Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 1 Business in a Global Environment Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Competing in Global Markets Chapter 4 Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-3 Chapter Objectives 1.Explain the importance of international business and the main reasons nations trade. 2.Discuss the relationship of absolute and comparative advantage to international trade. 3.Describe how nations measure international trade and the significance of exchange rates. 4.Identify the major barriers that confront global businesses. 5.Explain how international trade organizations and economic communities reduce barriers to international trade. 6.Compare the different levels of involvement used by businesses when entering global markets. 7.Distinguish between a global business strategy and a multidomestic business strategy. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-4 Competing in Global Markets Exportsdomestically produced goods and services sold in other countries. Importsforeign goods and services purchased by domestic customers. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-5 Why Nations Trade International trade is vital because: It expands markets for products Allows companies to seek out growth opportunities in other nations Makes production and distribution systems more efficient Reduces firms dependence on the economies of their home nations Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-6 Why Nations Trade International Sources of Factors of Production Business decisions to operate abroad depend on the availability, price, and quality of labor, natural resources, capital and entrepreneurship. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-7 Why Nations Trade Size of the International Marketplace Firms are attracted to international business by the sheer size of the marketplace As developing nations expand, the potential for reaching new groups of customers increases Even though people in developing nations have relatively low per capita incomes, their huge populations often offer lucrative markets Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-8 The Worlds Top 10 Nations Based on Population and Wealth Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 4-9 Why Nations Trade Major World Markets Major trading partners of U.S. firms include the countrys northern and southern neighbors Emerging Markets Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Major Emerging Markets for the 21 st Century Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Why Nations Trade Absolute and Comparative Advantage Absolute Advantage Exists when a country makes a product for which it can maintain a monopoly or that it can produce at a lower cost than any competitor Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Why Nations Trade Absolute and Comparative Advantage Comparative Advantage Supplying a product more efficiently and at a lower price than it can supply other goods, compared with the outputs of other countries. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Measuring Trade Between Nations Balance of tradedifference between a nations exports and imports. Trade surplus Trade deficit Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved U.S. International Trade in Goods and Services Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Measuring Trade Between Nations Balance or paymentsdifference in money flows into or out of a country. Balance of payments surplus Balance of payments deficit Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Components of the Balance of Payments Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Measuring Trade Between Nations Major U.S. Exports and Imports The U.S., with combined exports of over $2 trillion, leads the world in the international trade of goods and services. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Top 10 U.S. Exports and Imports Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Measuring Trade Between Nations Exchange Ratesvalue of one nation's currency relative to the currencies of other nations. Devaluationdescribes a fall in a currencies value relative to other currencies. Floating Exchange Rates Hard versus Soft Currencies Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Barriers to International Trade All businesses encounter social and cultural, economic, legal and political barriers to both local and domestic trade Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Barriers to International Trade Social and Cultural Differences Language Values and Religious Attitudes Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Barriers to International Trade Economic Differences Infrastructure Currency Conversion and Shifts Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved AT&T Advertisement Offering a Solution to Language Differences Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Barriers to International Trade Political and Legal Differences Political Climate Legal Environment International Regulations Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Corruption in Business and Government Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Barriers to International Trade Types of Trade Restrictions Tariffstax imposed on imported goods. Nontariff Barriers Quotas Dumping Embargo Exchange controls Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Arguments for and against Trade Restrictions Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Reducing Barriers to International Trade Organizations Promoting International Trade General Agreement on Tariffs and Trade World Trade Organization (WTO) 135 member international institution that monitors GATT agreements and mediates international trade disputes. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Reducing Barriers to International Trade Organizations Promoting International Trade World Bank International Monetary Fund Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Reducing Barriers to International Trade International Economic Communities North American Free Trade Agreement (NAFTA) 1994 agreement among the U.S., Canada, and Mexico to break down tariffs and trade restrictions. MERCOSUR ASEAN European Union25 nation European economic alliance. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved NAFTA, MERCOSUR, and ASEAN Free-Trade Areas Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved The 25 Nations of the European Union Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved The introduction of the euro was an event of enormous cultural and financial significance. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global While expanding into overseas markets can increase profits and marketing opportunities, it also introduces new complexities to operations. Key decisions before expanding overseas include Determining which foreign market(s) to enter Analyzing the expenditures required Deciding on the best way to organize overseas operations Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved International Trade Research Resources Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global Levels of Involvement in International Business Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global Importers and Exporters Importers: Firms that bring in goods produced abroad to sell domestically Exporters: Firms that produce or purchase goods at home to sell overseas Countertrade Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global Contractual Agreements Franchising. Foreign Licensing. Subcontracting. International Direct Investment Acquisitions Joint Ventures Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global From Multinational Corporation to Global Business Multinational Corporationfirm with significant operations and marketing activities outside its home country. Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved The Worlds Top Ten Marketers Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Going Global Sources of Export Assistance U.S. Department of Commerce Website USA-TRADE Commerce Departments 68 district offices Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Destinations and Sources of Direct Investment Dollars Copyright 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved Developing a Strategy for International Business Global Business Strategies Offering a standardized, worldwide product and selling it in essentially the same manner throughout a firms domestic and foreign markets. Multidomestic Business Strategy Developing and marketing products to serve different needs and tastes of separate national markets.