part 1 FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

part CHAPTER 3 Business in a Borderless World CHAPTER 2 Business Ethics and Social Responsibility 1 CHAPTER 1 The Dynamics of Business and Economics FHF

 The buying, selling and trading of goods and services across national boundaries  Global marketing requires balancing global brands with the needs of local consumers International Business 3-3

[] FHF Why Nations Trade International trade allows for the acquisition of raw materials and goods at favorable prices 3-4

FHF Absolute Advantage  A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item. Comparative Advantage  The basis of the most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items Absolute vs. Comparative Advantages 3-5

FHF The transferring of manufacturing or other tasks, such as data processing, to countries where labor and supplies are less expensive Outsourcing 3-6

FHF Exporting  The sale of goods and services to foreign markets  The US exports over $1.5 trillion in goods and services annually Importing  The purchase of goods and services from foreign sources  The U.S. imports around $2 trillion in goods and services annually Exporting & Importing 3-7

FHF The difference in the value between what a nation exports and imports A trade deficit is also called a negative balance of trade The U.S. usually has a negative balance of trade Balance of Trade 3-8

FHF Balance of Payments The difference between the flow of money in and out of a country  A nation’s balance of trade, foreign investments, foreign aid, loans, tourists dollars and military expenditures comprise its balance of payments 3-9

FHF Barriers to International Trade  Completely free trade seldom exists.  Barriers to international trade: Social Cultural Technological Economic Legal Political 3-10

FHF  Economic development  Infrastructure  Exchange rates  Less-Developed Countries (LCDs) Low per-capita income Less economically advantaged Potentially huge & profitable markets Largely located in Africa, Asia and Latin America Economic Barriers to Trade 3-11

FHF Infrastructure The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals and commercial distribution systems [] 3-12

FHF Exchange Rates The ratio at which one nation’s currency can be exchanged for another nation’s currency [] 3-13

FHF  Complex relationships between nations  Different laws  Differing intellectual property protections  Trade restrictions  Political barriers and volatility  Cultural differences  Different ethical values Ethical, Legal & Political Barriers in International Trade 3-14

FHF Legal Barriers to Trade Legal Barriers to Trade  Tariff and Trade Restrictions Part of a nation’s legal structure May be established or removed for political reasons  Import Tariff A tax levied by a nation on goods imported into the country  Exchange Controls Regulations that restrict the amount of currency that can be bought or sold …continued on the next page 3-15

FHF  Quota A restriction on the number of units of a particular product that can be imported into a country  Embargo A prohibition on trade for a particular product  Dumping The act of a country or business selling products at less than what it costs to produce them Legal Barriers to Trade Legal Barriers to Trade 3-16

FHF  Seldom in writing & change rapidly  Relative stability of countries is a factor  Cartel  A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets Political Barriers to Trade 3-17

FHF  Technological advances are creating global marketing opportunities  At least 10 nations outrank the U.S. in terms of subscribers to broadband Internet access  China and India are rapidly advancing and represent huge markets Technological Barriers 3-18

FHF General Agreement on Tariffs and Trade (GATT)  Signed by 23 nations in 1947  Forum for tariff negotiations  Place for international trade issue discussion and resolution  Replaced by the World Trade Organization (WTO) in 1995 Trade Agreements, Alliances & Organizations …continued on the next page 3-19

FHF World Trade Organization (WTO)  International organization dealing with the rules of trade between nations  Officially founded in 1995  Successor to GATT  153 members representing 95% of global trade Trade Agreements, Alliances & Organizations 3-20 …continued on the next page

FHF North American Free Trade Agreement (NAFTA)  Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S. and Mexico  Has been controversial, but has created new business opportunities with fewer barriers than before Trade Agreements, Alliances & Organizations 3-21 …continued on the next page

FHF Trade Agreements, Alliances & Organizations European Union (EU)  A union of European nations established in 1958 to promote trade among its members  One of the largest single markets today Asia-Pacific Economic Cooperation (APEC)  An international trade alliance that promotes open trade and economic and technical cooperation among member nations …continued on the next page 3-22

FHF Trade Agreements, Alliances & Organizations World Bank (International Bank for Reconstruction and Development)  Organization established in 1946 by industrialized nations to loan money to underdeveloped and developing countries International Monetary Fund (IMF)  Organization established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation 3-23

FHF  Exporting & importing  Trading companies  Licensing and franchising  Contract manufacturing  Joint ventures  Direct investment  Multinational corporations  Many companies’ involvement in international trade begins with importing goods for resale Getting Involved in International Business 3-24

FHF Countertrade Agreements  Bartering products for other products instead of for currency  Export agents are middlemen that help companies by handling their international transactions Trading Company  Buys goods in one country and sells them to buyers of another country  Handles all activities required to move products from one country to another Getting Involved in International Trade 3-25

FHF A trade arrangement where one company allows another company to use its company name, products, patents, brands, trademarks, raw materials, and production processes in exchange for a fee or royalty  Many products are licensed and produced by local companies internationally Licensing 3-26

FHF A form of licensing where a company (franchiser) agrees to provide a franchisee a name, logo, operational guidelines, products, etc., in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation  McDonald’s is the world’s largest franchise in terms of revenues Franchising 3-27

FHF The hiring of a foreign company to produce a specified volume of the initiating company’s product to specification  The final product carries the domestic firm’s name  Common in high-tech industries, automotive industry and food manufacturing  Many clothing manufacturers use contract manufacturing Contract Manufacturing 3-28

FHF The relocation of a business process by a company or subsidiary to another country  Different from outsourcing  The company retains control of the process  Not subcontracting to a different company  Appealing because of lower wages, high skills, time zone differences Offshoring 3-29

FHF Other Forms of Engaging in International Trade Joint Venture  The sharing of the costs of operation of a business between a foreign company and a local partner Strategic Alliance  A partnership formed to create competitive advantage on a worldwide basis Direct Investment  The ownership of overseas facilities 3-30

FHF  The highest level of international business involvement  Operates on a worldwide scale without significant ties to a single nation or region  Largest MNCs are wealthier than most countries  Antiglobalization activists contend that MNCs are responsible for growing wealth disparity and misusing scarce resources Multinational Corporations 3-31

FHF Multinational Strategy  A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences Global Strategy (Globalization)  A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity. International Business Strategies 3-32

FHF  Many political barriers to trade have fallen in recent decades  Navigating international business remains complicated  Technology and improved standards of living globally are creating tremendous new marketing opportunities  Governments and business organizations exist to help businesses looking to go international Managing the Challenges of Global Business 3-33