International Business

Historic Trade Routes:

Silk (Road), Sea (Indian Ocean) and Sand
(Trans-Saharan)
The spread of economic activity, religion,
and disease through trade
 Impact of Trade
• Brought wealth and access to foreign products
and enabled people to concentrate their
efforts on economic activities best suited to
their regions
• Facilitated the spread of religious traditions
beyond their original homelands
• Facilitated the transmission of disease
 Interregional Networks
• There are main four trading routes linked to the
classical civilizations:
The Silk Road
• The Silk Road was a very influential trade route. It
included the Chinese, Indians, Parthians, central
Asians, and Romans. They traded anything and
everything they could, ranging from horses, grapes,
walnuts, silk, peaches, spices, pottery, paper, and
more. The Silk Road also helped the spread of
Buddhism across China and central Asia.
 Silk Roads
• Classical empires such as the Han, Kushan, Parthian, and Roman brought
order and stability to large territories
– They undertook massive construction projects to improve
transportation infrastructure
– The expanding size of the empires brought them within close
proximity to or even bordering on each other
• As classical empires reduced the costs of long-distance trade,
merchants began establishing an extensive network of trade
routes that linked much of Eurasia and northern Africa
• Collectively, these routes are known as the “Silk Roads”
because high-quality silk from China was one of the principal
commodities exchanged over the roads
 Where did they go?
• Linked China and the Holy Roman Empire
– The two extreme ends of Eurasia
• Started in the Han capital of Chang’an and went west to the Taklamakan
Desert -Then the road split into two main branches that skirted the desert
to the north and south
• In northern Iran, the route joined with roads to ports on the
Caspian Sea and the Persian Gulf and proceeded to Palmyra
(modern Syria)
– There it met roads coming from Arabia and ports on the Red Sea
• The Silk Roads also provided access at ports like Guangzhou in
southern China that led to maritime routes to India and
Ceylon (modern-day Sri Lanka)
 Silk Road Trade to the West
• Silk and spices traveled west from
southeast Asia, China, and India
– China was the only country in classical
times where cultivators and weavers
had developed techniques for
producing high-quality silk fabrics
– India provided Cotton fabrics and
Spices .
– Spices served not just to season food
but also as drugs, anesthetics,
aphrodisiacs, perfumes, aromatics,
and magical potions

Chinese silk making

 Silk Road Trade to the East
• Central Asia produced large, strong horses and jade
that was highly prized by Chinese stone carvers
• The Roman empire traded glassware, jewelry, works
of art, decorative items, perfumes, bronze goods,
wool and linen textiles, pottery, iron tools, olive oil,
wine, and gold and silver bullion
– Mediterranean merchants and manufacturers often
imported raw materials such as uncut gemstones which
they exported as finished products in the form of
expensive jewelry and decorative items
 Organization of Long-distance Trade
• Individual merchants usually did not travel from one
end of Eurasia to the other
• Instead they handled long-distance trade in stages
 The Indian Ocean Trade
• The trade had three legs: one connected
eastern Africa and the Middle East with India;
another connected Southeast Asia to the
Chinese port of Canton; and the last one
linked India to Southeast Asia. This trade also
had a hand in the rise of Islam in the regions
around the Indian Ocean.
 Saharan Trade
• Cairo was by far the most important
destination for the Saharan Trade route. It was
at the mouth of the Nile River and connected
to many other trade routes. This route
transported salts, gold, wheat and olives, and
Roman manufactured goods. The Saharan
Trade started advancing in technology by
creating the camel saddle which allowed
domestication and use of the camel for the
ride.
End of Silk Road
• The spread of the bubonic
plague and the collapse of
the Mongol Empire made
overland travel on the Silk
Roads more dangerous
than before
• Muslim mariners began
avoiding the overland
route and bringing Asian
goods to Cairo where
Italian merchants
purchased them for
distribution in western
Europe
 New Trade Routes
• As the Ottoman Empire expanded into Eastern
Europe and the eastern Mediterranean,
European trade routes were disrupted.

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 New Trade Routes
• In the 1400s, Europeans wanted to get around
the Ottoman and Italian "middlemen" and
gain direct access to Asian trade.
• Portugal, then Spain, and eventually other
European nations sought a route to Asia that
bypassed the Mediterranean.

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 International Trade- 16th Century
• Portuguese controlled the Indian Ocean Trade - built
a trading empire of military and merchant outposts
 17th Century
Dutch warships and trading vessels put the Netherlands
in the forefront of European commerce – 17th Century
international trade was controlled by Dutch
 18th & 19th Century – British and
French
• Industrial Revolution & power of British Navy
helped Britain to become dominant in
international trade from mid-18th century and
France followed suit in 19th Century
 20th Century
• Lull after WWI. Economies closed –
Depression in 30s
• Opened again after WWII slowly
 Globalization
• Globalization
– Coined by Theodore Levitt
• “as if the entire world (or major regions of it) were a
single entity; [such an organization] sells the same
things in the same way everywhere”
• Economic Globalization
– International integration of goods, technology,
information, labor, and capital
– Process of making this integration happen

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 Drivers of Globalization
– Expansion of technology
• Business is becoming more global because
– Transportation and communications costs are more conducive
for international operations
– Transportation is quicker
– Communications enable control from afar
– Liberalization of cross-border movements
• Lower governmental barriers to the movement of goods,
services, and resources enable companies to take better
advantage of international opportunities

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 Drivers of Globalization
– Development of supporting institutional
arrangements (UN, WTO, IMF & World Bank)
• Institutional arrangements
– Are made by business and government
– Ease flow of goods
– Reduce risk
– Increase in global competition
• More companies operate internationally because
– New products quickly become global
– Companies can produce in different countries
– Domestic companies’ competitors, suppliers, and customers
become international

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 International Business
• International business consists of all
commercial transactions—including sales,
investments, and transportation—that take
place between two or more countries-to
satisfy the profit motives of individuals,
companies, and organizations
 Why studying International Business is important ?

• Most companies are either international or compete

with international companies
• Modes of operations may differ from those used
domestically
• The best way of conducting business may differ by
country
• An understanding helps you make better career
decisions
• An understanding helps you decide what
government policies to support
 Why firms engage in International Business

• To Expand Sales: pursuing international sales

increases the potential market and potential profits
• To Acquire Resources: may give companies lower
costs, new and better products, additional operating
knowledge
• To Diversify or Reduce Risks: international operations
may reduce operating risk by smoothing sales and
profits, preventing competitors from gaining
advantage
 What’s different about International
Strategy
Corporate Strategy & International Strategy
• Heterogeneity
• Scale
• Volatility
 Modes of International Business
• Merchandise exports and imports
– Tangible items (e.g., cars, televisions, e.t.c)

• Service exports and imports

– Tourism and transportation

– Performance of services

– Use of intangible assets

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 Modes of International Business
• Investments

– Direct investment : Key features are

– Control

– Access to foreign markets

– Access to foreign resources

– Higher foreign sales than exporting (often)

– Partial ownership (sometimes)

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 Modes of International Business
• Investments

– Portfolio investment: Key features

• It is used for diversification purposes

• Noncontrol of foreign operations

• Financial benefit (for example, loans)

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 Patterns of international competition
• The pattern of international competition differs from industry
to industry.
– Multidomestic industries
• Competition in one country does not affect competition in other
countries.
– Global industries
• A firm’s competitive position in one country is significantly affected by its
position in other countries

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External Competitive Environment
• Economic forces determine competitive
advantage and comparative advantage.
• The role of government is excessive in
international markets.
• The competitive environment created by
other companies.
– The next slide illustrates the international business
environment.

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 International Business: Operations and Influences

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 International Strategy Evolution
• Patterns of international expansion:
– Strategies for heavy international commitments usually evolve
gradually from

• Passive to active expansion

• External to internal handling of operations

• Deepening mode of commitment

• Geographical diversification

– Leapfrogging of Expansion

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