2.1: international business

trade balance

• imports: goods and services purchased abroad
• exports: goods and services sold abroad
• trade balance: the difference between a country’s imports and exports
  • trade surplus — imports < exports
  • trade deficit — imports > exports
  • US currently in a deficit
• GDP: gross domestic product
  • US currently has the largest economic value by GDP
  • value created in a given country’s economy
• free trade areas — facilitate international trade
  • USMCA replaced NAFTA
  • EU
• protectionism
  • tariff: a tax on imports
  • quota: a restriction on the quantity of goods that can enter a country
  • embargo: a total ban on the import of a good from a particular country

economic advantages

• absolute advantage: the ability of a producer to produce more of a good than another producer with the same quantity of inputs
  • inputs include land, labor, and capital
  • entities will benefit from specialization based on their comparative advantages
• comparative advantage: the idea that producers should produce the goods that they are most efficient at producing
  • includes opportunity cost (absolute advantage does not)
  • eg. US — imports simple manufactured goods and exports sophisticated, high tech products
• diamond in national advantages
  • factor conditions — labor, infrastructure → ability to compete in an industry
  • significant impact on entrepreneurship and productivity
  • demand conditions — demand for products/services in market
  • related/supporting industries — presence/absence of competitors
  • firm strategy, structure, and rivalry — nature of domestic rivalry and how companies are created/organized/managed
  • bankruptcy: US → liquidation vs. reorganization (how to best pay off debts)

international expansion

• direct export
  • market product internationally, export directly to consumer
  • eg. google ads
    • easy to advertise to people abroad
    • can be very specific with target market
• foreign intermediary
  • someone who understands business in a given country who can help you run a business there
  • may be employee or free agent
• licensing agreement
  • an agreement with a parent company to run a business in a certain way while giving up ownership
• strategic alliance/joint venture
  • share with other countries in a given country
  • eg. airlines may share websites
• multinational corporations
  • have officials globally
  • need to have expertise in each country
  • deal with language barriers, differing laws
• cultural differences — note Geert Hofstede’s cultural dimensions
  • individualism vs. collectivism
  • long- vs. short-term orientation
  • masculinity vs. femininity
  • high vs. low power distance
  • high vs. low uncertainty avoidance

international career planning

• advantages of working abroad
  • career advancement
  • exciting work environment
  • working with different people
  • exciting place to live (food, culture)
• disadvantages of working abroad
  • language barrier
  • safety
  • differing customs/culture shock
  • different currency
  • leaving family and friends
• expatriates (expats)
  • citizens of one country who temporarily live/work in another
• businesses encourage international work via
  • raises
  • time off to travel home
  • covering travel expenses
  • building expat communities abroad that mimic home cultures
  • providing security personnel

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