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FERRELL | HIRT | FERRELL
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
PART
1
• CHAPTER 1 The Dynamics of Business and Economics
• CHAPTER 2 Business Ethics and Social Responsibility
• CHAPTER 3 Business in a Borderless World
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International Business
The buying, selling and trading of
goods and services across national
boundaries
Global marketing requires balancing
global brands with the needs of local
consumers
3-3
Why Nations Trade
International trade allows for the acquisition
of raw materials and goods at favorable prices
3-4
Absolute vs.
Comparative Advantages
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 the 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
3-5
Outsourcing
The transferring of
manufacturing or other tasks,
such as data processing, to
countries where labor and
supplies are less expensive
3-6
Exporting & Importing
Exporting
The sale of goods and services to foreign markets
The US exports over $1.5 trillion in goods and services annually
Importing
The purchase of goods and services from foreign sources
The U.S. imports around $2 trillion in goods and services
annually
3-7
Balance of Trade
The difference in the value between what a nation
exports and imports
• A trade deficit is also called a negative balance of
trade
• The U.S. usually has a negative balance of trade
3-8
Balance of Payments
The difference between the flow of money
in and out of a country
A nation’s balance of trade, foreign
investments, foreign aid, loans, tourists dollars
and military expenditures comprise its balance
of payments
3-9
Barriers to International Trade
Completely free trade seldom exists.
Barriers to international trade:
•Economic
•Legal
•Political
•Social
•Cultural
•Technological
3-10
Economic Barriers to Trade
Economic development
Infrastructure
Exchange rates
Less-Developed Countries (LCDs)
• Low per-capita income
• Less economically advantaged
• Potentially huge & profitable markets
• Largely located in Africa, Asia and Latin America
3-11
Infrastructure
The physical facilities that support economic
activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals and commercial distribution systems
3-12
Exchange Rates
The ratio at which one nation’s currency can
be exchanged for another nation’s currency
3-13
Ethical, Legal & Political Barriers in
International Trade
Complex relationships between nations
Different laws
Differing intellectual property protections
Trade restrictions
Political barriers and volatility
Cultural differences
Different ethical values
3-14
Legal Barriers to Trade
Tariff and Trade Restrictions
• Part of a nation’s legal structure
• May be established or removed for political reasons
Import Tariff
• A tax levied by a nation on goods imported into the country
Exchange Controls
• Regulations that restrict the amount of currency that can be bought or sold
…continued on the next page 3-15
Legal Barriers to Trade
Quota
• A 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
3-16
Political Barriers to Trade
Seldom in writing & change rapidly
Relative stability of countries is a factor
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
3-17
Technological Barriers
Technological advances are creating
global
marketing opportunities
At least 10 nations outrank the U.S.
in terms of subscribers to
broadband Internet access
China and India are rapidly
advancing and represent huge
markets
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Trade Agreements, Alliances
& Organizations
General Agreement on Tariffs and Trade (GATT)
Signed by 23 nations in 1947
Forum for tariff negotiations
Place for international trade issue discussion and
resolution
Replaced by the World Trade Organization
(WTO) in 1995
…continued on the next page 3-19
Trade Agreements, Alliances
& Organizations
World Trade Organization (WTO)
International organization dealing
with the rules of trade between
nations
Officially founded in 1995
Successor to GATT
153 members representing 95% of
global trade
…continued on the next page
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Trade Agreements, Alliances &
Organizations
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
Has been controversial, but has created new business opportunities with fewer barriers than before
…continued on the next page 3-21
Trade Agreements, Alliances &
Organizations
European Union (EU)
A union of European nations established in
1958 to promote trade among its members
One of the largest single markets today
Asia-Pacific Economic Cooperation (APEC)
An international trade alliance that promotes open
trade and economic and technical cooperation
among member nations
…continued on the next page 3-22
Trade Agreements, Alliances &
Organizations
World Bank (International Bank for
Reconstruction and Development)
Organization established in 1946 by industrialized nations to loan
money to underdeveloped and developing countries
International Monetary Fund (IMF)
Organization established in 1947 to promote
trade among member nations by eliminating
trade barriers and fostering financial cooperation
3-23
Getting Involved in
International Business
Exporting & importing
Trading companies
Licensing and franchising
Contract manufacturing
Joint ventures
Direct investment
Multinational corporations
Many companies’ involvement in international trade begins with importing goods for resale
3-24
Getting Involved in
International Trade
Countertrade Agreements
Bartering products for other products instead of for currency
Export agents are middlemen that help companies by handling their international transactions
Trading Company
Buys goods in one country and sells them to buyers of another country
Handles all activities required to move products from one country to another
3-25
Licensing
A trade arrangement where one company
allows another company to use its
company name, products, patents, brands,
trademarks, raw materials, and production
processes in exchange for a fee or royalty
Many products are licensed and produced
by local companies internationally
3-26
Franchising
A form of licensing where a company (franchiser)
agrees to provide a franchisee a name, logo,
operational guidelines, products, etc., in return for a
financial commitment and the agreement to conduct
business in accord with the franchiser’s standard of
operation
McDonald’s is the world’s largest franchise in terms of
revenues
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Contract Manufacturing
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
Common in high-tech industries, automotive industry
and food manufacturing
Many clothing manufacturers use contract
manufacturing
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Offshoring
The relocation of a business process by a
company or subsidiary to another country
Different from outsourcing
The company retains control of the process
Not subcontracting to a different company
Appealing because of lower wages, high skills, time
zone differences
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Other Forms of Engaging in
International Trade
Joint Venture
The sharing of the costs of operation of a business between a foreign company and a local partner
Strategic Alliance
A partnership formed to create competitive advantage on a worldwide basis
Direct Investment
The ownership of overseas facilities
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Multinational Corporations
The highest level of international business involvement
Operates on a worldwide scale without significant ties
to a single nation or region
Largest MNCs are wealthier than most countries
Antiglobalization activists contend that MNCs are
responsible for growing wealth disparity and misusing
scarce resources
3-31
International Business Strategies
Multinational Strategy
A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences
Global Strategy (Globalization)
A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity.
3-32
Managing the Challenges of
Global Business
Many political barriers to trade have fallen in recent decades
Navigating international business remains complicated
Technology and improved standards of living globally are creating tremendous new marketing opportunities
Governments and business organizations exist to help businesses looking to go international
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