Chapter 1

Exploring Global BusinessChapter 3 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #1International businessAll business activities that involve exchanges across national boundariesSome countries are better equipped than others to produce particular goods or services.Absolute advantageThe ability to produce a specific product more efficiently than any other nationComparative advantageThe ability to produce a specific product more efficiently than any other productGoods and services are produced more efficiently when each country specializes in the products for which it has a comparative advantage.The Basis for International Business 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #----- Meeting Notes (5/30/12 02:49) -----Abolute advantage-Saudi Arabia and oil;

Comparative advantage-administrative assistant and manager-both can type but because managing is a better use of the manager's time, he manages and administrative assistant types.2ExportingSelling and shipping raw materials or products to other nationsImportingPurchasing raw materials or products in other nations and bringing them into ones own countryThe Basis for International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #3Exporting and ImportingU.S. ImportsU.S. ExportsExcess CornExcess Wine

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #4Balance of tradeThe total value of a nations exports minus the total value of its imports over some period of timeTrade deficitA negative (unfavorable) balance of tradeimports exceed exports in valueBalance of paymentsThe total flow of money into a country minus the total flow of money out of that country over a period of timeThe Basis for International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #----- Meeting Notes (5/30/12 02:42) -----Give simple math example.

5The 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.Restrictions to International Business 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #6U.S. International Trade in Goods and Services

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #7Import duty (tariff)A tax levied on a particular foreign product entering a countryDumpingThe exportation of large quantities of a product at a price lower than that of the same product in the home marketTypes of Trade Restrictions 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #8Nontariff barriers (nontaxing)Set by a government to favor their own products over foreign productsImport quotaa limit on the amount of a particular good that may be imported during a given timeEmbargoa complete halt to trading with a particular nation or in a particular productTypes of Trade Restrictions (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #9Nontariff barriers (cont.)Currency devaluationthe reduction of the value of a nations currency relative to the currencies of other countriesBureaucratic red tapesubtly imposes unnecessarily burdensome and complex standards and requirements for imported goodsCultural attitudescan impede acceptance of products in foreign countriesWhat is Business Like in Other Cultures Anyway?What about people coming here to U.S.?Types of Trade Restrictions (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #10Organizing for International BusinessLicensing Totally Owned FacilitiesStrategic AlliancesTrading CompaniesCountertradeMultinational FirmExportingJoint Venture

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #11LicensingA contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensationAdvantageIt allows expansion into foreign markets with little or no direct investmentDisadvantagesThe product image may be damaged if standards are not upheldThe original producer does not gain foreign marketing experienceMethods of Entering International Business 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #----- Meeting Notes (5/30/12 03:02) -----Yoplait is a French company which allows certain companies here to produce their yogurt and sell it as long as they use the Yoplait label and meet other requirements. The company must pay Yoplait for the license.12ExportingMay use an export/import merchant who takes title of the product, does distribution, and saleLetter of creditissued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiaryBill of ladingissued by a transport carrier to an exporter to prove merchandise has been shippedDraftissued by the exporters bank, ordering the importers bank to pay for the merchandise, thus guaranteeing payment once accepted by the importers bankMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #13Exporting (cont.)May use an export/import agent who arranges sale for a commission or fee; the exporter retains title to products until they are soldMay establish own sales offices or branches in foreign countriesMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #14Joint ventureA partnership formed to achieve a specific goal or to operate for a specific period of timeAdvantagesImmediate market knowledge and accessReduced riskControl over the product attributesDisadvantagesComplexity of establishing agreements across national bordersHigh level of commitment required of all parties involvedMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #15Totally owned facilitiesProduction and marketing facilities in one or more foreign nationsAdvantageDirect investment provides complete control over operationsDisadvantageRisk is greater than that of a joint ventureTwo formsBuilding new facilities in the foreign countryPurchasing an existing firm in the foreign countryMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #16Strategic alliancesPermanent partnerships formed to create competitive advantage on a worldwide basisTrading companiesFirms that provide a link between buyers and sellers in different countries-commonly used for sale of wheat, corn, etc.Takes title to products and performs all the activities necessary to move the products from one country to anotherMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #17CountertradeAn international barter transactionDont have to convert currencyMultinational enterpriseA firm that operates on a worldwide scale without ties to any specific nation or regionMethods of Entering International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #18

Ten Largest Foreign and U.S. Multinational Corporations 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #19Reasons for and Against Trade RestrictionsFORTo equalize a nations balance of paymentsTo protect new or weak industriesTo protect national securityTo protect the health of citizensTo retaliate for another countrys trade restrictionsTo protect domestic jobsAGAINST Higher prices for consumersRestriction of consumers choicesMisallocation of international resourcesLoss of jobs 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #20Although the worldwide recessions of 1991 and 2001-2002 slowed the rate of growth, and the 2008-2009 global economic crisis caused the sharpest decline in more than 70 years, globalization is a reality of our time.In the U.S., international trade accounts for over a quarter of GDP.The Extent of International Business 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #21Trade barriers are decreasing and new 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.

The Extent of International Business (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #22Economic performance among nations is not equal; growth in advanced countries slowed and then stopped in 2009, while emerging and developing economies continue to grow rapidly.

The World Economic Outlook for Trade 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #----- Meeting Notes (5/30/12 02:54) -----Advanced countries-the U.S., Europe, China

Emerging (developing) countries-Brazil, Indonesia, India23

U.S. Goods Export and Import Shares in 2010 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #24The General Agreement on Tariffs and Trade and the World Trade OrganizationGeneral Agreement of Tariffs and Trade (GATT)International organization of 153 nations dedicated to reducing or eliminating tariffs and other trade barriersMost-favored-nation status (MFN)each member of GATT was to be treated equally by all other membersKennedy Round, Tokyo Round, Uruguay Round, Doha Round

International Trade Agreements 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #25The General Agreement on Tariffs and Trade and the World Trade Organization (cont.)World Trade Organization (WTO)Created in the Uruguay Round of GATT negotiation as a successor to GATTWTO oversees GATT provisions, has judicial powers to mediate trade disputes arising from GATT rules, and exerts more binding authority than GATTInternational Trade Agreements (cont.) 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #26Economic communityAn organization of nations formed to promote the free movement of resources and products among its members and to create common economic policiesInternational Economic Organizations Working to Foster Trade 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #27

The Evolving European Union 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #28North American Free Trade Agreement (NAFTA)

International Economic Organizations Working to Foster Trade (cont.)United StatesCanadaMexicoChile is expected to become the 4th member

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #29Central American Free Trade Agreement Dominican Republic (CAFTA-DR)International Economic Organizations Working to Foster Trade (cont.)El SalvadorGuatemalaHondurasNicaraguaDominican RepublicCosta Rica 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #30Association of Southeast Asian Nations (ASEAN)

International Economic Organizations Working to Foster Trade (cont.)BruneiMyanmarCambodiaIndonesiaLaosMalaysiaPhilippinesSingaporeThailandVietnam 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #31Organization of Petroleum Exporting Countries (OPEC)

OPEC NationsAlgeriaIndonesiaIranIraqKuwaitLibyaNigeria QatarSaudi ArabiaUnited Arab EmiratesVenezuela

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #32Environmental Forces Impacting International Business

EconomicPolitical/LegalSociocultural

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #----- Meeting Notes (5/30/12 03:00) -----Political/Legal-government regulation, laws regarding the environment, political stability in foreign countries

Sociocultural-religion, certain customs

Economic-taxes a business has to pay, which of the 4 parts of the business cycle we're in.33With which environmental force (political/legal, sociocultural, economic) is each of the following most closely associated?HandshakingReligionTransportation networksComputer literacySporting eventsColor preferencesStandard of livingThe role of children in the familyClass Exercise

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #34Financing International BusinessThe Export-Import Bank of the United States (Eximbank)An independent agency of the U.S. government whose function is to assist in financing the exports of American firmsMultilateral Development Bank (MDB)An internationally supported bank that provides loans to developing countries to help them growWorld Bank, Inter-American Development Bank (IDB), Asian Development Bank (ADB), African Development Bank (AFDB), European Bank for Reconstruction and Development (EBRD)The International Monetary Fund (IMF)An international bank with 186 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits 2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #35Chapter QuizA developing country found that to meet its needs the previous year, it had imported far more goods than it exported. This country experienced a(n) unfavorable balance of payments.favorable balance of payments.favorable balance of trade.unfavorable balance of trade.unfavorable supply of goods.

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #36Chapter QuizDue to political differences with North Korea, the U.S. government has stopped trading with North Korea. This practice is an example of imposing a(n) import duty.import cut.export control.trade embargo.export duty.

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #Chapter QuizWhen the United States wants to reduce the cost of its goods in foreign nations, it revalues its currency.devalues its currency. pays off its trade deficit.borrows from the Eximbank.sells more goods abroad.

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #38Chapter QuizA forum for the discussion of trade problems and a reduction of trade barriers is provided bythe General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO).a free trade zone.the World Bank.the Eximbank.All of these answers are correct.

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #Chapter QuizXYZ Company is seeking a partner in China to manufacture its products. It wants to team up with an established Chinese firm that will provide immediate market knowledge and access, reduced risk, and control over product attributes. It most likely will need this partnership for a specific amount of time, not on a permanent basis.The best choice for XYZ Company islicensing.a bilateral agreement.a joint venture.an export/import merchant agreement.an export/import agent agreement.

2013 South-Western, a part of Cengage Learning. All rights reserved.Chapter 3 | Slide #40