EXPLORING GLOBAL BUSINESS
CHAPTER-03
1
Dr. Gehan Shanmuganathan, (DBA)
SAMSUNG ELECTRONICS SHINES
IN THE GLOBAL SPOTLIGHT
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SAMSUNG ELECTRONICS SHINES IN THE
GLOBAL SPOTLIGHT

Samsung started as a small firm specializing in exporting food
products to China

Later ventured into insurance

In 1970 produced black and white televisions

Today, Samsung is an international corporation offering cameras,
computers, cellphones, disk drivers, and semiconductors

Currently competes with global giants such as Apple, HewlettPackard, Intel, and Motorola

Samsung uses innovation through research and development
centers in the US, Europe, India, and China and partnership with
international companies in terms of sourcing and manufacturing
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LEARNING OBJECTIVES
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LEARNING OBJECTIVES

Explain the economic basis for international business

Discuss the restrictions nations place on international trade, the
objectives of these restrictions, and their results

Outline the extent of international business and world economic outlook
for trade

Discuss international trade agreements and international economic
organizations working to foster trade

Define the methods by which a firm can organize for and enter into
international markets

Discuss the various sources of export assistance

Identify the institutions that help firms and nations finance international
business
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INTERNATIONAL TRADE
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INTERNATIONAL TRADE

When Coca Cola sells parts of its chain to other
countries, Pier 1 imports goods from around the world
into the US

Trade is an important source of good jobs for our
workers and a source of higher growth for our
economy

Trade is an engine of economic growth

Trade has helped millions of people to lift their lives
from poverty to prosperity
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INTERNATIONAL BUSINESS DEFINED

International business encompasses all business
activities that involves exchanges across
national boundaries- Pride, William M.,
Hughes, Robert J. and Kapoor, Jack R. (2012)
Business.
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ADVANTAGES IN INTERNATIONAL TRADE

Some countries are better equipped with national
resources compared to other countries. They
trade the production surplus in an exchange of
what they need. These national resources are
based on,

Specialization

Natural resources

Labor

Technological advances
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BASIS FOR INTERNATIONAL
BUSINESS
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THE BASIS FOR INTERNATIONAL BUSINESS

Absolute advantage- ability to produce a specific
product more efficiently than any other nation.

Comparative advantage - ability to produce a
specific product more efficiently than any other
product.

Business survival through international
opportunities

Globalization and global presence
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ABSOLUTE ADVANTAGE

The ability to produce a specific product more
efficiently than any other nation

Examples

Saudi Arabia- petroleum products

South Africa- diamonds

Australia – wool
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COMPARATIVE ADVANTAGE

The ability to produce a specific product more
efficiently than any other product

Examples are,

Research and development- USA

High-technology industries – South Korea

Identifying new markets - India
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EXPORTING AND IMPORTING
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EXPORTING AND IMPORTING

Exporting is selling and shipping raw materials
or products to other nations

Importing is purchasing raw materials or
products of other nations and brining them into
one’s own country
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TOP 10 EXPORTS STATES IN THE US- 2005
IN $ BILLIONS
Massachusetts
$22.0
Pennsylvania
$22.3
$33.4
Florida
Ohio
$35.0
Illinois
$36.0
Michigan
$37.6
Washington
$38.0
$50.5
New York
$116.8
California
$128.8
Texas
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
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INTERNATIONAL TRADE
CONCEPTS
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SOME INTERNATIONAL TRADE CONCEPTS

Balance of Trade-The balance of trade indicates the
difference between nation’s imports and exports
values over a period of time (nation’s export value
minus imports value)

Trade Deficit- The trade deficit is a negative
balance of trade (I > E) (discuss when E>I)

Balance of Payment- Balance of Payment is the
total flow of money into a country (exports) minus
total flow of money out of that country (imports) over
a period of time (National Debt)
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BALANCE OF TRADE
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TRADE DEFICIT
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BALANCE OF PAYMENT
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RESTRICTIONS TO
INTERNATIONAL BUSINESS
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TYPES OF TRADE RESTRICTIONS

Tariff Barriers

Non-Tariff Barriers
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TARIFF BARRIERS
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TARIFF BARRIERS

Tariffs- The most commonly imposed custom
duty (import duty)

Two types of tariffs – Protective Tariffs (fresh
tomato from Mexico)and Revenue Tariffs (Scotch
Whiskey)

Both increase the cost price of the product

Dumping - exportation of large quantities of a
product at a lower price than that of the same
product in that home market (impose of antidumping
duties to control)
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NON-TARIFF BARRIERS
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NON-TARIFF BARRIERS

A non-tariff barrier is non-tax measure imposed by the
government to favor domestic over foreign suppliers. This
creates obstacles to marketing of foreign goods in a country
and increase costs for exporters

Import quota- imposing a import limit on a particular
product in given period of time

Embargos- a complete halt to trading with a particular
nation used mostly as a political weapon

Foreign exchange control- This is the limitation on the
foreign currency that can be purchased or sold

Currency devaluation- The decrease of nation’s own
currency in relation to the currency of other nations
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REASONS FOR TRADE RESTRICTIONS

To equalize a nation’s balance of payment

To protect new or weak industries- e.g- imposing
quotas on foreign textile in the US

To protect national security- e.g- exporting strategic
defense related products to unfriendly nations

To protect the health of citizens- e.g- farm products
contaminated with insecticides

To retaliate for another nation’s trade restrictions

To protect domestic employments
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REASONS AGAINST TRADE RESTRICTIONS

Higher prices for consumers

Restrictions of consumers choice

Misallocation of international resources by trying to
protect already weak industries (protection of weak
industries is a waste of national resources)

Loss of jobs if the majority works in exports oriented
industries
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WORLD ECONOMIC OUTLOOK
FOR TRADE
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WORLD ECONOMIC OUTLOOK

In the United States, international trade now accounts for
over one-fourth of Gross Domestic Products (GDP)

Growth in advanced economies slowed, while emerging
economies continued to grow. The BRIC countries

United States economy in an economic depression

Canada and Western Europe are projected to slow the
growth

Mexico and Latin America are stagnant

Japan indicates a slow growth

Asia is making a tremendous growth currently
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UNITED STATES CONTINUE IN
INTERNATIONAL TRADE

US exports to Central and Eastern Europe and
Russia will increase

US will increase investments in these countries
creating demand for capital goods and technology
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EXPORTS AND THE US ECONOMY

Globalization has opened opportunities for US
economy for international trading despite
economic recessions in 2001 and 2008

Canada and Mexico are best partners for US
exports, while China and Canada for imports
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US EXPORTS AND IMPORTS 2009
Rank/Trading Partner
Exports ($ billion) Rank/Trading Partner
Canada
204.7
Mexico
Imports ($ billion)
China
296.4
129
Canada
224.9
China
69.6
Mexico
176.5
Japan
51.2
Japan
95.9
United Kingdom
45.7
Germany
71.3
Germany
43.3
United Kingdom
47.5
Netherlands
32.3
South Korea
39.2
South Korea
28.6
France
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France
26.5
Taiwan
28.4
Brazil
26.2
Venezuela
28.1
TOTAL
657.1
1042.2
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INTERNATIONAL TRADE
AGREEMENTS
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THE GENERAL AGREEMENT ON TARIFFS
AND TRADE (GATT)

An international organization of 153 nations
dedicated to reducing or eliminating tariffs and
other barriers to world trade

These 153 nations accounted for more than 97%
of world’s merchandise trade

GATT headquartered in Geneva, Switzerland
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GATT NEGOTIATION ROUNDS

The Kennedy Round (1964-1967) to reduce US
tariffs by 50%

The Tokyo Round (1973-1979) to reduce
participating member country tariff by 35%

The Uruguay Round (1986-1993) and also created
World Trade Organization (WTO) in order
to guide GATT

The Doha Round (2001)
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INTERNATIONAL ECONOMIC
ORGANIZATIONS WORKING TO
FOSTER TRADE
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INTERNATIONAL ECONOMIC
ORGANIZATIONS

Economic Community- an organization of
nations formed to promote the free movement of
resources and products among its members and
to create common economic policies

European Union an example
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INTERNATIONAL ECONOMIC
ORGANIZATIONS

European Union

North American Free Trade Agreement (NAFTA)

The Central American Free Trade
Organization(CAFTA)

The Association of Southeast Asian Nation (ASEAN)

The Pacific Rim

Commonwealth of Independent States (CIS)

The Organization of Petroleum Exporting Countries
(OPEC)
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INTERNATIONAL BUSINESS
ENTRY STRATEGIES
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INTERNATIONAL BUSINESS ENTRY
STRATEGIES

Licensing- A contractual agreement in which one
firm permits another to produce and market its
products and use its brand name in return for royalty
or other compensation. E.g- McDonald, KFC

Exporting- organization manufactures in the home
country to export to other countries. E.g- ExxonMobil

Joint venture- a partnership between two entities
for a business operation in a country (guest country).
E.g- Samsung Research in US
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INTERNATIONAL BUSINESS ENTRY
STRATEGIES

Totally owned facility- with total ownership of the
business

Strategic Alliance- partnership formed to create
competitive advantage on a worldwide business

Trading company- These companies provide a link
between the international buyer and the seller

Counter Trade- International barter transactions

Multinational Firms- A firm that operates on a
worldwide scale without ties to any specific nation or region
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FINANCING INTERNATIONAL
BUSINESS
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FINANCING INTERNATIONAL BUSINESS

The Export-Import Bank of the United States

Multilateral Development Banks
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QUESTIONS……..
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WEEKLY ASSIGNMENT-03

What effects might the devaluation of the
nation’s currency have on its export oriented
business firms, its consumers, and the debts it
owes to other nations? Discuss.
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