3-1 chapter 3: business in a global environment exploring business 2.0 © 2012 flat world knowledge

3-1Chapter 3: Business in aChapter 3: Business in aGlobal EnvironmentGlobal Environment

Exploring Business 2.0 © 2012 Flat World Knowledge

3-2

Chapter ObjectivesChapter Objectives1. Explain why nations and companies participate in

international trade.2. Describe the concepts of absolute and comparative

advantage.3. Explain how trade between nations is measured.4. Define importing and exporting.5. Explain how companies enter the international market

through licensing agreements or franchises.6. Describe how companies reduce costs through contract

manufacturing and outsourcing.7. Explain the purpose of international strategic alliances

and joint ventures.8. Understand how U.S. companies expand their businesses

through foreign direct investments and international subsidiaries.


3-3

Chapter ObjectivesChapter Objectives

10. Understand the arguments against and in favor of multinational corporations.

11. Appreciate how cultural, economic, legal, and political differences between countries create challenges to successful business dealings.

12. Describe the ways in which governments and international bodies promote and regulate global trade.

13. Discuss the various initiatives designed to reduce international trade barriers and promote free trade.

14. Understand how to prepare for a career in international business.


Why Do Nations Why Do Nations Trade?Trade?

““Because no national economy Because no national economy can produce all the goods (it) can produce all the goods (it)

need(s).need(s).””

3-4


3-5Absolute Absolute AdvantageAdvantage

1)1) Only source of particular Only source of particular productproduct

2)2) Can make more of product Can make more of product using same or fewer using same or fewer resources than other countriesresources than other countries


3-6

Comparative AdvantageComparative Advantage

1)1) Produce product at lower Produce product at lower opportunity costopportunity cost

2)2) Opportunity costs- the products that Opportunity costs- the products that country must decline in order country must decline in order to produce something elseto produce something else

3)3) When country specializes in When country specializes in particular product, it must sacrifice particular product, it must sacrifice production of another productproduction of another product


3-7ComparativeComparativeAdvantage In The TechsAdvantage In The Techs


3-8Measuring Measuring TradeTrade

Balance of Trade- Balance of Trade- ““…subtract... value of …subtract... value of (country(country’’s) imports from the value of its s) imports from the value of its exports.exports.””

Balance of Payments- Balance of Payments- ““…the difference, …the difference, over...time, between the total flow of over...time, between the total flow of money...into a country and the total flow money...into a country and the total flow of money...out.of money...out.””


3-9Balance Of Balance Of TradeTrade

Trade Surplus (Favorable Balance)Trade Surplus (Favorable Balance)Sells more than it buysSells more than it buys

Trade Deficit (Unfavorable Balance)Trade Deficit (Unfavorable Balance)Buys more than it sellsBuys more than it sells

Managing National Credit CardManaging National Credit Card


3-10U.S. Imports, Exports, and U.S. Imports, Exports, and Balance of Payments, 1994–Balance of Payments, 1994–

20102010


Importing and Exporting

• Importing: Buying products overseas and reselling them in one’s own country

• Exporting: Selling domestic products to foreign customers


3-12

LicensingLicensingAnd FranchisingAnd Franchising

Licensing Agreement – Lets foreign Licensing Agreement – Lets foreign company sell products of producer/licensor company sell products of producer/licensor or use intellectual property for or use intellectual property for royalty feeroyalty fee

International Franchise Agreement – International Franchise Agreement – Company/Franchisor grants foreign Company/Franchisor grants foreign company right to use brand name and sell company right to use brand name and sell its productsits products


3-13Contract Contract ManufacturingManufacturing

“ (also known as outsourcing)…U.S. company… contract(s) with local

company in foreign country to manufacture one of its products…

retain(s) control of product design and development and… label…”


Table 3.1 - Selected Hourly Wages, United States and India

Source: Data obtained from “Huge Wage Gaps for the Same Work Between Countries – June 2011,” WageIndicator.com, http://www.wageindicator.org/main/WageIndicatorgazette/wageindicator-news/huge-wage-gaps-for-the-same-work-between-countries-June-2011 (accessed September 20, 2011)


3-15

Strategic AlliancesStrategic AlliancesAnd Joint VenturesAnd Joint Ventures

Strategic Alliance – Agreement between two Strategic Alliance – Agreement between two companies (or company and nation) to pool companies (or company and nation) to pool resources and achieve business goals resources and achieve business goals benefiting both partnersbenefiting both partners

Joint Venture – Alliance in which partners Joint Venture – Alliance in which partners fund separate entity to manage joint fund separate entity to manage joint operationoperation


3-16

Foreign DirectForeign DirectInvestments And SubsidiariesInvestments And Subsidiaries

$ Foreign Direct Investment – Formal Foreign Direct Investment – Formal establishment of business operations on establishment of business operations on foreign soilforeign soil

$ Foreign Subsidiary – Independent company Foreign Subsidiary – Independent company owned by a foreign firm (parent)owned by a foreign firm (parent)

$ Offshoring – Occurs when the facilities set Offshoring – Occurs when the facilities set up in the foreign countries replace U.S. up in the foreign countries replace U.S. manufacturing facilities manufacturing facilities $ Goods are sent back to the U.S. for saleGoods are sent back to the U.S. for sale


3-17

Where FDI GoesWhere FDI Goes


3-18The WorldThe World’’s Twenty Largest s Twenty Largest MNCsMNCs


3-19

MNC CultureMNC Culture•Criticism

–Destroys livelihoods in home-country

–Traditional lifestyles/values weakened or destroyed

–Irreversible damage to environment

•DefenseBetter, cheaper productsCreates jobsRaises standard of livingIncreases cross-cultural understanding


3-20

GlobalGlobalBusiness EnvironmentBusiness Environment

CulturalCultural EconomicEconomic

Legal &Legal &RegulatoryRegulatory


3-21

CultureCulture“...system of shared beliefs,

values, customs, and behaviors that govern the interactions of members of

a society.”


3-22Cultural Cultural EnvironmentEnvironment

LanguageLanguageTime/SociabilityTime/Sociability• High Context- interlocking personal/family High Context- interlocking personal/family

connections hold people togetherconnections hold people together• Low Context- personal & work relationships more Low Context- personal & work relationships more

compartmentalizedcompartmentalized

Intercultural CommunicationIntercultural Communication• Degrees of animation in expression Degrees of animation in expression • DistanceDistance


3-23

Lost In TranslationLost In Translation

Translated into German, the slogan Translated into German, the slogan ““Come Alive with PepsiCome Alive with Pepsi”” became became ““Come Come

out of the Grave with Pepsiout of the Grave with Pepsi

A U.S. computer company in A U.S. computer company in Indonesia translated Indonesia translated ““softwaresoftware”” as as

““underwear.underwear.””

A German chocolate product called A German chocolate product called ““ZitZit”” didn didn’’t sell well in the United t sell well in the United

States.States.


3-24Economic Economic EnvironmentEnvironment

Economic Development- Gross Economic Development- Gross national income per capita national income per capita • Standard of livingStandard of living

• InfrastructureInfrastructure

Currency Valuations & Exchange Currency Valuations & Exchange RatesRates

Universal Currency Converterwww.oanda.com


3-25

The WorldThe World’’s Wealth, 1970 and s Wealth, 1970 and 20102010


3-26Legal &Legal &Regulatory EnvironmentRegulatory Environment

No established No established globalglobal legal system legal system

Foreign Corrupt Practices ActForeign Corrupt Practices Act


3-27

Subsidies orSubsidies orTrade Controls?Trade Controls?

ProtectionismProtectionism

TariffsTariffs

Quotas/EmbargoQuotas/Embargo

DumpingDumping


3-28Trade Control Trade Control Debate Debate

•ConsRestricts free trade; countries cannot compete freelyDoesn’t promote level playing field; gives special privileges to someCannot bring goods to fair/open marketDetrimental to world economy; nations cannot focus on what they do best

•Pros–Protect specific industries

–Protect new or struggling industries

–Shield industries vital to national defense


3-29Reducing Trade Reducing Trade BarriersBarriers

Trade Agreements/OrganizationsTrade Agreements/Organizations• General Agreement on Tariffs & TradeGeneral Agreement on Tariffs & Trade• World Trade OrganizationWorld Trade Organization

Financial Support for Troubled EconomiesFinancial Support for Troubled Economies• International Monetary FundInternational Monetary Fund• World BankWorld Bank

Trading BlocsTrading Blocs• North American Free Trade AssociationNorth American Free Trade Association• European UnionEuropean Union• OtherOther


3-30

The Nations of the European The Nations of the European UnionUnion


Career in International Career in International BusinessBusiness

Plan EducationPlan Education• Develop expertiseDevelop expertise• Knowledge of international politics, Knowledge of international politics,

economics, & cultureeconomics, & cultureGet Direct ExperienceGet Direct ExperienceInteract With Other CulturesInteract With Other Cultures

3-31


3-1 chapter 3: business in a global environment exploring business 2.0 © 2012 flat world knowledge

Documents

flat world knowledge

international business

nations trade

international trade

global trade

free trade

successful business

international market