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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

3-2

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

3-18

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

3-20

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

3-27

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

3-30

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

3-33