1. Exploring Global Business
Chapter 3
Exploring Global Business

2. Learning Objectives
Explain the economic basis for international business.
Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results.
Outline the extent of international trade and identify the organizations working to foster it.
Define the methods by which a firm can organize for and enter into international markets.
Describe the various sources of export assistance.
Identify the institutions that help firms and nations finance international business.

3. International Business
…all business activities that involve exchanges across national boundaries.

4. Absolute Advantage
…the ability to produce a specific product more efficiently than any other nation.

5. Comparative Advantage
…the ability to produce a specific product more efficiently than any other product.

6. …selling and shipping raw materials or products to other nations.
Exporting
…selling and shipping raw materials or products to other nations.

7. Importing
…purchasing raw materials or products in other nations and bringing them into one’s own country.

8. Why This Chapter Matters
Free trade—are you for or against it? Most economists support free-trade policies, but public support can be lukewarm, and certain groups
are adamantly
opposed, alleging
that “trade harms
large segments
of U.S. workers,”
“degrades the
environment,” and
“exploits poor
countries.”

9. Exporting and Importing
U.S. Exports
Excess Corn
Excess Wine
U.S. Imports

10. Figure 3.1: The Top Ten Merchandise Exporting States
Source: accessed May 2, 2009.

11. Figure 3.2: U.S. International Trade in Goods and Services
Source: U.S. Department of commerce, International Trade Administration, U.S. Bureau of Economic Analysis, accessed April 16, 2009.

12. Balance of Trade
…the total value of a nation’s exports minus the total value of its imports over some period of time.
Imports > Exports = (-) Balance of Trade
Exports > Imports = (+) Balance of Trade

13. …negative balance of trade.
Trade Deficit
…negative balance of trade.
Spotlight
Source: U.S. Department of Commerce, Bureau of Economic Analysis, accessed May 1, 2009.

14. Balance of Payments
…the total flow of money into a country minus the total flow of money out of that country over some period of time.
Includes
Imports and exports
Investments
Money spent by foreign tourists
Payments by foreign governments
Aid to foreign governments
All other receipts and payments

15. Trade Restrictions ─ Tariff
Import duty
tax levied on a particular foreign product entering a country
Revenue
imposed solely to generate income
Protective
imposed to protect domestic industry from competition

16. Trade Restrictions ─ Dumping
…exportation of large quantities of a product at a price lower than that of the same product in the home market.

17. Trade Restrictions ─ Nontariff
…a nontax measure imposed by a government to favor domestic over foreign suppliers.
Import Quota
Embargo
Foreign-Exchange Control
Currency Devaluation

18. Reasons for Trade Restrictions
Equalize nation’s balance of payments
Protect new/weak industries
Protect national security
Protect health of citizens
Retaliate for another nation’s trade restrictions
Protect domestic jobs

19. Reasons Against Trade Restrictions
Higher prices for consumers
Restriction of consumers’ choices
Misallocation of international resources
Loss of jobs

20. World Economic Outlook for Trade
Canada and Western Europe
Mexico and South America
Japan
Developing Asia
Central/Eastern Europe and Russia

21. Exports and U.S. Economy
Opportunity for all countries
Exports more important to U.S. economy
Canada and Mexico best export partners
Canada and China best import partners

22. Figure 3.3: U.S. Goods Export and Import Shares in 2008
Source: Federal Reserve Bank of St. Louis, National Economic Trends, May 2009, p. 18, , accessed May 1, 2009.

23. Table 3.1: Global Growth Remains Sluggish
Growth has been led by developing countries and emerging markets.
Source: International Monetary Fund: World Economic Outlook by International Monetary Fund. Copyright 2009 by International Monetary Fund. Reproduced with permission of International Monetary Fund via Copyright Clearance Center.

24. Table 3.2: Value of U.S. Merchandise Exports and Imports, 2008
Source: U.S. Department of Commerce, International Trade Administration, , accessed May 1, 2009.

25. General Agreement on Tariffs and Trade (GATT)
…an international organization of 132 nations dedicated to reducing or eliminating tariffs and other barriers to world trade.

26. GATT-Sponsored Negotiations
Kennedy Round (1964–1967)
Tokyo Round (1973–1979)
Uruguay Round (1986–1993)
Doha Round (2001+)

27. World Trade Organization
…powerful successor to GATT that incorporates trade in goods, services, and ideas.
Membership
Obliges 149 members to observe GATT
Has judicial powers to mediate among members disputing new rules
Has more binding authority than GATT

28. Economic Community
…an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies.

29. International Economic Communities
European Union
European Economic Area
North American Free Trade Agreement (NAFTA)
Central American Free Trade Agreement (CAFTA)
Association of Southeast Asian Nations (ASEAN)
Commonwealth of Independent States (CIS)
(cont.)

30. International Economic Communities (cont.)
Caribbean Basin Initiative (CBI)
Common Market of the Southern Cone (Mercosur)
Organization of Petroleum Exporting Countries (OPEC)
Economic Community of West African States (ECOWAS)
Organization of Economic Cooperation and Development (OECD)

31. Figure 3.4: The Evolving European Union
Source: accessed May 2, 2009.

32. Methods of Entering International Business

33. Licensing
…a 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 compensation.

34. Export-import merchant Documents
Exporting
Manufacture products in home country and export them to foreign markets
Relative low risk
Export-import merchant
Documents
Letter of credit
Bill of lading
Draft

35. Joint Ventures
…a partnership formed to achieve a specific goal or to operate for a specific period of time.

36. Totally Owned Facilities
…a firm’s own production and marketing facilities, developed in one or more foreign nations as a direct investment.

37. Forms of Direct Investment
Builds/purchases manufacturing and other facilities in the foreign country, produces/markets own established products in foreign/neighboring countries
Purchases existing firm in foreign country under arrangement allowing it to operate independently of parent company

38. Strategic Alliance
…a partnership formed to create competitive advantage on a worldwide basis.

39. Trading Company
…a company that provides a link between buyers and sellers in different countries and is not involved in manufacturing or owning assets related to manufacturing.

40. Countertrade
…an international barter transaction in which goods and services are exchanged for different goods and services.

41. Multinational Enterprise
…a firm that operates on a worldwide scale without ties to any specific nation or region, representing the highest level of involvement in international business.

42. Value of U.S. Merchandise Exports and Imports, 2008
Source: U.S. Department of Commerce, International Trade Administration, accessed May 1, 2009.

43. Ten Largest Foreign and U.S. Multinational Corporations
Source: Fortune Global 500, July 1, 2008, p Copyright © 2006 Time, Inc., All rights reserved.

44. Steps in Entering International Markets
Identify exportable products.
Identify key foreign markets for the products.
Analyze how to sell in each priority market (methods will be affected by product characteristics and unique features of country/ market).
Set export prices and payment terms, methods, and techniques.
Estimate resource requirements and returns.
Establish overseas distribution network.

45. Sources of Export Assistance
International Trade Administration
U.S. and Foreign Commerical Services (US&FCS)
Advocacy Center
TRADESTATS
Selected SBA Market Research–Related General Resources
National Trade Data Bank

46. Export-Import Bank of the United States
…an independent agency of the U.S. government whose function it is to assist in financing the exports of American firms.

47. Multilateral Development Bank
…an internationally supported bank that provides loans to developing countries to help them grow.

48. Multilateral Development Banks
World Bank
Inter-American Development Bank (IDB)
Asian Development Bank (ADB)
African Development Bank (AFDB)
European Bank for Reconstruction and Development (EBRD)

49. International Monetary Fund (IMF)
…an international bank with 184 member nations that makes short-term loans to developing countries experiencing balance-of-payments deficits.

50. Sources of Export Assistance
U.S. Export Assistance Centers (USEACs)
International Trade Administration (ITA)
U.S. and Foreign Commercial Services (US&FCS)
Advocacy Center
(cont.)

51. Sources of Export Assistance (cont.)
Trade Information Center (TIC)
ita.doc.gov/td/tic
STAT-USA/Internet
Small Business Administration
National Trade Data Bank (NTDB)

52. Chapter Quiz
A 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.

53. Chapter Quiz (cont.)
Due 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.

54. Chapter Quiz (cont.)
When 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.

55. Chapter Quiz (cont.)
A forum for the discussion of trade problems and a reduction of trade barriers is provided by
the 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.

56. Chapter Quiz (cont.)
XYZ Company is seeking a partner in China to manufacture its products. XYZ wants to team up with an established Chinese firm that will provide immediate market knowledge and access, reduced risk, and control over product attributes. The best choice for XYZ Company is
licensing.
a bilateral agreement.
a joint venture.
an export-import merchant agreement.
an export-import agent agreement.