3-2The Role of International Business• To buy, sell and trade goods and servicesacross national boundariesDid You Know?McDonald’s serves 50 million customers aday at 30,000 restaurants in 120 countries.
3-3Why Nations Trade• To obtain raw materialsand goods that are:– Otherwise unavailable– Available elsewhere at alower price• Santro Karachi• Big Pak Inds moving twardsBangladesh
3-4Absolute Advantage• A monopoly that exists when a country isthe:– Only source of an item– Only producer of an item– Most efficient producer of an item• Example: DeBeers Consolidated Mines,Ltd.– Virtually controls the world’s diamond trade
3-5Comparative Advantage• A country specializes in products that itcan supply more efficiently or at a lowercost than it can produce other items• Example:– U.S. agricultural commodities, such as cornand wheat
3-6Trade Between Countries• Importing– The purchase of goods and services fromforeign sources• Exporting– The sale of goods and services to foreignmarkets
3-7Trade Between Countries• Balance of trade:– Difference of value b/t nations exports andimports• Trade deficit:– More import of products than exports andtrade surplus is vice versa• Balance of payment:– Difference between into and out of money intoa country……….
3-8The U. S. Trade Deficit1980-2005 (in billions of dollars)
3-10Economic Barriers• The level of a country’s economicdevelopment– Industrialized nations – U.S., Japan, Great Britain,Canada– Less-developed countries – Africa, Asia, andSouth America• The level of existing infrastructure• Currency exchange rates
3-11Political & Legal Barriers• Laws and regulations• Tariffs and trade restrictions– Import tariffs, exchange controls, quotas,embargos, anti-dumping regulations• Political barriers– Political instability, cartels
3-12Social & Cultural Barriers• Understanding the differences among thecultures of countries can be important to a firm– Spoken and written language– Body language and personal space– Family roles– Perception of time– Religious holidays and local customs
3-15Trade Agreements, Alliances &Organizations• GATT• WTO• NAFTA• EU• MERCOSUR• APEC• World Bank• IMF
3-16GATT and NAFTA• General Agreement on Tariffs and Trade(GATT):– Provides a forum for tariff negotiations and discussion• The World Trade Organization (WTO)– Deals with the rules of trade between nations• North American Free Trade Agreement(NAFTA):– Eliminates most tariffs and trade restrictions on agricultural andmanufactured products between Canada, Mexico, and U.S.(1994-2009).
3-17Levels of Involvement inInternational Trade• Import/Export• Trading Companies• Licensing & Franchising• Contract Manufacturing• Joint Ventures & Alliances• Mergers and aquisitions• The MNC
3-18Outsourcing• U.S. companies are increasinglytransferring manufacturing and other tasksto countries where labor and supplies areless expensive
3-19Developing InternationalBusiness Strategies• MultinationalStrategy:– Customizing andadapting products,promotion anddistribution to the localmarket condition• Global Strategy(Globalization):– Standardizingproducts, promotion,and distribution to oneworld market
3-20Managing the Challenges ofGlobal Business• Adapting to differentcultures• Carefully studying thosemarkets• Preparing andimplementing appropriatestrategies
3-21Chapter 3 Quiz1. A negative balance of trade occurs whena. a country imports more than it exportsb. a company has a monopoly on the production of a specificresourcec. a country exports more than it importsd. a country’s currency can be exchanged for another’scurrency or gold2. A partnership between a foreign company and a localpartner is called:a. a trading companyb. an export agency companyc. a direct investmentd. a joint venture
3-22Chapter 3 Quiz3. When the United States established a policy forbiddingtrade with Cuba, this was an example of what type oftrade restriction?a. a quotab. an embargoc. a countertrade agreementd. an import tariff3. A comparative advantage exists whena. a firm supplies a product at lower costs.b. a firm is the only supplier of a product.c. a country supplies a product at lower costs.d. a country is the most efficient supplier of an item.