Countertrade constitutes an estimated 5 to 30 percent of total world trade. Countertrade greatly proliferated in the 1980s. Perhaps, the single most important contributing factor is  Least Developed Countries (LDC’s) decreasing ability to finance their import needs through bank loans. Countertrade, one of the oldest forms of trade, is a government mandate to pay for goods and services with something other than cash. It is a practice, which requires a seller as a condition of sale, to commit contractually to reciprocate and undertake certain business initiatives that compensate and benefit the buyer. In short, a goods-for-goods deal is countertrade. Unlike monetary trade, suppliers are required to take customers products for their use or for resale. In most cases, there are multiple deals that are separate yet related, and a contract links these separable transactions. Countertrade may involve several products, and such products may move at different points in time while Continue reading
International Business
International Business Management deals with the maintenance and development of a multinational operation across national borders, whose manager has the knowledge and the skills to manage and handle cross-cultural processes, stakeholders and business environments in a right way.
National Competitive Advantage Theory of International Trade – Porters Diamond Model
It is a fact that Porter (1990) never focused primarily on the factors determining the pattern of trade, yet his theory of national competitive advantage does explain why a particular country is more competitive in a particular industry. If, for example, Italy maintains competitive advantage in the production of ceramic tiles and Switzerland possesses the competitive advantage in watches, it can be interpreted that the former will export ceramic tiles and the latter will export watches and both of them will import goods in which their own industry is not competitive. Why is this there a difference? Porter explains that there are four factors responsible for such diversity. He calls those factors the “diamond of national advantage”. The Porters diamond model includes: Factor conditions Demand conditions Related and supporting industries Firm strategy, structure and rivalry These factors have been more or less taken into account by earlier economists. What is Continue reading
Neo-Factor Proportions Theory
Extending Leontief’s view, some of the economists emphasize on the point that it is not only the abundance (scarcity) of a particular factor, but also the quality of that factor of production that influences the pattern of international trade. The quality is so important in their view that they analyse the trade theory in a three-factor framework instead of two-factor framework taken into account by Heckscher and Ohlin. The third factor manifests in the form of: Human capital: It is the result of better education and training.Human capital should be treated as a factor input like physical labor and capital. A country with human capital maintains an edge over other countries with regards to the export of commodities produces with the help of improved human capital. Skill Intensity: The skill intensity hypothesis is similar to human capital hypothesis as both of them explain the capital embodied in human beings. It Continue reading
Factor Proportions Theory of International Trade
Almost after a century and a quarter of the classical version of the theory of international trade, two Swedish economists, Eli Heckscher and Bertil Ohlin, propounded a theory that is known as the factor endowment theory or the factor proportions theory. In fact, it was Eli Heckscher (1919) who mooted the notion of a country’s comparative advantage (disadvantage) based on relative abundance (scarcity) of factors of production. Later on, his student, Bertil Ohlin (1933) developed this notion of relative factor abundance into a theory of the pattern of international trade. Factor Proportions theory of international trade  explains that in a two-country, two-factor, and two-commodity framework different countries are endowed with varying proportions of different factors of production. Some countries have large populations and large labour resources. Thus, a country with a large labour force will be able to produce the goods at a lower cost using a labour intensive mode Continue reading
Transformation of The European Union From a Political and Economic Union to a Monetary Union
The basis of the European Monetary Union was to build a united Europe after the World War II. This was initiated by when the European nations created the European Coal and Steel community, with a view to freeing trade in these two sectors. The pricing policies and commercial practices of the member nations of this community were regulated by a supranational agency. In 1957, the Treaty of Rome was signed by Belgium, France, Germany, Italy, Luxemburg and the Netherlands to form the European Economic Community (EEC), whereby they agreed to make Europe a common market. While they agreed to lift restrictions on movements of all factors of production and to harmonize domestic policies, the ultimate aim was economic integration. The EEC achieved the status of a customs union by 1968. In the same year, it adopted a Common Agricultural Policy (CAP), under which uniform prices were set for farm products Continue reading
How Do Firms Internationalize?
The simple facts remains that firm internationalize for many reasons or the other; be it, profit motive, the expansion to new horizon, exploring and tapping new markets or for reasons less known, that is to say for competitive advantage or labor mobilization and last but not the least, the cost factors. Moreover, by going international, firm can also take center stage to reaps the benefits of global exposure, and the opportunity cost that can be reaped from international business is also rather more in a sense that diversity is also exemplified, plus the means that internationalization provides towards new markets beyond national boundaries is also what’s excites and interest organizations in going international. Add to it, supply chain and its management is also more broadened when firm indulge themselves in international business. Thus, the above mentioned facts in brief list some of the factors and the notion as to why Continue reading