Business In A

Global Environment
Exploring Business

Chapter 8
© 2007 Prentice-Hall, Inc. 8-1
 Chapter Objectives
Exploring Business

1. Explain why nations/companies engage in

international trade and how is trade measured
2. Identify opportunities in international
business
3. Appreciate challenges created by cultural,
economic, legal, and political differences
4. Describe ways governments and international
bodies promote and regulate global trade
5. Discuss initiatives designed to reduce trade
barriers and promote free trade
6. Understand how to prepare for a career in
international business
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 Why Do Nations Trade?
Exploring Business

“Because no national
economy can produce all
the goods and services
that their people need.”

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 Absolute Advantage
Exploring Business

1) Only source of particular

product
2) Can make more
of product using
same amount of or
fewer resources than
other countries
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Exploring Business
Comparative Advantage
1) Produce product at
lower opportunity cost
2) Opportunity costs—
the products that must
decline to produce something
else
3) When a country specializes in
a particular product, it must
sacrifice production of
another product
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 Comparative
Advantage In The Techs
Exploring Business

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 Measuring Trade
Exploring Business

 Balance of Trade – “…subtracting

the value of (a country’s) imports
from the value of its exports.”
 Balance of Payments – “…the
difference, over a period of time,
between the total flow of money
coming into a country and the
total flow of money going out.”

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 Balance Of Trade
Exploring Business

Trade Surplus (Favorable Balance)

Sells more than it buys

Trade Deficit (Unfavorable Balance)

Buys more than it sells

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Exploring Business
Imports/Exports

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 Import Vs. Export
Exploring Business

Import
Goods In
Out

Export
Goods Out
In

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 Licensing
And Franchising
Exploring Business

 Licensing Agreement – Allows

foreign company to sell
products of a producer/
licensor or to use
intellectual property for
royalty fee
 Franchise Agreement –
Company/Franchisor grants
foreign company the right to use its
brand name and sell its products
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 Contract Manufacturing
Exploring Business

“(also known as outsourcing)…

U.S. company… contract(s)
with a local company in a
foreign country to manufacture
one of its products…retain(s)
control of product design and
development and…label…”

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 Selected Hourly Wages
Exploring Business

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 Strategic Alliances
And Joint Ventures
Exploring Business

Strategic Alliance – Agreement

between two companies
(or a company and a nation)
to pool resources in order to
achieve business goals that
benefit both partners
Joint Venture – Alliance in which
partners fund a separate entity to
manage their joint operation
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 Foreign Direct
Investments And Subsidiaries
Exploring Business

$ Foreign Direct Investment – Formal

establishment of
business operations
on foreign soil

$ Foreign Subsidiary – An
independent company
owned by a foreign firm (parent)
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 FDI
Exploring Business

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 MNCs
Exploring Business

“Think globally, act locally.”

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 MNC Culture
Exploring Business

Criticism Defense
– Destroys  Better, cheaper
livelihoods of
home-country products
workers  Creates jobs
– Traditional
lifestyles/values  Raises the
weakened or standard of living
destroyed
 Increases cross-
– Irreversible
damage to cultural
environment understanding
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 Global
Business Environment
Exploring Business

Cultural Economic

Legal &
Regulatory
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Exploring Business
Cultural Environment
Language
Time/Sociability
• High Context—numerous
interlocking personal/family
connections that hold people together
• Low Context—personal/work
relationships more
compartmentalized
Intercultural Communication

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 Lost In Translation
Exploring Business

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 Economic Environment
Exploring Business

Economic Development—Gross
national income per capita
Currency Valuations/Exchange
Rates

Universal Currency Converter

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 World’s Wealth
Exploring Business

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 Legal &
Regulatory Environment
Exploring Business

No established global
set of laws

Foreign Corrupt
Practices Act

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 Corruptibility
Exploring Business

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 Trade Controls
Exploring Business

 Protectionism

Tariffs

Quotas/Embargo

Dumping
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 Trade Control Debate
Exploring Business

Pros Cons
 Restricts free trade;
– Protect specific countries cannot
compete freely
industries  Creates an un-level
– Protect new or playing field; gives
special privileges to
struggling some
industries  Cannot bring goods
to a fair/open world
– Shield industries market
vital to their  Detrimental to world
economy; nations
national defense cannot focus on
what they do best
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 Reducing
International Trade Barriers
Exploring Business

 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
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 European Union
Exploring Business

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 Career In
International Business
Exploring Business

 Undergraduate Education
Develops:
• Expertise in basic area of
business
• Knowledge of international
politics, economics, and culture
• Foreign language skills
 Direct Experience
 Interact With People From Other
Cultures
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© 2007 Prentice-Hall, Inc.