Copyright © Cengage Learning. All rights reserved.3| 1 Chapter Three Exploring Global Business

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Chapter Three

Exploring Global

Business

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Learning Objectives

1. Explain the economic basis for international business.

2. Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results.

3. Outline the extent of international trade and identify the organizations working to foster it.

4. Define the methods by which a firm can organize for and enter into international markets.

5. Describe the various sources of export assistance.

6. Identify the institutions that help firms and nations finance international business.

Chapter 3 Outline

– The Basis for International Business• Absolute and Comparative Advantage• Exporting and Importing

– Restrictions to International Business• Types of Trade Restrictions• Reasons for Trade Restrictions• Reasons Against Trade Restrictions

– The Extent of International Business• The World Economic Outlook for Trade

– International Trade Agreements• The General Agreement on Tariffs and Trade and the

World Trade Organization• International Economic Communities

Chapter 3 Outline (cont.)

– Methods of Entering International Business• Licensing• Exporting• Joint Ventures• Totally Owned Facilities• Strategic Alliances• Trading Companies• Countertrade• Multinational Firms

– Sources of Export Assistance

– Financing International Business• The Export-Import Bank of the United States• Multilateral Development Banks• The International Monetary Fund

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The Basis for International Business

• International business

• Some countries are better equipped than others to produce particular goods or services– Absolute advantage

– Comparative advantage

• Goods and services are produced more efficiently when each country specializes in the products for which is has a comparative advantage

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The Basis for International Business (cont’d)

• Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in

• Exporting

• Importing

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The Basis for International Business (cont’d)

• Balance of trade

• Trade deficit

• Balance of payments

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Restrictions to International Business

• The reasons for restricting trade range from internal political and economic pressures to mistrust of other nations.

• Nations are generally eager to export their products to provide markets for their industries and develop a favorable balance of trade.

• Most trade restrictions are applied to imports from other nations.

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Types of Trade Restrictions

• Import duty (tariff)

– A tax levied on a particular foreign product entering a country

• Revenue tariffs

• Protective tariffs

• Dumping

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Types of Trade Restrictions (cont’d)

• Nontariff barriers

– Import quota

– Embargo

– Foreign exchange control

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Types of Trade Restrictions (cont’d)

• Nontariff barriers (cont’d)– Currency devaluation

– Bureaucratic red tape

– Cultural attitudes

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Reasons for and Against Trade Restrictions

FOR AGAINST

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The Extent of International Business

• Although the worldwide recessions of 1991, 2001-2002, and 2008 slowed the rate of growth, globalization is a reality of our time

• In the U.S., international trade accounts for over ¼ of GDP

• Trade barriers are decreasing, more competitors are entering the global marketplace, creating more choices for consumers and new job opportunities

• International business will grow with the expansion of commercial use of the Internet

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The General Agreement on Tariffs and Trade and the World Trade Organization

• General Agreement on Tariffs and Trade (GATT)

• World Trade Organization (WTO)

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International Economic Organizations Working to Foster Trade

• Economic community

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International Economic Organizations Working to Foster Trade (cont’d)

North American Free Trade Agreement (NAFTA)

United States

Canada

Mexico

Chile is expected

to become the 4th

member

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International Economic Organizations Working to Foster Trade (cont’d)

Central American Free Trade Agreement (CAFTA)

El Salvador

Guatemala

Honduras

Nicaragua

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International Economic Organizations Working to Foster Trade (cont’d)

Association of Southeast Asian Nations (ASEAN)

Brunei

Myanmar

Cambodia

Indonesia

Laos

Malaysia

Philippines

Singapore

Thailand

Vietnam

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International Economic Organizations Working to Foster Trade (cont’d)

• European Economic Area (EEA)• Pacific Rim• Commonwealth of Independent States (CIS)• Caribbean Basin Initiative (CBI)• Common Market of the Southern Cone

(MERCOSUR)• Organization for Economic Cooperation and

Development (OECD)

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Methods of Entering International Business

• Licensing

– Advantage

– Disadvantages

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Methods of Entering International Business (cont’d)

• Exporting

– Letter of credit

– Bill of lading

– Draft

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Methods of Entering International Business (cont’d)

• Joint ventures

– Advantages

– Disadvantages

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Methods of Entering International Business (cont’d)

• Totally owned facilities

– Advantage

– Disadvantage

– Two forms

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Methods of Entering International Business (cont’d)

• Strategic alliances

• Trading companies

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Methods of Entering International Business (cont’d)

• Countertrade

• Multinational enterprise

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Financing International Business

• The Export-Import Bank of the United States (Eximbank)

• Multilateral Development Bank (MDB)

• The International Monetary Fund (IMF)