This document discusses international business and trade. It provides information on: - The role of international business is to buy, sell, and trade goods and services across national boundaries. Nations trade to obtain unavailable or lower cost materials and goods. - Countries have absolute advantage when they are the only or most efficient producer of an item. Comparative advantage exists when a country can supply products at a lower cost than other items. - Barriers to international trade include economic, political/legal, social/cultural, and technological factors. Trade agreements like the WTO, NAFTA, and EU help reduce trade barriers.

1. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Business in a Borderless WorldBusiness in a Borderless World
3

2. 3-2
The Role of International Business
• To buy, sell and trade goods and services
across national boundaries
Did You Know?
McDonald’s serves 50 million customers a
day at 30,000 restaurants in 120 countries.

3. 3-3
Why Nations Trade
• To obtain raw materials
and goods that are:
– Otherwise unavailable
– Available elsewhere at a
lower price
• Santro Karachi
• Big Pak Inds moving twards
Bangladesh

4. 3-4
Absolute Advantage
• A monopoly that exists when a country is
the:
– 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

5. 3-5
Comparative Advantage
• A country specializes in products that it
can supply more efficiently or at a lower
cost than it can produce other items
• Example:
– U.S. agricultural commodities, such as corn
and wheat

6. 3-6
Trade Between Countries
• Importing
– The purchase of goods and services from
foreign sources
• Exporting
– The sale of goods and services to foreign
markets

7. 3-7
Trade Between Countries
• Balance of trade:
– Difference of value b/t nations exports and
imports
• Trade deficit:
– More import of products than exports and
trade surplus is vice versa
• Balance of payment:
– Difference between into and out of money into
a country……….

8. 3-8
The U. S. Trade Deficit
1980-2005 (in billions of dollars)

9. 3-9
International Trade Barriers
• Economic
• Legal/political
• Social/cultural
• Technological

10. 3-10
Economic Barriers
• The level of a country’s economic
development
– Industrialized nations – U.S., Japan, Great Britain,
Canada
– Less-developed countries – Africa, Asia, and
South America
• The level of existing infrastructure
• Currency exchange rates

11. 3-11
Political & Legal Barriers
• Laws and regulations
• Tariffs and trade restrictions
– Import tariffs, exchange controls, quotas,
embargos, anti-dumping regulations
• Political barriers
– Political instability, cartels

12. 3-12
Social & Cultural Barriers
• Understanding the differences among the
cultures 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

13. 3-13
Cultural Behavioral Differences

14. 3-14
Technological Barriers
• Varying levels of
technological
development and
infrastructure

15. 3-15
Trade Agreements, Alliances &
Organizations
• GATT
• WTO
• NAFTA
• EU
• MERCOSUR
• APEC
• World Bank
• IMF

16. 3-16
GATT 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 and
manufactured products between Canada, Mexico, and U.S.
(1994-2009).

17. 3-17
Levels of Involvement in
International Trade
• Import/Export
• Trading Companies
• Licensing & Franchising
• Contract Manufacturing
• Joint Ventures & Alliances
• Mergers and aquisitions
• The MNC

18. 3-18
Outsourcing
• U.S. companies are increasingly
transferring manufacturing and other tasks
to countries where labor and supplies are
less expensive

19. 3-19
Developing International
Business Strategies
• Multinational
Strategy:
– Customizing and
adapting products,
promotion and
distribution to the local
market condition
• Global Strategy
(Globalization):
– Standardizing
products, promotion,
and distribution to one
world market

20. 3-20
Managing the Challenges of
Global Business
• Adapting to different
cultures
• Carefully studying those
markets
• Preparing and
implementing appropriate
strategies

21. 3-21
Chapter 3 Quiz
1. A negative balance of trade occurs when
a. a country imports more than it exports
b. a company has a monopoly on the production of a specific
resource
c. a country exports more than it imports
d. a country’s currency can be exchanged for another’s
currency or gold
2. A partnership between a foreign company and a local
partner is called:
a. a trading company
b. an export agency company
c. a direct investment
d. a joint venture

22. 3-22
Chapter 3 Quiz
3. When the United States established a policy forbidding
trade with Cuba, this was an example of what type of
trade restriction?
a. a quota
b. an embargo
c. a countertrade agreement
d. an import tariff
3. A comparative advantage exists when
a. 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.