International business is not a new phenomenon it extends back into history beyond the Phoenicians. Products have been traded across borders throughout recorded civilization, extending back beyond the Silk Road that once connected East with West from Xian to Rome. The Silk Road was probably the most influential international trade route of the last two millennia, literally shaping the world as we know it. For example, pasta, cheese, and ice cream, as well as the compass and explosives, among other things, were brought to the Western world from China via the Silk Road.
What is relatively new, beginning with large U.S. companies in the 1950s and 1960s and with European and Japanese companies in the 1970s and 1980s, is the large number of companies engaged in international investment with interrelated production and sales operations located around the world. At no other time in economic history have countries been more economically interdependent than they are today. Although the second half of the twentieth century saw the highest sustained growth rates of gross domestic product (GDP) in history, the growth in the international flow of goods and services has consistently surpassed the growth rate of the world economy. Simultaneously, the growth in international financial flows including foreign direct investment, portfolio investment, and trading in currencies has achieved a life of its own. Daily international financial flows now exceed $1 trillion.
Thanks to trade liberalization, heralded by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), the barriers to international trade and financial flows keep getting lower. While global GDP has grown fivefold since 1950, global trade has expanded seventeenfold during the same period. For forty-nine countries, average exports as a share of GDP also increased to approximately 24 percent in 1998 from 17 percent a decade earlier.
Expanding world markets are a key driving force for the twenty-first-century economy. Although the severe slump in Asia in the late 1990s points up the vulnerabilities in the global marketplace, the long-term trends of increasing trade and investment and rising world incomes continue. As a consequence, even a firm that is operating in only one domestic market is not immune to the influence of economic activities external to that market. The net result of these factors has been the increased interdependence of countries and economies, vironmentncreased competitiveness, and the concomitant need for firms to keep a constant watch on the international economic environment.
