1. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Exploring Global Business

2. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Absolute Advantage Absolute Advantage is the ability to produce a specific product more efficiently than any other nation. 3 2 Saudi Arabia – Crude OilSouth Africa - DiamondsAustralia - Wool © ILDOGESTO/SHUTTERSTOCK © DVARG/SHUTTERSTOCK © AKAISER/SHUTTERSTOCK © ILEYSEN/SHUTTERSTOCK

3. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Comparative Advantage Comparative Advantage the ability to produce a specific product more efficiently than any other. http://www.youtube.com/watch?v=38hvvAzgXZY http://www.youtube.com/watch?v=38hvvAzgXZY 3 Country A Country B 30m45m Automobiles 6m18m Motorcycles Maximum Outputs Country B has absolute advantage in both products, but a comparative advantage in motorcycles because it is relatively better at producing them. Country B is 3 times better at motorcycles, but only 1.5 times better at cars.

4. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exporting and Importing U.S. Imports U.S. Exports Excess Corn Excess Wine 3 4 Countries trade when they each have a surplus of the product in which they specialize and want a product in which the other country specializes.

5. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Trade Balance of trade is the total value of a nation's exports minus the total value of its imports over some period of time. 3 5 ImportsExports

6. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Trade Deficit Trade deficit is a negative (unfavorable) balance of trade where imports exceed exports in value. 3 6 Imports Exports

7. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons for Trade Restrictions What are some reasons a country would want to restrict trade? 3 7 © STUART MILES/SHUTTERSTOCK

8. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Restrictions to International Business Most trade restrictions are applied to imports from other countries. 3 8 Nations are generally eager to export their products to provide markets for their industries and develop a favorable balance of trade. © ALBO003/SHUTTERSTOCK

9. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exports $8.7 Billion Trade with China, July 2013 Imports $38.8 Billion 3 9 Balance -$30.1 Billion United States imports more goods from China than any other nation in the world. © ILDOGESTO/SHUTTERSTOCK

10. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Trade Restrictions: Tariffs 3 10  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.

11. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 11 The U.S. Commerce Department has imposed anti-dumping tariffs and anti-subsidy tariffs on Chinese solar panels to combat dumping. © FILIP FUXA/SHUTTERSTOCK

12. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Trade Restrictions: Nontariff Barriers 3 12 ₤ € ¥ $  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  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.  Foreign exchange control—restriction on amount of foreign currency that can be purchased or sold

13. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 13 © MILAN LJUBISAVIJEVIC/SHUTTERSTOCK

14. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 14 © FIKMIK/SHUTTERSTOCK

15. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Largest Trading Partners for U.S. 3 15

16. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. U.S. Goods Export and Import Shares in 2012 3 16

17. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Trade Agreements WTO  World Trade Organization (WTO)  137 members, accounting for more than 90 percent of the world trade.  Three fourths of these members are developing or least developed countries.  The organization has four principal functions: administering trade agreements, settling trade disputes, conducting trade policy reviews of its members, and acting as a forum for trade negotiations. 3 17

18. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. WTO Members Share in World Merchandise Trade, 2011 3 18

19. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Economic Organizations: The Evolving European Union 3 19 The European Union is now an economic force, with a collective economy larger than that of the United States or Japan.

20. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Economic Organizations: NAFTA North American Free Trade Agreement (NAFTA) 3 20 The United States Canada Mexico FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

21. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 21 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

22. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Economic Organizations: CAFTA-DR Central American Free Trade Agreement – Dominican Republic (CAFTA-DR) Est. 2003 3 22 El Salvador Guatemala Honduras Nicaragua Dominican Republic Costa Rica FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

23. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Association of Southeast Asian Nations (ASEAN) Est. 1967 International Economic Organizations: ASEAN 3 23 Brunei Myanmar Cambodia Indonesia Laos Malaysia Philippines Singapore Thailand Vietnam FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

24. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Economic Organizations: OPEC Organization of Petroleum Exporting Countries (OPEC), Est. 1960 3 24 Algeria Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia United Arab Emirates Venezuela FLAGS: © IINTS VIKMANIS/SHUTTERSTOCK MAPS: © ILDOGESTO/SHUTTERSTOCK

25. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 25

26. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 26

27. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Methods of Entering International Business: Exporting  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 3 27

28. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Methods of Entering International Business: Exporting (cont’d) 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 3 28

29. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Organizing for International Business Licensing Totally Owned Facilities Strategic Alliances Trading Companies Countertrade Multinational Firm Exporting Joint-Venture 3 29

30. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 30

31. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 31

32. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Methods of Entering International Business: Strategic Alliances Strategic alliances are partnerships formed to create competitive advantage on a worldwide basis. 3 32

33. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 3 33 © ROBOLAB/SHUTTERSTOCK

34. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 34 Crude Oil Exchanged for Planes © DVARG/SHUTTERSTOCK © BOJANOVIC/SHUTTERSTOCK

35. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 35

36. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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) 3 36 Federal AgencyAssistance International Trade AdministrationDomestic and overseas commercial officers provide assistance and information. Advocacy CenterFacilitates advocacy to assist U.S. firms competing for major projects and procurements worldwide. National Trade Data BankProvides international economic and export- promotion information from more than 20 U.S. agencies.

37. Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. 3 37