IBT REVIEWER (PRELIM) • Trade Liberalization: involves the removal or reduction

of trade barriers to promote freer trade.

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International business- refers to the trade of goods,
services, technology, capital, and /or knowledge across • Global Value Chains (GVCs): GVCs refer to the process
national borders and at a global or transnational scale. of producing goods across different countries, where
each country specializes in specific stages of production.
International Business- is also known as globalization.
Factors Affecting International Trade
Globalization- the shift toward a more interdependent
and integrated global economy-creates greater • Competitiveness : type and number of competitors,
opportunities for international business. locations and activities
International trade is a fundamental aspect of the global • Distribution: national and international agencies
economy, promoting economic growth, expanding provide for distributing goods and services
consumer choices, and fostering cooperation among
nations. • Variables that impacts the economy: labor cost per
unit, personal consumption and expenditures
Key Concepts of International Trade
• Socio-economic characteristics and distribution of
• Comparative Advantage: This concept states that human population
countries should focus on producing goods and services
in which they have a lower opportunity cost compared • Finance: interest, inflation and taxation
to other countries. Can increase their overall production • Legal Factors: Foreign and Domestic Loan
and consumption possibilities.
• Physical: topography, climate and natural resources •
• Absolute Advantage: if it can produce more output Politics: nation’s political, governmental and
using the same amount of resources as another international organization
country.
• Sociocultural: attitudes, beliefs, education
• Trade Surplus and Deficit: occurs when a country
exports more goods and services than it imports, •Technology
resulting in a positive balance of trade. Benefits of International Trade to Nation
• Balance of Payments: The balance of payments is a • to obtain foreign exchange that can be utilized to
record of a country's economic transactions with the import merchandize from the global market
rest of the world.
• It prompts specialization of a country in the
• Trade Barriers: Obstacles that restrict the free flow of production of merchandise
goods and services across borders. (can be in the form
of tariffs (taxes on imports), quotas (limits on the • Enhancing its development and make opportunity for
quantity of imports), or non-tariff barriers like employment.
regulations and technical standards.)
• Help in improving their standard of life
• Free Trade: refers to the absence of trade barriers
Benefits of International Trade to Firms
and restrictions, allowing goods and services to flow
freely between countries. • It helps in improving profits of the organizations

• Protectionism: involves the use of trade barriers to • It helps the organization in utilizing their surplus
protect domestic industries from foreign competition. resources

• Trade Agreements: Trade agreements are formal • It helps firms in enhancing their development
arrangements between countries that outline the terms prospects.
of trade, including tariff reductions, quotas, and
regulatory standards.
 • Enable the firms confronting extreme market
conditions in the local market.
1. It creates an opportunity for passive income
• Enhances business vision as it makes firms more
2. It creates new business opportunity
aggressive and diversified
3. It reduces risk for both parties
GLOBAL BUSINESS OPPORTUNITIES
4. It creates an easier entry to foreign market
• Import: a goods and services brought into one country
from another (buying products overseas and reselling 5. It creates self-employment opportunities
them in one’s own country)
6. It offers a freedom to develop unique marketing
• Export: a goods or services produced in one country approach
then get marketed to another country.

• Import-Export is the most fundamental and the

largest international business activity, and it is after the Disadvantages of Licensing
first choice when the business decide to expand. Easiest
way to enter the market with some outlay of capital.
1. It increase opportunities for Intellectual
Type of Tariff Property (IP) theft
• Scientific Tariff- a concept in which duties would 2. It creates a dependency upon the licensor
fluctuate and levied on an item-by-item, shipment-
byshipment basis. 3. It creates added competition in the marketplace

• Peril point tariffs- the lower limit of a tariff on a 4. It is offered for a limited time
commodity at which import of that commodity would 5. It could damage the reputation
have seriously adverse effect on the local producers.
6. It is not a guarantee of revenues
• Retaliatory tariffs- is a tax that a government charges
on imports to punish another country for charging tax 7. It takes time for royalty payment to arrive
on its own exports.
8. It may lead to royalty litigation

Non-Tariffs- are barriers that restrict trade through the

Franchising – is a business model that allows individuals
measures other than the direct imposition of tariffs.
(franchisees) to operate their own businesses using the
Quotas- are restrictions that limit the quantity or branding, products, and support of an established
monetary value of specific goods or services that can be company (franchisor).
imported over a certain period of time. To reduce the
quantity of competitive products in local markets which
increases the demand for local goods and services. Key Factors in Franchising

Licensing – is one of other ways to expand the business

internationally. Licensing is the arrangement between a
1. Choosing a Franchise: Research and identify
firm called licensor, allows another one to use its
industries and franchises that align with your interests,
intellectual property such as brand name, copy right,
skills, and financial capabilities
patent, technology, trademark and so on for specific
period of time.

2. Franchise Models: Understand the different

types of franchise models, and decide which suits your
Advantages of Licensing
goals.
3. Franchise Disclosure Document (FDD): 11. Operations and Processes: Gain insights into the
Familiarize yourself with the FDD, a legal document that day-to-day operations, processes, and best practices of
provides detailed information about the franchise the franchise to ensure smooth and efficient business
opportunity (costs, obligations, and the franchisor's management.
history.)

12. Supply Chain and Inventory: Understand how

4. Franchise Fees and Costs: Explore the initial the supply chain and inventory management work
franchise fee, ongoing royalties, advertising fees, and within the franchise system.
other expenses involved in setting up and operating the
franchise.
13. Franchisee-Franchisor Relationship: Learn about
the expectations, responsibilities, and communication
5. Franchise Territory: Understand the territory channels between franchisees and the franchisor.
rights granted by the franchisor and whether the
territory is exclusive or shared with other franchisees.
14. Performance Metrics and Reporting: Explore
the key performance indicators (KPIs) that determine
6. Training and Support: Learn about the training the success of your franchise and how performance is
programs, operational support, and resources the tracked and reported.
franchisor provides to help you successfully run the
business.
15. Exit Strategy: Consider your long-term plans for
the franchise, including potential exit strategies like
7. Legal and Regulatory Compliance: Familiarize selling the business or passing it on to family members.
yourself with the legal requirements and regulations
related to franchising in your jurisdiction, including
contracts, licensing, and disclosure obligations. 16. Local Market Analysis: Evaluate the local market
conditions, competition, and potential customer base to
determine the viability of the franchise in your chosen
8. Financial Planning: Develop a comprehensive location.
business plan that outlines your budget, projected
expenses, revenue expectations, and potential return
on investment. 17. Franchisee Success Stories: Connect with existing
franchisees to learn about their experiences, challenges,
and insights into running the franchise.
9. Location and Site Selection: If applicable,
18. Legal and Financial Consultation: Seek advice from
understand the importance of choosing the right
legal and financial professionals experienced in
location for your franchise and the support the
franchising to ensure you make informed decisions.
franchisor provides in this process.

Three types of Franchises

10. Marketing and Branding: Explore the
franchisor's marketing strategies, advertising support,
and branding initiatives to attract customers and
promote the business. Business Format Franchise – the franchisor gives the
rights to trademarks, trade names, business process and
the system in order for the franchisee to sell the Shared Management and Decision-Making: Partnerships
product for a fee. allow for shared management responsibilities and
decision-making among partners, which can lead to a
diversity of skills and expertise.
Product Distribution Franchise –The franchisor is
responsible for providing the product and the
distributor is then able to sell the product. The main Access to Capital: Partnerships can benefit from the
thing given by the franchisor is the product whereas the pooled financial resources of multiple partners, making
business format includes training support. it easier to secure funding for business operations and
growth.

Management franchising is great for resale franchises,

which are franchises that are bought from an existing Tax Benefits: In many countries, partnerships offer pass-
franchisee. through taxation, where business profits and losses are
passed through to the individual partners, avoiding
double taxation at the corporate and Individual levels.
Partnership and Joint Venture

Strategic Partnership or Alliance is a positive aspect of

Flexible Business Structure: Partnerships can adapt to
cooperation of two or more companies in different
changing circumstances more easily than corporations.
countries are joined together for mutual gain. The four
They can be dissolved or restructured with relative
basic reasons for entering into such strategic alliance:
simplicity
 learning partner skills

 upgrading and improving skills

Joint Venture (JV) is a business arrangement in which
 seeking vertical integration two or more independent companies or entities
combine their resources and expertise to collaborate on
 shaping future industry evolution. a specific project or venture

A joint venture is a special type of strategic alliance, Advantages of Joint Venture

where the partners across globe collectively found a
company to produce goods and services.

Partnership is a business structure in which two or more Shared Costs and Risks: Joint ventures allow companies
Individuals or entities collaborate to manage and to distribute the financial burden and risks associated
operate a business with the shared goal of making a with a particular project or market entry strategy
profit. among the collaborating parties.

Advantages of Partnership Access to Local Expertise: When entering foreign

markets, a local partner in a joint venture can provide
valuable insights into the local business environment,
Ease of Formation: Partnerships are relatively easy to culture, and regulations.
establish. They typically require fewer formalities and
less paperwork than corporations.
Combining Complementary Strengths: Joint ventures
often bring together companies with complementary
strengths and resources, creating synergies that can
lead to enhanced competitiveness and innovation.
FDI is a critical component of global economic
integration and can have significant impacts on both the
host country and the home country.
Market Expansion: Joint ventures can be an effective
means of expanding into new markets or sectors,
especially when regulatory or cultural barriers exist.
Contributions of FDI to the Host Country's Economy

Risk Mitigation: In volatile industries or markets, joint

Economic Growth: FDI can stimulate economic growth
ventures can help spread and manage risks more
in the host country by injecting capital, technology, and
effectively by sharing the financial and operational
expertise. This can lead to increased production,
burdens.
employment opportunities, and productivity gains.

Access to New Technology: Joint ventures can facilitate

Job Creation: FDI often results in the creation of jobs in
the acquisition or development of new technologies and
the host country. New businesses, expansions, and
intellectual property through collaboration.
investments in existing enterprises can lead to
increased employment opportunities, reducing
unemployment rates.
Partnerships and joint ventures offer various
advantages, they also come with potential
disadvantages and risks. These may include differences
Technology Transfer: Multinational corporations (MNCs)
in management styles, conflicts of interest, and the
that engage in FDI often bring advanced technology
need for clear agreements and exit strategies to
knowledge, and best practices to the host country. This
manage potential disputes or changes in circumstances.
can lead to technology transfer and improved
Therefore, it's essential for all parties involved to
productivity in domestic industries,.
carefully consider the terms and objectives of these
arrangements and to establish comprehensive legal
agreements to govern their partnerships or joint
ventures. Infrastructure Development: FDI can lead to
improvements in infrastructure, as companies invest in
facilities, transportation networks, and utilities to
support their operations. This benefits both the
Foreign Direct Investment
business and the broader community.
It means a company’s physical investment such as into
the building and facilities in the foreign country and acts
as a domestic business with a full scale of activity. Increased Exports: FDI can boost a host country's
exports, as foreign-owned businesses may export goods
Foreign Direct Investment (FDI) refers to the investment
and services back to their home countries or to other
made by individuals, businesses, or entities from one
international markets. Enhanced Competitiveness: FDI
country (the home country) into assets or enterprises
can increase competitiveness in the host country's
located in another country (the host country).
industries. Exposure to global markets and competition
from foreign firms can lead to greater efficiency and
innovation.
These investments can take various forms, including
acquiring a significant ownership stake in a foreign
company, establishing new business operations, or
Enhanced Competitiveness: FDI can increase
investing in existing enterprises.
competitiveness in the host country's industries.
Exposure to global markets and competition from and home countries. However, the impact of FDI can
foreign firms can lead to greater efficiency and vary depending on factors such as the type of
innovation. investment, the sector involved, and the regulatory
environment in both the host and home countries.

Government Revenue: Governments of host countries

often collect taxes and fees from foreign-owned Investment
businesses. These revenues can be used to fund public
Portfolio Investment refers to the investment in a
services and infrastructure projects.
company’s stocks, bonds, or assets but not for the
purpose of controlling or directing the firm’s operations
or management. Investors in this category are looking
Balance of Payments: FDI can contribute to a host
for a financial rate of return as well as diversifying
country's balance of payments by attracting foreign
investment risk through multiple markets.
capital and reducing trade deficits. It can also improve
the overall stability of a country's currency.

Foreign Direct Investment refers to an investment in or

the acquisition of foreign assets with the intent to
Diversification: FDI allows home country businesses to
control and manage them. FDI includes the purchasing
diversify their operations and reduce reliance on
of assets of a foreign company or in new property,
domestic markets, which can reduce risks associated
plants, or equipment or participating in a joint project
with economic fluctuations in their home country.

Increased Exports: Home country businesses that invest

in foreign markets may increase their exports to those
markets, benefiting from proximity and local
knowledge.

Profit Repatriation: MNCs can repatriate profits and

dividends earned from their foreign investments back to
their home country, contributing to the home country's
economic growth.

Technological Advancement: Home country companies

that engage in FDI often gain access to new markets and
technologies, which can enhance their competitiveness
in both domestic and international markets.

Job Creation: While some jobs may be outsourced or

transferred to foreign subsidiaries, FDI can also create
jobs in the home country, particularly in industries that
support global operations.

Overall FDI plays a crucial role in the global economy,

fostering economic growth, technology transfer, job
creation, and increased competitiveness in both host