International Business and Competing in World Markets

Contemporary Business Nineteenth Edition

Authors: Louis E. Boone, David L. Kurtz, Brahm M. Canzer
Chapter 3: International Business and Competing in World Markets

  • Note: Slide deck contains animations; animations should be disabled if issues arise with device compatibility.

  • Copyright: ©2022 John Wiley & Sons, Inc.

Learning Objectives

  • Explain why nations trade.

  • Describe how trade is measured between nations.

  • Identify the barriers to international trade.

  • Discuss reducing barriers to international trade.

  • Explain the levels of international business operations.

  • Discuss developing a strategy for international business.

Why Nations Trade

  • Mature Domestic Markets:

    • As domestic markets mature, economic growth may plateau.

    • Companies can counter sales slowdowns by expanding to international markets.

  • Growth Opportunities:

    • International markets present new growth opportunities.

  • Production Efficiency:

    • Companies can achieve more efficient production systems through globalization.

  • Risk Management:

    • Reduces reliance on domestic economies; diversified market operations dilute risk.

  • Exports and Imports:

    • Exports: Goods and services produced domestically and sold in foreign markets.

    • Imports: Goods and services produced abroad and purchased by domestic consumers.

International Sources of Factors of Production

  • Considerations for operating globally include:

    • Land: Access to natural resources.

    • Labor: Availability of a skilled workforce.

    • Capital: Funding for operations and expansion.

    • Entrepreneurship: Innovation and business acumen.

  • Risk Diversification:

    • Doing business in multiple countries spreads risk, as market demands fluctuate across regions.

Size of International Marketplace

  • Growth of Developing Nations:

    • Increased global opportunities as nations such as the U.S., China, and India post high growth rates in GDP.

Population and Wealth

TABLE 3.1: The World’s Top Ten Nations Based on Population and Wealth

  • Population (In Millions):

    • China: 1,400

    • India: 1,380

    • United States: 331

    • Indonesia: 273

    • Pakistan: 220

    • Brazil: 212

    • Nigeria: 206

    • Bangladesh: 164

    • Russia: 145

    • Mexico: 128

  • Per-Capita GDP (In U.S. Dollars):

    • Qatar: 132,886

    • Macao SAR: 114,363

    • Luxembourg: 108,951

    • Singapore: 103,181

    • Ireland: 83,399

    • Brunei Darussalam: 80,384

    • Norway: 76,684

    • United Arab Emirates: 69,435

    • Kuwait: 66,387

    • Switzerland: 66,196

Top U.S. Trading Partners

  • Figure Reference: Data from U.S. Census Bureau, “Top Trading Partners 2020.”

  • Specific details of the top trading partners with the U.S. to be provided in visual format.

Absolute and Comparative Advantage

  • Absolute Advantage:

    • Definition: A country can maintain monopoly status or produce goods at lower costs than any competitor.

    • Example: China’s historical dominance in silk production.

  • Comparative Advantage:

    • Definition: A country can supply a product more efficiently and at lower cost compared to other products, relative to other nations.

    • Example: India’s highly educated workforce and cost-effective labor force in software development.

  • Additional Information:

    • Comparative advantage enables countries like China to excel in textiles production.

Measuring International Business and Trade Between Nations

  • Balance of Trade:

    • Definition: The difference between a nation’s total exports and imports.

    • Surplus: When exports exceed imports.

    • Deficit: When imports exceed exports.

  • Balance of Payments:

    • Definition: Overall flow of money in and out of a country.

    • Surplus: More money enters than exits.

    • Deficit: More money exits than enters.

Major U.S. Imports and Exports

TABLE 3.2: Top 10 U.S. Merchandise Exports and Imports

  • Exports (Amount in Billions):

    • Machinery including computers: $201.7

    • Electrical machinery, equipment: $174.2

    • Mineral fuels including oil: $138

    • Aircraft, spacecraft: $131.2

    • Vehicles: $130.1

    • Optical, technical, medical apparatus: $83.6

    • Plastics, plastic articles: $61.5

    • Gems, precious metals: $60.4

    • Pharmaceuticals: $45.1

    • Organic chemicals: $36.2

  • Imports (Amount in Billions):

    • Electrical machinery, equipment: $356.8

    • Machinery including computers: $349.1

    • Vehicles: $294.6

    • Mineral fuels including oil: $204.2

    • Pharmaceuticals: $96.4

    • Optical, technical, medical apparatus: $86.2

    • Furniture, bedding, lighting, signs, prefab buildings: $67.2

    • Gems, precious metals: $60

    • Plastics, plastic articles: $54.9

    • Organic chemicals: $46.1

  • Source: United States International Trade Commission, accessed March 1, 2018.

Exchange Rates

  • Influences on Currency Rates:

    • Domestic economic and political conditions.

    • Central bank interventions.

    • Balance-of-payments position.

    • Speculation regarding future currency values.

  • Fluctuation of Values:

    • Currency values are subject to change based on supply and demand dynamics.

  • Government Intervention:

    • National governments may actively influence exchange rates.

Currency Devaluation

  • Example: The Chinese government's strategy of devaluing the yuan to enhance export competitiveness in response to slowing domestic growth.

Barriers to International Business and Trade

  • Understanding Barriers:

    • Social and cultural differences, economic disparities, political and legal differences hinder trade.

Social and Cultural Differences

  • Language Issues:

    • Risks include mistranslations and miscommunications; understanding local customs is crucial.

  • Values and Religious Attitudes:

    • Differing views regarding business efficiency, employment practices, and religious observances significantly impact trade.

Economic Differences

  • Infrastructure Needs:

    • Essential systems include communication, transportation, energy resources, and financial services.

  • Currency Issues:

    • Currency fluctuations can complicate pricing and influence investment decisions.

Political and Legal Differences

  • Political Climate & Legal Environment:

    • Stability and regulations impact international business operations.

  • International Regulations:

    • Treaties, tariffs, and enforcement issues such as piracy can limit trade options.

Types of Trade Restrictions

  • Tariffs:

    • Taxes on foreign goods; utilized for revenue generation and protection of domestic markets.

    • Protective Tariffs: Raise the cost of imported goods.

  • Nontariff Barriers:

    • Administrative trade barriers, quotas, dumping, embargoes, exchange controls.

U.S. Steel Industry Faces Challenges

  • American steel production faces challenges from competitively priced imports, particularly from China.

  • Tariffs imposed to protect U.S. steel producers from cheaper foreign alternatives.

Reducing Barriers to International Trade

  • Trend Towards Free Trade:

    • Global shift towards reducing trade barriers.

  • Community Initiatives:

    • Organizations advocating for free trade.

  • Trade Sanctions:

    • Tools used by governments to diminish international commerce.

  • International Economic Communities:

    • Entities that reduce trade barriers and promote economic cooperation among members.

Organizations Promoting Trade

  • General Agreement on Tariffs and Trade (GATT):

    • Established to decrease tariffs and quotas among industrialized nations in 1947.

  • World Trade Organization (WTO):

    • Succeeded GATT; includes representatives from 153 countries.

    • Focus on tariff reduction and trade promotion.

  • World Bank:

    • Finances infrastructure projects in developing nations.

  • International Monetary Fund (IMF):

    • Provides loans to nations in economic distress to facilitate trade.

International Economic Communities

  • Notable Agreements:

    • United States-Mexico-Canada Agreement (USMCA): Previously known as NAFTA, establishing a large free-trade zone.

    • Central America-Dominican Republic Free Trade Agreement (CAFTA).

    • European Union (EU): A political and economic union of member states.

Levels of International Business Operations

  • Growth Potential Analysis:

    • Assessment of potential growth in foreign markets.

  • Expenditure Analysis:

    • Evaluation of costs related to market entry.

  • Operational Understanding:

    • Comprehending foreign regulations and determining organization in overseas operations.

  • Research Sources:

    • CIA World Factbook as a reliable information resource.

Top Global Franchise Companies

TABLE 3.3: Top Ten Global Franchise Companies

  • Companies and Costs:

    • McDonald’s: Fast-food hamburger chain, initial investment up to $2.5 million.

    • KFC: Fried chicken chain, investment up to $2.6 million.

    • Burger King: Hamburger fast-food restaurant, up to $2.9 million.

    • Pizza Hut: Pizza restaurant chain, up to $1.2 million.

    • 7-Eleven: Convenience store chain, investment up to $1.2 million.

    • Marriott International: Hotel franchises, up to $96.5 million.

    • RE/MAX: International real estate company, $219K investment.

    • Dunkin’ Donuts: Coffee and donut house, investment up to $1.7 million.

    • InterContinental Hotels and Resorts: Up to $98 million.

    • Subway: Sandwich franchise, investment up to $320K.

  • Source: Retrieved from multiple franchise resources.

Levels of Involvement

  • Risk Assessment:

    • Involvement risk increases with deeper engagement in foreign markets.

  • Entry Strategies:

    • Exporting and importing serve as initial strategies.

    • Importing: Bringing in foreign-produced goods.

    • Exporting: Selling domestically produced goods to foreign markets.

Countertrade and Franchising

  • Countertrade:

    • Transactions using barter instead of currency payments.

  • Franchising:

    • Contractual agreement providing a local entity the right to sell the franchisor’s product internationally.

  • Additional Concepts:

    • Foreign Licensing Agreement: Allows production or sale using a trademark or process.

    • Subcontracting: Hiring local entities for distribution and production.

Offshoring and Direct Investment

  • Offshoring:

    • The strategy of relocating business processes to lower-cost overseas locations; controversial aspect of international trade.

  • International Direct Investment:

    • The highest level of international engagement; includes direct management of production and marketing abroad.

    • Forms of Investment:

      • Acquisition of foreign firms.

      • Joint ventures with local companies.

      • Establishing overseas divisions.

Multinational Corporations

TABLE 3.4 : The World’s Top Ten Multinational Corporations by Sales Rank

  • Leading Corporations and Industries:

    • 1. ICBC: Banking, China.

    • 2. China Construction Bank: Banking, China.

    • 3. Berkshire Hathaway: Conglomerate, United States.

    • 4. JPMorgan Chase: Banking, United States.

    • 5. Wells Fargo: Banking, United States.

    • 6. Agricultural Bank of China: Banking, China.

    • 7. Bank of America: Banking, United States.

    • 8. Bank of China: Banking, China.

    • 9. Apple: Technology, United States.

    1. Toyota Motor: Automobile, Japan.

  • Source: Forbes, accessed March 5, 2018.

Developing a Strategy for International Business

  • Global Business (Standardization) Strategies:

    • Selling the same product globally in the same manner, effective for universally appealing products.

  • Multidomestic (Adaptation) Strategies:

    • Tailoring products and marketing according to local customs, tastes, and consumer habits.

Copyright

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