International Trade and Economic Integration
AGENDA
Review of previous session
Introduction
Questions
International Politics, Economies & Legal Systems
Regional Economic Integration
International Trade & Trade Theories
Discussion & Summary
REVIEW OF PREVIOUS SESSION
Key Term Reflection: Students are asked which key term from the previous session can be remembered, indicating the importance of retention and application of knowledge regarding international business.
INTRODUCTION
READINGS BEFORE SESSION
Required Text: Hill, C.W.L. (2023). International Business. (14th ed.). McGraw-Hill.
Relevant Chapters: 2, 6, & 9
ASSIGNMENTS AFTER THE SESSION
Group Assignment: Presentation
Percentage of Final Grade: 30%
Sessions 4 & 5 will cover this assignment.
QUESTIONS
Discussion: Open floor for questions, reinforcing the interactive learning structure.
INTERNATIONAL POLITICS, ECONOMIES & LEGAL SYSTEMS
CASE STUDY: AVOCADO
Overview:
The avocado is one of the most globally traded fruits with significant statistics:
Main Producers:
Mexico: 30%
Peru: 15%
Chile: 8%
Kenya: 6%
Main Consumers: Europe, the U.S., and Asia.
Global Trade Value (2023): USD 9.2 billion (FAO).
Highlights international trade, supply chains, and economic interdependence.
PRODUCTION AND COMPARATIVE ADVANTAGE
Climate Suitability: Avocados thrive in warm climates, which is unfavorable for countries like Austria.
Market Dynamics:
Farmers earn less than 10% of retail price due to the supply chain structure.
Comparative Advantage: Mexico and Peru have favorable conditions for avocado production, leading to low opportunity costs. Austria imports avocados because it cannot produce them efficiently.
David Ricardo's Principle: Countries export products they can produce at a lower opportunity cost.
Observation on Inequality: Despite global trade benefits, farmers receive a small share of the profits.
POLITICAL PERSPECTIVE
Producer Countries: Predominantly democracies with market-oriented economies.
Trade Regulations: Avocados traded under EU-Latin America agreements with low or zero tariffs.
Political Risks: Unrest and corruption can impact export reliability.
Comparison of Political Systems: Democratic systems provide stability essential for trade, while instability in countries like Mexico can disrupt markets.
ECONOMIC PERSPECTIVE
Market Economies: Mexico and Peru versus mixed economies like Austria.
Global Value Chain:
Import price: €2.40/kg
Retail price: €6–7/kg
Profit Sharing:
Farmers: <10%
Retailers: >50%
Consumer Access & Economic Interdependence: Highlights reliance of Latin America on EU demand and vice versa, depicting global economic connections.
LEGAL PERSPECTIVE
Legal Framework: Both regions operate under civil law systems.
Key Regulations:
Governed by EU Food Safety Regulation (EC No 178/2002).
WTO principles ensure non-discrimination in trade.
Fair Trade initiatives foster ethical practices.
EU Green Deal emphasizes sustainability and CO₂ reduction.
TRANSPORTATION AND REGIONAL INTEGRATION
Logistics: 95% sea freight, 5% air freight; shipping time varies between 2-4 weeks from South America to Europe.
Cold Chain Logistics: Maintained at 5-6°C.
EU Single Market Advantages: Goods move freely across member states without tariffs or controls.
SUSTAINABILITY
Environmental Impact: 1 avocado generates 1.6 kg of CO₂ emissions from transport.
Waste: 45% of avocados are lost/wasted globally.
Sustainability Dilemma: Balancing efficient trade with ethical concerns and environmental costs.
Future Considerations: Encourages students to consider what constitutes sustainable trade in alignment with SDGs.
BUSINESS PERSPECTIVE
Business Benefits: Access to new markets, consumer choice, and economic growth.
Risks: Currency volatility, political instability, and environmental concerns.
Policy Recommendations: Advocates for sustainable trade rules, fair trade standards, and corporate responsibility.
DISCUSSION QUESTIONS
Consider the various actors involved in avocado supply chains: Who benefits most and least?
Analyze the pros and cons of globalization in this context.
Propose methods for increasing supply chain sustainability.
Question ethical concerns regarding importing avocados in light of ecological effects.
POLITICAL SYSTEMS
Dimensions of Political Systems:
Collectivism vs. Individualism: Collectivist systems often lean toward totalitarian governments, while individualistic systems can provide democratic freedoms.
Open to varying degrees: Both collectivism and individualism exist on a spectrum with elements present in many countries.
DEFINITIONS
COLLECTIVISM
Emphasizes collective goals over individual interests; individual rights may be restricted for the common good.
Example: Japan focuses on group harmony.
INDIVIDUALISM
Guarantees personal freedom and individual pursuits as foundational principles.
Example: The United States promotes self-reliance and personal achievement.
DEMOCRACY
Government by the people, allows for direct participation or elected representation.
Example: Switzerland's direct democracy structure.
TOTALITARIANISM
Absolute control by a single entity over all aspects of life, suppressing political opposition.
Example: North Korea exemplifies totalitarian governance.
ECONOMIC SYSTEMS
Types of Economic Systems:
Market Economy: Activities are privately owned and dictated by supply and demand; for instance, Austria.
Command Economy: Central planning dictates economic activity; exemplified by North Korea.
Mixed Economy: Combines market and command economy elements; such as China.
MARKET ECONOMY EXAMPLE
United States exemplifies a capitalist system encouraging individual business freedoms.
COMMAND ECONOMY EXAMPLE
North Korea's government controls all economic activity with minimal market influence.
MIXED ECONOMY EXAMPLE
Germany balances market-driven decisions with government regulation in key sectors.
LEGAL SYSTEMS
Types of Legal Systems:
Common Law: Based on tradition and precedent; most prominent in former British colonies.
Civil Law: Codified law systems are prevalent in many countries like Germany and Japan.
Theocratic Law: Governed by religious principles; Islamic law is a leading example.
COMMON LAW EXAMPLE
The UK operates predominantly under common law principles.
CIVIL LAW EXAMPLE
France relies on codified laws from sources like the Napoleonic Code.
THEOCRATIC LAW EXAMPLE
Iran's legal system is heavily influenced by Sharia law.
AUSTRIA
INDIVIDUALISM
Personal autonomy is highly valued in Austria, yet the state supports social welfare systems that embody some collectivist principles.
DEMOCRATIC PRINCIPLES
Austria practices a federal parliamentary democracy, dividing power between the federal government and states.
MIXED ECONOMY CHARACTERISTICS
Emphasizes private enterprise while regulating significant sectors like healthcare, education, and infrastructure.
CIVIL LAW CONTEXT
Governed by the Austrian Civil Code, establishing foundational legal principles for dealings.
GROUP WORK
POLITICAL, ECONOMIC & LEGAL SYSTEMS
Assignments involve teams analyzing specific countries' systems and their business climates with regard to:
Political system type and its impact on business stability.
Economic system and government regulation roles.
Legal framework implications for contracts and trade.
PEST/LE/EL ANALYSIS
COMPONENTS OF ANALYSIS
Political Factors:
Stability, taxation processes, and corruption levels.
Economic Factors:
Growth rates, labor market conditions, and consumer spending.
Social Factors:
Demographic considerations and consumer attitudes.
Technological Factors:
Infrastructure and innovation trends.
Legal Factors:
Regulatory practices and compliance.
Environmental Factors:
Pollution management and attitudes towards sustainability.
INTERNATIONAL TRADE & TRADE THEORIES
DEFINITIONS
International Trade: The exchange of goods/services between companies across different countries, promoting market expansion and competition.
Gains from Trade: Economic benefits realized from trading goods/services that provide comparative advantages.
Free Trade: Absence of government influence on trade dynamics.
TRADE THEORIES OVERVIEW
Mercantilism: Traditional trade theory focused on accumulating wealth through exports over imports.
Absolute Advantage: Defined by Adam Smith's concept of producing goods more efficiently than competitors.
Comparative Advantage: Introduced by David Ricardo; focuses on opportunity costs to determine trade benefits.
Heckscher-Ohlin Theory: Determines trade patterns based on factor endowments.
New Trade Theory: Explains benefits of trade through economies of scale and variety.
Porter’s Diamond: Analyzes national competitive advantages based on environmental factors.
REGIONAL ECONOMIC INTEGRATION
DEFINITIONS
Economic integration refers to agreements among nations to minimize or remove trade barriers and harmonize fiscal/monetary policies.
Examples of Integration: EU, NAFTA, ASEAN among others.
LEVELS OF INTEGRATION
Describes various integration levels such as political unions, economic unions, preferential trading agreements, free trade areas, customs unions, and common markets.
TRADE AGREEMENTS
Involve discussions on tariffs, quotas, and influence member nations' trade dynamics.
RATIONALES
Economic integrations aim to enhance market access, promote strategic political objectives, and ensure efficiency within trade.
ECONOMIC DEVELOPMENT MEASURES
Gross National Income (GNI): Total annual income received by residents, accounting for global economic participation.
Gini Coefficient: Measures wealth distribution and equality within nations.
DISCUSSION & SUMMARY
Encourage personal reflection on learning outcomes from the session.
Group discussion on key terms learned and their implications for future sessions.
REFERENCES AND LITERATURE
Collinson, S., Narula, R. & Rugman, A.. (2020). International Business. (8th ed.). Pearson.
Hill, C.W.L. (2023). International Business. (14th ed.). McGraw-Hill.
Steers, R.M., Osland, J.S., Szkudlarek, B. (2024). Management Across Cultures. (5th ed.). Cambridge University Press.