1. Chapter 4 International Environment for Business
BellWork
Look in your backpacks and see where various items, such as calculators or pens, were made. Where do you think your family cars made?
Our marketplace is very internationalized
Chapter 4 International Environment for Business

2. Chapter 4 International Environment for Business
©2008 Thomson/South-Western

3. Lesson 4.1 The Importance of International Business
Objectives
Describe the nature, growth, and importance of international trade and investment.
Explain the reasons for the growth of international business.
Chapter 4 International Environment for Business

4. The Importance of International Business
International business is not new. People around the world have been trading since the beginning of history.

5. The Scope of International Business
International business — business activities that occur between two or more countries
Every country has its own laws and rules, its own currency, and its own traditions of doing business
Since the end of WWII in 1945 has international business become a dominant aspect of economic life
Extent of international trade — most of world’s trade takes place among the developed countries of North America, Western Europe, and the Pacific Rim

6. Extent of International Trade
A growing portion of American companies sales occurs in foreign countries.
Foreigners buy American products (computers, wheat, airplanes) and services (banking, insurance, data processing) just as Americans buy foreign products (petroleum, cars, clothes) and services (vacations, shipping, construction).
Many American firms make products in factories in foreign countries just as foreign companies make products in the United States.

7. Extent of International Trade
Over the past thirty years, countries on the western edge of the Pacific Ocean – referred to as the Pacific Rim – have emerged as big trading nations.
Trade patterns have shifted from goods to services.
Although goods still remain dominant, service industries now represent more than one-fifth of international trade.
Ex: tourism, banking, accounting, advertising, and computer services.

8. Top 10 Countries with Which the United States Trades
Canada
China
Mexico
Japan
Germany
United Kingdom
South Korea
Taiwan
France
Malaysia

9. Trade, Investment, and the Economy
As with trade, most investments are made within and by the world’s most industrialized economies.
Foreign investment occurs when firms of one country build new plants and facilities or buy existing businesses in another country.
Ex: the acquisition of Chrysler in the United States.
International trade and investment are a big and growing part of the American economy.
Almost 10% of all jobs depend on foreign trade, and nearly 5% of workers are employed by foreign companies operating in the United States

10. Reasons for Growth in International Business
Firms enter international business for many good reasons.
The main reason is profit
Businesses maybe able to earn more profit from selling abroad or maybe able to charge higher prices abroad than at home, where competition could be more intense.
When the cost of making goods is lower in foreign countries than at home, it becomes cost effective for companies to buy goods made abroad or even set up their factories abroad.

11. Reasons for Growth in International Business
Companies go international in reaction to what other companies are doing or because of changes in the domestic market.
Several factors help firms engage in international business.
World Trade Organization (WTO)
European Union (EU)
North American Free Trade Agreement (NAFTA)
International Monetary Fund (IMF)
World Bank
Euro
Trading Bloc

12. Reasons for Growth in International Business
One key factor is treaties in trade and investment signed by different countries.
World Trade Organization (WTO) – is an international organization that creates and enforces the rules governing trade among countries.
Trade agreements negotiated under authority of the WTO have led to huge cuts in tariffs, which have boosted exports and imports.

13. Reasons for Growth in International Business
Development of trading blocs has also stimulated global trade and investment.
Trading Bloc – is a group of two or more countries who agree to remove all restrictions between then on the sales of goods and services, while imposing barriers of trade with and investment from countries that are not part of the bloc.
Ex: European Union (EU) – advanced form of trading bloc.
Currently has 25 members
Formed in 1957 as the European Economic Community
Merged currency in to the euro on January , 1999

14. Reasons for Growth in International Business
In 1989, the United States signed a free-trade agreement with Canada.
In 1992, Canada and the United States signed a similar agreement with Mexico, called the North American Free Trade Agreement (NAFTA)
Created the world’s largest trading bloc by removing tariffs and other barriers to trade among its members.

15. Reasons for Growth in International Business
International business is also facilitated by two major international institutions – the International Monetary Fund (IMF) and the World Bank.
IMF’s main purpose is to help countries that are facing serious financial difficulties in paying for their imports or repaying loans.
The World Bank provides low-cost, long-term loans to less-developed countries to develop basic industries and facilities, such as roads and electric power plants.

16. Questions
International business has become more dominant in the United States since
1900
World War I
World War II
2000
Answer: WWII

17. Questions NAFTA includes The United States and the EU
The United States and Canada
The United States and Mexico
The United States, Canada, and Mexico
Answer: The United States, Canada, and Mexico

18. Assignment
Create an organizer that states 15 countries the U.S. trades with and what is being traded. Create another organizer that states all the countries that invest in the U.S. and what are they invested in.
If you finish early, Please complete critical thinking questions on page 87.

19. Lesson 4.1 The Importance of International Business
Objectives / Exit Ticket
Describe the nature, growth, and importance of international trade and investment.
Explain the reasons for the growth of international business.
Chapter 4 International Environment for Business

20. BellWork What do you think the following terms mean:
Joint Venture: two or more firms share the cost of doing business and also share the profit
Strategic Alliances: firms agree to cooperate on certain aspects of business while remaining competitors on other aspects.

21. Lesson 4.2 Forms of International Business
Objectives
Distinguish between the different forms through which international business is conducted.
Describe the policies, rules, and laws that governments use to affect international trade and investment.
Chapter 4 International Environment for Business

22. Forms of International Business
International business takes place in many forms.
When a firm decides to enter into international business, it starts by selling its products or services to buyers in another country, which is known as exporting.
Importing refers to buying goods or services made in a foreign country.

23. Forms of International Business
International business also takes place through licensing.
International licensing occurs when one company allows a company in another country to make and sell products according to certain specification.
Firms may set up businesses in foreign countries by forming joint ventures with other companies
Two or more firms share the costs of doing business and also share the profits.

24. Forms of International Business
When the firms sets up a business abroad on its own without any partners, it is known as a wholly owned subsidiary.
Many competitors have entered into strategic alliances with each other.
Firms agree to cooperate on certain aspects of business wile remaining competitors on other aspects.
The expansion of international business has created multinational firms.
Is a firm that owns or controls production or service.

25. Forms of International Business
The country in which the business has its headquarters is referred to as the home country.
The foreign location where it has facilities is knowns as the host country.
Company headquarters is called the parent firm; and the foreign branches, if registered as independent legal entities, are referred to as subsidiaries.

26. Government Policies
Because international business takes place between two or more countries, the policies, rules, and laws of more than one national government affect trade and investment.
On occasion governments impose tariffs, although economists consider free trade desirable for a society.
Taxes on foreign goods to protect domestic industries and to earn revenue.

27. Government Policies
Governments also impose tariffs when a foreign supplier is guilty of “dumping” its products.
Refers to the practice of selling goods in a foreign market at a price that is below cost or below what it charges in its home country.
When a company dumps, it is trying to win more customers by driving domestic producers out of market.

28. Government Policies
Another way governments restrict availability of foreign goods is to create quotas
Limits the quantity or value of units permitted to enter a country.
Ex; the U.S. government may allow 10,000 tons of salmon to enter the country annually from Chile, although much more salmon could be sold.

29. Government Policies
In addition to tariffs and quotas, it may be difficult to sell goods and services abroad because of nontariff barriers.
These are nontax methods of discouraging trade.
A government may bar companies from doing business with particular countries, which is a restriction known as an embargo.
Sanctions are a milder form of embargo that bans specific business ties with a foreign country.

30. Currency Values
International business involves dealing with the money, or currency, of foreign countries.
Currencies have different names, such as the dollar in the United States, peso in Mexico, and yen in Japan, but more important, they differ in value.
This is a key difference between doing business domestically and doing business internationally.
The exchange rate is the value of one country’s currency expressed in the currency of another country.
One U.S. dollar might be worth nine Mexican pesos

31. Cultural Differences
Culture – refers to the customs, beliefs, values, and patterns of behavior of the people of a country.
It also includes language; religion; attitudes toward work, authority, and family; practices regarding courtship, etiquette, gestures, and joking; and manners and traditions.
Culture affects how people communicate in ac country.
In a low-context culture such as the United States communicate directly and explicity

32. Cultural Differences
In a high – context culture such as Japan, communication tends to occur through non-verbal signs and indirect suggestions.
A person is not supposed come right out and say things. Ambiguity and indirect suggestions are expected and highly valued.
Although English has become the language of international business, its usage and terminology vary across the world.

33. Chapter 4 International Environment for Business
Cultural Differences
Culture — customs, beliefs, values, and patterns of behavior of the people of a country or group
Low-context culture — people communicate directly and explicitly
High-context culture — communication tends to occur through nonverbal signs and indirect suggestions
Chapter 4 International Environment for Business

34. Questions
When a company ships a product to a buyer in another country it is engaging in
Exporting
Importing
International licensing
A joint venture
Answer: exporting

35. Questions Which of the following is not a barrier to free trade?
Tariffs
Dumping
Quota
Importing
Answer: Importing

36. Chapter 4 International Environment for Business
Assignment
Research three companies that do business in foreign countries. Determine the tariffs of the foreign countries and quotas. Do these countries have embargos or sanctions? What are the cultural differences? How does English vary across the world?
Chapter 4 International Environment for Business

37. Lesson 4.2 Forms of International Business
Objectives/Exit Ticket
Distinguish between the different forms through which international business is conducted.
Describe the policies, rules, and laws that governments use to affect international trade and investment.
Chapter 4 International Environment for Business

38. Chapter 4 International Environment for Business
BellWork
What do you think comparative 3advantage theory is?
Chapter 4 International Environment for Business

39. Lesson 4.3 Theories of International Trade and Investment
Objectives
Explain two theories of international trade.
Discuss the concepts of balance of trade and balance of payments.
Consider career opportunities in international business and understand the factors related to being sent abroad on assignment.
Chapter 4 International Environment for Business

40. Theories of International Trade
There are two well-known theories that explain why international trade and investment occur.
Comparative advantage theory
Product life cycle theory

41. Theories of International Trade
Comparative advantage theory — to gain a trade advantage, a country should specialize in products or services that it can provide more efficiently than other countries can
Product life cycle theory — product or service goes through four stages: introduction, growth, maturity, and decline

42. Balance of Trade
Balance of payments — accounting statement in which international transactions are recorded; consists of current account and capital account
The balance of payments statement has two parts:
Current account — value of goods and services exported and imported, as well as other income and payments
Capital account — investment funds coming into and going out of a country

43. Career Opportunities in International business
The growth of international business has created many new types of jobs.
Over 150,000 Americans work abroad for American or foreign firms.
Many people work in various aspects of international business, such as exporting and importing, teaching and translating languages, administering trade laws, managing offices and operations in foreign countries, and in banking and insurance firms.

44. Employment of International Managers
Firms need managers who can work successfully in a wide variety of countries.
Such managers adapt readily to other cultures and are competent, socially flexible, and receptive to new ideas.
Managers benefit from knowing the foreign language and from having strong self-confidence, a motivation to live abroad, and a skill for innovative problem solving.

45. Questions
The theory that a country should specialize in products or services that it can provide more efficiently than can other countries is called.
International specialization
Competitive advantage theory
Comparative advantage theory
Specialization theory
Answer: Comparative advantage theory

46. Questions
Which of the following is not part of the balance of payments?
Current account
Capital account
Economic surplus
All are included as part of the balance of payments
Answer: Economic surplus

47. Assignment
Get with your business partner and complete the “My Business, Inc.” project on page 106. make sure that you do extensive research during the data collection phase. Also make sure that you type out the questions in the analysis section and answer the question appropriately.
If you finish early, complete the end of chapter review #1- 24 on page

48. Lesson 4.3 Theories of International Trade and Investment
Objectives / Exit Ticket
Explain two theories of international trade.
Discuss the concepts of balance of trade and balance of payments.
Consider career opportunities in international business and understand the factors related to being sent abroad on assignment.
Chapter 4 International Environment for Business