1 4. Global Markets

2 The Basis For International Business Encompasses all exchanges across international boundaries Steady increase in trade since WWII For U.S., international business means: –New markets –New sources of inexpensive labor, raw materials, etc. For foreign firms, means piece of large, lucrative U.S. market

3 Forms of Trade Advantage Absolute advantage –Ability to produce specific product more efficiently than any other nation Comparative advantage –The ability to produce specific product more efficiently than any other product

4 Exporting & Importing Exporting Importing Balance of trade Trade deficit Balance of payments

5 Restrictions On International Business Trade restrictions –Tariffs Dumping –Nontariff barriers Import quotas Embargoes Foreign-exchange controls Societal, economic & regulatory differences –Language, values, infrastructure, currency shifts, political/legal

6 Reasons for Trade Restrictions Equalization of balance of payments Protection of: –New/weak industries –National security –Public health –Jobs Retaliation

7 The Extent of International Business Trend toward elimination of trade barriers General Agreement on Tariffs & Trade (Monitored by World Trade Organization) –The Kennedy Round ( ) –The Tokyo Round ( ) –The Uruguay Round ( ) –The Doha Round (2001-Ongoing)

8 The Extent of International Business (Cont.) International Economic Communities –European Union (EU) –European Economic Area (EEA) –European Monetary Union (EMU) –North American Free Trade Agreement (NAFTA) –Association of Southeast Asian Nations (ASEAN) –Pacific Rim –Commonwealth of Independent States (CIS) –Caribbean Basin Initiative (CBI) –Organization of Petroleum Exporting Countries (OPEC) –Organization for Economic Cooperation & Development (OECD)

9 Methods of Entering International Business Contractual agreements –Licensing, franchising, subcontracting Exporting (indirect & direct) & importing –Through an export-import merchant or agent –Through export trading or management companies –Through offset agreements –Through establishment of sales offices or branches Joint ventures & strategic alliances Totally owned facilities (direct investment) Countertrade Multinational corporations

10 Strategies for International Business Global business strategy –Standardization strategy Multidomestic business strategy –Adaptation strategy

11 Sources of Export Assistance Some export assistance programs include: –U.S. Export Assistance Centers –International Trade Administration –U.S. and Foreign Commercial Services –Export Legal Assistance Network –Advocacy Center –American Business Center –The Business Service for the Newly Independent States –Eastern Europe Business Information Center –National Trade Data bank

12 Financing International Business Export-Import Bank of the United States (Eximbank) Multilateral Development Banks (MDB) –World Bank –Inter-American Development Bank (IDB) –African Development Bank (AFDB) –European Bank for Reconstruction and Development (EBRD) International Monetary Fund (IMF)