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Competing in Global Markets. Why Is International Business Important?. Provides source of raw materials, and parts and demands for foreign products Allows for new market and investment opportunities Improves political relations. The Fundamentals of International Trade.

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why is international business important
Why Is International Business Important?
  • Provides source of raw materials, and parts and demands for foreign products
  • Allows for new market and investment opportunities
  • Improves political relations
the fundamentals of international trade
The Fundamentals of International Trade
  • Exports Domestically produced goods and services sold in market in other countries
  • Imports Foreign-made products and services purchased by domestic consumers
why nations trade
Why Nations Trade
  • Boosts economic growth by providing access to new markets and needed resources.
  • More efficient production systems
  • Less reliance on economic of home nations
international sources of factors of production
International Sources of Factors of Production
  • Decision to operate abroad depend on availability, price, and quality of
    • Labor
    • Natural Resources
    • Capital
    • Entrepreneurship
  • Allows a company to spread risk throughout nations in different stages of the business cycle of development
size of the international marketplace
Size of the International Marketplace
  • World population = 7 billion
  • One in five people live in a relatively well-developed countries.
  • Share of world’s population in less-developed countries will grow in coming years.
  • Population size is no guarantee of prosperity
  • Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations can be lucrative markets
economics of foreign trade
Economics of Foreign Trade
  • Absolute Advantage
    • Countries can maintain a monopoly or produce at a lower cost than any competitor
      • Example: China’s domination of silk
      • Rare these days, mostly tied to climate advantages for growing certain crops.
  • Comparative Advantage
    • Country can supply a product more efficiently more efficiently and at lower cost than it can supply other goods, compared with other countries.
      • Example: India’s combination of a highly educated workforce and low wage scale.
measuring trade between nations
Measuring Trade Between Nations
  • Balance of trade Difference between a nation’s imports and exports.
  • Balance of payment Overall flow of money into or out of a country.

Major U.S. Exports and Imports

  • U.S. leads world, exports and imports annually totals $3 trillion.
  • U.S. imports more goods than exports; exports more services than imports
exchange rates
Exchange Rates
  • Exchange rate is the value of one nation’s currency relative to the currencies of other nations.
  • Values fluctuate, or “float,” depending on supply and demand for each currency in the international market.
  • Business transactions usually conducted in currency of the region where they happen.
barriers to international trade
  • Social and Cultural Differences
  • Language
  • Values and Religious Attitude
economic differences
Economic Differences
  • Infrastructure – Basic systems of communications, transportation, energy facilities, and financial systems.
  • Currency Conversion and Shifts – Fluctuating values can make pricing in local currencies difficult and affect decision about market desirability and investment opportunities.
political and legal differences
Political and Legal Differences
  • Political Climate – Stability is a key consideration
  • Legal Environment – Three dimension: U.S. law, international regulations, laws of the countries where they plan to trade. Corruption can be an important issue.
  • International Regulations – Friendship, commerce, and navigation treaties between U.S. and other nations.
types of trade restrictions
Types of Trade Restrictions

Tariff – Taxes, surcharges, or duties on foreign products

  • Revenue tariff generate income for the government
  • Protective tariffs raise prices of imported goods to level the playing field for domestic competition
types of trade restrictions cont
Types of Trade RestrictionsCont’

Nontariff Barriers – also called administrative trade barriers

Quotas – limited the amount of a product that can be imported over a specified time period

Embargo—imposes a total ban on importing a specified product or all trading with a particular country

Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

going global
Going Global
  • Levels of Involvement
    • Importers and Exporters – most basic level of international involvement, with the least risk and control.
    • Countertrade – payments made in the form of local products, not currency
    • Contractual Agreements – often come after a company has some experience in international sales. Include franchising, foreign licensing, and subcontracting.
going global cont
Going GlobalCont’
  • Franchising- contractual agreement in which a wholesaler or a retailer gains the right to sell the franchisors’ products under that companies brand name in exchange for agreeing to relate operating requirements.
  • Off-shoring – relocation of business processes to lower-cost location overseas.
from multinational corporation to global business
From Multinational Corporation to Global Business

Multinational Corporation (MNC) an organization with significant foreign operations and marketing activities outside its home country.

developing a strategy for international business
  • Global Business Strategies
    • Firm sells same product in essentially the same manner throughout the world
      • Works well for products with nearly universal appeal and luxury items.
  • Multi-Domestic Business Strategies
    • Firm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets
      • Example: Spinach, egg, and tomato soup on the menu in KFC’s menu in China