INTERNATIONAL BUSINESS

International business consists of transactions that are devised and carried out
across national borders to satisfy the objectives of individuals, companies, and
organizations. These transactions take on various forms, which are often
interrelated. Primary types of international business are export-import trade and
direct foreign investment. The latter is carried out in varied forms, including
wholly owned subsidiaries and joint ventures. Additional types of international
business are licensing, franchising, and management contracts. The definition of
international business focuses on transactions. The fact that the transactions are
across national borders highlights a key difference between domestic and
international business. The international executive is subject to a new set of macro
environmental factors, to different constraints, and to quite frequent conflicts
resulting from different laws, cultures, and societies. The basic principles of
business are still relevant, but their application, complexity, and intensity vary
substantially.
An international business has many options for doing business, it includes,
1. Exporting goods and services.
2. Giving license to produce goods in the host country.
3. Starting a joint venture with a company.
4. Opening a branch for producing & distributing goods in the host
country.
5. Providing managerial services to companies in the host country.
Today, business is acknowledged to be international and there is a general
expectation that this will continue for the foreseeable future. International business
may be defined simply as business transactions that take place across national
borders. This broad definition includes the very small firm that exports (or
imports) a small quantity to only one country, as well as the very large global firm
with integrated operations and strategic alliances around the world.
International business grew over the last half of the twentieth century partly
because of liberalization of both trade and investment, and partly because doing
business internationally had become easier. In terms of liberalization, the General
Agreement on Tariffs and Trade (GATT) negotiation rounds resulted in trade
liberalization, and this was continued with the formation of the World Trade
Organization (WTO) in 1995. At the same time, worldwide capital movements
were liberalized by most governments, particularly with the advent of electronic
funds transfers.
 In terms of ease of doing business internationally, two major forces are
important:
1. technological developments which make global communication and
transportation relatively quick and convenient; and
2. The disappearance of a substantial part of the communist world,
opening many of the world's economies to private business.
DOMESTIC VS INTERNATIONAL BUSINESS
Domestic and international enterprises, in both the public and private sectors,
share the business objectives of functioning successfully to continue operations.
Private enterprises seek to function profitably as well.
THEORIES OF INTERNATIONAL TRADE AND INVESTMENT
In order to understand international business, it is necessary to have a broad
conceptual understanding of why trade and investment across national borders take
place. Trade and investment can be examined in terms of the comparative
advantage of nations.
THE INTERNATIONAL BUSINESS ENVIRONMENT
International business is different from domestic business because the
environment changes when a firm crosses international borders. Typically, a firm
understands its domestic environment quite well, but is less familiar with the
environment in other countries and must invest more time and resources into
understanding the new environment. The following considers some of the
important aspects of the environment that change internationally.
The economic environment can be very different from one nation to another.
Countries are often divided into three main categories: the more developed or
industrialized, the less developed or third world, and the newly industrializing or
emerging economies. Within each category there are major variations, but overall
the more developed countries are the rich countries, the less developed the poor
ones, and the newly industrializing (those moving from poorer to richer). These
distinctions are usually made on the basis of gross domestic product per capita
(GDP/capita). Better education, infrastructure, and technology, health care, and so
on are also often associated with higher levels of economic development.
In addition to level of economic development, countries can be classified as
free-market, centrally planned, or mixed. Free-market economies are those where
government intervenes minimally in business activities, and market forces of
supply and demand are allowed to determine production and prices. Centrally
planned economies are those where the government determines production and
prices based on forecasts of demand and desired levels of supply. Mixed
economies are those where some activities are left to market forces and some, for
national and individual welfare reasons, are government controlled.
Doing business internationally thus implies dealing with different types of
governments, relationships, and levels of risk. There are many different types of
political systems, for example, multi-party democracies, one-party states,
constitutional monarchies, dictatorships (military and non-military). Also,
governments change in different ways, for example, by regular elections,
occasional elections, death, coups, war. Government-business relationships also
differ from country to country. Business may be viewed positively as the engine of
growth, it may be viewed negatively as the exploiter of the workers, or somewhere
in between as providing both benefits and drawbacks. Specific government-
business relationships can also vary from positive to negative depending on the
type of business operations involved and the relationship between the people of the
host country and the people of the home country. To be effective in a foreign
location an international firm relies on the goodwill of the foreign government and
needs to have a good understanding of all of these aspects of the political
environment.
The cultural environment is one of the critical components of the international
business environment and one of the most difficult to understand. This is because
the cultural environment is essentially unseen; it has been described as a shared,
commonly held body of general beliefs and values that determine what is right for
one group, according to Kluckhohn and Strodtbeck. National culture is described
as the body of general beliefs and values that are shared by a nation. Beliefs and
values are generally seen as formed by factors such as history, language, religion,
geographic location, government, and education; thus firms begin a cultural
analysis by seeking to understand these factors.
Firms want to understand what beliefs and values they may find in countries
where they do business, and a number of models of cultural values have been
proposed by scholars. While this model is popular, there have been many attempts
to develop more complex and inclusive models of culture.
The competitive environment can also change from country to country. This
is partly because of the economic, political, and cultural environments; these
environmental factors help determine the type and degree of competition that exists
in a given country. Competition can come from a variety of sources. It can be
public or private sector, come from large or small organizations, be domestic or
global, and stem from traditional or new competitors. For the domestic firm the
most likely sources of competition may be well understood. The same is not the
case when one moves to compete in a new environment.
An important aspect of the competitive environment is the level, and
acceptance, of technological innovation in different countries. The last decades of
the twentieth century saw major advances in technology, and this is continuing in
the twenty-first century. Technology often is seen as giving firms a competitive
advantage; hence, firms compete for access to the newest in technology, and
international firms transfer technology to be globally competitive. It is easier than
ever for even small businesses to have a global presence thanks to the internet,
which greatly expands their exposure, their market, and their potential customer
base. For economic, political, and cultural reasons, some countries are more
accepting of technological innovations, others less accepting.
INTERNATIONAL ENTRY CHOICE
International firms may choose to do business in a variety of ways. Some of
the most common include exports, licenses, contracts and turnkey operations,
franchises, joint ventures, wholly owned subsidiaries, and strategic alliances.
Exporting is often the first international choice for firms, and many firms rely
substantially on exports throughout their history. Exports are seen as relatively
simple because the firm is relying on domestic production, can use a variety of
intermediaries to assist in the process, and expects its foreign customers to deal
with the marketing and sales issues.
Most importantly, the exporter usually leaves marketing and sales to the
foreign customers and these may not receive the same attention as if the firm itself
under-took these activities. Larger exporters often undertake their own marketing
and establish sales subsidiaries in important foreign markets. Licenses are granted
from a licensor to a licensee for the rights to some intangible property (e.g. patents,
processes, copyrights, trademarks) for agreed on compensation (a royalty
payment). Many companies feel that production in a foreign country is desirable
but they do not want to undertake this production themselves. In this situation the
firm can grant a license to a foreign firm to undertake the production. The licensing
agreement gives access to foreign markets through foreign production without the
necessity of investing in the foreign location. This is particularly attractive for a
company that does not have the financial or managerial capacity to invest and
undertake foreign production. The major disadvantage to a licensing agreement is
the dependence on the foreign producer for quality, efficiency, and promotion of
the product—if the licensee is not effective this reflects on the licensor.
 Contracts are used frequently by firms that provide specialized services, such
as management, technical knowledge, engineering, information technology,
education, and so on, in a foreign location for a specified time period and fee.
Contracts are attractive for firms that have talents not being fully utilized at home
and in demand in foreign locations. They are relatively short-term, allowing for
flexibility, and the fee is usually fixed so that revenues are known in advance.
Turnkey contracts are a specific kind of contract where a firm constructs a
facility, starts operations, trains local personnel, then transfers the facility (turns
over the keys) to the foreign owner. These contracts are usually for very large
infrastructure projects, such as dams, railways, and airports, and involve
substantial financing; thus they are often financed by international financial
institutions such as the World Bank. Companies that specialize in these projects
can be very profitable, but they require specialized expertise. Further, the
investment in obtaining these projects is very high, so only a relatively small
number of large firms are involved in these projects, and often they involve a
syndicate or collaboration of firms.
Similar to licensing agreements, franchises involve the sale of the right to
operate a complete business operation. Well-known examples include
independently owned fast-food restaurants like McDonald's and Pizza Hut. A
successful franchise requires control over something that others are willing to pay
for, such as a name, set of products, or a way of doing things, and the availability
of willing and able franchisees.
Joint ventures involve shared ownership in a subsidiary company. A joint
venture allows a firm to take an investment position in a foreign location without
taking on the complete responsibility for the foreign investment. Joint ventures can
take many forms. For example, there can be two partners or more, partners can
share equally or have varying stakes, partners can come from the private sector or
the public, partners can be silent or active, partners can be local or international.
The decisions on what to share, how much to share, with whom to share, and how
long to share are all important to the success of a joint venture. Joint ventures have
been likened to marriages, with the suggestion that the choice of partner is
critically important. Many joint ventures fail because partners have not agreed on
their objectives and find it difficult to work out conflicts. Joint advertising
programs are a form of strategic alliance, as are joint research and development
programs. Strategic alliances seem to make some firms vulnerable to loss of
competitive advantage, especially where small firms ally with larger firms. In spite
of this, many smaller firms find strategic alliances allow them to enter the
international arena when they could not do so alone. International business grew
substantially in the second half of the twentieth century, and this growth is likely to
continue. The international environment is complex and it is very important for
firms to understand this environment and make effective choices in this complex
environment.
Features of International Business
1. Large scale operations: In international business, all the operations
are conducted on a very huge scale. Production and marketing activities are
conducted on a large scale. It first sells its goods in the local market. Then the
surplus goods are exported.
2. Integration of economies: International business integrates
(combines) the economies of many countries. This is because it uses finance
from one country, labour from another country, and infrastructure from another
country. It designs the product in one country, produces its parts in many
different countries and assembles the product in another country. It sells the
product in many countries, i.e. in the international market.
3. Dominated by developed countries and MNCs: International
business is dominated by developed countries and their multinational
corporations (MNCs). At present, MNCs from USA, Europe and Japan
dominate (fully control) foreign trade. This is because they have large financial
and other resources. They also have the best technology and research and
development (R & D). They have highly skilled employees and managers
because they give very high salaries and other benefits. Therefore, they produce
good quality goods and services at low prices. This helps them to capture and
dominate the world market.
4. Benefits to participating countries: International business gives
benefits to all participating countries. However, the developed (rich) countries
get the maximum benefits. The developing poor) countries also get benefits.
They get foreign capital and technology. They get rapid industrial development.
They get more employment opportunities. All this results in economic
development of the developing countries. Therefore, developing countries open
up their economies through liberal economic policies.
5. Keen competition: International business has to face keen (too much)
competition in the world market. The competition is between unequal partners
i.e. developed and developing countries. In this keen competition, developed
countries and their MNCs are in a favorable position because they produce
superior quality goods and services at very low prices. Developed countries also
have many contacts in the world market. So, developing countries find it very
difficult to face competition from developed countries.
 6. Special role of science and technology: International business gives
a lot of importance to science and technology. Science and Technology (S & T)
help the business to have large-scale production. Developed countries use high
technologies. Therefore, they dominate global business. International business
helps them to transfer such top high-end technologies to the developing
countries.
7. International restrictions: International business faces many
restrictions on the inflow and outflow of capital, technology and goods. Many
governments do not allow international businesses to enter their countries. They
have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All
this is harmful to international business.
8. Sensitive nature: The international business is very sensitive in
nature. Any changes in the economic policies, technology, political
environment, etc. have a huge impact on it. Therefore, international business
must conduct marketing research to find out and study these changes. They must
adjust their business activities and adapt accordingly to survive changes.
Importance of international business
1. Earn foreign exchange: International business exports its goods and
services all over the world. This helps to earn valuable foreign exchange. This
foreign exchange is used to pay for imports. Foreign exchange helps to make the
business more profitable and to strengthen the economy of its country.
2. Optimum utilization of resources: International business makes
optimum utilization of resources. This is because it produces goods on a very
large scale for the international market. International business utilizes resources
from all over the world. It uses the finance and technology of rich countries and
the raw materials and labour of the poor countries.
3. Achieve its objectives: International business achieves its objectives
easily and quickly. The main objective of an international business is to earn
high profits. This objective is achieved easily. This it because it uses the best
technology. It has the best employees and managers. It produces high-quality
goods. It sells these goods all over the world. All this results in high profits for
the international business.
4. To spread business risks: International business spreads its business
risk. This is because it does business all over the world. So, a loss in one country
can be balanced by a profit in another country. The surplus goods in one country
can be exported to another country. The surplus resources can also be
transferred to other countries. All this helps to minimise the business risks.
 5. Improve organization’s efficiency: International business has very
high organization efficiency. This is because without efficiency, they will not be
able to face the competition in the international market. So, they use all the
modern management techniques to improve their efficiency. They hire the most
qualified and experienced employees and managers. These people are trained
regularly. They are highly motivated with very high salaries and other benefits
such as international transfers, promotions, etc. All this results in high
organizational efficiency, i.e. low costs and high returns.
6. Get benefits from Government: International business brings a lot of
foreign exchange for the country. Therefore, it gets many benefits, facilities and
concessions from the government. It gets many financial and tax benefits from
the government.
7. Expand and diversify: International business can expand and
diversify its activities. This is because it earns very high profits. It also gets
financial help from the government.
8. Increase competitive capacity: International business produces high-
quality goods at low cost. It spends a lot of money on advertising all over the
world. It uses superior technology, management techniques, marketing
techniques, etc. All this makes it more competitive. So, it can fight competition
from foreign companies.
GLOBALIZATION
Globalization is the process of international integration arising from the
interchange of world views, products, ideas, and other aspects of culture.
Globalization describes the interplay across cultures of macro-social forces. These
forces include religion, politics, and economics.
Advances in transportation and telecommunications infrastructure, including
the rise of the Internet, are major factors in globalization, generating further
interdependence of economic and cultural activities.
Technology Transfer
Technology Transfer also called Transfer of Technology (TOT) and
Technology Commercialization, is the process of transferring skills, knowledge,
technologies, methods of manufacturing, samples of manufacturing and facilities
among governments or universities and other institutions to ensure that scientific
and technological developments are accessible to a wider range of users who can
then further develop and exploit the technology into new products, processes,
applications, materials or services.
 Technology brokers are people who discovered how to bridge the disparate
worlds and apply scientific concepts or processes to new situations or
circumstances. A related term, used almost synonymously, is "technology
valorization". While conceptually the practice has been utilized for many years (in
ancient times, Archimedes was notable for applying science to practical problems),
the present-day volume of research, combined with high-profile failures at Xerox
PARC and elsewhere has led to a focus on the process itself.
The Elements of Globalization Specifically Economic Globalization
Economic Globalization is characterized by a four-fold borderless exchange
encompassing that of economic output, that of human movement, that of capital,
and that of technological transfer, “there are four aspects to economic
globalization, referring to four different flows across boundaries, namely flows of
goods/services, i.e. 'free trade' (or at least freer trade), flows of people (migration),
of capital and of technology.”
Economic
The merits of globalization in the economic dimension are evident
particularly in terms of capital flow, influx of technology, job creation, trade and
fiscal benefits, the significant role of the private sector, competition, poverty
alleviation, and sustainable growth while the demerits, corresponding to the
aforementioned merits, are apparently the dependence of developing and
underdeveloped countries on foreign capital, environmental degradation brought
about by technology, temporary and short-term jobs, the debt burden being
experienced by developing and underdeveloped countries as a result of fiscal
balancing, the static compliance on quality standards demanded on the same
countries, the frequent occurrence of massive capital flight especially in fledging
economies, too much privatization, unfair competition, continuing impoverished
state for the destitute, and unstable economic growth.
International Business theories
The absolute advantage theory
The absolute advantage theory was given by Adam Smith in 1776; according
to the absolute advantage theory each country always finds some absolute
advantage over another country in the production of a particular good or service.
Simply because some countries have natural advantage of cheap labour, skilled
labour, mineral resources, fertile land etc. these countries are able to produce some
specific type of commodities at cheaper prices as compared to others. So, each
country specializes in the production of a particular commodity. For example,
India finds absolute advantage in the production of the silk due to the availability
of skilled workers in the field, so India can easily export silk to the other nations
and import those goods in which other countries find absolute advantages.
But this theory is not able to justify all aspects of international business. This
theory leaves no scope of international business for those countries that are having
absolute advantage in all fields or for those countries that are having no absolute
advantage in any field.
The comparative cost theory
After 40 years of absolute advantage theory, in order to provide the full
justification of international business David Richardo presented the Richardian
model—comparative cost theory. According to the comparative cost theory, two
countries should do business with each other if one country is having an advantage
in the ability of producing one good relative to another good as compared to some
other country’s relative ability of producing same goods.
Trade Barriers- Tariff and Non Tariff Barriers
Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports
but are not in the usual form of a tariff. Some common examples of NTB's are anti-
dumping measures and countervailing duties, which, although called non-tariff
barriers, have the effect of tariffs once they are enacted. Their use has risen sharply
after the WTO rules led to a very significant reduction in tariff use. Some non-
tariff trade barriers are expressly permitted in very limited circumstances, when
they are deemed necessary to protect health, safety, sanitation, or depletable
natural resources. In other forms, they are criticized as a means to evade free trade
rules such as those of the World Trade Organization (WTO), the European Union
(EU), or North American Free Trade Agreement (NAFTA) that restrict the use of
tariffs. Some of non-tariff barriers are not directly related to foreign economic
regulations but nevertheless have a significant impact on foreign-economic activity
and foreign trade between countries.
Trade between countries is referred to trade in goods, services and factors of
production. Non-tariff barriers to trade include import quotas, special licenses,
unreasonable standards for the quality of goods, bureaucratic delays at customs,
export restrictions, limiting the activities of state trading, export subsidies,
countervailing duties, technical barriers to trade, sanitary and phytosanitary
measures, rules of origin, etc. Sometimes in this list they include macroeconomic
measures affecting trade.
Non-Tariff Barriers to Trade
 Non-Tariff Barriers (NTBs) refer to restrictions that result from prohibitions,
conditions, or specific market requirements that make importation or exportation of
products difficult and/or costly. NTBs also include unjustified and/or improper
application of Non-Tariff Measures (NTMs) such as sanitary and phytosanitary
(SPS) measures and other technical barriers to Trade (TBT). NTBs arise from
different measures taken by governments and authorities in the form of
government laws, regulations, policies, conditions, restrictions or specific
requirements, and private sector business practices, or prohibitions that protect the
domestic industries from foreign competition.
Examples of Non-Tariff Barriers
Non-Tariff Barriers to trade can arise from:
 Import bans
 General or product-specific quotas
 Complex/discriminatory Rules of Origin
 Quality conditions imposed by the importing country on the exporting
countries
 Unjustified Sanitary and Phyto-sanitary conditions
 Unreasonable/unjustified packaging, labelling, product standards
 Complex regulatory environment
 Determination of eligibility of an exporting country by the importing
country
 Determination of eligibility of an exporting establishment (firm, company)
 by the importing country.
 Additional trade documents like Certificate of Origin, Certificate of
 Authenticity etc
 Occupational safety and health regulation
 Employment law
 Import licenses
 State subsidies, procurement, trading, state ownership
 Product classification
 Multiplicity and Controls of Foreign exchange market
 Inadequate infrastructure
 "Buy national" policy
 Over-valued currency
 Restrictive licenses
 Seasonal import regimes
 Corrupt and/or lengthy customs procedures
 STRUCTURE OF GLOBAL ORGANIZATIONS
An organizational structure consists of activities such as task allocation,
coordination and supervision, which are directed towards the achievement of
organizational aims. It can also be considered as the viewing glass or perspective
through which individuals see their organization and its environment.
Organizations are a variant of clustered entities. An organization can be structured
in many different ways, depending on their objectives. The structure of an
organization will determine the modes in which it operates and performs.
Organizational structure affects organizational action in two big ways. First, it
provides the foundation on which standard operating procedures and routines rest.
Second, it determines which individuals get to participate in which decision-
making processes, and thus to what extent their views shape the organization’s
actions
Managing Cultural Diversity in the Workplace
Developing cultural competence results in an ability to understand,
communicate with, and effectively interact with people across cultures, and work
with varying cultural calendars. While there are myriad cultural variations, here are
some essential to the workplace:
1. Communication: Providing information accurately and promptly is
critical to effective work and team performance. This is particularly important
when a project is troubled and needs immediate corrective actions. However,
people from different cultures vary in how, for example, they relate to bad news.
People from some Asian cultures are reluctant to give supervisors bad news - while
those from other cultures may exaggerate it.
2. Team-building: Some cultures - like the United States - are
individualistic, and people want to go it alone. Other cultures value cooperation
within or among other teams. Teambuilding issues can become more problematic
as teams are comprised of people from a mix of these cultural types. Effective
cross-cultural team-building is essential to benefiting from the potential advantages
of cultural diversity in the workplace
3. Time: Cultures differ in how they view time. For example, they differ
in the balance between work and family life, and the workplace mix between work
and social behavior. Other differences include the perception of overtime, or even
the exact meaning of a deadline. Different perceptions of time can cause a great
misunderstanding and mishap in the workplace, especially with scheduling and
deadlines. Perceptions of time underscore the importance of cultural diversity in
the workplace, and how it can impact everyday work.
 4. Calendars: The business world generally runs on the western secular
year, beginning with January 1 and ending with December 31. However, many
cultures use others calendars to determine holidays such as New Years or specific
holy days. For example, Eastern Orthodox Christians celebrate Christmas on a
different day from western Christians. For Muslims, Friday is a day for prayer.
Jews observe holidays ranging from Rosh Hashanah to Yom Kippur. These
variations affect the workplace as people require time off to observe their holidays.
Cultural diversity calendars are helpful tools to ensure meetings are successful, and
deadlines are met.
The globalized workforce that participates in the global supply chain creates
its own set of challenges with many expatriates being paid “hardship allowances”
to entice them to work abroad in developing countries. Further, the native
workforce in these transnational corporations earn higher wages than those of the
average workers in their countries leading to ethnic tensions and demand for
inclusion of the less qualified workers.
Managing Groups across Cultures
Involves the ability to recognize and embrace similarities and differences
among nations and cultures and then approach key organizational and strategic
issues with an open and curious mind. Values Culture - The dominant pattern of
living, thinking, and believing that is developed and transmitted by people,
consciously or unconsciously, to subsequent generations. Cultural values - Those
consciously and subconsciously deeply held beliefs that specify general
preferences, behaviors, and define what is right and wrong.
CHARACTERISTICS OF CULTURE
 Innovations & risk taking
 Attention to detail
 Outcome orientation
 People Orientation
 Team orientation
 Aggressiveness
 Stability
MANAGING ACROSS CULTURES
 Understand,
 Appreciate and use cultural factors
 Motivate the employee
PEST Analysis
 PEST analysis is a tool used by organisations to understand external factors
which impact upon them. It can be used to consider factors impacting upon a
company, or an existing product, a new product, a possible partnership, an
acquisition, or entry into a new market, etc.
The analysis allows the business to consider whether the market is growing or
declining, and to consider how to position the business in the market-place.
PEST is an acronym and stands for Political factors, Economic factors, Social
factors and Technological factors. It can be extended to include Legal and
Environmental factors (PESTLE or PESTEL).
By undertaking PEST analysis, a business can consider how these factors will
impact upon the business. Then it can decide on policies and actions which will
allow the business to positively align itself in relation to the external factors. PEST
analysis is particularly useful for organisations which are present in several
different countries or considering expansion into other countries and in analysing
the external environment of other organisations (which may be complex) such as
major customers, competitors or suppliers.
The PEST factors will affect different businesses to a differing extent,
depending on the type of industry they are operating in and the nature of the goods
or service which they offer. For example, a company working in defence-
manufacturing is more vulnerable to political factors; a company involved in
import/export of goods will be sensitive to trade tariffs and currency fluctuations,
whilst a company involved in consumer products is more likely to be affected by
social factors.
Brainstorm the factors which have an impact on the University: consider the
following categories. This should be done on a piece of visible flipchart.
 Political Factors. These are all about how and to what degree a government
intervenes in the economy. This can include – government policy, political
stability or instability in overseas markets, foreign trade policy, tax policy, labour
law, environmental law, trade restrictions and so on. It is clear from the list above
that political factors often have an impact on organisations and how they do
business. Organisations need to be able to respond to the current and anticipated
future legislation, and adjust their approach and policy accordingly.
 Economic Factors. Professional Services Capability Framework: Seeing the
Bigger Picture Economic factors have a significant impact on how an organisation
does business and also how profitable they are. Factors include – economic
growth, interest rates, exchange rates, inflation, disposable income of consumers
and businesses and so on. These factors can be further broken down into macro-
economic and microeconomic factors. Macro-economic factors deal with the
management of demand in any given economy. Governments use interest rate
control, taxation policy and government expenditure as their main mechanisms
they use for this. Micro-economic factors are all about the way people spend their
incomes.
 Social Factors. Also known as socio-cultural factors, they are the areas that
involve the shared belief and attitudes of the population. These factors include –
population growth, age distribution, health consciousness, career attitudes and so
on. These factors are of particular interest as they have a direct effect on how we
understand customers and what drives them.
 Technological Factors. We all know how fast the technological landscape
changes and how this impacts the way we need to do business. Technological
factors affect the way we do business in a number of ways, including new ways of
producing and distributing goods and services and communicating with target
audiences.
 Environmental Factors. These factors have only really come to the forefront
in the last fifteen years or so. They have become important due to the increasing
scarcity of raw materials, pollution targets, doing business as an ethical and
sustainable company, carbon footprint targets set by governments (this is a good
example were one factor could be classes as political and environmental at the
same time). These are just some of the issues business leaders face within this
factor. More and more consumers are demanding that the products they buy are
sourced ethically and if possible from a sustainable source.
 Legal Factors. Legal factors include - health and safety, equal opportunities,
advertising standards, consumer rights and laws, product labelling and product
safety. It is clear that companies need to know what is and what is not legal in
order to trade successfully. If an organisation trades globally this becomes a very
tricky area to get right as each country has its own set of rules and regulations.
Specific features of international trade. International trade as a special
sphere of international economics has a number of specific features that distinguish
it from intra-national trade: government regulation of international trade;
independent national economic policy; social and cultural differences between
countries; financial and commercial risks.
Government regulation of international trade. Every country operates in
its own legal environment. Its government is actively intervenes and puts under a
strict control the international trade relations and monetary and financial relations,
which are connected with trading operations. This intervention and control differ
significantly from the degree and nature of those applicable to domestic trade. The
government of each sovereign country creates its own system of export and import
licensing, import and export quotas, duties, embargoes, export subsidies, its own
tax laws, etc. with its trade and fiscal policy. A major obstacle to international
trade can be governmental resolutions on currency regulations (the system of
currency regulation of the inflow and outflow of a foreign currency into and out of
the country governs international movement of goods, services and capital) and the
resolutions concerning the standards of quality, safety, health safety, hygiene,
patents, trademarks, packaging of products and the amount of information that is
provided on the packaging.
The firm should take into account not only the laws of its country, but also the
laws of the partner country during the conduct of international trade operations.
Methods of implementation of these operations depend on mentioned laws. The
laws of each country determine the choice of markets, prices for goods, which the
company can offer, the cost of resources (labor force, raw materials, technologies)
etc.
Independent national economic policy. National economic policy may
allows free flow of goods and services between countries, regulate or ban it (for
example, the restriction of trade can take the form of “voluntary” export
restrictions, boycotts of products of the country, rejections of preferential tariffs
and issuance of new credits, restrictions on access to high-tech products). All of
this significantly affects the international trade.
To maintain the balance of international payments the country must link its
economy with the global economy, that is to conduct the policy that would ensure
competitiveness of prices and costs compared to the other countries and would not
allow the existence of the differences between domestic law and international
regulation. These differences could lead to the conflict situations in foreign trade.
If the internal economic policy of the country harms its external stability, then
all trading countries feel the negative consequences of this fact. For the
international trade functioning in the atmosphere of freedom the governments have
to agree the domestic and international policies with their trading partners. These
policies must not harm the interests of any party. If the national economic policies
in international trade are based solely on domestic national interest without the
consent or without consultation with its trading partners, it leads to political
tensions between the partners (taxation of certain goods, import quotas, etc.). Thus,
international trade is often influenced by independent national economic policies
of individual states.
Socio-cultural differences between countries. The countries involved in
international trade differ from each other in customs, language, priorities, and
culture. Although these differences do not affect significantly the international
trade, but they complicate the relations between the governments and introduce
many new elements to the activities of the international companies. Insufficient
knowledge of the customs and laws of the exporting or the importing country leads
to uncertainty and distrust between the seller and buyer.
Financial and commercial risks. The main financial risks include currency
and credit risks.
International trade takes place between the countries with different currency
systems that determine the exchange of one currency for another. The instability of
exchange rates leads to an appearance of a currency risk. Currency risk is a risk of
the foreign exchange losses due to a change of exchange rate of the currency of
price relative to the currency of payment in the period between the signing of
foreign trade contract and making the payments under this agreement.
One of the problems of the importer is the necessity of obtaining of foreign
currency in order to make the payment. Currency risk arises for the importer if the
exchange rate of the currency of price is increased relative to the currency of
payment.
Exporter may have the problem of foreign currency exchange which is
received by his country. He suffers losses by the falling of the exchange rate of the
currency of price relative to the currency of payment, because he gains a smaller
real value compared to the cost of the contract.
It is important to have time for transportation of goods in international trade.
That is why the exporter is exposed to credit risk and suffers from inconveniences
associated with the distance and time, which is required for the transporting the
goods abroad and receiving a payment. The gap in time between the request to
foreign supplier and receipt of goods is usually associated with the duration of
transportation and necessity to prepare appropriate documentation for
transportation.
Exporters may require additional funds which he can get in bank to finance
the preparation and delivery of goods abroad. At the same time the credit is needed
for longer time than it should have needed, if he sold goods in the domestic market
of the country. Exporter must fulfill its obligations under the terms and conditions
of the loan agreement. However, there is risk of a failure to return the debt.
Commercial risks related with the possibility not to get profit or have losses in
the process of trade, can appear in the following cases:
 insolvency of the buyer at the time of payment of the goods;
 refusal of the customer to pay for the product;
 change in product prices after the conclusion of the contract;
 reduced demand for products;
 inability to transfer funds to the country of the exporter in connection
with currency restrictions in the country of the buyer (importer) or lack of
currency, or because of the refusal of the government of the importing country
to give this currency of any other reason.
Main stages of international trade development
The retrospective of international trade is often considered by such criteria as
major world events. There are five main stages of the evolution of international
trade:
 Stage I - the initial commercial period (1500-1850 years);
 Stage II - the period of the formation of international turnover (1850-1914
years);
 Stage III - the period between the two world wars (1914-1945 years);
 Stage IV - the post-war period (1945 - first half of 70s);
 Stage V - the period of globalization of the world economy (late 70s - to the
present time).
The first stage began from the time of the great geographical discoveries,
which caused an active export of the goods on newly discovered lands. Exported
goods were the finished products that were made from local raw materials. The
trade in colonial goods facilitated the establishment of capitalism in Europe and
determined the development of international trade over three hundred years.
This period is marked by the innovations in the field of transport. Steam
machine, internal combustion engines, ships on steam engines, electricity, etc, it all
radically changed the means of national and international communication.
Highways, canals, railways began to spread rapidly.
Domestic local markets became tight and began to expand to regional,
international scales in such circumstances. Local centers of international trade
developed into single global market.
 Europe became the center of international trade.
The distinctive features of the first phase:
 growth of state influence on the relations of countries and international
trade;
 strengthening the government support of domestic producers. Protectionism
prevails in most countries;
 the birth of the free trade policy.
The second phase is characterized by the final consolidation of colonial
empires on the background of rapid industrial development of the European
countries and the USA. Trade grows faster than production. Economies of different
countries become more open because of this fact.
The main factors of the growth of international trade include: further
evolution of techniques and technologies in production; innovations in the
transport sector; different rates of development of European countries; differences
in the reserves of the mineral resources; rise in investment activity; expansion of
sales markets; use of favorable conditions of local laws; level of education.
The period 1850-1875 years is still considered as relatively free exchange
phase. However, the next years are characterized by the increased protectionism,
due to the growing influence of monopolies on the foreign policies of their
countries. Previously characterized as a defensive, protectionism becomes
offensive and protects from a foreign competition not the weak sectors of the
national economy, but the most advanced and highly monopolized ones.
The third phase is characterized by such most important events:
1. The First World War, which destroyed the economy of European countries.
2. The great economic crisis of 1929-1933, which raised the question of the
effectiveness of internal trade quite strictly.
3. The World War II that destroyed the global economic system and
dramatically shook the confidence of the developing countries in a trade as a
driving force of economic growth.
4. Further redistribution of world markets.
5. Transition to a new, more efficient Bretton Woods monetary system in 1944.
6. Formation of two world economic systems.
The growth of international trade was at a very low level and was
significantly lower than the rate of development of production because of violation
of international trade connections and economic crises.
 The raw materials, food, fuel (60% of world exports) become the main export
commodities.
The fourth phase of the development of international trade is characterized by
the following key events:
1. The collapse of the world colonial system and the rapid development of the
former colonial countries, which become the new players on the world markets.
2. Increased development of the world economic systems: capitalist and
socialist.
3. The export of capital beyond the national borders, that ensured an increase in
export of goods, capture of lucrative sales markets, sources of raw materials.
4. Spreading of integration and transnationalization.
5. Creation of the global international organizations.
For commodity export structure the increase in the share of machinery and
technical products (machinery, equipment, vehicles) and the decrease in
agricultural production are typical.
The scales, directions and instruments of the trade policy reflect the rapid
growth of international trade, the complexity of its structure (commodity and
geographic), weaving with the new forms of global connections. It caused an
appropriate modernizing of the mechanism of regulation of foreign trade, which
was directed at facilitating the mutual exchange between the developed countries
and spreading of their access to the markets in developing countries, and which
was directed at the change of the foreign trade policy of industrialized countries
towards developing countries.
The fact that the formation of the structure of international economic relations
occurred in the conditions of sharp change in the balance of forces in favor of the
US promoted liberalization of foreign trade in this period. The US substantiated
the necessity of liberalization by the close interdependence between free trade and
the achievement of full and sustainable use of resources and also by the general
necessity in spreading of the international division of labor.
The policy of liberalization has made the main progress in the area of
customs-tariff measures. The General Agreement on Tariffs and Trade (GATT)
was developed at international conference in Geneva in 1947.
Within the integrated groups the application of preferential customs-tariff
measures is observed.
The fifth stage is characterized by the following main events:
 1. The global financial crises in 1971 and 1973, which led to the collapse of the
Bretton Woods monetary system. The enactment of the Jamaican currency system
in 1978;
2. The first and second oil crises in 1974 and 1979, which was caused by a
significant increase in the price of oil by the Organization of Petroleum Exporting
Countries (OPEC);
3. The banking crisis in the US in 1979, which led to a general increase in the
interest rates and put many developing countries (recipients of private bank loans)
on the brink of bankruptcy;
4. The global debt crisis in 1982, which was connected with the problems of
debt servicing by developing countries;
5. Strengthening of existing and the emergence of new integration groups (in
1989 - APEC, in 1992 - the EU, in 1994 - NAFTA, COMESA, in 1995 -
Mercosur, etc.);
6. Change of political systems in the Eastern European communist countries
(1989 - 1992) and the transition from the centrally planned economy to the
market economies. Some countries in Asia and Latin America also begin to move
in direction towards the democracy and the market reforms. The attractiveness of
these countries as export markets increased significantly due to such changes;
7. The creation of the World Trade Organization, which began operations in
1995
8. Financial crises in Mexico (1994 - 1995), which significantly affected both
the conjuncture of the currency and stock markets, and the global economic
conjuncture: the business activity was slowed, world prices for fuel and raw
materials decreased.
9. The introduction of a common currency (the euro) and providing the
common monetary policy by the EU in 1999. The euro currency zone appeared
with the introduction of the euro.
10. The international competition is greatly enhanced since the early 90s,
its new forms appear. They are based on the growing number of the subjects of
the global relations; they do not have a particular nationality. As a result, the
process of globalization of international trade continues, when the economies of
certain countries operate under a single, interconnected global economic system.
11. Technological changes in communications, information processing,
transport, which transform the globalization of markets and production in
material reality.
12. The global financial crisis of 2008-2009, which caused a fall in global
demand, because of which there was a decrease in production in Europe, China,
 Japan and India. This led to a sharp narrowing of the global market for goods and
services, lower prices for raw and growth in unemployment.
13. Signing of Bali Package agreement by the WTO members on
07.12.2013. This contract created the basis for the completion of the Doha Round
of the WTO negotiations. The conclusion of this agreement will help to increase
the turnover of world trade to $ 1 trillion.
All of the abovementioned events, which occurred and still occur, affect the
change in the trade processes.
The share of machinery and technical products (78% of world commodity)
grows and at the same time the share of raw materials and foodstuffs decreases in
the commodity structure of international trade; world trade in services and
intellectual work products develops dynamically.
The development of intra-industry trade contributes to strengthening of
international exchanges, i.e. when the two partner countries exchange (export or
import) the goods, that belong to the same industry or product category. This type
of trade indicates the international specialization in its thinner form than, for
example, exports of machine tools to import of food.
The geographical structure of trade changes due to the economic and political
events in the world. Group of “newly industrialized countries” (NICs) plays an
important role in the world trade. There are some features of them: the share of
industrial products in the world exports grows; high rates of industrialization and
the increase in the domestic production; policy that encourage exports directed to
foreign markets. The most dynamic global commodity trade flows are typical for
the Triad countries in the modern period: the US - the EU countries - Japan, which
are the members of various trade blocks and have an enhancing competition
between them.
The regulation of international trade is characterized by a further
harmonization of the trade rules in the WTO. A mechanism for strengthening of
the interaction of the WTO, IMF and the World Bank are created.
A return to the protectionism, called “neo-protectionism”, is observed.
Protectionist moods began to spread, since the customs tariff measures have
become more liberal and do not provide the necessary level of protection of the
domestic market. Many countries have found the ways to get around the
requirements of the GATT and to apply non-tariff trade barriers.
The main types of trade policy
 Regulation of international trade supposes purposeful influence of the state on
trade relations with other countries. The main goals of foreign trade policy are:
 the volume change of exports and imports;
 changes in the structure of foreign trade;
 providing the country with the necessary resources;
 the change in the ratio of export and import prices.
There are three general approaches to the regulation of international trade:
 a system of unilateral measures. The instruments of state control are
used by the government unilaterally and they are not coordinated with the
trading partner in this system;
 the undertaking of bilateral agreements. Trade policy measures are
coordinated between trading partners in such agreements;
 the undertaking of multilateral agreements. Trade policy is
coordinated and regulated by the participating countries (the General Agreement
on Tariffs and Trade, the General Agreement on Trade in Services which are
included in the system of the WTO agreements, agreements on trade of the EU’s
member-states).
The state can use each of approaches in any combination.
The main feature of government regulation of international trade is the
possibility of application of two different types of foreign trade policy in
combination: liberalization (free trade policy) and protectionism.
The minimum of state interference in foreign trade, which is developed on the
basis of free market forces of supply and demand, is understood under the free
trade policy. The state policy, which provides the protecting of the domestic
market from foreign competition through the use of tariff and non-tariff trade
policy instruments, is called protectionism.
These two types of trade policy characterize the measure of state intervention
into international trade.
The basic regulator of foreign trade is a market in the conditions of policy of
liberalization. The protectionism practically excludes the operation of free market
forces. It is assumed that economic potential and competitiveness of separate
countries is different at the world market. Therefore a free action of market forces
can be unprofitable for the less developed countries. Unlimited competition from
the side of more powerful states can lead to economic stagnation and the formation
of inefficient economic structure in less-developed countries.
 The protectionism policy contributes to the development of certain industries
in the country; often it is a necessary condition for industrialization of agrarian
countries; it causes the unemployment reduction. However, the removal of foreign
competition reduces the interest of domestic producers in the implementation of
scientific and technological progress, improving the efficiency of production.
There are four forms of protectionism:
 selective protectionism, directed against some countries or some commodities;
 industrial protectionism, which protects some industries;
 collective protectionism: the countries, which belong to economic integration
organizations, conduct this form to the countries, which do not belong to a
union;
 hidden protectionism, which is carried out by methods of domestic economic
policy.
In every country there are economic, social and political arguments, and the
groups of pressure in favor of protectionist measures.
The main arguments for restrictions on foreign trade are:
 necessity of defense providing;
 increase of domestic employment;
 diversification for the sake of stability;
 protection of infant industries;
 protection from dumping;
Applying the principles of free trade and protectionism and their
influence on economy

Free trade Protectionism

Advantages Disadvantages Advantages Disadvantages
Specialization of The danger of over- Creation and The problem of
countries, that facilitates specialization and development of new industry choice:
the development of increasing economic industries - support for
competition dependence on other inefficient production;
countries - saving of production
backwardness
The growth of The absence of state Protective measures Problems regarding: -
economic development regulation in foreign trade for manufacturers. The saving of the doomed
of countries, that are does not allow the country growth of employment sectors;
involved in the to fulfill its social functions - spending of funds
international division of that are not reimbursed
labor
 Efficient use of More developed The development of Human resources can
resources (factors of countries will benefit more industries that supply raw be used more effectively in
production). than the less developed materials and supplies in other areas.
Increased countries. Less developed ’’protected” production. Crisis situations in
consumption and countries may not get Liquidation of liquidation of the doomed
prosperity of the country benefit from specialization depending on the supply industries. Exhaustion and
due to non-compliance of of raw materials decrease of the national
export and import prices wealth
The elimination of The creation of own Problems related to:
the military-political defense industry: - support - elimination of
dependence was of the volume of unpromising industries;
permitted by the classics production; - retaining - application of
of free trade theory qualified potential diversification programs

The instruments of state regulation of international trade are:

 tariff methods that regulate mostly the imports and protect domestic
producers from foreign competition, because they make foreign goods less
competitive;
 nontariff methods, which regulate both imports and exports (they help to
bring more domestic products on the world market, making them more
competitive).
 Two indicators are used for the oriented determination of the nature of trade
policy:
 the average level of customs tariff. It is calculated as the average rate of
import duties, according to the value of imported goods, to which the rate is
applied. This indicator is defined only for the goods the imports of which are
imposed by duties;
 the average level of nontariff barriers. It is calculated as the value share of
the imports or exports, which are subject to the restrictions.
Trade discrimination
The trade discrimination is associated with the existence of the import barriers
that are discriminating, that is the level of customs taxation of goods and services
of one country is higher than of the others.
The main types of discriminatory barriers include trade blocs and trade
embargo.
Trade blocks
The development of creating trade blocs increases the importance of trade
discrimination.
 Trade blocs allow free trade between the member countries of any association
and simultaneously establish the barriers against imports from countries that are
not included in this bloc.
The economic blocs include: free trade area, customs union, common market,
economic union. In the free trade area all the barriers to trade between the member-
countries eliminated, but each country retains its own barriers to trade with
countries that are not members of this association. Customs union eliminates
barriers to trade among the member countries, and provides a common trade policy
towards countries outside the customs union. The common market has no trade
barriers; it is characterized by the common external trade policy, but also provides
the free movement of factors of production between the member countries. The
member countries of economic union unify the monetary policy, taxation, public
expenditures, and common currency, in addition to the free movement of goods,
services and factors of production.
Evaluation of the profitability of conducting discriminatory policies depends
on the base of comparison. If the comparison base is the free trade, then the
establishment of new barriers, that discriminate the imports of certain countries, is
usually inefficient. If the comparison base is uniform tariff, that is the same for all
products regardless of country of origin, then the elimination of tariffs between
countries can bring the benefit. Thus, on the one hand, the creation of the free trade
area or customs union is a step towards free trade. When trade barriers between
countries are unified, the creation of trading bloc, between members of which
barriers will be strengthened indicates a general decrease in the number of the
world's import barriers. Such situation makes countries closer to a policy of free
trade and so we can assume that wellbeing of the world will increase with the
creation of trade blocs. On the other hand, the formation of trading blocs may
affect the decline in world trade. Member countries begin to buy more expensive
products from the supplier, who is a partner on the bloc after the formation of bloc.
Bloc will encourage the expensive production inside it, maintaining high tariffs on
goods from cheap sources outside the union (the consumer is interested to buy
goods from the cheapest sources in case of uniform tariffs on imported goods).
Countries are allowed to bloc selectively in case of its creation, this fact can
cause international disputes. That’s why the WTO prohibits trade discrimination.
Auspiciousness (improved welfare) or destructiveness (reduced welfare) of
trade discrimination can be shoved on the example a customs union. Increased
welfare in the customs union is in the case when production in the member state is
replaced by cheap imports from another member. At the same time it is important
that all economic resources are used fully both before and after the establishment
of a customs union. It makes the welfare of a member state increased, because it
promotes greater specialization of production, based on comparative advantages. A
customs union also increases the welfare of third countries due to the fact that
some fraction of their real incomes growth (due to more complete specialization of
production) comes to total imports, which is increased in the rest of the world.
There are some conditions, which allow customs union to contribute
prosperity and growth of trade:
 the higher trade barriers of member states before block creation, the greater
the probability that the formation of the union will lead to the development of trade
between participating countries;
 lower trade barriers on trade with the rest of the world of the customs union
reduce the possibility of trade reorientation, which is expensive;
 probability that producers with low prices will cease to exist inside the bloc
is higher in conditions when a customs union contains a significant number of
countries;
 economies of the member-states should be competing and not to be
complementary (for example, industrial country and agricultural one, as
complementary countries);
 members of the of the customs union should be as close as possible to each
other geographically. In this case transport costs will less hinder the welfare of
trade between member states;
 the growth of welfare as a result of customs union creation can be provided
in case of great trade volume till the formation of union and economic
interconnection between potential member-countries.
The decrease of welfare in customs union arises when cheap import from
countries, which are not the members of union, is replaced by more expensive
imports from member countries. This is the result of preferential trade with
member countries of bloc. As a result of this fact, production moves from more
efficient producers, which are located outside, to less effective ones, who are inside
the bloc. Reduction of welfare impairs international distribution of resources and
makes the production alienated from comparative advantage.
Trade embargo
The embargo (trade) is the prohibition of all trade transactions with certain
states by one or more countries. Its purpose is to pressure the country for achieving
political objectives and, consequently, to undermine economic welfare of a
particular state and to deprive it from its markets.
 The embargo applies to aggressive trade discrimination. Not only the
traditional trade of goods may be restricted or prohibited, but also trade in services,
intellectual products, capitals (prohibition concerning the giving of credits in
several country).
Trade embargo may be classified according to the following criteria:
 by the origin of the decision on the embargo: state and international
embargo. Typically, the international organization (for example, UN) decides to
impose the international embargo regarding the state whose actions threaten
international security. However, this decision is only the recommendation. So the
countries should decide on its introduction on their own. State embargo is
introduced by the individual country;
 by the volume of application: full or partial;
 by the object of influence: to export, to import or to transit;
 by the terms of use: in wartime, in time of peace;
 by the terms of action: for a fixed period, for an indefinite period;
 by the scope of products of trade: for one product (product group), several
products (product groups), for goods, services and products of intellectual labor.
The consequence of the introduction of the embargo is the economic loss both
for the country, that impose the embargo, and for the country, against which it is
introduced. But third countries, that are not party to the embargo, can obtain the
additional gain. The volumes of prohibitions are very important. They show if the
damage of “target” country will be sufficient to outweigh the loss of the country
that initiated the embargo. For example: when country A decides to use embargo
on export to country B, part of world export supply disappears in country B, its
consumers feel the deficit of imported goods. The prices on imported goods grow.
Country A has losses too. These losses are the differences between losses of
producers and win of consumers and loss or excess of exports. Third countries,
which do not take part in embargo, win because of additional sales at higher prices.
Losses of the world in general are the losses of effective global trade.
The success or failure of the embargo depends on the degree of trade
elasticity. The success of the embargo will be most likely when:
a) the country, which introduces an embargo, has a high elasticity of export
supply (can fairly safely reduce the volume of its exports);
b) “target” country has low elasticity of demand for imports, i.e. this country
is too heavily dependent on foreign trade;
 c) economic sanctions are wide and they are imposed without warning, by
surprise.
A country, which has a significant share in the world trade and applies the
embargo, suffers from it less than a small country. The large country has more
room for maneuver in the global market and the small country can strongly
depends on its own trade with this country. Therefore, the US successfully
introduce the embargo against small countries such as Cuba, Iran, Nicaragua, and
Nigeria.
There are political and economic failures of the embargo. Political failure
arises when the government of the “target” country makes big bets with policy,
which is the goal of embargo. In this case the government will not take into
account the expensiveness of such policy (this, for example, is characteristic of the
dictatorial regime). Economic failure may arises when the embargo inflicts minor
damage to the ”target” country, but can lead to significant losses in the country,
which administered embargo.
Trade wars
Trade discrimination is a feature of trade wars resulting from contradictions
between the economic interests of the countries due to the various political
reasons. Prevention ingress of goods of the certain country on the domestic market,
unjustified increase in customs rates, the introduction of quotas, use of dumping
embargo may arise for the support of domestic producers and protection of
national interests.
Trade wars are the conflicts of higher level of tension because they can easily
be transformed into real fighting. Such conflicts require international efforts for
their settlements. Trade wars may occur between individual country and trading
blocs, between trading blocs, between one country and several countries, between
two individual countries. There are the examples of outstanding trade wars:
- ”steel war”, which began after the economic crisis in 1998 and still not
finished now. The USA, Brazil, Russia, Ukraine, Japan and other countries
participate in it. The reason of this war is the introduction by the USA of import
duties on steel deliveries from most exporting countries. Not only American steel
companies, but also ports, shipping, transport companies that specialize in delivery
of imported steel to the country suffer from this war. Total losses of all participants
of this war were estimated at $ 10 billion;
- “meat war”, that took place between the US and the EU. Use of hormones by
American beef producers for increasing the weight of animals was the reason of its
war. The US undertook commitments in 1989 to export beef to Europe without
hormones. But the EU accused the US in violation of the agreement in May 1999.
In response, the US raised duties on some European goods and going to raise
duties on food products that were exported from the EU by 100%. The war ended
in August 1999 via the WTO. Total losses of all participants of this war were
estimated at about 1 billion dollars;
- ”banana war” was between the EU and the countries of Latin America
(1991-2012). Europe opened its markets to producers of bananas from its former
African colonies and gave them the opportunity to trade without duties, but Latin
American banana exporters had to pay additional duties. The conflict was settled
via the WTO by signing of the agreement at the end of 2012.
- ”textile war” between Japan and the United States was conducting during
over 20 years. It ended with conciliatory agreement, but was replaced by ”fighting”
on television, automobiles, semiconductors, VCRs markets, etc.;
- ”tax war” between the US and the EU started in 2000, when the EU asked
the WTO allowing them to apply punitive sanctions against the US’s goods in the
amount of 4,043 billion dollars. Europeans believed that the US subsidized the
US’s exports to Europe. The WTO warned the US about the illegality of such
practices, but the US did not make any specific measures. So the EU’s trade
sanctions came into force on March 31, 2004. These sanctions accounted for 315
million dollars that year. There are similar sanctions of the USA against the EU in
the amount of $ 100 million.
Russia conducts the trade wars with Ukraine, Belarus, Georgia,
Turkmenistan, Poland and others. There are different reasons of such behavior.
Trade wars are always conducted. The quantity of lashes, as experts note,
increases directly proportional to the increase of integration of the country into the
world community and increase of competitiveness of its products on the market.
Forms of international trade in accordance with the subject of trade
There are four forms of international trade concerning the subject of trade:
- Trade in manufactured goods, machinery, equipment, including:
consumer goods. For example, clothes, footwear, detergents, furniture,
household appliances, personal care products, perfumes and cosmetics,
accessories, jewelry, fur products, cars;
machine-technical products:
 finished products. It is a supply of machines and equipment for use in
the finished form. For example, vehicles, machine tool products, technical
products for cultural and community purpose;
disassembled products. This form of trade is particularly developed in
the automotive industry (a share of disassembled cars and components is 40-
50% in this market), a production of tractors, motorcycles, electrical
household appliances, radio and electronic equipment, agricultural
machinery;
complete equipment. Complete objects are the industrial or other
enterprises as whole, separate shops, plants, units that form the finished
technological complex or its separate part. The complete equipment is
considered to be a set of organically bound machinery and equipment by a
single technological process, that ensures the release of finished products or
complete technological stage. The volume of supply in contracts for
complete equipment includes: design, technological documentation
(engineering consulting services); equipment of specified performance
indicating the costs of raw materials, fuels and output of finished products,
technical services (an installation, an adjustment, a launch of equipment in
commissioning, training of specialists).
- Trade in raw materials: mineral raw materials, products of its enrichment and
processing (by ferrous and non-ferrous metals), agricultural raw materials of
vegetable and animal origin and products of their initial processing, and food
products.
- Trade in services. For example, transportation services, tourism, rental,
computer, financial, engineering services, communications services, etc.
- Trade in products of intellectual work. Scientific and technical knowledge,
which are the results of scientific research, development works, and the experience
of their industrial development are the objects of sale and purchase. Trade in
products of intellectual work includes trade in patents, licenses, trademarks,
industrial designs, scientific and technical services (engineering).
International trade classifications
International trade in manufactured goods and primary goods is based on
international trade classifications. In these classifications all the products are
divided into sections, specific chapters, headings, and subheadings, etc. by the
features. The list of trade names in the corresponding classification system is
called a commodity nomenclature.
 The Standard International Trade Classification of the UN (SITC) (the 4th
edition, 2008), the Harmonized Commodity Description and Coding System (also
known as the Harmonized System - HS); the Classification by broad economic
categories of the UN (BEC) (the edition of 2002) are used for the classification of
goods in international trade.
The goals of the HS are:
 simplification of drafting and processing of commercial and customs
documents;
 cost reduction by rewriting, classification and registration of foreign cargo by
volume, value, destination countries and other parameters;
 simplification of accumulating, accounting of data, conducting economic
analysis about foreign trade;
 simplification of the exchange of tariff discounts within the WTO.
The structure of the nomenclature of the Harmonized system (the NHS)
consists of classification and coding system.
Classification system consists of 21 sections, 96 groups, 33 subgroups, 1241
commodity positions, 3553 sub-items, 5019 sub positions, i.e. the system has 6
degrees. Goods in the NHS are grouped by the following features:
 an origin (products of vegetable, animal origin);
 a purpose (foodstuffs and beverages; industrial raw materials; fuel and
lubricating materials; machinery and equipment, which include tools; vehicles;
industrial goods for consumers);
 a degree of processing (commodities for production and non-production
purpose; half-stuffs for production and non-production purpose; finished products).
The Harmonized system contains detailed explanations, which contribute to
the same understanding of classification groups, definition of the rate of duty, the
comparability of statistical data of the foreign trade.
Coding system of the HS allows to provide information in a convenient form
for the collection, transmission and processing, as well as to carry out its computer
processing.
Thus, HS promotes unification, perfection statistical records and increased
control over the export and import operations.
International transport services
 International transports are the services of all types of transport of carrying
goods of transport operation, provided by residents of one country to residents of
another country.
The range of transport services is wide. Services are classified according to:
 mode of transport: water (sea, river); land (rail, road); air (aviation);
space; pipeline;
 the subject of the transport operation (cargo, passenger, baggage);
 transport characteristics of product: dry (coal, ore), bulk (grain,
cement), synthetic, liquid (oil, vegetable oils);
 frequency of transportation (regular and irregular);
 the order of passing the border (without reloading and with reloading)
 type of transport and technological system (by container, by ferry, by
lighter etc.);
 message type (direct, indirect, etc.);
 geographic areas of transportation (international, intercontinental).
Currently so-called transport corridors are used widely, that link several
modes of transport on certain areas for shipping through the territory of several
countries with appropriate financial and legal security.
Transport services are distinguished by the following categories:
 passenger transportation;
 freight shipping;
 services of vessels rent (marine, river, air), land transport with team
and operator;
 services of repair and maintenance of transport;
 shunting services (for rail transport);
 services for descent to water and towing (for sea and river transport);
 additional services (services of handling, storage, packaging /
unpacking, navigation, sailing, servicing, commission payments, etc.).
An amount of international trade can be significantly affected by transport
costs. Transportation costs (the cost of delivery of goods from producer to
consumer, including the cost of freight, insurance, loading / unloading, packing /
unpacking, and other accompanying costs) are so large that make unprofitable
exports and imports of goods , it means that transportation costs transform
products from the “market” the “non-market”. This leads to a reduction of trade, of
level of countries specialization, of benefit sizes from trade.
 First place on the transport market is taken by sea shipping, which accounts
for 80% of world trade turnover.
Market of carriage of goods by sea is classified:
 by types of freighted vessels (transport by tankers, by dry cargo, by trailers,
by refrigerators, by ferries, etc.);
 by the form of transportation organizations (linear or regular, with tramp or
irregular tonnage markets);
 by type of ship (regular, rented);
 by geography (North European, the Mediterranean, Far Eastern, etc).
The volume of international maritime traffic is growing by 3.9% annually.
This is caused by increasing the tonnage of developed countries, which make over
70% of the world's merchant fleet: Greece, Japan, the USA, UK, Norway, China,
Russia and Germany.
The largest merchant fleet in the world is in Japan. Tonnage of Eastern and
Central Europe countries is 4% of the world's tonnage, tonnage of developing
countries is 19,7%.
The world's merchant fleet tonnage has increased by 23% over the past 10
years, weight of cargo - by 45%, turnover of maritime transport - by 34%. The
development of science and technology has led to making cheaper maritime
transport, which allows refusing transport costs in the value of world trade.
Terms of purchase and sale between the seller under the contract and the end
customer must comply with the terms of the contract between the exporter and the
seller.
The territory on which the distributor is entitled to sell exporter’s goods is
defined in the contract granting rights to sell it. It's called contractual territory and
beyond its borders trader under the contract has no right to sell goods without the
written permission of the exporter.
The right to sale can be:
 simple, when the exporter has the right to sell the products on the
contractual territory independently and through other intermediaries;
 exclusive (monopoly restriction), if the exporter is obliged to sell
defined products on the contractual territory only through this distributor.
Exporter can also prohibit domestic and foreign buyers to sell defined
products on contractual territory;
  exclusive with limitations, when the exporter retains the right to sell
the goods on the contractual territory directly to third parties. This is
possible in cases when the intermediary has refused to buy goods at prices
and on terms proposed by the exporter; if the goods are delivered to the state
organizations; if the goods are the parts of the compensation agreement, are
the component parts of equipment, machinery supplied by the exporter to
another client.
The price terms and the ways of payment of remuneration are determined in
the contract granting the right to sell.
The responsibilities of a distributor not related to the sale of goods are also
defined in the contract:
 trader under the contract cannot represent any other firm that is a
competitor to exporter on a contractual territory without the consent of the
exporter, and cannot sell products that are competitive for the exporter’s
goods - it is stated in no competition clause;
 minimum sales volume clause provides the minimum amount by
which the middleman has to purchase goods within a specified period, or
determines the amount of products broken down by delivery time, or
contains an indication that sales must be made in such amounts, by which
the exporter’s market share is not less than a specified percentage;
 the responsibilities of the distributor in maintenance service include:
providing service during the warranty period, carry out repairs after the
warranty period, holding a warehouse of spare parts and repair shops, etc.;
 distributor is obliged to provide advertising at his own expense or
partly with the exporter;
 mediator informs the exporter about the market position, about goods
selling, about his other exporters. He protects the interests of the exporter,
agrees not to put exporter’s products in worse conditions than the products
of the other exporters.
The distribution agreements are interesting to the exporters because they give
the chance to exit the new markets and to provide advertising of their goods in
these markets throughout several years; the distribution firm has its own marketing
network or means for its creation; the distribution agreements are accompanied by
the purchase and sale contracts on delivery of the goods, they guarantee the receipt
of the payment for the goods immediately after the delivery of the goods (if only
the goods are not delivered on credit). The distribution agreement excludes the
risks of losses from loss or damage of the goods on the territory of another country.
 As for the distributors, these contracts are interesting to them, because in
comparison with other intermediaries, the distributors have the bigger commercial
independence, they independently establish the prices, they often get the monopoly
rights of sale of the principal's goods on their territory.
The agreements with the distributors usually are signed for long term (2-5
years) with the subsequent prolongation under the agreement of parties. Such
agreements are concluded basically for sale of machine-technical, raw materials
and consumer goods.
Commission operations are carried out between the commission agent
(mediator) and commission principal (committent). The commission principal
entrusts the commission agent, but at the expense of the commission principal to
make the operation of purchase and sale with the third counterpart. The
commission agent gets the payment for the goods supplied. The commission agent
is the intermediary only for the commission principal. For the third counterpart the
commission agent will be the party of the contract of purchase and sale, namely -
the seller if the commission agent has to sell some goods or the buyer if the
commission principal entrusts to the commission agent to buy some goods.
The commission agent builds the relations with the commission principal on
the basis of the commission contract. It usually has single character. According to
the commission agreement the commission agent does not buy the goods of the
commission principal, but only concludes the agreements of purchase-sale of
goods at the expense of the commission principal. So, the commission principal
remains the owner of the goods till to its transfer to end customer. Thus, while
making the operation, the commission agent does not become the owner of the
product, even for a moment, and the product comes directly from the seller to the
buyer.
Sometimes when making commission operations the good of the commission
principal is passed into the possession of the commission agent, who does not
become its owner. The owner is the commission principal. The commission
principal bears the risk of accidental loss or accidental damage to the goods, unless
otherwise agreed, and the commission agent has to take measures to ensure the
safety of the goods entrusted to him and is responsible for any loss or damage if
this happens due to his fault.
The commission contract usually has such reservations:
  minimum and maximum prices at export and at import. It is also
warned that overpricing should not cause the loss of the competitiveness of
the goods;
 delivery dates of the goods;
 marginal technical and qualitative characteristics of the goods;
 the responsibility of the commission principals to the commission
agents and the responsibility of the commission agents to commission
principals;
 the size and the way of commissions payment that may be determined
as a percentage of the transaction (on average up to 10%) or as the
difference between the price assigned by commission principal and price of
sale assigned by the commission agent.
 payment terms.
The consignment operations are one of the types of the commission
operations. Their essence is in the supply of the product by the exporter
(consignor) to the intermediary (consignee) for the realization on the market within
a certain period of time. The consignee makes the payments to the consignor as the
goods are selling from the warehouse.
The goods of mass production are sold on the conditions of the consignment,
when the exporter is not sure in sustainable and rapid sale of these goods. Such
operations are also used when the market is weakly developed or when supplying
goods that are not well-known to local buyers.
The consignment operations are conducted on the basis of the consignment
agreement. According to this agreement one party (consignee) undertakes to sell
goods that are delivered to the warehouse in the consignee’s country by the order
of another party (consignor), within the term of the consignment contract, for the
established fee, on its own behalf and at the expense of consignor. The goods
remain the property of the consignor until the moment of their sale to the third
party.
The consignment contract includes the following information:
• the sum of the goods’ prices that simultaneously are stored in a
warehouse and replenished as far as they are sold;
• consignment period during which this amount should be realized (for
example, goods worth 100 thousand dollars consignment period - 3 years);
• the duties of the consignor and the consignee;
• payment terms. The currency of payment should be defined; it should
be determined after which term after the sale of goods the payment to the
 consignor should be made by the consignee (payment is made as far as
product is sold). Payment is satisfied after the consignor confirms its receipt
and its accuracy (payments are made by calendar periods on open account
with the provision of a bank guarantee by the consignee or acceptance of
drafts to the sum of consignment, as consignors lend to consignees on the
medium-term of goods sale);
Мethod of consignment that have chosen the parties:
a) irrevocable, if any part of the goods contracted is not realized by the
consignee, the latter will have to buy it for lump sum;
b) partially revocable, when the consignee has to sell goods for a certain
amount, and products for the remaining amount. If they can’t be realized, the
consignee will return them to the consignor;
c) revocable, which means that all unsold goods can be returned to consignor;
• minimum sale prices below which the consignee cannot sell the goods
without the prior written consent of the consignor. The basic terms of supply
of goods on consignment should be specified;
• conditions of consignee remuneration.
Consignment operations have several advantages: make it possible for
consignee to influence the prices level on the market, raising them in the period of
increasing demand and decreasing them during the bad realization; facilitate the
development of new markets, as foreign buyers have the opportunity to view the
product and to check it in work.
Agency operations are carried out on the basis of the agent agreement that is
concluded for the definite or indefinite term. The agreement is concluded for the
period from one to five years and it provides the opportunity to extend the term for
the definite or indefinite period (until one of the parties declares its intention to
terminate the agreement).
The agents can be classified by the volume of powers: with the right (sales
agents, agents-attorneys) and without the right (agents-representatives) to conclude
the agreements on the behalf and at the expense of the principal.
Agent as an independent intermediary (sales agent) can be characterized by
the following features:
• he is a legal entity registered in the commercial register;
 • he is not in the labor relations with the principal and acts only as his
representative within the responsibility entrusted to him by the agency
agreement;
• he operates independently and for a certain remuneration;
• he does not participate in the sale or purchase of goods, does not buy
goods at his own expense, but only contributes to the agreement
implementation;
• he can’t be directly controlled by the principal.
The rights granted to the agent to perform transactions on a certain territory,
can be simple, exclusive and exceptional with constraints.
Simple right is determined by including the terms of direct sales in an
agreement. According to these terms, the principal retains the right to negotiate
with customers located in the agent’s territory without the participation of the
latter.
Principal’s products are not available in the agent’s territory through the
intermediaries of third countries, in case of providing the agent with the exclusive
rights (this condition is sometimes called a monopoly reservation).
Principal reserves the right to deliver goods directly to certain customers or
certain categories of customers (for example, state enterprises and organizations) in
case of providing exceptional rights with constraints.
Sometimes agency agreements include a condition on providing the agent
with the right to sell the principal’s goods outside the agent’s territory.
The obligations of the sales agent are fixed in the contract in the form of
special reservations:
• reservation of no competition according to which:
a) the agent does not have the right to offer, to buy or advertise products
that are competitive for the principal’s products and to represent other
companies that are competitors on the contractual territory;
b) the agent must keep manufacturing and business secrets both during
and after the expiration of the contract;
c) has no right to act as an agent for the benefit of competitors or
participate in the capital of these companies;
d) must notify the principal on violation of its monopoly rights and take
steps to protect them;
 • reservation of minimum turnover, according to which the agent is
obliged to mediate on concluding contracts in the amount not less than the
agreed amount (minimum quota), which is set for a specified period (usually
a year). It should be also defined the consequences for an agent in case of
failure to reach the amount of sales or when exceeding such amount;
• del credere reservation. The agent guarantees the principal against
losses that may occurs as a result from failure of the buyer to pay the price
who bought the product with the assistance of an agent. The agent agrees to
compensate the principal’s losses arising from the insolvency of the buyer
within a pre-established amount;
• carries out advertising at his own expense in accordance with the
instructions of the principal;
• provides after-sales maintenance. The amount of services provided is
specifically determined and the amount of compensation paid for them over
commissions;
• provides information and reports to the principal.
Agent-representative performs the smaller volume of functions. His
responsibilities include:
• conducting market researches and informing the principal about the
market trends;
• providing the principal with the information on technical requirements
for products and prices;
• informing the principal of the demands of consumers, of the
predictable orders placement;
• creating a favorable opinion of the principal and its products in the
business community and provide advertising;
• facilitating the conclusion and implementation of contracts;
• organizing business contacts of principals with importers of goods,
with governmental and other organizations that affect the decision to place
orders.
Agent’s reward is fixed in the agent’s agreement. The time of occurrence of
the agent's right on remuneration and the date of its payment are primarily
determined in this agreement.
Typically, the agent has the right to receive remuneration from the
transactions which have not been executed due to the fault of the principal.
Payment of remuneration is made within the prescribed period.
 Agent with exclusive right may receive remuneration for all transactions of
the principal on the assigned territory, even if they are concluded without the
assistance of an agent.
The agency agreement defines the principal’s duties, which should:
- transfer the materials to the agent (either free or for a fee) needed to carry
out his activities (designs, drawings, catalogs);
- notify the terms of the agreement;
- inform the agent on time if he can not accept orders transmitted by the agent.

The principal has the right to:

- change prices;
- control prices on agreements, which are concluded by the agent on his
behalf. This is important in conditions of foreign exchange rates changes, increased
customs duties, quotas in the importing country;
- register the trademarks of goods sold by an agent.

Brokerage operations - these are the setting the contact between seller and
buyer through the professional intermediary, called broker in Anglo-American law,
a makler - in German law, courtieux - in French law, that facilitates the conclusion
of the agreement between the interested clients.
Brokers assist in sales and purchase of large quantities of goods (usually
exchange and auction goods). But they are no the party of the contract neither as
the seller, nor as the buyer. Their task is to find the buyer for the seller and the
seller for the buyer and to assist the signing of the contract between them. Thus,
the broker is not representative, he is not in contractual relations with either the
buyer or the seller, and operates on the basis of individual orders.
The work of the broker can be described schematically as follows:
- the exporter from the country A addresses the broker from the country B
with the request to find the buyer in any country on the given goods;
- the broker addresses to the importer from the country C with the offer to buy
the given goods from the exporter;
- when the parties reach consent the broker brings the parties together and
they sign the contract;
- the exporter delivers the goods to the country C.

The broker’s functions include:

- providing the commercial market information to the client;
- searching the contractor and negotiating with him;
- contract drafting and sending the properly signed copies of the contract to
each counterparty;
 - delivering other documentation needed for the transaction to the parties;
- control over the implementation of the contract and lodging the claims;
- guaranteeing the solvency of the buyer;
- selection of the party of goods of the certain assortment.

The broker has no right to represent the other party in the agreement and to
accept the broker's charges from the other party, except when there is the consent
of the client. In some cases, two brokers act as the middlemen: from the buyer and
the seller.
The broker receives the broker's charges (brokerage) for the intermediary
activity. This brokerage is usually received from the party that appealed to him
first. Its size is ranging from 0,25% to 2-3% in the commodity transactions.
International trade fairs / exhibitions are classified by certain characteristics.
By location there are domestic and foreign fairs / exhibitions. International
trade fairs / exhibitions are considered domestic for national exhibitor and foreign -
for a representative of another country.
By the sphere of activity fairs / exhibitions are divided into regional,
interregional and global fairs / exhibitions.
An example of the world exhibition may be World exhibition “Expo - 2000”,
which was opened in 2000 in Hanover (Germany). 200 countries and international
organizations participated in it; “Expo” realized 800 “international projects” on all
the continents.
Universal and specialized fairs / exhibitions are distinguished by the nature
of offered exhibits.
Broad product range of unrelated industries is demonstrated on universal fairs
/ exhibitions, i.e. exhibits are not limited by certain product groups.
Products of one or more related industries are demonstrated on specialized
fairs / exhibitions.
By terms of conducting there are periodic (2-4 times a year for consumer
goods or at intervals of 2-5 years for technological innovations) and permanent
fairs / exhibitions (organized usually in different offices of the country abroad to
demonstrate examples of export goods).
By location of conducting the fairs / exhibitions are divided into permanent,
i.e. they always keep its theme and venue, and mobile, which are organized to
expand the range of visitors by using different means of transport (on board of
large ships, in vans, airplanes).
 International Chamber of Commerce (ICC) developed commercial terms in
1936, that are the universal set of basic conditions, knowledge and using of which
facilitates the implementation of trading operations. These terms were created to
get rid of these problems, clearly define the duties of the parties and reduce the risk
of legal complications, in the contracts for the sale of goods. They are based on
international trade practice and customs. The collection was called “International
rules for the interpretation of trade terms INCOTERMS” (International
Commercial Terms). Changes in INCOTERMS were made in 1953, 1967, 1980,
1990 and 2000. A new version of the INCOTERMS rules, known as
“INCOTERMS 2010. ICC rules for the use of domestic and international trade
terms”.
Basic terms of delivery simplify the process of developing and conclusion of
the contract; help the partners to find a way of shared responsibility.
The basic conditions of supply in the contract of sale of goods are the
conditions that define:
1) the rights and obligations of the parties for the supply of sold goods:
- who and at whose expense provides transportation of goods on the territory
of the exporter, the importer and transit countries, and at transportation of goods by
sea, river and air transport;
- condition of the cargo in respect of the mean of transport, that determines the
seller's obligations to deliver the cargo in a particular place for a fixed price in a
contract or load the goods on a vehicle or prepare it for upload, or transmit to the
transport organization;
- seller's obligation in packing and labeling of goods and obligations of the
parties in cargo insurance;
- obligations of the parties regarding the execution of commercial
documentation according to the current requirements in international trade
practice;
- where and when the ownership of the goods are transferred from the seller to
the buyer;
2) the time of the transfer the risk of accidental loss, or damage to the
goods and costs which may arise from this.
The obligations of counterparties
A. The seller's obligations B. The buyer’s obligations
 A1. Provision of goods in conformity B1. Payment of the price
with the contract
A2. Licences, authorisations B2. Licences, authorisations and
and formalities
A3. Contracts of carriage and B3. Contracts of carriage and
insurance insurance
A4. Delivery (the goods) B4.Taking delivery (the goods)
A5. Transfer of risks B5. Transfer of risks
A6. Division of costs B6. Division of costs
A7. Notice to the buyer B7. Notice to the seller
A8. Proof of delivery, transport B8. Proof of delivery, transport
document or equivalent electronic message document or equivalent electronic
message
A9. Checking, packaging, marking B9. Inspection of goods
A10. Other obligations B10. Other obligations
Thus, the basic conditions of delivery determine who bears the costs of
transporting the goods from the seller to the buyer. Expenses, that are carried by
the exporter, are included in the price of goods (sometimes they reach 40-50% of
the price). Basic terms install the basis of price and impact on price level.
Preparation for the conclusion of international purchase and sale
contract
The stage of preparation for the conclusion of the contract on the basis of
direct links includes:
The choice of contractor. Such factors must be accounted in the process of
choosing the contractor:
• the character and subject of contract;
• country of conclusion and country of execution of the contract;
• market size and market conjuncture;
• degree of monopolization of market by large firms;
• possibility of penetration to the market;
• duration of trade relations with a particular company;
• the nature of the company activity (producer, consumer or reseller)
• connections, recommendations.
Establishment of the contact with potential buyer. The following methods
may be used in such process:
• to send a proposal (offer) to one or several foreign buyers;
• to accept and confirm the order of the buyer;
• to send the buyer a proposal in response to his request;
 • to take part in international bidding, exhibitions, fairs, and use tools of
advertising;
• to send the buyer a commercial letter about the intentions to begin
negotiations concerning conclusion of the contract.

The offer of one party to another to conclude the contract in commercial

practice is called an offer. Offer is a written proposal of seller (offeror) to the
possible buyer concerning the sale of goods on established conditions by seller.
There are basic terms of the agreement, which are mentioned in the offer: the
name of product, quantity, quality, price, delivery conditions, delivery time,
payment terms, the nature of containers and packing, order of acceptance and
delivery, general conditions of supply.
There are two types of offer: strong and free.
Strong offer is the written offer of exporter for sale of certain consignment of
goods. This offer is sent to one prospective buyer by offeror, and indicates the
period, during which the seller is bound by its proposal and can not make a similar
offer to another buyer.
If the importer accepts the terms of the offer, he sends to the importer the
written statement, which contains unqualified acceptance, i.e. the approval to
accept all the terms of the strong offer.
In case of disagreement of importer with certain conditions of offer, he sends
the exporter counteroffer (i.e. new offer) with the indication of his terms and time
for giving answers.
Price, payment terms, quality and quantity of goods, place and time of
delivery, scope of responsibility of one party to the other, the procedure for
resolving disputes are the terms, the change or addition of which are significant
differences between acceptance and offer.
If the buyer does not give a reply within a specified period in the offer, it
means his rejection from the conclusion of the agreement on the proposed terms
and dismisses exporter from his proposal.
Free offer is the offer of the same consignment of goods to several possible
buyers. There is no installed time to answer, so the offeror is not bound by his
offer. The consent of the buyer with the conditions, which mentioned in the free
offer, must be supported by solid counteroffer. The agreement is considered as
concluded after the acceptance of counteroffer by seller. Exporter accepts that
counteroffer, which was obtained earlier or from the more perspective buyer.
 Using a free offer for the buyer is less convenient than strong offer, because it
does not give to the importer the certainty that if he sends counteroffer, he will
become the owner of the goods. This offer is rarely used.
The method of preparing an agreement based on the study of conditions of
order for the supply of goods, received from the buyer, is often used in
international trade practice.
Orders can be confirmed and accepted to execution or rejected (the reasons
must not be obligatory explained). Order confirmation is a commercial document,
which is a message of exporter about the acceptance of terms of the order without
warnings.
If the initiative comes from the buyer, his appeal to the seller about sending
an offer (proposal) is called the request. The purpose of the request is to receive a
number of competitive offers from export companies. The best from them should
be chosen on the basis of analysis. Therefore, requests are sent not to one, but to
several firms in different countries. Exact name of the necessary product, its
quality, variety, quantity, delivery time are noted in request.
Negotiations between contractors are conducted through exchange of letters,
phone calls, telegraph, teletype, facsimile, etc., but personal contacts, as a rule,
play the decisive role.
There are documents, which must be issued in preparation for the conclusion
of export transactions:
• proposal (offer);
• contract;
• order confirmation;
• proforma invoice (a document that serves as a preliminary account, but not
the basis for payment);
• request for delivery instructions (is given by the supplier with the request to
the buyer to inform the instructions regarding terms of delivery of ordered
products);
• tender (proposal of the offeror, who takes part in bidding, which meets
customer needs and confirms that offeror agree to take technical specifications
indicated in the works and provides an indication of the proposed price or value of
the work).
There are documents, which must be issued in preparation for the conclusion
of agreements:
• request;
 • letter of intent, by which the buyer informs the seller about acceptance in
principle of supply and agreement to begin negotiations on the conclusion of the
contract;
• order (it includes instructions for delivery of ordered products, the number
and size of partial deliveries, their terms, dispatch address, type of transport,
carrier's name and instructions for packaging);
• tender documentation.

SWOT analysis is a general technique for assessing any public or private

organisation and its environment. It belongs to the “Analysis” part of a strategic
planning process and helps decisionmakers to focus on key issues. Performing a
SWOT analysis involves the generation and recording of the strengths,
weaknesses, opportunities and threats concerning the organisation. Once key issues
have been identified, they feed into operational objectives.
What is a SWOT analysis?
SWOT stands for strengths, weaknesses, opportunities, and threats. SWOT
analysis can be simply understood as the examination of an organisation's internal
strengths and weaknesses, and its environment, opportunities and threats. It is a
general tool designed to be used in the preliminary stages of decision-making as a
precursor to strategic planning: it belongs to the “Analysis” part of the strategic
planning process.
SWOT is performed by the managers of a National Statistical Institute (NSI)
in a group work. It should be shared as much as possible with the whole staff of the
NSI in order to make it more committed to the general objectives described by the
SWOT. A facilitator, who comes from outside the institution, could be useful in
order to keep the work on the track and help to weight the various proposals.
SWOT analysis should be flexible: situations change with the passage of time
and an updated analysis should be made from time to time. SWOT is neither
cumbersome nor time-consuming and is effective because of its simplicity.
SWOT analysis is an effective method of identifying the Strengths and
Weaknesses of a NSI, and to examine the Opportunities and Threats it faces. Often
carrying out a SWOT analysis will be enough to reveal changes, which can be
usefully made in putting problems into perspective. The method provides a
framework for identifying critical issues. Analyses are then limited to the
significant items that can really be addressed.
The purpose of SWOT analysis is to isolate key issues and to facilitate a
strategic approach: strategic planners usually limit their efforts to those issues that
have the most impact on the situation. To this end, the items in the SWOT list must
have been thoroughly analysed and represent the real priorities as observed by the
majority of the group. If they bear no relation to the actual discussion, that could
defeat the purpose of the SWOT exercise.
The SWOT should cover all of the following areas, each of which may be a
source of strengths, weaknesses, opportunities or threats: political and economic
environment of the institution, staff and staff policy, operating budget, statistical
production, relationships with international organisations, other donors and other
Statistical Institutes, relationships with users and customers.
1. The internal factors: strengths and weaknesses
The analysis of the internal factors should be considered from both an internal
and external basis: does our environment perceive our strengths/weaknesses as we
do? Therefore, the assessment of strengths and weaknesses is facilitated through
surveys or interviews with main users or customers. Once weaknesses and
strengths are delineated, it would be appropriate to reconfirm these items: different
perceptions may exist depending on the representative group consulted.
1.1. Strengths
Strengths can refer to the NSI, to its environment, to public relations and
perceptions, and to people. When performing the SWOT analysis, Strengths can be
approached in answering the following questions: What are our advantages? What
do we do well?
1.2. Weaknesses
Weaknesses can be approached in answering the following questions: What is
done badly? What obstacles prevent progress? What could be improved? What
should be avoided?
The assessment should be realistic, even if it is always unpleasant to face
negative assessments. Making a list of internal weaknesses could reveal areas that
can be changed to improve the institution, but also things that are beyond the
control of the institution. But this is also a key message for persons inside and
outside the NSI to recognise the shortcomings that will have to be tackled and
minimised in the future.
2. The external factors: opportunities and threats
The external look is complementary to the internal self-study in a SWOT
analysis. Information about the political and socio-economic environment, the
changes in the society, and all changes that have an effect on the NSI but are
beyond its control should be considered in this phase of the study.
Opportunities and threats are not absolute. What might at first seem to be an
opportunity, may not emerge as such when considered against the resources of the
NSI or the expectations of society. Again Opportunities and Threats have to be
reported in a realistic way for their impact on the NSI.
2.1. Opportunities
Opportunities can be approached in answering the following questions:
Where are the good chances facing us? What are the interesting trends? Useful
opportunities can come from such things as: national or international events,
changes in government policies, changes in technology, changes in user needs or
social patterns, etc.
2.2. Threats
Threats can come from different horizons and in various forms. Threats need
to be ascertained. Such kind of questions may help to evaluate them: What
obstacles do we face? Are the required specifications for our works, products or
services changing? Is changing technology threatening our position? Do we have
budget uncertainties?
Pros and Cons of SWOT analysis
The practical message from a SWOT analysis is that decision-making should
contain each of the following elements: building on Strengths, minimising
Weaknesses, seizing Opportunities, and counteracting Threats. It is a relatively
simple way of communicating ideas, policies, and concerns to others, which can
help managers to disseminate their vision.
A SWOT analysis can be an excellent, fast tool for initiating a strategic
planning exercise. It looks at future possibilities for the institution through a
systematic approach of introspection into both positive and negative concerns.
SWOT analysis usually reflect a (group of) person's existing position and
viewpoint, which can be misused to justify a previously-decided course of action
rather than used as a means to open up new possibilities. It is important to note that
sometimes threats can also be viewed as opportunities, depending on the people or
groups involved.
Finally, a SWOT analysis can be rather subjective and a way to increase its
validity is to raise the number of criteria and to weight them for each of the factors.
 Franchising vs Licensing: Which is better for your business? Deciding
between a franchise agreement or a licensing agreement can be confusing. It is
essential to carry out your due diligence before making any major business
decision.
So let’s look at the pros and cons of each. Both franchising and licensing are
legal partnerships: which one represents a better opportunity for you? But first, a
quick reminder of what they are and how they differ.
What is franchising?
Franchising is a partnership in which one party allows another to borrow its
business model or brand name. This is usually done at a fee. The party which lends
its name or business model is called the franchisor, while the party paying for the
permissions is the franchisee.
 Upside of franchising
Franchising has several benefits. As the franchisor, it expands your customer
base while maintaining the value of your brand. Another upside of franchising is
that the franchisee bears the cost of upgrading their business premises to meet the
standards of the brand. In return, the franchisee gets invaluable mentorship. Sounds
like a win-win situation, right?
 Downside of franchising
However, in order for a business to become a successful franchise, it must
first be well-established with a profitable business model and a strong,
recognisable brand.

What is licensing?
Licensing is also a legal partnership between two parties. In this type of
arrangement, one party (the licenser) sells the rights for the use of its intellectual
property to the licensee. The licensee can then manufacture the products of the
licensor, while paying royalties to the licensor.
 Upside of licensing
A license arrangement is generally easier and cheaper to set up than a
franchise concept. Ongoing management is also less demanding.
 Downside of licensing
 However, you are giving up a lot of control over the quality of the products
and services the licensee will provide, and this could damage your reputation.
So, if they both involve paying for use of information, you may be
wondering: what’s the difference?
Differences between franchising and licensing
Although their definitions sound similar, there are noticeable differences
between franchising vs. licensing.
1. Business model:
The first difference is in the business model. Franchising only deals with the
provision of a service, while licensing can be for both services and products. For
example, a restaurant or a salon can be franchised, but not the products they use to
provide the said services.
2. Control & influence:
Secondly, there is the factor of how much control the two parties have. In
franchising, the franchisor has a big influence on how the franchisee runs the
enterprise. This means that the franchisor controls crucial decisions such as
marketing strategies used, and even the quality of service provided. The franchisee
has little wiggle room in decision-making. However, in licensing, the licensee can
make decisions on what to do with his own products or services, without the need
for approval from the licensor.
3. Support:
The third difference is in the processes used. In franchising, the franchisor
(the seller) provides the franchisee with the assistance of setting up the required
systems. Licensing agreements do not typically come with such technical support.
4. Ownership:
The fourth difference is with the ownership. In a franchise partnership, the
business belongs to the franchisee. The franchisee essentially runs the business for
the franchisor, but at a fee. In a licensing partnership, the licensee only pays the
licensor for a specific product, for which the licensor may have taken out patent
rights. However, the rest of the business, which doesn’t need the products of the
licensor, may continue running independently.
5. Regulations:
 Finally, the regulations for franchising tend to be stricter. Franchising
regulations are governed by company law. This differs from licensing regulations,
which are governed by contract law.
THEORIES OF INTERNATIONAL INVESTMENT
Monopoly Theory of Advantage
The monopoly theory of advantage states that the investing firm possesses a
relative monopolistic advantage abroad against the competitive local firms.
This theory talks about a horizontal foreign investment where a company
makes an investment in a foreign country in a similar business prevailing in the
foreign country.
According to this theory, when a firm goes through this theory enjoys a
monopolistic advantage on two counts - economies of scale (cost reduction
technique) and superior knowledge and advanced technology. It refers to all
intangible skills-intellectual capital plus advanced technology which permits the
firm to create unique product differentiation.
Empirically, it suggests horizontal foreign direct investments of the US firms’
knowledge in technology-intensive industries such as petroleum referring,
pharmaceuticals, chemicals, and transport equipment. It was also observed in the
case of US firms in high-level marketing skill- oriented industries such as
cosmetics and fast food abroad.
Oligopoly Theory of Advantage
The oligopoly theory of advantage theory of FDI explains vertical foreign
investment. This means a company invests in a foreign country other than the
business prevailing in that country.
Through vertical direct foreign investment, they tend to capture and enlarge
market share in the global market
The oligopolistic big firms tend to dominate in the global market on account
of entry barriers such as the big firms intend to retain their monopoly power by
sustaining the entry barriers. They do not want new competitors to enter by
allowing the market vacuum.
This theory explains the defensive investment behavior of a multinational
firm. For this reason, petroleum companies tend to land invested in crude oil
refineries as well as marketing outlets.
It further explains a firm shift from exporting to foreign direct investment.
 Initially, a firm that innovates a product and produces at home enjoys its
monopolistic advantage and starts the export market, thus, specializing and
exporting. This theory says FDI occurs when the product life cycle moves to the
third and fourth stages i.e. maturity and decline stages.
The firm may tend to invest abroad and export from there to retain its
monopoly power. The rivals from the home country may also follow to invest in
the same foreign country’s oligopolistic market explaining both trade and FDI.
Eclectic Theory
This theory is Propounded by John Dunning (1988), is a holistic, analytic
approach for FDI and organizational issues of the MNCs relating to foreign
production.
Eclectic paradigm considers the significance of three variables.
Ownership Specific - Technology, knowledge, economies of scale,
•
monopolistic advantage, managerial effectiveness, and structure.
• Location Specific Advantage - More profit due to special factors like
political, physical, social, economic, etc. in foreign markets.
•Internalization Advantage - Higher return in licensing, franchising, or
exportation rather than functioning in full operation.
FDI:
Learning value:
1. Meaning and correct trends of FDI
2. Benefits to host countries through FDI
3. Destinations of FDI flow
4. Criteria of attracting FDI
5. Major challenges for FDI in various countries
Definition and Importance
Investment is “the flow of funds one destination to another”, for any activity,
including industrial development, infrastructure and manufacturing. When the
investment goes from the home country to another country it is defined as
‘investment outflow’ and when the foreign investment comes from other countries
to home country it is termed as ‘investment inflow’. Both inwardand outward
movements are encouraged in majority of the countries. All developing countries
produce primary goods, and to exploit them financial resources are necessary.
Developed countries are also in need of FDI for further development of technology
and modernization.
The current Foreign Direct Investment (FDI) is related to investment in
developing countries and Less Developed Countries (LDCs)require huge
investments in other activities, such as infrastructure, healthcare, housing, power
generation etc.
Financial resource is crucial, time bound and critical. If it is not available
in right time from anywhere, the probable results are bankruptcy, decline and
loss of status whether it is a nation or company or individual.
With the liberalization of the Indian economy, a large Indian market is being
opened up to foreign investors. Practically, FDI represents foreign assets in
domestic structures, equipment and organizations. It does not include foreign
investment in the stock markets. Foreign direct investment in useful to a country if
the focus is more on projects rather than investments in the equity of companies
because equity investments are potentially “hot money” which can leave at the first
sign of trouble. South Korean, South African and Argentinean crisis were partially
due to such problems.
When a firm invests directly in facilities in a foreign country it is said to be
FDI. It involves the active control of the investment not really determined by level
of stock ownership. Many multinational enterprises become involve in FDI with
the ultimate objective of reaping short term as well as long term benefits.
Ownership may become transnational, i.e., ownership in more than one country.
The parent company has direct managerial control, but the degree of control
may depend on the type of country and company policy. Prior to their investment
decisions it is necessary to carry out risk analysis and interpretations of the same.
MNCs do not develop blind faith in any country. A team of experts analyse risks
carefully and invest gradually.

CHARACTERISTICS OF FDI
FDI is an activity by which an investor, who is resident in one country,
obtains a lasting interest in, and is a significant influence on the management of an
entity in another country. This may involve either creating an entirely new
enterprise, so-called “Greenfield” investment or, more typically, changing the
ownership of existing enterprises via mergers and acquisitions. Other types of
financial transactions between related enterprises, like reinvesting the earnings of
the FDI enterprises or other capital transfers, are also defined as foreign direct
investment.
MEANING OF TRADE AND INVESTMENT
Trading refers to the trading of securities, i.e. bonds, buying and selling of
shares, futures, options, debentures, etc., between merchants, for the intention of
obtaining a profit. Investing refers to distributing money to either a project, policy,
plan or a scheme which is capable of generating future returns.
ROLE OF TRADE AND INVESTMENT
Trade and cross-border investment are crucial drivers of economic growth and
development, yet support for international economic cooperation falters, and
existing rules and institutions are strained.
The major differences between investing and trading are approaches, risk, and
time involved. It is okay to do both, and it depends on the risk-taking ability and
patience of the person to choose between either of these or both of these. Investing
is long-term and involves lesser risk, while trading is short-term and involves high
risk. Both earn profits, but traders frequently earn more profit compared to
investors when they make the right decisions, and the market is performing
accordingly.
MODES OF ENTERING INTERNATIONAL BUSINESS
Modes of entry into an international market are the channels which your
organization employs to gain entry to a new international market.
 When businesses grow successfully within their domestic markets, they
attempt to expand their businesses into international markets, in an attempt to
replicate its success in overseas markets.
The long-term advantages of doing international business in a particular
country depend upon the following factors:
• Size of the market demographically
• The purchasing power of the consumers in that market
• Nature of competition
By considering the above-mentioned factors, firms can rank countries in
terms of their attractiveness and profitability. The timing of entry into a nation is a
very important factor. If a firm enters the market ahead of other firms, it may
quickly develop a strong customer base for its products.
1. EXPORTING
Exporting is a typically the easiest way to enter an international market, and
therefore most firms begin their international expansion using this model of entry.
Exporting is the sale of products and services in foreign countries that are sourced
from the home country.
ADVANTAGES
1. You could significantly expand your markets, leaving you less
dependent on any single one.
2. Greater production can lead to larger economies of scale and
better margins.
3. Your research and development budget could work harder as
you can change existing products to suit new markets.

DISADVANTAGES
1. Unless you're careful, you can lose focus on your home markets
and existing customers.
2. Your administration costs may rise as you may have to deal
with export regulations when trading outside the European Union.
3. You will be managing more remote relationships, sometimes
thousands of miles away.
4. In overseas markets, you may lose some of the control that you
are used to at home.
5. You will need to think of your new market differently to the
home market. They will be different customers with their own reasons
for buying your products.
 2. LICENSING
In this mode of entry, the domestic manufacturer leases the right to use its
intellectual property (i.e.) technology, copy rights, brand name etc to a
manufacturer in a foreign country for a fee. Here the manufacturer in the domestic
country is called licensor and the manufacturer in the foreign is called licensee.
The cost of entering market through this mode is less costly. The domestic
company can choose any international location and enjoy the advantages without
incurring any obligations and responsibilities of ownership, managerial, investment
etc.
ADVANTAGES
1.Low investment on the part of licensor.
2.Low financial risk to the licensor
3.Licensor can investigate the foreign market without much
efforts on his part.
4. Licensee gets the benefits with less investment on research and
development
5. Licensee escapes himself from the risk of product failure.
DISADVANTAGES
1. It reduces market opportunities for both
2. Both parties have to maintain the product quality and promote
the product. Therefore, one party can affect the other through them
improper acts.
3. Chance for misunderstanding between the parties.
4. Chance for leakages of the trade secrets of the licensor.
5. Licensee may develop his reputation
6. Licensee may sell the product outside the agreed territory and
after the expiry of the contract.

3. FRANCHISING
Under franchising an independent organization called the franchisee operates
the business under the name of another company called the franchisor under this
agreement the franchisee pays a fee to the franchisor.
The franchisor provides the following services to the franchisee.
1. Trade marks
2. Operating System
3. Product reputation
 4.Continuous support system like advertising, employee training,
reservation services quality assurances program etc.
ADVANTAGES
Low investment and low risk
1.
2. Franchisor can get the information regarding the market culture,
customs and environment of the host country.
3. Franchisor learns more from the experience of the franchisees.
4. Franchisee get the benefits of R& D with low cost.
5. Franchisee escapes from the risk of product failure.
DISADVANTAGES
1. It may be more complicating than domestic franchising.
2. It is difficult to control the international franchisee.
3. It reduce the market opportunities for both
4. Both the parties have the responsibilities to maintain product
quality and product promotion.
5. There is a problem of leakage of trade secrets.

SPECIAL MODES
a) CONTRACT MANUFACTURING
Contract manufacturing in international markets is used in situations when
one company arranges for another company in a different country to manufacture
its products; this is also known as international subcontracting or international
outsourcing. The company provides the manufacturer with all the specifications,
and, if applicable, also with the materials required for the production process.
ADVANTAGES
Less investment
1.
2. Less risky
3. Low cost
4. Better capacity utilization
5. An opportunity for local producers to become international
DISADVANTAGES
1. Deviations from Product design and quality Specifications
2. Loses control over Manufacturing Process
3. No authority to sell output

b) MANAGEMENT CONTRACT
 A management contracts is an agreement between two companies whereby
one company provides managerial assistance, technical expertise and specialised
services to the second company of the agreement for a certain agreed period in
return for the monetary compensation.
ADVANTAGES
Saves time and resources
1.
2. Provides expertise
3. Saves money
4. Provides business continuity
DISADVANTAGES
1. Loss of control
2. Reputation damage
3. Conflict of interest
c) TURNKEY PROJECT
A turnkey project is a contract under which a firm agrees to fully design,
construct and equip a manufacturing/ business/services facility and turn the project
over to the purchase when it is ready for operation for a remuneration like a fixed
price, payment on cost plus basis. This form of pricing allows the company to shift
the risk of inflation enhanced costs to the purchaser.
e.g.: nuclear power plants, airports, oil refinery, national highways, railway
line etc. Hence, they are multiyear project.
ADVANTAGES
1. Less management works
2. Reduced project timelines
3. Reduced cost overruns

DISADVANTAGES
1. Limited client involvement
2. Budgets may be higher than necessary

FDI WITH ALLIANCE

Innovations, creations, productivity, growth, expansions and diversifications
in recent years are mostly accomplished by strategic alliances adopted by various
companies like mergers and acquisitions and joint ventures.
 Strategic alliance is a co-operative and collaborative approach to achieve the
larger goals.
Strategic alliance takes different forms like licensing, franchising, contract
manufacturing, joint ventures etc.
MERGERS & ACQUISITIONS
A domestic company selects a foreign company and merger itself with foreign
company in order to enter international business. Alternatively, the domestic
company may purchase the foreign company and acquires it ownership and
control. It provides immediate access to international manufacturing facilities and
marketing network.
ADVANTAGES
1. The company immediately gets the ownership and control over
the acquired firm’s factories, employee, technology, brand name and
distribution networks.
2. The company can formulate international strategy and generate
more revenues.
3. If the industry already reached the stage of optimum capacity
level or overcapacity level in the host country. This strategy helps the
host country.

DISADVANTAGES
1.Acquiring a firm in a foreign country is a complex task
involving bankers, lawyer’s regulation, mergers and acquisition
specialists from the two countries.
2. This strategy adds no capacity to the industry.
3. Sometimes host countries-imposed restrictions on acquisition of
local companies by the foreign companies.
4. Labour problem of the host country’s companies are also
transferred to the acquired company.
JOINT VENTURE
Two or more firm join together to create a new business entity that is legally
separate and distinct from its parents. It involves shared ownership. Various
environmental factors like social, technological economic and political encourage
the formation of joint ventures. It provides strength in terms of required capital.
Latest technology required human talent etc. and enable the companies to share the
risk in the foreign markets. This act improves the local image in the host country
and also satisfies the governmental joint venture.
 ADVANTAGES
1. Joint venture provide large capital funds suitable for major
projects.
2. It spread the risk between or among partners.
3. It provide skills like technical skills, technology, human skills,
expertise, marketing skills.
4. It make large projects and turn key projects feasible and
possible.
5. Its synergy due to combined efforts of varied parties.
DISADVANTAGES
1. Conflict may arise
2. Partner delay the decision making once the dispute arises. Then
the operations become unresponsive and inefficient.
3. Life cycle of a joint venture is hindered by many causes of
collapse.
4. Scope for collapse of a joint venture is more due to entry of
competitors changes in the partners strength.
5. The decision making is slowed down in joint ventures due to the
involvement of a number of parties.

FDI WITHOUT ALLIANCES

Companies enter the international market through FDI, invest their money,
establish their manufacturing and marketing facilities through ownership and
control.