1. part 1 FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. part CHAPTER 3 Business in a Borderless World CHAPTER 2 Business Ethics and Social Responsibility 1 CHAPTER 1 The Dynamics of Business and Economics FHF

3.  The buying, selling and trading of goods and services across national boundaries  Global marketing requires balancing global brands with the needs of local consumers International Business 3-3

4. [] FHF Why Nations Trade International trade allows for the acquisition of raw materials and goods at favorable prices 3-4

5. FHF 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 Absolute vs. Comparative Advantages 3-5

6. FHF The transferring of manufacturing or other tasks, such as data processing, to countries where labor and supplies are less expensive Outsourcing 3-6

7. FHF Exporting  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 Exporting & Importing 3-7

8. FHF The difference in the value between what a nation exports and imports Balance of Trade A Trade Deficit The U.S. imports more than it exports. Therefore, the U.S. has a trade deficit. The trade deficit is also called a nation’s negative balance of trade Source: “Foreign Trade Statistics, U.S. Census Bureau U.S. Trade Deficit (in billions of dollars)198019902000200620082009 Exports3335781,1331,437.81,8431,553.1 Imports3266321,5322.201.42,520.11,933.7 Surplus / Deficit 7-57-399-763.3-677.1-380.7 3-8

9. FHF 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, http://www.census.gov/foreign-trade/balance/c5700.html.. 3-9

10. FHF Top 10 Countries Maintaining Trade Deficits/Surpluses with the US 3-10

11. FHF 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 3-11

12. FHF Barriers to International Trade  Completely free trade seldom exists.  Barriers to international trade: Social Cultural Technological Economic Legal Political 3-12

13. FHF  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 Economic Barriers to Trade 3-13

14. FHF Infrastructure The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals and commercial distribution systems [] 3-14

15. FHF Exchange Rates The ratio at which one nation’s currency can be exchanged for another nation’s currency [] 3-15

16. FHF  Complex relationships between nations  Different laws  Differing intellectual property protections  Trade restrictions  Political barriers and volatility  Cultural differences  Different ethical values Ethical, Legal & Political Barriers in International Trade 3-16

17. FHF Legal Barriers to Trade 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 …continued on the next page 3-17

18. FHF  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 Legal Barriers to Trade Legal Barriers to Trade 3-18

19. FHF  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 Political Barriers to Trade 3-19

20. FHF Cultural Barriers 3-20

21. FHF  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 Technological Barriers 3-21

22. FHF 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 Trade Agreements, Alliances & Organizations …continued on the next page 3-22

23. FHF 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 Trade Agreements, Alliances & Organizations 3-23 …continued on the next page

24. FHF 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 Trade Agreements, Alliances & Organizations 3-24 …continued on the next page

25. FHF Trade Agreements, Alliances & Organizations European Union (EU)  A union of European nations established in 1958 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 …continued on the next page 3-25

26. FHF 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 3-26

27. FHF  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 Getting Involved in International Business 3-27

28. FHF 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 Getting Involved in International Trade 3-28

29. FHF 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 HeinekenNamibia Breweries Licensing 3-29

30. FHF 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 McDonald’s  Includes restaurants in 118 countries Franchising 3-30

31. FHF 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 Contract Manufacturing 3-31

32. FHF 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 Offshoring 3-32

33. FHF 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 3-33

34. FHF  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 WholesaleBest Price Modern Wholesale Are members-only wholesale stores for other Indian retailers Different model than Walmarts elsewhere Joint Ventures 3-34

35. FHF Ten Largest Global Corporations (Source: “The Global 500,” Fortune 2009) 1. Royal Dutch Shell6. Total 2.ExxonMobil7.ConocoPhillips 3. Wal-Mart Stores, Inc.8. ING Group 4.BP9.Sinopec 5. Chevron10. Toyota Motors 3-35

36. FHF  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 Multinational Corporations 3-36

37. FHF 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. International Business Strategies 3-37

38. FHF  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 Managing the Challenges of Global Business 3-38