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Copyright 2004 Prentice Hall, Inc.1

CHAPTER 4

Understanding theGlobal Context of

Business



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Chapter Outline

The Rise of InternationalBusiness

International BusinessManagement

Barriers to International Trade



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What Is Globalization?

Process by which theworld economy is

becoming a singleinterdependent system



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What Are Imports and Exports?

Imports are productsmade or grown abroadbut sold domestically,while exports areproducts made orgrown domestically

but shipped and soldabroad



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The Contemporary GlobalEconomy

Several forces have combined to sparkand sustain globalization:

Governments and businesses are aware of

the benefits of globalization to businessesand shareholders.

New technologies make international travel,communication and commerce much fasterand cheaper.

Competitive pressures sometimes force a firmto expand into foreign markets to keep upwith competitors.



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The Price of Global Communication


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Trade Agreements

General Agreement on Tariffs andTrade (GATT)

North American Free Trade

Agreement (NAFTA)

European Union (EU)

World Trade Organization (WTO)



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The North American Marketplace

and the Nations of NAFTA



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The Major World Marketplaces

Per capita income is the averageincome per person.

High-income countries: those with per capitaincome greater than $9,386.

Middle-income countries: those with percapita income of less than $9,386 but morethan $765.

Low-income countries (or Developing

countries): those with per capita income ofless than $765.



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Europe and the Nations of theEuropean Union



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The Nations of ASEAN



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The Major Trading Partners ofthe U.S.



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Forms of Competitive Advantage

Absolute advantage is the ability toproduce something more efficiently thanany other country can

Comparative advantage is the ability to

produce some products more efficientlyor better than other products

National competitive advantage is aninternational competitive advantage

stemming from a combination of factorconditions; demand conditions; relatedand supporting industries; and firmstrategies, structures and rivalries



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Attributes of NationalCompetitive Advantage



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Import-Export Balances

Balance of trade is the economic value ofall products a country imports minus theeconomic value of all products it exports

Trade deficit occurs when a country’s imports

exceed its exports (a negative balance of trade),while a trade surplus occurs when exportsexceed imports (a positive balance of trade)



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Import-Export Balances

Balance of payments is the flow of moneyinto or out of a country



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Exchange Rates

Exchange rate is the rate at which thecurrency of one nation can beexchanged for that of another

Fixed exchange rates: the value of anycountry’s currency relative to that of another

remain constant

Floating exchange rates: the value of onecountry’s currency relative to that of another

varies with market conditions

Euro: a common currency sharedamong most of the membersof the EU



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Exchange Rates and Competition

When a country’s currency rises—becomes stronger —companiesbased there find it harder to exportproducts to foreign markets and

easier for foreign companies toenter local markets

When the value of a currencydeclines—becomes weaker —

companies based there find iteasier to export to foreign marketsand harder for foreign companies toenter local markets


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Canadian vs. U.S. Prices

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