Business in the Global Marketplace Chapter 3

Chapter 3: Business in the Global Marketplace

• This chapter covers business in the global marketplace, including topics like why nations trade, measuring international trade, conflicts in global business, organizations facilitating trade, major trading blocs, cultural and legal differences in the global business environment, forms of international business activity, strategic choices for entering international markets and more.

Learning Objectives

• Objective 1: Explain why nations trade and how international trade is measured.
• Objective 2: Discuss conflicts in global business, including free trade and government interventions.
• Objective 3: Identify organizations facilitating international trade and major trading blocs.
• Objective 4: Explain the importance of understanding cultural and legal differences in the global business environment.
• Objective 5: Define major forms of international business activity.
• Objective 6: Discuss strategic choices for entering international markets.

Why Nations Trade

• Economic Globalization: Increasing integration and interdependence of national economies globally.
• Comparative Cost Advantage: Focusing on relative strengths/specializations.
• Expanding Markets: Growing potential customer bases.
• Economies of Scale: Achieving greater efficiencies through larger production volumes.
• Acquiring Resources: Access to materials, goods, and services.
• Meeting Customer Needs: Maintaining a competitive edge.
• Competing with Competitors: Maintaining a foothold in the global marketplace.

How International Trade is Measured

• Trade Deficit: Country imports more than it exports, creating an unfavorable trade balance.
• Balance of Payments: Sum of all payments a country receives from other countries minus all payments it makes to other countries over a period.

U.S. Exports and Imports

• Data visuals (Exhibit 3.2) show U.S. exports, imports, and trade balances (deficits/surpluses) from 1990 to 2014, both for goods and services sectors. Data suggests fluctuating trends.

Foreign Exchange Rates and Currency Valuations

• Exchange Rate: Rate at which one country's currency is exchanged for another.

Strong and Weak Currencies

• Strong Currency: Higher exchange rate than usual; makes imports cheaper and exports more expensive.
• Weak Currency: Lower exchange rate than usual; makes imports more expensive and exports more affordable.

Free Trade

• Unencumbered (unimpeded) international trade without restrictions.
• Winners and losers exist but overall benefits outweigh losses.

Government Intervention in International Trade

• Protectionism: Policies shielding domestic industries from foreign competition.
• Tariffs: Taxes levied on imports.
• Import Quotas: Limits on the quantity of specific imports.
• Embargo: Complete ban on trade with a country or product.
• Export Subsidies: Government financial assistance to producers, enabling lower prices for competitiveness
• Dumping: Pricing goods/products below cost in targeted markets.
• Sanctions: Politically motivated embargoes.

International Trade Organizations

• World Trade Organization (WTO): Permanent forum for negotiating, implementing, monitoring international trade procedures, and mediating trade disputes among member countries.
• International Monetary Fund (IMF): Monitors global finances, offering technical advice and short-term loans to countries facing financial difficulties and alleviating poverty in developing economies.
• World Bank: Financed post-World War II reconstruction and provides funding projects to address developing countries' poverty, health, education, and other concerns.

Trading Blocs

• Organizations of nations removing trade barriers among members but establishing uniform barriers to trade with non-members.
• NAFTA: Agreement between the U.S., Canada, and Mexico. Gradual elimination of tariffs, services, and capital flow within the bloc.
• EU: Significant economy with over two dozen member countries comprising half a billion people; eliminating protectionist trade barriers.
• APEC: An organization of twenty-one countries around the Pacific Rim that promotes liberalization in trade and investment.

Global Business Environment

• Culture: Shared symbols, beliefs, attitudes, values, and norms for behavior.
• Stereotyping: Using overly broad generalizations about groups.
• Ethnocentrism: Judging other groups/cultures based on one's own group's standards.
• Successful global leaders: Recognize, respect, and accommodate language, social values, status, decision-making, time, space, body language, manners, religion, and ethical standards.

Improving Communication with Persons from a Different Culture

• Be observant of others' customs.
• Deal with individuals personally.
• Clarify intent and meaning.
• Adapt communication style.
• Show respect.

Legal Differences in Global Business

• Tax Havens: Countries providing favorable banking laws and low tax rates to attract companies, potentially circumventing higher taxes in their home or other countries.

Forms of International Business Activity

• Importing/Exporting: Buying and selling goods/services across national borders.
• International Licensing: Granting rights to use intellectual property (design patents, etc.).
• International Franchising: Allowing use of a business system/product.
• International Strategic Alliances/Joint Ventures: Long-term business partnerships, creating new companies, or working with existing local partners.
• Foreign Direct Investment (FDI): Investment in, or establishment of, businesses in other countries.
• Multinational Corporations (MNCs): Companies operating in multiple countries.

Strategic Approaches to International Markets

• Multidomestic Strategy: Decentralized approach with independent operating units in each new country.
• Global Strategy: Highly centralized approach, with decisions made by headquarters in the home country.
• Transnational Strategy: Hybrid approach combining benefits from international scale while adapting to local market dynamics.

Product Strategies for International Strategies

• Products
• Customer support
• Promotion
• Pricing
• Staffing

Explore the complexities of business in the global marketplace with this quiz focused on Chapter 3. Learn about why nations engage in trade, the measurement of international trade, conflicts, major trading blocs, cultural and legal dimensions, and strategic choices for entering international markets. Test your understanding of these critical concepts in global business.