IBT FINALS LESSON

INTERNATIONAL BUSINESS & TRADE 5. Foreign Direct Investment (FDI):

Description: Establishing a physical presence in the foreign
What Market Entry Strategies? market through wholly-owned subsidiaries, mergers, or
Market entry in International Business and Trade acquisitions.
refers to the strategy and methods that businesses use to Advantages: Full control over operations, greater market
enter foreign markets. It involves evaluating and selecting the share, and long-term commitment.
best approach to expand into new geographic locations while
considering the market environment, risks, costs, and 6. Strategic Acquisitions:
opportunities. Description: Acquiring existing businesses in the target
market to gain market share or access to resources.
Motives for Market Entry Advantages: Rapid market entry, established customer base,
and access to local expertise.
Growth Opportunities: Expanding to new markets allows Challenges: Integration challenges, cultural differences, and
companies to increase their sales and customer base. potential resistance from the acquired company.

Diversification: Entering new markets spreads risk across 7.E-commerce and Online Platforms:
different geographic areas, making a company less vulnerable Description: Leveraging digital platforms to sell products or
to downturns in a single country. services internationally.
Advantages: Low entry costs, global reach, and direct access
Access to Resources: International expansion might provide to consumers.
access to cheaper labor, raw materials, or new technology. Challenges: Logistics and fulfillment complexities,
competition with local e-commerce platforms, and regulatory
Competitive Advantage: Companies may enter foreign compliance.
markets to counter competitive pressures in their domestic
market or to be closer to international competitors. 8. Strategic Global Partnerships:
Description: Forming partnerships with key global players to
Here are some common market entry strategies: enhance market presence.
1.Exporting: Advantages: Access to established distribution networks,
Description: Selling products or services to foreign markets shared resources, and enhanced market credibility.
from the home country. Challenges: Negotiation complexities, potential conflicts, and
Advantages: Low-risk entry, minimal investment, and the alignment of business goals.
ability to test market demand.
Challenges: Limited control over distribution and potential 9. Turnkey Projects:
trade barriers. Description: Designing, constructing, and transferring a fully
operational facility to a client in a foreign market.
2.Licensing and Franchising: Advantages: Revenue generation from project management,
Description: Allowing a foreign entity to use intellectual transfer of technology, and limited long-term involvement
property, brand, or business model in exchange for fees or
royalties. Risks in International Market Entry
Advantages: Low investment, rapid market entry, and
leverage of local partner's knowledge. Political Risks: Changes in government, policy, or regulations
Challenges: Limited control over operations and potential that could negatively impact the business.
risk to brand reputation.
Economic Risks: Currency fluctuations, inflation, and
3.Joint Ventures: economic downturns can affect profitability.
Description: Collaborating with a local partner to establish a
new business entity. Cultural Misalignment: Failure to adapt marketing, branding,
Advantages: Shared risk and costs, access to local knowledge, or products to the local culture can lead to rejection by the
and compliance with local regulations. market.
Challenges: Potential conflicts with partners and shared
decision-making. Legal Risks: Violations of local laws, differences in intellectual
property protection, and other legal complexities.
4. Strategic Alliances:
Description: Forming partnerships with existing companies in Operational Risks: Supply chain disruptions, labor strikes, or
the target market for mutual benefit. quality control issues.
Advantages: Access to resources, shared risks, and faster
market entry. Factors Affecting Market Entry Decisions
Challenges: Managing relationships, potential conflicts of
interest, and dependency on partners Market Size and Growth Potential: Larger, fast-growing
markets are often more attractive.
 IBT FINALS LESSON

Political and Economic Environment: Stable political climates Here are the main types of government policies that affect
and favorable economic conditions reduce risks. international business and trade:
1. Trade Policy
Cultural Distance: Significant cultural differences can make it
difficult to communicate and market effectively in a foreign Free Trade Agreements (FTAs)
country. FTAs are treaties between two or more countries
that aim to reduce or eliminate trade barriers, such as tariffs
Competitive Environment: Companies need to assess the and quotas, between them. They promote trade by allowing
level of competition and whether there are barriers to entry goods and services to flow more freely across borders.
(e.g., regulations or established local players).
Example: The North American Free Trade Agreement
Legal and Regulatory Framework: Laws regarding foreign (NAFTA), now replaced by the United States-Mexico-Canada
ownership, taxation, and repatriation of profits vary from Agreement (USMCA), reduced trade barriers between these
country to country and can influence market entry choices. three countries.

Trade Barriers and Tariffs: Higher tariffs may make exporting Tariffs
less attractive, pushing companies toward FDI or licensing Tariffs are taxes imposed on imported goods. They
options. increase the cost of imports, making them less competitive
compared to locally produced goods, thereby protecting
Labor Costs and Supply Chain: Companies may seek out domestic industries.
markets with lower labor costs or closer access to key
resources. Example: The U.S. imposes tariffs on certain steel imports to
protect its domestic steel industry.
SUMMARY
Quotas
Market entry strategies are crucial for businesses looking to Quotas limit the quantity of certain goods that can be
expand internationally. The right approach depends on imported into a country over a specific period. Like tariffs,
multiple factors, including the company's resources, risk quotas aim to protect domestic producers from foreign
tolerance, and the specific market environment. competition.
Understanding the dynamics of different entry modes,
potential risks, and the importance of localization helps Example: The U.S. has a quota on sugar imports to protect its
businesses make informed decisions that can lead to domestic sugar industry.
successful international ventures.
Subsidies
Governments may provide financial assistance to domestic
GOVERNMENT POLICY industries to make them more competitive in international
markets. Subsidies can lower production costs and lead to
GOVERNMENT is a body of people that work to effectively cheaper exports.
and successfully guide a unit or community. One thing
government does is set and administer policy. They use Example: The European Union provides subsidies to its
customs, laws, and institutions to exercise political, agricultural sector under the Common Agricultural Policy
executive, and sovereign power with the intent of managing (CAP), helping EU farmers compete
a state of wellbeing that benefits all aspects of the globally.
community or unit.
Anti-Dumping Laws
POLICY is a principle or course of action proposed or Dumping occurs when a foreign company sells goods in
implemented by a governing body. another country at a price below the market value or cost of
production. Governments impose anti-dumping duties to
GOVERNMENT POLICY prevent unfair competition and protect domestic industries.
Public policy is a guide to legislative action that is more or
less fixed for long periods of time, not just short-term fixes or Example: The U.S. has imposed anti-dumping duties on
single legislative acts. Chinese solar panels to protect its domestic solar industry.

Government policies play a crucial role in shaping the 2. Foreign Direct Investment (FDI) Policy
landscape of international business and trade. These policies
can either promote trade by lowering barriers and providing Incentives for FDI
incentives or restrict trade through protectionist measures. Governments may offer incentives, such as tax breaks,
Here are the main types of government policies that affect subsidies, or relaxed regulations, to attract foreign direct
international business and trade: investment. FDI policies aim to stimulate economic growth
and job creation.
 IBT FINALS LESSON

Example: Ireland offers a low corporate tax rate (12.5%) to Organization (WTO), establishes international standards for
attract multinational corporations to establish operations in IP protection.
the country.
7. Labor and Environmental Policies
3. Trade Protectionism
Labor Standards
Protectionist Tariffs Some countries implement strict labor laws, such as
Protectionist tariffs are designed to shield domestic minimum wage requirements, working hours, and safety
industries from foreign competition by making imports more regulations. These policies affect the costs of operating in
expensive. These measures are often temporary but can lead foreign countries and influence where companies choose to
to trade disputes. do business.

Example: During the U.S.-China trade war, the U.S. imposed Example: The European Union enforces strict labor
tariffs on hundreds of billions of dollars' worth of Chinese standards, including requirements for paid vacations and
goods, leading to retaliatory tariffs parental leave, which companies must adhere to when
by China. operating in EU
countries.
4. Export Policy
Environmental Regulations
Export Subsidies Environmental policies regulate how businesses impact the
Governments may provide subsidies to domestic industries to environment, such as controlling emissions, waste
encourage exports. These subsidies help reduce production management, and use of natural resources. Stricter
costs, allowing companies to sell their products at lower environmental regulations can increase the cost of doing
prices in foreign markets. business abroad.

Example: The U.S. provides export subsidies to its agricultural Example: The European Union’s Green Deal seeks to make
sector to increase the competitiveness of American farm the EU carbon-neutral by 2050, imposing strict
products abroad. environmental regulations on businesses operating within its
member states.
Export Restrictions .
Export restrictions, such as export bans or quotas, limit the The Role of Government in International Business
amount of certain goods that can leave a country. These are
usually imposed to protect domestic supply or for political Government Policies Affecting International Trade:
reasons. 1. Trade Tariffs: Taxes imposed on imported goods to protect
local industries.
Example: Countries like China and India have imposed export 2. Import Quotas: Limits on the quantity of a product that
restrictions on critical goods like food and medical supplies can be imported.
during crises, such as the COVID-19 pandemic. 3. Export Subsidies: Government support to domestic
industries to boost exports.
5. Currency and Exchange Rate Policy 4. Free Trade Agreements (FTAs): Bilateral or multilateral
agreements to reduce or eliminate trade barriers between
Currency Manipulation countries (e.g., NAFTA, EU, ASEAN).
Some governments may intervene in foreign exchange
markets to devalue their currency. A weaker currency makes How businesses operate across borders and the
a country’s exports cheaper and more competitive in complexities involved.
international markets, while making imports more expensive. Operating across borders presents both
opportunities and challenges for businesses. The process,
Example: Countries like China have been accused of known as international business, involves engaging in trade,
manipulating their currency to keep the yuan weaker, giving investment, and production activities in more than one
their exports a competitive advantage. country.

6. Intellectual Property (IP) Policy KEY FACTORS IN OPERATING ACROSS BORDERS:

IP Protection Laws 1.Market Entry Strategies:

Strong intellectual property (IP) laws protect patents, Exporting: Selling domestically produced goods to
copyrights, and trademarks, ensuring that businesses can foreign markets. This is often the simplest and least risky
safeguard their innovations, brands, and creations in foreign form of international expansion.
markets.
Licensing and Franchising: Allowing foreign firms to produce
Example: The Trade-Related Aspects of Intellectual Property and sell a company’s product in exchange for royalties or
Rights (TRIPS) Agreement, administered by the World Trade
 IBT FINALS LESSON

fees. This approach enables rapid expansion with minimal Inflation and Interest Rates: Varying inflation rates and
investment. interest rates across countries influence borrowing costs,
consumer purchasing power, and investment returns.
Joint Ventures: Partnering with foreign firms to share
resources, risks, and control in entering a new market. 5. Supply Chain and Logistics:
Global Supply Chains: Companies often source
Foreign Direct Investment (FDI): Establishing or acquiring materials, components, or finished goods from different parts
business operations or assets in foreign countries (e.g., of the world. Managing global supply chains requires
setting up manufacturing plants or retail stores abroad).. coordination across different time zones, languages, and
regulations.
2. Legal and Regulatory Compliance: Customs and Trade Regulations: Import/export
documentation, customs clearance procedures, and
Different Legal Systems: Businesses need to navigate varying compliance with international trade agreements (e.g., WTO,
legal systems (common law, civil law, religious law) that FTAs) add layers of complexity to logistics.
dictate how contracts are enforced, disputes are settled, and
intellectual property is protected. Transportation and Distribution: Efficient international
distribution involves dealing with different transportation
Trade Regulations and Tariffs: Countries impose tariffs, systems, port regulations, and infrastructure quality, which
quotas, and restrictions on imports and exports, affecting the can vary widely between countries.
cost and ease of doing business.
6. Political and Economic Risks:
Foreign Corrupt Practices Act (FCPA): Companies must Political Stability: Businesses must assess the political
comply with anti-corruption laws like the FCPA (in the US) or environment of the countries they operate in. Political
the UK Bribery Act, which prohibit bribery of foreign officials. instability, such as coups, civil unrest, or changing
governments, can disrupt operations or result in the
Labor Laws: Employment regulations differ across countries, expropriation of assets.
such as working hours, minimum wage laws, and employee
benefits, adding complexity to workforce management. Regulatory Changes: Governments can change trade
policies, taxation laws, or labor laws, affecting the business
3. Cultural Differences: environment (e.g., sudden imposition of tariffs or trade
sanctions).
Language Barriers: Language differences can complicate
communication with customers, partners, and employees, Economic Conditions: Economic factors like GDP growth,
leading to misunderstandings or inefficiencies. unemployment rates, and consumer confidence levels affect
demand for products and services in different markets.
Consumer Preferences: Cultural preferences, values, and Recessions in one market could significantly impact a
customs impact product demand. Businesses must often company’s global profits.
adapt their products and marketing strategies to fit local
tastes (e.g., McDonald's offering different menus Bilateral and Multilateral Relations: Diplomatic relations
in various countries). between countries influence trade agreements, investment
policies, and regulations. Trade wars (e.g., US-China trade
Business Etiquette: Expectations regarding tensions) can disrupt global supply chains and increase costs.
communication styles, negotiation tactics, decision-making
processes, and hierarchy differ by culture (e.g., in Japan, 7. Technology and Infrastructure:
business discussions may prioritize harmony and indirect
communication, whereas in the US, direct communication Technology Adoption: The level of technological
may be preferred). infrastructure (internet penetration, mobile connectivity,
payment systems) can influence how businesses operate in
4. Currency Exchange and Financial Risks: certain markets. Some regions might have underdeveloped
Exchange Rate Fluctuations: Operating in multiple digital ecosystems, impacting the efficiency of operations.
countries involves dealing with different currencies.
Fluctuations in exchange rates can affect the profitability of Data Privacy and Security: Businesses must comply
international transactions (e.g., a weaker local currency could with data protection regulations
increase costs for a company importing goods).
General Data Protection Regulation (GDPR) in the EU,
Hedging Strategies: Businesses use financial instruments which sets strict guidelines for handling customer data.
like forward contracts and options to hedge against Different countries have their own data protection laws.
exchange rate risks and protect profits.
Logistical Infrastructure: The availability of efficient
transportation networks, port facilities, and warehousing
 IBT FINALS LESSON

options can either enhance or hinder supply chain efficiency

in different regions. Policy makers affect the amount of trade through
 Tariffs: a tax on imports or exports
 Quotas: a quantity restriction on imports or exports
 Export subsidies: a payment to producers that export
8. Corporate Social Responsibility (CSR) and Ethics:  Other regulations: (e.g. product specifications) that
Labor Standards: Ensuring ethical labor practices exclude foreign products from the market,but still
(e.g., avoiding child labor, providing safe working conditions) allow domestic products .
is critical, especially when operating in developing countries
where labor laws may be less stringent. SUMMARY
Businesses that operate across borders encounter a
Environmental Impact: Companies operating globally multitude of complexities—ranging from navigating
are increasingly held accountable for their environmental regulatory environments and political risks to managing
impact, including carbon emissions, waste management, and cultural differences and maintaining efficient global supply
resource use. chains. Success in international business requires strategic
planning, cultural awareness, and flexibility to adapt to
Supply Chain Ethics: Businesses need to ensure that their different market conditions and regulatory landscapes.
global supply chains adhere to ethical standards, avoiding
partnerships with suppliers involved in human rights Ethics in international business and trade is about balancing
violations or environmental harm. profit with responsibility. Companies must navigate complex
ethical issues, including labor practices, environmental
impact, and corruption, while respecting cultural differences
and ensuring compliance with local laws. By adopting ethical
practices, businesses not only build trust with stakeholders
but also contribute to the broader goal of sustainable and
equitable global development.

EMERGING TRENDS IN
INTERNATIONAL BUSINESS
TRENDS
 A trend is a pattern or change observed over time. It can
extend to technology, consumer behavior, and even the
global economy. These are often the result of social,
economic, and technological changes. In the context of
international business, trends refer to changes and
developments occurring in the global business
environment.

Relationships Between Trends and International Business

 Trends influences the strategies and processes of
international companies. They provide insights into
market changes, consumer behavior, and technological
KEY AREAS OF ETHICS IN INTERNATIONAL BUSINESS AND advances, helping businesses adapt and grow in global
TRADE: markets.
1. Labor Practices and Human Rights
2. Environmental Sustainability Emerging Trends
3. Corruption and Bribery  Emerging Growth Markets
4. Fair Trade and Ethical Sourcing  Demographic Shift
5. Respecting Local Cultures and Norms  Communication Digital Transformation
6. Intellectual Property (IP) Rights  E-commerce Expansion
7. Corporate Social Responsibility (CSR)  Increased Business Competition
8. Tax Evasion and Avoidance  Emergence of Clean Technology

INTERNATIONAL TRADE LAW Key Drivers of Change in Global Trade

 Technology Advancements:

The Effects of Government Policies on Trade

 IBT FINALS LESSON

The rise of e-commerce, artificial intelligence, blockchain, and access. Staying aware of regulatory trends is essential to
the Internet of Things (IoT) is transforming business models, avoid these risks.
supply chains, and customer interactions.
Automation and digital tools improve efficiency and allow iv. Economic Opportunity: Emerging markets and new
companies to scale operations globally with fewer physical technologies provide opportunities for expansion.
barriers. Companies that embrace these opportunities can
diversify their revenue streams and reduce dependency
 Shifts in Consumer Behavior: on a single market.
Consumers are increasingly prioritizing convenience,
personalized experiences, and ethical considerations when v. Sustainability and Long-Term Success: As
making purchases. environmental concerns rise, adopting sustainable
practices can reduce resource dependency and position
There’s a growing demand for sustainable products and a company as a leader in social responsibility, which is
transparent supply chains, which is pushing businesses to increasingly valued by both investors and customers.
adopt greener practices.
Opportunities and Challenges
 Policy and Regulatory Shifts:  Market Expansion
Governments are updating policies on trade, data privacy,  Economic Growth
and sustainability, impacting international business  Labor Cost Advantage
operations.The rise of regional trade agreements and  Access to Resources
changes in tariffs and trade restrictions are reshaping market  Innovation and Technology Adoption
dynamics. Policies such as data protection laws (e.g., GDPR)
and environmental regulations are increasingly affecting how Growth of E-Commerce and Digital Platforms
companies operate across borders. i.Rapid Expansion: E-commerce has seen significant growth
worldwide, driven by increased internet access, smartphone
Importance of Understanding Trends adoption, and consumer preference for online shopping.

 Competitiveness in Global Markets ii.Global Reach: Digital platforms allow businesses to access a
I.Staying Relevant: Businesses that anticipate and adapt to global audience, breaking down traditional geographical
trends can stay ahead of competitors and respond effectively limitations.
to shifts in demand.
iii.Rise of Marketplaces: Large e-commerce marketplaces like
II.Risk Management: By understanding trends, companies Amazon, Alibaba, and eBay provide a platform for small and
can identify and mitigate risks, whether from supply chain large businesses alike, making it easier to enter international
disruptions, geopolitical tensions, or regulatory changes. markets.

III.Innovation and Growth: Adapting to emerging trends can Benefits and Challenges of Cross-Border E-Commerce
open up new markets and customer segments, leading to Benefits:
growth and expansion opportunities. Market Access: Companies can reach international
customers without needing physical stores or extensive
IV.Customer Trust and Loyalty: Meeting the expectations of infrastructure.
socially-conscious and tech-savvy consumers can build brand
loyalty and positive reputation. Lower Operating Costs: E-commerce reduces costs related
to physical stores, allowing companies to operate with a
Why is it crucial for companies to adapt to these trends? leaner model.

i. Global Competitiveness: Companies that are proactive Consumer Insights: Digital platforms provide data and
in adapting to global trends are more likely to remain insights on consumer behavior, allowing for personalized
competitive. As businesses around the world adopt new marketing and product adjustments based on demand.
technologies or sustainable practices, those that lag
may struggle to keep up. 24/7 Accessibility: E-commerce stores are always open,
allowing businesses to make sales and interact with
ii. Consumer Expectations: Today’s consumers are customers around the clock.
informed and have access to global choices. They expect
companies to offer innovative, sustainable, and Challenges:
ethically-sourced products. Meeting these expectations Logistics and Shipping: Cross-border e-commerce requires
is essential for brand loyalty and customer retention. effective supply chain management, warehousing, and
shipping solutions to ensure timely delivery.
iii. Regulatory Compliance: With the increase in
international and regional regulations, non-compliance
can lead to fines, restrictions, or even loss of market
 IBT FINALS LESSON

Currency and Payment Issues: Dealing with different

currencies, payment methods, and transaction fees can
complicate cross-border sales.

Cultural and Language Barriers: Adapting products and

marketing messages to fit different cultural norms and
languages can be challenging.

Compliance and Regulations: Different countries have their

own regulations around data privacy, consumer protection,
and product standards that companies must comply with.

SUMMARY

Understanding these trends equips businesses with the

knowledge to stay competitive in a fast-evolving global
market. Companies that proactively adapt to digital
transformation, sustainability, regulatory compliance, and
shifting economic power are more likely to thrive. For future
business leaders, staying informed about these trends is
essential for making strategic decisions that align with both
current demands and emerging global challenges.