Full Summary of International Trade & Risk 2023/2024 (ppts + lesson notes)
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Course
International trade & risk
Institution
Arteveldehogeschool (Artevelde)
This is a complete summary of the international trade & risk course at Artevelde University in the field of International Business (AJ).
Disclaimer: copy from ppts and lesson notes included (no book for this course)
1. Introduction to International Trade .................................................................................................... 1
1.1 Why international trade? .............................................................................................................. 3
1.2 World trade ................................................................................................................................... 5
1.3 Belgium’s status............................................................................................................................. 7
2. Globalization...................................................................................................................................... 10
2.1 What is Globalization?................................................................................................................. 10
2.2 Drivers of Globalization ............................................................................................................... 11
2.3 Trade Policies & Agreements ...................................................................................................... 12
2.4 The Emergence of Global Institutions ......................................................................................... 13
3. National Differences .......................................................................................................................... 15
3.1 Political factors ............................................................................................................................ 16
3.2 Economic factors ......................................................................................................................... 16
3.3 Socio-cultural factors................................................................................................................... 20
3.4 Technological factors................................................................................................................... 22
3.5 Environmental factors ................................................................................................................. 22
3.6 Legal factors ................................................................................................................................ 23
4. Strategy and Structure of International Business ............................................................................. 24
4.1 Strategy and the firm................................................................................................................... 24
4.2 Global expansion ......................................................................................................................... 27
4.3 Cost pressure and pressure for local responsiveness ................................................................. 28
4.4 Choosing a strategy ..................................................................................................................... 29
5. Entry Strategy & Strategic Alliances .................................................................................................. 31
5.1 Entry strategy considerations...................................................................................................... 31
5.2 Basic entry decisions ................................................................................................................... 32
5.3 Entry modes................................................................................................................................. 33
5.4 Selecting an entry mode .............................................................................................................. 37
5.5 Strategic alliances ........................................................................................................................ 38
6. Transport Modes and Intermediaries ............................................................................................... 40
6.1 Modes of transport ..................................................................................................................... 40
6.2 Transport Intermediaries ............................................................................................................ 46
7. Transport Documents ........................................................................................................................ 49
7.1 Introduction ................................................................................................................................. 49
7.2 Bill of Lading (B/L)........................................................................................................................ 50
, 7.3 Inland waterway Bill of Lading .................................................................................................... 52
7.4 CMR-Consignment note .............................................................................................................. 52
7.5 CIM-Consignment note ............................................................................................................... 54
7.6 Air Way Bill (AWB) ....................................................................................................................... 54
7.7 Other documents in International Trade .................................................................................... 56
8. Incoterms........................................................................................................................................... 57
8.1 Introduction ................................................................................................................................. 57
8.2 What are incoterms? ................................................................................................................... 57
8.3 Incoterms – group 1 .................................................................................................................... 59
8.4 Incoterms – group 2 .................................................................................................................... 63
8.5 Incorrect usage of Incoterms ...................................................................................................... 65
9. International Payment Techniques ................................................................................................... 66
9.1 Cash in Advance........................................................................................................................... 67
9.2 Letter of Credit ............................................................................................................................ 67
9.3 Documentary Collection .............................................................................................................. 69
9.4 Open Account .............................................................................................................................. 70
10. Global Production and Supply Chain Management ........................................................................ 71
10.1 What is SCM, what is logistics? ................................................................................................. 71
10.2 SCM as a competitive weapon .................................................................................................. 72
10.3 Optimizing your supply chain .................................................................................................... 74
11. Risks in International Trade ............................................................................................................. 79
11.1 Risk of non-payment ................................................................................................................. 79
11.2 Political risk................................................................................................................................ 80
11.3 Currency exchange rate risk ...................................................................................................... 81
11.4 Transport & logistical risk .......................................................................................................... 82
11.5 Administrative risk..................................................................................................................... 82
11.6 Economical risk .......................................................................................................................... 82
11.7 Legal risk .................................................................................................................................... 83
,1. INTRODUCTION TO INTERNATIONAL TRADE
International trade = a set of market transactions that aim to exchange capital, goods, and services
between foreign countries across their international borders. These transaction cannot be detached
from the political reality and choices surrounding it.
“Trade is central to ending global poverty.” – WTO & World Bank (video)
• The role of trade in supporting growth and reducing poverty (trade = ethical)
• If you open up your borders everyone is going to benefit → increasing employment (ex. new
factories) and getting out of poverty
• The WTO is more like a platform instead of an organization → countries come together to
discuss international trade and they agree (goal: opening boarders)
• Every year trade is more open than the year before (except since 2020)
• There are more import taxes now, then there were 5 years ago → less trade. Reasons: Trump
in the USA, war and the Brexit
“Open trade policies enable economic growth for all” – World Bank
• Trade is central to ending global poverty. Countries that are open to international trade tend
to grow faster, innovate, improve productivity and provide higher income and more
opportunities to their people.
• Open trade also benefits lower-income households by offering consumers more affordable
goods and services.
• Integrating with the world economy through trade and global value chains helps drive
economic growth and reduce poverty - locally and globally.
The world is shrinking
• Technological innovations make it possible to support bigger volumes and more complex
supply chains in international trade:
o Innovations in transport: containers, commercial jet travel,…
o Innovations in communication:
▪ Communication between people via platforms like Teams
▪ Communication between companies via ERP-linking
➢ An Enterprise Resource Planning (ERP) system is a sophisticated
software tool used by businesses to manage various aspects of their
operations like finance, inventory, human resources, and customer
relations into a single system.
Remark 1: increase in inequality, but a decrease in absolute poverty relations into a single system.
• 1% of the world’s population owns 50% of the wealth
• Inequality leads to social and political struggle
• However, until the start of COVID-19; less people than ever were living in extreme poverty and
never before, so many people had been employed
• Regions that were already poor before are suffering the biggest impact of the COVID-19
aftermath, leading to a renewed increase in absolute poverty
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,The impact of COVID-19
• Inequality between countries is on the rise again
o Gini and Theil index both measure inequality: the higher, the more unequal a country
is
• Especially emerging markets and developing countries are facing an increase in inequality,
reversing the trend of the past 20 years.
• So far, the reverse trend is still moderate, but long-term disruptions to education, inflation and
surging public debt could accelerate this process.
Remark 2: can we maintain growth in a sustainable way?
• “Air Pollution Deaths Cost Global Economy US$225 Billion” – World Bank
• Different critiques on globalization – see chapter 2
• Link with UN SDG’s (sustainable development goals – logistics mgmt.)
• However:
➔ Always take the triple bottom line into account! People, planet & profit… (3P’s)
• Kate Raworth’s Donut Economy
o Concept that envisions a balanced economic model for sustainability. Imagine a donut-
shaped diagram: the inner circle represents the basic human needs like food, water,
and shelter, while the outer circle represents the ecological limits of the planet, such
as climate change and biodiversity loss. The goal is to ensure everyone's needs are met
without surpassing these planetary boundaries.
• Growth not to be expressed in GDP (gross domestic product)
• 12 social foundations to be reached
• BUT: do not exceed the ecological ceiling => degradation of Earth
• Get into the “Doughnut”
• Remark: how can we convince companies to take this into account?
2
,Remark 3: Since ca. 2016, we see a renewed increase in protectionism
• Protectionism = an economic policy where a country tries to shield its domestic industries
from foreign competition by imposing barriers like tariffs and quotas on imported goods. This
is often done to protect local jobs and industries from being overwhelmed by cheaper foreign
products. However, it can also lead to higher prices for consumers and limit the benefits of
international trade.
• This was already apparent before COVID-19 and the war in Ukraine.
• COVID-19 led to renewed closures of borders, both to contain the virus as well as to have
enough vaccines.
• The war in Ukraine substantially decreased trade between Europe and Russia, but the
economic and political connections with China are also under pressure.
• The supply chain disruptions of 2020-2022 convinced countries that some resources are too
important to leave in the hands of others
1.1 WHY INTERNATIONAL TRADE?
Adam Smith
• “Wealth of Nations” (1776)
• Smith applied the doctrine of laissez-faire to international trade. All nations would benefit
from unregulated, free trade that would allow individual countries to specialize in goods they
were best suited to produce because of natural and acquired advantages.
• Smith’s theory of trade has come to be known as the theory of absolute advantage.
o If one county is better (cheaper, more efficient), let them do it
o BUT: It is not possible, because everything should be produced in a couple of countries
because of lower wages
• ‘The invisible hand of the market’: government doesn’t intervene and an invisible hand will
guide the market
David Ricardo
• “On the principles of political economy and taxation” (1817)
• The principle of comparative advantage postulates that all nations can gain from trade if each
specializes in producing what they are relatively more efficient at producing and import the
rest: “do what you do best, import the rest”. → more used in reality
•
o Analyse the difference in costs. For Portugal, wine is 20 - 10 = 10 cheaper and cloth is
12 – 8 = 4 cheaper.
o Portugal makes wine 10/20 x 100% = 50% cheaper than England
o Portugal makes textile 4/12 x 100% = 33% cheaper than England
o What would happen in this example according to Adam Smith’s theory of absolute
advantage
3
, Immanuel Wallerstein’s World Systems Analysis
• Core-Periphery Model
o Wallerstein's World-Systems Analysis divides the world into three main regions - the
Core, the Semi-Periphery, and the Periphery. The Core countries are economically
dominant, the Periphery countries are economically disadvantaged, and the Semi-
Periphery falls in between.
• Dependency Theory
o Wallerstein's theory focuses on the notion of dependency, where Periphery nations
are dependent on the Core for economic resources and market access. This
dependency is often exploitative and perpetuates global inequalities.
• Historical Development
o Wallerstein argues that this global system has evolved over centuries, stemming from
colonialism and the expansion of European powers. It's a historical perspective that
considers how capitalism and imperialism have shaped global economic relations.
• Unequal Exchange
o Wallerstein highlights the concept of unequal exchange, where goods and labor from
Periphery nations are undervalued compared to what the Core nations gain from
them. This perpetuates the wealth gap between these regions.
• A dynamical system
o Wallerstein's analysis emphasizes that the world-system is not static but dynamic, with
nations moving between core, semi-periphery, and periphery positions over time. This
theory helps explain the shifting power dynamics in the global economy.
• The world according to Immanuel Wallerstein:
Why international trade?
• Last few hundred years: greater openness and liberalized trade
• While protectionism has always been present, the increase in the last 8 years is remarkable
• Conclusion: advanced nations are realizing that economic growth and stability depend on a
strategic mix of trade policies, meaning both free trade & protectionism
• There was more and more trade until 2020, now countries want to protect their own borders.
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