international business

Historical Developments International exchange is often thought of as a recent concept; however, there is evidence to suggest that the first international trade took place as early as 2500 BC. Starting in Phoenicia, historical records indicate a steady progression of trade throughout the Middle East, Africa, Europe, and Asia. Global trade was greatly enhanced during the second millennium A.D. with the widespread use of vessels, rail, and air transportation options. Improvement in transportation, advances in communications technology, and trade-friendly legislation have all contributed to the desire to produce a seamless global economy.

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To the Time of Christ Phoenicia was one of the oldest examples of an international trading community,

dating back to 1100 BC.17 The Phoenicians made up for their lack of arable land by trading precious metals and textiles with surrounding communities. Another early trading civilization was found in Africa, where the Berbers would cross the Saharan desert to trade salt. International trade was involved in the building of Solomon’s Temple which was completed in the tenth century BC. Solomon, king of Israel, entered into a trade agreement with Hiram I, king of Tyre, for the supply of timber from the forests of Lebanon. The timber was brought in great rafts by the sea to Joppa and dragged to Jerusalem to be used in the construction of the temple. Hiram also provided labor for the task. In return, Solomon provided food for Hiram’s royal household. The entire pact was recorded in the Old Testament book of I Kings 5:

When Hiram king of Tyre heard that Solomon had been anointed king to succeed his father, David, he sent his envoys to Solomon, because he had always been on friendly terms with David. Solomon sent back this message to Hiram: “You know that because of the wars waged against my father David from all sides, he could not build a temple for the Name of the LORD his God until the LORD put his enemies under his feet. But now the LORD my God has given me rest on every side, and there is no adversary or disaster. I intend, therefore, to build a temple for the Name of the LORD my God, as the LORD told my father David, when he said, ‘Your son whom I will put on the throne in your place will build the temple for my Name.’ So give orders that cedars of Lebanon be cut for me. My men will work with yours, and I will pay you for your men whatever wages you set. You know that we have no one so skilled in felling timber as the Sidonians.” When Hiram heard Solomon’s message, he was greatly pleased and said, “Praise be to the LORD today, for he has given David a wise son to rule over this great nation.”

So Hiram sent word to Solomon: “I have received the message you sent me and will do all you want in providing the cedar and pine logs. My men will haul them down from Lebanon to the sea, and I will float them in rafts by sea to the place you specify. There I will separate them and you can take them away. And you are to grant my wish by providing food for my royal household.” In this way Hiram kept Solomon supplied with all the cedar and pine logs he wanted, and Solomon gave Hiram twenty thousand cors of wheat as food for his household, in addition to twenty thousand baths of

pressed olive oil.† Solomon continued to do this for Hiram year after year. The LORD gave Solomon wisdom, just as he had promised him. There were peaceful relations between Hiram and Solomon, and the two of them made a treaty.

King Solomon conscripted laborers from all Israel—thirty thousand men. He sent them off to Lebanon in shifts of ten thousand a month, so that they spent one month in Lebanon and two months at home. Adoniram was in charge of the forced labor. Solomon had seventy thousand carriers and eighty thousand stonecutters in the hills, as well as thirty-three hundred foremen who supervised the project and directed the workmen. At the king’s command they removed from the quarry large blocks of quality stone to provide a foundation of dressed stone for the temple. The craftsmen of

Solomon and Hiram and the men of Gebal cut and prepared the timber and stone for the building of the temple.18

Perhaps the most well-known example of international trade in this era was the Pax Romana or Roman Peace. This Latin term refers to the Empire in its glorified prime. From the end of the Republican civil wars and beginning with the accession of Augustus in 27 BC, this era in Roman history lasted until 180 A.D. with the death of Marcus Aurelius. Though the use of the word “peace” may be misleading as this period refers mainly to the great Romanization of the western world. The Roman legal system, which forms the basis of many western court systems today, brought law and order to the provinces. The Legions patrolled the borders with success; though many foreign wars still existed, the internal empire was free from

major invasion, piracy, or social disorder on any grand scale.19

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Through the Middle Ages to the Renaissance International trade continued to develop through the Middle Ages. Stone roads started to appear throughout Europe, and regular trade networks extended all the way to Africa and Asia. Travel was a time consuming and hazardous activity. The upper class who were an elite concentration of wealthy individuals often of noble heritage, only traveled by horse-drawn carriages and enjoyed lavishing lifestyles. Peasants and slaves were not so fortunate having to travel without the benefit of even horses or camels and often left to perform manual labor.

In 1215, the Magna Carta Libertatum was chartered as a way to formally recognize the legal limitations of a king’s power. This charter is sometimes credited with of free trade during this time period. Even today modern democratic societies refer to the Magna Carta as a key legal baseline. Elsewhere the Ming Dynasty in China built a powerful naval fleet with high hopes of exploration and expansion. Some scholars assert that these Chinese expeditions were the first successful voyages to America.

Modern trade history began with the exploration of the Western Hemisphere by Christopher Columbus in 1492. Once discovered, the Americas were quickly colonized by European nations to become critical provincial trading resources. Transatlantic trade flourished, but not without peril. The sea vessels of this time were slow and dangerous, relying exclusively on wind power for propulsion. Most manufacturing methods were still manual-labor intensive.

Western history records numerous periods of trade growth, from the discovery of America by Spanish traders to the establishment of the Dutch East India Trading Company. One interesting example of global trade from that period of time involves the processing of cocoa into chocolate. Chocolate is processed from the seeds (or beans) of the Cacao tree, which grows in South America and other equatorial and tropical climate regions.

The Mayans, an indigenous people of Central America, introduced Spanish explorers of the early sixteenth century to xocolatl by making chocolate-type drink based on the cocoa bean. The Mayans enjoyed xocolatl for at least two-thousand

stimulating the growth

years before their encounter with Spanish explorers. Soon after the first taste of this delicious beverage, Spanish traders imported cocoa to various European ports where sugar was eventually added to process hot chocolate. Originally the Spanish processed the imported cocoa beans into various powder, butter, and liquor modalities. Later, with the rise and development of the West India Trading Company, the Netherlands became the prime processors of cocoa. Demand for the product grew in dramatic fashion, and investors expanded cocoa tree plantations into other tropical climate regions, such as Africa, the Caribbean, Hawaii, South America, and Southeast Asia.

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To the Industrial Revolution

The Industrial Revolution heralded the introduction of mass production, improved transportation, technological progress, and the industrial factory system. Social and economic changes during this period enabled the transition from a stable agricultural and commercial society to a modern industrial society that relied on complex machinery rather than hand tools. Exploration and trade from Western European nations during the Renaissance led to an increased supply of precious metals from the New World. This resulted in rising prices, which stimulated the growth of industry and fostered an international economy based on money rather than barter. Expansion of trade and the money economy stimulated the development of new institutions of finance and credit. During the eighteenth century, an expanding and wealthier population demanded more and better goods.

In the productive process coal came to replace wood. The Industrial Revolution was characterized by a marked surge in manufacturing techniques that included mass assembly, electricity, and new forms of propulsion. One such innovation was the steam engine—an economical form of self-propulsion. The steam engine brought about the first efficient forms of mass transportation using machine power.

As a result, transatlantic and transpacific transit times were greatly reduced.20 The steam engine was also used to create manufacturing systems capable of mass production. Developed nations, such as the United States and Britain, used mass production as a competitive advantage to increase their dominance in the world’s marketplace.

Consequently, the focus of trade shifted from Mediterranean to Atlantic ports chartered companies were organized and continued improvements in navigation and ship construction sped long voyages. As a worldwide trade evolved, local trade barriers were reduced, stimulating global trade. Modern credit facilities also appeared, such as the state bank, the bourse (the European term for stock exchange), and the futures market. Additionally, the promissory note and other new media of exchange were created.

To the Information Age

The Information Age is the era where information is considered to be a valuable resource, and its capture and distribution generates competitive advantage to organizations. While the era technically could be traced to the invention of the telephone and the telegraph in the late 1800s, it rose to the forefront in the early 1970s with the advent of the microprocessor. Modern increases in trade activity can be attributed to the improvements in communications networks.

In 1866, the telegraph opened the first transatlantic communications channel to facilitate real-time communication over long distances. By the early 1900s radio and telephone networks were widespread in developed nations followed by

televisions several decades later. Pax Americana, Latin for “American peace,” is the period of relative peace in the Western world since the end of World War II in 1945, which coincided with the dominant military and economic position of the United States. Pax Americana places the U.S. in the military and diplomatic role of a modern-day Roman Empire. During this period no armed conflict has emerged among major Western nations themselves, and no nuclear weapons have been used, although the U.S. and its allies have been involved in various regional wars.

In 1957 the launch of the Sputnik 1 satellite paved the way for orbital electronic devices. Toward the end of the 1980s the personal desktop computer became a commonplace household fixture. These technologies converged towards the close of the twentieth century to form the basis of the Internet, a distributed communications network that connects computers and electronic devices around the world in real time. In a trade context, the Internet is used for E-commerce, which enables millions of consumers each day to buy and sell products. Common ways that businesses use the Internet include managing field-based operations, employing workers in remote locations, monitoring inventories, and knowledge management. The Information Age has connected the world and greatly expanded the opportunities for true global businesses.

The preceding section presented a concise description of advances in global trade throughout select periods of recorded history. Early globalization efforts clearly

were driven by the desire to increase wealth of the ruling class, and later to increase standards of living for the general populace. The modern globalization movement is driven by a complex array of issues and interventions. The following section discusses these driving forces of contemporary globalization.