1. Define international trade and international business.

What is the difference between the

two?
International trade is the exchange of capital, goods, and services across international borders or
territories.
International business comprises all commercial transactions (private and governmental, sales,
investments, logistics, and transportation) that take place between two or more regions, countries
and nations beyond their political boundaries. Usually, private companies undertake such
transactions for profit; governments undertake them for profit and for political reasons. It refers
to all those business activities which involve cross border transactions of goods, services,
resources between two or more nations. Transaction of economic resources include capital,
skills, people etc. for international production of physical goods and services such as finance,
banking, insurance, construction etc.
Trade refers only to the buying and selling activities of a business. Fundamentally international
trade is a much narrow set of activities and consists of exports and imports (e.g. goods and
services) only.
Business is a term used for all the activities performed by a business enterprise. This includes
three basic activities of buying, manufacturing and selling. In addition a business may carry out
additional activities such as product design, advertising and financing. International business is a
much broader concept and includes international trade, direct foreign production or any other
activity across countries conducted by an entity in managing and carrying out its operations.
2. What is international trade barrier?
Trade barriers are measures that governments or public authorities introduce to make imported
goods or services less competitive than locally produced goods and services. Trade barriers are
generally classified as
1. Tariffs
2. Non-tariff barriers to trade
Import licenses
Export licenses
Import quotas
Subsidies

Voluntary Export Restraints

Local content requirements
Embargo
Currency devaluation
Trade restriction

3. Why do scholars say that any barrier imposed is inefficient?

If international trade is economically enriching, imposing barriers to such exchanges will prevent
the nation from fully realizing the economic gains from trade and must reduce welfare. Trade
barriers are often cause of inefficiency for the following reasons:
Damage to Customers: Tariffs often amount to a tax on consumers, as manufacturers add the
cost of the tax to the price of their product. Frequently, the tax can be regressive, hurting the
poorest consumers the most. Trade barriers on food, clothing, and raw materials raise prices on
staple necessities, which make up the largest expense for those with lower incomes. Often tariffs
have the effect of inflating all related prices, not only those of the imported good, as domestic
producers raise prices due to reduced competitive pressures.
Restriction of Economic Growth: Opponents of protectionism argue that trade barriers restrict
the flow of capital and inhibit economic growth. In contrast, free trade takes advantage of the
principle of comparative advantage, allowing each country to specialize in goods and services in
which it has the competitive advantage. By allowing the market to produce goods in the most
efficient way possible, which some claim to be free trade, proponents argue that costs and prices
are kept low for all participants, producing benefits through supply chains.
Discouragement of Innovation and Efficiency: Some argue that trade barriers insulate
inefficient producers from competition, and, as a consequence, discourage the innovation that
contributes to future growth. Also, by favoring some manufacturers rather than the free market,
protectionist measures can force economic activity toward a less efficient or lower quality
producer. In the process, the protectionist state becomes less competitive in the global economy.
Tariffs and quotas on technological goods, including computers, increase prices and reduce
access to productive technologies. As a result, businesses outside the targeted sectors can be
placed at a competitive disadvantage with respect to the global market.
Encouragement of Trade Wars: Trade wars are often the direct result of protectionist policies.
A trade war occurs when a country raises trade barriers in retaliation for another's trade barriers.
Each country involved in the trade war thereby loses some access to the market of the other. As a
result, trade and economic activity decrease. Trade wars can spread quickly beyond the original
sector of conflict and can encourage economic nationalism with economic policies increasingly
dictated by political interests.

4. What are the advantages and disadvantage of imports and exports?

IMPORTS
The advantages of imports include:

Comparative advantage means lower-priced goods. Out of the many benefits of importing
goods and raw materials, comparative advantage is the most common reason why
companies choose to source products from overseas. Comparative advantage means that
the conditions in a foreign market allow for much cheaper production costs, thanks to
things like low labor costs, lower tax schemes, etc. If you can get the products or
materials you need at a considerably cheaper rate, importing is a quick and easy way to
cut costs and boost your profit margins.

Importing can mean higher-quality products. Its no secret that each country has its own
strengths and specialties. If the goods or materials you need have top-quality sources
outside of your countrys borders, it pays to have them imported. This way youre
working with the best materials right from the start, ensuring the best quality and most
marketable end products.

Many governments actively support trade relations and aim to make importing easy for
your business. In many developing countries, governments encourage importing by
helping local suppliers do business with offshore importers like yourself. Depending on
the country you are importing from, there may be a government agency available to assist
you with any inquiries you might have and make the transaction easier for all parties
involved. With official agency oversight, the risks involved in the transaction can be
significantly reduced, providing you with peace of mind throughout the process.

Importing grants access to regionally exclusive resources. Some of the resources you may
need for your manufacturing process can only be found in certain parts of the world. This
includes everything from raw materials to special technologies. If these ingredients are
vital to your production process, importing grants you immediate access to primary
sources.

Various benefits stemming from trade agreements. The various trade agreements
negotiated by a country can give you access to unique benefits that make importing easier
and more cost-effective. The direct benefits vary by country and are worth researching to
find the best possible arrangement for your business. Working with a knowledgeable
customs broker is one way to determine which agreements might provide favorable
conditions for your business imports.

The disadvantages associated with importing are:

Setback to local industries: Although import creates healthy competition and becomes
instrumental to the improvement of quality but this state of affair is not acceptable to the
industrialists and producers because they have their own individual interests which are
badly hit; only a few of them strive successfully to meet the challenge and survive but
most of them disappear from the competitive market proving the survival of the fittest.

Consumption of foreign exchange: Every country attaches extreme importance to the

foreign exchange and strive hard to maximize its earning, and try to spend it very
carefully. Its use on the import of essential items as raw materials, machinery, and other
industrial goods is rather desirable. But, on the other hand, if it is developing or
underdeveloped countries it will be harmful for the economy.

Public taste and culture: People tend to prefer imported goods to locally manufactured
ones owing to their prices and quality, and consequently foreign products capture the
local market. These products are so strong that they manage to change the taste and
culture of the society. The main victim and sufferer, hence, is the local industry which
begins to contract - creating unemployment in the country.

EXPORTS
The advantages of exporting include:

Increased Sales and Profits. Selling goods and services to a market the company never
had before boost sales and increases revenues. Additional foreign sales over the long
term, once export development costs have been covered, increase overall profitability.

Enhance Domestic Competitiveness. Most companies become competitive in the

domestic market before they venture in the international arena. Being competitive in the
domestic market helps companies to acquire some strategies that can help them in the
international arena.

Gain Global Market Shares. By going international companies will participate in the
global market and gain a piece of their share from the huge international marketplace.

Diversification. Selling to multiple markets allows companies to diversify their business

and spread their risk. Companies will not be tied to the changes of the business cycle of
domestic market or of one specific country.

Lower Per Unit Costs. Capturing an additional foreign market will usually expand
production to meet foreign demand. Increased production can often lower per unit costs
and lead to greater use of existing capacities.

Compensate for Seasonal Demands. Companies whose products or services are only used
at certain seasons domestically may be able to sell their products or services in foreign
markets during different seasons.

Create Potential for Company Expansion. Companies who venture into the exporting
business usually have to have a presence or representation in the foreign market. This
might require additional personnel and thus lead to expansion.

Sell Excess Production Capacity. Companies who have excess production for any reason
can probably sell their products in a foreign market and not be forced to give deep
discounts or even dispose of their excess production.

Gain New Knowledge and Experience. Going international can yield valuable ideas and
information about new technologies, new marketing techniques and foreign competitors.
The gains can help a companys domestic as well as foreign businesses.

Expand Life Cycle of Product. Many products go through various cycles namely
introduction, growth, maturity and declining stage that is the end of their usefulness in a
specific market. Once the product reaches the final stage, maturity in a given market, the
same product can be introduced in a different market where the product was never
marketed before.

Disadvantages of exports are:

Extra Costs. Because it takes more time to develop extra markets, and the pay back
periods are longer, the up-front costs for developing new promotional materials,
allocating personnel to travel and other administrative costs associated to market the
product can strain the meager financial resources of small size companies.

Product Modification. When exporting, companies may need to modify their products to
meet foreign country safety and security codes, and other import restrictions. At a
minimum, modification is often necessary to satisfy the importing country's labeling or
packaging requirements.

Financial Risk. Collections of payments using the methods that are available (openaccount, prepayment, consignment, documentary collection and letter of credit) are not

only more time-consuming than for domestic sales, but also more complicated. Thus,
companies must carefully weigh the financial risk involved in doing international
transactions.

Export Licenses and Documentation. Though the trend is toward less export licensing
requirements, the fact that some companies have to obtain an export license to export
their goods make them less competitive. In many instances, the documentation required
to export is more involved than for domestic sales

Market Information. Finding information on foreign markets is unquestionably more

difficult and time-consuming than finding information and analyzing domestic markets.
In less developed countries, for example, reliable information on business practices,
market characteristics, and cultural barriers may be unavailable.