Contemporary Aspects of International Trade/Business
Introduction- Changing Times
While international business started centuries ago, it has undergone phenomenal changes in modern times. Once, the only means of exchanging goods between nations was through sailing across oceans. International businesses emerged in the 20th Century and elevated international trade to a higher level. Companies started manufacturing items for sale in other nations. This trend became the norm until countries started depending on other countries for things that they could not produce within their borders. The Breton Woods institutions (IMF and World Bank) laid the foundation for international finance and commerce such that nations could even loan capital to each other (Joshi 67-91).
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One of the most prolific changes in international trade, and which has made it a mainstay of modern economies has been the liberation of trade between nations. Modern international trade has seen the elimination of barriers in taxation and tariffs such that countries can trade with each other freely (Joshi 67-91). This phenomenon has been called the creation of free trade zones where international businesses can sell and buy from any nation within the zone as if it was within the same geographical region.
Another change in international trade has been elimination or at least reduction of national subsidies that favored local businesses against international businesses.
There has also been a harmonization of legal recognition such that patented products and ideas in one country (i.e. USA) are recognized in other nations (i.e. China).
Globalization and International trade
Consequent to these changes in international trade, a process of globalization has ensued. Globalization is the ongoing process of integrating regional economies, cultures and societies via globe-spanning networks of trade and communication and trade. Economic globalization has resulted from integration of national economies into an international economy. Trade, foreign direct investments, capital flows, technology and migration are the proponents of globalization.
According to the United Nations, globalization is the reduction, removal or harmonization of national borders to facilitate free flow of capital, goods, services, labor and resources (Joshi 67-91). In a globalized society, international businesses trade the same products in different nations since there is a leveraged demand in all societies.
Factors of Production in International Trade
Resources and factors of production have today been exposed to the most emphatic exchange rates since the beginning of international trade (Shiozawa 141-187).
People are increasingly going to foreign nations to look for work while people and businesses legally own land in other nations. A country endowed with natural resources like oil, minerals etc, supplies the globe with such product in exchange for those that they do not have. The exchange of these factors of production is actually the basis on which international trade is built (Shiozawa 141-187).
The International Trade Transaction Process and Types
The international trade transaction process involves a buyer (importer) initiating the process by enquiring about the availability of particular products and or services not found in his or her country of residence. From there on, the transaction process goes through the same channel that commercial transaction within nations do. Nonetheless, there are some additional steps in international trade such as shipping, customs, tax levies, legal restrictions etc. The seller (exporter) can also initiate the process or commission a third party to do so (Frances 84-108). The second step is a feasibility analysis where the exporter qualifies the potential of the importer and any legal impediments that might affect the transaction.
The next step is the determination of the applicable payment method, the best transportation mode; the documentation required and credit insurance cover. This helps the trading parties to negotiate on prices, product, logistics, timing, packaging, labeling requirements etc the exporter sends a Proforma Invoice to the buyer with al transaction details. The importer then gets a credit letter from his banks and the exporter confirms this with his bank. The issuing and confirming banks will then carry on the transaction until the money is transferred to the exporters account. Once the transfer is confirmed, all shipping documents are released and shipping done to complete the international trade process.
In international trade process, the term Buy-Ship-Pay refers to three sets of activities that complete a single international transaction, that is, all commercial activities undertaken while ordering for goods, then the activities undertaken during the physical transfer of these goods internationally and finally the activities undertaken in the payment for those goods. The internet has made it possible for this process to be smooth, cheap and instantaneous (Frances, 84 - 108).
In modern international trade, we have three most common types of transactions namely B2C, C2C and B2B. B2C transactions involve business-to-business transactions such as when manufacturers sell to distributors and wholesalers to retailers.
In B2C, transactions are those executed between a business and a consumer such as via an online auction site or as Dell sells its products directly to the consumers. In C2C transactions, involve customers selling between themselves mostly in online auction sites like eBay.
Finally, it is important to note that modern international trade has made it possible to eliminate middlemen. This phenomenon has been called disintermediation, where all intermediaries are removed from the supply chain. In modern times, consumers can order for products straight from the manufacturer in online forums, thus cutting out the role of distributors, wholesalers, brokers or agents.