1. Exploring Global Business
Chapter 3
Michael M. Romano, Instructor
All Diagrams and Flash Files  2010 by Cengage Learning
Ask what language the students are studying and why? How will it help you in the business field?

2. International Business
All business activities that involve exchanges across national boundaries
Some countries are better equipped than others to produce particular goods or services
Goods and services are produced more efficiently when each country specializes in the products for which is has a comparative advantage
ABSOLUTE AND COMPARITIVE ADVANTAGE:
ABSOLUTE ADVANTAGE: ABILITY TO PRODUCE SPECIFIC PRODUCT MORE EFFICIANTLY THAN ANY OTHER NATION (NATION SPECIALIZES IN PRODUCING PRODUCT)
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3. International Business Terms
Importing
Exporting
Balance of trade
Trade deficit
Balance of payments
IMPORTING: PURCHASING RAW MATERIALS AND PRODUCTS IN OTHER NATIONS AND BRINGING THEM TO ONES OWN COUNRTY
EXPORTING: SHIPPING AND SELLING RAW MATERIALS TO OTHER NATIONS
BALANCE OF TRADE: TOTAL VALUE OF EXPORTS LESS THE TOTAL VALUE OF ITS IMPORTS OVER A PERIOD OF TIME
TRADE DEFICIT: UNFAVORABLE BALANCE OF TRADE…IMPORTS > EXPORTS
TRADE SURPLUS: EXPORTS > IMPORTS
BALANCE OF PAYMENTS: TOTAL FLOW OF $ INTO THE COUNTRY LESS THE FLOW OF $ OUT OF THE COUNTRY
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4. Top Ten Merchandise-Exporting States
TEXAS HAS OIL AND INDUSTRY
Source: accessed September 15, 2008.
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5. U.S. International Trade in Goods
WHAT DOES THIS CHART TELL US ABOUT US BALANCE OF TRADE?
Source: U.S. Department of Commerce, International Trade Administration, U.S. Bureau of Economic Analysis, accessed September 18, 2008.
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6. Types of Trade Restrictions
Nontariff barriers (Don’t involve money)
Currency
Bureaucratic red
Cultural attitudes
Quotas
Monetary Barriers
Import Duty or Tariff
Dumping
Exchange and Exchange Control
TYPES OF TRADE RESTRICTIONS:
TARRIFS:
IMPORT TARRIF: TAX LEVIED ON A PARTICULAR FOREIGN PRODUCT ENTERING THE COUNTRY
REVENUE TARRIFS: TARRIFS IMPOSED TO GENERATE REVENUE FOR THE GOVERNMENT
PROTECTIVE TARRIFS: IMPOSED TO PROTECT DOMESTIC INDUSTRY FROM FOREIGN COMPETITION
DUMPING:
EXPORTATION OF LARGE QUANTITIES OF PRODUCT AT A PRICE LOWER THAN THE VALUE OF THE SAME PRODUCT IN THE HOME MARKET. Ex ps4s IN INDONESIA AT A LOWER PRICE INDEPENDENT CONTRACTORS TRY TO SELL AT SCALE AND PROFIT IN ANOTHER MARKET.
NONTARRIF BARRIERS:
NON TAX MEASURE IMPOSED BY A GOVERNMENT TO FAVOR DOMESTIC AND NOT FOREIGN BUYERS
IMPORT QUOTA: USED TO LIMIT THE AMOUNT OF A PARTICULAR GOOD THAT MAY BE IMOPORTED INTO A COUNTRY DURING A GIVEN PERIOD
EMBARGO: COMPLETE HAULT TO TRADING WITH A PARTICULAR NATION OR A PARTICULAR PRODUCT OF THE NATION (EX RUSSIAN AND EUROPEAN FOOD)
FOREIGN-EXCHANGE CONTROL: RESTRICTION ON THE AMOUNT OF A PARTICULAR FOREIGN CURRENCY THAT CAN BE PURCHASED OR SOLD
CURRENCY DEVALUATION: REDUCTION OF THE VALUE OF A NATION’S CURRANCY RELATIVE TO THE CURRANCIES OF OTHER COUNTRIES (DOLLAR AND Yuan)
BUREAUCRATIC RED TAPE: GOVERNMENT MAKES IT EXPENSIVE FOR BUSINESSES TO ESTABLISH THEMSELVES IN THEIR NATIONS
CULTURAL BARRIERS: CAN IMPEDE A PRODUCT IF CULTURE IS STRONGLY AGAINST IT OR ITS COMPONENTS
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7. U.S. Trade Restrictions / Sanctions
Iraq
Liberia
North Korea
Sudan
Syria
Zimbabwe
Balkans
Belarus
Burma
Ivory Coast
Cuba*
Congo
Iran
For more information go to: maintained by the U.S. Department of the Treasury
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8. Reasons for and Against Trade Restrictions
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9. Reasons for and Against Trade Restrictions
To equalize a nation’s balance of payments
To protect new or weak industries
To protect national security
To protect the health of citizens
To retaliate for another country’s trade restrictions
To protect domestic jobs
AGAINST
Higher prices for consumers
Restriction of consumers’ choices
Misallocation of international resources
Loss of jobs
GO OVER BRIEFLY
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10. Global Growth Remains Strong
WE AS A NATION ARE STILL GROWING BC OF % CHANGE IS POSITIVE
Source: International Monetary Fund: World Economic Outlook by International Monetary Fund. Copyright 2008 by International Monetary Fund. Reproduced with permission of International Monetary Fund via Copyright Clearance Center.
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11. U.S. Goods Export and Import Shares in 2007
What inferences or observations can we make from this chart?
US imports > exports
Organization FOR ECONOMIC COOPERATION AND DEVELOPMENT (OCED)
Source: Federal Reserve Bank of St. Louis, National Economic Trends, September 2008, p. 18.
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12. Value of U.S. Merchandise Exports and Imports, 2007
WHO IS OUR TOP EXPORTER? TOP IMPORTER?
Why are Canada and Mexico big trade partners? Not separated by oceans and close proximity…cheap transport and logistics…no expensive boats or airfare.
Source: U.S. Department of Commerce, International Trade Administration,
highlights/top/top0712.html, accessed September 22, 2008.
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13. Ten Largest Foreign and U.S. Multinational Corporations
What sector has the most multinational establishments: Energy (why?) Cheaper to do business overseas…many oil riggers are in oceans off the coast of many countries. Pipelines across europe
Emerging European Countries: Hungary, Turkey, Latvia, and Estonia
Who is the largest MNE: Walmart
Source: Fortune Global 500, July 1, 2008, p Copyright © 2006 Time, Inc., All rights reserved.
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14. Debate Issue: Should the United States fear Japan or South Korea?
YES
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15. Debate Issue: Should the United States fear Japan or South Korea?
The total foreign investment in the U.S. economy is currently less than 4%. In fact, the British and Canadians have more investment in the U.S. than the Japanese. With globalization becoming common, trade and foreign investment are usual practices in today’s world. For example, Chrysler now owns 11% of Mitsubishi, while Ford owns 24% of Mazda. Foreign investment is good for the U.S. because it is being directed at permanent assets like plants and equipment, thus stimulating industry, providing jobs, and stabilizing the economy.
YES
The U.S. continues to carry an extremely large trade imbalance with Japan, while Japanese direct investment in the U.S. economy continues to escalate. Many feel that Japan unfairly restricts U.S. imports and that the U.S. should retaliate by restricting Japanese imports. American consumers are becoming increasingly dependent on Japanese products. Japanese firms are also increasing capacity, reducing costs, and developing new technologies much faster than their U.S. counterparts. The result is a worldwide, consumer market that is slowly becoming dominated by the Japanese.
Go over briefly
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16. World Trade Terms General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
Economic community
GATT: INTERNATIONAL ORGANIZATION OF 153 NATIONS THAT ARE DEDICATED TO REDUCING OR ELIMINATING TARRIFS AND OTHER BARRIERS TO WORLD TRADE.
WTO: A POWERFUL SUCCESSOR created by the uruguay round TO WIDEN GATT. Jan INCORPORATES TRADE IN GOODS, SERVICES, AND IDEAS. ALL 148 MEMBER NATIONS MUST OBSERVE GATT RULES AND RESOLVE ANY TRADE DISPUTES UNDER THE PROVISIONS OF THE URUGAY ROUND.
ECONOMIC COMMUNITY: AN ORGANIZATION OF NATIONS FORMED TO PROMOTE THE FREE MOVEMENT OF RESOURCES AND PRODUCTS AMOUNG ITS MEMBERS AND TO CREATE COMMON ECONOMIC POLOCIES.
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17. The Evolving European Union
EU OR EUROPEAN UNION: ALSO KNOWN AS THE COMMON MARKET…FORMED IN 1957 BY FRANCE, ITALY, GERMANY, BELGIUM, THE NETHERLANDS, AND LUXEMBERG. ITS OBJECTIVE WAS TO FREELY CONDUCT COMMERCE AMOUNG THESE MENTIONED NATIONS AND THAT OTHER NATIONS MIGHT LATER JOIN.
ONE EU NATION AFFECTS THE OTHERS…IE PORTUGESE BONDS FALLING DUE TO MARKET CONDITIONS AND GREEK BAILOUT FOR THEIR LACK OF EXPORTS AND DECLINE IN GDP.
Source: accessed November 29, 2008.
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18. North American Free Trade Agreement (NAFTA)
United States
Canada
Mexico
Chile
CREATED IN 1994
ALL TARRIFS FROM THIS AGREEMENT WILL BE ELIMINATED WHEN DEALING WITH THESE PARTICULAR NATIONS
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19. Central American Free Trade Agreement (CAFTA)
El Salvador
Guatemala
Honduras
Nicaragua
2003 IT WAS CREATED.
Non trade barriers between US, Elsa Salvador, Guatemala, Honduras, Nicaragua
Dominican Republic joined in 2007
Trade volume increased by 17% since 2005.
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20. Association of Southeast Asian Nations (ASEAN)
Brunei
Myanmar
Cambodia
Indonesia
Laos
Malaysia
Philippines
Singapore
Thailand
Vietnam
TRADE AGREEMENT THAT WAS ESTABLISHED IN 1967.
CONSISTS THE PACIFIC RIM COUNTRIES EAST ASIA USA AND CANADA
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21. International Economic Organizations Working to Foster Trade (cont’d)
European Economic Area (EEA)
Pacific Rim
Commonwealth of Independent States (CIS)
Caribbean Basin Initiative (CBI)
Common Market of the Southern Cone (MERCOSUR)
Organization for Economic Cooperation and Development (OECD)
CIS: TRADE AGREEMENT ESTABLISHED BY THE FORMER SOLVIET UNION
CBI: INTERAMERICAN PROGRAM LED BY THE USA TO INCREASE ECONOMIC ASSISTANCE AND TRADE PREFERANCES TO THE CARRIBEAN AND CENTRAL AMERICAN COUNTRIES
MERCOSUR: ESTABLISHED IN 1991 UNDER THE TREATY OF ASUNCION TO UNITE ARGENT. BRAZ. URUGUAY AND PARAGUAY WITH COLUMBIA, EQUIDOR, PERU, BOLIVIA NAD (CHILE (ALSO PART OF NAFTA))
OPEC: CREATED IN 1960 IN RESPONSE TO OIL PRICE REDUCTIONS THAT COUNTRIES REFUSED TO PAY FOR. (GAS LINES IN 1960S) NO GAS REGULATES SUPPLY AND DEMAND OF OIL
OECD: GROUP OF 30 COUNTRIES OF NORTH AMERICA, EUROPE, THE FAR EAST AND SOUTH PACIFIC.
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22. Organizing for International Business
LICENCING: CONTRACTUAL AGREEMENT IN WHICH ONE FIRM PERMITS ANOTHER TO PRODUCE AND MARKET ITS PRODUCT AND USE ITS BRAND NAME IN RETURN FOR A ROYALTY OR OTHER MEANS OF COMPENSATION
EXPORTING: FIRM MY MANUFACTURE ITS PRODUCTS IN ITS HOME COUNTRY AND EXPORT THEM FOR SALE IN FOREIGN MARKETS
LETTER OF CREDIT: ISSUED BY A BANK UPON REQUEST OF AN IMPORTER STATING THAT THE BANK WILL PAY AN AMOUNT OF MONEY TO A STATED BENEFICIARY (EXPORTER)
BILL OF LADING: VISSUED BY THE TRANSPORT CARRIER TO THE EXPORTER TO PROVE THAT MERCHANDISE HAS BEEN SHIPPED
DRAFT: ISSUEDBY THE EXPORTER”S BANK, ORDERING THE IMPORTER’S BANK TO PAY FOR THE MERCHANDISE
JOINT VENTURE: A PARTNERSHIP FORMED TO ACHIEVE A SPECIFIC GOEAL OR TO OPERATE FOR A SPECIFIC PERIOD OF TIME
TOTALLY OWNED FACILITIES: A FIRM DEVELOPS ITS OWN FACILITIES IN MARKETING AND PRODUCTION IN ONE OR MORE FOREIGN NATIONS (FDI) WHY?
STRATEGIC ALLIANCES: PARTNERSHIP FORMED TO CREATE A COMPETITIVE ADVANTAGE ON A WORLDWIDE BASIS. (JOINED FORCES)
TRADING COMPANIES: PROVIDE LINKS BETWEEN BUYERS AND SELLERS IN DIFFERENT COUNTRIES. MIDDLEMEN.
COUNTERTRADE: INTERNATIONAL BARTER TRANSACTION IN WHICH GOODS AND SERVICES ARE EXCHANGES FOR GOODS AND SERVICES.
MULTINATIONAL FIRM: MNE OR MULTINATIONAL ENTERPRISE OPERATE ON A WORLDWIDE SCALE, WITHOUT TIES TO A SPECIFIC NATION OR REGION.
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23. World’s Top Transnational Corporations
General Electric
British Petroleum Company, Plc
Toyota Motor Corporation
Royal Dutch/Shell Group
ExxonMobil Corporation
Ford Motor Company
Vodafone Group, Plc
Total
Electricite De France
Wal-Mart Stores
Source: UNCTAD; World Investment Report: Transnational Corporation and the Infrastructure Challenge;
accessed February 17, 2009.
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24. FINANCING INTERNATIONAL BUSINESS
The Export-Import Bank of the United States (Eximbank)
Multilateral Development Bank (MDB)
The International Monetary Fund (IMF)
THE EXPORT IMPORT BANK OF THE USA: ALSO KNOWN AS EXIMBANK…AN INDEPENDENT AGENCY OF THE US GOVERNMENT…ASSIS THE FINANCING OF EXPORTS OF AMERICAN FIRMS.
MULTILATERAL DEVELOPMENT BANKS: INTERNATIONALLY SUPPORTED BANK THAT PROVIDES LOAND TO DEVELOPING COUNTRIES TO HELP THEM GROW.
IMF: INTERNATIONAL BANK THAT MAKES SHORT-TERM LOANS TO NATIONS THAT ARE EXPIRENCING BALANCE OF PAYMENT DEFICITS.
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25. Chapter Quiz
A developing country found that to meet its needs the previous year, it had imported far more goods than it exported. This country experienced a(n)
unfavorable balance of payments.
favorable balance of payments.
favorable balance of trade.
unfavorable balance of trade.
unfavorable supply of goods.
Due to political differences with North Korea, the U.S. government has stopped trading with North Korea. This practice is an example of imposing a(n)
import duty.
import cut.
export control.
trade embargo.
export duty.
DDBAC
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26. Chapter Quiz (cont’d)
When the United States wants to reduce the cost of its goods in foreign nations, it
revalues its currency.
devalues its currency.
pays off its trade deficit.
borrows from the Eximbank.
sells more goods abroad.
A forum for the discussion of trade problems and a reduction of trade barriers is provided by
the General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO).
a free trade zone.
the World Bank.
the Eximbank.
All of these answers are correct.
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27. Chapter Quiz (cont’d)
XYZ Company is seeking a partner in China to manufacture its products. It wants to team up with an established Chinese firm that will provide immediate market knowledge and access, reduced risk, and control over product attributes. The best choice for XYZ Company is
licensing.
a bilateral agreement.
a joint venture.
an export/import merchant agreement.
an export-import agent agreement.
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28. Answers to Chapter Quiz
A developing country found that to meet its needs the previous year, it had imported far more goods than it exported. This country experienced a(n)
unfavorable balance of payments.
favorable balance of payments.
favorable balance of trade.
unfavorable balance of trade. (Correct)
unfavorable supply of goods.
Due to political differences with North Korea, the U.S. government has stopped trading with North Korea. This practice is an example of imposing a(n)
import duty.
import cut.
export control.
trade embargo. (Correct)
export duty.
Copyright © Cengage Learning. All rights reserved.

29. Answers to Chapter Quiz (cont’d)
When the United States wants to reduce the cost of its goods in foreign nations, it
revalues its currency.
devalues its currency. (Correct)
pays off its trade deficit.
borrows from the Eximbank.
sells more goods abroad.
A forum for the discussion of trade problems and a reduction of trade barriers is provided by
the General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO). (Correct)
a free trade zone.
the World Bank.
the Eximbank.
All of these answers are correct.
Copyright © Cengage Learning. All rights reserved.

30. Answers to Chapter Quiz (cont’d)
XYZ Company is seeking a partner in China to manufacture its products. It wants to team up with an established Chinese firm that will provide immediate market knowledge and access, reduced risk, and control over product attributes. The best choice for XYZ Company is
licensing.
a bilateral agreement.
a joint venture. (Correct)
an export/import merchant agreement.
an export-import agent agreement.
Copyright © Cengage Learning. All rights reserved.