EECS 1019 Lecture Notes - Lecture 17: International Trade
15 Jun 2018
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EECS 1019 Lecture 17 Notes
Introduction
How firms engage in international business
• Firms use several methods to conduct international business.
• The most common methods are international trade, licensing, franchising, joint
ventures, acquisitions of existing operations, and establishment of new foreign
subsidiaries.
• Each method will be discussed in turn, with particular attention paid to the respective
risk and return characteristics.
International Trade
• International trade is a relatively conservative approach that can be used by firms to
penetrate markets (by exporting) or to obtain supplies at a low cost (by importing).
• This approach entails minimal risk because the firm does not place any of its capital at
risk.
• If the firm experiences a decline in its exporting or importing, it can normally reduce or
discontinue that part of its business at a low cost.
• Many large U.S.-based MNCs, including Boeing, DuPont, General Electric, and IBM,
generate more than $4 billion in annual sales from exporting.
• Nonetheless, small businesses account for more than 20 percent of the value of all U.S.
exports.
How the Internet Facilitates International Trade
• Many firms use their websites to list the products they sell along with the price for each
product.
• Acquisitions of existing operations, and establishment of new foreign subsidiaries
• This makes it easy for them to advertise their products to potential importers anywhere
in the world without mailing brochures to various countries.
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