The Role of International Business

3. 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.

4. Why Nations Trade • To obtain raw materials and goods that are: • Otherwise unavailable • Available elsewhere at a lower price

5. 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

6. 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

7. Trade Between Countries • Importing • The purchase of goods and services from foreign sources • Exporting • The sale of goods and services to foreign markets

8. The U. S. Trade Deficit1980-2005 (in billions of dollars)

9. Top 10 Countries Maintaining Trade Deficits & Surpluses with the US

10. International Trade Barriers • Economic • Legal/political • Social/cultural • Technological

11. 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

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

13. 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

14. How US jobs compare: • Americans are more likely to work longer than 40 hours a week than workers in Japan, Germany or 20 other developed countries. In fact, in the U.S., 70.3% of all American workers put in more than 40 hours a week, compared to 49.4% in Japan; 14.2% in Germany; 57.1% in Canada; and 10.1% in Norway • The U.S. ranks below six other countries in annual income per person: Norway ($39,806); Switzerland ($38,425); Denmark ($33,367); Sweden (32,125); Finland ($31,737); and Japan (31,624). In the U.S., annual income per person is $28,553. • The U.S. ranks below 10 other countries in paid vacation days for workers. In the U.S., the average worker gets 16 paid vacation days a year, compared to 30 days in Portugal and Spain; 25 days in Austria, Finland, Sweden and France; and 20 days in Belgium, the Netherlands and Switzerland. European countries guarantee workers paid vacation days by law • The income gap between rich and poor in the United States is bigger than in any other developed country in the world. • In many countries, workers are guaranteed health coverage by law. In the U.S., there are 45.8 million people without health insurance, and the percentage of Americans who lack health coverage recently reached 15.7%. In parental leave and unemployment insurance coverage, the United States also lags behind most European countries. Source:http://bernie.house.gov/economy/today.asp (Accessed October 30, 2006)

15. Cultural Behavioral Differences

16. Technological Barriers • Varying levels of technological development and infrastructure

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

18. 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).

19. Levels of Involvement in International Trade • Import/Export • Trading Companies • Licensing & Franchising • Contract Manufacturing • Joint Ventures & Alliances • Direct Investment • The MNC

20. Major Export Marketsfor U.S. Companies Percent of Total US Exports Source: “Top Trading Partners, Total Trade, Exports and Imports,” U.S. Census Bureau, August, 2006, available at http://www.census.gov/foreign-trade/statistics/highlights/toppartners.html.

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

22. The Ten Largest Global Corporations

23. Wal-Mart Around the World Source: www.walmartfacts.com, “Wal-Mart International Operations,” accessed October 30,2006

24. Top 10 Global Franchise Operations

25. U.S. Exporters and Value By Company size

26. Procter & Gamble Global Brands Source: www.pg.com/company/who_we_are/global_products.jhtml., “Global Operations.” accessed October 30, 2006.

27. Procter & Gamble Global Brands Source: www.pg.com/company/who_we_are/global_products.jhtml., “Global Operations.” accessed October 30, 2006.

28. 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 Developing International Business Strategies

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

30. Solve the Dilemma • What are the key issues that need to be considered in determining global expansion? • What are some of the unique problems that a small business might face in global expansion that larger firms would not? • Should Audiotech consider a joint venture? • Should it hire a sales force of people native to the countries it enters?

31. Explore Your Career Options • What are some of the skills required to be a successful businessperson in the borderless world of the 21st century?

32. Additional Discussion Questions and Exercises • Look at the “Foreign Exchange” section of the business section of a newspaper. • What nation’s currency or exchange rate is listed? • How much of that nation’s currency would equal one dollar? • Assume your firm wishes to do business by selling manufactured products in other countries but does not wish to do actual manufacturing in the United States other country. • What options are available?

33. Additional Discussion Questions and Exercises • Consider the world situation in general. • What are the political hot spots or areas of unrest in which doing business would be risky? • What would be the possible advantage for a company setting up a business venture in these areas of unrest at the first sign of political stability? • What are some of the reasons for the United States trade deficit?

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

35. Chapter 3 Quiz • When the United States established a policy forbidding trade with Cuba, this was an example of what type of trade restriction? • a quota • an embargo • a countertrade agreement • an import tariff • A comparative advantage exists when • a firm supplies a product at lower costs. • a firm is the only supplier of a product. • a country supplies a product at lower costs. • a country is the most efficient supplier of an item.

36. Multiple Choice Questions about the Video • Which of the following is not a Chinese brand? • Tsingtao • Wahaha • Lenovo • Chicken • Which of the following is a reason why Chinese brands might have trouble growing • Overcapacity of production • They are already in stores such as Target and Costco in the U.S. • The products are of inferior quality • The products are too popular in China