Business a changing world 7e by ferrell chap003

Business in a
Changing World

Chapter 3

Business in a Borderless
World

McGraw-Hill/Irwin

Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights


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Fresh & Easy Grocery -Shopping for One & All!
Tesco, the UK grocery giant, has developed the
Neighborhood Market that is making its way into
U.S. communities. Affordable and wholesome food
is the core competency for Tesco.

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International Business

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

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International Business
Globalization of business is becoming
increasingly important

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

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

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

Outsourcing – the transferring of manufacturing
or other tasks—such as data processing—to
countries where labor and supplies are less
expensive.
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Trade Between Countries
Obtaining needed goods and services
and the funds to pay for them,
requires international trade through
exporting and importing.

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.
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Trade Between Countries
Obtaining needed goods and services
and the funds to pay for them,
requires international trade through
exporting and 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
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Balance of Trade
The difference in the value
between what a nation
exports and imports is its
balance of trade.

U.S. Trade Deficit
1980-2006
(in billions of dollars)

A trade deficit
(shown in the
table) shows that
the U.S. has a
trade deficit – it
imports more
than it exports.
A trade deficit is also called a
nation’s negative balance of
trade.

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Balance of Trade
U.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
A nation’s balance of trade, foreign
investments, foreign aid, loans,
tourists dollars, and military
expenditures comprise its balance of
payments

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

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International Trade Barriers
Completely free trade seldom exists.

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

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International Trade Barriers
ECONOMIC BARRIERS.

•Economic development
•Infrastructure
•Exchange rates

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International Trade Barriers

Economic Development
LDC’s – less-developed countries
•Low per-capita income
•Less economically advanced
•Potentially huge & profitable markets

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International Trade Barriers

Infrastructure

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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International Trade Barriers

Exchange Rates

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

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International Trade Barriers

Ethical, Legal, and Political Barriers.

•Complex relationships
•Different laws
•International laws
•Trade restrictions
•Changing political climates
•Different ethical values
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International Trade Barriers
Tariffs & Trade Restrictions
Part of a nation’s legal structure – may be
established or removed for political reasons.
Import Tariff – a tax levied by a nation on goods

imported into the country
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International Trade Barriers
Tariffs & Trade Restrictions
Exchange controls – regulations that restrict the
amount of currency that can be bought or sold
Quota – a restriction on the number of units of a
particular product that can be imported into a
country
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International Trade Barriers
Tariffs & Trade Restrictions
Embargo– a prohibition on trade in a particular
product
Dumping – the act of a country or business selling
products at less than what it costs to produce them
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