1. The Global Marketplace
Chapter 3

2. Chapter 3 Objectives
Explain why nations trade and describe how international trade is measured.
Discuss the nature of conflicts in global business, including free trade, fair trade, and government interventions into international trade.
Identify the major organizations that facilitate international trade and the major trading blocs around the world.

3. Chapter 3 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.

4. Fundamentals of International Trade
Where are your products manufactured?
What countries are the most competitive in the world?

5. Why Nations Trade
Economic globalization: The increasing integration and interdependence of national economies around the world
Focus on relative strengths
Acquire materials,
goods, services
Expand markets
Keep up with customers
Pursue economies of scale
Keep up with competitors

6. How International Trade is Measured
Balance of Trade
Balance of Payments

7. Balance of Trade Balance of trade: Trade surplus: Trade deficit :
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
Trade deficit :
An unfavorable trade balance created when a country imports more than it exports

8. Balance of Payments 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
The balance of payments includes the balance of trade plus the net dollars received and spent on foreign investment, military expenditures, tourism, foreign aid, and other international transactions.

9. Foreign Exchange Rates
When companies buy and sell goods and services in the global marketplace, they complete the transaction by exchanging currencies. The process is called foreign exchange, the conversion of one currency into an equivalent amount of another currency.
The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies.
Exchange rate: The rate at which the money of one country is traded for the money of another

10. Foreign Exchange Rates and Currency Valuations

11. Strong and Weak Currencies: Who Gains and Who Loses?

12. Conflicts in International 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
Fair Trade: Buyers voluntarily agree to pay more than the prevailing market price in order to help producers earn a living wage.

13. Government Intervention in International Trade
Protectionism: Government policies aimed at shielding a country’s industries from foreign competition
Tariffs
Quotas
Embargoes
Sanctions

14. Government Intervention in International Trade
Tariffs are taxes, surcharges, or duties levied against imported goods.
Quotas limit the amount of a particular good that countries can import during a given year.

15. Government Intervention in International Trade
In its most extreme form, a quota becomes an embargo, a complete ban on the import or export of certain products.
Sanctions are politically motivated embargoes that revoke a country's normal trade relations status; they are often used as forceful alternatives short of war.

16. Government Intervention in International Trade (Cont.)
Restrictive Import Standards
Subsidies
Dumping

17. Government Intervention in International Trade (Cont.)
Countries can assist their domestic producers by establishing restrictive import standards, such as requiring special licenses for doing certain kinds of business and then making it difficult for foreign companies to obtain such a license.

18. Government Intervention in International Trade (Cont.)
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

19. Government Intervention in International Trade (Cont.)
Dumping:
Charging less than the actual cost or less than the home-country price for goods sold in other countries
Often used to win foreign customers or reduce production surpluses.
Most industrialized countries have antidumping regulations.

20. International Trade Organizations
WTO
World Bank
IMF

21. The General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) is a worldwide pact that was first established in the aftermath of World War II.
In 1995 GATT established the World Trade Organization (WTO), which has replaced GATT as the world forum for trade negotiations.
The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade and mediating trade disputes among its 150 members.

22. International Monetary Fund (IMF)
The International Monetary Fund (IMF) was founded in 1945 and is now affiliated with the United Nations.
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.

23. The World Bank
Officially known as the International Bank for Reconstruction and Development, the World Bank was 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.

24. 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
North American Free Trade Agreement (NAFTA)
European Union (EU)
Asia-Pacific Economic Cooperation Council (APEC)

25. North American Free Trade Agreement (NAFTA)
United States
Canada
Mexico

26. The European Union (EU)
Minimizing
Establishing
Local Regulations
Global
Product Standards
Variations in
Product Standards
Consumer Protection
Trade Protectionism
Environmental
Protection

27. The Asia Pacific Economic Cooperation Council (APEC)
The Asia Pacific Economic Cooperation Council (APEC) is an organization of 21 countries that are making efforts to liberalize trade in the Pacific Rim (the land areas that surround the Pacific Ocean). Among the member nations are the United States., Japan, China, Mexico, Australia, South Korea, and Canada.
APEC 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.

28. The Economic and Monetary Union
Impact
Currency
Unification
The EURO
Centralized
Banking
Currency
Exchange
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29. Members of Major Trading Blocs

30. Members of Major Trading Blocs

31. Difficulties in the Global Business Environment
Unique laws
Customs
Consumer preferences
Ethical standards
Labor skills
Political forces
Economic forces
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32. The Global Business Environment
Culture:
A shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.
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

33. The Global Business Environment
Ethnocentrism:
Judging all other groups according to the standards, behaviors, and customs of one’s own group
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

34. Cultural Differences In Global Business.
Consider the other person’s customs.
Deal with the individual.
Clarify your intent and meaning.
Adapt your style to the other person.
Show respect.

35. Legal Differences In Global Business
Common law
Civil law
Theocratic law

36. Forms of International Business Activity

37. International Business Activity
Importing, the buying of goods or services from a supplier in another country, and exporting, the selling of products outside the country in which they are produced, have existed for centuries.
Exporting, one of the least risky forms of international business activity, permits a firm to enter a foreign market gradually, assess local conditions, then fine-tune its product to meet the needs of foreign consumers.

38. International Business Activity
Licensing is another popular approach to international business. License agreements entitle one company to use some or all of another firm’s intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.
Some companies choose to expand into foreign markets by franchising their operation. By franchising its operations, a firm can minimize the costs and risks of global expansion and bypass certain trade restrictions.

39. International Business Activity
A strategic alliance is a long-term partnership between two or more companies to jointly develop, produce, or sell products in the global marketplace. To reach their individual but complimentary goals, the companies typically share ideas, expertise, resources, technologies, investment costs, risks, management, and profits.
A joint venture is a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents.

40. International Business Activity
Companies with a physical presence in numerous countries are called multinational corporations (MNCs). Since 1969, the number of multinational corporations in the world’s 14 richest countries has more than tripled, from 7,000 to 24,000.
Some multinational corporations increase their involvement in foreign countries by establishing foreign direct investment (FDI). That is, they either establish production and marketing facilities in the countries where they operate or purchase existing foreign firms.

41. International Business Activity
Importing and Exporting
Licensing and Franchising
Strategic Alliances
and Joint Ventures
Foreign Direct Investment
Ownership
Financial
Risk
Low
Moderate
High
Common Forms
Levels of Commitment

42. Strategic Approaches to International Markets
Multi-domestic
Global
Transnational

43. Strategic Approaches to International Markets
In the multidomestic strategy, a company creates highly independent operating units in each new country, giving local managers a great deal of freedom to run their operations almost as though they are independent companies.
A decentralized approach to international expansion in which a company creates highly independent operating units in each new country.

44. Strategic Approaches to International Markets
In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market.
A highly centralized approach to international expansion, with headquarters in the home country making all major decisions
In the transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics.

45. Functional Strategies for International Expansion
Products
Customer support
Promotion
Pricing
Staffing

46. 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

47. 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