© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 1

Wild World: Wild World: Competing in the Competing in the Global EconomyGlobal Economy

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 2

Why Nations TradeWhy Nations Trade

• Scarce resources

• Limited capabilities

• Global ambitions

• Economies of scale

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 3

Theories of ProductionTheories of Productionand Tradingand Trading

• Absolute advantage

• Comparative advantage

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 4

Measuring Measuring International TradeInternational Trade

• Balance of trade

– Surplus

– Deficit

• Balance of payments

– Cash inflow

– Cash outflow

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 5

US Imports and Exports–GoodsUS Imports and Exports–Goods

• Foods, feeds, and beverages

• Industrial supplies and materials

• Machinery and transport equipment

• Automotive vehicles, engines, and parts

• Consumer goods

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 6

US Imports and Exports–US Imports and Exports–ServicesServices

• Business, technical, and professional

• Educational, financial, telecommunications,

and insurance

• Royalties and license fees

• Travel and passenger fares

• Freight and port services

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 7

Global Trade IssuesGlobal Trade Issues

• Free trade

• Fair trade

• Trade restrictions

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 8

Protectionism and Protectionism and Trade RestrictionsTrade Restrictions

• Tariffs

• Quotas

• Embargoes

• Sanctions

• Restricting imports

• Subsidies

• Dumping

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 9

Promoting Free TradePromoting Free Trade

• World Trade Organization (WTO)

• International Monetary Fund (IMF)

• The World Bank

• General Agreement on Tariffs and Trade (GATT)

• Asia Pacific Economic Cooperation Council

(APECC)

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 10

Trading BlocsTrading Blocs

AdvantagesAdvantages

Help smaller countries

Promote competition

Widen markets

Foster economic growth

DisadvantagesDisadvantages

Economic isolation

Trade restrictions

Decline in world trade

Fewer choices

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 11

North American Free North American Free Trade Agreement Trade Agreement

(NAFTA)(NAFTA)• United States

• Canada

• Mexico

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 12

The European UnionThe European Union

MinimizingMinimizing EstablishingEstablishing

Local RegulationsLocal Regulations

Variations in Variations in Product StandardsProduct Standards

Trade ProtectionismTrade Protectionism

GlobalGlobalProduct StandardsProduct Standards

Consumer ProtectionConsumer Protection

Environmental Environmental ProtectionProtection

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 13

The Economic and The Economic and Monetary Union (EMU)Monetary Union (EMU)

• The Euro– Economic impact– Currency exchange– Currency unification– Centralized banking

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 14

Foreign Exchange Rates Foreign Exchange Rates and Currency Valuationsand Currency Valuations

• Floating exchange rate system

• Government intervention

• Devaluation

• Fixed value system

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 15

The GlobalThe GlobalBusiness EnvironmentBusiness EnvironmentOpportunities Challenges

Growth Potential

Increased Sales

Operating Efficiencies

New Technologies

More Consumer Choices

Laws and Customs

Consumer Preferences

Ethical Standards

Labor Skills

Politics and Economics

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 16

Cultural Differences In Cultural Differences In Global BusinessGlobal Business

• Consider the other person’s customs

• Deal with the individual

• Clarify your intent and meaning

• Adapt your style to the other person’s

• Show respect

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 17

Legal Differences In Legal Differences In Global BusinessGlobal Business

• Common law

• Civil law

• Theocratic law

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 18

International Business International Business ActivityActivity

Importing and ExportingImporting and Exporting

Licensing and FranchisingLicensing and Franchising

Strategic Alliances Strategic Alliances and Joint Venturesand Joint Ventures

Direct Foreign InvestmentDirect Foreign Investment

OwnershipOwnership FinancialFinancial RiskRisk

LowLow LowLow LowLow

LowLow LowLow LowLow

ModerateModerate ModerateModerate ModerateModerate

HighHigh HighHigh HighHigh

Common FormsCommon FormsLevels of CommitmentLevels of Commitment

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 19

Strategic Approaches to Strategic Approaches to International BusinessInternational Business

• Products

• Support

• Promotion

• Pricing

• Staffing

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 3 - 20

The Impact of Terrorism The Impact of Terrorism on Global Businesson Global Business

• Government expenditures

• Business expenditures

• Transportation

• Banking