1. Business in a Changing World
Part 1
Business in a Changing World
© 2015 McGraw-Hill Education.

2. CHAPTER 1 CHAPTER 2 CHAPTER 2 APPENDIX CHAPTER 3
The Dynamics of Business and Economics
CHAPTER 2
Business Ethics and Social Responsibility
CHAPTER 2 APPENDIX
The Legal and Regulatory Environment
CHAPTER 3
Business in a Borderless World

3. Learning Objectives
LO 3-1 Explore some of the factors within the international trade environment that influence business.
LO Investigate some of the economic, legal-political, social, cultural and technological barriers to international business.
LO Specify some of the agreements, alliances and organizations that may encourage trade across international boundaries.
LO Summarize the different levels of organizational involvement in international trade.
LO Contrast two basic strategies used in international business.

4. Role of International Business
The buying, selling and trading of goods and services across national boundaries
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 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
Outsourcing
The transferring of manufacturing or other tasks – such as data processing – to countries where labor and supplies are less expensive

5. Role of International Business
Balance of Trade
The difference in value between what a nation exports and its imports
Trade Deficit
A nation’s negative balance of trade, which exists when that country imports more products than it exports
Balance of Payments
The difference between the flow of money into and out of a country
Exporting – the sale of goods and services to foreign markets
2011 U.S. exports = $2.1 trillion+
Importing – the purchase of goods
and services from foreign markets
2011 U.S. imports = $2.6 trillion+

6. Level of development is determined in part by a country’s
Economic Barriers
Level of development is determined in part by a country’s
Infrastructure
The physical facilities supporting a country’s economic activities, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems and commercial distribution systems
Exchange Rate
The ratio at which one nation’s currency can be exchanged for another nation’s currency

7. Tariffs and Trade Restrictions
Import Tariff
A tax levied by a nation on goods imported into the country
Fixed tariff is a specific amount of money levied on each unit of product brought into the country
Ad valorem tariff is based on the value of the item
Exchange Controls
Regulations that restrict the amount of currency that can be bought or sold

8. Tariffs and Trade Restrictions
Quota
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

9. Political & Technological Barriers
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
Are creating global marketing opportunities
The lack of phone lines opens the market for cellular communications
Technological Advances
Create new challenges and competition
Out of the top five PC companies, three are from countries in Asia
Changing Technologies

10. Trade Agreements and Organizations
General Agreement on Tariffs and Trade (GATT)
Trade agreement signed by 23 nations in 1947, provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved
World Trade Organization (WTO)
International organization dealing with the rules of trade between nations, evolved from GATT
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

11. Getting Involved Franchising Trading Company Licensing
A firm that buys goods in one country and sells them to buyers of another country
Handles all trade activities; similar to export agents but their role is broader
Licensing
A trade agreement in which one company – the licensor – allows another company – the licensee – to use its company name, products, patents, brand, trademarks, raw materials and/or production processes in exchange for a fee or royalty
An attractive alternative to direct investment when political stability is in doubt
Franchising
A form of licensing in which a company – the franchiser – agrees to provide a franchisee a name, logo, methods of operation, advertising, products and other elements associated with a franchiser’s business, in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation

12. Contract Manufacturing
Getting Involved
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
For example, Reebok uses contract manufacturers to produce many of its shoes
Contract Manufacturing
As defined earlier is transferring tasks to other countries where costs are lower
Insourcing, where foreign companies transfer tasks to U.S. companies, happens more often
Outsourcing

13. Getting Involved Offshoring Joint Venture
The relocation of business processes by a company or subsidiary to another country
Different from outsourcing; the company retains control by not subcontracting to another company
Joint Venture
The sharing of the costs and operation of a business between a foreign company and a local partner
Used in countries forbidding direct investment from foreign companies or when the company lacks resources or expertise

14. Getting Involved Strategic Alliance Direct Investment
A partnership formed to create competitive advantage on a worldwide basis
Used when competition is fierce and costs are high
Becoming predominant in the automobile and computer industries
Direct Investment
The ownership of overseas facilities
For companies who want more control and are willing to invest considerable resources
May involve new facilities or the purchase of an existing operation

15. Getting Involved
Multinational Corporation (MNC)
A corporation that operates on a worldwide scale, without significant ties to any one nation or region
Global Strategy (Globalization)
Multinational Strategy
A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity
A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences