International business is the core theme in conducting business in current era of globalization. In the competitive environment, businesses are competing at global level. In international business a company can engage in either of the two ways such as import or export. Import and export are the two basic and primary ways of conducting the business (Dunning, 2007). Whenever a company engages into the international business, there are lot many factors which impact the business. Hence there are advantages and disadvantages of both import and export. Considering this view, this assignment report addresses the critical analysis of two primary ways of occurring international business and respective advantages and disadvantages. In addition to this the assignment report also discusses the international business and free trade (Fortanier, 2008).
International Trade: 国际贸易:
International trade is also known as global trade where the traders can exchange the goods or services and raw material across the borders. International trade was first started by the industrial revolution in US and spread across the globe in the late 18th and early 19th century. A drastic change in the communication, transportation and logistics has changed the way of conducting international business and simplified the process. The technological advancement and change in the communication and transportation facilities has surged the international trade in the 20th century. The present form of international trade has been transformed into the outsourcing and multinational companies(Gupta and Govindarajan, 2008). A dramatic rise has been noted in the trading volume from the mid of 20th century. In the year 1928 the total export value in the world was approximately $31.7 billion while after 70 years this figure is $4,215,000.2 billion. In order to maintain the stability and equilibrium among the countries the formation of World Trade Organization came into existence (Hennart, 2004). The organization not only solves the trade matters but also support the developing countries in export their product and service to foreign countries. The commanding position in WTO is left with G-7 countries which include US, France, Germany, the UK, Italy, Japan and Canada. The organization controls the dynamics of international trade which also support in preparing the trade agreement between the nations. There are few trade theories which provide the overall view of international trade as discussed below:
Absolute Advantage Theory: 绝对利益论
The absolute advantage theory provided the view about the capacity and control in terms of competitive landscape for international trade among the countries. According to this theory, if any country A can produce the products and service of same quality at lower cost of resources than the other country B then country A has absolute competitive advantage over country B. also for other commodities country B can have the absolute competitive advantage over country A. the great economist Adam Smith has put this theory forward to understand the international trade (Johanson and Wiedersheim-Paul, 2008).
Comparative Advantage Theory 比较利益论
Comparative advantage theory is the extension of absolute advantage theory which stated that a country should produce only those items in which it has expertise and specialization for the purpose of developing the comparative advantage in terms of resources