Business a changing world 7e by ferrell chap003

Obtaining needed goods and services and the funds to pay for them, requires international trade through exporting and importing... imported more than $2.3 trillion in goods/services las

Business in a Changing World

Chapter 3

Business in a Borderless World

Fresh & Easy Grocery

Shopping for One & All!

Tesco, the UK grocery giant, has developed the

Neighborhood Market that is making its way into

U.S communities Affordable and wholesome food

is the core competency for Tesco

International Business

We live in a global economy consumers around

the world drink Coca-Cola, Pepsi, and eat at

McDonalds Products you consume today are just

as likely to have been made in China, Korea or

Germany as in the United States

International Business

International business – the buying, selling, and

trading of goods and services across national

boundaries.

International Business

Starbucks serves 20 million customers a week at

16,000 shops in 44 countries

Global marketing requires balancing global

brands with the needs of local consumers.

Globalization of business is becoming increasingly important

Why Nations Trade

Absolute advantage – a monopoly that exists

when a country is the only source of an item, the

only producer of an item, or the most efficient

producer of an item

International trade allows for the acquisition of raw materials and goods

at favorable prices

Why Nations Trade

Comparative advantage – the basis of most

international trade, when a country specializes in

products that it can supply more efficiently or at

a lower cost than it can produce other items

International trade allows for the acquisition of raw materials and goods

at favorable prices.

Why Nations Trade

Outsourcing – the transferring of manufacturing

or other tasks—such as data processing—to

countries where labor and supplies are less

expensive

International trade allows for the acquisition of raw materials and goods

at favorable prices.

Trade Between Countries

Exporting – the sale of goods and services to

foreign markets

The U.S exported more than $1.6 trillion in goods and services last year.

Obtaining needed goods and services and the funds to pay for them,

requires international trade through exporting and importing.

Trade Between Countries

Importing – the purchase of goods and services

from foreign sources

The U.S imported more than $2.3 trillion in goods/services last year

Obtaining needed goods and services and the funds to pay for them,

requires international trade through exporting and importing.

Balance of Trade

The difference in the value

between what a nation

exports and imports is its

balance of trade

A trade deficit is also called a

nation’s negative balance of

trade.

U.S Trade Deficit

1980-2006 (in billions of dollars)

A trade deficit

(shown in the

table) shows that

the U.S has a

trade deficit – it

imports more

than it exports.

Balance of Trade

U.S Exports to China Increase

Trade deficits are harmful – failure of businesses, loss of jobs, lowered standard of living.

Balance of Trade

Top 10 Countries Maintaining Trade Deficits/Surpluses with the U.S.

International Trade Barriers

Balance of payments – the difference between

the flow of money into and out of a country

A nation’s balance of trade, foreign investments, foreign aid, loans,

tourists dollars, and military expenditures comprise its balance of payments

International Trade Barriers

Barriers to International Trade –

International Trade Barriers

Economic Development

LDC’s – less-developed countries

•Low per-capita income

•Less economically advanced

•Potentially huge & profitable markets

International Trade Barriers

The physical facilities that support economic

activities, including railroads, highways, ports,

airfields, utilities, power plants, schools,

hospitals, and commercial distribution systems.

Exchange Rates

International Trade Barriers

The ratio at which one nation’s currency can be

exchanged for another nation’s currency.

Ethical, Legal, and Political Barriers

International Trade Barriers

•Complex relationships

•Different laws

•International laws

•Trade restrictions

•Changing political climates

•Different ethical values

International Trade Barriers

Part of a nation’s legal structure – may be

established or removed for political reasons.

Import Tariff – a tax levied by a nation on goods

imported into the country

Tariffs & Trade Restrictions

International Trade Barriers

Exchange controls – regulations that restrict the

amount of currency that can be bought or sold

Quota – a restriction on the number of units of a

particular product that can be imported into a

country

Tariffs & Trade Restrictions

International Trade Barriers

Embargo– a prohibition on trade in a particular

product

Dumping – the act of a country or business selling

products at less than what it costs to produce them

Tariffs & Trade Restrictions

Political Barriers

International Trade Barriers

•Seldom in writing & change rapidly

•Relative stability of countries is a factor

Cartel – a group of firms or nations that agrees to act as a monopoly and

not compete with each other, in order to generate a competitive

advantage in world markets.

Cultural Barriers

International Trade Barriers

Cultural Behavioral Differences

Technological Barriers

International Trade Barriers

•Technological advances are creating global

marketing opportunities

•10 nations outrank the U.S in terms of

subscribers to broadband Internet access

Trade Agreements, Alliances, & Organizations

General Agreement on Tariffs and Trade (GATT)

• Signed by 23 nations in 1947

• Forum for tariff negotiations

• Place for international trade issue discussion and

resolution

GATT

Trade Agreements, Alliances, & Organizations

World Trade Organization (WTO) –

International organization dealing with

the rules of trade between nations.

Trade Agreements, Alliances, & Organizations

North American Free Trade Agreement (NAFTA)–

agreement that eliminates most tariffs and trade restriction on agricultural and manufactured

products to encourage trade among Canada, the U.S., and Mexico.

Trade Agreements, Alliances, & Organizations

European Union (EU)– a union of European

nations established in 1958 to promote trade

among its members; one of the largest single

markets today.

Trade Agreements, Alliances, & Organizations

Asia-Pacific Economic Cooperation (APEC)– an

international trade alliance that promotes open trade and economic and technical cooperation

among member nations.

Trade Agreements, Alliances, & Organizations

World Bank –

(International Bank for Reconstruction and Development)

Organization established in 1946 by industrialized

nations to loan money to underdeveloped and

developing countries

World Bank

Trade Agreements, Alliances, & Organizations

International Monetary Fund (IMF)–

Organization established in 1947 to promote

trade among member nations by eliminating

trade barriers and fostering financial

cooperation

IMF

Getting Involved in International Business

Many companies’ involvement in international

trade begins with importing goods for resale

Exporting & importing, trading companies, licensing and franchising, contract

manufacturing, joint ventures, direct investment, and multinational corporations.

Getting Involved in International Business

Exporting can take place through countertrade

agreements – foreign trade agreements that

involve bartering products for other products

instead of for currency

Exporting & importing

Getting Involved in International Business

U.S Exporters and Value by Company Size

Getting Involved in International Business

A firm that buys goods in one country and sells

them to buyers in another country is a trading

company.

Trading Companies

Getting Involved in International Business

A trade agreement in which one company (licensor)

allows another company (licensee) to use its

company name, products, patents, brands,

trademarks, etc in exchange for a fee or royalty.

Licensing & Franchising

Getting Involved in International Business

Franchising is a form of licensing where a

company (franchiser) agrees to provide a franchisee a name, logo, operational

guidelines, products, etc, in return for a financial commitment and the agreement

to conduct business in accord with the

Licensing & Franchising

Getting Involved in International Business

Top 10 Global Franchise Operations

Getting Involved in International Business

Contract Manufacturing The hiring of a foreign

company to produce a specified volume of the

initiating company’s product to specification; the

final product carries the domestic firm’s name

Contract manufacturing

Joint Ventures & Alliances

Joint venture – the sharing of the costs and

operation of a business between a foreign company

and a local partner

Strategic alliance – a partnership formed to create

competitive advantage on a worldwide basis.

Direct investment – the ownership of overseas

facilities

Getting Involved in International Business

The 10 Largest Global Corporations

MNC – multinational corporation such as IBM, General Motors ,

International Business Strategies

Multinational strategy– a plan used by international

companies that involves customizing products,

promotion, and distribution according to cultural

technological, regional and national differences.

Global strategy (globalization)– a strategy that

involves standardizing products (promotion and

distribution) for the whole world as if it were a single

entity.