1. INTRODUCTION TO BUSINESS
CHAPTER 4
Assessing Global Conditions

2. How International Business Can Enhance Performance
Attract Foreign Demand
Capitalize on Technology
Use Inexpensive Resources
Diversify Internationally
Combination of Motives

3. How International Business Can Enhance Performance
Use Inexpensive Resources
Diversify Internationally
The amount of products imported through harbors is higher when international trade restrictions are reduced or eliminated.
Combination of Motives

4. How International Business Can Enhance Performance
The economy of China has grown substantially because of its ability to produce products at very low cost. Many firms in the United States and other countries have their products produced in China.

5. How International Business Can Enhance Performance Approximate Hourly Compensation Costs for Manufacturing Across Countries

6. How to Conduct International Business
Importing
The purchase of foreign products or services.
Tariff: a tax on imported products.
Quota: a limit on the amounts of specific products that can be imported.
Exporting
The sale of products or services (called exports) to purchasers residing in other countries.
Balance of trade: the level of exports minus the level of imports.
Trade deficit: the amount by which imports exceed exports.

7. How to Conduct International Business
Trend of U.S. Exports and Imports

8. How to Conduct International Business
Direct Foreign Investment (DFI)
A means of acquiring or building subsidiaries in one or more foreign countries.
Outsourcing
Sending some services to foreign countries as a means of using cheaper labor.

9. How to Conduct International Business
Strategic Alliances
A business agreement between firms whereby resources are shared to pursue mutual interests.
Joint venture: an agreement between two firms about a specific project.
International licensing agreement: a type of alliance in which a firm allows a foreign company (called the “licensee”) to produce its products according to specific instructions.

10. How to Conduct International Business
U.S. firms commonly engage in strategic alliances with manufacturers where labor costs are very low, such as Africa and Asia.

11. Barriers to International Business
Reduction in Barriers
NAFTA: North American Free Trade Agreement.
GATT: General Agreement on Tariffs and Trade.
Remaining Barriers
Dumping: selling products in a foreign country at a price below the cost of producing those products.

12. Barriers to International Business
Disagreements About International Trade Policy
Firms in different countries are subject to different environmental restrictions.
Firms in different countries are not subject to the same labor laws.
Firms in different countries have different policies concerning bribery.
Firms in different countries sometimes have more governmental financial support.

13. How Foreign Characteristics Influence International Business
Culture
A foreign country’s culture can result in poor decisions concerning that country’s tastes, habits, and customs.

14. How Foreign Characteristics Influence International Business
Economic System
Capitalism: an economic system that allows for private ownership of businesses.
Communism: an economic system that involves public ownership of businesses.
Socialism: an economic system that contains some features of both capitalism and communism.
Privatization: the sale of government-owned businesses to private investors.

15. How Foreign Characteristics Influence International Business
Economic Conditions
Economic growth
Sensitivity to foreign economic conditions
Exchange Rates
Political Risk and Regulations
Political risk: the risk that a country’s political actions can adversely affect a business.
Corruption
Regulatory climate

16. How Foreign Characteristics Influence International Business
The euro is the currency used by many European countries today. Its value against the U.S. dollar changes over time. As the value changes, it affects the amount of dollars needed to purchase European products (denominated in euros) and the amount of euros needed to purchase U.S. products (denominated in dollars).

17. How Exchange Rate Movements Can Affect Performance
Impact of a Weak Dollar on U.S. Importers
Appreciates: strengthens in value
Impact of a Strong Dollar on U.S. Importers
Depreciates: weakens in value
Actual Effects of Exchange Rate Movements on U.S. Importers

18. How Exchange Rate Movements Can Affect Performance

19. How Exchange Rate Movements Can Affect Performance
Hedging Against Exchange Rate Movements
Hedge: action taken to protect a firm against exchange rate movements.
Hedging future payments in foreign currencies.
Forward contract: provides that an exchange of currencies will occur at a specified exchange rate at a future point in time.
Forward rate: the exchange rate that a bank will be willing to offer at a future point in time.
Spot exchange rate: the exchange rate quoted for immediate transactions. WHY USE THIS????

20. Business Plan You will all use the spot rate LIBRARY RESEARCH:
Culture, Economic System, Economic Conditions, Political Risk
Exchange Rate : Three year history and projection for first 12 months of business
5-7 CITED sources MINIMUM (MLA)
Sample

21. Setting up shop in another country
China…
Guest Speaker: Industry, Location, Investment structure, Mgmt., legal protection.