Chapter 3. Exploring Global Business

Transcription

1 Chapter 3 Exploring Global Business

2 International Business all business activities that involve exchanges across national boundaries. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 2

3 Absolute Advantage the ability to produce a specific product more efficiently than any other nation. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 3

4 Comparative Advantage the ability to produce a specific product more efficiently than any other product. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 4

5 Exporting selling and shipping raw materials or products to other nations. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 5

6 Importing purchasing raw materials or products in other nations and bringing them into one s own country. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 6

7 Why This Chapter Matters Free trade are you for or against it? Most economists support free-trade policies, but public support can be lukewarm, and certain groups are adamantly opposed, alleging that trade harms large segments of U.S. workers, degrades the environment, and exploits poor countries. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 7

8 Exporting and Importing U.S. Exports Excess Corn Excess Wine U.S. Imports Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 8

9 Figure 3.1: The Top Ten Merchandise Exporting States Source: accessed May 2, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 9

10 Figure 3.2: U.S. International Trade in Goods and Services Source: U.S. Department of commerce, International Trade Administration, U.S. Bureau of Economic Analysis, accessed April 16, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 10

11 Balance of Trade the total value of a nation s exports minus the total value of its imports over some period of time. Imports > Exports = (-) Balance of Trade Exports > Imports = (+) Balance of Trade Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 11

12 Trade Deficit negative balance of trade. Spotlight Source: U.S. Department of Commerce, Bureau of Economic Analysis, accessed May 1, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 12

13 Balance of Payments the total flow of money into a country minus the total flow of money out of that country over some period of time. Includes Imports and exports Investments Money spent by foreign tourists Payments by foreign governments Aid to foreign governments All other receipts and payments Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 13

14 Trade Restrictions Tariff Import duty tax levied on a particular foreign product entering a country Revenue imposed solely to generate income Protective imposed to protect domestic industry from competition Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 14

15 Trade Restrictions Dumping exportation of large quantities of a product at a price lower than that of the same product in the home market. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 15

16 Trade Restrictions Nontariff a nontax measure imposed by a government to favor domestic over foreign suppliers. Import Quota Embargo Foreign-Exchange Control Currency Devaluation Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 16

17 Reasons for Trade Restrictions Equalize nation s balance of payments Protect new/weak industries Protect national security Protect health of citizens Retaliate for another nation s trade restrictions Protect domestic jobs Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 17

18 Reasons Against Trade Restrictions Higher prices for consumers Restriction of consumers choices Misallocation of international resources Loss of jobs Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 18

19 Exports and U.S. Economy Opportunity for all countries Exports more important to U.S. economy Canada and Mexico best export partners Canada and China best import partners Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 19

20 Figure 3.3: U.S. Goods Export and Import Shares in 2008 Source: Federal Reserve Bank of St. Louis, National Economic Trends, May 2009, p. 18, accessed May 1, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 20

21 Table 3.2: Value of U.S. Merchandise Exports and Imports, 2008 Source: U.S. Department of Commerce, International Trade Administration, accessed May 1, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 21

22 General Agreement on Tariffs and Trade (GATT) an international organization of 153 nations dedicated to reducing or eliminating tariffs and other barriers to world trade. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 22

23 GATT-Sponsored Negotiations Kennedy Round ( ) Tokyo Round ( ) Uruguay Round ( ) Doha Round (2001+) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 23

24 World Trade Organization powerful successor to GATT that incorporates trade in goods, services, and ideas. Membership Obliges 153 members to observe GATT Has judicial powers to mediate among members disputing new rules Has more binding authority than GATT Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 24

25 Economic Community an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 25

26 European Union International Economic Communities European Economic Area North American Free Trade Agreement (NAFTA) Central American Free Trade Agreement (CAFTA) Association of Southeast Asian Nations (ASEAN) Commonwealth of Independent States (CIS) (cont.) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 26

27 International Economic Communities (cont.) Caribbean Basin Initiative (CBI) Common Market of the Southern Cone (Mercosur) Organization of Petroleum Exporting Countries (OPEC) Economic Community of West African States (ECOWAS) Organization of Economic Cooperation and Development (OECD) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 27

28 Figure 3.4: The Evolving European Union Source: accessed May 2, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 28

29 Methods of Entering International Business Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 29

30 Licensing a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 30

31 Exporting Manufacture products in home country and export them to foreign markets Relative low risk Export-import merchant Documents Letter of credit Bill of lading Draft Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 31

32 Joint Ventures a partnership formed to achieve a specific goal or to operate for a specific period of time. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 32

33 Totally Owned Facilities a firm s own production and marketing facilities, developed in one or more foreign nations as a direct investment. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 33

34 Forms of Direct Investment $ Builds/purchases manufacturing and other facilities in the foreign country, produces/markets own established products in foreign/neighboring countries $ Purchases existing firm in foreign country under arrangement allowing it to operate independently of parent company Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 34

35 Strategic Alliance a partnership formed to create competitive advantage on a worldwide basis. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 35

36 Trading Company a company that provides a link between buyers and sellers in different countries and is not involved in manufacturing or owning assets related to manufacturing. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 36

37 Countertrade an international barter transaction in which goods and services are exchanged for different goods and services. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 37

38 Multinational Enterprise a firm that operates on a worldwide scale without ties to any specific nation or region, representing the highest level of involvement in international business. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 38

39 Value of U.S. Merchandise Exports and Imports, 2008 Source: U.S. Department of Commerce, International Trade Administration, accessed May 1, Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 39

40 Ten Largest Foreign and U.S. Multinational Corporations Source: Fortune Global 500, July 1, 2008, p Copyright 2006 Time, Inc., All rights reserved. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 40

41 Steps in Entering International Markets 1. Identify exportable products. 2. Identify key foreign markets for the products. 3. Analyze how to sell in each priority market (methods will be affected by product characteristics and unique features of country/ market). 4. Set export prices and payment terms, methods, and techniques. 5. Estimate resource requirements and returns. 6. Establish overseas distribution network. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 41

42 Sources of Export Assistance International Trade Administration U.S. and Foreign Commerical Services (US&FCS) Advocacy Center TRADESTATS Selected SBA Market Research Related General Resources National Trade Data Bank Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 42

43 Export-Import Bank of the United States an independent agency of the U.S. government whose function it is to assist in financing the exports of American firms. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 43

44 Multilateral Development Bank an internationally supported bank that provides loans to developing countries to help them grow. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 44

45 Multilateral Development Banks World Bank Inter-American Development Bank (IDB) Asian Development Bank (ADB) African Development Bank (AFDB) European Bank for Reconstruction and Development (EBRD) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 45

46 International Monetary Fund (IMF) an international bank with 184 member nations that makes short-term loans to developing countries experiencing balance-of-payments deficits. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 46

47 Sources of Export Assistance U.S. Export Assistance Centers (USEACs) International Trade Administration (ITA) U.S. and Foreign Commercial Services (US&FCS) Advocacy Center (cont.) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 47

48 Sources of Export Assistance (cont.) Trade Information Center (TIC) ita.doc.gov/td/tic STAT-USA/Internet Small Business Administration National Trade Data Bank (NTDB) Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 48

49 Chapter Quiz 1. A developing country found that to meet its needs the previous year, it had imported far more goods than it exported. This country experienced a(n) a) unfavorable balance of payments. b) favorable balance of payments. c) favorable balance of trade. d) unfavorable balance of trade. e) unfavorable supply of goods. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 49

50 Chapter Quiz (cont.) 2. Due to political differences with North Korea, the U.S. government has stopped trading with North Korea. This practice is an example of imposing a(n) a) import duty. b) import cut. c) export control. d) trade embargo. e) export duty. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 50

51 Chapter Quiz (cont.) 3. When the United States wants to reduce the cost of its goods in foreign nations, it a) revalues its currency. b) devalues its currency. c) pays off its trade deficit. d) borrows from the Eximbank. e) sells more goods abroad. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 51

52 Chapter Quiz (cont.) 4. A forum for the discussion of trade problems and a reduction of trade barriers is provided by a) the General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO). b) a free trade zone. c) the World Bank. d) the Eximbank. e) All of these answers are correct. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 52

53 Chapter Quiz (cont.) 5. XYZ Company is seeking a partner in China to manufacture its products. XYZ wants to team up with an established Chinese firm that will provide immediate market knowledge and access, reduced risk, and control over product attributes. The best choice for XYZ Company is a) licensing. b) a bilateral agreement. c) a joint venture. d) an export-import merchant agreement. e) an export-import agent agreement. Copyright Cengage Learning. All rights reserved. Chapter 3 Slide 53