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©2013 Cengage Learning. All Rights Reserved.
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The World
Marketplace:
Business Without
Borders
LO1
What opportunities exist in the
world economy for businesses?
LO2
Why do nations trade?
LO3
How do we measure trade?
LO4
How do companies reach global
markets?
LO5
What are the barriers to
international trade?
LO6
What are the benefits and
criticisms of the free trade
movement?
2
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The Basis for International Business

International business
•
All business activities that involve exchanges across national boundaries
 Is International Trade (Business) Good?
– Absolutely!
– No single country (or business) has the resources and capabilities to produce everything its citizens
want or need at prices they are willing to pay
• Does Spain produce enough corn for its citizens?
• Does the US produce enough oil for its citizens?
– PROFIT PURSUIT; Global = Bigger Market
• Can you think of any MNC’s (multi-national companies)?
 Some countries are better equipped than others to produce particular goods or services.
•
Absolute advantage
– The ability to produce a specific product more efficiently
than any other nation
– Ex. SaudiaArabia->crude oil; South Africa->diamonds; Australia->wool
•
Comparative advantage
– The ability to produce a specific product more efficiently
than any other product
 Goods and services are produced more efficiently when each country specializes in the products for which
3
it
has
a
comparative
advantage.
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part.
The Basis for Int’l Business (cont.)
 Countries trade when they each have a surplus of the product they specialize in and
want a product the other country specializes in.
 Exporting
• Selling and shipping raw materials or products
to other nations
 Importing
• Purchasing raw materials or products in other nations and bringing them into
one’s own country
 Balance of trade
• The total value of a nation’s exports minus the total value of its imports over
some period of time
 Trade deficit
• A negative (unfavorable) balance of trade (imports>exports)
 Trade surplus
• A positive (favorable) balance of trade (exports>imports)
4
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Top Ten Merchandise Exporting States
5
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Reasons to Restricting Trade
 The reasons for restricting trade range from internal
political and economic pressures to mistrust of other
nations.
 Nations are generally eager to export
their products to provide markets for their industries
and develop a favorable balance
of trade.
 Most trade restrictions are applied to imports from
other nations.
6
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US Int’l Trade in Goods and Services
7
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Types of Trade Restrictions
 Import duty (tariff)
•
A tax levied on a particular foreign product entering a
country
– Revenue tariffs are imposed to generate income
for the government.
– Protective tariffs are imposed to protect a domestic industry from
competition by keeping the prices of imports at or above the price of
domestic products.
 Dumping
•
The exportation of large quantities of a product at a price
lower than that of the same product in the home market
8
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Types of Trade Restrictions
 Nontariff barriers
•
Nontax measures imposed by a government to favor domestic
over foreign suppliers
•
Import quota—a limit on the amount of a particular good that
may be imported during a given time
•
Embargo—a complete halt to trading with a particular nation or
in a particular product
•
Foreign exchange control—restriction on amount of foreign
currency that can be purchased or sold
9
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Types of Trade Restrictions
 Nontariff barriers (cont.)
•
Currency devaluation—the reduction of the value of a
nation’s currency relative to the currencies of other countries
•
Bureaucratic red tape—subtly imposes unnecessarily
burdensome and complex standards and requirements for
imported goods
•
Cultural attitudes—can impede acceptance of products in
foreign countries
10
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Reasons For and Against Trade
Restrictions
FOR
AGAINST
• To equalize a nation’s
• Higher prices for consumers
•
•
•
•
•
balance of payments
To protect new or
weak industries
To protect national
security
To protect the health
of citizens
To retaliate for another
country’s trade restrictions
To protect domestic jobs
• Restriction of consumers’
choices
• Misallocation of international
resources
• Loss of jobs
11
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The following are unaltered slides direct
from the textbook
12
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An Unprecedented Opportunity….
“
“A company that keeps its eye on Tom,
Dick and Harry is going to miss Pierre,
Hans, and Yoshio.”
-- Al Ries, marketing strategist and
author
“
©2013 Cengage Learning. All Rights Reserved. May not
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13
be scanned,
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Growing World Population
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14
or
Global Trade Recovery
• The long-term global potential for U.S. business is
enormous
• The global economy contracted in 2009
• But, world GDP turned back around in 2010
• U.S. consumers have money but China and India
represent a bigger opportunity
15
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Unimpressive Scores
• U.S. students ranked 25th among peers from 34 countries on
a math test, and scored average in science and reading
• China, Singapore, and South Korea led
the pack, outpacing American students
• The South Korean government set a curfew
for online games in 2010 because public
school students exhibited signs of addiction
• The U.S. addiction level are equally high as American
students need to increase their academic “game” to
compete globally
©iStockphoto.com/Jesus Jauregui
Source: Singapore Study finds video game addiction exists globally, The Medical News website, January 20, 2011, http://www.news-medical.net/news/20110120/Singapore-study-finds-video-game-addiction-exists-globally.aspx accessed February 14, 2011;
What they’re restricting in South Korea, Time magazine briefing, April 26, 2010; U.S. Teens Lag as China Soars on International Test by John Hechinger, December 7, 2010, Bloomberg website, http://www.bloomberg.com/news/2010-12-07/teens-in-u-srank-25th-on-math-test-trail-in-science-reading.html, accessed February 14, 2010; South Korea Cracks Down on Gaming Addiction by Geoffrey Cain, Time magazine website, April 20, 2010, http://www.time.com/time/world/article/0,8599,1983234,00.html,
accessed February 1, 2010
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16
or
Key Reasons for International Trade
Access to Factors of Production
Reduced Economic Risk
Inflow of Innovation
17
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Key Reasons for International Trade:
Competitive Advantage
Opportunity cost –The cost of giving up the second-best choice when
making a decision
A country has an
absolute advantage when
it can produce more of a
good than other nations,
using the same amount
of resources.
Comparative
advantage is the
benefit a country
has in a given industry if
it can make products at a
lower opportunity
cost.
18
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Cell Phone Subscriptions
Around the World
• In the U.S., Europe, and Japan, cell phones
followed landlines, but many developing nations
“can leapfrog technology.”
• China currently boasts the world’s largest base of
cell phone users—766 million
• India’s current subscriber base is more than 584
million; it has grown explosively in 5 years
© vario images GmbH & Co.KG / Alamy
• In Africa, cell phone penetration rates in 2009
were approximately 21% versus 9% for land lines

In Zimbabwe, cell phone penetration grew from
4% in 2008 to about 30% in 2009.
Source: Zimbabwe: Mobile phone penetration linked to GDP growth, October 28, 2010, AllAfrica Global Media website, http://allafrica.com/stories/201011011088.html, accessed February 7, 2010; Mobile Phone Adoption in Developing Countries, WikiInvest website,
http://www.wikinvest.com/concept/Mobile_Phone_Adoption_in_Developing_Countries, accessed February 8, 2011; Cell phones vital in developing world by Malcolm Foster, January 27, 2007, Washington Post website, http://www .washingtonpost.com/wpdyn/content/article/2007/01/27/AR2007012700662.html, accessed January 28, 2009; China’s mobile users top 600 million: govt, July 24, 2008
19
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Global Trade: Taking Measure
• Balance of Trade
Trade Deficit
Trade Surplus
• Balance of Payments
Balance of Payments Deficit
Balance of Payments Surplus
• Exchange Rates
• Countertrade
20
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Global Trade: Exchange Rates
STRONG DOLLAR VS EURO:
(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:
(Example: $1.00 = .60 euros)
U.S. travelers to Europe
European travelers to U.S.
American firms with
European operations
European firms with
American operations
European exporters
American exporters
Source: What is countertrade? By Neha Gupta, Barter News Weekly website, March 11, 2010, http://www.barternewsweekly.com/2010/03/11/what-is-countertrade-1851/, accessed February 10, 2010
21
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The Many Names of Money
China
Yuan
England
Pound
European Union
Euro
India
Rupee
Iran
Rial
Israel
Shekel
Japan
Yen
Mexico
Peso
South Africa
Rand
South Korea
Won
22
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Market Development Options
23
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Strategies for Reaching Global Markets
Foreign Outsourcing/Contract
Manufacturing
Contracting with foreign suppliers to
produce products
Importing
Buying products that have been
produced in foreign nations
24
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© The Studio Dog/Photodisc/Getty Images
Seizing the Opportunity: Strategies
for Reaching Global Markets
• Exporting
Selling domestic products abroad
• Licensing
Authority given for rights to produce/market
product and use trademarks/patents
• Franchising
Providing the right to produce and market
products under its operating requirements
• Direct Investment
Firms acquire businesses or develop new
facilities in foreign countries
© Mystic Arabia / Alamy
• Joint Ventures
Two or more companies joining forces
25
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Chrysler and Fiat
Foreign
acquisition
allows companies
to gain quick
access into new
markets
In the wake of the
Great Recession…
Italian carmaker Fiat
acquired struggling U.S.
auto giant, Chrysler to
leverage the American
market
26
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Barriers to International Trade
• Sociocultural Differences
• Economic Differences
• Political & Legal Differences
© MAO SIQIAN/ XINHUA/XINHUA PRESS/ CORBIS
27
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Veggie Surprise, Anyone?
McDonald’s
• India: PaneerSalsa Wrap: Cottage cheese with
Mexican-Cajun coating
• Australia: Bacon and Egg Roll: “rashers of quality
bacon and fried egg”
• Kumati: Veggie Surprise Burger
• United Kingdom: Five “Toasted Deli” sandwich
options
©Joe Raedle/Getty Images
Pizza Hut
• Japan: Crust stuffed with shrimp nuggets and
mayonnaise
• South Korea: Crust filled with sweet potato mousse
Source: McDonald’s country/market sites, http://www.mcdonalds .com./countries.html, accessed February 10, 2011 . <http://www.dominos.com/Public-EN/Site+Content/Secondary/Inside+Dominos/Pizza+Particulars/International+Speciality+Toppings/;
http://slice.seriouseats.com/archives/2008/02/crazy-weird-asian-pizza-crusts-japanese-korean-hong kong.html; http://recipes.howstuffworks.com/fresh-ideas/dinner-food-facts/favorite-pizza-toppings-in-10-countries .htm;
http://slice.seriouseats.com/archives/2008/02/crazy weird-asian-pizza-crusts-japanese-korean-hong-kong.htm>
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28
or
Barriers to International Trade:
Economic Differences
•
•
•
•
Exchange Rates
Population
Per Capita Income
Infrastructure
 Transportation
 Communication
 Energy
 Finance
Can you profitably provide
your product or service to
meet the needs of the
market?
29
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Barriers to International Trade:
Sociocultural Differences
Social/cultural differences can
rapidly undermine business
relationships
•
•
•
•
•
Nonverbal Communication
Forms of Address
Attitudes toward punctuality
Religious Celebrations
Business Practice/Gifts
30
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© The Studio Dog/Photodisc/Getty Images
Barriers to International Trade:
Political and Legal Differences
• Political regimes differ around the world
• Legal Differences

Lack of Enforcement

Bribery
• Political Climate

Stability

Violence
• Piracy and intellectual property is a problem in
several foreign nations.
31
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Global Greening?
The world community must take dramatic steps to combat global warming.
• Change won’t be easy and coordination is vital
• The United Nations is sponsoring an international Climate Change
Conference in Copenhagen.
Consider these questions about the conference:
1. Did a treaty emerge? How many nations signed? Did any of the
participants surprise you? How?
2. Do you think the conferences and treaties will yield results? Why or
why not?
3. What role did the United States play? Do you believe that the role was
appropriate? Why or why not?
32
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Protectionism
Reasons to Create Trade
Restrictions
Reasons to Eliminate Trade
Restrictions
Protect domestic industry
Reduce prices and increase
choices for consumers
Protect domestic jobs in key
industries
Increase domestic jobs
Retaliate against countries who
have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries
Use world resources more
efficiently
33
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International Trade Restrictions
• Tariffs
• Quotas
• Voluntary Export Restrictions
• Embargo
34
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Free Trade: The Movement Gains
Momentum
There has been a global move toward
free trade – the unrestricted
movement of good and services across
borders.
35
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GATT and the World Trade Organization
(WTO)
• General Agreement on Tariffs &
Trade (GATT)
 Established in 1948
 125 Nations
 Slashed tariffs by about 30%
• World Trade Organization (WTO)
 Promote International Trade
 Settle Trade Disputes
36
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GATT and the World Trade Organization
(WTO)
• The World Bank




187 Member Countries
Reduce World Poverty in Developing World
Influence Global Economy
Provide Financial Assistance
• The International Monetary
Fund
AP Images/J. Scott Applewhite





Support Stable Exchange Rates
Facilitate International Payments
Adopt Economic Policies
Promote Trade
Lends money to member nations
37
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Trading Blocs and Common Markets
Groups of countries promoting the free flow of goods and services
• The North American Free Trade Agreement
(NAFTA)
 The largest trading bloc
 United States, Canada and Mexico
 Critics for job loss
• European Union (EU)
 The largest common market
 27 nations; combined GDP of $15 Trillion
 Goal is to bolster Europe’s trade position
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38
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Foreigners Flocking to America for
Bargains
• The weak dollar is enticing global shoppers
• The down dollar is a discount to tourists
• Foreign travelers are lured to the U.S. where they
get a bigger bang for their euro, franc, yen….
• Demand for U.S. hotels is up
• Tourism has been an economic boost representing
10% of jobs added in the first part of 2011
39
http://www.alaskadispatch.com/article/foreigners-flocking-america-bargains
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3
Looking Back
• What opportunities exist in the world economy for businesses?
• Why do nations trade?
• How do we measure trade?
• How do companies reach global markets?
• What are the barriers to international trade?
• What are the benefits and criticisms of the free trade movement?
40
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