1. Business in a Global Environment
Chapter 4
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2. Review What are conflicts of interest? Give an example.
What is corporate social responsibility?
What is the difference between an ethical decision and an ethical dilemma?

3. Learning Objectives Explain why international trade.
Describe absolute and comparative advantage.
Explain how trade is measured.
Define importing and exporting.
Explain licensing agreements and franchises.
Describe contract manufacturing and outsourcing.
Explain strategic alliances and joint ventures
Understand how companies expand internationally.
Appreciate how differences between countries create challenges to business.
Describe how governments and international bodies promote and regulate global trade.
Discuss initiatives to promote free trade.
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4. Why Nations Trade Imports Exports Which is better? What do we import?
What do we export?
Which is better?

5. Trade Advantage Absolute advantage Comparative advantage
Only source of product or
More efficient
Rare
Comparative advantage
When have lower opportunity costs
Must sacrifice making one product to produce another
Can gain advantage from specialization

6. Balance of Trade Trade Surplus Trade Deficit Which is better?
Exports exceed imports
Trade Deficit
Imports exceed exports
Which is better?
Which direction does wealth flow?
How are deficits sustained?

7. Balance of Payments Measures total flow of money
How does money enter or leave a country besides exports and imports?
Surplus
Money inflow greater than outflow
Deficit
Money outflow greater than inflow

8. Exports, Imports, and Balance of Payments
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9. Types of International Business
Importing and exporting
License agreements
Franchising
Contract manufacturing
Outsourcing
Strategic alliances
Joint ventures
Foreign direct investment (FDI)
Foreign subsidiary

10. Comparative Advantage
Occupation
U.S. Wage per Hour (per year)
Indian Wage per Hour (per year)
Accountant
$22.12 per hour
(~$44, 240 per year)
$3.15 per hour
(~$6,300 per year)
Information Technology Consultant
$40.70 per hour
(~$81,400 per year)
$22.40 per hour
(~$44,800 per year)
Cleaner
$8.70 per hour
(~$17,400 per year)
$2.10 per hour
(~$4,200 per year)
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11. Where Foreign Direct Investment Goes
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12. Multinational Firms Company operating in many countries Pros Cons
Walmart
Royal Dutch Shell
Toyota
Apple
Microsoft
Pros
Cons

13. Global Business Environment
How do each of these affect business?
Culture
Language
Time and sociability
High- and low-context culture
Communication styles

14. What Can Go Wrong?
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15. Foreign Economic Environment
Degree of economic development
Legal and regulatory environment
Foreign Corrupt Practices Act
Illegal to bribe
What if expected in another culture?
Exchange rates

16. Foreign Corruption
Corruption Perceptions around the World, 2015: A score of 100 is perfect, and anything below 30 means that corruption is considered rampant.
Rank
Country
CPI Score 1
Denmark 91 2
Finland 90 3
Sweden 89 4
New Zealand 88 10
United Kingdom 81 16
United States 76 95
Mexico 35
167
Sudan 12
177
North Korea 8
Somalia
Source: Transparency
International
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17. Foreign Currency Exchange
Floating exchange rates
Determined by supply & demand
Fixed exchange rate
Determined by government
Hard currency
Easily exchanged
Soft currency
Difficult to exchange
How to get around this?

18. Government Trade Intervention
Subsidies
Government payments
Tariffs
Tax on imports
Quotas
Limit on imports
Embargo
Ban on imports or exports
Dumping
Exporting at low prices or even below cost

19. Government Trade Intervention
Discussion
Who “wins” with a tariff?
Who “loses” with a tariff?
What can businesses do when governments step in?
May lead to trade war

20. Trade Agreements NAFTA EU North American Free Trade Agreement
U.S., Canada, Mexico EU
European Union
Has common currency for most members
What happens when one country gets into economic trouble (e.g. large debts, unemployment)?

21. Reducing Barriers to Trade
GATT – General agreement on tariffs and trade
Designed to promote free trade
WTO – World Trade Organization
Arbitrates trade disputes

22. Financial Support IMF – International Monetary Fund World Bank
Loans money to economies in trouble
Requires economic reforms
World Bank
Loans money to countries for projects

23. Discussion
The U.S. steel industry has difficulty competing with foreign steel
costs are high
plants are outdated
steel is an important industry in several parts of the country
other countries do not pay the same wages as U.S. firms
other countries do not have the same environmental laws
Should the government impose tariffs on foreign steel?
What will be the effects if it does?

24. Discussion The French impose high tariffs on agricultural products.
Should the U.S. retaliate and impose tariffs on the French?
on which product(s)?
what will be the effect?