3
Business in a Borderless World
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.
3-2
The Role of International Business
• To buy, sell and trade goods and services
across national boundaries
Did You Know?
McDonald’s serves 50 million customers a
day at 30,000 restaurants in 120 countries.
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Why Nations Trade
• To obtain raw materials
and goods that are:
– Otherwise unavailable
– Available elsewhere at a
lower price
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Absolute Advantage
• A monopoly that exists when a country is
the:
– Only source of an item
– Only producer of an item
– Most efficient producer of an item
• Example: DeBeers Consolidated Mines,
Ltd.
– Virtually controls the world’s diamond trade
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Comparative Advantage
• A country specializes in products that it
can supply more efficiently or at a lower
cost than it can produce other items
• Example:
– U.S. agricultural commodities, such as corn
and wheat
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Trade Between Countries
• Importing
– The purchase of goods and services from
foreign sources
• Exporting
– The sale of goods and services to foreign
markets
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The U. S. Trade Deficit
1980-2005 (in billions of dollars)
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Top 10 Countries Maintaining Trade
Deficits & Surpluses with the US
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International Trade Barriers
•
•
•
•
Economic
Legal/political
Social/cultural
Technological
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Economic Barriers
• The level of a country’s economic
development
– Industrialized nations – U.S., Japan, Great Britain,
Canada
– Less-developed countries – Africa, Asia, and
South America
• The level of existing infrastructure
• Currency exchange rates
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Political & Legal Barriers
• Laws and regulations
• Tariffs and trade restrictions
– Import tariffs, exchange controls, quotas,
embargos, anti-dumping regulations
• Political barriers
– Political instability, cartels
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Social & Cultural Barriers
• Understanding the differences among the
cultures of countries can be important to a firm
– Spoken and written language
– Body language and personal space
– Family roles
– Perception of time
– Religious holidays and local customs
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How US jobs compare:
•
•
•
•
•
Americans are more likely to work longer than 40 hours a week than workers in
Japan, Germany or 20 other developed countries. In fact, in the U.S., 70.3% of all
American workers put in more than 40 hours a week, compared to 49.4% in Japan;
14.2% in Germany; 57.1% in Canada; and 10.1% in Norway
The U.S. ranks below six other countries in annual income per person: Norway
($39,806); Switzerland ($38,425); Denmark ($33,367); Sweden (32,125); Finland
($31,737); and Japan (31,624). In the U.S., annual income per person is $28,553.
The U.S. ranks below 10 other countries in paid vacation days for workers. In the
U.S., the average worker gets 16 paid vacation days a year, compared to 30 days in
Portugal and Spain; 25 days in Austria, Finland, Sweden and France; and 20 days in
Belgium, the Netherlands and Switzerland. European countries guarantee workers
paid vacation days by law
The income gap between rich and poor in the United States is bigger than in any
other developed country in the world.
In many countries, workers are guaranteed health coverage by law. In the U.S., there
are 45.8 million people without health insurance, and the percentage of Americans
who lack health coverage recently reached 15.7%. In parental leave and
unemployment insurance coverage, the United States also lags behind most
European countries.
Source:http://bernie.house.gov/economy/today.asp (Accessed October 30, 2006)
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Cultural Behavioral Differences
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Technological Barriers
• Varying levels of
technological
development and
infrastructure
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Trade Agreements, Alliances &
Organizations
•
•
•
•
•
•
•
•
GATT
WTO
NAFTA
EU
MERCOSUR
APEC
World Bank
IMF
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GATT and NAFTA
• General Agreement on Tariffs and Trade (GATT):
– Provides a forum for tariff negotiations and discussion
• The World Trade Organization (WTO)
– Deals with the rules of trade between nations
• North American Free Trade Agreement (NAFTA):
– Eliminates most tariffs and trade restrictions on agricultural and
manufactured products between Canada, Mexico, and U.S.
(1994-2009).
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Levels of Involvement in
International Trade
• Import/Export
• Trading Companies
• Licensing & Franchising
• Contract Manufacturing
• Joint Ventures & Alliances
• Direct Investment
• The MNC
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Major Export Markets
for U.S. Companies
22.7%
Ca na da
13.2%
Me xico
Ja pa n
China
Unite d Kingdom
0%
5.8%
5.3%
4.5%
5%
10%
15%
20%
25%
Percent of Total US Exports
Source: “Top Trading Partners, Total Trade, Exports and Imports,” U.S. Census Bureau, August, 2006, available at
http://www.census.gov/foreign-trade/statistics/highlights/toppartners.html.
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Outsourcing
• U.S. companies are increasingly
transferring manufacturing and other tasks
to countries where labor and supplies are
less expensive
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The Ten Largest Global
Corporations
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Wal-Mart Around the World
Country
# of stores
# of
employees
Argentina
12
4,000
Brazil
296
7,000
Canada
279
62,000
China
66
18,000
Germany
85
14,000
Japan
391
30,000
Korea
15
3,000
Mexico
845
100,000
Puerto Rico
54
12,5000
United Kingdom
326
125,000
Source: www.walmartfacts.com, “Wal-Mart International Operations,” accessed October 30,2006
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Top 10 Global Franchise Operations
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U.S. Exporters and Value By Company
size
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Procter & Gamble Global
Brands
Brand
Description
Countries Available
Ace
High quality bleach
North America, Latin America,
Europe, Middle East, Africa
Alldays
Lightweight panti-liner
Latin America, Europe, Middle
East, Africa
Always Lightweight panti-liner
North America, Latin America,
Europe, Middle East, Africa
Aussie Hair care products
North America, Europe, Middle
East, Africa, Asia
Bess
Europe, Middle East, Africa
Strong, thick bathroom
tissue
Source: www.pg.com/company/who_we_are/global_products.jhtml., “Global Operations.” accessed October 30, 2006.
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Procter & Gamble Global
Brands
Brand
Description
Countries Available
Bounce
Dryer sheets
North America, Latin America,
Europe, Middle East, Africa,
Asia
Cierto
Dishwashing soap
Latin America
Fairy
Dishwashing products &
detergents
Europe, Middle East, Africa,
Asia
Febreeze
Odor eliminating fabric spray
North America, Latin America,
Europe, Middle East, Africa,
Asia
Hipoglos
Diaper rash lotion
Latin America
Source: www.pg.com/company/who_we_are/global_products.jhtml., “Global Operations.” accessed October 30, 2006.
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Developing International
Business Strategies
• Multinational
Strategy:
– Customizing and
adapting products,
promotion and
distribution to the local
market condition
• Global Strategy
(Globalization):
– Standardizing
products, promotion,
and distribution to one
world market
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Managing the Challenges of
Global Business
• Adapting to different
cultures
• Carefully studying those
markets
• Preparing and
implementing appropriate
strategies
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Solve the Dilemma
1. What are the key issues that need to be
considered in determining global expansion?
2. What are some of the unique problems that a
small business might face in global expansion
that larger firms would not?
3. Should Audiotech consider a joint venture?
– Should it hire a sales force of people native to the
countries it enters?
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Explore Your Career Options
• What are some of the skills
required to be a successful
businessperson in the
borderless world of the 21st
century?
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Additional Discussion
Questions and Exercises
1.
Look at the “Foreign Exchange” section of the
business section of a newspaper.
a. What nation’s currency or exchange rate is listed?
b. How much of that nation’s currency would equal one dollar?
2.
Assume your firm wishes to do business by selling
manufactured products in other countries but does not
wish to do actual manufacturing in the United States
other country.
a. What options are available?
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Additional Discussion
Questions and Exercises
3.
4.
Consider the world situation in general.
a.
What are the political hot spots or areas of unrest in which
doing business would be risky?
b.
What would be the possible advantage for a company
setting up a business venture in these areas of unrest at
the first sign of political stability?
What are some of the reasons for the United States
trade deficit?
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Chapter 3 Quiz
1.
A negative balance of trade occurs when
a.
b.
c.
d.
2.
a country imports more than it exports
a company has a monopoly on the production of a specific
resource
a country exports more than it imports
a country’s currency can be exchanged for another’s
currency or gold
A partnership between a foreign company and a local
partner is called:
a.
b.
c.
d.
a trading company
an export agency company
a direct investment
a joint venture
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Chapter 3 Quiz
3.
When the United States established a policy
forbidding trade with Cuba, this was an example of
what type of trade restriction?
a.
b.
c.
d.
4.
a quota
an embargo
a countertrade agreement
an import tariff
A comparative advantage exists when
a.
b.
c.
d.
a firm supplies a product at lower costs.
a firm is the only supplier of a product.
a country supplies a product at lower costs.
a country is the most efficient supplier of an item.
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Multiple Choice Questions
about the Video
1.
Which of the following is not a Chinese brand?
a.
b.
c.
d.
2.
Tsingtao
Wahaha
Lenovo
Chicken
Which of the following is a reason why Chinese
brands might have trouble growing
a.
b.
c.
d.
Overcapacity of production
They are already in stores such as Target and Costco
in the U.S.
The products are of inferior quality
The products are too popular in China
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