3

The World
Marketplace:
Business
Without
Borders
Copyright ©2017 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
 LEARNING OUTCOMES

1. Discuss business opportunities in the world

economy
2. Explain the key reasons for international
trade
3. Describe the tools for measuring
international trade

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 2
 LEARNING OUTCOMES (continued)

4. Analyze strategies for reaching global

markets
5. Discuss barriers to international trade and
strategies to surmount them
6. Describe the free-trade movement and
discuss key benefits and criticisms

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 3
 LO 1
Business Opportunities

• Making individual economies

interdependent
• Due to advances in technology and reduction of
barriers to trade
• Creating a global economy marked by
intense competition and shifting
opportunities

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 4
 LO 1
Emerging Economies

• BRIC countries - Brazil, Russia, India, and

China
• Migration of labor-intensive, low-wage
manufacturing jobs away from China has
benefited their economic growth
• Vietnam, the Philippines, and Bangladesh
• Migration of labor-intensive, low-wage
manufacturing jobs away from China make
them beneficiaries of economic growth

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 5
 LO 2
Reasons for International Trade

Access to factors of production

• International trade helps even out some of the resource
imbalances among nations

Reduced risk
• Global trade reduces dependence on one economy, lowering
the risk for multinational firms

Inflow of innovation
• International trade is a source of new ideas for companies

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 6
 LO 2
Competitive Advantage

• Opportunity cost: Opportunity of giving up

the second-best choice when making a
decision
• Absolute advantage: When a country
produces more of a product than other
nations using the same amount of
resources
• Comparative advantage: When a country
makes products at a lower opportunity cost
than other countries
Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 7
Balance of Trade

• Basic measure of the difference in value

between a nation’s exports and imports
• Trade surplus
- Overage that occurs when the total value of a
nation’s exports is higher than the total value
of its imports
• Trade deficit
- Shortfall that occurs when the total value of a
nation’s imports is higher than the total value
of its exports

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 8
Balance of Payment

• Measure of the total flow of money into or

out of a country
• Balance of payment surplus: Overage that
occurs when more money flows into a nation
than out of it
• Balance of payment deficit: Shortfall that
occurs when more money flows out of a nation
than into it

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 9
 LO 3
Exchange Rates and Countertrade

Exchange rates
• Measurement of the value of one nation’s currency relative
to the other nation’s currency

Countertrade
• International trade that involves barter of products for
products rather than for currency

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 10
 LO 4
Strategies for Reaching Global Markets

Foreign outsourcing

• Contracting with foreign suppliers to produce products

Importing

• Buying products domestically that have been produced

or grown in foreign nations

Exporting

• Selling products in foreign nations that have been

produced or grown domestically

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 11
 LO 4
Foreign Licensing and Foreign Franchising

• Foreign licensing: Authority granted by a

domestic firm to a foreign firm for:
• The rights to produce and market its product
• Using its trademark/patent rights in a defined
geographical area
• Foreign franchising: Firm provides the
rights to produce and market its products to
franchisees in other countries
• Applicable only if the franchisee agrees to
specific operating requirements

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 12
 LO 4
Direct Investment and Joint Ventures

• Direct investment
• When firms acquire foreign firms or develop
new facilities from ground up in foreign
countries
• Joint ventures
• When two or more companies join forces to
pursue specific opportunities

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 13
 LO 4
Partnership and Strategic Alliance

• Partnership
• Voluntary agreement in which two or more
people act as co-owners of a business for profit
• Strategic alliance
• Agreement between two or more firms to jointly
pursue a specific opportunity without actually
merging their businesses

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 14
 LO 5
Barriers to International Trade

Sociocultural Economic
differences differences

Political and
legal
differences

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 15
 LO 5
Barriers to International Trade (continued)

• Sociocultural differences
• Differences among countries in language,
attitudes, and values
• Economic differences
• Less-developed markets require innovation and
efficiency
• Infrastructure: Country’s physical facilities that
support economic activity

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 16
 LO 5
Political and Legal Differences

• Laws and regulations - International

businesses need to comply with:
• International legal standards
• Laws of their own countries
• Laws of their host countries
• Political climate
• Influences whether a nation is attractive to
foreign business

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 17
 LO 5
International Trade Restrictions

• Protectionism: National policies designed

to restrict international trade
• Tariffs: Taxes levied against imports
• Quotas: Limitations on the amount of specific
products that may be imported from certain
countries during a given time period

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 18
 LO 5
International Trade Restrictions (continued)

• Voluntary export restrains (VERs): Limitations

on the amount of specific products that one
nation will export to another nation
• Embargo: Complete ban on international trade
of a certain item, or a total halt in trade with a
particular nation

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 19
 LO 6
Free Trade

• Unrestricted movement of goods and

services across international borders
• International trade treaty that is designed to
encourage worldwide trade among its members

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 20
Organizations that Promote International LO 6
Trade

World Trade • Permanent global institution that

Organization promotes international trade and
settles international trade disputes
(WTO)

• International cooperative of 188

member countries, working
World Bank together to reduce poverty in the
developing world

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 21
International Monetary Fund and LO 6
Trading Bloc

International • Organization of 188 member

nations that promotes international
Monetary economic cooperation and stable
Fund (IMF) growth

• Countries that have reduced or

Trading bloc eliminated tariffs, allowing free flow
of goods among member nations

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 22
 LO 6
Common Markets

• Countries that have eliminated tariffs and

harmonized trading rules to facilitate the
free flow of goods among member nations
• North American Free Trade Agreement
(NAFTA): Treaty among the United States,
Mexico, and Canada
- Eliminated trade barriers and investment
restrictions
• European Union (EU): World’s largest common
market composed of 28 European nations

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 23
 SUMMARY

• Business opportunities have increased due

to technological growth and reduction of
barriers to trade
• Reasons for increased international trade
include access to factors of production,
reduced risks, and inflow of innovation
• Measuring international trade requires an
understanding of balance of trade, balance
of payments, and exchange rates

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 24
 SUMMARY

• Firms use a number of different approaches

depending on their goals and the structure
of the foreign market
• Barriers to international trade include
sociocultural differences, economic
differences, and legal/political differences
• Emergence of regional trading blocs,
common markets, and international trade
promotes free trade

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 25
 KEY TERMS

• Opportunity cost • Balance of payments

• Absolute advantage deficit
• Comparative advantage • Exchange rate
• Balance of trade • Countertrade
• Trade surplus • Foreign outsourcing
• Trade deficit • Importing
• Balance of payments • Exporting
• Balance of payments • Foreign licensing
surplus • Foreign franchising

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 26
 KEY TERMS

• Partnership • Voluntary export

• Strategic alliance restraints (VERs)
• Sociocultural • Embargo
differences • Free trade
• Infrastructure • General Agreement on
• Protectionism Tariffs and Trade (GATT)
• Tariffs • World Trade
• Quotas Organization (WTO)

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 27
 KEY TERMS

• World Bank • North American Free

• International Monetary Trade Agreement
Fund (IMF) (NAFTA)
• Trading bloc • European Union (EU)
• Common market

Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 28
Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible
website, in whole or in part. BUSN10 | CH3 29