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INTRODUCTION TO BUSINESS
CHAPTER 4
Assessing Global Conditions
How International Business Can Enhance Performance
Attract Foreign Demand Capitalize on Technology Use Inexpensive Resources Diversify Internationally Combination of Motives
How International Business Can Enhance Performance
Use Inexpensive Resources Diversify Internationally
The amount of products imported through harbors is higher when international trade restrictions are reduced or eliminated.
Combination of Motives
How International Business Can Enhance Performance
The economy of China has grown substantially because of its ability to produce products at very low cost. Many firms in the United States and other countries have their products produced in China.
How International Business Can Enhance PerformanceApproximate Hourly Compensation Costs for Manufacturing Across Countries
How to Conduct International Business
Importing The purchase of foreign products or services. Tariff: a tax on imported products. Quota: a limit on the amounts of specific products that
can be imported. Exporting
The sale of products or services (called exports) to purchasers residing in other countries.
Balance of trade: the level of exports minus the level of imports.
Trade deficit: the amount by which imports exceed exports.
How to Conduct International Business
Trend of U.S. Exports and Imports
How to Conduct International Business
Direct Foreign Investment (DFI) A means of acquiring or building subsidiaries
in one or more foreign countries. Outsourcing
Sending some services to foreign countries as a means of using cheaper labor.
How to Conduct International Business
Strategic Alliances A business agreement between firms whereby
resources are shared to pursue mutual interests.
Joint venture: an agreement between two firms about a specific project.
International licensing agreement: a type of alliance in which a firm allows a foreign company (called the “licensee”) to produce its products according to specific instructions.
How to Conduct International Business
U.S. firms commonly engage in strategic alliances with manufacturers where labor costs are very low, such as Africa and Asia.
Barriers to International Business
Reduction in Barriers NAFTA: North American Free Trade
Agreement. GATT: General Agreement on Tariffs and
Trade. Remaining Barriers
Dumping: selling products in a foreign country at a price below the cost of producing those products.
Barriers to International Business
Disagreements About International Trade Policy Firms in different countries are subject to
different environmental restrictions. Firms in different countries are not subject to the
same labor laws. Firms in different countries have different
policies concerning bribery. Firms in different countries sometimes have
more governmental financial support.
How Foreign Characteristics Influence International Business
Culture A foreign country’s culture can result in poor
decisions concerning that country’s tastes, habits, and customs.
How Foreign Characteristics Influence International Business
Economic System Capitalism: an economic system that allows for
private ownership of businesses. Communism: an economic system that involves
public ownership of businesses. Socialism: an economic system that contains
some features of both capitalism and communism.
Privatization: the sale of government-owned businesses to private investors.
How Foreign Characteristics Influence International Business
Economic Conditions Economic growth Sensitivity to foreign economic conditions
Exchange Rates Political Risk and Regulations
Political risk: the risk that a country’s political actions can adversely affect a business.
Corruption Regulatory climate
How Foreign Characteristics Influence International Business
The euro is the currency used by many European countries today. Its value against the U.S. dollar changes over time. As the value changes, it affects the amount of dollars needed to purchase European products (denominated in euros) and the amount of euros needed to purchase U.S. products (denominated in dollars).
How Exchange Rate Movements Can Affect Performance
Impact of a Weak Dollar on U.S. Importers Appreciates: strengthens in value
Impact of a Strong Dollar on U.S. Importers Depreciates: weakens in value
Actual Effects of Exchange Rate Movements on U.S. Importers
How Exchange Rate Movements Can Affect Performance
How Exchange Rate Movements Can Affect Performance
Hedging Against Exchange Rate Movements Hedge: action taken to protect a firm against
exchange rate movements. Hedging future payments in foreign currencies.
Forward contract: provides that an exchange of currencies will occur at a specified exchange rate at a future point in time.
Forward rate: the exchange rate that a bank will be willing to offer at a future point in time.
Spot exchange rate: the exchange rate quoted for immediate transactions. WHY USE THIS????
Business Plan
You will all use the spot rate LIBRARY RESEARCH: Culture, Economic System, Economic
Conditions, Political Risk Exchange Rate : Three year history
and projection for first 12 months of business
5-7 CITED sources MINIMUM (MLA) Sample
Setting up shop in another country
China… Guest Speaker: Industry,
Location, Investment structure, Mgmt., legal protection.