Chapter Three Business in a Borderless World

Chapter ThreeBusiness in aBorderless WorldInternational BusinessThe buying, selling, and trading of goods and services across national boundaries.FAST FACT:McDonald’s serves 45 million customers a day at 29,000 restaurants in 120 countries.Absolute AdvantageAbsolute advantage 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.Example: DeBeers Consolidated Mines, Ltd. (virtually controls the world’s diamond trade).Comparative AdvantageComparative advantage occurs when 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.Importing & ExportingSelling to foreign markets Buying from foreign marketsThe U. S. Trade Deficit1978-2008 (projected)Source: Exports and Imports of Goods and Services, 1978-2008, Infoplease.com from (accessed May 2, 2001)In $ BillionsTop 10 Countries Maintaining Trade Deficits & Surpluses with the USTrade DeficitChinaJapanCanadaMexicoFederal Republic of GermanyTaiwanMalaysiaItalyRepublic of KoreaIrelandTrade SurplusNetherlandsUnited KingdomBrazilHong KongAustraliaBelgiumSingaporeSwitzerlandKenyaArgentina4-5Source: “Top Ten Countries with which the U.S. Has a Trade Deficit,” June 2001 from (accessed August 20, 2001) and “Top Ten countries with which the U.S. Has A Trade Surplus,” June 2001 from (accessed August 20, 2001). International BarriersEconomicLegal/politicalSocial/culturalTechnologicalEconomic BarriersThe level of a country’s economic developmentIndustrialized nations – U.S., Japan, Great BritainLess-developed countries – Costa RicaThe level of existing infrastructureCurrency exchange ratesPolitical & Legal BarriersLaws and regulationsTariffs and trade restrictionsImport tariffs, exchange controls, quotas, embargos, anti-dumping regulationsPolitical barriersPolitical instability, cartelsSocial & Cultural BarriersThe overall culture of a countryThe culture of the marketplaceThe culture of “how business is practiced”Think globally, but act locallyMexican Workers are Most Satisfied with their Jobs*MexicoSwitzerlandAustriaCanadaAustralia & BrazilSource: “USA TODAY Snapshots,” USA TODAY, October 23, 2001, p. B1.*Based on base pay, merit pay, job challenge, treatment, leadership, sense of achievement and sense of direction, in a survey of 1.7 million employees in 20 different countries.Technological BarriersVarying levels of technological development and infrastructureTrade Agreements, Alliances & OrganizationsGATTWTONAFTAEUMERCOSURAPECWorld BankIMFGATT and NAFTAGeneral Agreement on Tariffs and Trade (GATT):Trade agreement that provided a forum for tariff negotiations and a place where international trade problems could be discussed/solved.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).4-10Levels of Involvement in International TradeImport/ExportTrading CompaniesLicensing & FranchisingContract ManufacturingJoint Ventures & AlliancesDirect InvestmentThe MNCLevel of RiskLevel of InvolvementDeveloping International Business StrategiesMultinational Strategy:Customizing and adapting products, promotion and distribution to the local market conditionGlobal Strategy (Globalization):Standardizing products, promotion, and distribution to one world marketOpportunities & Challenges of Global BusinessFewer political barriersMovement toward market economiesGrowing opportunities for small as well as large businessesSolve the DilemmaWhat 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?Explore Your Career OptionsWhat are some of the skills required to be a successful businessperson in the borderless world of the 21st century?Additional Discussion Questions and ExercisesLook 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?Additional Discussion Questions and ExercisesConsider 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?Chapter 3 QuizA negative balance of trade occurs when a. a country imports more than it exports. b. a company has a monopoly on the production of a specific resource. c. a country exports more than it imports. d. a country’s currency can be exchanged for another’s currency or gold.2. A partnership between a foreign company and a local partner is called: a. a trading company. b. an export agency company. c. a direct investment. d. a joint venture.Chapter 3 Quiz3. When the United States established a policy forbidding trade with Cuba, this was an example of what type of trade restriction? a. a quota b. an embargo c. a countertrade agreement d. an import tariff4. A comparative advantage exists when a. a firm supplies a product at lower costs. b. a firm is the only supplier of a product. c. a country supplies a product at lower costs. d. a country is the most efficient supplier of an item.Multiple Choice Questions about the Video1. Which of the following is not a consideration in selecting a transportation mode for international distribution? a. cost b. speed c. flexibility d. diversity2. ________ is the practice of consolidating many items into a single large container that is sealed at its point of origin and opened at its destination. a. Consolidation b. Containerization c. Double-stack technology d. The Stacktrain process