Exports Domestically produced goods and services sold in markets in other countries Imports Foreign-made products and services purchased by domestic consumers

WHY NATIONS TRADE Boosts economic growth by providing access to new markets and needed resources More efficient production systems Less reliance on economies of home nations International Sources of Factors of Production Decisions to operate abroad depend on a variety of factors. Allows a company to spread risk throughout nations in different stages of the business cycle or development

Size of the International Marketplace World population = 7 billion One in five people live in relatively well-developed countries. Huge populations of developing nations can be lucrative markets. Absolute and Comparative Advantage Absolute advantage Comparative advantage

MEASURING TRADE BETWEEN NATIONS Balance of trade Difference between a nation’s imports and exports Balance of payments Overall flow of money into or out of a country

Major U.S. Exports and Imports U.S. leads world, exports and imports annually total $3 trillion U.S. imports more goods than exports; exports more services than imports. Exchange Rates Exchange rate Value of one nation’s currency relative to the currencies of other nations Rates can quickly create or wipe out competitive advantage. Foreign currency market

BARRIERS TO INTERNATIONAL TRADE Social and Cultural Differences Language, values, and religious attitudes Economic Differences Infrastructure, currency conversion, and shifts Political and Legal Differences Political climate, legal environment, international regulations Types of Trade Restrictions Tariffs Nontariff barriers

REDUCING BARRIERS TO INTERNATIONAL TRADE Organizations Promoting International Trade General Agreement on Tariffs and Trade (GATT) Sponsored negotiations to reduce worldwide barriers to trade World Trade Organization Monitors GATT agreements World Bank Lends money to less-developed and developing countries International Monetary Fund Promotes trade through financial cooperation

International Economic Communities Reduce trade barriers and promote regional economic cooperation NAFTA (1994) United States, Canada, Mexico CAFTA (2005) United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua European Union Best-known example of a common market

GOING GLOBAL Levels of Involvement Importers and exporters Countertrade Contractual agreements Franchising Offshoring International direct investment Multinational corporation

DEVELOPING A STRATEGY FOR INTERNATIONAL BUSINESS Global Business Strategies Sell same product in essentially the same manner throughout the world Multidomestic Business Strategies Develops products and marketing strategies for particular national markets