Basically, international business can be easily defined as transactions that are devised and carried out across national countries borders, to sastify the objectives of individuals and organizations. There are three types of international business. Firstly, primary types which encompasses imports and exports of goods or services. A good example of this would be “Foreign Direct Investment”. Secondly, the secondary types are those that are “wholly owned subsidiary” and “joint venture”. While others encompasses licensing, franchising, management contract and et cetera.
International trade can be seen as a tool to improve our standard of living and it definitely benefit all participating countries. It’s making sense that it’s better to specialise rather than people trying to be self-sufficient and do everything for themselves.
The reasons for international trade are really only an extension of the reasons for trade within a nation. It’s a norm for people to specialise in the jobs they do and earn money from their labour, then they use the money to buy goods they need; goods that other people have specialised in producing.
International Trade is a must in today competitive world. In order to succeed and not to become poor, a country must practice international trade.
01. WHAT TRADE THEORIES HELP TO EXPLAIN WHERE CASHEW TREE PRODUCTS HAVE BEEN PRODUCED HISTORICALLY?
They are altogether three types of trade theories to explain where cashew tree products have been produced historically. Firstly there is the principle of absolute advantage by Adam Smith which stated that each country should produces goods that it is good at. This trade theory led David Ricardo to his law of comparative advantage arguing the fact that what if a country is good at everything. Lastly, comes Michael E Porter with his modern type of trade theory; the theory of competitive advantage.
PRINCIPLE OF ABSOLUTE ADVANTAGE
The concept of absolute advantage emerges from the fact that some individuals or nations can produce more of a good from given resources than can others. This theory creates questions on its reliability as the theory relied only on a country possessing absolute advantage in production, but it did not explain what caused the production disadvantages. The most common question to this theory is : “If a country did not possess absolute advantage in any product, could it trade?
In the case study, it is obvious to see that India has the absolute advantage in the production of cashew nuts as India almost monopolized the cashew processing until the mid-1970s. This monopoly was due to three factors.
The first factor is in regards to India’s vast raw material. India was the largest producer of wild cashews.
Secondly, the demand factor also help India to have an absolute advantage over his competitors; if there is any. As an early demand started in India, any other country that want to reach India’s consumers market would have to add extra transport charges to its cost. This would have increased their selling price, which would be unfavorable in comparison to India’s selling price that do not have to add that extra transport charges.
Lastly, the most important factor; labour force. The Indian workers were particularly skillful at the processing technology of cashew nuts. The Indian labour force worked on making handicrafts at home as children and, as a result, by the time they were employed in cashew processing, could perform delicate hand operations efficiently.
LAW OF COMPARATIVE ADVANTAGE
Here, David Ricardo points out that trade between two countries can still be beneficial even if one country could produce all goods with less resources than the other, providing the relative efficiency with which goods can be produced differs from the two countries. If countries are to gain from trade, they should export those goods in which they have a comparative advantage and import goods in which...