Ferrell Hirt Ferrell
M: Business
nd
2 Edition
FHF
Business in a Borderless World
FHF
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
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
‣ IBM’s Service Corps
• To create culturally sensitive global leaders
• Corporate social responsibility
• Improved image
FHF
3-3
Why Nations Trade
[
International trade allows for the
acquisition of raw materials and goods
at favorable prices
]
FHF
3-4
Absolute versus 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
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3-5
Outsourcing
• The transferring of manufacturing or other tasks
-such as data processing- to countries where
labor and supplies are less expensive
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3-6
Outsourcing
Exporting
The sale of goods and services to foreign markets
The US exports over $1.6 trillion in goods and
services annually
The purchase of goods and services from foreign
sources
The US imports more than $2.3 trillion in goods and
services
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3-7
Balance of Trade
The difference in the value between what a nation exports and imports
U.S.Trade Deficit
(in billions of dollars)
A Trade Deficit
The US imports
more than it exports.
(shown in the table)
Therefore, the U.S.
has a trade deficit.
Source: “Foreign Trade Statistics, U.S. Census Bureau
The trade deficit is also called a nation’s negative balance of trade
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3-8
US Exports to China Have Increased
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3-9
FHF
Top 10 Countries Maintaining Trade Deficits/
Surpluses with the US
3-10
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
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3-11
Barriers to International Trade
• Completely free trade seldom exists.
• Barriers to international trade:
‣
Economic
‣
Social
‣
Legal
‣
Cultural
‣
Political
‣
Technological
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3-12
Economic Barriers to Trade
• Economic development
• Infrastructure
• Exchange rates
• Less-Developed Countries (LCD’s)
• Low per-capita income
• Less economically advantaged
• Potentially huge & profitable markets
• Largely located in Africa, Asia and Latin America
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3-13
Infrastructure
[
The physical facilities that support
economic activities, including railroads,
highways, ports, airfields, utilities,
power plants, schools, hospitals, and
commercial distribution systems
]
FHF
3-14
Exchange Rates
[
The ratio at which one nation’s
currency can be exchanged for
another nation’s currency
]
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3-15
Ethical, Legal & Political Barriers in
International Trade
• Complex relationships
• Different laws
• International laws
• Trade restrictions
• Changing political climates
• Different ethical values
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3-16
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 next page)
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3-17
Legal Barriers to Trade
(Continued)
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
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3-18
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
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3-19
FHF
Cultural Barriers
3-20
Technological Barriers
• Technological advances are creating global
marketing opportunities
• 10 nations outrank the US in terms of subscribers
to broadband internet access
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3-21
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 next page)
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3-22
Trade Agreements, Alliances & Organizations
(Continued)
World Trade Organization (WTO)
• International organiation dealing with the rules of
trade between nations
• Officially founded in 1995
• Predecessor to GATT
• 153 members representing 95% of global trade
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3-23
Trade Agreements, Alliances & Organizations
(Continued)
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
US, and Mexico
FHF
3-24
Trade Agreements, Alliances & Organizations
(Continued)
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
FHF
3-25
Trade Agreements, Alliances & Organizations
(Continued)
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
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3-26
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
FHF
3-27
Getting Involved in International Trade
Countertrade agreements
• Bartering products for other products instead of for
currency
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
FHF
3-28
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
• Licensing is common in pharmaceuticals
• Sanofi-Aventis and Wellstat have licensing deal for R&D of
diabetes drugs
Licensing and Franchising
FHF
3-29
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 operations
• McDonald’s is the world’s largest franchise
• Includes restaurants in 118 countries
Licensing and Franchising (continued)
FHF
3-30
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
FHF
3-31
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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3-32
Ten Largest Global Corporations
1. Wal-Mart Stores, Inc.
2. ExxonMobile
3. Royal Dutch Shell
4. BP
5. Toyota Motors
6. Chevron
7. ING Group
8. Total
9. General Motors
10. ConocoPhillips
(Source: “The Global 500,” Fortune 2008)
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3-33
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.
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