Business in a Global Environment Chapter 4 Download this book for free at: ttp://hdl.handle.net/10919/70961

Review What are conflicts of interest? Give an example. What is corporate social responsibility? What is the difference between an ethical decision and an ethical dilemma?

Learning Objectives Explain why international trade. Describe absolute and comparative advantage. Explain how trade is measured. Define importing and exporting. Explain licensing agreements and franchises. Describe contract manufacturing and outsourcing. Explain strategic alliances and joint ventures Understand how companies expand internationally. Appreciate how differences between countries create challenges to business. Describe how governments and international bodies promote and regulate global trade. Discuss initiatives to promote free trade. Download this book for free at: ttp://hdl.handle.net/10919/70961

Why Nations Trade Imports Exports Which is better? What do we import? What do we export? Which is better?

Trade Advantage Absolute advantage Comparative advantage Only source of product or More efficient Rare Comparative advantage When have lower opportunity costs Must sacrifice making one product to produce another Can gain advantage from specialization

Balance of Trade Trade Surplus Trade Deficit Which is better? Exports exceed imports Trade Deficit Imports exceed exports Which is better? Which direction does wealth flow? How are deficits sustained?

Balance of Payments Measures total flow of money How does money enter or leave a country besides exports and imports? Surplus Money inflow greater than outflow Deficit Money outflow greater than inflow

Exports, Imports, and Balance of Payments Download this book for free at: ttp://hdl.handle.net/10919/70961

Types of International Business Importing and exporting License agreements Franchising Contract manufacturing Outsourcing Strategic alliances Joint ventures Foreign direct investment (FDI) Foreign subsidiary

Comparative Advantage Occupation U.S. Wage per Hour (per year) Indian Wage per Hour (per year) Accountant $22.12 per hour (~$44, 240 per year) $3.15 per hour (~$6,300 per year) Information Technology Consultant $40.70 per hour (~$81,400 per year) $22.40 per hour (~$44,800 per year) Cleaner $8.70 per hour (~$17,400 per year) $2.10 per hour (~$4,200 per year) Download this book for free at: ttp://hdl.handle.net/10919/70961

Where Foreign Direct Investment Goes Download this book for free at: ttp://hdl.handle.net/10919/70961

Multinational Firms Company operating in many countries Pros Cons Walmart Royal Dutch Shell Toyota Apple Microsoft Pros Cons

Global Business Environment How do each of these affect business? Culture Language Time and sociability High- and low-context culture Communication styles

What Can Go Wrong? Download this book for free at: ttp://hdl.handle.net/10919/70961

Foreign Economic Environment Degree of economic development Legal and regulatory environment Foreign Corrupt Practices Act Illegal to bribe What if expected in another culture? Exchange rates

Foreign Corruption Corruption Perceptions around the World, 2015: A score of 100 is perfect, and anything below 30 means that corruption is considered rampant. Rank Country CPI Score 1 Denmark 91 2 Finland 90 3 Sweden 89 4 New Zealand 88 10 United Kingdom 81 16 United States 76 95 Mexico 35 167 Sudan 12 177 North Korea 8 Somalia Source: Transparency International Download this book for free at: ttp://hdl.handle.net/10919/70961

Foreign Currency Exchange Floating exchange rates Determined by supply & demand Fixed exchange rate Determined by government Hard currency Easily exchanged Soft currency Difficult to exchange How to get around this?

Government Trade Intervention Subsidies Government payments Tariffs Tax on imports Quotas Limit on imports Embargo Ban on imports or exports Dumping Exporting at low prices or even below cost

Government Trade Intervention Discussion Who “wins” with a tariff? Who “loses” with a tariff? What can businesses do when governments step in? May lead to trade war

Trade Agreements NAFTA EU North American Free Trade Agreement U.S., Canada, Mexico EU European Union Has common currency for most members What happens when one country gets into economic trouble (e.g. large debts, unemployment)?

Reducing Barriers to Trade GATT – General agreement on tariffs and trade Designed to promote free trade WTO – World Trade Organization Arbitrates trade disputes

Financial Support IMF – International Monetary Fund World Bank Loans money to economies in trouble Requires economic reforms World Bank Loans money to countries for projects

Discussion The U.S. steel industry has difficulty competing with foreign steel costs are high plants are outdated steel is an important industry in several parts of the country other countries do not pay the same wages as U.S. firms other countries do not have the same environmental laws Should the government impose tariffs on foreign steel? What will be the effects if it does?

Discussion The French impose high tariffs on agricultural products. Should the U.S. retaliate and impose tariffs on the French? on which product(s)? what will be the effect?