Introduction International Business Activities International Trade includes exports and imports. Foreign Direct Investment (FDI) International companies must make FDI to establish and expand their overseas operations. Foreign Sourcing is the overseas procurement of raw materials, components, and products. 2-5

Volume of Trade In 1990, volume of international trade in goods and services surpassed $4 trillion. In 2003, international trade in goods and services exceeded $9 trillion. One-fourth of everything grown or produced in the world is now exported. 2-6

Volume of Trade Increases in exports to developing countries, especially Latin America Central and Eastern Europe Middle East Asia Quadrupling of world exports in less than 31 years demonstrates that the opportunity to increase sales by exporting is a viable growth strategy 2-7

Direction of Trade Largest exporters and importers of merchandise are generally developed countries Among largest 25 exporters emerging economies of China, Mexico, Malaysia, Thailand, Brazil Among largest merchandise importers China, Mexico, Malaysia, Thailand, India, Turkey 2-8

Focus on Major Trading Partners Favorable business climate Regulations not insurmountable No strong cultural objections Transportation facilities already established 2-11 Channel members experienced in handling imports Foreign exchange is available Government pressure to buy from countries that are good customers for exports

Foreign Investment Two components of foreign investment Portfolio investment Purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested. Direct investment Investors participate in the management of the firm in addition to receiving a return on their money. Applies when investors equity participation ratio is 10 percent or more. 2-14

Volume of FDI End of 2002 worldwide nearly $6.9 trillion Largest investors United States 1.45 times next largest investor United Kingdom followed France third largest investor Total annual outflow 2002 $647 billion Much FDI associated with mergers, acquisitions and other investments result of increased global competition 2-15

Trade Leads to FDI Foreign direct investment historically follows trade Trade less costly and less risky Can expand business in small increments Use domestic or foreign agents to export Hire sales representatives to live in overseas market Establish own sales company Today many international firms disperse activities to locations close to available resources 2-16

FDI in United States Nearly 82% of stock owned by firms from United Kingdom France Netherlands Japan Germany Switzerland Canada 2-17

Why Enter Foreign Markets? Obtain Greater Profits Less competition, better price Greater sales volume Lower costs of goods sold Government inducements Higher profit margins Test market 2-20

Why Enter Foreign Markets? To protect domestic market Follow customers overseas Attack in competitor’s home market Use foreign production to lower costs Protect from lower-priced foreign imports In-bond plants (maquiladoras) Caribbean Basin Initiative Andean Trade Preference Act Growth Triangles Export Processing Zones 2-21

Why Enter Foreign Markets? To protect foreign market Lack of foreign exchange Local production by competitors Follow suit or risk losing the market Downstream markets Protectionism Government erects barriers to protect local industry Guarantee supply of raw materials Acquire technology and management know-how Geographic diversification Satisfy management desire for expansion 2-22

Global Dimensions Product Markets Promotion Where value is added to product Competitive strategy Use of non-home-country personnel Extent of global ownership of firm