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Business In A
Global Environment
Chapter Objectives
3‐1
1.
2.
3.
4.
5.
6.
Why Do Nations Trade?
• “Because no national economy
can produce all the goods (it)
( )
need(s).”
3‐4
1) Only source of particular product
2) Can make more of product using
same or fewer resources than other
countries
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3‐5
Comparative Advantage
Explain why nations/companies engage in international trade
and how is trade measured
Identify opportunities in international business
Appreciate how cultural, economic, legal and political differences
create challenges
Describe ways governments/international bodies
promote/regulate global trade
Discuss initiatives designed to reduce trade barriers and promote
free trade
Understand how to prepare for a career in international business
Absolute Advantage
3-3
3‐2
Comparative
Advantage In The Techs
3‐6
1) Produce product at lower opportunity
cost
2) Opportunity costscosts- the products that
country must decline in order to produce
something
g else
3) When country specializes in particular
product, it must sacrifice production of
another product
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Measuring Trade
3‐7
àBalance of TradeTrade- “…subtract... value of
Balance Of Trade
3‐8
Trade Surplus (Favorable Balance)
Sells more than it buys
(country’s) imports from the value of its
exports.”
àBalance of Payments
Payments-- “…the
…the difference,
Trade Deficit (Unfavorable Balance)
Buys more than it sells
over...time, between the total flow of
money...into a country and the total flow of
money...out.”
Managing National Credit Card
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U.S. Exports/Imports & Balance
of Trade (1994
(1994--2003)
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3‐9
Import or Export?
3‐10
Import
Goods In
Out
Export
Goods Out
In
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Licensing
And Franchising
ßLicensing Agreement – Lets foreign company to
sell products of producer/licensor or use
intellectual property for royalty fee
ßInternational Franchise Agreement –
Company/Franchisor grants foreign company
right to use brand name and sell its products
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3‐11
Contract Manufacturing
3‐12
• “ (also known as outsourcing)…U.S.
company… contract(s) with local company
in foreign country to manufacture one of its
products… retain(s) control of product
design
d
and
d development
d
l
and…
d label…”
l b l ”
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Strategic Alliances
And Joint Ventures
3‐13
of business operations on foreign soil
$ Foreign Subsidiary – Independent company
owned by a foreign firm (parent)
Joint Venture – Alliance in which partners fund
separate entity to manage joint operation
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Where Does FDI Go?
3‐15
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home--country
home
–Traditional lifestyles/values
weakened or destroyed
–Irreversible damage to
environment
World’s Largest MNCs
3‐16
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MNC Culture
•Criticism
3‐14
$ Foreign Direct Investment – Formal establishment
Strategic Alliance – Agreement between two
companies (or company and nation) to pool
resources achieve business goals benefiting both
partners
–Destroys livelihoods in
Foreign Direct
Investments And Subsidiaries
•Defense
®Better, cheaper products
®Creates jobs
®Raises standard of living
®Increases cross
cross-- cultural
l
l
3‐17
Global
Business Environment
Cultural
3‐18
Economic
understanding
Legal &
Regulatory
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Culture
3‐19
Language
Time/Sociability
• High Context
Context-- interlocking personal/family connections
“...system of shared
beliefs, values, customs,
and behaviors that
govern the interactions
of members of a
society.”
hold people together
• Low Context
Context-- personal & work relationships more
compartmentalized
t
t li d
Intercultural Communication
• Animation
• Distance
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Lost In Translation
Cultural Environment
3‐20
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3‐21
Economic Environment
3‐22
ÂEconomic DevelopmentDevelopment- Gross national
income per capita
Translated into German, the slogan “Come Alive
with Pepsi” became “Come out of the Grave with
Pepsi
• Standard of living
• Infrastructure
An
A E
English
Englishli h-speaking
ki
carcar-wash
h company in
i
Francophone Quebec advertised itself as a
“lavement d’auto”
d’auto” (“car enema”) instead of the
correct “lavage
“lavage d’auto
ÂCurrency Valuations & Exchange Rates
A U.S. appliance ad fizzled in the Middle East
because it showed a wellwell-stocked refrigerator
featuring a large ham, thus offending the
sensibilities of Muslim consumers, who don’t eat
pork.
wUniversal Currency Converter
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World’s Wealth
1970 & 2004
3‐23
Legal &
Regulatory Environment
3‐24
No established global legal system
Foreign Corrupt Practices Act
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Subsidies or
Trade Controls?
3‐25
Trade Control Debate
1Protectionism
•Pros
–Protect specific industries
–Protect new or struggling
1Tariffs
industries
–Shield industries vital to
1Quotas/Embargo
national defense
3‐26
•Cons
®Restricts free trade; countries
cannot compete freely
®Doesn’t promote level playing
field; gives special privileges to
some
®Cannot bring goods to
fair/open market
®Detrimental to world economy;
nations cannot focus on what
they do best
1Dumping
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Reducing Trade Barriers
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3‐28
3‐27
European Union Nations
& Trade Agreements/Organizations
&
&
• General Agreement on Tariffs & Trade (1947)
• World Trade Organization (1995)
Financial Support for Troubled Economies (1944)
• International Monetary Fund
• World Bank
Trading Blocs
• North American Free Trade Association (1994)
• European Union
• Other
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3‐29
Career in International Business
9 Plan Education
• Develop expertise
• Knowledge of international politics,
economics,
i & culture
lt
9 Get Direct Experience
9 Interact With Other Cultures
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