BASICS OF INTERNATIONAL TRADE AND BUSINESS FOR BEGINNERS (Must Known Subjects)

Summary

This video script offers a comprehensive guide for aspiring international traders and business owners. It covers the basics of international trade, its history, types, benefits like lower costs and product variety, and associated risks. The speaker, Murat, outlines steps to start an import-export business, emphasizing preparation, market research, and understanding legal aspects. The call to action encourages viewers to engage with the content and subscribe for more insights.

Takeaways

• 🌐 International trade is essential for economic growth, job creation, and poverty reduction.
• 📈 Trade is influenced by various factors including natural resources, economic trends, and government policies.
• 🚀 Expanding businesses through international trade can lead to increased strength, success, and profitability.
• 🛒 Globalization has made the world a borderless marketplace, offering a wide variety of goods and services.
• 🌱 International trade began with barter trade and evolved through mercantilism and liberalism to the current globalized economy.
• 🔄 The three main types of international trade are export trade, import trade, and entrepot trade.
• 💰 Benefits of international trade include lower product costs, increased production efficiency, product variety, and better management of market fluctuations.
• ⚠️ Risks in international trade include buyer and seller risks, third-party risks, and geographical risks.
• 📝 Starting an international business involves preparation, market research, evaluating distribution methods, and understanding regulations and legal aspects.
• 📈 International trade is a dynamic field with opportunities for growth and challenges that can be managed with proper knowledge and strategies.

Q & A

What is the significance of international trade in today's global economy?

International trade is significant as it influences a range of activities including jobs, consumption, poverty reduction, the environment, and international relations. It connects the world economy and allows for the exchange of goods and services that might otherwise be inaccessible.

What are the potential benefits of venturing into international trade for a business?

International trade can make a business stronger, more successful, and more profitable by expanding its market beyond local boundaries and tapping into the global marketplace.

How does international trade affect the variety of products available to consumers?

International trade increases product variety by allowing consumers access to goods from around the world, providing a wider range of options all year-round.

What is the concept of 'comparative advantage' in international trade?

Comparative advantage is an economic theory stating that countries should specialize in producing goods in which they have a lower opportunity cost compared to other goods and trade for the rest, leading to mutual benefits.

What historical economic system was centered around the idea of balanced trade and is considered the precursor to modern international trade?

Mercantilism was an economic system that promoted balanced trade, where the value of a country's exports exceeded its imports, and it is considered a precursor to modern international trade.

What are the three major types of international trade mentioned in the script?

The three major types of international trade are export trade, import trade, and entrepot trade.

How does international trade help in managing market fluctuations?

International trade helps manage market fluctuations by allowing businesses to sell surplus products in different markets where demand is high, thus mitigating the effects of seasonal sales changes.

What are some of the risks associated with international trade?

Risks associated with international trade include buyer risks, seller risks, third-party risks, and geographical risks, which can involve political instability, economic downturns, and currency fluctuations.

What is the first step recommended for starting an international business?

The first step recommended for starting an international business is to prepare a business plan that considers the international market, assesses needs, and sets objectives.

Why is it important for international businesses to stay updated on regulations and legal aspects?

It is important for international businesses to stay updated on regulations and legal aspects because every market has distinct rules that are subject to change, and non-compliance can lead to penalties.

What does the speaker suggest as a way to show understanding of the basic subjects of international trade and business?

The speaker suggests commenting with 'I get it' and using the hashtag #TeamMurat to show understanding and engagement with the content.

Outlines

00:00

🌐 Introduction to International Trade and Business

The paragraph introduces the concept of international trade and business, emphasizing its importance for those looking to start a career in this field or expand an existing business. It highlights the impact of trade on various aspects of society, including employment, consumption, poverty alleviation, the environment, and international relations. The speaker, Murat, offers to guide viewers through the basics of international trade, which is crucial for a successful global trading journey. The paragraph also touches on the benefits of international trade, such as accessing a wider market and the diverse range of products available due to globalization. Murat encourages viewers to engage with the video by liking and subscribing, setting the stage for a deeper dive into the subject.

05:07

📚 A Brief History of International Trade

This paragraph provides a historical overview of international trade, starting from barter trade to the mercantile system and eventually leading to the principles of liberalism introduced by Adam Smith and David Ricardo. It explains the evolution from a focus on a balance of trade surplus to the understanding of comparative advantage, which encourages countries to specialize in certain products. The paragraph also discusses the shift towards professionalism in the 19th century, the role of gold as an international medium of exchange, and the development of the Multilateral Trade Agreement. It concludes with the observation that international trade regulations need to be updated regularly to adapt to changing global trends.

10:10

🔄 Types of International Trade

The paragraph outlines the three major types of international trade: export trade, import trade, and entrepot trade. Export trade involves selling locally manufactured goods and services to foreign countries, while import trade is about purchasing goods from abroad that cannot be produced locally at a competitive cost. Entrepot trade is a combination of both, where goods are imported to be further exported to another country, often with some value addition in the interim. The paragraph uses examples of trade between India and China to illustrate these concepts, highlighting how countries can benefit from each other's production capacities.

15:14

💰 Benefits of International Trade

This paragraph discusses the advantages of international trade, such as lower product costs due to overseas manufacturing and high competition, efficiency in production processes, product variety, and the ability to sell surplus produce. It explains how these benefits can lead to better living standards, access to a wider range of goods, and sustainable profitability for businesses. The paragraph also touches on how international trade helps in managing market fluctuations by allowing suppliers to take advantage of demand in different countries at various times of the year.

20:19

⚠️ Risks and How to Start an International Business

The paragraph identifies the risks associated with international trade, including buyer risks, seller risks, third-party risks, and geographical risks. It warns of the potential for fraud, delays, quality issues, and the impact of political and economic instability on trade deals. The paragraph then provides guidance on how to start an international business, emphasizing the importance of preparation, market research, evaluating distribution methods, and understanding regulations and legal aspects. The speaker encourages viewers to take these steps to mitigate risks and increase the chances of success in international trade.

🎓 Conclusion and Call to Action

In the concluding paragraph, the speaker congratulates viewers for learning the basics of international trade and encourages them to apply this knowledge to grow their business globally. The speaker invites viewers to engage with the content by liking the video, commenting, and subscribing to the channel. The call to action is to use the hashtag #TeamMurat and to watch more videos on the channel for further insights into international trade.

Keywords

💡International Trade

International trade refers to economic transactions made between countries, involving the exchange of goods and services. It is a core theme of the video, emphasizing the importance of understanding import and export dynamics to succeed in global business. Examples from the video include exporting goods like chemicals from India to China and importing oil from the UAE.

💡Export

Exporting means selling goods and services from one country to another. It is a key concept in international trade, as highlighted by the video when discussing countries like India exporting products such as chemicals and dairy products. The video underscores the importance of exports for economic growth and global market participation.

💡Import

Importing refers to the purchasing of goods and services from foreign countries, often because they cannot be produced as efficiently domestically. In the video, examples include India importing crude oil from Venezuela and the UAE importing agricultural products from India. Understanding import strategies is critical to managing global supply chains.

💡Comparative Advantage

Comparative advantage is an economic theory suggesting that each country should specialize in producing goods where it has the lowest opportunity cost, and trade for other goods. The video links this theory to how international trade enables countries to access goods and services they otherwise could not efficiently produce themselves.

💡Mercantilism

Mercantilism is an early economic theory that emphasized the importance of a country's exports exceeding its imports to maintain a 'balance of trade surplus.' The video discusses this concept in the context of historical international trade systems and contrasts it with more liberal trade practices that developed later.

💡Globalization

Globalization refers to the increasing interconnectedness of countries and economies, largely due to advancements in technology and communication. In the video, globalization is described as creating a 'borderless world,' allowing for the seamless flow of goods and services across nations, which strengthens international trade.

💡Entrepot Trade

Entrepot trade involves importing goods from one country only to export them to another after adding value. This is exemplified in the video by Turkey importing rubber from Thailand, processing it, and then exporting it to Germany. This form of trade demonstrates the global value chain where different countries contribute to a product's final state.

💡Efficiency in Production

Efficiency in production refers to manufacturers optimizing processes to lower costs and improve productivity. The video connects this concept to international trade by discussing how competition forces companies to adopt more efficient methods, reducing labor and material costs, and passing these savings on to consumers.

💡Market Fluctuation Management

Market fluctuation management is the process of stabilizing supply and demand across different regions and seasons. The video highlights how international trade allows businesses to sell products like winter clothing in other markets during off-seasons, mitigating risks of fluctuating local demand.

💡Regulations and Legal Aspects

Regulations and legal aspects refer to the rules governing international trade in different markets. The video stresses the importance of staying updated on constantly evolving trade regulations to avoid penalties and ensure smooth operations. It highlights this as one of the more challenging aspects of entering international markets.

Highlights

Starting a career in international trade and business requires understanding the basics.

International trade influences jobs, consumption, and poverty reduction.

Trade is shaped by various influences, including natural resources and trends.

Understanding trade benefits and downsides is crucial for forming opinions on trade debates.

International trade can make businesses stronger, more successful, and more profitable.

We live in a global marketplace where products are sourced from around the world.

International trade has grown dramatically in the last few decades.

International trade began with barter trade and evolved through mercantilism and liberalism.

Comparative advantage theory states that countries should specialize in certain products.

International trade is divided into export trade, import trade, and entrepot trade.

International trade lowers product costs due to lower production costs and high competition.

Efficiency in production processes is a benefit of international trade.

International trade offers a wide variety of products, improving living standards globally.

Surplus produce can be sold in international markets to prevent waste.

International trade helps manage market fluctuations and ensures year-round business.

Buyer risks in international trade include finding reliable clients and ensuring payment.

Seller risks involve supplying the right quantity and quality of goods on time.

Third-party risks include issues with banks, insurers, and other service providers.

Geographical risks can affect trade deals due to political, economic, and currency fluctuations.

Starting an international business requires preparation, market research, and understanding regulations.

Transcripts

Hey, do you want to start your career in the international trade and business field?

Maybe you want to start your own import-export business or maybe you want to work for some other international trade and business companies.

Either way, make sure, you have to know the basics of international trade and business.

If you are looking for learning these subjects then you are in the right place.

Because today I want to help you get clarity out of the basic subjects of International Trade and Business for beginners

which are crucial to know before you start your own global trading journey.

International trade influences a whole range of activities including jobs, consumption, and the fight against poverty.

It also affects the environment and relations among countries.

In turn, trade is shaped by a host of influences ranging from natural resources to trends.

Trade-related issues can give rise to strong feelings, and trade measures such as banning or limiting imports are often called for to respond to major economic problems.

An understanding of the benefits and downsides of trade,

and of what trade policy can or cannot achieve, will help us to form our own opinions on debates about international trade.

If you are looking to expand your business, have you considered the advantages of international trade?

Maybe you think it is safer to focus on trade on your home turf.

But venturing out of your comfort zone to trade internationally may make your business stronger, more successful, and more profitable.

We live in a global marketplace.

The food on your table might include fresh fruit from Chile, cheese from France, rice from Thailand, and olive oil from Turkey.

Your smartphone might have been made in China or South Korea.

The clothes you wear might be designed in Italy and manufactured in Vietnam.

The toys you give to a child might have come from India.

The car you drive might come from Japan, Germany, or South Korea.

The gasoline in the tank might be refined from crude oil from Saudi Arabia, Mexico, or Nigeria.

As a worker, if your job is involved with farming, machinery, airplanes, cars, scientific instruments, or any other technology-related industries,

the odds are good that a hearty proportion of the sales of your employer, and hence the money that pays your salary comes from export sales.

We are all linked by international trade, and the volume of that trade has grown dramatically in the last few decades.

Hey, my name is Murat, here to help you start or grow your import-export business, make more money, save more time, and help more people too.

And I’m really excited for you because there are a lot of opportunities,

and if you know these basic subjects well, you can start your international trade business career in the right way.

Now before I dive into this, I have a bold request of you.

Please give this video a thumbs up here on youtube that helps the youtube algorithm boost this video and reach more people.

Also do not forget to subscribe to my channel and hit the bell for more great quality content on how to start or grow your international business and change your life.

Let’s dive in.

What is an International Trade?

International Trade, economic transactions are made between countries.

It refers to the exchange of goods and services between countries.

In simple words, it means the export and import of goods and services.

Export means selling goods and services out of the country, while import means goods and services flowing into the country.

The need to conduct global trade primarily arises from the uneven distribution of natural resources.

This leads to a division of labor development of technical know-how, and lowering of comparative cost, thus making some countries more suitably placed to produce certain goods or services.

A smooth flow of international trade ensures that the world economy continues to thrive despite political, social, and cultural differences.

In the current state of the world, technological innovations have led to globalization and made the world a borderless whole, open to all forms of trade at all possible levels.

No single country can isolate itself from the whole and work towards self-sufficiency.

A Brief History of International Trade

International trade has a very rich heritage steeped in humble beginnings.

It started with the barter trade and went on to the mercantile system towards the end of the seventeenth century.

Mercantilism promoted balanced trade that required the value of exports of a given country at any time to exceed that of imports in the same period.

Profitability was calculated based on the difference between exports and imports and was referred to as the “balance of trade surplus”.

This system paid particular concern to the commodities comprising international trade.

On this basis, exporting finished products was considered beneficial but exporting raw materials was frowned upon.

The reverse was also true, importation of raw materials being favored over that of finished products.

The system was therefore highly interventionist, with governments seeking to manipulate international trading activities in their home country’s favor.

This led to the next stage of liberalism in the eighteenth century during which Adam Smith wrote his book “The Wealth of Nations”.

This book explained the important role of specialized production, a theory that formed the foundation for David Ricardo’s Comparative Advantage theory.

Comparative advantage is a law in economics that states that every country should specialize in a certain category of products to sell to others in export and import everything else for local consumption.

This is what makes it possible for everyone around the world to access goods that might otherwise have been inaccessible.

These were essential steps in bringing the Mercantilist system to an end and ushering the world into a new economic era.

Towards the start of the nineteenth century, the world adopted professionalism, but this too died down after some time.

By the year 1913, gold was an internationally accepted medium of exchange and there was increased freedom for traders operating across borders.

Even though the First World War temporarily reversed the situation, currency fluctuations and economic recession soon got things back to normal.

In 1927, the League of Nations organized the World Economic Conference and oversaw the development of the Multilateral Trade Agreement.

With time, countries realized that international trade organization regulations could not hold relevance for extended periods.

This brought the rise of unique regulations and terms of trade for different countries that were updated every so often to keep up with changing trends.

Types of International Trade

For practical purposes, international trade is divided into three major types. These are:

One – Export Trade

Quite like its import counterpart, export trade is a type of international trade that relies on selling locally manufactured goods and services to foreign countries.

In theory, it is considered to be just the opposite of import trade.

For example, India exports inorganic chemicals, oilseeds, raw ores, iron and steel, plastics, and dairy products to a country like China.

In return, China exports electrical equipment, organic chemicals, silk, mineral fuels, and fertilizers to India

These goods are exchanged between both countries so that they can make the most of their respective production capacities.

Two – Import Trade

To put it simply, import trade means purchasing goods and services from a foreign country because they cannot be produced in sufficient quantities or at a competitive cost in your own country.

For example, India imports eighty-two percent of its crude oil requirements from countries like the United Arab Emirates and Venezuela.

This is because these countries possess massive oil fields and are quite competent in exploring, processing, and transporting oil at an economical rate.

Similarly, United Arab Emirates imports agriculture and apparel-based products from India because it is easier and cheaper to import these, rather than produce them in their own country.

Three – Entrepot Trade

Entrepot trade, in simple terms, is a specific form of international trade that comprises both import and export trade.

Under this type, goods and services are imported from one country so that they can further be exported to another country.

This is to say that the imported goods are not used for consumption or sale in the importing country.

Instead, the importing country just adds some value to the goods before exporting them yet again.

For example, if Turkey imports rubber from Thailand, processes it, and re-exports it to another country like Germany, it would be referred to as Entrepot trade.

Unique Benefits of International Trade

International trade offers lots of advantages to individuals and countries as well.

This is the main reason why the business has thrived over the years despite challenges

Let us take a look at some of the most outstanding benefits associated with it:

Lower Product Costs

This benefit results from two major reasons.

First, it is easier for manufacturers to produce goods overseas at lower prices.

This is especially the case in large manufacturing zones like China where economies of scale reduce production costs significantly.

This advantage is passed on to consumers in the form of lower prices.

A second way in which this is achieved is through high competition.

In the past when one company had a monopoly over a large area they would take advantage of this and charge whatever prices they deemed fit.

But in many cases today, there are numerous traders from different countries fighting to offer the best possible prices.

High competition consistently brings prices down to the least possible profitable price.

Efficiency in Production Processes

The high competition also forces manufacturers to try and offer the most efficient in their operations.

Some choose to come up with new ways to produce the same products.

Others opt to improve existing processes for optimal efficiency.

More efficient processes usually result in lower energy consumption, decreased use of raw materials, lower labor costs, and many other advantages.

This boon is again passed on to the consumer and they get higher quality products for lower prices.

This often leads to more eco-friendly processes that reduce their toll on the environment.

Product Variety

Climate changes and other environmental factors greatly limit the kind of food we can access during any given season.

This would mean going without a favorite fruit or other food product for as long as conditions are unfavorable for its growth or processing.

But international trade has made it possible to access almost anything all year-round.

It has also made it possible for less developed nations to gain from the technology in their more advanced counterparts.

This is why almost everyone in the world now has access to electronic products like cell phones, TV sets, washing machines, refrigerators, laptops among others regardless of their location.

This has served to improve the living standards of those in isolated places or third-world countries that do not manufacture such items.

The market for Surplus Produce

This benefit comes in handy, particularly for agricultural-based economies.

Farm produce is inherently perishable and you have a surplus of it, you either need to get market fast or watch it rot.

There are countries whose climate and geological conditions highly favor the production of one kind of food.

This makes farmers tend to concentrate on that particular product as they are sure it will excel.

But when it does excel and everyone has an abundance of it then they are forced to sell at throwaway prices just to get rid of the surplus.

With the export market ever at the ready, however, this no longer has to be the case.

There is almost always a market that needs that surplus product and a means to get it there.

The same is true for manufactured products.

At times production companies flood the market with similar products and supply overwhelms demand.

At such times, overseas markets take up the excess and keep the manufacturers profitable.

Market Fluctuation Management

All markets in every part of the world are subject to highs and lows.

There are certain periods of the year for instance when the demand for warm winter clothing is at an all-time high.

But when summer comes no one needs them anymore and suppliers would have to rest till the next winter comes around.

However, on the international market, there has to be at least one country that needs arm clothing at any given time.

This makes it easy for suppliers to remain in business all year round, moving with the season to take advantage of the demand.

This has helped traders to mitigate the effects of seasonal sales fluctuations and enjoy sustainable profitability and growth.

Risks Associated with International Trade

Like any other business, international trade also has its fair share of challenges.

In fact, due to the sheer size of the market, these are often magnified beyond expectation.

Consider the most outstanding ones:

Buyer Risks

As a new international trader, you might have to search long and hard for your first buyer.

The result of such a hard search is that at times caution is thrown to the wind and judgment impaired.

Desperation might creep in and make you forget to exercise diligence in verifying new clients.

If you happen to engage a crook you might suffer shock when after making a delivery you receive no payment and leave no trace of their existence online.

Seller Risks

Seller risks have also magnified under the scope and volume of trade as well as distances involved.

A manufacturer might fail to supply the right quantity of goods or might delay in making the delivery due to a variety of reasons.

They might also fail to supply desired quality of products and compromise your business reputation.

Third-Party Risks

The import-export business is highly dependent on factors that are beyond your control.

For instance, you might get a bill of exchange endorsed or a bank guarantee for payment of goods.

But when the time comes, they might fail to honor the agreement for one reason or another.

You might have taken insurance cover over your goods in transit.

But in the event of loss, it turns out that the amount you took out does not fully cover your expenses leading to loss.

Other third parties like inspection companies, shippers, customs agents, and others might also fail in their loss and cause you to lose inadvertently.

Geographical Risks

A country’s location may also severely impact your international trade deal.

Country risks could take the form of political upheavals, economic downturns, and conflicts.

Africa's international trade has many times presented this challenge to traders due to instability in some countries in any one or all three of the above sectors.

At times also, government policies change before the completion of a trade deal and complicate matters.

Countries with financial volatility are also subject to frequent currency fluctuations that could turn a profitable transaction into a complete loss

How to Start an International Business

You might have figured out the dynamics of running a local business venture.

But as you can tell from the above risks, running an international operation is not for the faint of heart.

The most reassuring part of it is that no business, however small, comes completely risk-free.

Furthermore, most of the challenges outlined above can be surmounted.

Let's take a look at the essential steps in setting up your import-export business that will improve your odds of success:

Prepare

One of the first steps to set up any business is adequate preparation.

In this case, you need to prepare a business plan that takes into consideration your international market.

This will help you to assess your needs and set objectives.

Market Research

Carry out foreign market research using the resources available online and at your local Chamber of Commerce.

This will help you figure out what products would perform well in which markets and the complexities of getting there.

Evaluate Distribution Methods

There are as many different distribution strategies as there are product varieties.

Establish the most viable method of getting your products to the intended market.

This could be through intermediaries like agents or distributors.

You could also opt for a joint venture with a company in that market or even set up a foreign subsidiary.

Regulations and Legal Aspects

This is often the toughest part of the international business set-up process.

Every market has a distinct set of regulations to govern the trade.

These rules are ever-evolving and you need a reliable way to stay ahead of developments or risk incurring penalties.

Congratulations! You have officially learned The Basic of International Trade and Business for Beginners.

Now start booming and make the world your business!

Also, if you would like to learn more about international trade you can watch videos here on my YouTube channel.

Now I would like to hear your thoughts.

I want to make sure you get this and prove it to me.

I want you to do a couple of things for me.

One, hook me with a thumbs up.

And number two, comment below with an I get it.

I just want to make sure you understand these basic subjects of international trade and business, because they are the underlying foundation behind all the scenes of import-export works.

So comment below with I get it.

Use the hashtag #TeamMurat if you are a part of Team Murat.

And subscribe to my channel here.

So go out there and make some trade, be confident, and realize that you can export and import at the same time.

Yes! Make sure you catch some of the other videos over here.

We got some good stuff coming your way, so make sure you subscribe to my channel here.

Thanks again! Click over here to keep going. Bye!