Other trends include increased communication, increased travel, increased pursuit of leisure, aging of the global population, international growth in currency transaction (making the exchange rates volatile).
Goal 1
Globalization
Globalization
Definition
Economic globalization refers to the process
whereby all national economies have, to a greater or lesser extent, been absorbed into an interlocking global economy, The OECD
(1995) thus defined globalization as ‘a shift
from a world of distinct national economies to a global economy in which production is
internationalized and financial capital flows
freely and instantly between countries’. (Heywood,2012)
ational economy ---> global economy
national economy ---> global economy
Approaches (4)
Approaches
Economists focus on the growth of international trade, the increase in international capital flows, and the progressive dominance of MNE form of business within domestic and global business activity
Political scientists view globalisation as a process that leads to the undermining of the nation state and the emergence of a new form of governance
Socialists view globalisation in terms of the rise of a global culture and the domination of the media by global companies
International relations experts focus on the emergence of a global conflicts and global institutions.
Aproaches are not mutually exclusive.
Approaches are not mutually exclusive
Globalization
Outcomes
Outcomes
Tendencies
International organizations
IO
An international organization (sometimes
called international governmental organizations or IGOs, as opposed to international non-governmental
organizations, or INGOs) is an institution with formal procedures and a membership comprising three or more states. (Heywood, 2012)
International organizations are characterized by rules that seek to regulate the relations amongst
member states and by a formal structure that
implements and enforces these rules. Nevertheless,
international organizations may be viewed as instruments, arenas or actors(Rittberger and Zangl
2006).
World Trade Organization
WTO
The World Trade Organization was formed in 1995 as a replacement for GATT,
established in 1947. However, GATT only emerged as the basis of the postwar
international trading order as a result of the failure to establish the International
Trade Organization (ITO).
WTO
WTO
International Monetary Fund
IMF
The IMF was set up to oversee the new monetary order that had been established by the Bretton Woods agreement. Its chief purpose was to encourage international cooperation in the monetary field by removing foreign exchange restrictions, stabilizing exchange rates and facilitating a multilateral payment system between member countries.
IMF
IMF
Other IOs
OECD
OECD
IOs
IOs
Economic systems
International Trade Theory
Theory
International trade is said to be ruled by various assumptions which have developped over time. Some of these assumptions are fundamental to the understanding of trade in the world.
Gains from Trade
Why do we trade ?
Gains from Trade
Absolute advantage
Absolute advantage
Comparative Advantage
Comparative advantage
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Comparative advantage continued
Summary
A country has a comparative advantage in a product for which it has a lower opportunity cost than another country.
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Sources of comparative advantage
Self study
Pages 81-88 of the texbook.
Opportunity cost
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Opportunity cost
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Gains from trade
Trade and the world economy
Trade & the World economy
This section focusses mainly on trade flows between states around the world.
Why are some countries better at production than others ?
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Trade Flows
Trade Flows
Productivity
Productivity
Barriers to trade and Protectionism
Barriers to trade
Extensive definitions of trade barriers p.92-97. ( Tariff vs Non-tariff barriers)
Protectionism p.98-99
P.S. Pay attention to the different graphs
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Summary
Summary
International Business Strategy
Strategy
Kenneth Andrews of the Harvard Business School defined corporate strategy as "the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue"
In this section we shall discuss the strategic approaches available to MNEs and the applications of those approaches on the value chain.
SWOT
SWOT analysis
In the 1970s, Kenneth Andrews proposed that the strategies adopted by a company ought to be "fit" between its "internal capabilities" (strengths and weaknesses) and its "external situation" (opportunity and threats).
The external analysis teases out the conditions a company is exposed to and must work with such as the political, economic, social, technological, environment, legal and ecological factors (PESTLE).
The internal analysis teases out what the company is good at (strength) and what the company battles with (weaknesses). These may include organisation, personel, marketing and financial features.
SWOT analysis
PESTLE analysis
Example
Poter's Five Forces analysis
Poter believed that beyond PESTLE, a company should take into account the competitive environment.
Poter's five
Poter's 5
Poter's 5
Poter's 5
Practical example
Portfolio analysis
BCG Matrix
The Boston Consulting Group's portfolio matrix provides a useful framework for examining an organization's own competitive position.
The organization's portfolio of products is subjected to a detailed analysis according to market share, groeth rate and cash flow.
BCG
BCG summary
BCG
BCG Matrix explained in details
Strategic Choice
Ansoff matrix
Strategic choice is characterized by three main approaches:
- Product-market strategies which determines where the organization competes and the direction of its growth, (i.e. Ansoff)
- Competitive strategies which affect action/reaction patterns an organization will pursue for competitive advantage (i.e. Poter)
- Institutional strategies which involve a variety of formal and informal relationships with other firms usually directed towards method of growth (i.e. acquisition vs organic)
Ansoff
Ansoff Matrix
McDonald example
Poter's generic
Poter's generic strategies
WHAT'S
NEXT?
FURTHER
READING
Prepare for next week by reading chapter 7
Chapter 7
Business strategy
Business strategy
Business strategy
Thank you
Thank you
See you next week