Business in a

Changing World

Chapter 3
Business in a Borderless
World

McGraw-Hill/Irwin

Copyright 2009 by the McGraw-Hill Companies, Inc. All rights

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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

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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
Globalization of business is
becoming increasingly
important

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.

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Why Nations Trade

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

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.
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Why Nations Trade

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

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.

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Why Nations Trade

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

Outsourcing the transferring of

manufacturing or other taskssuch as
data processingto countries where
labor and supplies are less expensive.
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Trade Between Countries

Obtaining needed goods
and services and the funds
to pay for them, requires
international trade through
exporting and importing.

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.
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Trade Between Countries

Obtaining needed goods
and services and the funds
to pay for them, requires
international trade through
exporting and importing.

Importing the purchase of goods and

services from foreign sources.
The U.S. imported more than $2.3 trillion in goods/services
last year
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Balance of
Trade
The difference in the
value between what a
nation exports and
imports is its 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.
A trade
deficit is also
called a nations
negative balance of
trade.
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Balance of Trade
U.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

A nations balance of trade,
foreign investments,
foreign aid, loans, tourists
dollars, and military
expenditures comprise its
balance of payments

Balance of payments the difference

between the flow of money into and out
of a country.
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International Trade Barriers

Completely free trade seldom exists.

Barriers to International Trade

Economic
Legal
Political
Social
Cultural
Technological
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International Trade Barriers

ECONOMIC BARRIERS.

Economic development
Infrastructure
Exchange rates

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International Trade Barriers

Economic Development
LDCs less-developed countries
Low per-capita income
Less economically advanced
Potentially huge & profitable markets

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International Trade Barriers

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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International Trade Barriers

Exchange Rates

The ratio at which one nations currency can be

exchanged for another nations currency.

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International Trade Barriers

Ethical, Legal, and Political Barriers.

Complex relationships
Different laws
International laws
Trade restrictions
Changing political climates
Different ethical values
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International Trade Barriers

Tariffs & Trade Restrictions
Part of a nations legal structure may be
established or removed for political reasons.
Import Tariff a tax levied by a nation on goods
imported into the country
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International Trade Barriers

Tariffs & Trade Restrictions
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
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International Trade Barriers

Tariffs & Trade Restrictions
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
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International Trade Barriers

Political 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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International Trade Barriers

Cultural Barriers

Cultural Behavioral Differences

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International Trade Barriers

Technological 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
GATT

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

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Trade Agreements, Alliances, &

Organizations
WTO

World Trade Organization

(WTO) International
organization dealing with the
rules of trade between nations.
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Trade Agreements, Alliances, &

Organizations
NAFTA

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

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Trade Agreements, Alliances, &

Organizations
EU

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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Trade Agreements, Alliances, &

Organizations
APEC

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

World Bank
(International Bank for Reconstruction
and Development)

Organization established in 1946 by

industrialized
nations to loan money to underdeveloped
and

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Trade Agreements, Alliances, &

Organizations
IMF

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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Getting Involved in International

Business
Exporting & importing, trading
companies, licensing and
franchising, contract
manufacturing, joint ventures,
direct investment, and
multinational corporations.

Many companies involvement in

international trade begins with
importing goods for resale.

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Getting Involved in International

Business
Exporting & importing

Exporting can take place through

countertrade agreements foreign
trade agreements that involve
bartering products for other products
instead of for currency.
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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
Trading Companies

A firm that buys goods in one country

and sells them to buyers in another
country is a trading company.

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Getting Involved in International

Business
Licensing & Franchising

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.
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Getting Involved in International

Business
Licensing &
Franchising

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

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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

Contract Manufacturing -- The hiring

of a foreign company to produce a
specified volume of the initiating
companys product to specification; the
final product carries the domestic firms
name

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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

Business
The 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

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