INTERNATIONAL BUSINESS AND  Trade influences what we buy

TRADE PRELIMS REVIEWER and where we work

 It affects food safety, labor
Session 1: International Trade laws, and even global health
standards
What is International Trade?  International trade shapes
economies, national policies,
 It is an exchange of goods and foreign relations
and services between
countries MERCANTILISM (16th – 18th
 Gives rise to world trade and century)
a world economy, in which - Emphasized maximizing
prices, supply, and demand exports and minimizing
affect imports
- Governments controlled
Types of International Trade trade to accumulate wealth
and strengthen national
1. Export – selling of goods and power
services out of the country - Led to colonial expansion,
protectionism, and trade
Examples: Philippines producing wars
bananas and exporting it to Japan
or South Korea Tariffs
- Taxes on imported goods to
2. Import – buying goods and protect domestic industries
services into the country - Trade disputes arise over
unfair practices, subsidies,
Example: Philippines buying digital and market access
devices from South Korea or China
Examples: US-China trade war,
3. Entrepot – importing goods Brexit trade negotiations
from one country and
exporting it to another  Created barriers to
country after adding some international trade
value to it
PARADIGM SHIFT
Example: Philippines buying o Economist like Say, Ricardo,
components of computer units from and Smith refuted the idea of
China, use these components to Mercantilism, they believed
manufacturer computer units and that countries should trade to
sells computer units to Hongkong become successful because
of comparative advantage
Why Countries Trade?
Specialization – when countries
Efficiency and Competitiveness produce products that they are
 Some countries do not have good, export them, and import
all the needed resources and products that they are not good at,
skills to support their needs they become more efficient
 Costly to produce goods and - Results to more innovation
services by themselves and creativity, thus
increasing productivity
Why International Trade Matter?
What is Gross Domestic Product?
  Sum of all the final good and  If one country can’t sell a
services that the country high quality product at a
produces in a year reasonable prices, it will not
 Each country’s human, succeed
physical, technological, and  Stores and factories will be
financial resources determine closed, jobs lost
what that country can  Government subsidies, which
produce efficiently and is common to advanced
successfully economies, make it hard for
developing countries to
Example: Germany produces export their products, thus
millions of cars but imports coffee they become less
from Asian countries competitive in the global
market
GDP Measurement
 Accepted by many countries ECONOMIES OF SCALE AND
 International Trade was SPECIALIZATION
established leading to a more
dynamic international  Countries puts its resources
business transactions into its most efficient
 The UN created the GATT industries and using
(General Agreement on resources in this manner may
Tariffs and Trade) to lower the enable a country to achieve
barriers to trade economies of scale
 The country’s trade
Underlying Principles of competitiveness is more
International Trade complicated. Greater
specialization improves
competitiveness, but
sometimes resources are
difficult to transfer from one
industry to another

ADVANTAGES OF
SPECIALIZATION
 Workers become quicker at
producing goods (efficiency)
 An increase in productivity
causes the cost of production
LAW OF COMPETITIVE
to decrease (economies of
ADVANTAGE
scale)
 Specialized workers tend to
Absolute Advantage – being
get higher pay
more productive or cost-efficient in
 Workers’ specific skills will be
producing products than another
improved
country
 More motivation from job
satisfaction
Comparative Advantage –
greatest advantage among the
DISADVANTAGES OF
products it produces
SPECIALIZATION
 Complacency
Principles of Comparative
 Monotony and boredom
Advantage
  Structural unemployment  Continued debates on
(limited skill set) protectionism vs free trade
will shape the future
Complexity of Trade in a economy
Globalized World

 Trade is not just about

exchanging goods; it involves
regulations, tariffs and
political decisions
 Issues such as trade deficits,
disputes, and tariffs affect
global economies

North American Trade

Agreement (NAFTA)
- Facilitates trade between
member countries,
addressing their unique
needs and circumstances
- EU, USMCA, Regional
Comprehensive Economic
Partnership, Association of
Southeast Asian Nation Free
Trade Area

Role of Foreign Policy in Trade

 Trade policies are shaped by
diplomatic relations and
global agreements
 Countries negotiate trade
deals to protect their
economies and strategies
interests

The Future of International

Trade
 Digital trade and e-commerce
reshape global market
 Sustainability concerns lead
to new trade policies
 Emerging economies play a
larger role in global trade

TAKEAWAYS:
 Trade is deeply connected to
economic policies,
international relations, and
everyday life
 Understanding trade policies
help us navigate global
economic changes
 2. Import quotas – limitation
on the quantity of foreign
goods that can be imported
annually

Ex.: Importation of crude oil or cars

INTERNATIONAL BUSINESS AND 3. Voluntary Restraint

TRADE PRELIMS REVIEWER Agreement – one country
voluntarily limits its export of
Session 2: Protectionism and certain products
Free Trade
Ex.: Exportation of coal and other
Arguments of Protectionism and natural resources
Free Trade
4. Subsidies – government
 Some countries produce goods supporting local industries in
and services at much lower costs their operation to become
mainly due to low labor cost. more competitive
These goods and services are
competitive in the international Ex.: Rice farming in Vietnam
market which cause some
concerns to other countries that 5. Banning of importation –
produce similar goods and government restrict
services importation of specific goods
to help local producers
 Protectionists argue that it is
necessary for countries to Ex.: Japan bans importation of rice
protect their economies for
becoming too dependent on 6. Most Favored Nation –
good and services produced by giving special treatment (low
other countries, thus, tariffs, high quotas) to most
governments shield their favored trading countries
domestic companies from foreign
competition through trade Ex.: South Korea, Japan, and US on
barriers cars

 Free trade advocates argue that 7. Standardization – imported

countries should not restrict products should meet
imports or exports as to not standard requirements
hinder trade between countries
Ex.: Food and drug policies to
METHODS OF PROTECTIONISM comply by exporting nations

1. Tariff – tax on import  Gravity theory - Because of

- Effect of making the item trade restrictions, nearby
more expensive to countries form alliances to
consumers, thereby reducing facilitate efficiency in trading
demand (trade cooperation,
regionalization, and trading
Ex.: Adding 2% tariff on imported blocks)
goods
TRADE COOPERATION
7. Group of 30 (G30) – made
1. World Trade Organization up of private independent
(WTO) – implements General organizations dedicated to
Agreements on Tariffs and studying the international
Trade (GATT) that specifies economy
trade agreements between
member countries 8. United Nations (UN) –
consists of 193 countries that
2. International Monetary promotes international
Fund (IMF) – monetary and peace, stability, human rights
exchange rate cooperation and economic development
among member countries
9. North Atlantic Treaty
3. World Bank (WB) – provide Organization (NATO) –
financial support to poor safeguards its members
countries to become more freedom and security by
competitive political and military means

4. Bank of International 10. European Union (EU)

Settlements (BIS) – bank – cooperate on economic,
for central banks of various political and security matters
countries that facilitates
discussions on financial and 11. Organization for
economic issues around the Economic Cooperation
world and Development (OECD)
– promotes policy
5. Group of Eight (G8) – coordination and economic
group of eight highly freedom among developed
industrialized nations countries
(France, Germany, Italy, the
United Kingdom, Japan, US, 12. Organization of
Canada and Russia) Petroleum Exporting
- Hold annual meeting to Countries (OPEC) –
foster consensus on coordinates the trade policies
global issues like of oil producing countries
economic growth and
crisis management, 13. Association of South
global security, energy, East Asian Nations
and terrorism (ASEAN) – promotes
political, economic, cultural,
6. Group of Twenty (G20) – peace and security among
made up of 19 countries and member nations
the European Union
- Argentina, Australia,
TRADE BLOCS
Canada, China,
- Group of countries which are
Germany, France, India,
geographically close to each
Indonesia, Italy, Japan,
other, have similar trade
Mexico, Russian
policies, and with their
Federation, Saudi
mutual cooperation, allow
Arabia, South Africa,
flow of free trade
South Korea, Turkey, UK
& US
 - Form economic integration
and increasingly forms the
structure of world trade

 To form trade blocs, countries

conclude international
treaties

Different Types of Trading Blocs

Free Trade Area – no tariffs

between members
- No external tariff (checks on
country of origin)
- Can negotiate own trade
deals

Customs Union – no tariffs

- No border checks
- Common external tariff
- Trade deals for whole
customs union

Single Market – no tariffs

- Common external tariff
- Freedom of movement goods
and people
- Common rules and
regulations

South Korea and Philippines

Set Deadline for Free Trade
Agreement

 SK’s Trade Minister Yoo

Myung-hee held a luncheon
meeting with ambassadors
from ASEAN countries in
Seoul prior to Busan summit
 SK and PH have agreed to
conclude free trade
agreement in the first half of
2020
 7. Shipment dates and validity
date

Role and Players in

International Trade

1. Importer
2. Exporter
3. Banks
4. Transport Companies
5. Insurance Companies
6. Regulatory Bodies (WTO, ICC)
7. Certification Bodies (origin,
health, drugs etc)

Movements in Trade Financing

INTERNATIONAL BUSINESS AND

TRADE PRELIMS REVIEWER

Session 3: Trade Finance

International Finance
- International
macroeconomics
- Study of monetary
interactions between two or
more countries, focusing on
areas such as FDI and
currency exchange rates

Trade finance – enhances

international trade in terms of Basic Finance Structure –
facilitating payment, mitigating complete description of the goods
risks and providing information being traded for custom purposes
about the status of payments or
ships TYPES OF INTERNATIONAL
TRADE FINANCE
International trade finance
1. Advance Payment – pre-
Basic Finance Structure export trade finance type,
which involves an advance
1. Labelling payment or even full
2. Packaging and markings payment from the buyer
3. Transport method and cost before the goods or services
4. Insurance get delivered
5. Documents - Most secured method of
6. Partial or multiple shipment payment for the exporter but
 risky for the importer in case - Middle of the road approach
the goods don’t get delivered to satisfy both the importer
and exporter through banks
 Essentially useful for small
purchases and when political Remitting bank – exporter’s bank in
and economic situation in the collecting payment from the
importing country is not importer through its collecting bank
stable
Collecting bank – importer’s bank
in ensuring that the importer pays
or accept to pay for the goods
before shipping documents are
released

2. Open Account/Cash on
Delivery – post-export trade
finance type, which involves
payment from the buyer after
the goods or services get
delivered
- most secured method of
payment for the importer but
very risky for the exporter in
case payment is not made
4. Letter of Credit (LOC) –
importer and exporter agree
 Used when exporter has a
on the terms of purchase and
well-stablished commercial
use LOC and supporting
relationship with a credit-
documents to guarantee
worthy importer and when
transactions
the importing country enjoys
- Add measure of security to
reasonable political and
trade transactions and to
economic stability
assert sufficient pressure in
case of any violation or non-
performance to the LOC

 International organizations
like ICC or WTO facilitate the
trade and financing between
countries through
standardization
3. Documentary Collections –
sale transaction is settled
through an exchange of
documents, thus enabling
simultaneous payment and
transfer of title
- Uses Bill of Exchange
supported with shipping
documents
  Focuses on four key
determinants and two
external factors influencing
competitiveness

FOUR KEY DETERMINANTS

1. Factor Conditions – resources

and infrastructure available
in a country

2. Demand Conditions – the

RISK PERSPECTIVE IN TRADE strength of the local market
AND FINANCE and customer expectations

3. Related and Supporting

Industries – the presence of
suppliers and complementary
businesses

4. Firm Strategy, Structure, and

Rivalry – business
competition and innovation
within the industry

Additional Factors in the Model

5. Government – policies and

support that enhance or
hinder competitiveness

6. Chance Events –
unpredictable external
influence like economic
crises, technological changes
or pandemics

PHILIPPINE BPO INDUSTRY

(global leader in BPO)
INTERNATIONAL BUSINESS AND
TRADE PRELIMS REVIEWER  Cost-effective skilled
workforce
Supplementary: Understanding  Strong government support
Competitive Advantage  Competitive local market
 Robust related industries
Introduction to Porter’s (tech, IT, education)
Diamond Model
 Developed by Michael Porter Factor Conditions:
to explain why certain  Skilled Workforce: large pool
industries are competitive of English-speaking
internationally professionals
  Cost Advantage: lower labor  Economic shifts affect
costs than Western markets demand but open new
 Technology & Infrastructure: opportunities
improved internet, IT parks
and data centers Conclusion:
 The Philippine BPO industry is
Demand Conditions: globally competitive due to
 Growing domestic market for favorable factor, conditions,
outsourcing services strong demand, related
 High client expectations drive industries, and innovation
companies to enhance  Government policies and
services chance event shape industry
 Global demand for remote growth
services increases BPO
reliance Future outlook: Expansion into AI,
cloud services, and digital
Related and Supporting Industries: transformation
 Strong IT and tech sector
provides software and CURRENCY IN IBT
solutions
 Educational institutions offer Currency – plays a crucial role in
courses tailored for BPO international business and trade as
careers it facilitates transactions between
 Financial and telecom sectors businesses and governments
support BPO operations across different countries

Firm Strategy, Structure and 1. Medium of Exchange –

Rivalry currency enables the buying
 Competitive landscape and selling of goods and
 Innovation in AI, automation, services across borders
and analytics
 Service diversification –  Since different countries use
moving beyond call centers different currencies,
to higher-value services businesses must exchange
one currency for another to
Government Support & Policies conduct trade
 Tax Incentives (PEZA)
encourage foreign 2. Exchange Rates and Trade
investment
 Training programs (TESDA, Exchange Rates – determine how
CHED) enhance workforce much on currency is worth
skills compared to another
 Public-private partnerships to - Fluctuations impact the cost
boost digital infrastructure of imports and exports

Chance Event Impacting the Strong Currency: makes imports

Industry cheaper but exports more
 Covid-19 pandemic expensive, potentially reducing
accelerated remote work and demand for a country’s goods
digital services
 AI & automations shift the Weak Currency: Makes exports
focus to high-value services cheaper and more competitive
globally but raises the cost of
imports

3. Foreign Exchange Market

(FOREX) – largest financial
market in the world and is
influenced by factors like
interest rates, inflation, and
economic stability

4. Currency Risk and

Hedging – exchange rate
fluctuations create risks for
international businesses.

 To protect against losses,

companies use hedging
strategies like forward
contracts, options and swaps

5. Impact of Currency on
Pricing and
Competitiveness

 Multinational companies
adjust pricing strategies
based on currency
fluctuations to maintain
profitability in different
markets

6. Government Policies and

Currency Control

 Some countries regulate

currency exchange through
fixed exchange rates or
capital controls to stabilize
their economy

Ex.: China manages the value of

the Yuan to keep exports
competitive

7. Use of Reserve Currencies

 Certain currencies, like the

US Dollar and the Euro, are
widely used in international
markets