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  1. 1. GlobalizationUnderstanding The Global Context of Business
  2. 2. GlobalizationProcess by which the world economy is becoming a single interdependent system Exports: Domestically produced products sold in foreign markets Imports: Foreign products sold in domestic markets
  3. 3. World Marketplaces Wealth – based on annual per-capita income  High-income countries: greater than $11,115  US,Canada, EU, Israel, Australia, UAE, Kuwait, Singapore, Taiwan  Upper middle-income countries: $3,595 - $11,115  Thailand, China, Maldives, Brazil, Jordan  Lower-middle-income countries: $905- $3,595  Greece, Turkey, Malaysia, India, Pakistan, Philippines  Low-income countries: less than $905  Kenya, Nepal, Afghanistan, Uganda
  4. 4. Geographic  Trading Blocs  European Union (EU)  North American Free Trade Agreement (NAFTA)  Association of South East Asian Nations (ASEAN)  South Asia Free Trade Agreement (SAFTA)  Mercosur
  5. 5. Import-Export Balances Balance of Trade: country’s total economic value or exports (-) the economic value of imports Trade surplus: a positive balance of trade- country exports more than it imports Trade deficit: a negative balance of trade- country imports more than it exports Exchange Rate: the rate at which the currency of one nation can be exchanged for that of another
  6. 6. Forms of CompetitiveAdvantage Absolute advantage: when a country can produce something that is cheaper, of higher quality, or is a scarce resource. (Ex. OIL) Highest Quality of Oil KSA Most reserves of Oil Russia Highest Quality of Timber Canada Highest Quality Coffee Beans Brazil Highest Quality Cotton Egypt, Sea Island Highest Quality Silk China
  7. 7. Forms of CompetitiveAdvantage Comparative advantage: when a country can produce goods more efficiently or better than other countries can produce the same goods Best Mobile Phone Company Nokia, Finland Best Rail Engines France, Japan Best in Garments Thailand, Bangladesh Best in Shipping lines USA Most Powerful Army USA Best Chocolates Switzerland
  8. 8. Forms of CompetitiveAdvantage National Competitive Advantage: international competitive advantage stemming from a combination of-  Factor conditions: labor, capital, entrepreneurs, physical resources, and information resources  Demand conditions: strong demand for innovative products  Related/supporting industries: strong suppliers/industrial customers  Strategies, structures, rivalries: domestic firms and industries that stress cost reduction, product quality, higher productivity, and innovative products
  9. 9. International BusinessManagement Going International – Considerations:  Gauging International Demand: may be greater than, the same as, or weaker than domestic demand  Adapting to Customer Needs: Adapt 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  Off shoring: outsourcing to foreign countries
  10. 10. Levels of Involvement Exporters and Importers International Firms Multinational Firms
  11. 11. International OrganizationalStructures Independent Agents Licensing Arrangements Branch Offices Strategic Alliances Foreign Direct Investment (FDI)
  12. 12. Independent Agents Free agents work independently for oneself rather for a single employer. Agrees to represent an exporter’s interest. Levi Strauss uses agents to market clothing products in Asian ,African and American countries.
  13. 13. Licensing Agreements:Franchise Firms choose Foreign organizations to manufacture or market their products in another country.
  14. 14. Branch Office Foreign office set up by an International firm. More direct control Visible public presence Potential customers feel more secure.
  15. 15. Strategic Alliance or JV Arrangements in which a company finds a foreign partner to contribute resources needed to establish a new business in a partner’s country. Ex. Disneys theme park near Hong Kong
  16. 16. Foreign Direct Investment (FDI) Arrangement in which a firm buys or establishes tangible assets in another country. Dell computers building an assembly plant in Europe.
  17. 17. Barriers to International Trade Social and cultural differences Economic differences Legal and political differences
  18. 18. Legal and Political Differences Quota: restricts the number of a certain type that can be imported, thereby raising the prices of those imports Embargo: Ban on import/export of a certain product from a particular country. Tariffs: taxes on imported products  Revenue tariff: Strictly to raise money for government  Protectionist tariff: Discourages the import of particular product Subsidy: government payment to help a domestic
  19. 19. Legal and Political Differences Protectionism: protecting domestic business at the expense of free market competition Local content laws: products partly made in country Business Practice Laws: control over in country business practices Cartels: associations of producers that control supply and prices Dumping: selling abroad for less than the cost of production at home