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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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BUSN
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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The World Marketplace: Business without Borders
• What opportunities exist in the world economy for businesses?
• Why do nations trade?
• How do we measure trade?
• How do companies reach global markets?
• What are the barriers to international trade?
• What are the benefits and criticisms of the free trade movement?
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
An Unprecedented Opportunity….
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*CIA World Factbook, 2008 Population Estimates, updated January 22, 2009.**CIA World Factbook, 2008 GDP Estimates, updated January 22, 2009.***CIA World Factbook, 2008 GDP Growth Estimates, updated January 22, 2009.
(Sources: Rank Order Estimates, CIA – The World Factbook website: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2119rank.html, accessed January 22, 2009, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html, accessed January 22, 2009, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html, accessed January 22, 2009. )
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Key Reasons for International Trade
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Access to Factors of Production
Reduced Economic Risk
Inflow of Innovation
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Key Reasons for International Trade: Competitive Advantage
• A country has an absolute advantage when it can produce more of a good than other nations, using the same amount of resources.
• Comparative advantage – the benefit a country has in a given industry if it can make products at lower opportunity cost
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Opportunity cost – cost of giving up the second-best choice when making a decision
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Global Trade: Taking Measure
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• Balance of Trade
Trade Deficit
Trade Surplus
• Balance of Payments
Balance of Payments Deficit
Balance of Payments Surplus
• Exchange Rates
• Countertrade
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Global Trade: Exchange Rates
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STRONG DOLLAR VS EURO:(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:(Example: $1.00 = .60 euros)
U.S. travelers to Europe European travelers to U.S.American firms with European operations
European firms with American operations
European exporters American exporters
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Seizing the Opportunity: Strategies for Reaching Global Markets
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Seizing the Opportunity: Strategies for Reaching Global Markets
• Foreign Outsourcing/Contract Manufacturing – contracting with foreign suppliers to produce products, usually at a fraction of the domestic cost
• Importing – buying products that have been produced or grown in foreign nations
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Seizing the Opportunity: Strategies for Reaching Global Markets
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ExportingLicensingFranchisingDirect InvestmentJoint Ventures
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Barriers to International Trade
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Sociocultural Differences
Economic Differences
Political & Legal Differences
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Barriers to International Trade: Sociocultural Differences
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Nonverbal Communication
Forms of Address
Attitudes toward punctuality
Religious Celebrations
Business Practice/Gifts
Social/cultural differences can rapidly undermine business relationships.
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Barriers to International Trade: Economic Differences
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• Exchange Rates• Population• Per Capita Income• Infrastructure
TransportationCommunicationEnergy Finance
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Barriers to International Trade: Political and Legal Differences
• Political regimes differ around the world
• Legal DifferencesLack of Enforcement
Bribery
• Political ClimateStability
Violence
• Piracy and intellectual property is a problem in several foreign nations.
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Protectionism
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Reasons to Create Trade Restrictions
Reasons to Eliminate Trade Restrictions
Protect domestic industry Reduce prices and increase choices for consumers
Protect domestic jobs in key industries
Increase domestic jobs
Retaliate against countries who have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries Use world resources more efficiently
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
International Trade Restrictions
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• Tariffs
• Quotas
• Voluntary Export Restrictions
• Embargo
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Free Trade: The Movement Gains Momentum
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There has been a global move
toward free trade– the unrestricted
movement of good and services
across borders.
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
GATT and the World Trade Organization (WTO)
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• General Agreement on Tariffs & Trade (GATT)⎯ Established in 1948⎯ Now encompasses 125 nations⎯ Slashed tariffs by about 30%
• World Trade Organization (WTO)⎯ Promote International Trade⎯ Settle Trade Disputes
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The World Bank and International Monetary Fund
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• The World Bank⎯ 185 Member Countries⎯ Reduce World Poverty in Developing World⎯ Influence Global Economy⎯ Provide Financial Assistance
Low interest loans
• The International Monetary Fund⎯ Support Stable Exchange Rates⎯ Facilitate International Payments⎯ Adopt Economic Policies⎯ Promote Trade⎯ Lends money to member nations
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BUSN
3 The World Marketplace: Business without Borders
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Trading Blocs and Common Markets
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• The North American Free Trade Agreement (NAFTA)
The largest trading blocU.S., Canada, MexicoCritics for job loss
• European Union (EU)The largest common market27 nations; combined GDP of $15 TrillionGoal is to bolster Europe’s trade position
Groups of countries promoting the free flow of goods and services
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BUSN
3
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Looking Back
• What opportunities exist in the world economy for businesses?
• Why do nations trade?
• How do we measure trade?
• How do companies reach global markets?
• What are the barriers to international trade?
• What are the benefits and criticisms of the free trade movement?
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