1. Exploring Global Business

2. Learning Objectives
Explain the economic basis for international business.
Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results.
Outline the extent of international trade and the world economic outlook for trade.
Discuss international trade agreements and international economic organizations working to foster trade.
Define the methods by which a firm can organize for and enter into international markets.
Describe the various sources of export assistance.
Identify the institutions that help firms and nations finance international business.

3. Reasons for Trade Restrictions
What are some reasons a country would want to restrict trade?
© STUART MILES/SHUTTERSTOCK

4. Restrictions to International Business
Nations are generally eager to export their products to provide markets for their industries and develop a favorable balance of trade.
© ALBO003/SHUTTERSTOCK
Most trade restrictions are applied to imports from other countries.
© ALBO003/SHUTTERSTOCK

5. Reasons for 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 nation’s trade restrictions
To protect domestic jobs
© FIKMIK/SHUTTERSTOCK

6. Reasons Against Trade Restrictions
Higher prices for consumers
Restriction of consumers’ choices
Misallocation of international resources
Loss of jobs
© FIKMIK/SHUTTERSTOCK

7. Types of Trade Restrictions: Tariffs
An Import duty (tariff) is a tax levied on a particular foreign product entering a country.
Revenue tariffs are imposed to generate income for the government.
Protective tariffs are imposed to protect a domestic industry from competition by keeping the prices of imports at or above the price of domestic products.
Additional Resources
Video
Types of Trade Restrictions
9:44

8. Types of Trade Restrictions: Dumping
Dumping is the exportation of large quantities of a product at a price lower than that of the same product in the home market.
The U.S. Commerce Department has imposed anti-dumping tariffs and anti-subsidy tariffs on Chinese solar panels to combat dumping.
Additional Resources
WTO
Anti-dumping, subsidies, safeguards: contingencies, etc
Article
Wall Street Journal
China Broadens Solar Dumping Probe
11/1/12
NY Times
Europe to Investigate Chinese Exports of Solar Panels
9/5/12
CNN
U.S. slams Chinese solar panels with new tariffs
5/17/12
U.S. Imposes Punitive Tariffs on Steel
U.S. Steel CEO Asks for Tariffs on Chinese Steel
Some Chinese PV makers to be hit with tariffs as high as 70%
© FILIP FUXA/SHUTTERSTOCK

9. Types of Trade Restrictions: Nontariff Barriers
Nontariff barriers—nontax measures imposed by a government to favor domestic over foreign suppliers
Import quota—a limit on the amount of a particular good that may be imported during a given time
U.S. Import Quotas
Embargo—a complete halt to trading with a particular nation or in a particular product. Embargoes may be imposed to accomplish foreign policy and national security goals.
Iran Sanctions
Cuba Trade Embargo
Foreign exchange control—restriction on amount of foreign currency that can be purchased or sold
Additional Resources
WTO
Non-tariff barriers: red tape, etc
U.S. Treasury
Sanctions Programs and Country Information
U.S. Foreign Exchange Intervention (About the Fed  What We Do)
Exchange Rates
The Wall Street Journal
Articles about Foreign Exchange

10. Types of Trade Restrictions: Nontariff Barriers (cont’d)
Currency devaluation is the reduction of the value of a nation’s currency relative to the currencies of other countries.
Bureaucratic red tape subtly imposes unnecessarily burdensome and complex standards and requirements for imported goods.
Cultural attitudes can impede acceptance of products in foreign countries.
© MILAN LJUBISAVIJEVIC/SHUTTERSTOCK

11. Types of Trade Restrictions: Cultural Attitudes
How important is it to you that your goods are made in the U.S.A?
Additional Resources
Article
American Consumers Overvalue U.S. Produced Apparel, MU Study Finds
10/30/12
NY Times
A Label The Has Regained Its Luster
9/14/12
© MYPIXXX/SHUTTERSTOCK

12. Barriers to International Trade

13. Social and Cultural Differences
Language: Potential problems include mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste.
Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.

14. Political and Legal Differences
Political Climate
Stability is a key consideration.
Legal Environment
U.S. law
International regulations
Country’s law
Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.
International Regulations
Treaties between U.S. and other nations.
Tariffs are taxes charged on imported goods.
Enforcement problems, as with piracy

15. Government Corruption
Transparency International produces an annual corruption
index for businesspeople and the general public.
Foreign Corruption Practices Act Violations

16. The Extent of International Business (cont’d)
Trade barriers are decreasing, new competitors are entering the global marketplace, creating more choices for consumers and new job opportunities.
International business will grow with the expansion of commercial use of the Internet.

17. The World Economic Outlook for Trade

18. The World Economic Outlook for Trade

19. General Agreement on Tariffs and Trade (GATT)
An international organization of 159 nations dedicated to reducing or eliminating tariffs and other barriers to world trade
Founded in 1947
The goal was to create an agreement that would ensure postwar stability and avoid a repeat of the mistakes of the recent past
Protectionism
World Economic Devastation
WWII
Most-Favored-Nation Status

20. International Trade Agreements WTO
World Trade Organization (WTO)
161 Members (as of April 2015)
Established in 1995
Oversees GATT provisions
Has judicial powers to mediate trade disputes arising from GATT rules
Exerts more binding authority than GATT

21. The World Bank Established in 1944 for post-war reconstruction.
Present mandate: Worldwide Poverty Alleviation.
Funds projects to build and expand infrastructure in developing countries.

22. The International Monetary Fund (IMF)
Created in 1945
188 countries
Its primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

23. WTO Members Share in World Merchandise Trade, 2011

24. International Economic Organizations: The Evolving European Union
The European Union is now an economic force, with a collective economy larger than that of the United States or Japan.
Source: (accessed March 14, 2012)
28 Countries
European Union

25. International Economic Organizations: NAFTA
North American Free Trade Agreement (NAFTA)
The United States
Canada
Mexico
FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

26. International Economic Organizations: NAFTA
Support
Contributes to significant increases in trade and investment
Benefits companies in all three countries
Results in increased sales, new partnerships, and new opportunities
Creates high-paying export-related jobs
Leads to better prices and selection in consumer goods
Criticism
Has not achieved its goals
Resulted in job losses
Erodes labor standards and lowers wages
Undermines national sovereignty and independence
Does nothing to help the environment
Hurts the agricultural sector
Additional Resources
Article
TIME
A Brief History of NAFTA
12/30/08
Radio
NPR
NAFTA at Ten
1/1/04
KJZZ Arizona
Impact of NAFTA on Arizona
9/5/12

27. International Economic Organizations: CAFTA-DR
Central American Free Trade Agreement – Dominican Republic (CAFTA-DR) Est. 2003
El Salvador
Guatemala
Honduras
Nicaragua
Dominican Republic
Costa Rica
FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

28. International Economic Organizations: ASEAN
Association of Southeast Asian Nations (ASEAN) Est. 1967
Brunei
Myanmar
Cambodia
Indonesia
Laos
Malaysia
Philippines
Singapore
Thailand
Vietnam
FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

29. International Economic Organizations: OPEC
Organization of Petroleum Exporting Countries (OPEC), Est. 1960
Algeria
Indonesia
Iran
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
United Arab Emirates
Venezuela
FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

30. International Economic Organizations: Others
The Commonwealth of Independent States, Est. 1991
Trans-Pacific Partnership (TPP), Est. 2011
Commonwealth of Independent States (CIS), Est. 1991
Caribbean Basin Initiative (CBI)
Common Market of the Southern Cone (MERCOSUR), Est. 1991
Organization of Petroleum Exporting Countries (OPEC), Est. 1960

31. Trans Pacific Partnership
A multinational trade agreement
Ten years of negotiations among 12 nations completed October 2015 & signed Februar 2016
Eliminates trade restrictions among member nations
Imposes labor and environmental standards
Safeguards intellectual property
Ensures fair competition with state-owned enterprises
TPP Member Nations
Australia
Malaysia
United States
Brunei
Canada
Mexico
Vietnam
Singapore
Japan
Peru
Chile
New Zealand

32. TPP Benefits to U.S. Businesses
The TPP is expected to:
Boost U.S. exports to Asian markets
Agriculture
Small Business
Services
Technology/Intellectual Property
Level the playing field for U.S. manufacturing
Labor
Environment
Ownership

33. TPP Concerns
May result in further export of manufacturing jobs to low-wage nations.
May raise prices for pharmaceuticals and other high-value products by spreading American standards for patent protections to other countries.
Allows multinational corporations to challenge domestic regulations and court rulings before special tribunals.
Protects corporate interests in the name of free trade

34. Organizing for International Business
Licensing
Exporting
Joint-Venture
Totally Owned Facilities
Strategic Alliances
Trading Companies
Countertrade
Multinational Firm

35. Methods of Entering International Business: Licensing
Licensing is a 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 compensation.
Advantage
It allows expansion into foreign markets with little or no direct investment.
Disadvantages
The product image may be damaged if standards are not upheld.
The original producer does not gain foreign marketing experience.

36. Methods of Entering International Business: Exporting
May use an export/import merchant who assumes the risks of ownership, distribution, and sale
Letter of credit - Issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary
Bill of lading - Issued by a transport carrier to an exporter to prove merchandise has been shipped
Draft - Issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer’s bank

37. Methods of Entering International Business: Exporting (cont’d)
May use an export/import agent who arranges sale for a commission or fee; the exporter retains title to products until they are sold
May establish own sales offices or branches in foreign countries

38. Methods of Entering International Business: Steps in Entering International Markets
Identify exportable products.
Identify key foreign markets for the products.
Analyze how to sell in each priority market.
Set export prices and payment terms, methods, and techniques.
Estimate resource requirements and returns.
Establish overseas distribution network.
Determine shipping, traffic, and documentation procedures and requirements.
Promote, sell, and be paid.
Continuously analyze current marketing, economic, and political situations.

39. Methods of Entering International Business: Joint Ventures
A joint venture is a partnership formed to achieve a specific goal or to operate for a specific period of time.
Advantages
Immediate market knowledge and access
Reduced risk
Control over the product attributes
Disadvantages
Complexity of establishing agreements across national borders
High level of commitment required of all parties involved

40. Methods of Entering International Business: Totally Owned Facilities
Totally owned facilities refers to production and marketing facilities developed by a firm in one or more foreign nations.
Advantage
Direct investment provides complete control over operations.
Disadvantage
Risk is greater than that of a joint venture.
Two forms
Building new facilities in the foreign country
Purchasing an existing firm in the foreign country

41. Methods of Entering International Business: Strategic Alliances
Strategic alliances are partnerships formed to create competitive advantage on a worldwide basis.

42. Methods of Entering International Business: Trading Companies
Trading companies are firms that provide a link between buyers and sellers in different countries.
Buys products in one country at the lowest price consistent with quality and sells to buyers in another country
Takes title to products and perform all the activities necessary to move the products from one country to another
© ROBOLAB/SHUTTERSTOCK

43. Methods of Entering International Business: Countertrade
Countertrade is an international barter transaction.
Early 1990s: Many developing nations had major restrictions on converting domestic currency into foreign currency. Countertrade avoids restrictions on converting domestic currency to foreign currency.
© BOJANOVIC/SHUTTERSTOCK
© DVARG/SHUTTERSTOCK
Crude Oil Exchanged for Planes

44. Methods of Entering International Business: Multinational Enterprise
Multinational enterprise refers to firms that operate on a worldwide scale without ties to any specific nation or region.

45. Financing International Business
The Export-Import Bank of the United States (Ex-Im Bank) is an independent agency of the U.S. government whose function it is to assist in financing the exports of American firms.
Multilateral Development Bank (MDB) is an internationally- supported bank that provides loans to developing countries to help them grow.
World Bank, Inter-American Development Bank (IDB), Asian Development Bank (ADB), African Development Bank (AFDB), European Bank for Reconstruction and Development (EBRD)
The International Monetary Fund (IMF) is an international bank with 186 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits.

46. Sources of Export Assistance: NEI
National Export Initiative (NEI)
Announced August 2010 by President Obama
Goal: Revitalize U.S. exports
Means: Federal Agencies assist U.S. firms in developing export-promotion programs to compete in foreign markets and create jobs in the U.S. (some examples below)
Federal Agency
Assistance
International Trade Administration
Domestic and overseas commercial officers provide assistance and information.
Advocacy Center
Facilitates advocacy to assist U.S. firms competing for major projects and procurements worldwide.
National Trade Data Bank
Provides international economic and export-promotion information from more than 20 U.S. agencies.

47. To Help U.S. Business Succeed, Globally.”
Using the Internet
“Our Mission:
To Help U.S. Business Succeed, Globally.”
The International Trade Administration of the U.S. Department of Commerce (ITA) website has links to statistics, industry analysis, trade laws, and answers to often-asked trade questions.

48. The Challenges Ahead Global economic recovery remains sluggish.
Financial challenges in euro-area economies slow economic growth.
WTO rules and principles have assisted governments in keeping markets open and provide a platform for which the trade can grow as the global economy improves.
“We see the light at the end of the tunnel and trade promises to be an important part of the recovery. But we must avoid derailing any economic revival through protectionism.”
--WTO Director-General Pascal Lamy