introduction to business chapter 4 assessing global conditions

INTRODUCTION TO BUSINESS

CHAPTER 4

Assessing Global Conditions

How International Business Can Enhance Performance

Attract Foreign Demand Capitalize on Technology Use Inexpensive Resources Diversify Internationally Combination of Motives


Use Inexpensive Resources Diversify Internationally

The amount of products imported through harbors is higher when international trade restrictions are reduced or eliminated.

Combination of Motives


The economy of China has grown substantially because of its ability to produce products at very low cost. Many firms in the United States and other countries have their products produced in China.

How International Business Can Enhance PerformanceApproximate Hourly Compensation Costs for Manufacturing Across Countries

How to Conduct International Business

Importing The purchase of foreign products or services. Tariff: a tax on imported products. Quota: a limit on the amounts of specific products that

can be imported. Exporting

The sale of products or services (called exports) to purchasers residing in other countries.

Balance of trade: the level of exports minus the level of imports.

Trade deficit: the amount by which imports exceed exports.


Trend of U.S. Exports and Imports


Direct Foreign Investment (DFI) A means of acquiring or building subsidiaries

in one or more foreign countries. Outsourcing

Sending some services to foreign countries as a means of using cheaper labor.


Strategic Alliances A business agreement between firms whereby

resources are shared to pursue mutual interests.

Joint venture: an agreement between two firms about a specific project.

International licensing agreement: a type of alliance in which a firm allows a foreign company (called the “licensee”) to produce its products according to specific instructions.


U.S. firms commonly engage in strategic alliances with manufacturers where labor costs are very low, such as Africa and Asia.

Barriers to International Business

Reduction in Barriers NAFTA: North American Free Trade

Agreement. GATT: General Agreement on Tariffs and

Trade. Remaining Barriers

Dumping: selling products in a foreign country at a price below the cost of producing those products.

Barriers to International Business

Disagreements About International Trade Policy Firms in different countries are subject to

different environmental restrictions. Firms in different countries are not subject to the

same labor laws. Firms in different countries have different

policies concerning bribery. Firms in different countries sometimes have

more governmental financial support.

How Foreign Characteristics Influence International Business

Culture A foreign country’s culture can result in poor

decisions concerning that country’s tastes, habits, and customs.


Economic System Capitalism: an economic system that allows for

private ownership of businesses. Communism: an economic system that involves

public ownership of businesses. Socialism: an economic system that contains

some features of both capitalism and communism.

Privatization: the sale of government-owned businesses to private investors.


Economic Conditions Economic growth Sensitivity to foreign economic conditions

Exchange Rates Political Risk and Regulations

Political risk: the risk that a country’s political actions can adversely affect a business.

Corruption Regulatory climate


The euro is the currency used by many European countries today. Its value against the U.S. dollar changes over time. As the value changes, it affects the amount of dollars needed to purchase European products (denominated in euros) and the amount of euros needed to purchase U.S. products (denominated in dollars).

How Exchange Rate Movements Can Affect Performance

Impact of a Weak Dollar on U.S. Importers Appreciates: strengthens in value

Impact of a Strong Dollar on U.S. Importers Depreciates: weakens in value

Actual Effects of Exchange Rate Movements on U.S. Importers


Hedging Against Exchange Rate Movements Hedge: action taken to protect a firm against

exchange rate movements. Hedging future payments in foreign currencies.

Forward contract: provides that an exchange of currencies will occur at a specified exchange rate at a future point in time.

Forward rate: the exchange rate that a bank will be willing to offer at a future point in time.

Spot exchange rate: the exchange rate quoted for immediate transactions. WHY USE THIS????

Business Plan

You will all use the spot rate LIBRARY RESEARCH: Culture, Economic System, Economic

Conditions, Political Risk Exchange Rate : Three year history

and projection for first 12 months of business

5-7 CITED sources MINIMUM (MLA) Sample

Setting up shop in another country

China… Guest Speaker: Industry,

Location, Investment structure, Mgmt., legal protection.

introduction to business chapter 4 assessing global conditions

Documents

international business

business agreement

foreign countries

imports slide

business chapter

different countries

purchase of foreign

imported products