Business In A Global Environment BUS 150 – WLC Professor Kudek

3-2 Chapter Objectives 1. Explain why nations/companies engage in international trade and how is trade measured 2. Identify opportunities in international business 3. Appreciate how cultural, economic, legal and political differences create challenges 4. Describe ways governments/international bodies promote/regulate global trade 5. Discuss initiatives designed to reduce trade barriers and promote free trade 6. Understand how to prepare for a career in international business

Why Do Nations Trade? “Because no national economy can produce all the goods (it) need(s).” Exploring Business © 2009 FlatWorld Knowledge 3-3 What are some products that the US CANNOT Produce? What are some products that the US CAN produce but does not? – why?

3-4 Absolute Advantage 1) Only source of particular product 2) Can make more of product using same or fewer resources than other countries Exploring Business © 2009 FlatWorld Knowledge

3-5 Comparative Advantage Produce product at lower opportunity cost Produce product at lower opportunity cost ◦Opportunity costs- the products that country must decline in order to produce something else  When country specializes in particular product, it must sacrifice production of another product Exploring Business © 2009 FlatWorld Knowledge

3-6 Comparative Advantage In The Techs Exploring Business © 2009 FlatWorld Knowledge

3-7 Measuring Trade Balance of Trade- “…subtract... value of (country’s) imports from the value of its exports.” Balance of Trade- “…subtract... value of (country’s) imports from the value of its exports.” Balance of Payments- “…the difference, over...time, between the total flow of money...into a country and the total flow of money...out.” Balance of Payments- “…the difference, over...time, between the total flow of money...into a country and the total flow of money...out.” Exploring Business © 2009 FlatWorld Knowledge

3-8 Balance Of Trade Exploring Business © 2009 FlatWorld Knowledge

3-9 U.S. Exports/Imports & Balance of Trade ( ) Exploring Business © 2009 FlatWorld Knowledge

3-10 Import or Export? Import Goods In US$ Out US$ Out Export Goods Out In In Exploring Business © 2009 FlatWorld Knowledge

3-11 Licensing And Franchising Licensing Agreement – Licensing Agreement – Lets foreign company to sell products of producer/licensor or use intellectual property for royalty fee Lets foreign company to sell products of producer/licensor or use intellectual property for royalty fee International Franchise Agreement – International Franchise Agreement – Company/Franchisor grants foreign company right to use brand name and sell its products Company/Franchisor grants foreign company right to use brand name and sell its products Exploring Business © 2009 FlatWorld Knowledge

3-12 Contract Manufacturing U.S. company… contract(s) with local company in foreign country to manufacture one of its products… retain(s) control of product design and development and… label…” Exploring Business © 2009 FlatWorld Knowledge

3-13 Strategic Alliances And Joint Ventures Strategic Alliance – Strategic Alliance – Agreement between two companies (or company and nation) to pool resources achieve business goals benefiting both partners Agreement between two companies (or company and nation) to pool resources achieve business goals benefiting both partners Joint Venture – Joint Venture – Alliance in which partners fund separate entity to manage joint operation Alliance in which partners fund separate entity to manage joint operation Exploring Business © 2009 FlatWorld Knowledge

3-14 Foreign Direct Investments And Subsidiaries Foreign Direct Investment – Foreign Direct Investment – Formal establishment of business operations on foreign soil Formal establishment of business operations on foreign soil Foreign Subsidiary – Foreign Subsidiary – Independent company owned by a foreign firm (parent) Independent company owned by a foreign firm (parent) Exploring Business © 2009 FlatWorld Knowledge

3-15 World’s Largest MNCs Exploring Business © 2009 FlatWorld Knowledge

3-16 Global Business Environment CulturalEconomic Legal & Regulatory Exploring Business © 2009 FlatWorld Knowledge

3-17Culture “...system of shared beliefs, values, customs, and behaviors that govern the interactions of members of a society.” Exploring Business © 2009 FlatWorld Knowledge

3-18 Lost In Translation Translated into German, the slogan “Come Alive with Pepsi” became “Come out of the Grave with Pepsi An English-speaking car-wash company in Francophone Quebec advertised itself as a “lavement d’auto” (“car enema”) instead of the correct “lavage d’auto A U.S. appliance ad fizzled in the Middle East because it showed a well-stocked refrigerator featuring a large ham, thus offending the sensibilities of Muslim consumers, who don’t eat pork. Exploring Business © 2009 FlatWorld Knowledge

3-19 Economic Environment Economic Development- Gross national income per capita Economic Development- Gross national income per capita Standard of living Standard of living Infrastructure Infrastructure Currency Valuations & Exchange Rates Currency Valuations & Exchange Rates Universal Currency Converter Universal Currency Converter Exploring Business © 2009 FlatWorld Knowledge

3-20 World’s Wealth Exploring Business © 2009 FlatWorld Knowledge

3-21 Legal & Regulatory Environment No established global legal system No established global legal system Foreign Corrupt Practices Act Foreign Corrupt Practices Act Exploring Business © 2009 FlatWorld Knowledge

3-22 Subsidies or Trade Controls? Protectionism Protectionism Tariffs Tariffs Quotas/Embargo Quotas/Embargo Dumping Dumping Exploring Business © 2009 FlatWorld Knowledge

3-23 Trade Control Debate Cons Restricts free trade; countries cannot compete freely Restricts free trade; countries cannot compete freely Doesn’t promote level playing field; gives special privileges to some Doesn’t promote level playing field; gives special privileges to some Cannot bring goods to fair/open market Cannot bring goods to fair/open market Detrimental to world economy; nations cannot focus on what they do best Detrimental to world economy; nations cannot focus on what they do best Pros Protect specific industries Protect specific industries Protect new or struggling industries Protect new or struggling industries Shield industries vital to national defense Shield industries vital to national defense Exploring Business © 2009 FlatWorld Knowledge

3-24 Reducing Trade Barriers Trade Agreements/Organizations Trade Agreements/Organizations General Agreement on Tariffs & Trade (1947) General Agreement on Tariffs & Trade (1947) World Trade Organization (1995) World Trade Organization (1995) Financial Support for Troubled Economies (1944) Financial Support for Troubled Economies (1944) International Monetary Fund International Monetary Fund World Bank World Bank Trading Blocs Trading Blocs North American Free Trade Association (1994) North American Free Trade Association (1994) European Union European Union Other Other Exploring Business © 2009 FlatWorld Knowledge

International Business Assignment Choose a “foreign” country that begins with the same letter as your first name (second letter if need be) Choose a “foreign” country that begins with the same letter as your first name (second letter if need be) Answer the following questions: Answer the following questions: Population and GDP Population and GDP How much did the company buy from the US in 2000 and 2010? How much did the company buy from the US in 2000 and 2010? How much did the company sell to the US in 2000 and 2010? How much did the company sell to the US in 2000 and 2010? What was the product they imported the most of and from what country? What was the product they imported the most of and from what country? What was the product they exported the most of and to what country? What was the product they exported the most of and to what country? Exploring Business © 2009 FlatWorld Knowledge 3-25

International Business Assignment Population and GDP Population and GDP ofile.html ofile.html ofile.html ofile.html How much did the company buy from the US in 2000 and 2010? How much did the company buy from the US in 2000 and 2010? trade/balance/c4099.html# trade/balance/c4099.html# trade/balance/c4099.html# trade/balance/c4099.html#2010 How much did the company sell to the US in 2000 and 2010? How much did the company sell to the US in 2000 and 2010? Which country is their number one trading partner for exports? How much and who? Which country is their number one trading partner for exports? How much and who? Which country is their number one trading partner for imports? How much and who? Which country is their number one trading partner for imports? How much and who? Exploring Business © 2009 FlatWorld Knowledge 3-26

BUS 150 Int’l Assignment Date:________ Name:___________Country:__________ Population _______________ Year:______ Population _______________ Year:______ GDP:_________________Year:______ GDP:_________________Year:______ Imports from US :_________________ Imports from US :_________________ Imports from US :_________________ Imports from US :_________________ Exports to US – 2000:________________ Exports to US – 2000:________________ Exports to US – 2010:________________ Exports to US – 2010:________________ # 1 Trading Partner – Exports _____________ # 1 Trading Partner – Exports _____________ Dollar amount:_____________________ Dollar amount:_____________________ # 1 Trading Partner – Imports _____________ # 1 Trading Partner – Imports _____________ Dollar amount:_____________________ Dollar amount:_____________________ A typed listing of all sources must be attached. Exploring Business © 2009 FlatWorld Knowledge 3-27