International Business

1. International Business Chapter 7

2. McDonalds • 119 Countries • Offering Consistent standards “quality, value, and convenience.” • Why would a successful American company want to open new restaurants in foreign countries? • What are some of the risks?

3. What is International Business? • Exchange of goods and services by different countries. • Purchase of American Jeans in China • Purchase of Belgian Chocolate in United States • Most of the world depends on International Trade to maintain its standard of living

4. Countries Trade for Several Reasons • Not able to produce a good it wants or needs • Example France can’t produce oil • Have an advantage over other countries in production of a good or service • Absolute Advantage • Comparative Advantage

5. Advantages Absolute Comparative Advantage • Ability to produce more of a good than another producer with the same quantity of inputs • Example: • Honduras would produce much more coffee than Great Britain because of Climate, soil, and cost of labor • States that producers should produce the goods they are most efficient at producing and purchase from others the goods they are less proficient at producing. • Companies and Countries should specialize in what they do best • Example: United States imports many simple manufactured goods so it can devote it’s resources to other high tech and sophisticated products

6. Exporting Importing • Goods and services sold to other countries • Shipped out • Goods and Services bought from other countries. • Shipped in United States is the largest exporter in the world, exporting about $700 Billion worth of goods and services a year. United States is the largest importer in the world, importing about $900 Billion worth of foreign good and services a year Import Export

7. Why Export? • Represent Important Source of revenue for many companies • Northwest Airlines • 1/3 Revenue is Outside U.S. • IBM • 40% Revenue Outside U.S. • 95% of Worlds Consumers are Outside U.S. • If only sell in U.S. missing a large population of Consumers • Increasing Sales is a huge part of a company’s goals • Diversify sources of Revenue. • Diversification is engaging in a variety of operations • Sluggish sales of one market can be offset by a stronger market

8. How do Companies Identify Export Markets • Analyze • Demographic Figures • Economic Data • Country Reports • Consumer Tastes • Competition in the Market • Contact • International Trade Administration of the U.S. Department of Commerce • Foreign Consultants and Embassies • Foreign and International Trade Organizations • Visit and Conduct Survey • Research • Restrictions as an Exporter • Documentation • Specific Requirements • Packaging • Labeling • Product Safety • Restrictions of Money

9. Imports • United States imports a Variety of different types of products • Consumer Goods (Televisions, Automobiles, Etc) • Industrial Goods (Machines and Parts) • Raw Goods (Petroleum, Food Products,) • Imports help produce other good to sell to customers

10. Imports of Materials Imports of Consumer Goods • Many Companies import all or some materials to reduce production cost • Manufacturers of Appliances import Steel from Japan because it is less expensive • Use Imports because they are not produced here or the quality is not as good • Diamond and Emeralds • Cashmere Wool • Import Products they can resell in their country • Automobiles • Electronics • Clothing • Cheese • Import because the demand is high

11. The Trade Balance • The difference between the value of the goods a country exports and the value of goods it imports. Value of Our Exports-Value of Imports-=Trade Balance • Exports More than Imports= Trade Surplus • Imports More than Exports= Trade Deficit • Many Years U.S. ran a Trade Deficit- we buy more from other countries than they buy from us.

12. Foreign Exchange • Purchased Goods or Services must pay for them with Foreign Currency. • Banks will convert dollars into (francs, yen, etc) • Value in one currency terms of another is the Foreign Exchange Rate • Exchange rates can be quoted in dollars per unit of foreign currency or units of foreign currency per dollar. • Example: Exchange Rate for Swiss Franc might be 1.5 to the dollar. • 1 Dollar = 1.5 Swiss francs • 1 Swiss franc = 1/1.5 dollars or $.67 • Exchange Rates Fluctuate from Day to Day

13. Protectionism • Trade can help or hurt? • How? • Taiwan may produce watches cheaper which in turn might put American Watch Producers out of business • To Protect the United States Businesses the Government puts out Restrictions • Tariffs- Tax on imports • Quotas- Restrictions on the quantity of a good that can enter a country • Embargoes- Total Ban on the import of a good from a particular company.

14. Tariff • If a Chinese company sells t-shirts in the united states they must pay an import tax on each shirt that enters the country • Why? • Make it more difficult for foreign manufacturers to compete with American Companies in the United States • We don’t want to hurt our own companies

15. Quotas • In order to Protect American companies the government only allows a certain number of certain products into the country. • Can cause problems with the International Free Trade Rules so have to be careful of how it is written out.

16. Embargo • Usually Imposed for Political Reasons • Since 1961 United States has a embargo on Cuba which means we cannot import or export products with Cuba.

17. Assignment- Choose One- Due Friday Internet Search/ Excel Writing Assignment • You will need to inventory 15-25 common products at a grocery store, hardware, or department store and report on how many products are domestic or imported. Using Excel to documents your findings. Once you have that information use Excel to graph your findings • Write your own opinion essay on how you feel about protectionism and if you are for or against it. Create well developed arguments and examples backing your argument. These should be at least a page and a half long.

18. The global economy Section 7-2 pages 162-171

19. What do you believe would be good restrictions to make trade fair in a Global Economy?

20. The Rise of the Global Economy • 50 Years • Nike operates factories in Vietnam and Indonesia • Gap owns stores in Canada, France, Germany, Great Britain, and Japan • Evian is from France and sells all over the world • GLOBAL ECONOMY • An economy in which companies compete actively with businesses from all over the world. • Due to Rise in • Communications technology • Rise in Democracy in much of the world • Elimination of trade restrictions

21. Improvement s in Telecommunications Technology • Huge Impact • Communication that once took weeks now takes seconds • Fax Machines • Email • Internet • E-commerce or sales on the World Wide Web • Even small businesses can reach out to foreign countries due to WWW

22. Political Changes • Since 1980’s • End the Cold War • Thawing relations with China • Billions from Markets that were excluded prior • Spread of Capitalism

23. Free Trade Areas • Free Trade Area • A Region within which trade restrictions are reduced or eliminated • North America is the largest Free Trade Area • NAFTA (North American Free Tract Agreement of 1994) • Canada, Mexico, and North America can sell products without facing major trade restrictions • NAFTA benefitted these countries because of lower prices in North America • Has forced some Americans to loose their jobs • Example Sara Lee moved to Mexico.

24. Doing Business Globally • Forms of International Operations • Working Through a Foreign Intermediary • Signing a Licensing Agreement with a Foreign Company • Forming a Strategic Alliance • Becoming a Multinational Corporation • Challenges of Working in an International Environment • Deal with Customers, Producers, Suppliers, Employees • Familiar Local Laws • Understanding Foreign Cultures

25. Foreign Intermediary • A wholesaler or agent who markets products for companies that want to do business abroad. • Saves a company the expense of setting up facilities in a foreign country. • Someone familiar with local conditions BACK

26. Licensing Agreement • Agreement that permits one company to sell another company’s products in return for a percentage of profits • Licensing a foreign company to sell the product BACK

27. Strategic Alliance BACK • Involves pooling resources and skills in order to achieve common goals • Gain access to new markets, share research, broaden their product line, learn new skills, and expand cross cultural knowledge on management groups

28. Multinational Corporations • Companies willing to make a significant financial commitment often establish manufacturing and distribution facilities in foreign companies. • Imported Material • suppliers • International Production • Improve Service • Reduce Costs • International Sales • Significant Amount of Sales McDonalds BACK

29. Assignment Journal Write Management Career in Focus • What character traits and skills a foreign intermediary or multinational company manager need to be effective in a global economy? Express your ideas! • Add to your PowerPoint • Page 167