What would you recommend, a degree in international commerce, or a general degree in 'economics' and a specialization in international trade?

Alfonso Llanes, Master Degree in International Development

Answered just now

An International Business Degree Program is a better choice because it covers subjects such as:

· International Trade Policies and Practices

· International Marketing

· International Management

· International Banking and Finance

· Global Supply Chain Management and Logistics

· International Strategic Management

· Computer Applications in Business

These courses are taught at the undergraduate level.

For higher education here is for example Saint Mary’s College of California’s Trans-Global Executive MBA curriculum:

· Travel to developed and emerging economies.

· Gain cultural and social insights on building sustainable and socially responsible organizations.

· Learn management and entrepreneurial skills, with a focus on global business.

· Protect the world’s environment and people while meeting profit goals.

· Learn about corporate ethics, corporate governance and social responsibility.

· Acquire understanding of diverse cultures by studying their art, history, politics, social norms and food.

Examples of Core Courses

In Saint Mary’s innovative MBA, curriculum includes developing global business analytics using integrated and interrelated course sets::

· Data Analysis and Research Methods in Global Business

· Economic Analysis for Global Business

· International Management

· Supply Chain Management

· Managing Global Competition and Cooperation

· Developing Global Business Strategies

· Global Corporate Governance and Social Responsibility

· Doing business in the Regional Business Environment

Development of these skills plus understanding of the world finances and global economics measurements for instance by The World Bank, IMF, UN, OECD and others. These international organizations follow development, environment, trade, transportation and many other issues affecting global interaction among countries and cultures.

What are the things you can tell about a company from the way it meets the demand in the market?

Alfonso Llanes, studied at Florida International University

Answered just now

Modern economics indicate that some new tools are necessary to present either a product or a service to potential customers in a demand-supply environment. When a business takes a product to market, whether it’s a basic commodity like beans or a highly engineered product like a digital camera, the company must make the product itself compelling and also have a workforce skilled in producing it at an attractive price. Neither of the two jobs is easily accomplished and a vast amount of management training and academic research have been devoted to these challenges.

Service Offering

The challenge of service-business management begins with design. It must effectively meet the needs and desires of a group of customers. In designing a service, managers must undergo an important change in perspective. Product designers focus on the characteristics that buyers will value, service designers do better if the focus is on the experiences customers want to have.

Service differentiation can be defined as providing a service poorly or with excellence.

To create a successful service offering, managers need to determine which attributes to target for excellence and which to target for inferior performance. For example, a store finds that exhibit areas and sales assistance are least valued by its customers, however, low prices and wide selection are most valued, and several other attributes rank at points in between.

Bill the customer in an acceptable way.

The classic approach to funding something of value is simply to have the customer pay for it, but often it is possible to make the payment takes less objectionable to customers. Not very often is done with à la carte pricing for the merchandise. For example a Commerce Bank is open late and on weekends—earning it high marks on extended hours—and it pays for that service by giving a half percentage point less in interest on deposits. Could it fund the extra labor hours by charging for evening and weekend visits? Perhaps, but a slightly lower interest rate is more palatable.

3. The Employee Management System

Companies often live or die on the quality of their workforces, to design a well-integrated employee management system; one must start with two simple diagnostic questions. First: What makes the employee reasonably able to achieve excellence? And what makes the employee reasonably motivated to achieve excellence?

4. The Customer Management System

The typical product-based, business buys materials and adds value to it in some particular process. The enhanced-value product is then sold to customers, who pay to receive it. In a service business, however, employees and customers are both part of the value-creation process.

Organizational survival requires that the methods leaders use to learn and to impart operational knowledge must change as fast or faster than the environmental changes that threaten viability. The focus must be to look beyond competition and market share to more fundamental questions of survival and sustainability in a turbulent and continuously changing world commerce

The most important indicator is the ability of the organization to adapt to changes in the market with enough agility to avoid extinction from a slow response or misreading of the economic factors that affected market behavior towards innovation. In order to survive in a globalized society and in a universe as a whole, we need to perceive change for what it is in the natural order of things. We need to recognize and study the techniques to become part of that natural order so that the organization survives and succeeds in any tempest of change. The harsh truth is that change is an accelerating phenomenon in the 21st century, a continuing process, which is here to stay.

The fundamental problem with bringing about organizational change is that people want things to stay exactly as they were. The crucial issue of success depends on a time and profound systemic change focusing on the challenge and the response time. Most strategic planning tends to concentrate on gaining a bigger slice of an existing pie.

Understanding the role and responsibility of the organization in the context of a dynamic environment is absolutely critical, much like a fighter plane flying at high speed around a mountainous circuit where extreme weather elements and changing direction are throwing up dramatic challenges to survival every second. The bottom line is that whether one is offering a product or a service to meet either a demand or supply niche factor analysis must be carefully considered.

Is International Trade and Commerce separate from Economic Theory?

Alfonso Llanes, Master Degree in International Development

Answered just now

If there is a point on which most economists agree, it is that trade among nations makes the world better off. Yet international trade can be one of the most contentious of political issues, both domestically and between governments.

In one of the most important concepts in economics, David Ricardo observed that trade was driven by comparative rather than absolute costs. One country may be more productive than others in all goods, in if it can produce any good using fewer inputs of capital and labor than other countries to produce the same good. Ricardo’s discernment was that such a country would benefit from trading by its comparative advantage—exporting products in which its absolute advantage was greatest and importing products in which its absolute advantage was comparatively less.

Trade brings dislocation of firms and industries that have competitive disadvantage. These firms face difficult adjustment because of more efficient foreign producers and often lobby against trade. So do workers which become social barriers and often lead to import taxes or tariffs and quotas to raise the price or limit the availability of imports.

Although, international trade has an economic component a student of the discipline must also be verse in international finance, banking, exchange rates and all the measurements use to assess the economic health of a nation. Both disciplines have evolved into more technical ways of building models for study, mainly, complex matrices of inputs and outputs for simultaneous analysis. More recent models include Artificial Neural Networks (ANN) using Bayesian statistics and probabilistic models.

One must bear in mind that both disciplines require intensive study of mathematical modeling and interpretation, However, international trade also includes the study of political and social sciences.

Why is managerial economics normative?

Normative economics is a branch of economics that states value for normative decisions about economic fairness. Its emphasis is on the result of the economy or what the objectives of public policy should be.

Positive economics states an economic issue and normative economics provides the numerical-value-based solution for the posed problem.

Different economists view the subject matter of managerial economics in different light but their conclusions have many features in common.

Managerial economics is concerned with decision making of economic data. It is concerned with identifying different choices and allocating resources.

Managerial economics is goal oriented as it targets maximum achievement of objectives and the way decisions should be made by the manager to achieve the ultimate solution to a problem.

Since managerial economics is a newly formed discipline, no uniform pattern has been adopted and different authors treat the subject in different ways. Nonetheless, the following topics are regarded as the range of the subject of managerial economics.

Relationship of managerial economics with other disciplines:

1. Analysis of demand data and forecasting

2. Analysis of cost and production

3. Analysis of pricing decisions and policies

4. Profit management and investment

5. Capital management and finances

6. Linear programming and theory of games application

Managerial economics has become increasingly mathematical in character. Businesses contend with various concepts which are measurable and analyzed by mathematical means such as statistics, probability and more recently neural networks of decision trees or probabilistic nature. The use of mathematical logic provides clarity of theories. It also provides a systematic frame of reference where quantitative relationship can be analyzed. Mathematics, therefore, is of indispensable help to managerial economics. The major problem confronting businesses is to minimize cost, maximize profit or optimize sales. To find out the solution for the overall problems, mathematical concepts and techniques are extensively used. Mathematical techniques like linear programming, games theory and so on help managerial economists to solve many of our societal problems.

Statistical methods provide a comprehensive base for decision-making and help the corporation to achieve the objective without much penalty. Statistical tools are a must for finding solutions of managerial problems. Managerial economists make use of various statistical techniques like theory of probability, co-relation techniques, regression analysis etc. in various business situations and modeling techniques.

Managerial economics has emerged as a special branch of knowledge in tandem with traditional economic theory in order to enhance the decision makers at various levels of a firms operation. Economic notions such as demand, costs, sales and its corresponding data analysis assist in applying models to the solution of problems in day-to-day business operation in a more scientific way.

Why do trade barriers exist?

Governments impose trade barriers in order to achieve economic, political and social goals. Whether these measures stand the test it depends on many economic factors.

· One banner is to protect domestic labor from noncompetitive foreign labor costs. This is probably the issue that holds more water among with the constituents of policy makers.

· Another argument made is that it improves trade deficits which many a time deprives people of lower priced or better quality goods from imported merchandise.

· Domestic manufactures argued that they need protection from imports in order to have the incentive to invest in the local economy in plant and equipment to replace imports.

· Aging and inefficient domestic industries demand government protection to prevent lower semi-finished goods from entering the production process by means of anti-dumping regulations.

· A government argument made is that it would increase revenue by imposing taxes and tariffs to imported merchandise.

· Another not uncommon way to disguise trade barriers is for a government to subsidize a particular domestic industry. Subsidies make domestic goods cheaper to produce than in foreign markets.

In general, most trade barriers are based on the principle of imposing some kind of cost on imports that raises the price of the traded products. When nations impose trade barriers against each other, it can soon bring international commerce to a halt resulting in a detriment for all.

Georgetown University Professor Marc L. Busch and McGill University Professor Krzysztof J. Pelc note that “modern trade deals are long and complex because they often tackle non-tariff barriers to trade, such as different standards and regulations, in addition to tariffs. Due to steadily decreasing tariff barriers since WWII, countries have become increasingly likely to enact trade barriers in the form of non-tariff barriers. National firms often lobby their own governments to enact regulations that are designed to keep out foreign firms, and modern trade deals are one way to do away with such regulations”.

• Trade barriers are mainly imposed on low technology manufacturing and agricultural goods. Industries such as textile mills, clothing manufacturing and footwear are the most common goods which are protected by trade barriers.
• Trade barriers are most criticized for the effect they have on the developing economies of the world. Developed countries call most of the shots on trade policies; goods such as crops that employ millions of people on developing countries still face high barriers. Trade barriers such as subsidies for mechanized agriculture lead to overproduction and dumping on world markets, thus, lowering prices and hurting poor-country farmers. Tariffs also hurt under developed economies that must depend on low prices for raw commodities and high costs for labor-intensive processed goods. The Development Index and the Global Competitiveness Index (CGI) are measures of the effect that current trade policies actually have on the developing world. Another negative aspect of trade barriers is that they result in limiting choice of products to people that must pay higher domestic prices and accept inferior quality. Non-tariff barriers include quotas, regulations concerning product content or quality, and other conditions that obstruct imports. One of the most commonly used non-tariff barriers are product standards known as ISO Standards.

The law of one price is the foundation of the purchasing power theory (PPP).

· This implies that given a currency the price of a good is the same wherever it is sold based on that chosen currency.

· It states that under free competition and in the absence of trade impediments, a good must sell for a single price regardless of where in the world it is sold.

· Currency could appreciate against other currency depending on relative comparison of PPP, GDP growth, inflation.

Theory of Purchasing Power Parity (PPP)

• The exchange rate between two counties’ currencies equals the ratio of the countries’ price levels. The theory asserts that all countries’ price levels are equal when measured in terms of the same currency; however, the empirical support for (PPP) and the law of one price has been weak in recent data.

• The prices of identical commodity baskets, when converted to a single currency, differ substantially across countries. Trade barriers can be of non-trade able nature such as economic size GDP/GDP ratio, nonetheless, this ratio is equivalent to comparing apples and oranges between an underdeveloped economy and a developed one. Notwithstanding, a comparison between apples and oranges can be made but then each economy will have to be broken down into individual components in order to understand the disparities on the aggregate components of each country. The following table shows the most common indicators use to measure the economic performance of a given nation.

GDP Growth Rate

Unemployment Rate

Inflation Rate

Interest Rate

Consumer Price Index CPI

Government Debt Current Account Balance of Trade Government Revenues

Government Debt Government Debt to GDP Government Spending To GDP

Capital Flows Tourism Revenues Crude Oil Production

Producer Prices

Prices Export Prices Import

CPI Transportation

Credit Rating to GDP Gold Reserves

Terrorism Index

COMMON MEASURES OF ECONOMIC PERFORMANCE

Departures from free competition

· The greater the transport costs, the greater the range over which the exchange rate can move.

· Pricing to market occurs when a firm sells the same product for different prices in different markets.

· It reflects different demand conditions in different countries. In general, interest rate differences between countries depend not only on differences in expected inflation, but also on expected changes in the real exchange rate.

· The failure of these propositions in the real world is related to trade barriers, departure from free competition and international differences in price level measurement.

· The Fisher effect is the proposition made by Irving Fisher that the real interest rate is independent of monetary measures, specifically the nominal interest rate and the expected inflation rate.

For example:

A deposit of $100 is made in a bank that is paying 5% interest per year. This would mean that by the end of the year the $100 would be worth $105. However If the inflation rate is 3% per year that means the real interest rate is nominally 2% for the year. Moreover, if the inflation rate is 6% per year, it means the original $100 is only worth $99 by the end of the year.

Production theory

production efficiency

factors of production

average productivity

marginal productivity

Total productivity

Production function

inputs

stages of production

diminishing returns

shifts of production function

outputs

Cost theory

opportunity

accounting

transaction

sunk

marginal

Theory of value

long-run

average

long-run

Production function

long-run

production

efficiency

return to scale

FOREX or the foreign exchange market has two tiers: the inter bank or wholesale market, and the client or retail market. Individuals using banks and non bank services comprise foreign exchange dealers, firms and the general public. These banking services include commercial and investment transactions, speculators and arbitragers, central banks and treasuries, and foreign exchange brokers. Currency exchanges also provide the platform for making cross rate exchange between two currencies, calculated from their common relationship with a third currency.

Regarding international trade, why do two trading banks in different countries use a 3rd bank to handle transactions?

Most U.S. exporters employ letters of credit (LCs) and documentary collections (DCs), the two most important trade finance tools and effect transactions through the international organization known as Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). This organization is the global provider of secure financial messaging services.
Typically, international trade is conducted by two but many a time by three banks for risk minimization of the international transaction.
Issuing Bank
The Uniform Customs and Practice for Documentary Credits allow the issuing bank a reasonable amount of time after receipt of the documents to examine them and to honor the letter of credit by making the specified payment to the beneficiary. Then the issuing bank completes the transaction by receiving reimbursement from the bank customer for whom the letter of credit was issued.
Advising Bank
Also, it is the responsibility of the advising bank to make sure that the appropriate documents are collected and sent to the issuing bank.
Confirming Bank
Usually, the confirming bank is also the advising bank, but this is not a requirement, and the functions can be separate. To cover the risk of the issuing bank not paying, an exporter may have a bank in its own country confirm the letter of credit, in which case the confirming bank agrees to pay the exporter if the issuing bank defaults.

Why does the competition sometimes price the same?

Price or pricing is probably one of the most difficult issues to resolve in the theory of economics. Transformation from a raw material to a finish product goes through several stages of pricing which is finally reflected in the ultimate price to the consumer at the checkout counter.
How these prices are set is the quintessential question of modern economic systems. It doesn’t matter if the system exists in a controlled economy where the state controls all the means of production, a semi-controlled system where the means of production are shared by public and private sectors or a market economy where the means of production are left entirely to the market. Today, a pure market economy doesn’t exist anywhere because production leves is determined by the market but regulated by the government in all of its micro and macro stages of production.
There is a classic story about “price wars” that is set between two stores one across from the other selling a single item which is discounted every day when one store advertises it’s ask price the other bids it down. At the end, the losing party comes over and offers to sell to its competitor and end the war but wants to know how his competitor could sale below cost and stay in business he asks? I simply stole from your warehouse the other replies. In the short term, price wars are good for buyers, who are advantaged by lower prices.
Characteristically, the smaller, thinner margin firms cannot compete and must go out of business. The remaining firms absorb the market share lost by competitors. However, with fewer competitors in the market, prices tend to increase, and more often than not, prices end up higher than before the price war started resulting in a disadvantage for consumers.
What triggers price wars?
Oligopoly: If market segment is an oligopoly (few competitors), the actors will closely monitor each other's prices and be prepared to respond to any price cuts.
Penetration pricing: A new entrant to the market will most likely offer lower prices than established market prices.
Product differentiation: Some products are perceived as commodities, where there is little to choose between competitors-- like airline travel --and price is the main competing factor.
Process optimization: sellers may be incline to lower prices rather than shut down or reduce output if they wish to maintain an economy of scale. By the same token new processes may make it cheaper to manufacture the same product.
Predatory pricing: A competitor with a healthy bank account may intentionally lower existing prices in an attempt to collapse competition in that market.
Pre-Bankruptcy: Firms near bankruptcy will probably reduce their prices to increase sales volume and provide enough liquidity to survive.
Product competition: A competitor might gain market share by selling a product alternative at a lower price than the established product. This method of breaking into a new market is better than trying to match the prices of those already in the market.
Price discount: Discount pricing takes place when the merchant offers discounts in a variety of forms - quantity, rebates, loyalty rebates, seasonal discounts, periodic or random discounts and other questionable methods.
In financial modeling pricing is one of the four P’s component, the other 3 being product, promotion and place but price is the only revenue generating element among the four Ps, the other 3 belong on the marketing side of the ledger.
Some of the literature available on the subject of pricing includes “The Strategy and Tactics of Pricing”, by Thomas Nagle and Reed Holden outline nine "laws" or factors that influence how a consumer perceives a given price and how price-sensitive they are likely to be with respect to different purchase decisions.