1. FERRELL | HIRT | FERRELL
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

2. CHAPTER 1 The Dynamics of Business and Economics
PART 1
CHAPTER 1 The Dynamics of Business and Economics
CHAPTER 2 Business Ethics and Social Responsibility
CHAPTER 3 Business in a Borderless World
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3. International Business
The buying, selling and trading of goods and services across national boundaries
Global marketing requires balancing global brands with the needs of local consumers
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4. Why Nations Trade
International trade allows for the acquisition of raw materials and goods at favorable prices
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5. Absolute vs. Comparative Advantages
Absolute Advantage
A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.
Comparative Advantage
The basis of the most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items
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6. Outsourcing
The transferring of manufacturing or other tasks, such as data processing, to countries where labor and supplies are less expensive
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7. Exporting & Importing Exporting Importing
The sale of goods and services to foreign markets
The US exports over $1.5 trillion in goods and services annually
Importing
The purchase of goods and services from foreign sources
The U.S. imports around $2 trillion in goods and services annually
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8. Therefore, the U.S. has a trade deficit.
Balance of Trade
The difference in the value between what a nation exports and imports
U.S. Trade Deficit (in billions of dollars)
1980
1990
2000
2006
2008
2009
Exports
333
578
1,133
1,437.8
1,843
1,553.1
Imports
326
632
1,532
2,520.1
1,933.7
Surplus / Deficit 7
-57
-399
-763.3
-677.1
-380.7
A Trade Deficit
The U.S. imports
more than it exports.
Therefore, the U.S. has a trade deficit.
Source: “Foreign Trade Statistics, U.S. Census Bureau
The trade deficit is also called a nation’s negative balance of trade
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9. U.S. Exports to China Have Increased
U.S. Exports to China (in millions of U.S. dollars)*
Source: “Trade in Goods (Imports, Exports and Trade Balance) with China,” U.S. Census Bureau: Foreign Trade Statistics,
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10. Top 10 Countries Maintaining Trade Deficits/Surpluses with the US
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11. Balance of Payments
The difference between the flow of money in and out of a country
A nation’s balance of trade, foreign investments, foreign aid, loans, tourists dollars and military expenditures comprise its balance of payments
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12. Barriers to International Trade
Completely free trade seldom exists.
Barriers to international trade:
Social
Cultural
Technological
Economic
Legal
Political
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13. Economic Barriers to Trade
Economic development
Infrastructure
Exchange rates
Less-Developed Countries (LCDs)
Low per-capita income
Less economically advantaged
Potentially huge & profitable markets
Largely located in Africa, Asia and Latin America
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14. Infrastructure
The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals and commercial distribution systems
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15. Exchange Rates
The ratio at which one nation’s currency can be exchanged for another nation’s currency
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16. Ethical, Legal & Political Barriers in International Trade
Complex relationships between nations
Different laws
Differing intellectual property protections
Trade restrictions
Political barriers and volatility
Cultural differences
Different ethical values
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17. Legal Barriers to Trade
Tariff and Trade Restrictions
Part of a nation’s legal structure
May be established or removed for political reasons
Import Tariff
A tax levied by a nation on goods imported into the country
Exchange Controls
Regulations that restrict the amount of currency that can be bought or sold
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18. Legal Barriers to Trade
Quota
A restriction on the number of units of a particular product that can be imported into a country
Embargo
A prohibition on trade for a particular product
Dumping
The act of a country or business selling products at less than what it costs to produce them
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19. Political Barriers to Trade
Seldom in writing & change rapidly
Relative stability of countries is a factor
Cartel
A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets
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20. Cultural Barriers
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21. Technological Barriers
Technological advances are creating global marketing opportunities
At least 10 nations outrank the U.S. in terms of subscribers to broadband Internet access
China and India are rapidly advancing and represent huge markets
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22. Trade Agreements, Alliances & Organizations
General Agreement on Tariffs and Trade (GATT)
Signed by 23 nations in 1947
Forum for tariff negotiations
Place for international trade issue discussion and resolution
Replaced by the World Trade Organization (WTO) in 1995
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23. Trade Agreements, Alliances & Organizations
World Trade Organization (WTO)
International organization dealing with the rules of trade between nations
Officially founded in 1995
Successor to GATT
153 members representing 95% of global trade
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24. Trade Agreements, Alliances & Organizations
North American Free Trade Agreement (NAFTA)
Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S. and Mexico
Has been controversial, but has created new business opportunities with fewer barriers than before
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25. Trade Agreements, Alliances & Organizations
European Union (EU)
A union of European nations established in to promote trade among its members
One of the largest single markets today
Asia-Pacific Economic Cooperation (APEC)
An international trade alliance that promotes open trade and economic and technical cooperation among member nations
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26. Trade Agreements, Alliances & Organizations
World Bank (International Bank for Reconstruction and Development)
Organization established in 1946 by industrialized nations to loan money to underdeveloped and developing countries
International Monetary Fund (IMF)
Organization established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation
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27. Getting Involved in International Business
Exporting & importing
Trading companies
Licensing and franchising
Contract manufacturing
Joint ventures
Direct investment
Multinational corporations
Many companies’ involvement in international trade begins with importing goods for resale
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28. Getting Involved in International Trade
Countertrade Agreements
Bartering products for other products instead of for currency
Export agents are middlemen that help companies by handling their international transactions
Trading Company
Buys goods in one country and sells them to buyers of another country
Handles all activities required to move products from one country to another
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29. Licensing
A trade arrangement where one company allows another company to use its company name, products, patents, brands, trademarks, raw materials, and production processes in exchange for a fee or royalty
Many products are licensed and produced by local companies internationally
Amstel Lager beer produced by Namibian company Namibia Breweries under a license from Heineken
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30. Franchising
A form of licensing where a company (franchiser) agrees to provide a franchisee a name, logo, operational guidelines, products, etc., in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation
McDonald’s is the world’s largest franchise in terms of revenues
Includes restaurants in 118 countries
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31. Contract Manufacturing
The hiring of a foreign company to produce a specified volume of the initiating company’s product to specification
The final product carries the domestic firm’s name
Common in high-tech industries, automotive industry and food manufacturing
Many clothing manufacturers use contract manufacturing
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32. Offshoring
The relocation of a business process by a company or subsidiary to another country
Different from outsourcing
The company retains control of the process
Not subcontracting to a different company
Appealing because of lower wages, high skills, time zone differences
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33. Other Forms of Engaging in International Trade
Joint Venture
The sharing of the costs of operation of a business between a foreign company and a local partner
Strategic Alliance
A partnership formed to create competitive advantage on a worldwide basis
Direct Investment
The ownership of overseas facilities
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34. Joint Ventures
Wal-Mart engaged in a 50/50 joint venture with India business group Bharti Enterprises Ltd.
Indian laws prohibit foreign direct investment in the retail sector
The stores are called Best Price Modern Wholesale
Are members-only wholesale stores for other Indian retailers
Different model than Walmarts elsewhere
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35. Ten Largest Global Corporations
1. Royal Dutch Shell
6. Total
ExxonMobil
ConocoPhillips
3. Wal-Mart Stores, Inc.
8. ING Group BP
Sinopec
5. Chevron
10. Toyota Motors
(Source: “The Global 500,” Fortune 2009)
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36. Multinational Corporations
The highest level of international business involvement
Operates on a worldwide scale without significant ties to a single nation or region
Largest MNCs are wealthier than most countries
Antiglobalization activists contend that MNCs are responsible for growing wealth disparity and misusing scarce resources
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37. International Business Strategies
Multinational Strategy
A plan used by international companies that involves customizing products, promotion and distribution according to cultural technological, regional and national differences
Global Strategy (Globalization)
A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity.
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38. Managing the Challenges of Global Business
Many political barriers to trade have fallen in recent decades
Navigating international business remains complicated
Technology and improved standards of living globally are creating tremendous new marketing opportunities
Governments and business organizations exist to help businesses looking to go international
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