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Competing in Global Markets
Chapter 4
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Chapter Objectives1. 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.
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Competing in Global Markets
Exports—domestically produced goods and services sold in other countries.
Imports—foreign goods and services purchased by domestic customers.
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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
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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.
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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
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The World’s Top 10 Nations Based on Population and Wealth
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Why Nations Trade
Major World Markets Major trading partners of U.S. firms
include the country’s northern and southern neighbors
Emerging Markets
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Major Emerging Markets for the 21st Century
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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
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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.
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Measuring Trade Between Nations Balance of trade—difference between a
nation’s exports and imports.
Trade surplus
Trade deficit
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U.S. International Trade in Goods and Services
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Measuring Trade Between Nations Balance or payments—difference in
money flows into or out of a country.
Balance of payments surplus
Balance of payments deficit
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Components of the Balance of Payments
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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.
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Top 10 U.S. Exports and Imports
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Measuring Trade Between Nations Exchange Rates—value of one nation's
currency relative to the currencies of other nations. Devaluation—describes a fall in a
currencies value relative to other currencies.
Floating Exchange Rates Hard versus Soft Currencies
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Barriers to International Trade All businesses encounter social and cultural,
economic, legal and political barriers to both local and domestic trade
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Barriers to International Trade Social and Cultural Differences
Language
Values and Religious Attitudes
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Barriers to International Trade
Economic Differences Infrastructure
Currency Conversion and Shifts
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AT&T Advertisement Offering a Solution to Language Differences
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Barriers to International Trade
Political and Legal Differences Political Climate
Legal Environment
International Regulations
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Corruption in Business and Government
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Barriers to International Trade Types of Trade Restrictions
Tariffs—tax imposed on imported goods.
Nontariff Barriers Quotas Dumping Embargo Exchange controls
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Arguments for and against Trade Restrictions
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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.
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Reducing Barriers to International Trade
Organizations Promoting International Trade World Bank
International Monetary Fund
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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 Union—25 nation European
economic alliance.
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NAFTA, MERCOSUR, and ASEAN Free-Trade Areas
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The 25 Nations of the European Union
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The introduction of the euro was an event of enormous cultural and financial significance.
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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
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International Trade Research Resources
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Going Global Levels of Involvement in International
Business
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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
Counter trade
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Going Global
Contractual Agreements Franchising. Foreign Licensing. Subcontracting.
International Direct Investment Acquisitions Joint Ventures
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Going Global
From Multinational Corporation to Global Business Multinational Corporation—firm with
significant operations and marketing activities outside its home country.
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The World’s Top Ten Marketers
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Going Global
Sources of Export Assistance U.S. Department of Commerce Website 1-800-USA-TRADE Commerce Department’s
68 district offices
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Destinations and Sources of Direct Investment Dollars
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Developing a Strategy for International Business Global Business Strategies
Offering a standardized, worldwide product and selling it in essentially the same manner throughout a firm’s domestic and foreign markets.
Multidomestic Business StrategyDeveloping and marketing products to serve different needs and tastes of separate national markets.