 Introduction to Business 1 BUS-101 Instructor: Erlan Bakiev, Ph.D.

Competing in the Global Economy © Prentice Hall, 2005 Business In Action 3e Cha pter 3 - 2

Why Nations Trade © Prentice Hall, 2005 Business In Action 3e Cha pter ScarceRecoursesScarceRecourses GlobalAmbitionsGlobalAmbitions LimitedCapabilitiesLimitedCapabilities Economies of Scale Economies

Theories of Production and Trading © Prentice Hall, 2005 Business In Action 3e Cha pter AbsoluteAdvantageAbsoluteAdvantageComparativeAdvantageComparativeAdvantage

Measuring International Trade © Prentice Hall, 2005 Business In Action 3e Cha pter Balance of Trade Balance SurplusSurplus DeficitDeficit Balance of Payments Balance Cash Inflow Cash Outflow

US Exports and Imports – Goods (in $ billions, 2002 data) © Prentice Hall, 2005 Business In Action 3e Cha pter Foods, Feeds and Beverages Industrial Supplies & Materials (including Petroleum) Machinery & Transport Equipment (not autos) Automotive Vehicles, Engines & Parts Consumer Goods (non-food) Other Goods Exports Imports 49,616 49, , , , ,323 78, ,743 84, ,854 32,854 49,078

US Exports and Imports – Services (in $ billions, 2002 data) © Prentice Hall, 2005 Business In Action 3e Cha pter Travel and Passenger Fares Other Transport Royalties and License Fees Other Private Services Military, Defense Services Misc. Government Services Exports Imports 83,593 78,013 29,166 38,527 44,142 19, ,594 69,436 11,943 19, ,920

Trade Deficit on the Rise © Prentice Hall, 2005 Business In Action 3e Cha pter Trade deficit (in $ billions)

Global Trade Issues © Prentice Hall, 2005 Business In Action 3e Cha pter Free Trade Fair Trade Trade Restrictions

Protectionism and Trade Restrictions © Prentice Hall, 2005 Business In Action 3e Cha pter SanctionsSanctionsRestrictiveImportsRestrictiveImportsSubsidiesSubsidiesDumpingDumping TariffsTariffsQuotasQuotasEmbargoesEmbargoes

Promoting Free Trade © Prentice Hall, 2005 Business In Action 3e Cha pter World Trade Organization (WTO) World Trade Organization (WTO) International Monetary Fund (IMF) International Monetary Fund (IMF) The World Bank General Agreement on Tariffs and Trade (GATT) General Agreement on Tariffs and Trade (GATT) Asia Pacific Econ Cooperation Council (APECC) Asia Pacific Econ Cooperation Council (APECC)

© Prentice Hall, 2005 Business In Action 3e Cha pter Trading Blocs Advantages Help smaller countries Promote competition Widen markets Foster economic growth Disadvantages Economic isolation Trade restrictions Decline in world trade Fewer choices

North American Free Trade Agreement (NAFTA) © Prentice Hall, 2005 Business In Action 3e Cha pter United States Canada Mexico

© Prentice Hall, 2005 Business In Action 3e Cha pter The European Union MinimizingEstablishing Local Regulations Variations in Product Standards Trade Protectionism Global Product Standards Consumer Protection EnvironmentalProtection

The Economic and Monetary Union (EMU) © Prentice Hall, 2005 Business In Action 3e Cha pter EconomicImpactEconomicImpact CurrencyExchangeCurrencyExchange CentralizedBankingCentralizedBanking CurrencyUnificationCurrencyUnification The EURO

Foreign Exchange Rates and Currency Valuations © Prentice Hall, 2005 Business In Action 3e Cha pter Floating Rates Government Action Currency Devaluation Fixed Value System

The Global Business Environment © Prentice Hall, 2005 Business In Action 3e Cha pter Opportunities  Growth Potential  Increased Sales  Operating Efficiencies  New Technologies  More Consumer Choices Challenges  Laws and Customs  Consumer Preferences  Ethical Standards  Labor Skills  Politics and Economics

Cultural Differences In Global Business  Consider the other person’s customs  Deal with the individual  Clarify your intent and meaning  Adapt your style to the other person  Show respect © Prentice Hall, 2005 Business In Action 3e Cha pter

Legal Differences In Global Business  Common Law (US, UK)  Civil Law (France, Italy, Turkey etc.)  Theocratic Law (Iran, Saudi Arabia)  IMF and WTO (found restrictive laws in TR and RUS)  Issues (Bribery different Acts against it.. Foreign Corrupt Practices Act ) © Prentice Hall, 2005 Business In Action 3e Cha pter

© Prentice Hall, 2005 Business In Action 3e Cha pter

International Business Activity © Prentice Hall, 2005 Business In Action 3e Cha pter Importing and Exporting Licensing and Franchising Strategic Alliances and Joint Ventures Direct Foreign Investment OwnershipFinancialRisk LowLowLow LowLowLow ModerateModerateModerate HighHighHigh Common Forms Levels of Commitment

Strategic Approaches to International Markets Products Support Promotion Pricing Staffing © Prentice Hall, 2005 Business In Action 3e Cha pter

© Prentice Hall, 2005 Business In Action 3e Cha pter Impact of Terrorism on Global Business GovernmentExpendituresBusinessExpenditures BankingTransportation