Business in a Changing World Chapter 3 Business in a Borderless World McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved. 3-3 Fresh & Easy Grocery -Shopping for One & All! Tesco, the UK grocery giant, has developed the Neighborhood Market that is making its way into U.S. communities. Affordable and wholesome food is the core competency for Tesco. 3-4 International Business We live in a global economy -- consumers around the world drink Coca-Cola, Pepsi, and eat at McDonalds. Products you consume today are just as likely to have been made in China, Korea or Germany as in the United States. 3-5 International Business International business – the buying, selling, and trading of goods and services across national boundaries. 3-6 International Business Globalization of business is becoming increasingly important Starbucks serves 20 million customers a week at 16,000 shops in 44 countries. Global marketing requires balancing global brands with the needs of local consumers. 3-7 Why Nations Trade International trade allows for the acquisition of raw materials and goods at favorable prices. 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. 3-8 Why Nations Trade International trade allows for the acquisition of raw materials and goods at favorable prices. Comparative advantage – the basis of 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. 3-9 Why Nations Trade International trade allows for the acquisition of raw materials and goods at favorable prices. Outsourcing – the transferring of manufacturing or other tasks—such as data processing—to countries where labor and supplies are less expensive. 3-10 Trade Between Countries Obtaining needed goods and services and the funds to pay for them, requires international trade through exporting and importing. Exporting – the sale of goods and services to foreign markets. The U.S. exported more than $1.6 trillion in goods and services last year. 3-11 Trade Between Countries Obtaining needed goods and services and the funds to pay for them, requires international trade through exporting and importing. Importing – the purchase of goods and services from foreign sources. The U.S. imported more than $2.3 trillion in goods/services last year 3-12 Balance of Trade The difference in the value between what a nation exports and imports is its balance of trade. U.S. Trade Deficit 1980-2006 (in billions of dollars) A trade deficit (shown in the table) shows that the U.S. has a trade deficit – it imports more than it exports. A trade deficit is also called a nation’s negative balance of trade. 3-13 Balance of Trade U.S. Exports to China Increase Trade deficits are harmful – failure of businesses, loss of jobs, lowered standard of living. 3-14 Balance of Trade Top 10 Countries Maintaining Trade Deficits/Surpluses with the U.S. 3-15 International Trade Barriers A nation’s balance of trade, foreign investments, foreign aid, loans, tourists dollars, and military expenditures comprise its balance of payments Balance of payments – the difference between the flow of money into and out of a country. 3-16 International Trade Barriers Completely free trade seldom exists. Barriers to International Trade – •Economic •Legal •Political •Social •Cultural •Technological 3-17 International Trade Barriers ECONOMIC BARRIERS. •Economic development •Infrastructure •Exchange rates 3-18 International Trade Barriers Economic Development LDC’s – less-developed countries •Low per-capita income •Less economically advanced •Potentially huge & profitable markets 3-19 International Trade Barriers Infrastructure The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals, and commercial distribution systems. 3-20 International Trade Barriers Exchange Rates The ratio at which one nation’s currency can be exchanged for another nation’s currency. 3-21 International Trade Barriers Ethical, Legal, and Political Barriers. •Complex relationships •Different laws •International laws •Trade restrictions •Changing political climates •Different ethical values 3-22 International Trade Barriers Tariffs & 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 3-23 International Trade Barriers Tariffs & Trade Restrictions Exchange controls – regulations that restrict the amount of currency that can be bought or sold Quota – a restriction on the number of units of a particular product that can be imported into a country 3-24 International Trade Barriers Tariffs & Trade Restrictions Embargo– a prohibition on trade in a particular product Dumping – the act of a country or business selling products at less than what it costs to produce them 3-25 International Trade Barriers Political Barriers •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. 3-26 International Trade Barriers Cultural Barriers Cultural Behavioral Differences 3-27 International Trade Barriers Technological Barriers •Technological advances are creating global marketing opportunities •10 nations outrank the U.S. in terms of subscribers to broadband Internet access. 3-28 Trade Agreements, Alliances, & Organizations GATT 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 3-29 Trade Agreements, Alliances, & Organizations WTO World Trade Organization (WTO) – International organization dealing with the rules of trade between nations. 3-30 Trade Agreements, Alliances, & Organizations NAFTA North American Free Trade Agreement (NAFTA)– agreement that eliminates most tariffs and trade restriction on agricultural and manufactured products to encourage trade among Canada, the U.S., and Mexico. 3-31 Trade Agreements, Alliances, & Organizations EU European Union (EU)– a union of European nations established in 1958 to promote trade among its members; one of the largest single markets today. 3-32 Trade Agreements, Alliances, & Organizations APEC Asia-Pacific Economic Cooperation (APEC)– an international trade alliance that promotes open trade and economic and technical cooperation among member nations. 3-33 Trade Agreements, Alliances, & Organizations World Bank World Bank – (International Bank for Reconstruction and Development) Organization established in 1946 by industrialized nations to loan money to underdeveloped and developing countries. 3-34 Trade Agreements, Alliances, & Organizations IMF International Monetary Fund (IMF)– Organization established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation 3-35 Getting Involved in International Business Exporting & importing, trading companies, licensing and franchising, contract manufacturing, joint ventures, direct investment, and multinational corporations. Many companies’ involvement in international trade begins with importing goods for resale. 3-36 Getting Involved in International Business Exporting & importing Exporting can take place through countertrade agreements – foreign trade agreements that involve bartering products for other products instead of for currency. 3-37 Getting Involved in International Business U.S. Exporters and Value by Company Size Most U.S. exporters are small businesses and represent almost 20% of exports U.S. Exporting Companies for Selected Countries 3-38 Getting Involved in International Business Trading Companies A firm that buys goods in one country and sells them to buyers in another country is a trading company. 3-39 Getting Involved in International Business Licensing & Franchising A trade agreement in which one company (licensor) allows another company (licensee) to use its company name, products, patents, brands, trademarks, etc. in exchange for a fee or royalty. 3-40 Getting Involved in International Business Licensing & Franchising Franchising is 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. 3-41 Getting Involved in International Business Top 10 Global Franchise Operations 3-42 Getting Involved in International Business Contract manufacturing 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 3-43 Joint Ventures & Alliances Joint venture – the sharing of the costs and 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 3-44 Getting Involved in International Business The 10 Largest Global Corporations MNC – multinational corporation such as IBM, General Motors, General Electric or ExxonMobil that operates on a worldwide scale. 3-45 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. 3-46