BUSN 8 3 The World Marketplace Business Without

BUSN 8 3 The World Marketplace: Business Without Borders Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES 1 Discuss business opportunities in the world economy 2 Explain the key reasons for international trade 3 Describe the tools for measuring international trade 4 Analyze strategies for reaching global markets 5 Discuss barriers to international trade and strategies to surmount them 6 Describe the free-trade movement and discuss key benefits and criticisms Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 2

Business Opportunities • Advancement in technology and reduction of barriers to trade have made the individual economies interdependent • Results in better communication with increased competition and shifting opportunities Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 3

Reasons for International Trade • Access to factors of production • International trade helps even out some of the resource imbalances among nations • Reduced risk • Global trade reduces dependence on one economy, lowering the risk for multinational firms • Inflow of innovation • International trade offer companies source of new ideas Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 4

Competitive Advantage • Opportunity cost: Opportunity of giving up the second-best choice when making a decision • Has a direct relation to international trade • A country has an absolute advantage when it can produce more of a good than other nations, using the same amount of resources • Comparative advantage: Benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 5

Tools for Measuring International Trade Balance of trade • Difference in value between a nation’s exports and imports • Trade surplus: Total value of nation’s export is higher than total value of its imports • Trade deficit: Total value of nation’s import is higher than total value of its exports Balance of payment • Total flow of money into or out of a country • Balance of payment surplus: More money flows into a nation than out of that nation • Balance of payment deficit: More money flows out of a nation than into that nation Exchange rates • Value of one nation’s currency relative to other nation’s currency Countertrade • International trade involving barter of products for products rather than for currency Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 6

Strategies for Reaching Global Markets Foreign outsourcing • Contracting with foreign suppliers to produce products Importing • Buying products domestically that have been produced or grown in foreign nations Exporting • Selling products in foreign nations that have been produced domestically Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 7

Strategies for Reaching Global Markets Foreign licencing • Authority granted by a domestic firm to a foreign firm for the rights to produce and market its product or to use its trademark/patent rights in a defined geographical area Foreign franchising • Firm expands by offering businesses in other countries the right to produce and market its products according to specific operation requirement Direct investment • Firms acquire foreign firms or develop new facilities from the ground up in foreign countries Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 8

Strategies for Reaching Global Markets • Foreign licensing • Authority granted by a domestic firm to a foreign firm for the rights to produce and market its product or its trademark/patent rights in a defined geographical area • Foreign franchising • Firm expands by offering businesses in other countries the right to produce and market its products according to specific operation requirement Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 9

Strategies for Reaching Global Markets • Direct investment • Firms acquire foreign firms or develop new facilities from the ground up in foreign countries • Joint ventures: When companies join forces to pursue specific opportunities • Partnership: Voluntary agreement in which two or more people act as co-owners of a business for profit • Strategic alliance: Agreement between two or more firms to jointly pursue a specific opportunity without actually merging their businesses Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 10

Barriers to International Trade Sociocultural differences Economic differences Political and legal differences Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 11

International Trade Restrictions • Protectionism: National policies designed to restrict international trade • Tariffs: Taxes levied against imports • Quotas: Limitations on amount of specific product that may be imported • Voluntary export restrains (VERs): Limitations on the amounts of specific products that one nation will export to another nation • Embargo: Complete ban on international trade of a certain item or with particular nation Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 12

Free Trade • Unrestricted movement of goods and services across international borders • Organizations that encourage and promotes the international trade relationships • General Agreement on Tariffs and Trade (GATT): Designed to encourage worldwide trade among its members • World Trade Organization (WTO): Permanent global institution to promote international trade and to settle international trade disputes Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 13

Free Trade • World Bank: International cooperative of 188 member countries, working together to reduce poverty in the developing world • International Monetary Fund (IMF): Organization of 188 member nations that promotes international economic cooperation and stable growth • Trading bloc: Countries that have reduced or eliminated tariffs, thus allowing free flow of goods among member nations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 14

Free Trade • Common market: Countries that have eliminated tariffs and harmonized trading rules to facilitate the free flow of goods among the member nations • North American Free Trade Agreement (NAFTA): Treaty among the United States, Mexico, and Canada that eliminated trade barriers and investment restrictions over a fifteen-year period starting in 1994 • European Union (EU): World’s largest common market, composed of 28 European nations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 15

SUMMARY • Business opportunities have increased due to technological growth and reduction of barriers to trade • Reasons for increased international trade include access to factors of production, reduced risks, and inflow of innovation • International trade is evaluated understanding balance of trade, balance of payments, and exchange rates Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 16

SUMMARY • Strategies used to reach global markets are dependent on the goals of firm and the structure of the foreign market • Barriers to international trade include sociocultural differences, economic differences, and legal/political differences • Free trade is the unrestricted movement of goods and services across international borders Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 17

KEY TERMS Opportunity cost Absolute advantage Comparative advantage Balance of trade Trade surplus Trade deficit Balance of payments surplus • Balance of payments deficit • Exchange rate • • • • • Countertrade Foreign outsourcing Importing Exporting Foreign licensing Foreign franchising Direct investment Joint ventures Partnership Strategic alliance Sociocultural difference Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 18

KEY TERMS Infrastructure Protectionism Tariffs Quotas Voluntary export restraints (VERs) • Embargo • Free trade • General Agreement on Tariffs and Trade (GATT) • • • World Trade Organization (WTO) • World Bank • International Monetary Fund (IMF) • Trading bloc • Common market • North American Free Trade Agreement (NAFTA) • European Union (EU) Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN 8 | CH 3 19