1. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Three Business in a Borderless World

2. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. International Business The buying, selling, and trading of goods and services across national boundaries. FAST FACT: McDonald’s serves 45 million customers a day at 29,000 restaurants in 120 countries.

3. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Absolute Advantage Absolute advantage 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. Example: DeBeers Consolidated Mines, Ltd. (virtually controls the world’s diamond trade).

4. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Comparative Advantage Comparative advantage occurs when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items. Example: U.S. agricultural commodities, such as corn and wheat.

5. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Importing & Exporting Selling to foreign markets Buying from foreign markets

6. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The U. S. Trade Deficit 1978-2008 (projected) Source: Exports and Imports of Goods and Services, 1978-2008, Infoplease.com from http://www.infoplease.com/ipa/A0855074.html (accessed May 2, 2001)http://www.infoplease.com/ipa/A0855074.html In $ Billions

7. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Top 10 Countries Maintaining Trade Deficits & Surpluses with the US Trade Deficit 1.China 2.Japan 3.Canada 4.Mexico 5.Federal Republic of Germany 6.Taiwan 7.Malaysia 8.Italy 9.Republic of Korea 10.Ireland Trade Surplus 1.Netherlands 2.United Kingdom 3.Brazil 4.Hong Kong 5.Australia 6.Belgium 7.Singapore 8.Switzerland 9.Kenya 10.Argentina 4-5 Source: “Top Ten Countries with which the U.S. Has a Trade Deficit,” June 2001 from http://www.census.gov/foreign-trade/top/dst/current/deficit.html (accessed August 20, 2001) and “Top Ten countries with which the U.S. Has A Trade Surplus,” June 2001 from http://www.census/gov/foreign-trade/top/dst/current/surplus.html (accessed August 20, 2001). http://www.census.gov/foreign-trade/top/dst/current/deficit.html http://www.census/gov/foreign-trade/top/dst/current/surplus.html

8. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. International Barriers Economic Legal/political Social/cultural Technological

9. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Economic Barriers The level of a country’s economic development –Industrialized nations – U.S., Japan, Great Britain –Less-developed countries – Costa Rica The level of existing infrastructure Currency exchange rates

10. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Political & Legal Barriers Laws and regulations Tariffs and trade restrictions –Import tariffs, exchange controls, quotas, embargos, anti-dumping regulations Political barriers –Political instability, cartels

11. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Social & Cultural Barriers The overall culture of a country The culture of the marketplace The culture of “how business is practiced” Think globally, but act locally

12. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Mexican Workers are Most Satisfied with their Jobs* 1.Mexico 2.Switzerland 3.Austria 4.Canada 5.Australia & Brazil Source: “USA TODAY Snapshots,” USA TODAY, October 23, 2001, p. B1. *Based on base pay, merit pay, job challenge, treatment, leadership, sense of achievement and sense of direction, in a survey of 1.7 million employees in 20 different countries.

13. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Technological Barriers Varying levels of technological development and infrastructure

14. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Trade Agreements, Alliances & Organizations GATT WTO NAFTA EU MERCOSUR APEC World Bank IMF GATT WTO NAFTA EU MERCOSUR APEC World Bank IMF

15. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. GATT and NAFTA General Agreement on Tariffs and Trade (GATT): Trade agreement that provided a forum for tariff negotiations and a place where international trade problems could be discussed/solved. North American Free Trade Agreement (NAFTA): Eliminates most tariffs and trade restrictions on agricultural and manufactured products between Canada, Mexico, and U.S. (1994-2009). 4-10

16. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Levels of Involvement in International Trade Import/Export Trading Companies Licensing & Franchising Contract Manufacturing Joint Ventures & Alliances Direct Investment The MNC Level of Risk Level of Involvement

17. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Developing International Business Strategies Multinational Strategy: –Customizing and adapting products, promotion and distribution to the local market condition Global Strategy (Globalization): –Standardizing products, promotion, and distribution to one world market

18. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Opportunities & Challenges of Global Business Fewer political barriers Movement toward market economies Growing opportunities for small as well as large businesses

19. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Solve the Dilemma 1.What are the key issues that need to be considered in determining global expansion? 2.What are some of the unique problems that a small business might face in global expansion that larger firms would not? 3.Should Audiotech consider a joint venture? Should it hire a sales force of people native to the countries it enters?

20. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Explore Your Career Options What are some of the skills required to be a successful businessperson in the borderless world of the 21st century?

21. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Additional Discussion Questions and Exercises 1.Look at the “Foreign Exchange” section of the business section of a newspaper. What nation’s currency or exchange rate is listed? How much of that nation’s currency would equal one dollar? 2.Assume your firm wishes to do business by selling manufactured products in other countries but does not wish to do actual manufacturing in the United States other country. What options are available?

22. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Additional Discussion Questions and Exercises 3.Consider the world situation in general. What are the political hot spots or areas of unrest in which doing business would be risky? What would be the possible advantage for a company setting up a business venture in these areas of unrest at the first sign of political stability? 4.What are some of the reasons for the United States trade deficit?

23. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 3 Quiz 1.A negative balance of trade occurs when a.a country imports more than it exports. b.a company has a monopoly on the production of a specific resource. c.a country exports more than it imports. d.a country’s currency can be exchanged for another’s currency or gold. 2.A partnership between a foreign company and a local partner is called: a.a trading company. b.an export agency company. c.a direct investment. d.a joint venture.

24. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 3 Quiz 3.When the United States established a policy forbidding trade with Cuba, this was an example of what type of trade restriction? a.a quota b.an embargo c.a countertrade agreement d.an import tariff 4.A comparative advantage exists when a.a firm supplies a product at lower costs. b.a firm is the only supplier of a product. c.a country supplies a product at lower costs. d.a country is the most efficient supplier of an item.

25. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Multiple Choice Questions about the Video 1.Which of the following is not a consideration in selecting a transportation mode for international distribution? a.cost b.speed c.flexibility d.diversity 2.________ is the practice of consolidating many items into a single large container that is sealed at its point of origin and opened at its destination. a.Consolidation b.Containerization c.Double-stack technology d.The Stacktrain process