The Global Marketplace Chapter 3

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives Explain why nations trade and describe how international trade is measured Discuss the nature of conflicts in global business, including free trade and government interventions in international trade Identify the major organizations that facilitate international trade and the major trading blocs around the world Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives (cont.) Discuss the importance of understanding cultural and legal differences in the global business environment Define the major forms of international business activity Discuss the strategic choices that must be considered before entering international markets Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The World’s Most Competitive Countries Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Why Nations Trade Economic globalization The increasing integration and interdependence of national economies around the world Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Why Nations Trade Focusing on relative strengths Expanding markets Pursuing economies of scale Acquiring materials, goods, and services Keeping up with customers Keeping up with competitors An Economy of scale ensures savings from buying parts and materials, manufacturing, or marketing in large quantities. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

How International Trade is Measured Balance of trade Total value of the products a nation exports minus the total value of the products it imports, calculated over a period of time Trade surplus A favorable trade balance created when a country exports more than it imports Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

How International Trade is Measured Trade deficit An unfavorable trade balance created when a country imports more than it exports Balance of payments The sum of all payments a country receives from other countries minus the sum of all payments it makes to the other countries, over some specified period of time Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Foreign Exchange Rates and Currency Valuations The rate at which the money of one country is traded for the money of another Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Strong and Weak Currencies: Who Gains and Who Loses? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Free Trade Free trade International trade unencumbered by restrictive measures Supporters of free trade generally acknowledge that it produces winners and losers but that the winners gain more than the losers lose, so the net effect is positive Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Government Intervention in International Trade Protectionism Government policies aimed at shielding a country’s industries from foreign competition Tariffs Taxes levied on imports Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Government Intervention in International Trade Import quotas Limits placed on the quantity of imports a nation will allow for a specific product Embargo A total ban on trade with a particular nation (a sanction) or of a particular product Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Government Intervention in International Trade Export subsidies A form of financial assistance, in which producers receive enough money from the government to allow them to lower their prices, in order to compete more effectively in the global market Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Government Intervention in International Trade Dumping Charging less than the actual cost or less than the home-country price for goods sold in other countries Sanctions politically motivated embargoes that revoke a country’s normal trade relations status often used as forceful alternatives short of war Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

International Trade Organizations World Trade Organization (WTO) Permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among the150 member countries The organization’s work is guided by five principles: preventing discriminatory policies that favor some trading partners over others or a country’s own products over those of other countries, reducing trade barriers between countries, making trade policies more predictable and less arbitrary, discouraging unfair practices, and helping less-developed countries benefit from international trade. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

International Trade Organizations The International Monetary Fund (IMF) The IMF was formed to monitor global financial developments, provide technical advice and training, provide short-term loans to countries that are unable to meet their financial obligations, and work to alleviate poverty in developing economies. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

International Trade Organizations The World Bank Founded to finance reconstruction after World War II and is now involved in hundreds of projects around the world aimed at addressing poverty, health, education, and other concerns in developing countries Is a United Nations agency owned by its 187 member nations Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Trading Blocs Trading blocs Organizations of nations that remove trade barriers among their member countries and establish uniform barriers to trade with non-member nations Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Trading Blocs North American Free Trade Agreement (NAFTA) Formed by the United States, Canada, and Mexico to pave the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Trading Blocs The European Union (EU) constitutes more than two dozen countries and a half billion people. now accounts for the world’s largest economy EU nations have eliminated hundreds of local regulations, variations in product standards, and protectionist measures that once limited trade among member countries Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Trading Blocs The Asia-Pacific Economic Cooperation (APEC) an organization of 21 countries working to liberalize trade in the Pacific Rim has a long-term goal of liberalizing and simplifying trade and investment among member countries and helping the region as a whole achieve sustainable economic growth. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Members of Major Trading Blocs Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Members of Major Trading Blocs Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Global Business Environment Culture A shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior Ethnocentrism Judging all other groups according to the standards, behaviors, and customs of one’s own group Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Global Business Environment Successful global business leaders recognize and respect differences in language, social values, ideas of status, decision-making habits, attitudes toward time, use of space, body language, manners, religions, and ethical standards Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Global Business Environment Stereotyping Assigning a wide range of generalized attributes, which are often superficial or even false, to an individual based on his or her membership to a particular culture or social group Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Improving Communication with a Person from Another Culture Be alert to the other person’s customs Deal with the individual Clarify your intent and meaning Adapt your style to that the other person’s Show respect • Be alert to the other person’s customs. Expect the other person to have values, beliefs, expectations, and mannerisms that may differ from yours. • Deal with the individual. Don’t stereotype the other person or react with pre-conceived ideas. Regard the person as an individual first, not as a representative of another culture. • Clarify your intent and meaning. The other person’s body language may not mean what you think, and the person may read unintentional meanings into your message. Clarify your true intent by repetition and examples. Ask questions and listen carefully. • Adapt your style to the other person’s. If the other person appears to be direct and straightforward, follow suit. If not, adjust your behavior to match. • Show respect. Learn how respect is communicated in various cultures—through gestures, eye contact, social customs, and other actions. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Forms of International Business Activity Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Forms of International Business Activity Importing Purchasing goods or services from another country and bringing them into one’s own country Exporting Selling and shipping goods or services to another country Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Forms of International Business Activity Licensing Agreement to produce and market another company’s product in exchange for a royalty or fee Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Forms of International Business Activity Foreign Direct Investment (FDI) Investment of money by foreign companies in domestic business enterprises Multinational Corporations (MNCs) Companies with operations in more than one country Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Approaches to International Markets Multidomestic strategy A decentralized approach to international expansion in which a company creates highly independent operating units in each new country Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Approaches to International Markets Global strategy A highly centralized approach to international expansion, with headquarters in the home country making all major decisions Transnational strategy A hybrid approach that attempts to reap the benefits of international scale while being responsive to local market dynamics Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Product Strategies for International Strategies Customer support Promotion Pricing Staffing Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Applying What You’ve Learned Explain why nations trade and describe how international trade is measured Discuss the nature of conflicts in global business, including free trade and government interventions into international trade Identify the major organizations that facilitate international trade and the major trading blocs around the world Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Applying What You’ve Learned Discuss the importance of understanding cultural and legal differences in the global business environment Define the major forms of international business activity Discuss the strategic choices that must be considered before entering international markets Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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