International Business

1. International Business 7.1 International Trade 7.2 The Global Economy

2. Why is this important? • Purpose – Understand the Global Economy and why companies conduct business internationally – the opportunities and obstacles!

3. Your Role! • Learn as much as you can about international business • Ask questions • Share your opinions

4. International Business – Chapter 7 • We need to understand: • Why do countries trade? • Why do countries import and export goods? • How do countries restrict trade? • What strategies do companies use to compete in the global economy?

5. 7.1 Concepts and Terms • International Trade – exchange of goods and services between countries • Next time you buy clothing – check out the labels to determine where clothes were made! • Other examples are cars, beef, coffee, chocolate, electronics

6. 7.1 Concepts and Terms • Countries have the “absolute advantage” when they can produce more goods or services than other countries because they have the required natural resources, labor force, and capital.

7. 7.1 Concepts and Terms • “Law of comparative advantage” states producers should produce goods that can be produced efficiently and purchase other goods • Is competition a factor in deciding what to produce and what to buy? • Have you heard about “Outsourcing”?

8. Important! Exporting – 7.1 Concepts and Terms • Exporting is selling goods and services to other countries. • Why would I want to export my goods if I have a successful business in my own country? • Increase Sales! • Diversify sales from multiple markets! • China is one of the hottest markets in the world! • What does the United States export? Food, Technology, Cars

9. Important! Importing – 7.1 Concepts and Terms • “Importing” is purchasing goods and services from other countries. • Why would companies want to import goods or services? • Law of “comparative advantage” • Cost of goods – competition! • Resale goods • Quality of goods • Availability of goods and services

10. Importing – 7.1 Concepts and Terms • Can you name brands of goods that are imported? • Cars, Clothes - How about J. Crew? • Energy, Electronics, TV’s • Raw Materials? • What happens when we import more than we export? Trade Imbalance

11. Government’s Role in International Trade • Provides companies a resource to evaluate markets • Unique Laws • Trade restrictions • Export Documentation • Packaging, Labeling – hazardous chemicals • International Trade Administration (U.S. Dept. of Commerce) • Embassies and Consulates • C.I.A.

12. 7.1 International Trade Considerations • Foreign Exchange and Currency Conversion • Tariffs and Tax Laws – import taxes and VAT (value added tax) • In-Country Presence • Time Zones, Holidays • Cultural differences • Language – translation services • Quotas – import restrictions – impact price • Embargos – ban on imports – usually political

13. 7.2 The Global Economy • Objectives: • Understand impact of NAFTA on trade in North America • How Managers decide to enter into the Global economy • Challenges working in a different culture

14. International Regions North America Region Europe Middle East Africa Asia Pacific Caribbean And Latin America

15. 7.2 The Global Economy • Political changes beginning in the 1980s across many countries – China, Russia, United States • Created by countries opening their borders to foreign companies • Free Trade Areas eliminated restrictions - NAFTA • Influenced by technology and the Internet

16. 7.2 The Global Economy • Free Trade Areas eliminated restrictions • 1994 North America Free Trade Agreement • United States, Mexico, and Canada free to trade with minimal restrictions or tariffs • USA – increased imports of clothes and exports of food and cars • Mexico and Canada – lower labor costs (Outsourcing jobs from USA) • Fact: Chrysler has factories in Canada and Mexico

17. 7.2 The Global Economy • Companies are going Global because: • Expands sales opportunities • Provides protection from economic slowdown in a single market • Reduce costs – manufacturing, salaries, materials • Competition • Is quality of goods always part of buying decision?

18. 7.2 The Global Economy • Forms of International Operations • Foreign Intermediary is a wholesaler or agent marketing a foreign companies products – common in Poland and Russia • Licensing Agreements used to partner with a foreign company to sell another companies goods and services. Many restaurants use License Agreements (TGIF)

19. 7.2 The Global Economy • Forms of International Operations (cont.) • Strategic Alliances used to pool resources and skills with a foreign company. • Used to enter new markets • Leverage another companies name or reputation • Share research, technology, and knowledge of market and culture • Expand product portfolio – Daimler Chrysler

20. 7.2 The Global Economy • Multinational Corporations establish a presence in foreign countries • Manufacturing and distribution facilities • Most major corporations are now considered multinational! • Expand markets and reduce costs!

21. 7.2 Case of Lucent Technologies • Manufacturing arm of AT&T – one of the last Monopolies • Spun off as a separate company in 1996 • Owned factories all across USA • Most customers were in USA • USA Markets slowed down and competition increased – expanded internationally • Factories were consolidated to reduce costs • Contract manufacturers were hired and moved factories to Mexico and Canada • Integration centers opened in South America, Ireland, Poland, and China • How do you think the economy of the USA was affected?

22. 7.2 Challenges of working Internationally • Understanding local laws • Respecting local customs and religions • Time Zones, Holidays, Travel • Cultural differences – role of women, rank within company • Business Customs – dress codes, Boss vs. Coach, Gifts vs. Bribes

23. The Bottom-line! • International Business is a fact of life! • Grow sales by expanding into new markets – raise stock price! • Reduce costs to beat the competition! • Diversify into new markets to minimize impact of economic slowdown

24. The China Project • We need a meeting set up between our St. Louis office and a China office to discuss a major event occurring in 2008. • The attendees will participate from their respective cities. • Our company has $1M USD budgeted to promote our product (Sports Hat) for this event. • Be prepared to present your recommendation!