Business in aChanging World
McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
Chapter 3Business in a BorderlessWorld
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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.
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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.
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International Business
International business – the buying, selling, and trading of goods and services across national boundaries.
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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
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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.
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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.
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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.
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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.
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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.
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Balance of TradeThe 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 Deficit1980-2006
(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.
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Balance of TradeU.S. Exports to China Increase
Trade deficits are harmful – failure of businesses, loss of jobs, lowered standard of living.
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Balance of Trade
Top 10 Countries Maintaining Trade Deficits/Surpluses with the U.S.
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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
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International Trade Barriers
Barriers to International Trade –•Economic•Legal•Political•Social•Cultural•Technological
Completely free trade seldom exists.
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ECONOMIC BARRIERS.
International Trade Barriers
•Economic development•Infrastructure•Exchange rates
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International Trade Barriers
Economic Development
LDC’s – less-developed countries•Low per-capita income•Less economically advanced•Potentially huge & profitable markets
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Infrastructure
International Trade Barriers
The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals, and commercial distribution systems.
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Exchange Rates
International Trade Barriers
The ratio at which one nation’s currency can be exchanged for another nation’s currency.
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Ethical, Legal, and Political Barriers.
International Trade Barriers
•Complex relationships•Different laws•International laws•Trade restrictions•Changing political climates•Different ethical values
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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
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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
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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
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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.
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Cultural Barriers
International Trade Barriers
Cultural Behavioral Differences
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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.
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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
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WTO
Trade Agreements, Alliances, & Organizations
World Trade Organization (WTO) – International organization dealing with the rules of trade between nations.
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NAFTA
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.
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EU
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.
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APEC
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.
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Trade Agreements, Alliances, & Organizations
World Bank – (International Bank for Reconstruction and Development)Organization established in 1946 by industrializednations to loan money to underdeveloped anddeveloping countries.
World Bank
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Trade Agreements, Alliances, & Organizations
International Monetary Fund (IMF)– Organization established in 1947 to promotetrade among member nations by eliminatingtrade barriers and fostering financialcooperation
IMF
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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.
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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
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Getting Involved in International Business
U.S. Exporters and Value by Company Size
Most U.S. exporters are small businesses and represent almost 20% of exports
U.S. Exporting Companies for Selected Countries
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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
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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
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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 franchiser’s standard of operations.
Licensing & Franchising
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Getting Involved in International Business
Top 10 Global Franchise Operations
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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
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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
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Getting Involved in International BusinessThe 10 Largest Global Corporations
MNC – multinational corporation such as IBM, General Motors, General Electric or ExxonMobil that operates on a worldwide scale.
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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.
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