Business in A Changing World

Part 1
Business in a
Changing
World
2016 by McGraw-Hill Education. This is proprietary material solely for

authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded,
distributed, or posted on a website, in whole or part.
3-2
CHAPTER 1
The Dynamics of Business and Economics
APPENDIX A
Guidelines for the Development of the

Business Plan
CHAPTER 2
Business Ethics and Social Responsibility
APPENDIX B
The Legal and Regulatory Environment
CHAPTER 3
Business in a Borderless World
2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
3-3
Learning Objectives
LO 3-1 Explore some of the factors within the international trade
environment that influence business.
LO 3-2
Investigate some of the economic, legal-political, social,
cultural and technological barriers to international business.
LO 3-3
Specify some of the agreements, alliances and
organizations that may encourage trade across international
boundaries.
LO 3-4
Summarize the different levels of organizational
involvement in international trade.
LO 3-5
Contrast two basic strategies used in international
business.
LO 3-6 Assess the opportunities and problems facing a small
business that is considering expanding into international markets.
3-4
The Role of International Business
Most of the worlds population

and two-thirds of its total
purchasing power are outside
the U.S.
Global marketing requires

balancing global brands with
the needs of local consumers
3-5
McDonalds in China
American
companies such as
McDonalds have
become widely
popular in China
This restaurant in
Beijing features
elements from the
Chinese culture as
well as Ronald
McDonald
3-6
Why Nations Trade
3-7
Trade between Countries
Exporting the sale of goods and

services to foreign markets
2013 U.S. exports = $2.3 trillion+

Importing the purchase of goods
and services from foreign markets
2013 U.S. imports = $2.7 trillion+

3-8
Balance of Trade
3-9
U.S. Trade Deficit

(in billions of dollars)
3-10
China Faces Growing Concerns over

Pollution
With Chinas growing middle class, pollution has

also grown and the Chinese government has
taken action
China is closing their worst polluting factories,

adopting stringent environmental laws and
planning for a cap-and-trade system
Even though China releases the most

greenhouse gas emissions, they still give off less
per person than the U.S.
3-11
International Trade Barriers

Completely free trade seldom exists, due to:
Economic barriers
Ethical, legal and political barriers
Social and cultural barriers
Technological barriers
Some countries have

copyright and patent laws
that are less strict than
those of the U.S., and
some countries fail to
honor U.S. laws
3-12
Economic Barriers
3-13
Infrastructure
Level of development is determined in part by a countrys
3-14
Exchange Rate
Another economic trade barrier is the
Exchange rates vary daily and affect

the cost of imports and exports
A government may intentionally alter

the value of its currency through
fiscal policy
3-15
Ethical, Legal, and Political Barriers

When entering the international
marketplace, companies must
contend with potentially
complex relationships
Different laws of its own nation,
international laws and the laws
of the nation with which its
trading
Various trade restrictions
Changing political climates
Different ethical values
Due to the U.S. embargo

against Cuba, many Cubans
drive older automobiles
3-16
Laws and Regulations

A firm doing business abroad must understand and
obey the laws of the host country
Some countries have restrictions on how much local
currency can be taken out of its borders
Other countries limit how foreign companies can
operate within the country
Some countries fail to honor U.S. laws and/or fail to
enforce their own laws
In some parts of the world, copyright and patent laws
are less strict than in the U.S.
3-17
Counterfeiting
The watch on the right, a
knockoff developed by
Digital Time Co., Ltd, in
Thailand, received a
special award for
falsification
The dubious honor is given
to the best product
knockoffs by the
organization Action
Plagiarius in an effort to
shame their makers
3-18
Import Tarif
Fixed tariff is a specific amount of money levied on

each unit of product brought into the country
Ad valorem tariff is based on the value of the item

Countries sometimes levy tariffs for political reasons
Critics of protective tariffs argue that their use inhibits
free trade and competition
Supporters of protective tariffs say they insulate
domestic industries, particularly new ones, against

well-established foreign competitors
3-19
Exchange Controls
Some countries control their foreign trade by forcing

businesspeople to buy and sell foreign products
through a central bank
When foreign currency is in short supply
Government uses foreign currency to purchase

necessities and capital goods and produce other
products locally
Limiting its need for foreign imports
3-20
Reshoring
Economic changes have spurred companies to bring their
manufacturing operations from out of the country back to
the United States
For example, the rise of the middle class in China has

spurred employees to demand higher wages and better
jobs
This is resulting in higher costs for companies whose

motivation to take their manufacturing offshore was to
decrease expenses
Additionally, Americans are wanting manufacturing jobs to

come back to America out of a desire for more jobs and
American-made products
3-21
Tarifs and Trade Restrictions
3-22
Dumping
A company may dump its products for several reasons:
A European complaint has alleged

that China is dumping solar panels
and urges the EU to implement
import tariffs
(China denies any such activity)
1. Permits quick entry

into a market
2. When the domestic
market for a firms
product is too small to
support an efficient
level of production
3. Technologically
obsolete products
that are no longer
salable in the country
3-23
Political Barriers
Political considerations affect international business daily
Seldom in writing & change rapidly
Political unrest may create a hostile or even
dangerous environment for foreign business
OPEC is an example of a cartel

3-24
Social and Cultural Barriers

Research can help minimize the problems associated
with social and cultural differences
Differences in the spoken and written language

Appropriate body language, posture, facial
expressions and personal space may vary by nation
Family roles may differ in different societies

Other nations often have a different perception of time
National customs and holidays must be respected
Most nations use the metric system
3-25
Technological Barriers
3-26
Turning Infrastructure Barriers into

Opportunities
Many countries lack the technological infrastructure found

in the U.S.
Marketers are viewing such barriers as opportunities
Marketers are targeting

countries such as India and
China and some African
countries
Where there are few private

phone lines
Citizens are turning to

wireless communication
through cell phones
Cell phone services are taking off in

Africa. They differ a viable alternative to
landlines, which require infrastructure
not always available in rural areas.
3-27
Trade Agreements, Alliances, and Organizations
3-28
Trade Agreements, Alliance, and Organizations
NAFTA, which went into effect

on January 1, 1994, has
increased trade among Mexico,
the U.S., and Canada
3-29
NAFTA
While controversial, NAFTA has become a positive

factor for U.S. firms
3-30
European Union and Asia-Pacific
Economic Cooperation
3-31
APEC
Companies of the APEC have become increasingly
competitive and sophisticated in global business in the
past 3 decades
Member Nations
The Asia-Pacific Economic

Cooperation (APEC) was
established to promote open
trade and cooperation among
member nations
Australia
Brunei
Darsussal
am
Canada
Indonesia
Japan
Korea
Malaysia
New
Zealand
Philippines
Singapore
Thailand
United
States
China
Hong Kong Chinese

Taipei
Mexico
Papua
Chile
New
3-32
ASEAN, World Bank, and

Fund
International Monetary
3-33
Exporting and Importing

Exporting and
Importing
Top Exporting Countries

*2011 estimates in billions, calculated on an exchange rate basis
Countertrad
e agreement
is a foreign
trade
agreement
that involves
bartering
products for
other
products
instead of
3-34
Getting Involved in International Business
3-35
McDonalds Franchises
McDonalds has
expanded around the
world via franchising
Although the company
will customize some of
its meals to the local
culture, this menu from
McDonalds in Morocco
shows the firm offers
similar fare across the
world
3-36
Contract Manufacturing and Outsourcing
3-37
Ofshoring and Joint Venture
3-38
Strategic Alliance and Direct Investment
3-39
Subway in Kuwait
This subway restaurant is

part of the huge Souq
Sharq shopping center in
Kuwait City, Kuwait
3-40
International Business Strategies
They often have greater assets than the countries in

which they operate
Many MNCs are targeted by antiglobalization
activists, including some violent protests
Activists contend the MNCs increase the gap
between rich and poor, misuse scarce resources,
exploit the labor markets in LDCs and harm natural
environments
3-41
Global Strategy and Multinational Strategy
A strategy that involves

standardizing products
(promotion and
distribution) for the whole
world as if it were a
single entity
A plan used by international

companies that involves
customizing products,
promotion and distribution
according to cultural
technological, regional and
national differences
3-42
Solve the Dilemma

Global Expansion or Business as Usual?
Audiotech Electronics currently operates a 35,000-squarefoot factor with 75 employees
Produces control consoles for TV and radio stations and
recording studios
Products are used by all the major broadcast and cable
networks
Newest products allow TV correspondents to
simultaneously hear and communicate with their
counterparts in different geographic locations
Very successful meeting its customers needs efficiently
3-43
Solve the Dilemma

Global Expansion or Business as Usual?
(cont.)
3-44
Discussion
Distinguish between an absolute advantage and a

comparative advantage. Cite an example of a
country that has an absolute advantage and one
with a comparative advantage.
What is an import tariff? A quota? Dumping? How

might a country use import tariffs and quotas to
control its balance of trade and payments? Why can
dumping result in the imposition of tariffs and
quotas?
At what levels might a firm get involved in

international business? What level requires the least
commitment of resources? What level requires the
most?

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Part 1

2016 by McGraw-Hill Education. This is proprietary material solely for

The Dynamics of Business and Economics

Guidelines for the Development of the

Business Ethics and Social Responsibility

The Legal and Regulatory Environment

Business in a Borderless World

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

The Role of International Business

Most of the worlds population

Global marketing requires

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Why Nations Trade

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Trade between Countries

Exporting the sale of goods and

2013 U.S. exports = $2.3 trillion+

2013 U.S. imports = $2.7 trillion+

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

U.S. Trade Deficit

duplicated, forwarded, distributed, or posted on a website, in whole or part.

China Faces Growing Concerns over

With Chinas growing middle class, pollution has

China is closing their worst polluting factories,

Even though China releases the most

duplicated, forwarded, distributed, or posted on a website, in whole or part.

International Trade Barriers

Some countries have

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Exchange rates vary daily and affect

A government may intentionally alter

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Ethical, Legal, and Political Barriers

Due to the U.S. embargo

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Laws and Regulations

duplicated, forwarded, distributed, or posted on a website, in whole or part.

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Fixed tariff is a specific amount of money levied on

Ad valorem tariff is based on the value of the item

Supporters of protective tariffs say they insulate

domestic industries, particularly new ones, against

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Some countries control their foreign trade by forcing

When foreign currency is in short supply

Government uses foreign currency to purchase

Limiting its need for foreign imports

duplicated, forwarded, distributed, or posted on a website, in whole or part.

For example, the rise of the middle class in China has

This is resulting in higher costs for companies whose

Additionally, Americans are wanting manufacturing jobs to

duplicated, forwarded, distributed, or posted on a website, in whole or part.

Tarifs and Trade Restrictions

duplicated, forwarded, distributed, or posted on a website, in whole or part.

A European complaint has alleged

1. Permits quick entry

duplicated, forwarded, distributed, or posted on a website, in whole or part.

OPEC is an example of a cartel