1. THE GLOBAL CONTEXT OF BUSINESS4
THE GLOBAL CONTEXT OF BUSINESS
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2. What’s in It for Me? This chapter will better enable you to:
Understand how global forces affect you as a customer
Understand how globalization affects you as an employee
Assess how global opportunities and challenges can affect you as a business owner and as an investor
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3. The Contemporary Global Economy
Globalization
The process by which the world’s various national economies and trading systems are fast becoming a single highly interdependent system
Exports: Domestically produced products sold in foreign markets
Imports: Foreign products sold in domestic markets
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4. The Major World Marketplaces
Distinctions Based on Wealth
High-income countries
Upper middle-income countries
Low middle-income countries
Low-income countries (developing countries)
Geographic Clusters
North America
Europe
Pacific Asia
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5. Trade Agreements and Alliances
Significant Agreements and Treaties
North American Free Trade Agreement (NAFTA)
Canada, Mexico, and the United States
Effects: increases direct foreign investment, increases exports and imports, creates jobs
European Union (EU)
Most European nations
Effects: eliminates quotas, removes trade barriers, and sets uniform tariffs on internally traded EU imports and exports
Association of Southeast Asian Nations
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6. Trade Agreements and Alliances (cont’d)
Significant Agreements and Treaties
General Agreement on Tariffs and Trade (GATT):
Signed after World War II. Its purpose was to reduce or eliminate trade barriers, such as tariffs and quotas.
World Trade Organization (WTO)
Began on January 1, 1995
Goals:
Promote trade by encouraging members to adopt fair trade practices.
Reduce trade barriers by promoting multilateral negotiations.
Establish fair procedures for resolving disputes among members.
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7. Import-Export Balances
Balance of Trade
The total economic value of all the products that a country exports minus the economic value of all the products that it imports
Trade Surplus
A positive balance of trade that results when a country exports more than it imports
Trade Deficit
A negative balance of trade that results when a country imports more than it exports
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8. Import-Export Balances (cont’d)
Balance of Payments
The flow of money into or out of a country
Exchange Rate
The rate at which the currency of one nation can be exchanged for that of another
Fixed exchange rates
Floating exchange rates
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9. Exchange Rates Impact Global Trade
When an economy’s currency is strong:
Domestic companies find it harder to export products
Foreign companies find it easier to import products
Domestic companies may move production to cheaper production sites in foreign countries
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10. Exchange Rates Impact Global Trade (cont’d)
When an economy’s currency is weak:
Domestic companies find it easier to export products
Foreign companies find it harder to import products
Foreign companies may invest in domestic production facilities
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11. Forms of Competitive Advantage
Absolute Advantage
When a country can produce something that is cheaper and/or of higher quality than any other country
Comparative Advantage
When a country can produce goods more efficiently or better than other countries can produce the same goods
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12. Levels of International Involvement
Exporters
Make products in one country to distribute and sell in others
Importers
Buy products in foreign markets and bring them home for resale
International firms
Conduct much of their business abroad and may maintain overseas manufacturing facilities
Multinational firms
Design, produce, and market products in many nations
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13. International Organization Structures
Independent Agent
A foreign individual or organization that represents an exporter in foreign markets
Licensing Arrangements (or Agreements)
Domestic firms give foreign individuals or companies exclusive rights to manufacture or market their products in that market
Branch Offices
A firm sends its own managers to overseas branch offices so that it will have more direct control than it does over agents or license holders
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14. International Organization Structures (cont’d)
Strategic Alliance (or Joint Venture)
A company finds a partner firm in the country in which it wants to do business
Each party agrees to invest resources and capital into a new business or to cooperate in some mutually beneficial way
Foreign Direct Investment (FDI)
Involves buying or establishing tangible assets in another country
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15. International Involvement
HIGH
LOW
Foreign Direct Investment
Strategic Alliances
Branch Offices
Licensing Arrangements
Independent Agents
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16. Barriers to International Trade
Social and Cultural Differences
Legal and Political Differences
Economic Differences
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17. Legal and Political Differences
Quotas, Tariffs, and Subsidies
Quota: Restricts the number of products of a certain type that can be imported, raising the prices of those imports
Embargo: Government order forbidding exportation and/or importation of a product or all products from a specific country
Tariffs: Taxes on imported products
Subsidy: Government payment to help a domestic business compete with foreign firms
Protectionism
The practice of protecting domestic business at the expense of free market competition
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18. Legal and Political Differences (cont’d)
Local Content Laws
Requirements that products sold in a country be at least partly made there
Business Practice Laws
Host countries govern business practices within their jurisdictions
Cartels
Associations of producers that control supply and prices
Dumping
Selling a product abroad for less than the cost of production at home
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19. K E Y T E R M S absolute advantage
Association of Southeast Asian Nations (ASEAN)
balance of payments
balance of trade
branch office
business practice law
cartel
comparative advantage
dumping
embargo
euro
European Union (EU)
exchange rate
export
exporter
foreign direct investment (FDI)
General Agreement on Tariffs and Trade (GATT)
globalization
import
importer
independent agent
international firm
licensing arrangement
local content law
multinational firm
national competitive advantage
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20. K E Y T E R M S (cont’d) North American Free Trade Agreement (NAFTA)
protectionism
quota
strategic alliances
subsidy
tariff
trade deficit
trade surplus
World Trade Organization (WTO)
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