International Business And Trade - ACC122 Chapter 1 PDF

INTERNATIONAL BUSINESS AND TRADE MR. ROGER R. MAGALLANES, MBA Learning Objectives 1. Identify the types of companies active in international business. 2. Explain globalization and how it affects markets and production. 3. Detail the forces that are driving globalization. 4...

INTERNATIONAL BUSINESS AND TRADE MR. ROGER R. MAGALLANES, MBA Learning Objectives 1. Identify the types of companies active in international business. 2. Explain globalization and how it affects markets and production. 3. Detail the forces that are driving globalization. 4. Outline the debate over globalization’s impact on jobs and wages. 5. Summarize the debate over income inequality. 6. Outline the debate over culture, sovereignty, and the environment. 7. Describe the global business environment and its main elements.  Apple’s Global iMPACT “User-Centered Design” Globalization Produce and sell worldwide with little or no modification Reduces Apple’s production and marketing costs Supports Apple’s global brand strategy Challenges Higher price International Commercial transaction that crosses the Business borders of two or more nations Goods and services purchased abroad Imports and brought into a country Goods and services sold abroad and sent Exports out of a country  Philippines Top 10 IMPORTS EXPORTS Electrical machinery, equipment: Electrical machinery, equipment: US$43.6 US$32.5 billion (22.3% of total billion (55.2% of total exports) imports) Machinery including computers: $7.3 Mineral fuels including oil: $25.8 billion billion (9.2%) (17.7%) Optical, technical, medical apparatus: Machinery including computers: $11.8 $2.4 billion (3.1%) billion (8.1%) Copper: $2.3 billion (2.9%) Vehicles: $8.8 billion (6%) Animal/vegetable fats, oils, waxes: $2.2 Iron, steel: $5.2 billion (3.6%) billion (2.8%) Plastics, plastic articles: $4.6 billion Ores, slag, ash: $2 billion (2.6%) (3.1%) Fruits, nuts: $1.9 billion (2.4%) Cereals: $4.3 billion (3%) Gems, precious metals: $1.3 billion Optical, technical, medical apparatus: (1.7%) $3 billion (2.1%) Mineral fuels including oil: $1.2 billion Food industry waste, animal fodder: (1.6%) $2.8 billion (1.9%) Plastics, plastic articles: $1.1 billion Pharmaceuticals: $2.7 billion (1.9%) (1.4%)  The 15 Richest Countries In The World 2023 1. Ireland - $145,196 2. Luxembourg - $142,490 3. Singapore - $133,894 4. Qatar - $124,833 5. United Arab Emirates - $88,221 6. Switzerland - $87,962 7. Norway - $82,654 8. United States - $80,034 9. San Marino - $78,926 10. Brunei - $75,583 11. Denmark - $73,385 12. Netherlands - $73,385 13. Iceland - $69,778 14. Austria - $69,502 15. Andorra - $68,997 Large companies from the wealthiest nations Firms from emerging markets Small and medium-sized companies Multinational corporation (MNC) Born global firm Chapter 1-9 GLOBALIZATION Characteristics: barriers to cross-border trade and investment are declining; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over, and national economies are merging into an interdependent, integrated global economic system DEFINITION Globalization refers to the shift toward a more integrated and interdependent world economy. OPPORTUNITIES IN GLOBALIZATION Firms can expand their revenues by selling around the world and/or reduce their costs by producing in nations where key inputs, including labor, are cheap. The global expansion of enterprises has been facilitated by generally favorable political and economic trends. FACETS OF GLOBALIZATION The globalization of markets refers to merging historically distinct and separate national markets into one huge global marketplace. The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). THE GLOBALIZATION OF MARKETS Falling barriers to cross-border trade and investment have made it easier to sell internationally. The tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping create a global market Consumer products are frequently held up as prototypical examples of this trend. The firms that produce these products are more than just benefactors of this trend; they are also facilitators of it. THE GLOBALIZATION OF MARKETS By offering the same basic product worldwide, they help create a global market. The most global of markets are not typically markets for consumer products—where national differences in tastes and preferences can still be important enough to act as a brake on globalization—but markets for industrial goods and materials that serve universal needs the world over. THE GLOBALIZATION OF PRODUCTION By doing this, companies hope to lower their overall cost structure or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. A global web of suppliers yields a better final product. EXAMPLE: BOEING THE GLOBALIZATION OF PRODUCTION Early outsourcing efforts were primarily confined to manufacturing activities Increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations. THE GLOBALIZATION OF PRODUCTION The economist Robert Reich has argued that as a consequence of the trend, it is becoming irrelevant to talk about American, Japanese, German, or Korean products. Increasingly, according to Reich, the outsourcing of productive activities to different suppliers results in the creation of global products, that is, “global products.” THE GLOBALIZATION OF PRODUCTION Substantial impediments still make it difficult for firms to achieve the optimal dispersion of their productive activities to locations around the globe. These impediments include: a. formal and informal barriers to trade between countries, b. barriers to foreign direct investment, c. transportation costs, d. issues associated with economic and political risk, and e. the sheer managerial challenge of coordinating a globally dispersed supply. THE EMERGENCE OF GLOBAL INSTITUTIONS As markets globalize and an increasing proportion of business activity transcends national borders, institutions are needed to help manage, regulate, and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system. All these institutions were created by voluntary agreement between individual nation-states, and their functions are enshrined in international treaties. THE EMERGENCE OF GLOBAL INSTITUTIONS General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization; the International Monetary Fund and its sister institution, the World Bank; and the United Nations. THE EMERGENCE OF GLOBAL INSTITUTIONS WORLD TRADE ORGANIZATION (WTO) (like the GATT before it) ✓Primarily responsible for policing the world trading system and making sure nation- states adhere to the rules laid down in trade treaties signed by WTO member states. ✓As of 2017, 164 nations that collectively accounted for 98 percent of world trade were WTO members, thereby giving the organization enormous scope and influence. ✓It is also responsible for facilitating the establishment of additional multinational agreements among WTO member states. ✓WTO has been the instrument of its member states, which have sought to create a more open global business system unencumbered by barriers to trade and investment between countries THE EMERGENCE OF GLOBAL INSTITUTIONS International Monetary Fund (IMF) IMF and the World Bank were both created in 1944 by 44 nations that met at Bretton Woods, New Hampshire established to maintain order in the international monetary system; the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations. in return for loans, the IMF requires nation- states to adopt specific economic policies aimed at returning their troubled economies to stability and growth THE EMERGENCE OF GLOBAL INSTITUTIONS WORLD BANK was set up to promote economic development In the more than seven decades since their creation, both institutions have emerged as significant players in the global economy. The World Bank is the least controversial of the two sister institutions. It focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investment (such as building dams or roads). THE EMERGENCE OF GLOBAL INSTITUTIONS UNITED NATIONS (UN) was established October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. Today, nearly every nation in the world belongs to the United Nations; membership now totals 193 countries. When states become members of the United Nations, they agree to accept the obligations of the UN Charter, an international treaty that establishes basic principles of international relations. THE EMERGENCE OF GLOBAL INSTITUTIONS UNITED NATIONS (UN) According to the charter, the UN has four purposes: 1. to maintain international peace and security, 2. to develop friendly relations among nations, 3. to cooperate in solving international problems and in promoting respect for human rights, and 4. to be a center for harmonizing the actions of nations. THE EMERGENCE OF GLOBAL INSTITUTIONS GROUP OF TWENTY (G20) Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank. Collectively, the G20 represents 90 percent of global GDP and 80 percent of international global trade. THE EMERGENCE OF GLOBAL INSTITUTIONS GROUP OF TWENTY (G20) Originally established to formulate a coordinated policy response to financial crises in developing nations, in 2008 and 2009, it became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis that started in America and then rapidly spread around the world, ushering in the first serious global economic recession since 1981. Drivers of Globalization Two macro factors underlie the trend toward greater globalization. The first is the decline in barriers to the free flow of goods, services, and capital in recent decades. The second factor is technological change, particularly the dramatic developments in communication, information processing, and transportation technologies. DECLINING TRADE AND INVESTMENT BARRIERS During the 1920s and 1930s, many of the world’s nation-states erected formidable barriers to international trade and foreign direct investment. International trade occurs when a firm exports goods or services to consumers in another country. Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. DECLINING TRADE AND INVESTMENT BARRIERS Knowledge Society and Trade Agreements According to the World Trade Organization, the value of world trade in merchandised goods has grown consistently faster than the growth rate in the world economy since 1950. The difference in world production and trade growth rates is why studying international business is so important. While we produce more goods and services today than before, a far greater proportion of that production is being traded across national borders than at any time in modern history. Moreover, the knowledge society we live in has resulted in consumers knowing more than ever about goods and services being produced worldwide. From a customer perspective, this is driving demand for internationally traded goods. DECLINING TRADE AND INVESTMENT BARRIERS Many countries have been progressively removing restrictions to foreign direct investment over the past 20 years A firm might design a product in one country, produce parts in two other countries, assemble the product in yet another country, and then export the finished product worldwide. DECLINING TRADE AND INVESTMENT BARRIERS Another vital facilitator of trade across country borders is the increased number of trade agreements that have been implemented in the world. There is no doubt that trade, at least between the countries in a trade agreement, has been a strong reason for the increase overall in world trade. As regional trade agreements in force increase year-by-year, so does world trade across country borders at the same pace. The globalization of markets and production and the resulting growth of world trade, foreign direct investment, and imports all imply that firms are finding their home markets under attack from foreign competitors. ROLE OF TECHNOLOGICAL CHANGE COMMUNICATIONS Perhaps the single most important innovation since World War II has been the development of the microprocessor, which enabled the explosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms. The microprocessor also underlies many recent advances in telecommunications technology. Over the past 30 years, global communications have been revolutionized by developments in satellite, optical fiber, wireless technologies, and of course the Internet. ROLE OF TECHNOLOGICAL CHANGE INTERNET By 2017, the Internet had 3.8 billion users, or 51 percent of the global population. As such, 2017 marked the first year that more than half of the world’s population were Internet users. It is no surprise that the Internet has developed into the information backbone of the global economy. Viewed globally, the Internet has emerged as an equalizer. It rolls back some of the constraints of location, scale, and time zones. The Internet makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. It allows businesses, both small and large, to expand their global presence at a lower cost than ever before. ROLE OF TECHNOLOGICAL CHANGE TRANSPORTATION TECHNOLOGY In addition to developments in communications technology, several major innovations in transportation technology have occurred since the 1950s. In economic terms, the most important are probably the development of commercial jet aircraft and superfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. ROLE OF TECHNOLOGICAL CHANGE TRANSPORTATION TECHNOLOGY Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. Because the international shipping industry is responsible for carrying about 90 percent of the volume of world trade in goods, this has been an extremely important development. IMPLICATIONS FOR THE GLOBALIZATION OF PRODUCTION As transportation costs associated with the globalization of production have declined, dispersal of production to geographically separate locations has become more economical. As a result of the technological innovations discussed earlier, the actual costs of information processing and communication have fallen dramatically in the past two decades. These developments make it possible for a firm to create and manage a globally dispersed production system, further facilitating the globalization of production.  IMPLICATIONS FOR THE GLOBALIZATION OF MARKETS In addition to the globalization of production, technological innovations have facilitated the globalization of markets. Low-cost global communications networks, including those built on top of the Internet, are helping create electronic global marketplaces. Low-cost transportation has made it more economical to ship products around the world, thereby helping create global markets. In addition, low-cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some convergence of consumer tastes and preferences. THE CHANGING DEMOGRAPHICS OF THE GLOBAL ECONOMY The first was U.S. dominance in the world economy and world trade picture. The second was U.S. dominance in world foreign direct investment. Related to this, the third fact was the dominance of large, multinational U.S. firms on the international business scene. The fourth was that roughly half the globe—the centrally planned economies of the communist world—was off-limits to Western international businesses. THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE In the early 1960s, the United States was still by far the world’s dominant industrial power. In 1960, the United States accounted for 38.3 percent of world output, measured by gross domestic product (GDP). The change in the U.S. position was not an absolute decline because the U.S. economy grew significantly between 1960 and 2018, it was a relative decline, reflecting the faster economic growth of several other economies, particularly China as well as several other nations in Asia. Other countries that markedly increased their share of world output included Japan, Thailand, Malaysia, Taiwan, Brazil, and South Korea. THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE As emerging economies such as Brazil, Russia, India, and China—coined the BRIC countries—continue to grow, a further relative decline in the share of world output and world exports accounted for by the United States and other long-established developed nations seems likely THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE As the barriers to the free flow of goods, services, and capital fell, and as other countries increased their shares of world output, non-U.S. firms increasingly began to invest across national borders. The motivation for much of this foreign direct investment by non-U.S. firms was the desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets. Thus, beginning in the 1970s, European and Japanese firms began to shift labor-intensive manufacturing operations from their home markets to developing nations where labor costs were lower. THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE The stock of foreign direct investment (FDI) refers to the total cumulative value of foreign investments as a percentage of the country’s GDP.) For example, U.S. firms invested 17.8 percent of the nation’s GDP outside the country in 1995 and now that figure is 34.4 percent. Collectively, the 196 countries in the world today invest 34.6 percent of their GDP outside its country borders, an increase from 12.8 percent in 1995. THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE There are two other important trends: the sustained growth in cross-border flows of foreign direct investment that has occurred since 1990 and the increasing importance of developing nations as the destination of foreign direct investment. THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE A multinational enterprise (MNE) is any business that has productive activities in two or more countries. In the last half a century, two notable trends in the demographics of the multinational enterprise have been : (1) the rise of non-U.S. multinationals and (2) the growth of mini-multinationals. THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE Non-U.S. Multinationals firms from developing nations will emerge as even important competitors in global markets, further shifting the axis of the world economy away from North America and western Europe and challenging the long dominance of companies from the so- called developed world. THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE The Rise of Mini-Multinationals Another trend in international business has been the growth of small and medium- sized multinationals (mini- multinationals). Although most international trade and investment are still conducted by large firms, many medium-sized and small businesses are becoming increasingly involved in international trade and investment. THE CHANGING WORLD ORDER Between 1989 and 1991, a series of democratic revolutions swept the communist world. Many of the former communist nations of Europe and Asia seem to share a commitment to democratic politics and free market economics. For half a century, these countries were essentially closed to Western international businesses. Now, they present a host of export and investment opportunities. Globalization Globalization of markets of production Dispersal of Convergence in production activities buyer preferences worldwide to in markets around minimize costs or the world maximize quality Benefits of Globalization of Markets Reduces marketing costs Creates new market opportunities Levels uneven income streams Local buyers’ needs Global sustainability Benefits of Globalization of Production Access lower-cost workers Access technical expertise Access production inputs  Globalization causes the institutions and economies of nations to become what? What benefits might companies obtain from the globalization of markets? Sustainability is development that meets present needs without compromising what?  Forces Driving Globalization Falling Barriers to Trade and Investment General Agreement on Tariffs Regional trade agreements and Trade (GATT) Trade and national output World Trade Organization (WTO) Other international organizations The World Bank The International Monetary Fund (IMF) E-business (E-commerce) E-mail and Videoconferencing. Internet Company Intranets and Extranets Advancements in Transportation Technologies Here are some countries that have often been associated with globalization as of September 2022: United States: The United States has traditionally been a major player in global trade, investment, and technological innovation. China: China's rapid economic growth and integration into global supply chains have made it a significant force in globalization. Germany: Known for its strong export-oriented economy, Germany has been a global leader in manufacturing and trade. United Kingdom: Historically, the United Kingdom has had a significant impact on global trade and finance, particularly through its historical role as a colonial power and its influence in international institutions. Japan: Japan's technological advancements, global corporations, and strong export-oriented economy have contributed to its presence in globalization.  Canada: As a resource-rich country and a close economic partner with the United States, Canada has benefited from its participation in global trade. France: France has a long history of cultural and economic influence worldwide and actively participates in international organizations and trade. India: With its large population and growing economy, India has emerged as an important player in globalization, particularly in the service sector and information technology. South Korea: South Korea's export-driven economy and global corporations, such as Samsung and Hyundai, have propelled its involvement in globalization. Brazil: As one of the largest economies in Latin America, Brazil has been influential in regional trade and has participated in global initiatives and institutions. Debate Over Jobs and Wages Against Globalization Eliminates jobs in developed nations Lowers wages in developed nations Exploits workers in developing nations  Increases wealth and efficiency in all nations Generates labor market flexibility in developed nations Advances the economies of developing nations Inequality Within Wage gap between white-collar and Nations blue-collar occupations in rich nations Inequality Widening the gap in average incomes Between Nations between rich and poor nations Global Inequality Widening income inequality between all people of the world Debate Over Culture, Sovereignty, and the Environment Globalization and Culture Allows us to Homogenizes profit from our our world and differing destroys our circumstances rich diversity and skills of cultures Debate Over Culture, Sovereignty, and the Environment Globalization and National Sovereignty Guardian of Menace to Democracy? democracy? Globalization Empowers spreads democracy supranational worldwide institutions at the expense of national governments Debate Over Culture, Sovereignty, and the Environment Globalization and the Environment Most “Race to the international Bottom” firms today support reasonable environmental laws PRO-GLOBALIZATION falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity increased international trade and cross-border investment will result in lower prices for goods and services globalization stimulates economic growth, raises the incomes of consumers, and helps create jobs in all countries that participate in the global trading system ANTIGLOBALIZATION PROTESTS popular demonstrations against globalization date back to December 1999 issues like job losses in industries under attack from foreign competitors, downward pressure on the wage rates of unskilled workers, environmental degradation, and the cultural imperialism of global media and multinational enterprises, which was seen as being dominated by what some protesters called the “culturally impoverished” interests and values of the ANTIGLOBALIZATION PROTESTS antiglobalization protesters have made a habit of turning up at major meetings of global institutions smaller-scale protests have periodically occurred in several countries GLOBALIZATION, JOBS, AND INCOME falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and western Europe. falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower. have depressed wages in developed nations. GLOBALIZATION, JOBS, AND INCOME the same fears have been applied to services, which have increasingly been outsourced to nations with lower labor costs. “exporting jobs” to low-wage nations and contributing to higher unemployment and lower living standards in their home nations GLOBALIZATION, JOBS, AND INCOME supporters of globalization reply that critics of these trends miss the essential point about free trade agreements—the benefits outweigh the costs. they argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently. GLOBALIZATION, JOBS, AND INCOME If the critics of globalization are correct, three things must be shown: First, the share of national income received by labor, as opposed to the share received by the owners of capital (e.g., stockholders and bondholders), should have declined in advanced nations as a result of downward pressure on wage rates.  GLOBALIZATION, JOBS, AND INCOME Second, even though labor’s share of the economic pie may have declined, this does not mean lower living standards if the size of the total pie has increased sufficiently to offset the decline in labor’s share—in other words, if economic growth and rising living standards in advanced economies have offset declines in labor’s share (this is the position argued by supporters of globalization). GLOBALIZATION, JOBS, AND INCOME Third, the decline in labor’s share of national income must be due to moving production to low-wage countries, as opposed to improvement in production technology and productivity. GLOBALIZATION, JOBS, AND INCOME Several studies shed light on these issues. First, the data suggest that over the past two decades, the share of labor in national income has declined. However, detailed analysis suggests the share of national income enjoyed by skilled labor has actually increased, suggesting that the fall in labor’s share has been due to a fall in the share taken by unskilled labor. A study by the IMF suggested the earnings gap between workers in skilled and unskilled sectors has widened by 25 percent over the past two decades. GLOBALIZATION, JOBS, AND INCOME Another study that focused on U.S. data found that exposure to competition from imports led to a decline in real wages for workers who performed unskilled tasks, while having no discernible impact on wages in skilled occupations. The same study found that skilled and unskilled workers in sectors where exports grew saw an increase in their real wages. These figures suggest that unskilled labor in sectors that have been exposed to more efficient foreign competition probably has seen its share of national income decline over the past three decades. GLOBALIZATION, JOBS, AND INCOME As noted earlier, globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers. However, supporters of globalization see a more complex picture. They maintain that the weak growth rate in real wage rates for unskilled workers owes far more to a technology-induced shift within advanced economies away from jobs where the only qualification was a willingness to turn up for work every day and toward jobs that require significant education and skills. GLOBALIZATION, JOBS, AND INCOME They point out that many advanced economies report a shortage of highly skilled workers and an excess supply of unskilled workers. Thus, growing income inequality is a result of the wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. In fact, evidence suggests that technological change has had a bigger impact than globalization on the declining share of national income enjoyed by labor. GLOBALIZATION, JOBS, AND INCOME Finally, it is worth noting that the wage gap between developing and developed nations is closing as developing nations experience rapid economic growth. For example, one estimate suggests that wages in China will approach Western levels in two decades. To the extent that this is the case, any migration of unskilled jobs to low- wage countries is a temporary phenomenon representing a structural adjustment on the way to a more tightly integrated global economy.  GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT A second source of concern is that free trade encourages firms from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse by the unscrupulous. GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT Globalization critics often argue that adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises and puts them at a competitive disadvantage in the global marketplace vis-à-vis firms based in developing nations that do not have to comply with such regulations.  GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT Firms deal with this cost disadvantage, the theory goes, by moving their production facilities to nations that do not have such burdensome regulations or that fail to enforce the regulations they have. Because free trade enables developing countries to increase their economic growth rates and become richer, this should lead to tougher environmental and labor laws. In this view, the critics of free trade have got it backward: Free trade does not lead to more pollution and labor exploitation; it leads to less. GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT By creating wealth and incentives for enterprises to produce technological innovations, the free market system and free trade could make it easier for the world to cope with pollution and population growth. GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT Supporters of free trade and greater globalization express doubts about this scenario. They argue that tougher environmental regulations and stricter labor standards go hand in hand with economic progress. In general, as countries get richer, they enact tougher environmental and labor regulations.  GLOBALIZATION AND NATIONAL SOVEREIGNTY Another concern voiced by critics of globalization is that today’s increasingly interdependent global economy shifts economic power away from national governments and toward supranational organizations such as the World Trade Organization, the European Union, and the United Nations. As perceived by critics, unelected bureaucrats now impose policies on the democratically elected governments of nation-states, thereby undermining the sovereignty of those states and limiting the nation’s ability to control its own destiny.  GLOBALIZATION AND NATIONAL SOVEREIGNTY In contrast to Nader, many economists and politicians maintain that the power of supranational organizations such as the WTO is limited to what nation-states collectively agree to grant. They argue that bodies such as the United Nations and the WTO exist to serve the collective interests of member states, not to subvert those interests.  GLOBALIZATION AND NATIONAL SOVEREIGNTY Supporters of supranational organizations point out that the power of these bodies rests largely on their ability to persuade member states to follow a certain action. If these bodies fail to serve the collective interests of member states, those states will withdraw their support and the supranational organization will quickly collapse. In this view, real power still resides with individual nation-states, not supranational organizations. GLOBALIZATION AND THE WORLD’S POOR Free trade alone, some argue, is a necessary but not sufficient prerequisite to help these countries bootstrap themselves out of poverty. Instead, large-scale debt relief is needed for the world’s poorest nations to give them the opportunity to restructure their economies and start the long climb toward prosperity. Supporters of debt relief also argue that new democratic governments in poor nations should not be forced to honor debts that were incurred and mismanaged long ago by their corrupt and dictatorial predecessors. GLOBALIZATION AND THE WORLD’S POOR The richest nations of the world also can help by reducing barriers to the importation of products from the world’s poorest nations, particularly tariffs on imports of agricultural products and textiles. High-tariff barriers and other impediments to trade make it difficult for poor countries to export more of their agricultural production. INTERNATIONAL BUSINESS An international business is any firm that engages in international trade or investment. A firm does not have to become a multinational enterprise, investing directly in operations in other countries, to engage in international business, although multinational enterprises are international businesses. All a firm has to do is export or import products from other countries. As the world shifts toward a truly integrated global economy, more firms—both large and small—are becoming international businesses.  DIFFERENCES OF AN INTERNATIONAL BUSINESS At the most fundamental level, the differences arise from the simple fact that countries are different. Countries differ in their cultures, political systems, economic systems, legal systems, and levels of economic development. Despite all the talk about the emerging global village and despite the trend toward globalization of markets and production, many of these differences are very profound and enduring.  DIFFERENCES OF AN INTERNATIONAL BUSINESS In addition to the problems that arise from the differences between countries, a manager in an international business is confronted with a range of other issues that the manager in a domestic business never confronts. The managers of an international business must decide where in the world to site production activities to minimize costs and maximize value added. They must decide whether it is ethical to adhere to the lower labor and environmental standards found in many less developed nations.  DIFFERENCES OF AN INTERNATIONAL BUSINESS Conducting business transactions across national borders requires understanding the rules governing the international trading and investment system. Managers in an international business must also deal with government restrictions on international trade and investment. They must find ways to work within the limits imposed by specific governmental interventions.  DIFFERENCES OF AN INTERNATIONAL BUSINESS Cross-border transactions also require that money be converted from the firm’s home currency into a foreign currency and vice versa. Because currency exchange rates vary in response to changing economic conditions, managers in an international business must develop policies for dealing with exchange rate movements. A firm that adopts the wrong policy can lose large amounts of money, whereas one that adopts the right policy can increase the profitability of its international transactions.  DIFFERENCES OF AN INTERNATIONAL BUSINESS Managing an international business is different from managing a purely domestic business for at least four reasons: (1) countries are different, (2) the range of problems confronted by a manager in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business,  DIFFERENCES OF AN INTERNATIONAL BUSINESS Managing an international business is different from managing a purely domestic business for at least four reasons: (3) an international business must find ways to work within the limits imposed by government intervention in the international trade and investment system, and (4) international transactions involve converting money into different currencies. The Global Business Environment C  It helps to think about international business as four elements that occur within a what? How does managing an international firm differ from managing a purely domestic business? THANK YOU!