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    Ib Module

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    Ib Module

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    Business notes for

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    Ib module

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    Business notes for

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views6 pages

    Ib Module

    Uploaded by

    dogip95163
    Business notes for

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Evolution of International Business

    It is a fact that international business that we see today has arrived at this
    stage over a long period of time. During this evolution period, it has undergone
    a great deal of transformation as well.

    In order to grasp the growth story of international business, we divide this


    entire period into the following phases;

    1) The period from Industrial Revolution to the beginning of the WW I


    2) The period from WW I to WW II
    3) The post WW II period up to the inception of WTO
    4) The period after the inception of WTO

    Phase 1: This phase begins with industrial revolution that took place around
    1870. It started in Europe and then spread to different parts of the world. This
    was the time when various scientific inventions such as steam engine, used to
    power locomotives and steamships, machines in factories, electric generators
    and electric motors took place.

    After the industrial revolution swept through Europe, leading to a dramatic


    increase in production, European countries found themselves in need of two
    vital resources: markets to sell their products and raw materials to fuel their
    machinery. Many European powers looked to their colonies to fulfill these
    needs, exploiting their overseas territories to both trading opportunities and
    access to essential resources.

    Additionally, the age of geographical discovery enabled nations to expand


    their trading activities to distant parts of the world, further fueling the growth of
    international business. While international business during this period was
    primarily in the form of trade, it steadily increased in both value and volume as
    European powers established trade routes and networks across the globe.
    However, this early phase of international business was predominantly
    characterized by trade-based interactions. It’s important to note that
    international business continued to evolve beyond simple trade as European
    powers began to invest in foreign territories and establish multinational
    corporations. This transition marked a significant shift in the nature of
    international business, paving the way for more complex and integrated global
    economic systems.

    Phase 2: The outbreak of World War I in 1914 brought about significant


    disruptions to international trade and business dynamics, as supply chains were
    disrupted and economic instability swept across the globe. Nevertheless, the
    period leading up to the war marked a crucial phase in the development of
    international business, laying the foundation for the interconnected global
    economy we see today.

    The period spanning World War I (1914 – 1919) and the interwar years
    (1919 – 1939) marked tumultuous era for international business, characterized
    by significant challenges and disruptions. During WW I, the volume of
    international trade plummeted as nations focused their resources on wartime
    efforts, leading to widespread economic instability. The aftermath of the war
    further compounded these challenges, with many countries, including the
    United States and European nations, grappling with the devastation wrought by
    the conflict. The economies of these developed nations were in a state of
    disarray, dampening trading activities and hindering economic recovery.
    Moreover, the interwar period was marred by geopolitical tensions and a
    growing sense of disillusionment among under developed nations towards
    international trade. Many of these nations viewed trade as a tool used by
    developed countries to exploit their resources and undermine their sovereignty.
    In regions like India, this sentiment fueled the flames of freedom struggle, with
    the term “RICH” being seen as an acronym for “Rob India, Come Home.”
    Adding to these challenges was the onset of Great Depression (19229 –
    1933). A global economic downturn of unprecedented magnitude. High levels of
    unemployment, plummeting interest rates, and lack of investment further
    crippled international business activities, exacerbating the economic woes of
    nations around the world.

    Furthermore, the international monetary system faced a crisis as countries


    moved away from the gold standard, which had previously facilitated
    international payments. While the gold standard had initially provided stability
    to the global economy, its inherent limitations became increasingly apparent,
    prompting countries to seek alternative monetary arrangements. This transition
    away from the gold standard posed additional challenges to the growth of
    international business, as new payment mechanisms and exchange rate regimes
    were established.

    World War II (1939 – 1945) delivered another devastating blow to


    international business, as global trade once again ground to a halt amidst
    widespread conflict and destruction of infrastructure, loss of skilled labour and
    resources shortages. Many global companies faced serious challenges having
    great fall in their output.

    - Ford’s production shifted to military vehicles.


    - IBM supplied technology for war efforts.
    - Siemens faced damages to its facilities.
    - Bayers lost access to raw materials due to trade disruptions.

    Phase 3: The War left the global economy in ruins, including economies of
    developed countries. Recognizing the need for economic recovery and stability,
    the United States spearheaded efforts to boost international trade. This led to the
    establishment of key institutions like the International Monetary Fund (IMF) to
    stabilize currency exchange rates and assist nations in managing balance of
    payments.

    The World Bank was created to finance infrastructure projects in member


    countries.

    The General Agreement on Tariff and Trade (GATT) was formed to


    accomplish this goal.

    The post WW II saw the revival and growth of international trade as a


    relentless effort by GATT.

    In 1955, Toyota, the Japanese car manufacturing company exported its


    successful “Toyopet” model to the United States, but the car was not well-
    received by American consumers, teaching Toyota an important lesson;
    products popular in one country might not succeed in another. This realization
    underscored the importance of tailoring products to meet the preferences and
    needs of different international markets. Companies now focusing on the
    foreign buyers, their needs, paying capacity, their aspirations, buying habits and
    their existing distribution channels available in the foreign markets. Thus, the
    concept of “international marketing” flourished.

    GATT played an important role in encouraging international trade and then


    international investment in 1980’s, which further paved the way for the
    development of “international business”.

    On January 1, 1995, GATT transformed into the World Trade Organization


    (WTO). Unlike its predecessor, the WTO was not just a collection of
    agreements, but a formal institution with binding rules for its member countries.

    Phase 4: The establishment of WTO in 1995 marked the turning point for
    international business with its binding rules for global trade in goods and
    services. The WTO introduced Dispute Resolution mechanism and has been
    instrumental in shaping business globally, making international business truly
    “international” in every sense of the word. Since its inception, the dollar value
    of World Trade has nearly quadrupled, and the real volume of World Trade has
    expanded 2.7 times.

    In the 21st century, international business continued to grow, bolstered by the


    WTO efforts to reduce tariff and other trade barriers. This period saw the rise of
    global value chains, which account for almost 70% of total trade, enabling rapid
    growth in developing economies and increased consumer choice worldwide.

    However, the sub-prime crisis of 2008 posed a serious challenge to


    international business. The crisis originated in the United States due to the
    collapse of the housing market, threatened to destroy the international financial
    system. It led to the failure of major financial institutions and precipitated the
    Great Recession, the economic downturn since the Great Depression. This had a
    global impact, causing a contraction in international trade and investment, and
    leading to widespread economic uncertainty. This was the period when growth
    rate in emerging economies was much better than what it was in developed
    countries. It resulted into increased flow of international capital towards
    emerging economies.

    The Covid19 pandemic further impacted international business, causing


    some of the largest reductions in trade and output volumes. The pandemic
    affected services trade more than goods trade. With a significant decline in
    travel and tourism services, digitally delivered services saw a boom.

    The Russia-Ukraine war with full-scale invasion by Russia on February 24,


    2022 marked a significant escalation in the conflict. This has impacted
    international business with several key effects. A sharp rise in commodity
    prices, particularly for food, energy and fertilizers has significant impact on
    global markets. Grain shipments through Black Sea ports has raised concerns
    about food security especially in poor countries. Energy prices have soared,
    affecting industries and consumers worldwide. Economic uncertainties have
    affected investment and business decisions.

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