Lecture 2 - Business without Borders PDF

3 The World Marketplace: Business without Borders Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly...

3 The World Marketplace: Business without Borders Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Learning Objectives 3-1 Discuss dramatic changes in U.S. trade policy over the last decade 3-2 Describe business opportunities in the world economy 3-3 Explain the key reasons for international trade 3-4 Describe the tools for measuring international trade 3-5 Analyze strategies for reaching global markets 3-6 Discuss barriers to international trade and strategies to surmount them 3-7 Describe the free-trade movement, and discuss key benefits and criticisms Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2  3-1 A Dramatic Change Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  3-1 A Dramatic Change U.S. trade policy, from the 1950s through 2016, moved toward increased free trade and globalization The Trump administration imposed tariffs on numerous items, most notably steel and aluminum Countries retaliated with tariffs on U.S. goods Negotiations for trade agreements, particularly between China and the United States, are ongoing Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4  3-2 The Global Marketplace: A Huge Business Opportunity Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  3-2 The Global Marketplace: A Huge Business Opportunity (1 of 2) Slow but steady global economic growth continues to weave individual economies into greater interdependence United States has only 4.5% of the world’s 7.4 billion population but has the highest per capita gross domestic product (GDP) China and India represent bigger opportunities in terms of size and economic growth Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  3-2 The Global Marketplace: A Huge Business Opportunity (2 of 2) So Where Exactly Will the Opportunity Be? International Monetary Fund (IMF) projects solid growth of 5.4% in 2021, led by emerging and developing countries, and followed by opening economies in the United States and Europe Growth projections for China in 2021 range from 8.2% to 9.0%, with similar rates forecast for India The Cell Phone Connection Studies show if a country increases cell phone penetration by 10 percentage points, GDP will likely increase by anywhere from 0.5% to 1.2% Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7  Group Activity 1 An ever-growing world population means there are countless opportunities for U.S. firms to conduct business abroad, especially in developing nations. Form groups of 3‒5 people, and conduct an Internet search on population and GDP trends around the world. Based on your findings, select three nations not mentioned in Exhibit 3.1, and investigate them further as potential markets for U.S. business. a. Consider their resources, trade agreements, social structures, and overall business environments. b. Briefly explain why each of these three countries might or might not be a viable option for a new U.S. business venture. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  Group Activity 1 Debrief Why did you choose the three particular countries? If you were contemplating entering a foreign market, which of the three countries would you choose? Where might your competition come from if you did enter that market? Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  3-3 Key Reasons for International Trade Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  3-3 Key Reasons for International Trade (1 of 2) Companies engage in global business to tap into huge and growing new markets Access to factors Reduced Inflow of of production risk innovation International trade Global trade International trade is helps even out reduces a source of new some of the dependence on one ideas for companies resource economy, lowering imbalances among the risk for nations multinational firms Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  3-3 Key Reasons for International Trade (2 of 2) Competitive Advantage Opportunity cost*: The opportunity of giving up the second-best choice when making a decision Absolute advantage*: The benefit a country has in a given industry when it can produce more of a product than other nations using the same amount of resources Comparative advantage*: The benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12  3-4 Global Trade: Taking Measure Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13  3-4 Global Trade: Taking Measure (1 of 3) Balance of Trade Balance of trade*: A basic measure of the difference in value between a nation’s exports and imports, including both goods and services − Trade surplus*: Overage that occurs when the total value of a nation’s exports is higher than the total value of its imports − Trade deficit*: Shortfall that occurs when the total value of a nation‘s imports is higher than the total value of its exports * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14  3-4 Global Trade: Taking Measure (2 of 3) Balance of Payments A measure of the total flow of money into or out of a country − Balance of payments surplus*: Overage that occurs when more money flows into a nation than out of that nation − Balance of payments deficit*: Shortfall that occurs when more money flows out of a nation than into that nation * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15  3-4 Global Trade: Taking Measure (3 of 3) Exchange Rates Exchange rate*: A measurement of the value of one nation’s currency relative to the currency of other nations When the dollar is strong versus the euro ($1 = €1.20), U.S. travelers to Europe, U.S. firms with European operations, and European exporters benefit Countertrade Countertrade*: International trade that involves the barter of products for products rather than for currency * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  3-5 Seizing the Opportunity: Strategies for Reaching Global Markets Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 Exhibit 3.2 Market Development Options Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18  3-5 Seizing the Opportunity: Strategies for Reaching Global Markets (1 of 3) Foreign Outsourcing and Importing Foreign outsourcing can reduce costs, but the risks involved in it can be high Foreign outsourcing*: (also contract manufacturing) Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production Importing*: Buying products domestically that have been produced or grown in foreign nations * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  3-5 Seizing the Opportunity: Strategies for Reaching Global Markets (3 of 3) Foreign Direct Investment When firms either acquire foreign firms or develop new facilities from the ground up in foreign countries Joint ventures*: When two or more companies join forces— sharing resources, risks, and profits, but not actually merging companies—to pursue specific opportunities Partnership*: A voluntary agreement under which two or more people act as co-owners of a business for profit − A less formal, less encompassing agreements than partnerships is a strategic alliance * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Discussion Activity 2 Imagine you’re a South Korean fashion magnate looking to expand your line of designer clothing into the United States. You definitely want to establish a small chain of retail locations, and you’re considering moving your entire manufacturing operation. a. As you examine the factors of production, risk, inflow of innovation, and competitive advantage, do you believe the United States a good foreign market to invest in? b. What strategy will you use to break into the U.S. market from nearly 7,000 miles away? Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  Discussion Activity 2 Debrief As the South Korean fashion designer, would you consider other countries as more desirable markets than the United States? Which countries and why? If you were a U.S. business owner, would you be excited about foreign investment? Why or why not? Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  3-6 Barriers to International Trade Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23  3-6 Barriers to International Trade (1 of 4) Sociocultural Differences Differences among cultures in language, attitudes, and values − Include nonverbal communication, forms of address, attitudes toward punctuality, religious celebrations and customs, business practices, and expectations regarding meals and gifts Overcoming these barriers requires thorough consumer research, cultivating firsthand knowledge, and practicing extreme sensitivity Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  3-6 Barriers to International Trade (2 of 4) Economic Differences Key factors to consider include population, per capita income, economic growth rate, currency exchange rate, and stage of economic development Effectively serving less developed markets requires innovation and efficiency Infrastructure*: A country’s physical facilities that support economic activity Transportation Communication Energy Finance * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  3-6 Barriers to International Trade (3 of 4) Political and Legal Differences LAWS AND REGULATIONS − International businesses must comply with international legal standards, the laws of their own countries, and the laws of their host countries − “Doing Business” report by the World Bank ranks the ease of doing business for small and medium-sized companies in 190 different countries POLITICAL CLIMATE − Stability is crucial—a country subject to strife from civil war, riots, or other violence creates additional risks for foreign business Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26  3-6 Barriers to International Trade (4 of 4) INTERNATIONAL TRADE RESTRICTIONS − National policies may restrict international trade, usually with the goal of protecting domestic businesses − Tariffs*: Taxes levied against imports − Quotas*: Limitations on the amount of specific products that may be imported from certain countries during a given time period − Voluntary export restraints (VERs)*: Limitations on the amount of specific products that one nation will export to another nation − Embargo*: A complete ban on international trade of a certain item, or a total halt in trade with a particular nation * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27  3-7 Free Trade: The Movement Gains Momentum Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28  3-7 Free Trade: The Movement Gains Momentum (1 of 6) Free trade*: The unrestricted movement of goods and services across international borders General Agreement on Tariffs and Trade (GATT)*: An international trade treaty designed to encourage worldwide trade among its members World Trade Organization (WTO)*: A permanent global institution to promote international trade and to settle international trade disputes − Both the broader agenda and the individual decisions of the WTO have become increasingly controversial over the past ten years * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  3-7 Free Trade: The Movement Gains Momentum (2 of 6) The World Bank World Bank*: An international cooperative of 189 member countries, working together to reduce poverty in the developing world − Provides financial and technical advice to the governments of developing countries − Financial assistance usually comes in the form of low-interest loans, subject to conditions of economic reform * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30  3-7 Free Trade: The Movement Gains Momentum (3 of 6) The International Monetary Fund (IMF) Promotes international economic cooperation and stable growth by: − Supporting stable exchange rates − Facilitating a smooth system of international payments − Encouraging member nations to adopt sound economic policies − Promoting international trade − Lending money to member nations to address economic problems Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31  3-7 Free Trade: The Movement Gains Momentum (4 of 6) Trading Blocks and Common Markets Trading bloc*: A group of countries that have reduced or even eliminated tariffs, allowing for the free flow of goods among the member nations Common market*: A group of countries that have eliminated tariffs and harmonized trading rules to facilitate the free flow of goods among the member nations * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32  3-7 Free Trade: The Movement Gains Momentum (5 of 6) USMCA United States–Mexico–Canada Agreement (USMCA)*: The treaty among the United States, Mexico, and Canada that eliminated trade barriers and investment restrictions over a 15-year period starting in 1994 − Replaced NAFTA in 2020 − Critics complain it increases the U.S. trade deficit and dilutes environmental and worker-protection laws * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33  3-7 Free Trade: The Movement Gains Momentum (6 of 6) European Union European Union (EU)*: The world’s largest common market, composed of 27 European nations EU Goals − Bolster Europe’s trade position and increase its international political and economic power − Remove all trade restrictions among members and unify internal trade rules − Standardize import and export policies − Use euro as a single currency The United Kingdom exited the EU through “Brexit” in 2020, prompted by concerns about immigration and self-determination * Words accompanied by an asterisk are key terms from the chapter. Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34  Exhibit 3.3 Reasons to Create and Eliminate Trade Restrictions Reasons to Create Trade Restrictions Reasons to Eliminate Trade Restrictions Protect domestic industry Reduce prices and increase choices for consumers Protect domestic jobs in key industries Increase job opportunities Protect national security interests Build exporting opportunities through better relationships with other countries Retaliate against countries that have Use resources more efficiently on a engaged in unfair trade practices worldwide basis Pressure other countries to change their policies and practices Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Self-Assessment What things did you learn about international markets and the global economy that surprised you? Have you considered a career in international business? If so, how would you go about achieving that goal? What do you believe would be the most difficult aspect of living and working in a foreign country? Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36