Table of Contents
1. Evolution of Trade Systems Across the Globe 1
2. Dominant Trade countries across the world 5
3. Impact of World War 1 and 2 on the global trade scenario 7
4. Treaties, Agreements, Institutions, Organizations formed to handle Trade and Commerce across Countries 8
5. Emergence of MNEs and MNC’s 10
6. Industrial revolution and its contribution to international business 11
7. Bibliography 13
Table of Figures
Figure 1: History of Money 4
Figure 2: Global Exports 6
Figure 3: Global Imports 6
Figure 4: US overseas manufacturing units timeline 11
1. 1. Evolution of Trade Systems Across the Globe
Trading is bringing people together to make exchange, for benefit of each other. The advancement of exchanging is a standout amongst the most vital factors in the endeavour of humanity. Humans have developed throughout the centuries and that won’t be possible if they were constrained to geographical restrictions on trading. Trading goods in international market brings global competition with itself as one gets a chance to sell or purchase goods of different country and compete with the traders of international market.
The First Long-Distance Trade: Obsidian & Agriculture (17,000 BC to 9000 BC)
¬ Obsidian, an element widely used in making sharp tools and was chosen over other available. It was traded at distances of 900 KMs within the Mediterranean region.
¬ The introduction of the new Stone Age era (Neolithic Phase) i.e. starting 9000 BC, people started settling at one location because of agriculture as they domesticated animals and grew crops.
¬ Agriculture created surplus of food which was used for trading in exchange for other essential commodities, a class of merchants came into picture; they travelled miles walking to trade with other groups.
Matured Trading System: Civilization on the Rise (8,000 BC to 6000 BC)
¬ With population around 50,00,000, people have learned various arts of farming, domesticating animals and agriculture was on boom. People started occupying parts of the world like Indus Valley, Jordan, Anatolia, Jordan Scotland, North America, Turkey, Nigeria, Norway, Egypt, Italy etc. Gold and Copper were in huge demand around the world. New communities started importing exotic goods from far lands.
Important Inventions: The fast & Chronicle (5,000 BC to 4000 BC)
¬ During this period the wheel was invented, with such great invention, people now had better abilities in terms of producing food, manufacturing goods, and transporting people and goods at a greater distance. Also, the wheel was used in the making of pottery, which again was very important part of civilization. People were able to travel and communicate in much reliable form as during this period first form of writing was invented.
International trade on the rise: The caravans of India (3,000 BC to 1000 BC)
¬ Ebla (Syria) became a prominent trading centre. Cyprus became major copper exporter, China flourished by dealing in jade, spices and silk. Britain traded in tin.
¬ The domestication of camels made trade on land routes easier especially in east Asia. Incense Route transported medicines, oil, perfume and incense.
Trading Routes: Year of the Lord (700 BC to 1500 AD)
¬ Invention of ‘official’ currency can be traced back to this period, when the round coin was first introduced by King Alyatters of Lydia (now in Turkey). The city of Vulci became the centre of trading by Greeks.
¬ The Han Dynasty opened up the ‘Silk Road’ between China and Central Asia. It was one of the oldest routes and most significant of international trade that time.
¬ India’s spices became very famous and were exported to the west. It was also spice trade that ended with Christopher finding America in 1492.
First Stock Exchange in 1531 in Belgium, Antwerp. Brokers and money lenders meet there to deal in government and individual debt issues.
1600s and 1700’s:
¬ With advent of East India companies, the way business was done changed completely. The stock of these companies would pay dividends and may be called as first modern companies
¬ The first stock exchange in London was officially formed.
¬ Japanese trader invents candlestick patterns to predict price movements in the rice market.
¬ US Federal government issued $80 million in bonds to pay Revolutionary War debt.
¬ The “Buttonwood Agreement” was signed by 24 stockbrokers. And NYSE acquires first traded securities
1800’s
¬ In 1856, 22 stockbrokers started investing under a banyan tree opposite the Town Hall of Bombay. The tree still stands in the Horniman Circle Park in Mumbai.
¬ Discovery of Petroleum in western Pennsylvania in 1859.
¬ Stock exchange in Bombay flourished with 250 brokers. The American Civil War started and the cotton supply from the US to Europe closed which in 1875, was formally organized as the Bombay Stock Exchange (BSE).
1900’s
¬ Advent of World War I made Europe a mess. It was recovering from it and then World War II happened and it changed things at a scale at which no one imagined. The whole economy was undergoing the process of Re-globalization during the time of Second World War. World per capita GDP rose by nearly 3 per cent a year, and world trade by nearly 8 per cent a year. With invention of internet and Computers things became miraculously fast and economical, a whole new industry was born which led to international business exchange of services came into scenario. Re-globalization during the 20th century was marked by the foundation of new multilateral economic institutions known collectively as the Bretton Woods system: the International Monetary Fund (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT).
2000’s and present
¬ With advancement in IT industry early 2000’s flourished. China came out as manufacturing hub of the world. Real world application of Artificial intelligence came into picture. Now world has become a global village International business is easier then ever countries trying to bring in Foreign Companies to produce or do business in their economy.
Figure 1: History of Money
2. Dominant Trade countries across the world
Table 1: Highest Exporting Countries
Highest Exporting Countries
Country
Exports (Billion $)
China
$2,263.33
USA
$1,546.72
Germany
$1,448.30
Japan
$698.12
Netherlands
$652.00
Korea
$573.70
Hong Kong
$550.27
France
$535.19
Italy
$506.23
UK
$445.00
Belgium
$429.53
Canada
$420.86
Mexico
$409.50
Singapore
$373.23
UAE
$360.00
Russia
$353.12
Spain
$320.52
Chinese Taipei
$317.38
Switzerland
$299.61
India
$298.38
The above mentioned table is of the top 20 export countries in the financial year 2017. China leads the world in exports in 2017. China was followed by the United States, with exports valued at 1.58 trillion US dollars, and Germany, with exports valued at 1.05 trillion US dollars. China’s greatest export product category in 2011 was machinery and transport equipment, of which they exported $ 902 billion. In 2012, China exported $159 billion of clothes and clothing accessories.
Figure 2: Global Exports
Figure 3: Global Imports
3. Impact of World War 1 and 2 on the global trade scenario
The world wars, have impacted the global trade scenario in many ways, some of them are listed below-
• Wartime increases in demand and resource coordination can lead to a more efficient utilization of factors of production by increasing concentration and scale and thus The global trading structure was blown the Great Depression ignited due to trade war initiated by the United States in 1929-30.
• The war showed the substantial revenue-generating ability of the income tax. Rates were hiked to levels extremely unimaginable before the clash. When the tax was decreed in the United States in 1913, the highest rate was 7%.
• Before the war was over, it had reached to levels of 77%. During WWII, the U.S. rate topped at 94%; and Britain’s at 98%.
• Industrialization increased in Non-European countries like China and other eastern countries.
• The disruption of international trade leads to substitution for imported raw materials and to the development and protection of infant industries producing previously imported goods.
• Establishment of direct relationship among different trading area.
• Increased participation in the labour force by women and minorities in heterogeneous societies during wartime.
• Trade restrictions grew after WWI, worsened by the wild protectionist policies embraced by the countries.
• Trade as proportion of the global economy didn’t reached the same levels as of 1913 until The deprivation and the industrial and financial disorder of Europe from which it had to recover.
• Breaking up of Austro-Hungarian kingdom and Russian Federation into many countries made a new political map in Central and Eastern Europe.
• Expansion of France and contraction of Germany, losing all her colonies and nearly 13 percent of area which was rich in industrial resources.
• With the collapse of Russia and other east European countries as grain producing nations and increase in production of wheat and other cereals in US, Argentina, Australia and Canada.
• Tariffs increased in late 19th century but were mainly overcome by technological innovations and the free-trade areas within European empires.
4. Treaties, Agreements, Institutions, Organizations formed to handle Trade and Commerce across Countries
General Agreement on Tariff and Trade (GATT)
• GATT was signed in October 1947 to liberalize trade.
• GATT was created as an organization to oversee more liberal trade agreements and to establish a mechanism for settling trade quarrels.
• The GATT is located in Geneva.
• More than 110 nations have signed the general agreement that originally was signed by 24 nations.
The European Economic Community (EEC)
• It was an international organization created in 1957.
• The chief objective of the EEC, as written in its preamble, is to “preserve peace and liberty and to lay the essentials of an ever-closer coalition among the countries of Europe”.
G-20
• The G-20 was formed in 1999 as a forum for member nations to discuss key global economic problems. The decree of the G-20 is to encourage international economic growth, global trade and financial market regulation.
• The G-20 economies together account for approximately 80 percent of world trade, 85 percent of the gross world product, two-third of the world's population and nearly half of total land area in the world.
The Export-Import Bank of the United States
• Ex-Im Bank provides finance for the deals which commercial lenders are either incapable or reluctant to take the political and business risks of the deal.
• The Export-Import Bank of the United States focuses much of its resources on providing support to U.S. small businesses for export of American-made products.
The International Monetary Fund (IMF)
• International Monetary Fund (IMF) is an worldwide association that was formed in the Bretton Woods Conference on July 22, 1944.
• The IMF’s goal is to stabilize exchange rates and assist the restoration of the world’s international payment mechanism after the World War II.
• It works with developing nations to help them accomplish macroeconomic stability and reduce poverty.
The North American Free Trade Agreement (NAFTA)
• The North American Free Trade Agreement (NAFTA) is an agreement signed by the governments of Canada, United States and Mexico, creating a trilateral trade bloc in North America.
• NAFTA came into effect on January 1, 1994.
The World Bank
• According to the World Bank’s Articles of Agreement, all of its resolutions must be guided by a duty to promote foreign investment, international trade, and facilitate capital investment.
• World Bank has played an great role in the growth and development of International trade.
The European Union
• The European Union (EU) is an economic and political union made up of 27 states that are mainly in Europe.
• European Union constitutes of Austria, Bulgaria, Belgium, Cyprus, the Czech Republic, Denmark, Finland, Estonia, France, Germany, Hungary, Greece, Ireland, Latvia, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Portugal, Poland, Romania, Slovenia, Slovakia, Sweden, Spain and UK.
• Creation of a single currency became an formal objective of the European Economic Community (EEC) in 1969. Euro notes and coins were first issued on 1st Jan, 2002 and gradually national currencies started phasing out in Eurozone.
The Asia-Pacific Economic Cooperation
• Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim countries that promotes unrestricted trade and economic collaboration.
• Responding to the growing interdependence of Asia-Pacific economies and the advent of regional economic blocs APEC was established in 1989. APEC member countries include Australia, Brunei, China, Canada, Chile, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Peru, Papua New Guinea, Philippines, Russia, Singapore, Thailand, Taiwan, United States, and Vietnam.
5. Emergence of MNEs and MNC’s
MNC or multinational corporations are those corporate organizations that own or control production of goods and services in other countries, at least one of them, apart from the home country. Such corporations are huge in size and their activities are centrally controlled worldwide by parent companies. The East India Company, a Dutch trading firm was one of the first MNC’s that entered the Indian subcontinent. After the world wars and set up of Bretton Wood system, there has been stability and continuous growth in the way business is being carried out across the nations. Such a step has been beneficial for all the under developed and developing countries as the number of imports and exports from these countries has risen drastically. Few of the MNC’s are Aditya Birla, Honda, HSBC, Accenture, Apple Computer, IBM, ITC etc. Today these organizations have their operations worldwide.
Multinational Enterprise (MNE) is similar to MNC in manner that they are also an enterprise that controls and manages production establishments located in at least two countries. Such firms play an integral role in technological innovations, research and development investments, patents and licenses. They also help in achieving economies of scale and often are characterized as having huge financial capacity and undertaking risks. There was a rapid growth of such enterprises in Japan, America and Europe after the World War 2. These MNC’s then started focusing on geographical location for their business set up thereby adopting a geocentric approach rather than just following ethnocentric approach.
Various reasons of companies going international –
• The MNC can sell its products in the vast global market.
• It can raise money for its operations throughout the world.
• They are able to establish production facilities in countries where labour cost is low and raw materials are abundant in supply. In fact, global firms have greater access to various natural resources and raw materials than domestic firms. This enables them to carry on production most effectively and efficiently.
• MNCs can employ efficient managers by being able to recruit the most technically qualified and managerially efficient people from the whole world.
Figure 4: US overseas manufacturing units timeline
6. Industrial revolution and its contribution to international business
The industrial revolution can be divided into two phases:
i. The Industrial Revolution of 1750
The industrial revolution of 1750 or the First Industrial Revolution led to coal, iron and steam machines, the development of railroads and the mass production of textiles which benefitted the East Indian companies more than anyone and Britain gained most of its present wealth during this period.
ii. The Industrial Revolution of 1850
The Industrial Revolution of 1850-1914 or The Second Industrial Revolution also called the technical revolution, it substituted steam power with internal combustion engines, electric power and petroleum.
The industrial revolution was the mark of abundance of resources which entice the countries to produce more goods not only for the satisfaction of the home members but also to gain from the international trade. As the products were exchanged hence, the global trade was expanded. Industrial revolution accelerated the global trade and bring the economies more closely in terms of international business.
Changes after industrial revolution
• Before the industrial revolution, most of the work was done manually but with the invention of machines the manufacturing processes became faster and lead to the efficiency in manufacturing products. This not only meet the demands of the home country but increase the employment rate in the country itself so the whole production and employment cycle accelerated.
• The growth in communication and transportation due to the steam locomotives, steamship, automobiles, telegraph, aeroplanes and radio they all added in the growth in international trade. All these events aided the countries to form relationships with each other with the help of good communication measures and conveyance made it easier to settle the dealings by importing and exporting goods from one country to another.
• Technological evolution was a major part of industrial revolution that converted the whole traditional process of production and trading into modern manufacturing process and new trading methodologies.