Part 1 FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

part

Ferrell Hirt Ferrell

BUSINESS

A CHANGING WORLDEIGHTH EDITION

1

FHF

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

part

CHAPTER 3 Business in a Borderless World

CHAPTER 2 Business Ethics and Social Responsibility

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CHAPTER 1 The Dynamics of Business and Economics

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Business in aChanging World

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The buying, selling and trading of goods and services across national boundaries

Global marketing requires balancing global brands with the needs of local consumers

International Business

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Why Nations Trade

International trade allows for the acquisition of raw materials and goods at

favorable prices

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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.

Comparative Advantage The basis of the 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

Absolute vs. Comparative Advantages

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The transferring of manufacturing or other tasks, such as data processing, to countries where labor and supplies are less expensive

Outsourcing

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Exporting

The sale of goods and services to foreign markets

The US exports over $1.5 trillion in goods and services

annually

Importing

The purchase of goods and services from foreign sources

The U.S. imports around $2 trillion in goods and services

annually

Exporting & Importing

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The difference in the value between what a nation exports and imports

•A trade deficit is also called a negative balance of trade

•The U.S. usually has a negative balance of trade

Balance of Trade

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Balance of Payments

The difference between the flow of money in 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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Barriers to International Trade

Completely free trade seldom exists.

Barriers to international trade:• Social

• Cultural

• Technological

• Economic

• Legal

• Political

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Economic development

Infrastructure

Exchange rates

Less-Developed Countries (LCDs)

• Low per-capita income

• Less economically advantaged

• Potentially huge & profitable markets

• Largely located in Africa, Asia and Latin America

Economic Barriers to Trade

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Infrastructure

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

The ratio at which one nation’s currency can be exchanged for another nation’s

currency[ ]

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Complex relationships between nations

Different laws

Differing intellectual property protections

Trade restrictions

Political barriers and volatility

Cultural differences Different ethical values

Ethical, Legal & Political Barriers in International Trade

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Legal Barriers to Trade

Tariff and Trade Restrictions• 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

Exchange Controls• Regulations that restrict the amount of currency that

can be bought or sold

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Quota• A restriction on the number of units of a particular

product that can be imported into a country

Embargo• A prohibition on trade for a particular product

Dumping• The act of a country or business selling products at

less than what it costs to produce them

Legal Barriers to Trade

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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

Political Barriers to Trade

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Technological advances are creating global marketing opportunities

At least 10 nations outrank the U.S. in terms of subscribers to broadband Internet access

China and India are rapidly advancing and represent huge markets

Technological Barriers

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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 Replaced by the World Trade Organization (WTO) in 1995

Trade Agreements, Alliances & Organizations

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World Trade Organization (WTO) International organization dealing with the rules of trade

between nations Officially founded in 1995 Successor to GATT 153 members representing 95% of global trade

Trade Agreements, Alliances & Organizations

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…continued on the next page

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North American Free Trade Agreement (NAFTA) Agreement that eliminates most tariffs and trade

restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S. and Mexico

Has been controversial, but has created new business opportunities with fewer barriers than before

Trade Agreements, Alliances & Organizations

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…continued on the next page

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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

Asia-Pacific Economic Cooperation (APEC) An international trade alliance that

promotes open trade and economic and technical cooperation among member nations …continued on the next page

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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

International Monetary Fund (IMF) Organization established in 1947 to promote

trade among member nations by eliminating trade barriers and fostering financial cooperation

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Exporting & importing

Trading companies

Licensing and franchising

Contract manufacturing

Joint ventures

Direct investment

Multinational corporations Many companies’ involvement in international trade

begins with importing goods for resale

Getting Involved in International Business

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Countertrade Agreements Bartering products for other products instead of

for currency

Export agents are middlemen that help companies by handling their international transactions

Trading Company Buys goods in one country and sells them to

buyers of another country

Handles all activities required to move products from one country to another

Getting Involved in International Trade

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A trade arrangement where one company allows another company to use its company name, products, patents, brands, trademarks, raw materials, and production processes in exchange for a fee or royalty Many products are licensed and produced by local

companies internationally

Licensing

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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 operation McDonald’s is the world’s largest franchise in terms

of revenues

Franchising

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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 Common in high-tech industries, automotive industry and

food manufacturing Many clothing manufacturers use contract manufacturing

Contract Manufacturing

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The relocation of a business process by a company or subsidiary to another country Different from outsourcing The company retains control of the process Not subcontracting to a different company Appealing because of lower wages, high skills, time zone

differences

Offshoring

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Other Forms of Engaging in International Trade

Joint Venture The sharing of the costs of 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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The highest level of international business involvement

Operates on a worldwide scale without significant ties to a single nation or region

Largest MNCs are wealthier than most countries Antiglobalization activists contend that MNCs are

responsible for growing wealth disparity and misusing scarce resources

Multinational Corporations

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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.

International Business Strategies

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Many political barriers to trade have fallen in recent decades

Navigating international business remains complicated Technology and improved standards of living globally are

creating tremendous new marketing opportunities Governments and business organizations exist to help

businesses looking to go international

Managing the Challenges of Global Business

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