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Business in Business in Action 8e Action 8e Bovée/ThillBovée/Thill
Developing a Business Mindset
Chapter 3Chapter 3The Global The Global
MarketplaceMarketplace
Learning Objectives
1. Explain why nations trade, and describe how international trade is measured.
2. Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.
3. Identify the major organizations that facilitate international trade and the major trading blocs around the world.
Copyright © 2017 Pearson Education, Inc. 3-2
Learning Objectives (cont.)
4. Discuss the importance of understanding cultural and legal differences in the global business environment.
5. Define the major forms of international business activity.
6. Discuss the strategic choices that must be considered before entering international markets.
Copyright © 2017 Pearson Education, Inc. 3-3
Exhibit 3.1The World’s Most Competitive Countries
Copyright © 2017 Pearson Education, Inc. 3-4
Why Nations Trade
• Economic globalization The increasing integration and
interdependence of national economies around the world
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Why Nations Trade (cont.)
• Focusing on relative strengths• Expanding markets• Pursuing economies of scale• Acquiring materials, goods, and services• Keeping up with customers• Keeping up with competitors
Copyright © 2017 Pearson Education, Inc. 3-6
How International Trade is Measured
• Trade deficit An unfavorable trade balance is created when
a country imports more than it exports
• Balance of payments The sum of all payments a country receives
from other countries minus the sum of all payments it makes to the other countries, over some specified period of time
Copyright © 2017 Pearson Education, Inc. 3-7
Exhibit 3.2 U.S. Exports and Imports Since 1990
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Exhibit 3.2 U.S. Exports and Imports Since 1990 (cont.)
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Exhibit 3.2 U.S. Exports and Imports Since 1990 (cont.)
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Foreign Exchange Rates and Currency Valuations
• Exchange rate The rate at which the money of one country is
traded for the money of another
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Exhibit 3.3 Strong and Weak Currencies: Who Gains? Who Loses?
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Free Trade
• Free trade International trade unencumbered by
restrictive measures• Supporters of free trade generally
acknowledge that it produces winners and losers but that the winners gain more than the losers lose, so the net effect is positive
Copyright © 2017 Pearson Education, Inc. 3-13
Government Intervention inInternational Trade
• Protectionism Government policies aimed at shielding a
country’s industries from foreign competition
• Tariffs Taxes levied on imports
Copyright © 2017 Pearson Education, Inc. 3-14
Government Intervention inInternational Trade (cont.)
• Import quotas Limits placed on the quantity of imports a
nation will allow for a specific product
• Embargo A total ban on trade with a particular nation (a
sanction) or of a particular product
Copyright © 2017 Pearson Education, Inc. 3-15
Government Intervention inInternational Trade (cont.)
• Export subsidies A form of financial assistance in which
producers receive enough money from the government to allow them to lower their prices in order to compete more effectively in the global market
Copyright © 2017 Pearson Education, Inc. 3-16
Government Intervention inInternational Trade (cont.)
• Dumping Charging less than the actual cost or less
than the home-country price for goods sold in other countries
• Sanctions Politically motivated embargoes that revoke a
country’s normal trade relations status Often used as forceful alternatives short of
war
Copyright © 2017 Pearson Education, Inc. 3-17
International Trade Organizations
• World Trade Organization (WTO) Permanent forum for negotiating,
implementing, and monitoring international trade procedures, and for mediating trade disputes among the150 member countries
Copyright © 2017 Pearson Education, Inc. 3-18
International Trade Organizations (cont.)
• International Monetary Fund (IMF) Formed to monitor global financial
developments, provide technical advice and training, provide short-term loans to countries that are unable to meet their financial obligations, and work to alleviate poverty in developing economies
Copyright © 2017 Pearson Education, Inc. 3-19
International Trade Organizations (cont.)
• World Bank Founded to finance reconstruction after World
War II and is now involved in hundreds of projects around the world aimed at addressing poverty, health, education, and other concerns in developing countries
Is a United Nations agency owned by its 187 member nations
Copyright © 2017 Pearson Education, Inc. 3-20
Trading Blocs
• Trading blocs Organizations of nations that remove trade
barriers among their member countries and establish uniform barriers to trade with non-member nations
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Trading Blocs (cont.)
• North American Free Trade Agreement (NAFTA) Formed by the United States, Canada, and
Mexico to pave the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas
Copyright © 2017 Pearson Education, Inc. 3-22
Trading Blocs (cont.)
• European Union (EU) Constitutes more than two dozen countries
and a half billion people Now accounts for the world’s largest
economy• EU nations have eliminated hundreds of local
regulations, variations in product standards, and protectionist measures that once limited trade among member countries
Copyright © 2017 Pearson Education, Inc. 3-23
Trading Blocs (cont.)
• Asia-Pacific Economic Cooperation (APEC) An organization of 21 countries working to
liberalize trade in the Pacific Rim Has a long-term goal of liberalizing and
simplifying trade and investment among member countries and helping the region as a whole achieve sustainable economic growth
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Exhibit 3.4Members of Major Trading Blocs
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Exhibit 3.4Members of Major Trading Blocs (cont.)
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The Global Business Environment
• Culture A shared system of symbols, beliefs,
attitudes, values, expectations, and norms for behavior
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The Global Business Environment (cont.)
• Stereotyping Assigning a wide range of generalized attributes,
which are often superficial or even false, to an individual based on his or her membership to a particular culture or social group
• Ethnocentrism Judging all other groups according to the
standards, behaviors, and customs of one’s own group
Copyright © 2017 Pearson Education, Inc. 3-28
The Global Business Environment (cont.)
• Successful global business leaders recognize and respect differences in language, social values, ideas of status, decision-making habits, attitudes toward time, use of space, body language, manners, religions, and ethical standards
Copyright © 2017 Pearson Education, Inc. 3-29
Improving Communication with a Person from Another Culture
• Be alert to the other person’s customs.• Deal with the individual.• Clarify your intent and meaning.• Adapt your style to that of the other
person.• Show respect.
Copyright © 2017 Pearson Education, Inc. 3-30
Legal Differences in the Global Business Environment
• Tax haven A country whose favorable banking laws and
low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business
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Exhibit 3.6Forms of International Business Activity
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Forms of InternationalBusiness Activity
• Importing Purchasing goods
or services from another country and bringing them into one’s own country
• Exporting Selling and
shipping goods or services to another country
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Forms of InternationalBusiness Activity (cont.)
• Licensing Agreement to produce and market another
company’s product in exchange for a royalty or fee
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Forms of InternationalBusiness Activity (cont.)
• Foreign direct investment (FDI) Investment of money by foreign companies in
domestic business enterprises
• Multinational corporations (MNCs) Companies with operations in more than one
country
Copyright © 2017 Pearson Education, Inc. 3-35
Strategic Approaches to International Markets
• Multidomestic strategy A decentralized approach to international
expansion in which a company creates highly independent operating units in each new country
Copyright © 2017 Pearson Education, Inc. 3-36
Strategic Approaches to International Markets (cont.)
• Global strategy A highly centralized
approach to international expansion, with headquarters in the home country making all major decisions
• Transnational strategy A hybrid approach
that attempts to reap the benefits of international scale while being responsive to local market dynamics
Copyright © 2017 Pearson Education, Inc. 3-37
Product Strategies for International Strategies
Copyright © 2017 Pearson Education, Inc. 3-38
Applying What You’ve Learned
1. Explain why nations trade, and describe how international trade is measured.
2. Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.
3. Identify the major organizations that facilitate international trade and the major trading blocs around the world.
Copyright © 2017 Pearson Education, Inc. 3-39
Applying What You’ve Learned (cont.)
4. Discuss the importance of understanding cultural and legal differences in the global business environment.
5. Define the major forms of international business activity.
6. Discuss the strategic choices that must be considered before entering international markets.
Copyright © 2017 Pearson Education, Inc. 3-40
Copyright © 2017 Pearson Education, Inc. 3-41