Business in Business in Action 7e Action 7e Bovée/ThillBovée/Thill

Business in Business in Action 7e Action 7e Bovée/ThillBovée/Thill

The Global The Global MarketplaceMarketplace

Chapter 3Chapter 3

Learning Objectives

1. Explain why nations trade and describe how international trade is measured

2. Discuss the nature of conflicts in global business, including free trade and government interventions in international trade

3. Identify the major organizations that facilitate international trade and the major trading blocs around the world

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Learning Objectives (cont.)

4. Discuss the importance of understanding cultural and legal differences in the global business environment

5. Define the major forms of international business activity

6. Discuss the strategic choices that must be considered before entering international markets

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Exhibit 3.1 The World’s Most Competitive Countries

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Why Nations Trade

• Economic globalization The increasing integration and

interdependence of national economies around the world

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Why Nations Trade (cont.)

• Focusing on relative strengths

• Expanding markets

• Pursuing economies of scale

• Acquiring materials, goods, and services

• Keeping up with customers

• Keeping up with competitors

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How International Trade is Measured

• Balance of trade Total value of the products a nation exports

minus the total value of the products it imports, calculated over a period of time

• Trade surplus A favorable trade balance created when a

country exports more than it imports

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How International Trade is Measured (cont.)

• Trade deficit An unfavorable trade balance is created when

a country imports more than it exports

• Balance of payments The sum of all payments a country receives

from other countries minus the sum of all payments it makes to the other countries, over some specified period of time

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Foreign Exchange Rates and Currency Valuations

• Exchange rate The rate at which the money of one country is

traded for the money of another

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Free Trade

• Free trade International trade unencumbered by

restrictive measures

• Supporters of free trade generally acknowledge that it produces winners and losers but that the winners gain more than the losers lose, so the net effect is positive

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Government Intervention in International Trade

• Protectionism Government policies aimed at shielding a

country’s industries from foreign competition

• Tariffs Taxes charged on imports

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Government Intervention in International Trade (cont.)

• Import quotas Limits placed on the quantity of imports a

nation will allow for a specific product

• Embargo A total ban on trade with a particular nation (a

sanction) or of a particular product.

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Government Intervention in International Trade (cont.)

• Export subsidies A form of financial assistance, in which

producers receive enough money from the government to allow them to lower their prices, in order to compete more effectively in the global market

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Government Intervention in International Trade (cont.)

• Dumping Charging less than the actual cost or less

than the home-country price for goods sold in other countries

• Sanctions politically motivated embargoes that revoke a

country’s normal trade relations status often used as forceful alternatives short of

war

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International Trade Organizations

• World Trade Organization (WTO) Permanent forum for negotiating,

implementing, and monitoring international trade procedures and for mediating trade disputes among the150 member countries

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International Trade Organizations (cont.)

• The International Monetary Fund (IMF) The IMF was formed to monitor global

financial developments, provide technical advice and training, provide short-term loans to countries that are unable to meet their financial obligations, and work to alleviate poverty in developing economies.

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International Trade Organizations (cont.)

• The World Bank Founded to finance reconstruction after

World War II and is now involved in hundreds of projects around the world aimed at addressing poverty, health, education, and other concerns in developing countries

Is a United Nations agency owned by its 187 member nations

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Trading Blocs

• Trading blocs Organizations of nations that remove trade

barriers among their member countries and establish uniform barriers to trade with non-member nations

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Trading Blocs (cont.)

• North American Free Trade Agreement (NAFTA) Formed by the United States, Canada, and

Mexico to pave the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas

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Trading Blocs (cont.)

• The European Union (EU) constitutes more than two dozen countries

and a half billion people. now accounts for the world’s largest economy

• EU nations have eliminated hundreds of local regulations, variations in product standards, and protectionist measures that once limited trade among member countries

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Trading Blocs (cont.)

• The Asia-Pacific Economic Cooperation (APEC) an organization of 21 countries working to

liberalize trade in the Pacific Rim has a long-term goal of liberalizing and

simplifying trade and investment among member countries and helping the region as a whole achieve sustainable economic growth.

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The Global Business Environment (cont.)

• Culture A shared system of symbols, beliefs,

attitudes, values, expectations, and norms for behavior

• Ethnocentrism Judging all other groups according to the

standards, behaviors, and customs of one’s own group

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The Global Business Environment (cont.)

• Stereotyping Assigning a wide range of generalized

attributes, which are often superficial or even false, to an individual based on his or her membership to a particular culture or social group

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The Global Business Environment (cont.)

• Successful global business leaders recognize and respect differences in language, social values, ideas of status, decision-making habits, attitudes toward time, use of space, body language, manners, religions, and ethical standards

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Improving Communication with a Person from Another Culture

• Be alert to the other person’s customs

• Deal with the individual

• Clarify your intent and meaning

• Adapt your style to that the other person’s

• Show respect

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Legal Differences in the Global Business Environment

• Tax haven A country whose favorable banking laws and

low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business.

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Exhibit 3.6 Forms of International Business

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Forms of International Business Activity

• Importing Purchasing goods

or services from another country and bringing them into one’s own country

• Exporting Selling and

shipping goods or services to another country

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Forms of International Business Activity (cont.)

• Licensing Agreement to produce and market another

company’s product in exchange for a royalty or fee

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Forms of International Business Activity (cont.)

• Foreign Direct Investment (FDI) Investment of money by foreign companies in

domestic business enterprises

• Multinational Corporations (MNCs) Companies with operations in more than one

country

THE END

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