Transcript Slide 1

Chapter 3: Business in a
Global Environment
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-1
Chapter Objectives
1.
2.
3.
4.
5.
6.
7.
8.
Explain why nations and companies participate in international
trade.
Describe the concepts of absolute and comparative advantage.
Explain how trade between nations is measured.
Define importing and exporting.
Explain how companies enter the international market through
licensing agreements or franchises.
Describe how companies reduce costs through contract
manufacturing and outsourcing.
Explain the purpose of international strategic alliances and joint
ventures.
Understand how U.S. companies expand their businesses
through foreign direct investments and international subsidiaries.
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-2
Chapter Objectives
10.
11.
12.
13.
14.
Understand the arguments against and in favor of multinational
corporations.
Appreciate how cultural, economic, legal, and political
differences between countries create challenges to successful
business dealings.
Describe the ways in which governments and international
bodies promote and regulate global trade.
Discuss the various initiatives designed to reduce international
trade barriers and promote free trade.
Understand how to prepare for a career in international business.
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-3
Why Do Nations Trade?
3-4
“Because no national economy can
produce all the goods (it) need(s).”
Exploring Business 2.0 © 2012 Flat
World Knowledge
Absolute Advantage
1) Only source of particular product
2) Can make more of product using
same or fewer resources than other
countries
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-5
3-6
Comparative Advantage
1) Produce product at lower opportunity
cost
2) Opportunity costs- the products that
country must decline in order to produce
something else
3) When country specializes in particular
product, it must sacrifice production of
another product
Exploring Business 2.0 © 2012 Flat
World Knowledge
Comparative
Advantage In The Techs
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-7
Measuring Trade
Balance of Trade- “…subtract... value of
(country’s) imports from the value of its
exports.”
Balance of Payments- “…the difference,
over...time, between the total flow of
money...into a country and the total flow of
money...out.”
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-8
Balance Of Trade
Trade Surplus (Favorable Balance)
Sells more than it buys
Trade Deficit (Unfavorable Balance)
Buys more than it sells
Managing National Credit Card
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-9
U.S. Imports, Exports, and
Balance of Payments, 1994–2010
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-10
Importing and Exporting
• Importing: Buying products overseas and
reselling them in one’s own country
• Exporting: Selling domestic products to
foreign customers
Exploring Business 2.0 © 2012 Flat
World Knowledge
Licensing
And Franchising
Licensing Agreement – Lets foreign company sell
products of producer/licensor or use
intellectual property for royalty fee
International Franchise Agreement –
Company/Franchisor grants foreign company
right to use brand name and sell its products
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-12
Contract Manufacturing
“ (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…”
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-13
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)
Exploring Business 2.0 © 2012 Flat
World Knowledge
Strategic Alliances
And Joint Ventures
Strategic Alliance – Agreement between two
companies (or company and nation) to pool
resources and achieve business goals benefiting
both partners
Joint Venture – Alliance in which partners fund
separate entity to manage joint operation
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-15
Foreign Direct
Investments And Subsidiaries
$ Foreign Direct Investment – Formal establishment
of business operations on foreign soil
$ Foreign Subsidiary – Independent company
owned by a foreign firm (parent)
$ Offshoring – Occurs when the facilities set up in
the foreign countries replace U.S. manufacturing
facilities
$ Goods are sent back to the U.S. for sale
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-16
Where FDI Goes
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-17
The World’s Twenty Largest
MNCs
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-18
MNC Culture
•Criticism
–Destroys livelihoods in
home-country
–Traditional lifestyles/values
weakened or destroyed
–Irreversible damage to
environment
•Defense
Better, cheaper products
Creates jobs
Raises standard of living
Increases cross-cultural
understanding
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-19
Global
Business Environment
Cultural
Economic
Legal &
Regulatory
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-20
Culture
“...system of shared beliefs,
values, customs, and behaviors
that govern the interactions of
members of a society.”
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-21
Cultural Environment
Language
Time/Sociability
• High Context- interlocking personal/family connections
hold people together
• Low Context- personal & work relationships more
compartmentalized
Intercultural Communication
• Degrees of animation in expression
• Distance
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-22
Lost In Translation
Translated into German, the slogan “Come
Alive with Pepsi” became “Come out of the
Grave with Pepsi
A U.S. computer company in Indonesia
translated “software” as “underwear.”
A German chocolate product called “Zit”
didn’t sell well in the United States.
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-23
Economic Environment
Economic Development- Gross national
income per capita
• Standard of living
• Infrastructure
Currency Valuations & Exchange Rates
Universal Currency Converter
www.oanda.com
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-24
3-25
The World’s Wealth, 1970 and 2010
Exploring Business 2.0 © 2012 Flat
World Knowledge
Legal &
Regulatory Environment
No established global legal system
Foreign Corrupt Practices Act
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-26
Subsidies or
Trade Controls?
Protectionism
Tariffs
Quotas/Embargo
Dumping
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-27
Trade Control Debate
•Cons
•Pros
–Protect specific industries
–Protect new or struggling
industries
–Shield industries vital to
national defense
Restricts free trade;
countries cannot compete
freely
Doesn’t promote level
playing field; gives special
privileges to some
Cannot bring goods to
fair/open market
Detrimental to world
economy; nations cannot
focus on what they do best
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-28
Reducing Trade Barriers
 Trade Agreements/Organizations
• General Agreement on Tariffs & Trade
• World Trade Organization
 Financial Support for Troubled Economies
• International Monetary Fund
• World Bank
 Trading Blocs
• North American Free Trade Association
• European Union
• Other
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-29
3-30
The Nations of the European Union
Exploring Business 2.0 © 2012 Flat
World Knowledge
3-31
Career in International Business
Plan Education
• Develop expertise
• Knowledge of international politics,
economics, & culture
Get Direct Experience
Interact With Other Cultures
Exploring Business 2.0 © 2012 Flat
World Knowledge