Chapter 4 The Global Context of Business

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4chapter

Business Essentials, 7th Edition

Ebert/Griffin

2009 Pearson Education, Inc.

The Global Context of Business

Instructor Lecture PowerPoints

PowerPoint Presentation prepared by

Carol Vollmer Pope Alverno College


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All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.

2009 Pearson Education, Inc. 2


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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. Explain how differences in import-export balances, exchange rates, and

foreign competition determine the ways in which countries and

businesses respond to the international environment.

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

and in selecting the appropriate levels of international involvement and

international organizational structure.


L 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 some of the ways in which 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 (contd)



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Whats in It for Me?

By understanding the material discussed inthis chapter, youll be better prepared to:

1. Understand how global forces affect you as a

customer2. Understand how globalization affects you as an

employee

3. Assess how global opportunities and challenges

can affect you as a business owner and as aninvestor



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The Contemporary Global Economy

Globalization

The process by which the worlds 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



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The Major World Marketplaces

Distinctions Based on Wealth High-income countries

Upper middle-income countries

Low middle-income countries

Low-income countries (developing countries)

Geographic Clusters

North America

Europe Pacific Asia



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2009 South-Western, a division of Cengage Learning 8

WORLDWIDE ECONOMIC GROWTH


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Trade Agreements and Alliances

Significant Agreements and Treaties

North American Free Trade Agreement (NAFTA)

Canada, Mexico, and the United States

Effects: increases direct foreign investment, increasesexports and imports, creates jobs

European Union (EU) Most European nations

Effects: eliminates quotas, removes trade barriers, and setsuniform tariffs on internally traded EU imports and exports

Association of Southeast Asian Nations (ASEAN) Brunei, Cambodia, Indonesia, Laos, Malaysia,

Myanmar, Philippines, Singapore, Vietnam



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FIGURE 4.1 The Nations of the European Union



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FIGURE 4.2 The Nations of the Association of

Southeast Asian Nations (ASEAN)



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Import-Export Balances

Balance of Trade

The total economic value of all the products that a countryexports minus the economic value of all the products thatit imports

Trade Surplus

A positive balance of trade that results when a countryexports more than it imports

Trade Deficit

A negative balance of trade that results when a countryimports more than it exports



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FIGURE 4.3 U.S. Imports and Exports



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FIGURE 4.4 U.S. Trade Deficit



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Import-Export Balances (contd)

Balance of Payments

The flow of money into or out of a country

The money that a country pays for imports and receives for

exportsits balance of tradecomprises much of its balance ofpayments

Exchange Rate

The rate at which the currency of one nation can be

exchanged for that of another Fixed exchange rates

Floating exchange rates



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Exchange Rates Impact Global Trade

When an economys 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?



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Exchange Rates Impact Global Trade (contd)

When an economys currency is weak:

Domestic companies find it easier to export products

Foreign companies find it harder to import products

Foreign companies may invest in domestic production

facilities

Implications for the balance of trade?



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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) 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)



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Forms of Competitive Advantage (contd)

National Competitive Advantage

Conditions favoring heavy involvement in internationalbusiness:

1. Factor conditionslabor, capital, entrepreneurs, physicalresources, and information resources

2. Demand conditionsa large domestic consumer base thatpromotes strong demand for innovative products

3. Related and supporting industriesstrong local or regional

suppliers and/or industrial customers4. Strategies, structures, and rivalriesdomestic firms and

industries that stress cost reduction, product quality, higherproductivity, and innovative products



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International Business Management

Going International Gauging International Demand

Foreign demand for a companys product may be greater than, thesame 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 to foreign countries



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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 Multinational firms

Design, produce, and market products in many nations



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International Organization Structures

Independent Agent

A foreign individual or organization that represents anexporter in foreign markets

Licensing Arrangements (or Agreements)

Domestic firms give foreign individuals or companiesexclusive rights to manufacture or market their products inthat market

Branch Offices

A firm sends its own managers to overseas branch officesso that it will have more direct control than it does overagents or license holders



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Barriers to International Trade

Social and CulturalDifferences

EconomicDifferences

Legal and PoliticalDifferences



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Legal and Political Differences (contd)

Local Content Laws Requirements that products sold in a country be at least

partly made there

Business Practice Laws Host countries govern business practices within their

jurisdictions

Cartels Associations of producers that control supply and prices

Dumping Selling a product abroad for less than the cost of

production at home



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Key Terms

absolute advantage

Association of Southeast AsianNations (ASEAN)

balance of payments

balance of trade

branch officebusiness practice law

cartel

comparative advantage

dumping

embargo

euro

European Union (EU)

exchange rate

export

exporter

foreign direct investment (FDI)

General Agreement on Tariffs andTrade (GATT)

globalizationimport

importer

independent agent

international firm

licensing arrangement

local content law

multinational firm

national competitive advantage



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Key Terms (cont.)

North American Free Trade

Agreement (NAFTA)

offshoring

outsourcing

protectionismquota

strategic alliances

subsidy

tariff

trade deficit

trade surplus

World Trade Organization (WTO)


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Chapter 4 The Global Context of Business

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