Business in Action Eighth Edition Chapter 3 The

Learning Objectives (1 of 2) 3. 1 Explain why nations trade, and describe how international trade is measured. 3. 2 Discuss the nature of conflicts in global business, including free trade and government interventions in international trade. 3. 3 Identify the major organizations that facilitate international trade and the major trading blocs around the world. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Learning Objectives (2 of 2) 3. 4 Discuss the importance of understanding cultural and legal differences in the global business environment. 3. 5 Define the major forms of international business activity. 3. 6 Discuss the strategic choices that must be considered before entering international markets. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 1 The World’s Most Competitive Countries Copyright © 2017, 2015, 2013 Pearson

Why Nations Trade (1 of 2) • Economic globalization – The increasing integration and interdependence of national economies around the world Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Why Nations Trade (2 of 2) • Focusing on relative strengths • Expanding markets • Pursuing economies of scale • Acquiring materials, goods, and services • Keeping up with customers • Keeping up with competitors Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

How International Trade is Measured • Trade deficit – An unfavorable trade balance is created when a country imports more than it exports • Balance of payments – The sum of all payments a country receives from other countries minus the sum of all payments it makes to the other countries, over some specified period of time Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 2 U. S. Exports and Imports Since 1990 (1 of 3) Copyright

Exhibit 3. 2 U. S. Exports and Imports Since 1990 (2 of 3) Copyright

Exhibit 3. 2 U. S. Exports and Imports Since 1990 (3 of 3) Copyright

Foreign Exchange Rates and Currency Valuations • Exchange rate – The rate at which the money of one country is traded for the money of another Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 3 Strong and Weak Currencies: Who Gains? Who Loses? Copyright © 2017,

Free Trade • Free trade – International trade unencumbered by restrictive measures • Supporters of free trade generally acknowledge that it produces winners and losers but that the winners gain more than the losers lose, so the net effect is positive Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Government Intervention in International Trade (1 of 4) • Protectionism – Government policies aimed at shielding a country’s industries from foreign competition • Tariffs – Taxes levied on imports Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Government Intervention in International Trade (2 of 4) • Import quotas – Limits placed on the quantity of imports a nation will allow for a specific product • Embargo – A total ban on trade with a particular nation (a sanction) or of a particular product Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Government Intervention in International Trade (3 of 4) • Export subsidies – A form of financial assistance in which producers receive enough money from the government to allow them to lower their prices in order to compete more effectively in the global market Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Government Intervention in International Trade (4 of 4) • Dumping – Charging less than the actual cost or less than the home-country price for goods sold in other countries • Sanctions – Politically motivated embargoes that revoke a country’s normal trade relations status – Often used as forceful alternatives short of war Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

International Trade Organizations (1 of 3) • World Trade Organization (WTO) – Permanent forum for negotiating, implementing, and monitoring international trade procedures, and for mediating trade disputes among the 150 member countries Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

International Trade Organizations (2 of 3) • International Monetary Fund (IMF) – Formed to monitor global financial developments, provide technical advice and training, provide shortterm loans to countries that are unable to meet their financial obligations, and work to alleviate poverty in developing economies Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

International Trade Organizations (3 of 3) • World Bank – Founded to finance reconstruction after World War II and is now involved in hundreds of projects around the world aimed at addressing poverty, health, education, and other concerns in developing countries – Is a United Nations agency owned by its 187 member nations Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Trading Blocs (1 of 4) • Trading blocs – Organizations of nations that remove trade barriers among their member countries and establish uniform barriers to trade with non-member nations Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Trading Blocs (2 of 4) • North American Free Trade Agreement (NAFTA) – Formed by the United States, Canada, and Mexico to pave the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Trading Blocs (3 of 4) • European Union (EU) – Constitutes more than two dozen countries and a half billion people – Now accounts for the world’s largest economy • EU nations have eliminated hundreds of local regulations, variations in product standards, and protectionist measures that once limited trade among member countries Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Trading Blocs (4 of 4) • Asia-Pacific Economic Cooperation (APEC) – An organization of 21 countries working to liberalize trade in the Pacific Rim – Has a long-term goal of liberalizing and simplifying trade and investment among member countries and helping the region as a whole achieve sustainable economic growth Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 4 Members of Major Trading Blocs (1 of 3) Copyright © 2017,

Exhibit 3. 4 Members of Major Trading Blocs (2 of 3) European Union (EU) North American Free Trade Agreement (NAFTA) Association of Southeast Asian Nations (ASEAN) Union of South American Nations Asia-Pacific Economic Cooperation (APEC) Greater Arab Free Trade Area (GAFTA) Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Canada Mexico United States Brunei Darussalam Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Argentina Bolivia Brazil Chile Colombia Ecuador Guyana Paraguay Peru Suriname Uruguay Venezuela Australia Brunei Darussalam Canada Chile China Hong Kong Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Bahrain Egypt Iraq Jordan Kuwait Lebanon Libya Morocco Oman Palestine Qatar Saudi Arabia Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 4 Members of Major Trading Blocs (3 of 3) European Union (EU) North American Free Trade Agreement (NAFTA) Association of Southeast Asian Nations (ASEAN) Union of South American Nations Asia-Pacific Economic Cooperation (APEC) Greater Arab Free Trade Area (GAFTA) Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom Blank Papua New Guinea Peru Philippines Russia Singapore Chinese Taipei Thailand United States Vietnam Sudan Syria Tunisia United Arab Emirates Yemen Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

The Global Business Environment (1 of 3) • Culture – A shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

The Global Business Environment (2 of 3) • Stereotyping – Assigning a wide range of generalized attributes, which are often superficial or even false, to an individual based on his or her membership to a particular culture or social group • Ethnocentrism – Judging all other groups according to the standards, behaviors, and customs of one’s own group Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

The Global Business Environment (3 of 3) • Successful global business leaders recognize and respect differences in language, social values, ideas of status, decision-making habits, attitudes toward time, use of space, body language, manners, religions, and ethical standards Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Improving Communication with a Person from Another Culture • Be alert to the other person’s customs. • Deal with the individual. • Clarify your intent and meaning. • Adapt your style to that of the other person. • Show respect. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Legal Differences in the Global Business Environment • Tax haven – A country whose favorable banking laws and low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Exhibit 3. 6 Forms of International Business Activity Copyright © 2017, 2015, 2013 Pearson

Forms of International Business Activity (1 of 3) • Importing – Purchasing goods or services from another country and bringing them into one’s own country • Exporting – Selling and shipping goods or services to another country Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Forms of International Business Activity (2 of 3) • Licensing – Agreement to produce and market another company’s product in exchange for a royalty or fee Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Forms of International Business Activity (3 of 3) • Foreign Direct Investment (FDI) – Investment of money by foreign companies in domestic business enterprises • Multinational Corporations (MNCs) – Companies with operations in more than one country Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Strategic Approaches to International Markets (1 of 2) • Multi domestic strategy – A decentralized approach to international expansion in which a company creates highly independent operating units in each new country Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Strategic Approaches to International Markets (2 of 2) • Global strategy – A highly centralized approach to international expansion, with headquarters in the home country making all major decisions • Transnational strategy – A hybrid approach that attempts to reap the benefits of international scale while being responsive to local market dynamics Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Product Strategies for International Strategies • Products • Customer support • Promotion • Pricing

Applying What You’ve Learned (1 of 2) 1. Explain why nations trade, and describe how international trade is measured. 2. Discuss the nature of conflicts in global business, including free trade and government interventions in international trade. 3. Identify the major organizations that facilitate international trade and the major trading blocs around the world. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Applying What You’ve Learned (2 of 2) 4. Discuss the importance of understanding cultural and legal differences in the global business environment. 5. Define the major forms of international business activity. 6. Discuss the strategic choices that must be considered before entering international markets. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved