4 chapter Business Essentials, 7 th Edition Ebert/Griffin The Global Context of Business Instructor Lecture PowerPoints PowerPoint Presentation prepared

4chapter

Business Essentials, 7th EditionEbert/Griffin

The Global Context of Business

Instructor Lecture PowerPointsPowerPoint Presentation prepared by

Carol Vollmer Pope Alverno College

After reading this chapter, you should be able to:

1. Discuss the rise of international business and describe the major world marketplaces and trade agreements and alliances.

2. Discuss the factors involved in deciding to do business internationally .

© 2009 Pearson Education, Inc.

L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S

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After reading this chapter, you should be able to:

4. Describe how social, cultural, economic, legal, and political differences among nations affect international business.

L E A R N I N G O B J E C T I V E S (cont’d)L E A R N I N G O B J E C T I V E S (cont’d)

© 2009 Pearson Education, Inc.3

What’s in It for Me?• By understanding the material

discussed in this chapter, you’ll be better prepared to:

1. Understand how global forces affect you as a customer

2. Understand how globalization affects you as an employee

3. Assess how global opportunities and challenges can affect you as a business owner and as an investor


Discussion Describe some of the ways in

which social, cultural, economic, legal, and political differences among nations affect international business?

5

The Contemporary Global Economy

• Globalization

– The process by which the world’s various national economies and trading systems are fast becoming a single, highly interdependent system

• Exports: Domestically produced products sold in foreign markets

• Imports: Foreign products sold in domestic markets


The Major World Marketplaces• Distinctions Based on Wealth1.High-income countries: per capita income is

greater than $11,115 dollars per year.

2.Upper middle-income countries: per capita income is between $3,595 and $11,115 per year.

3.Low middle-income countries: per capita income is between $905 and $3,595 per year.

4.Low-income countries: per capita income is less than $905 per year.

• Geographic Clusters: North America- Europe- Pacific Asia


Trade Agreements and Alliances

• Significant Agreements and Treaties– North American Free Trade Agreement

(NAFTA)• Includes Canada, Mexico and the United

States.• The trade agreement increases direct

foreign investment, increases exports and imports and creates jobs.

• It also eliminates most tariffs and duties between the three countries.


Trade Agreements and Alliances• Significant Agreements and Treaties

–European Union (EU)• This union includes most European nations,

but notably absent is Switzerland.• The effects of this trade union is a common

currency, elimination of quotas, removal of trade barriers, and sets uniform tariffs on internally traded EU imports and exports.

• It also allows its citizen members to travel between member nations without visas.


Trade Agreements and Alliances

• Significant Agreements and Treaties– Association of Southeast Asian Nations

(ASEAN) • This association was formed in 1967 and its

purpose is to allow economic, political, social and cultural cooperation among its partner countries.

• In 1995, Vietnam became the group's first Communist member.

• ASEAN association does not have as large an impact on the world economy as NAFTA and EU countries.


FIGURE 4.1 The Nations of the European Union


FIGURE 4.2 The Nations of the Association of Southeast Asian Nations (ASEAN)


Trade Agreements and Alliances (cont’d)

• Significant Agreements and Treaties– General Agreement on Tariffs and Trade (GATT):

• Signed after World War II. Its purpose was to reduce or eliminate trade barriers, such as tariffs and quotas.

– World Trade Organization (WTO)• Began on January 1, 1995• Goals:

1. Promote trade by encouraging members to adopt fair trade practices.

2. Reduce trade barriers by promoting multilateral negotiations.

3. Establish fair procedures for resolving disputes among members.


Import-Export Balances

• Balance of Trade– The total economic value of all the products that a country

exports minus the economic value of all the products that it imports

• Trade Surplus– A positive balance of trade that results when a country

exports more than it imports

• Trade Deficit– A negative balance of trade that results when a country

imports more than it exports© 2009 Pearson Education, Inc.

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FIGURE 4.3 U.S. Imports and Exports


FIGURE 4.4 U.S. Trade Deficit


Import-Export Balances (cont’d)

• Balance of Payments– The flow of money into or out of a country

• The money that a country pays for imports and receives for exports—its balance of trade—comprises much of its balance of payments

• Exchange Rate– The rate at which the currency of one nation can be

exchanged for that of another• Fixed exchange rates

• Floating exchange rates


Exchange Rates Impact Global Trade

• When an economy’s currency is strong:– Domestic companies find it harder to export products

– Foreign companies find it easier to import products

– Domestic companies may move production to cheaper production sites in foreign countries

• Implications for the balance of trade?

• Buying petrol from Egypt: 10 letters = 10 E pounds= 7 shekels. If E pound improve to 0.8 means 10 letters=8 shekels.


Forms of Competitive Advantage• Absolute Advantage

– When a country can produce something that is cheaper and/or of higher quality than any other country

– An advantage based on possessing a scarce resource (e.g., oil, Coffee production in Brazil) or favorable physical location

• Comparative Advantage– When a country can produce goods more efficiently or

better than other countries can produce the same goods– An advantage based on superior productivity (e.g.,

technologically advanced manufacturing capability)

© 2009 Pearson Education, Inc. 19

Forms of Competitive Advantage (cont’d)

• National Competitive Advantage

– Conditions favoring heavy involvement in international business:1. Factor conditions—labor, capital, entrepreneurs,

physical resources, and information resources

2. Demand conditions—a large domestic consumer base that promotes strong demand for innovative products

3. Related and supporting industries—strong local or regional suppliers and/or industrial customers

4. Strategies, structures, and rivalries—domestic firms and industries that stress cost reduction, product quality, higher productivity, and innovative products


Does It Make Sense to Go International?Does It Make Sense to Go International?

Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 2 - 2 - 2121

YESYES

Is there international demand for the firm’s product?

NONO

Stay Domestic

Can the product be

modified to fit a foreign market?

NONO

YESYES

Is the foreign business

climate suited to imports?

NONO

Does the firm have or

can it get the

necessary skills and

knowledgeto do

business abroad?

YESYES

NONO

YESYES

Go International21

International Business Management• Going International

– Gauging International Demand• Foreign demand for a company’s product may be greater

than, the same as, or weaker than domestic demand– Adapting to Customer Needs

• A firm must decide whether and how to adapt its products to meet the special demands of foreign customers

– Outsourcing• Paying suppliers and distributors to perform certain

business processes or to provide needed materials or services

– Offshoring• Outsourcing of production processes to foreign countries.


Levels of International Involvement• Exporters: Make products in one country to

distribute and sell in others• Importers: Buy products in foreign markets

and bring them home for resale• International firms: Conduct much of their

business abroad and may maintain overseas manufacturing facilities. E.g., Hershey which buys chocolate from different locations but manufactures all in the U.S.

• Multinational firms: Design, produce, and market products in many nations. E.g., Nestle produces and sells in many nations


International Organization Structures of firm’s operations

• Independent Agent–A foreign individual or organization

that represents an exporter in foreign markets.

–These people have the advantage of knowing the local market, operating in the market, but also may represent other competitive brands.


International Organization Structures of firm’s operations

• Licensing Arrangements (or Agreements)– Domestic firms give foreign individuals or

companies exclusive rights to manufacture or market their products in that market.

• Branch Offices– A firm sends its own managers to overseas

branch offices so that it will have more direct control than it does over agents or license holders


International Organization Structures (cont’d)

• Strategic Alliance (or Joint Venture)– A company finds a partner firm in the country in

which it wants to do business– Each party agrees to invest resources and capital

into a new business or to cooperate in some mutually beneficial way

• Foreign Direct Investment (FDI)– Involves buying or establishing tangible assets in

another country


International Organizational Structures

• Foreign Investment

• Strategic Alliances

• Branch Offices

• Licensing Arrangements

• Independent Agents

INV

OL

VE

ME

NT

HIGH

LOW

Barriers to International Trade

Social and Cultural Social and Cultural DifferencesDifferences

Social and Cultural Social and Cultural DifferencesDifferences

Economic Economic DifferencesDifferencesEconomic Economic

DifferencesDifferences

Legal and Political Legal and Political DifferencesDifferences

Legal and Political Legal and Political DifferencesDifferences


Take Time to Learn the Culture Thoroughly!

Este es nuestro

nuevo auto: el NOVA!

Ha, ha, ha, ha, ha, ha!!!

Cultural and social differences

A. include language, social values, and traditional buying patterns. Whether differences are obvious or subtle, ignorance of them can be embarrassing and expensive.

B. The classic example: General Motors introduced the Chevy Nova in Spanish speaking countries—where “no va” means “doesn’t go.”

C. The original translation of the Intel Pentium IV computer chip in Korean was “chip of death.” (!!!)

D. Discussion: identify other examples from your personal experience.

The Customer’s LanguageA Critical Business Success Factor

A. In the U.S. alone, 18% of the population does not speak English at home.

B. Only 48% of the world’s Web users are native English speakers.

C. Consumers are four times more likely to buy a product on the Internet if the website is in their preferred language.

Source: Time Global Business, Nov. 2001

Economic Differences

To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry. (role of government)

Legal and Political Differences• Quotas, Embargoes, Tariffs, and Subsidies

– Quota: Restricts the number of products of a certain type that can be imported, raising the prices of those imports

– Embargo: Government order forbidding exportation and/or importation of a product or all products from a specific country

– Tariffs: Taxes on imported products

– Subsidy: Government payment to help a domestic business compete with foreign firms

• Protectionism

– The practice of protecting domestic business at the expense of free market competition


Legal and Political Differences (cont’d)

• Local Content Laws– Requirements that products sold in a country be

at least partly made there. E.g., write made in U.S• Business Practice Laws

– Host countries govern business practices within their jurisdictions

• Cartels– Associations of producers that control supply and

prices, such as the oil cartel• Dumping

– Selling a product abroad for less than the cost of production at home


Homework

Page 61: answer the questions 1-8

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Documents

4 chapter Business Essentials, 7 th Edition Ebert/Griffin The Global Context of Business Instructor Lecture PowerPoints PowerPoint Presentation prepared