The Nature of International Business – Part 2
Welcome to the fifth session of the International Socio-Economic Context Course. This class we will continue the review of the Chapter the Nature of International Business that aims for the general comprehension of enterprises which have international activities.
In this session, the changes in world patterns in terms of countries, products and direct investment will be presented to conform a global panorama of the current global business situation.
So, by the end of this class you will be able to describe the main changes in the referred global trends to build your international business knowledge, useful not only to manage MNC but also to understand the implications for domestic firms who do not compete in foreign markets but compete against foreign companies.
Recent Trade Patterns and Changes in Global Trade
According to Ajami R., & Goddard J. G. (2015), as the world has become more and more industrialized and as markets have become global entities, trade has increased proportionately and grown tremendously both in volume and dollar terms.
Also, the United Nations Conference on Trade and Development (2021), states that for a substantial number of developing countries, gross domestic product (GDP) is closely dependent on the exports of goods and services to foreign markets. This is particularly true of many Southeast Asian economies, Eastern European countries and of a number of African countries, as well as Canada and Mexico.
World trade is largely unbalanced. China, Germany and the Russian Federation maintained the largest surplus positions in 2019. Primarily the United States and India maintain large deficit positions, but so do a number of other developing and developed countries. Even though these imbalances are sometimes large in level, they often tend to be low relative to the country’s GDP. Some exceptions are the Russian Federation and Germany whose trade balances are large relative to both the overall world imbalances and their GDP. In contrast, the trade imbalances of many countries in Africa tend to be large relative to their GDP while being relatively small for the world as a whole.
Although many countries are striving to diversify their exports, agriculture and natural resources still represent a large share of export baskets of many developing countries. Commodity dependence is more evident for energy-exporting countries in the Middle East, raw material suppliers in Africa as well as for Latin American countries, where agriculture still represents a large share of total exports. Dependence indices have declined over the past years for the majority of countries.
Geography, demographics and policy choices result in deficit or surplus positions in terms of agricultural trade. In general, countries in Latin America, East Africa and South Asia are net food exporters, while most of the rest of Asia and Africa remain net food importers. Most developed countries, as well as many developing countries (East and South Asia, and East Africa) are dependent on imported energy. In contrast, West and Central Asia, as well as most of Africa and South America, are net energy exporters.
Although many developing countries seek to diversify their exports, many do not succeed. Among developing countries, only a few emerging economies have reached levels of diversification similar to those of developed countries. African countries remain vulnerable to external shocks, as their exports are generally concentrated in a few products exported to a few destinations.
Many developing countries have been seeking to diversify their exports over the past years. Although some are still not very diversified, there is a tendency in many countries to diversify into new products and destinations. At the same time, some developed and developing countries have seen a decline in terms of product and destination diversification.
Since 2014, with the relevant exception of countries whose exports are largely concentrated in energy products, the exports of goods and services have increased for a large number of countries across the world, in Europe, East Africa, North America, East, South and Southeast Asia. However, between 2014 and 2019 some Sub-Saharan and West African countries, along with some South American ones experienced strong decreases in exports. During the same period, only a few countries, mainly in Africa and Central Asia, increased their competitiveness as compared to their key trading partners.
In comparison to countries with similar levels of GDP per capita, Australia, and North and South American countries tend to export goods that are relatively less sophisticated. Europe and Asia tend to export more sophisticated products, whereas the situation is more heterogeneous for Africa. In terms of change, some developing countries’ exports have become less sophisticated over the past years, while others have seen an improvement.
Overall, the export performance of developed and developing countries in South, East and Southeast Asia has been above average since 2014. Some African countries have also performed relatively well, especially in East Africa, showing high export growth rates and improvements in diversification in the past years. On the other hand, stagnant or declining export competitiveness and concentrated exports resulted in a relatively lower export performance in Latin America.
Managing a domestic and a MNC requires different considerations in order to obtain the desired results. Some of the benefits of such analyzed management have been presented in this session.
Also, the different ways to start the participation in international markets were introduced as well as their advantages and disadvantages. This is useful information for the Managers or business professionals who want to prepare the first internationalization of a company or to advance in the evolution of their form of participation in foreign markets.
As it was presented, different elements are crucial in every mode of entry so, this decision must be made keeping in mind those particularities and the different scenarios in which the firm would act internationally,
- Ajami R., & Goddard J. G. (2015). International Business: Theory and Practice. Routledge (31-41)
- United Nations Conference on Trade and Development (2021). Key Statistics and Trends in International Trade 2020. PDF File https://unctad.org/system/files/official-document/ditctab2020d4_en.pdf
- UNCTAD Online (December 13th, 2019). UNCTAD Handbook of Statistics 2019 Key Figures [Video File]. Youtube. https://www.youtube.com/watch?v=XHlW6v6ev_I&ab_channel=UNCTADOnline