1. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 3

2. 3 3 The World Marketplace: Business Without Borders 2 LO 1What opportunities exist in the world economy for businesses? LO 2Why do nations trade? LO 3How do we measure trade? LO 4How do companies reach global markets? LO 5What are the barriers to international trade? LO 6What are the benefits and criticisms of the free trade movement?

3. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basis for International Business 3  International business All business activities that involve exchanges across national boundaries  Is International Trade (Business) Good? – Absolutely! – No single country (or business) has the resources and capabilities to produce everything its citizens want or need at prices they are willing to pay Does Spain produce enough corn for its citizens? Does the US produce enough oil for its citizens? – PROFIT PURSUIT; Global = Bigger Market Can you think of any MNC’s (multi-national companies)?  Some countries are better equipped than others to produce particular goods or services. Absolute advantage –The ability to produce a specific product more efficiently than any other nation –Ex. Saudia Arabia->crude oil; South Africa->diamonds; Australia->wool Comparative advantage –The ability to produce a specific product more efficiently than any other product  Goods and services are produced more efficiently when each country specializes in the products for which it has a comparative advantage.

4. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Basis for Int’l Business (cont.) 4  Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in.  Exporting Selling and shipping raw materials or products to other nations  Importing Purchasing raw materials or products in other nations and bringing them into one’s own country  Balance of trade The total value of a nation’s exports minus the total value of its imports over some period of time  Trade deficit A negative (unfavorable) balance of trade (imports>exports)  Trade surplus A positive (favorable) balance of trade (exports>imports)

5. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Top Ten Merchandise Exporting States 5

6. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons to Restricting Trade 6  The 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.

7. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. US Int’l Trade in Goods and Services 7

8. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Trade Restrictions 8  Import duty (tariff) A tax levied on a particular foreign product entering a country –Revenue tariffs are imposed to generate income for the government. –Protective tariffs are imposed to protect a domestic industry from competition by keeping the prices of imports at or above the price of domestic products.  Dumping The exportation of large quantities of a product at a price lower than that of the same product in the home market

9. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Trade Restrictions 9  Nontariff barriers Nontax measures imposed by a government to favor domestic over foreign suppliers Import quota—a limit on the amount of a particular good that may be imported during a given time Embargo—a complete halt to trading with a particular nation or in a particular product Foreign exchange control—restriction on amount of foreign currency that can be purchased or sold

10. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Trade Restrictions 10  Nontariff barriers (cont.) Currency devaluation—the reduction of the value of a nation’s currency relative to the currencies of other countries Bureaucratic red tape—subtly imposes unnecessarily burdensome and complex standards and requirements for imported goods Cultural attitudes—can impede acceptance of products in foreign countries

11. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons For and Against Trade Restrictions 11 FOR To equalize a nation’s balance of payments To protect new or weak industries To protect national security To protect the health of citizens To retaliate for another country’s trade restrictions To protect domestic jobs AGAINST Higher prices for consumers Restriction of consumers’ choices Misallocation of international resources Loss of jobs

12. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The following are unaltered slides direct from the textbook 12

13. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. An Unprecedented Opportunity…. 13 “ “ “A company that keeps its eye on Tom, Dick and Harry is going to miss Pierre, Hans, and Yoshio.” -- Al Ries, marketing strategist and author

14. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growing World Population 14

15. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Trade Recovery The long-term global potential for U.S. business is enormous The global economy contracted in 2009 But, world GDP turned back around in 2010 U.S. consumers have money but China and India represent a bigger opportunity 15

16. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Unimpressive Scores U.S. students ranked 25th among peers from 34 countries on a math test, and scored average in science and reading China, Singapore, and South Korea led the pack, outpacing American students The South Korean government set a curfew for online games in 2010 because public school students exhibited signs of addiction The U.S. addiction level are equally high as American students need to increase their academic “game” to compete globally 16 Source: Singapore Study finds video game addiction exists globally, The Medical News website, January 20, 2011, http://www.news-medical.net/news/20110120/Singapore-study-finds-video-game-addiction-exists-globally.aspx accessed February 14, 2011; What they’re restricting in South Korea, Time magazine briefing, April 26, 2010; U.S. Teens Lag as China Soars on International Test by John Hechinger, December 7, 2010, Bloomberg website, http://www.bloomberg.com/news/2010-12-07/teens-in-u-s- rank-25th-on-math-test-trail-in-science-reading.html, accessed February 14, 2010; South Korea Cracks Down on Gaming Addiction by Geoffrey Cain, Time magazine website, April 20, 2010, http://www.time.com/time/world/article/0,8599,1983234,00.html, accessed February 1, 2010 ©iStockphoto.com/Jesus Jauregui

17. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Key Reasons for International Trade 17 Access to Factors of Production Reduced Economic Risk Inflow of Innovation

18. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Key Reasons for International Trade: Competitive Advantage 18 A country has an absolute advantage when it can produce more of a good than other nations, using the same amount of resources. Comparative advantage is the benefit a country has in a given industry if it can make products at a lower opportunity cost. Opportunity cost –The cost of giving up the second-best choice when making a decision

19. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cell Phone Subscriptions Around the World In the U.S., Europe, and Japan, cell phones followed landlines, but many developing nations “can leapfrog technology.” China currently boasts the world’s largest base of cell phone users—766 million India’s current subscriber base is more than 584 million; it has grown explosively in 5 years In Africa, cell phone penetration rates in 2009 were approximately 21% versus 9% for land lines  In Zimbabwe, cell phone penetration grew from 4% in 2008 to about 30% in 2009. 19 Source: Zimbabwe: Mobile phone penetration linked to GDP growth, October 28, 2010, AllAfrica Global Media website, http://allafrica.com/stories/201011011088.html, accessed February 7, 2010; Mobile Phone Adoption in Developing Countries, WikiInvest website, http://www.wikinvest.com/concept/Mobile_Phone_Adoption_in_Developing_Countries, accessed February 8, 2011; Cell phones vital in developing world by Malcolm Foster, January 27, 2007, Washington Post website, http://www.washingtonpost.com/wp- dyn/content/article/2007/01/27/AR2007012700662.html, accessed January 28, 2009; China’s mobile users top 600 million: govt, July 24, 2008 © vario images GmbH & Co.KG / Alamy

20. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Trade: Taking Measure 20 Balance of Trade  Trade Deficit  Trade Surplus Balance of Payments  Balance of Payments Deficit  Balance of Payments Surplus Exchange Rates Countertrade

21. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Trade: Exchange Rates 21 Source: What is countertrade? By Neha Gupta, Barter News Weekly website, March 11, 2010, http://www.barternewsweekly.com/2010/03/11/what-is-counter- trade-1851/, accessed February 10, 2010

22. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Many Names of Money 22 China England European Union India Iran Israel Japan Mexico South Africa South Korea Yuan Pound Euro Rupee Rial Shekel Yen Peso Rand Won

23. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Market Development Options 23

24. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies for Reaching Global Markets 24 Foreign Outsourcing/Contract Manufacturing Contracting with foreign suppliers to produce products Importing Buying products that have been produced in foreign nations

25. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Seizing the Opportunity: Strategies for Reaching Global Markets 25 Exporting Selling domestic products abroad Licensing Authority given for rights to produce/market product and use trademarks/patents Franchising Providing the right to produce and market products under its operating requirements Direct Investment Firms acquire businesses or develop new facilities in foreign countries Joint Ventures Two or more companies joining forces © The Studio Dog/Photodisc/Getty Images © Mystic Arabia / Alamy

26. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chrysler and Fiat 26 Foreign acquisition allows companies to gain quick access into new markets Foreign acquisition allows companies to gain quick access into new markets In the wake of the Great Recession… Italian carmaker Fiat acquired struggling U.S. auto giant, Chrysler to leverage the American market

27. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Barriers to International Trade 27 Sociocultural Differences Economic Differences Political & Legal Differences © MAO SIQIAN/ XINHUA/XINHUA PRESS/ CORBIS

28. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Veggie Surprise, Anyone? McDonald’s India: Paneer Salsa Wrap: Cottage cheese with Mexican-Cajun coating Australia: Bacon and Egg Roll: “rashers of quality bacon and fried egg” Kumati: Veggie Surprise Burger United Kingdom: Five “Toasted Deli” sandwich options Pizza Hut Japan: Crust stuffed with shrimp nuggets and mayonnaise South Korea: Crust filled with sweet potato mousse 28 ©Joe Raedle/Getty Images Source: McDonald’s country/market sites, http://www.mcdonalds.com./countries.html, accessed February 10, 2011.

29. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Barriers to International Trade: Economic Differences 29 Exchange Rates Population Per Capita Income Infrastructure Transportation Communication Energy Finance Can you profitably provide your product or service to meet the needs of the market?

30. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Barriers to International Trade: Sociocultural Differences 30 Nonverbal Communication Forms of Address Attitudes toward punctuality Religious Celebrations Business Practice/Gifts Social/cultural differences can rapidly undermine business relationships

31. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Barriers to International Trade: Political and Legal Differences Political regimes differ around the world Legal Differences Lack of Enforcement Bribery Political Climate Stability Violence Piracy and intellectual property is a problem in several foreign nations. 31 © The Studio Dog/Photodisc/Getty Images

32. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Greening? The world community must take dramatic steps to combat global warming. Change won’t be easy and coordination is vital The United Nations is sponsoring an international Climate Change Conference in Copenhagen. Consider these questions about the conference: 1.Did a treaty emerge? How many nations signed? Did any of the participants surprise you? How? 2.Do you think the conferences and treaties will yield results? Why or why not? 3.What role did the United States play? Do you believe that the role was appropriate? Why or why not? 32

33. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Protectionism 33 Reasons to Create Trade Restrictions Reasons to Eliminate Trade Restrictions Protect domestic industryReduce prices and increase choices for consumers Protect domestic jobs in key industries Increase domestic jobs Retaliate against countries who have engaged in unfair trade practices Build exporting opportunities Pressure other countriesUse world resources more efficiently

34. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Trade Restrictions 34 Tariffs Quotas Voluntary Export Restrictions Embargo

35. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Free Trade: The Movement Gains Momentum 35 There has been a global move toward free trade – the unrestricted movement of good and services across borders.

36. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GATT and the World Trade Organization (WTO) 36 General Agreement on Tariffs & Trade (GATT)  Established in 1948  125 Nations  Slashed tariffs by about 30% World Trade Organization (WTO)  Promote International Trade  Settle Trade Disputes

37. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GATT and the World Trade Organization (WTO) 37 The World Bank  187 Member Countries  Reduce World Poverty in Developing World  Influence Global Economy  Provide Financial Assistance The International Monetary Fund  Support Stable Exchange Rates  Facilitate International Payments  Adopt Economic Policies  Promote Trade  Lends money to member nations AP Images/J. Scott Applewhite

38. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Trading Blocs and Common Markets 38 The North American Free Trade Agreement (NAFTA) The largest trading bloc United States, Canada and Mexico Critics for job loss European Union (EU) The largest common market 27 nations; combined GDP of $15 Trillion Goal is to bolster Europe’s trade position Groups of countries promoting the free flow of goods and services

39. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreigners Flocking to America for Bargains The weak dollar is enticing global shoppers The down dollar is a discount to tourists Foreign travelers are lured to the U.S. where they get a bigger bang for their euro, franc, yen…. Demand for U.S. hotels is up Tourism has been an economic boost representing 10% of jobs added in the first part of 2011 39 http://www.alaskadispatch.com/article/foreigners-flocking-america-bargains

40. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 3 Looking Back What opportunities exist in the world economy for businesses? Why do nations trade? How do we measure trade? How do companies reach global markets? What are the barriers to international trade? What are the benefits and criticisms of the free trade movement? 40