Global Business: The Financial Side of Trade

When were talking about trade, you’ll probably hear the words “investments”, “portfolios”, “capital”, “debit and credit”, and BOP (thats balance of payments). These words to global trade advisors and financial aficionados are like second nature, but to those just breaking into the world of International Business, they can be daunting words. Let’s use an example  that will give you a visual picture of just how everything comes together to understand how countries measure international business activity, balance payments, and look at exchange rates and altered trade prices.

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New President, New NAFTA

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The Trump Administration will seek modest changes to the North American Free Trade Agreement renegotiation process. According to a draft of a letter sent to Congress last week, the Administration is seeking a more conventional approach to trade negotiation.

NAFTA, which was established in 1994 between Canada, the U.S., and Mexico, aims to reduce trading costs, increase multilateral investment, while helping North America become more competitive.However, during the 2016 presidential campaign, President Trump made the debate over free trade one of the central topics of his campaign.

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Balance trade by boosting exports through government promotion

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import_tax_0The Trump administration is attempting to lower imports in order to rebalance trade after decades of U.S. neglect toward economic relationships around the world.  Rebalancing should not only be done by applying the stick of import reductions, but also by export promotion.

Exports make a firm’s markets grow and change its home nation’s currency value. When U.S. exports increase, the dollar typically goes up in value.Shrinking exports tend to weaken the dollar. Exports also shape public opinion of globalization and offer the opportunity for economies of scale.Higher production volume often means a lower cost of production.Since high exports also make imports cheaper, a firm may achieve lower costs and higher profits, both at home and abroad, through exports.

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9/11 In remembrance: Terrorism and International Business

TERRORISM AND INTERNATIONAL BUSINESS:

Michael R. Czinkota, Gary Knight, Gabriele Suder.

The airplanes of 9/11 forced countless multinational corporations (MNCs) to update their strategic planning.  Our work with executives at more than 150 MNCs shows that more than ten years later, companies are still grappling with how best to manage the terrorist threat.

In the two decades before 2001, the rate at which firms launched international ventures was growing rapidly. After 9/11, foreign direct investment fell dramatically as firms withdrew to their home markets. The popularity of international-sounding company and brand names decreased appreciably as managers now emphasize domestic and local affiliations.

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Trade Implication of the Product Cycle

Product cycle theory shows how specific products were first produced and exported from one country but through product and competitive evolution shifted their location of production and export to other countries over time. Figure 3.4 illustrates the trade patterns that Vernon visualized as resulting from the maturing stages of a specific product cycle. As the product and the market for the product mature and change, the countries of its production and export shift.

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The product is initially designed and manufactured in the United States. In its early stages (from time t0 to t1), the United States is the only country producing and consuming the product. Production is highly capital-intensive and skilled-labor intensive at this time. At time t1, the United States begins exporting the product to other advanced countries, as Vernon classified them. These countries possess the income to purchase the product in its still new-product stage, in which it was relatively high priced. These other advanced countries also commerce their own production at time t1 but continue to be net importers. A few exports, however, do find their way to the less-developed countries at this time as well.

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