Chapter 4
Understanding the
Global Context of
Business
What is the most
popular Campbell’s
Soup flavor in
Hong Kong?
Day 2
PowerPoint Presentation by Charlie Cook
Copyright © 2005 Prentice Hall, Inc.
All rights reserved.
Business 30:
Global Management
•
•
•
•
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Survey of international business issues
Trade, economics, cultures, politics
Management strategies
Also: Busi 36, International Marketing
Also: Busi 38, Multiculturalism in Corporate America
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–2
Key Topics
• The rise of global business
• Major world marketplaces and U.S. trading
partners
• Influences on international business
• International business management
• The impact of differences among nations
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–3
Globalization Is Gaining Speed
• The world used to be a
disconnected collection
of independent economic
systems.
• The world is becoming
one interdependent
economy.
• Let’s take a look at the
signs of change.
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4–4
Company % of Earnings
From Outside U.S.
Pfizer
Microsoft
Intel
Gillette
Coca-Cola
Wal-Mart
0%
20%
40%
60%
80%
100%
Sources: Investment Advisor, August 2000, Walmart International, 2005; GE
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–5
Why do companies bother with
international business?
• General rule: Take the profit growth opportunity
that provides the greatest return for the least
amount of inputs.
 Would you bother if you couldn’t make money?
• Historical paths to going global
 We outgrew this market, now what?
 How can we outsell our competitors?
• Shortcutting the old path
 Technology, information, and that general rule again
 Exporting
to China anyone?
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4–6
Growing World Population
12
10.8
10
In Billions
8
6.0
6
8.5
6.5
5.3
4
2
0
1990
1998
2010
2030
2060
Source: Population Reference Bureau
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4–7
Shipping Cost
The Cost of Global Transactions
-WAY down
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Figure 4–1
4–8
International
business is
becoming a larger
part of our economy.
How does the faster
pace of imports
make you feel?
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4–9
Key Topics
• The rise of global business
• Major world marketplaces and U.S. trading
partners
• Influences on international business
• International business management
• The impact of differences among nations
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4–10
Growth of worldwide standard of living
increases international trade
• Growth increases production AND
consumption.
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4–11
The USA’s
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Current Data
4–12
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4–13
USA’s Activity with
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4–14
The North American
Marketplace and the
Nations of NAFTA
USD gdp 14t
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 4–2
4–15
Europe and the Nations of the European Union
USD gdp 14t
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom
& Growing
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Figure 4–3
4–17
Dominican
Republic
The Central
American Nations of
DR-CAFTA
Guatemala
usd gdp $90b
Honduras
Nicaragua
El Salvador
Costa Rica
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www.fas.usda.gov/itp/CAFTA/CAFTA_Overview.ppt
4–18
The Nations
of ASEAN
USD gdp $700b
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Figure 4–4
4–19
Major World Marketplaces
Europe
North America
Pacific Asia
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4–20
What about developing countries?
• Is poverty a problem or an opportunity?
• What must a business accomplish to be able to pursue
its proactive socially responsible goals?
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–21
Key Topics
• The rise of global business
• Major world marketplaces and U.S. trading
partners
• Influences on international business
• International business management
• The impact of differences among nations
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–24
Why Trade With Other Nations?
 Reasons ?
 Unique resources of each
nation
 Mutually beneficial
exchange
 Specialization: Doing what
you do best
 Theories of Advantage
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4–25
Theories of Advantage
Absolute
= Produce something more
efficiently than anyone else
All Else
South Africa
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All Else
Output per
Unit of Input
Output per
Unit of Input
Diamonds
Diamonds
Rest of World
4–26
Theories of Advantage
Comparative =
Produce something more efficiently
than you produce something else
Furniture
Wood
Wood
Output per
Unit of Input
Output per
Unit of Input
Furniture
Canada
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Mexico
4–27
Comparative Advantage Exercise:
• Bill is castaway on one side of the island
 He has easy access to fishing
 And his water is very close to good land
for growing corn
• Oprah is castaway on the inconvenient side
of the same island
 Her side has fish, but they are down a
treacherous cliff
 She has to lug water up hill to water her
corn
• Let’s put numbers behind the theory of
comparative advantage and see what
happens
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4–28
Comparative Advantage Exercise:
Each powerful castaway needs to eat 1 fish and 1 corn daily to
survive. Who will benefit from trading?
Bill’s Island half:
Oprah’s Island half:
1 hour to catch 1 fish
4 hours to catch 1 fish
2 hours to grow 1 corn
3 hours to grow 1 corn
Total time needed to eat
each day:
Total time needed to eat
each day:
1hr * 1 fish = 1 hr
4hrs * 1 fish = 4 hrs
+ 2hr * 1 corn = 2 hrs
+ 3hrs * 1 corn= 3 hrs
Total Time
Total Time
= 3 hrs
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= 7 hrs
4–31
Comparative Advantage Solution
Bill’s Island half:
Oprah’s Island half:
1 hour to catch 1 fish
4 hours to catch 1 fish
2 hours to grow 1 corn
3 hours to grow 1 corn
Total time used each day
to source both
castaways’ fish:
Total time used each day
to source both
castaways’ corn:
1hr * 2 fish = 2 hrs
4hrs * 0 fish = 0 hrs
+ 2hrs * 0 corn = 0 hrs
+ 3hrs * 2 corn= 6 hrs
Total Time
Total Time
= 2 hrs
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= 6 hrs
4–32
Trade Justification and Issues
• Trade can increase the standard of living in both
nations.
 What’s different about our global trading activity?
• Issues:
 Changing a way of life / culture / history
 Dealing with the obsolete factors of production
 Overuse of the specialty resources
 Lost skills outside of the specialty (dependency)
 Vulnerability to exchange rates & other economic
forces
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4–33
Import/Export Balances
• Balance of Trade
 Trade Deficits
 Trade Surpluses
• Balance of Payments
 Trade dollars + other
flows of money like:
investment, purchases of
currency, etc.
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4–36
USA’s Activity with
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4–37
January – July 2007
Balance of Trade US / China
$35 B
Goods To China
$177 B
Goods From China
$142 B
U.S. Balance of Trade is Unfavorable –
Yes, that’s just 7 months.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
http://www.census.gov/foreign-trade/statistics/highlights/toppartners.html
4–39
Balance of Payments
http://www.economist.com/finance/displaystory.cfm?story_id=9184053
$35 B
Goods To China
Chinese tourists
Chinese purchases
of the dollar
Chinese investment
in US assets
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
$177 B
Goods From China
4–40
Economics and the US trade deficit
• We say “Spend”! Other countries save.
 How is that expected to change? On BOTH sides?
• Interest rates, investment attractiveness
 As long as the US offers high interest rates and
attractive growth for investors, is there really an
issue?
• The exchange rate
 What is it?
 What happens as it changes?
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4–41
Exchange Rates Impact on Global Trade
• When an economy’s currency is strong:
 Foreign products are cheaper here
 Domestic companies may move production to cheaper sites in
foreign countries
 Our exports are expensive elsewhere
• Implications for trade and current account:
 Foreign goods are affordable to us
 USA exports are more expensive elsewhere
 Dollar denominated investments are attractive
• Exchange rate calculator
 www.moneycentral.msn.com
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–42
Key Topics
• The rise of global business
• Major world marketplaces and U.S. trading
partners
• Influences on international business
• International business management
• The impact of differences among nations
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
4–45
Trading in Global Markets:
The U. S. Experience
U. S. Never Been Aggressive at Exportingintense competition
U. S. Is World’s Largest Exporter but,
U. S. Is a Debtor Nation
Trade barriers, dollar strength
What are the issues surrounding “going
international?
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4–46
Barriers to International Trade
Social and Cultural
Differences
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Legal and Political
Differences
Economic
Differences
4–47
Social & Cultural Differences
 Language
 Religion
 Values & Attitudes
 Islamic Swimwear
Aesthetics
So much more…..
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4–51
Did You Know?
In Turkey it’s rude to cross your arms while you are
facing someone.
In the Arab world the left hand is considered
unclean; don’t eat with it!
The Chinese associate gifts such as straw sandals,
clocks and handkerchiefs with funerals.
White: The color of purity & marriage in western
color. White: the color of death in eastern cultures
Red: Roxanne…… here. In India: the color of purity
used in wedding gowns
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4–52
Famous Blunders
“Come alive, You’re in the Pepsi Generation.”
 Chinese translation:
 “Pepsi brings your ancestors back from the dead.”
“Chevy Nova”
 Spanish translation:
 “Chevy doesn’t go.”
“Finger-lickin’ good”
 Japanese translation:
 “Bite your fingers off.”
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4–53
Favorite Campbell
Soups Around the World
Britain - Tomato
Japan - Corn
South America - Cream of
Asparagus
United States - Chicken
Noodle, Cream of
Mushroom
Hong Kong
 - Watercress & Duck
Gizzard
Australia- Cream of Pumpkin
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4–54
Brazilian Pizza Hut: Culture
• They don’t use tomato sauce on pizza.
• Bread & cheese & meats PLUS banana to top it
• The Brazilian Pizza Hut franchise failed because
they didn’t make the native style of pizza.
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4–55
Legal & Political Differences:
• Protectionism: Protecting domestic business against
foreign competition
 Short term benefits
 long term/overuse consequences
• Protectionist Tools:






Quotas
Tariffs
Subsidies
Local content laws
Embargo
Fixed exchange rates
• Exporting auto parts to China
 All that and more.
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4–56
Foreign Legal Standards
Foreign Corrupt Practices Act of 1978- U.S.
businesses MUST follow U.S. law in
conducting business globally
Bribes to secure contracts are illegal.
Bribes to expedite/access services are
legal.
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4–58
Selling Internationally - follow a process
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Figure 4–8
4–60
Levels of International Involvement
• Importer and Exporter
 Ship it to my/their country
• International Firms
 Significant portion
of business internationally
• Multinational Firms
 The world is their
home office
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4–62
International Organizational Structures
From Low involvement to High involvement
Independent agents
Low risk & control
Flexibility
Licensing arrangements
Share control & profits
Low capital risk
Branch Offices
Your people control
Low capital risk
Strategic Alliance
Market familiarity
Partnership risks
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Foreign Investment
Control & Profits
Capital risk 4–63
Chapter Review
•
Discuss the rise of international business, describe
the major world marketplaces.
•
Explain how comparative advantage, import-export
balances, exchange rates, and foreign competition
shape international business strategies.
•
Discuss what factors influence whether a company
should engage in international business.
•
Identify different levels of international
involvement and international organizational
structure.
•
Describe key barriers to international trade.
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4–66
Test Tips:
• Vocabulary
 Know the vocabulary used in the slide shows.
 Be able to apply the vocabulary to situations
 There will be less “recite the definition” and more recognize
the concept and be able to apply it.
 Example:
If a supply shortage exists for a new video game in a freemarket economy, the:
A) market price of the video game will rise.
B) market price of the video game will fall.
C) government must increase its production of video games.
D) government must establish a rationing system to make sure
that the video games are fairly distributed.
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4–67
Test Tips:
Homework questions
 Answers
for these were discussed in the course of each
lecture. Find clarity on them by reviewing the slides,
book, and / or doing other research on your own.
• Text:
 Some topics that were not covered in class may be
pulled directly out of the book. This is the bonus that
a diligent studier deserves.
• Cases and in-class activities.
 Excerpts will be on the exam.
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4–68
Test Tips:
Test Format:
 Multiple
choice
– Memorize sure, but know the meaning and be able to use
it.
– About 30 questions at about 3 points apiece.
– 882E ScanTron is the form. I’ll have extras if you can’t get
one. I am asked to sell them for 25 cents.
 Essay
– Your choice of 1 of 3 topics.
– Worth at least one full grade
– To be written in proper English, with proper grammar, with
very little space allowed so as to require you to get to the
point quickly without restating the question nor restating
the same points several times.
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4–69