2. The World Marketplace: Business Without Borders
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Discuss business opportunities in the world economy Explain the key reasons for international trade Describe the tools for measuring international trade Analyze strategies for reaching global markets Discuss barriers to international trade and strategies to surmount them Describe the free-trade movement and discuss key benefits and criticisms
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3. Global Trade: Key Reasons and Business Opportunities
Access to technology and decrease in barriers to trade has increased global business opportunities
Growing usage of cell phones is an important indicator of economic growth
Leads to increase in GDP

4. Global Trade: Key Reasons and Business Opportunities
Opportunity to penetrate huge and growing markets
Access to factors of production
Reduced risk
Inflow of innovation

5. Competitive Advantage
Opportunity cost: Opportunity of giving up the second-best choice when making a decision
Absolute advantage: When a country can produce more of a product than other nations using the same amount of resources

6. Competitive Advantage
Comparative advantage: Benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries
Seldom remains static due to upgrade of technology and workforce

7. Evaluating International Trade
Balance of trade: Difference between a nation’s exports and imports
Trade surplus: Total value of exports is higher than the total value of imports
Trade deficit: Total value of imports is higher than the total value of exports
Balance of payments: Total flow of money into or out of a country

8. Evaluating International Trade
Balance of payments surplus: More money flows in than out
Balance of payments deficit: More money flows out than in
Exchange rates: Measure the value of one nation’s currency relative to the currency of other nations
Countertrade: Barter of products for products rather than for currency

9. Web-link: WTO Seminar on Exchange Rates and Trade
Director-General Pascal Lamy’s opinion on improving understanding of the economic interface between exchange rates and trade

10. Exhibit 3.2 - Market Development Options

11. Strategies for Reaching Global Markets
Foreign outsourcing: Contracting with foreign suppliers to produce products at a fraction of the cost of domestic production
Importing: Buying products domestically that have been produced or grown in foreign nations

12. Strategies for Reaching Global Markets
Exporting: Selling products in foreign nations that have been produced or grown domestically
Foreign licensing: Organization (licensor) granting a foreign firm (licensee) the rights to produce and market products or to use its trademark in a defined geographical area

13. Strategies for Reaching Global Markets
Foreign franchising: Firms (franchisor) expand by offering businesses (franchisees) in other countries the right to produce and market their products according to specific operating requirements

14. Strategies for Reaching Global Markets
Direct investment: Acquiring foreign firms or developing new facilities from the ground up in foreign countries
Joint ventures: Two or more companies join force to pursue specific opportunities
Partnership: Long-term agreement
Strategic alliance: Less encompassing and informal agreement

15. Reality TV Video Slide 15
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16. Why does Earth Class Mail have an unprecedented opportunity for impact on conventional postal mail delivery?
Which reasons for engaging in international trade seem to be relevant to Earth Class Mail’s demonstration at the International Trade Show for Postal Executives? Explain your answer.
Which strategy for reaching global markets does Earth Class Mail seem to be employing?

17. Barriers to Trade Sociocultural differences Economic differences
Legal/political differences

18. Global Trade: Problems and Solutions
Sociocultural differences: Among cultures in language, attitudes, and values
Vital to understand and respond
Requires cultivating firsthand knowledge, and practicing extreme sensitivity

19. Global Trade: Problems and Solutions
Economic differences
Critical to understand and evaluate
Infrastructure: Country’s physical facilities that support economic activity

20. Global Trade: Problems and Solutions
Political and legal differences
International businesses must comply with:
International legal standards
Laws of their own and host countries
Ease of doing business increases the chances of a country to grow

21. Global Trade: Problems and Solutions
Political climate
Influences whether that nation is attractive to foreign business
Protectionism: National policies designed to restrict international trade, usually with the goal of protecting domestic businesses

22. Common Trade Restrictions
Tariffs: Taxes levied against imports
Quotas: Limitations on the amount of specific products that may be imported from certain countries during a given time period
Voluntary export restraints (VERs): Limitations on the amount of specific products that one nation will export to another nation

23. Common Trade Restrictions
Embargo: Complete ban on international trade of a certain item, or a total halt in trade with a particular nation

24. Free Trade
Unrestricted movement of goods and services across international borders
General Agreement on Tariffs and Trade (GATT): International trade treaty designed to encourage worldwide trade among its members

25. Free Trade Movement
World Trade Organization (WTO): Permanent global institution to:
Promote international trade
Settle international trade disputes
World Bank: International cooperative to reduce poverty in the developing world

26. Web-link: World Bank
World bank endeavors to end extreme poverty within a generation and boost shared prosperity.

27. Free Trade Movement
International Monetary Fund (IMF): Promotes international economic cooperation and stable growth

28. Free Trade Movement Key actions
Supports stable exchange rates and facilitates a smooth system of international payments
Encourages member nations to adopt sound economic policies
Promotes international trade and lends money to member nations to address economic problems

29. Trade Restrictions Reasons to Create Reasons to Eliminate
Protect domestic industry
Reduce prices and increase choices for consumers by encouraging competition from around the world
Protect domestic jobs in key industries
Increase domestic jobs in industries with a comparative advantage versus other countries
Protect national security interests
Increase jobs—both at home and abroad—from foreign companies
Retaliate against countries who have engaged in unfair trade practices
Build exporting opportunities through better relationships with other countries
Pressure other countries to change their policies and practices
Use resources more efficiently on a worldwide basis

30. Trading Blocs and Common Markets
Trading blocs: Groups of countries that have reduced or eliminated all tariffs
Allow free flow of goods among the member nations
Common market: Group of countries that have eliminated tariffs and harmonized trading rules to allow the free flow of goods among member nations

31. Trading Blocs and Common Markets
North American Free Trade Agreement (NAFTA): Treaty among the United States, Mexico, and Canada that eliminated trade barriers and investment restrictions
Drawback - Increase in the U.S trade deficit that adversely affects the economy

32. Trading Blocs and Common Markets
European Union: Aid Europe’s trade position and to increase its international political and economic power
Drawback - Economically weaker member countries could drag the EU into a damaging recession

33. 3-1
Discuss business opportunities in the world economy Explain the key reasons for international trade Describe the tools for measuring international trade Analyze strategies for reaching global markets Discuss barriers to international trade and strategies to surmount them Describe the free-trade movement and discuss key benefits and criticisms
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