Business in aBusiness in aBusiness in aBusiness in aChanging WorldChanging WorldChanging WorldChanging World

McGraw-Hill/IrwinMcGraw-Hill/IrwinMcGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright Copyright Copyright Copyright ©©©© 2009 by the McGraw-Hill Companies, Inc. All rights reserved. 2009 by the McGraw-Hill Companies, Inc. All rights reserved. 2009 by the McGraw-Hill Companies, Inc. All rights reserved. 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Chapter 3Chapter 3Chapter 3Chapter 3Business in a BorderlessWorld

Asst. Prof. Dr. Serdar AYANAsst. Prof. Dr. Serdar AYANAsst. Prof. Dr. Serdar AYANAsst. Prof. Dr. Serdar AYAN

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International Business

We live in a global economy -- We live in a global economy -- We live in a global economy -- We live in a global economy -- consumers around the world drink Coca-Cola, Pepsi, and eat at McDonalds. Products you consume today are just as likely to have been made in China, Korea or Germany as in the United States.

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International Business

International business International business International business International business –––– the buying, selling, and trading of goods and services across national boundaries.

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International Business

Starbucks serves 20 million customers a week at 16,000 shops in 44 countries.Global marketing requires balancing global brands with the needs of local consumers.

Globalization of business is becoming Globalization of business is becoming Globalization of business is becoming Globalization of business is becoming increasingly importantincreasingly importantincreasingly importantincreasingly important

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Why Nations Trade

Absolute advantage Absolute advantage Absolute advantage Absolute advantage – a monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

International trade allows for the International trade allows for the International trade allows for the International trade allows for the acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods at favorable pricesat favorable pricesat favorable pricesat favorable prices....

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Why Nations Trade

Comparative advantage Comparative advantage Comparative advantage Comparative advantage –––– the basis of most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items.

International trade allows for the International trade allows for the International trade allows for the International trade allows for the acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods at favorable prices.at favorable prices.at favorable prices.at favorable prices.

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Why Nations Trade

Outsourcing Outsourcing Outsourcing Outsourcing –––– the transferring of manufacturing or other tasks—such as data processing—to countries where labor and supplies are less expensive.

International trade allows for the International trade allows for the International trade allows for the International trade allows for the acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods acquisition of raw materials and goods at favorable prices.at favorable prices.at favorable prices.at favorable prices.

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Trade Between Countries

Exporting Exporting Exporting Exporting –––– the sale of goods and services to foreign markets.

The U.S. exported more than $1.6 trillion in goods and services last year.

Obtaining needed goods and services Obtaining needed goods and services Obtaining needed goods and services Obtaining needed goods and services and the funds to pay for them, and the funds to pay for them, and the funds to pay for them, and the funds to pay for them, requires international trade through requires international trade through requires international trade through requires international trade through exporting and importing.exporting and importing.exporting and importing.exporting and importing.

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Trade Between Countries

Importing Importing Importing Importing –––– the purchase of goods and services from foreign sources.

The U.S. imported more than $2.3 trillion in goods/services last year

Obtaining needed goods and services Obtaining needed goods and services Obtaining needed goods and services Obtaining needed goods and services and the funds to pay for them, and the funds to pay for them, and the funds to pay for them, and the funds to pay for them, requires international trade through requires international trade through requires international trade through requires international trade through exporting and importing.exporting and importing.exporting and importing.exporting and importing.

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Balance of TradeThe difference in the value between what a nation exports and imports is its balance of tradebalance of tradebalance of tradebalance of trade.

A trade deficit is also called a nation’s negative balance of negative balance of negative balance of negative balance of trade.trade.trade.trade.

U.S. Trade DeficitU.S. Trade DeficitU.S. Trade DeficitU.S. Trade Deficit1980-20061980-20061980-20061980-2006

(in billions of dollars)(in billions of dollars)(in billions of dollars)(in billions of dollars)A trade deficit trade deficit trade deficit trade deficit (shown in the table) shows that the U.S. has a trade deficit – it imports more than it exports.

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Balance of TradeU.S. Exports to China Increase

Trade deficits are harmful – failure of businesses, loss of jobs, lowered standard of living.

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Balance of Trade

Top 10 Countries Maintaining Trade Deficits/Surpluses with the U.S.

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International Trade Barriers

Balance of payments Balance of payments Balance of payments Balance of payments –––– the difference between the flow of money into and out of a country.

A nationA nationA nationA nation’’’’s balance of trade, foreign s balance of trade, foreign s balance of trade, foreign s balance of trade, foreign investments, foreign aid, loans, investments, foreign aid, loans, investments, foreign aid, loans, investments, foreign aid, loans, tourists dollars, and military tourists dollars, and military tourists dollars, and military tourists dollars, and military expenditures comprise its balance of expenditures comprise its balance of expenditures comprise its balance of expenditures comprise its balance of paymentspaymentspaymentspayments

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International Trade Barriers

Barriers to International Trade Barriers to International Trade Barriers to International Trade Barriers to International Trade ––––•Economic•Legal•Political•Social•Cultural•Technological

Completely free trade seldom exists.Completely free trade seldom exists.Completely free trade seldom exists.Completely free trade seldom exists.

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ECONOMIC BARRIERSECONOMIC BARRIERSECONOMIC BARRIERSECONOMIC BARRIERS....

International Trade Barriers

•Economic developmentEconomic developmentEconomic developmentEconomic development•InfrastructureInfrastructureInfrastructureInfrastructure•Exchange ratesExchange ratesExchange ratesExchange rates

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InfrastructureInfrastructureInfrastructureInfrastructure

International Trade Barriers

The physical facilities that support economic activities, including railroads, highways, ports, airfields, utilities, power plants, schools, hospitals, and commercial distribution systems.

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Exchange RatesExchange RatesExchange RatesExchange Rates

International Trade Barriers

The ratio at which one nation’s currency can be exchanged for another nation’s currency.

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Ethical, Legal, and Political BarriersEthical, Legal, and Political BarriersEthical, Legal, and Political BarriersEthical, Legal, and Political Barriers....

International Trade Barriers

•Complex relationships•Different laws•International laws•Trade restrictions•Changing political climates•Different ethical values

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International Trade Barriers

Part of a nation’s legal structure – may be established or removed for political reasons.

Import Tariff Import Tariff Import Tariff Import Tariff – a tax levied by a nation on goods imported into the country

Tariffs & Trade Restrictions

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International Trade Barriers

Exchange controls Exchange controls Exchange controls Exchange controls – regulations that restrict the amount of currency that can be bought or sold

QuotaQuotaQuotaQuota – a restriction on the number of units of a particular product that can be imported into a country

Tariffs & Trade Restrictions

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International Trade Barriers

EmbargoEmbargoEmbargoEmbargo– a prohibition on trade in a particular product

Dumping Dumping Dumping Dumping – the act of a country or business selling products at less than what it costs to produce them

Tariffs & Trade Restrictions

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Political BarriersPolitical BarriersPolitical BarriersPolitical Barriers

International Trade Barriers

•Seldom in writing & change rapidly•Relative stability of countries is a factor

Cartel Cartel Cartel Cartel –––– a group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets.

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Cultural BarriersCultural BarriersCultural BarriersCultural Barriers

International Trade Barriers

Cultural Behavioral DifferencesCultural Behavioral DifferencesCultural Behavioral DifferencesCultural Behavioral Differences

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Technological BarriersTechnological BarriersTechnological BarriersTechnological Barriers

International Trade Barriers

•Technological advances are creating global marketing opportunities

•10 nations outrank the U.S. in terms of subscribers to broadband Internet access.

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Trade Agreements, Alliances, & Organizations

General Agreement on Tariffs and Trade (GATT) General Agreement on Tariffs and Trade (GATT) General Agreement on Tariffs and Trade (GATT) General Agreement on Tariffs and Trade (GATT) • Signed by 23 nations in 1947• Forum for tariff negotiations• Place for international trade issue discussion and

resolution

GATT

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WTOWTOWTOWTO

Trade Agreements, Alliances, & Organizations

World Trade Organization (WTO) World Trade Organization (WTO) World Trade Organization (WTO) World Trade Organization (WTO) – International organization dealing with the rules of trade between nations.

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EUEUEUEU

Trade Agreements, Alliances, & Organizations

European Union (EU)European Union (EU)European Union (EU)European Union (EU)– a union of European nations established in 1958 to promote trade among its members; one of the largest single markets today.

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