1. Copyright © Cengage Learning. All rights reserved.3| 1 Chapter Three Exploring Global Business

2. Copyright © Cengage Learning. All rights reserved. 3 | 2 Learning Objectives 1.Explain the economic basis for international business. 2.Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results. 3.Outline the extent of international trade and identify the organizations working to foster it. 4.Define the methods by which a firm can organize for and enter into international markets. 5.Describe the various sources of export assistance. 6.Identify the institutions that help firms and nations finance international business.

3. Chapter 3 Outline –The Basis for International Business Absolute and Comparative Advantage Exporting and Importing –Restrictions to International Business Types of Trade Restrictions Reasons for Trade Restrictions Reasons Against Trade Restrictions –The Extent of International Business The World Economic Outlook for Trade –International Trade Agreements The General Agreement on Tariffs and Trade and the World Trade Organization International Economic Communities

4. Chapter 3 Outline (cont.) –Methods of Entering International Business Licensing Exporting Joint Ventures Totally Owned Facilities Strategic Alliances Trading Companies Countertrade Multinational Firms –Sources of Export Assistance –Financing International Business The Export-Import Bank of the United States Multilateral Development Banks The International Monetary Fund

5. Copyright © Cengage Learning. All rights reserved. 3 | 5 The Basis for International Business International business Some countries are better equipped than others to produce particular goods or services –Absolute advantage –Comparative advantage Goods and services are produced more efficiently when each country specializes in the products for which is has a comparative advantage

6. Copyright © Cengage Learning. All rights reserved. 3 | 6 The Basis for International Business (cont’d) Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in Exporting Importing

7. Copyright © Cengage Learning. All rights reserved. 3 | 7 The Basis for International Business (cont’d) Balance of trade Trade deficit Balance of payments

8. Copyright © Cengage Learning. All rights reserved. 3 | 8 Restrictions to International Business 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.

9. Copyright © Cengage Learning. All rights reserved. 3 | 9 Types of Trade Restrictions Import duty (tariff) –A tax levied on a particular foreign product entering a country Revenue tariffs Protective tariffs Dumping

10. Copyright © Cengage Learning. All rights reserved. 3 | 10 Types of Trade Restrictions (cont’d) Nontariff barriers –Import quota –Embargo –Foreign exchange control

11. Copyright © Cengage Learning. All rights reserved. 3 | 11 Types of Trade Restrictions (cont’d) Nontariff barriers (cont’d) –Currency devaluation –Bureaucratic red tape –Cultural attitudes

12. Copyright © Cengage Learning. All rights reserved. 3 | 12 Reasons for and Against Trade Restrictions FOR AGAINST

13. Copyright © Cengage Learning. All rights reserved. 3 | 13 The Extent of International Business Although the worldwide recessions of 1991, 2001- 2002, and 2008 slowed the rate of growth, globalization is a reality of our time In the U.S., international trade accounts for over ¼ of GDP Trade barriers are decreasing, more 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

14. Copyright © Cengage Learning. All rights reserved. 3 | 14 The General Agreement on Tariffs and Trade and the World Trade Organization General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO)

15. Copyright © Cengage Learning. All rights reserved. 3 | 15 International Economic Organizations Working to Foster Trade Economic community

16. Copyright © Cengage Learning. All rights reserved. 3 | 16 International Economic Organizations Working to Foster Trade (cont’d) North American Free Trade Agreement (NAFTA) United States Canada Mexico Chile is expected to become the 4 th member

17. Copyright © Cengage Learning. All rights reserved. 3 | 17 International Economic Organizations Working to Foster Trade (cont’d) Central American Free Trade Agreement (CAFTA) El Salvador Guatemala Honduras Nicaragua

18. 3 | 18 International Economic Organizations Working to Foster Trade (cont’d) Association of Southeast Asian Nations (ASEAN) Brunei Myanmar Cambodia Indonesia Laos Malaysia Philippines Singapore Thailand Vietnam Copyright © Cengage Learning. All rights reserved.

19. 3 | 19 International Economic Organizations Working to Foster Trade (cont’d) European Economic Area (EEA) Pacific Rim Commonwealth of Independent States (CIS) Caribbean Basin Initiative (CBI) Common Market of the Southern Cone (MERCOSUR) Organization for Economic Cooperation and Development (OECD) Copyright © Cengage Learning. All rights reserved.

20. 3 | 20 Methods of Entering International Business Licensing –Advantage –Disadvantages Copyright © Cengage Learning. All rights reserved.

21. 3 | 21 Methods of Entering International Business (cont’d) Exporting –Letter of credit –Bill of lading –Draft Copyright © Cengage Learning. All rights reserved.

22. 3 | 22 Methods of Entering International Business (cont’d) Joint ventures –Advantages –Disadvantages Copyright © Cengage Learning. All rights reserved.

23. 3 | 23 Methods of Entering International Business (cont’d) Totally owned facilities –Advantage –Disadvantage –Two forms Copyright © Cengage Learning. All rights reserved.

24. 3 | 24 Methods of Entering International Business (cont’d) Strategic alliances Trading companies Copyright © Cengage Learning. All rights reserved.

25. 3 | 25 Methods of Entering International Business (cont’d) Countertrade Multinational enterprise Copyright © Cengage Learning. All rights reserved.

26. 3 | 26 Financing International Business The Export-Import Bank of the United States (Eximbank) Multilateral Development Bank (MDB) The International Monetary Fund (IMF)