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International Trade
U
INTERNATIONAL BUSINESSMANAGEMENT
UNIT-I
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Definition of international trade
the process of exchanging goods of services betweentwo or more countries, involving the use of two ormore currencies.
Alan Branch the exchange of capital, goods, and services across
international borders or territories.
Wikipedia
the activities of exchanging goods or servicebetween a country or region and other country orregions.
textbook
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Why Companies Engage in International
Business
A) To Expand Sales: companies sales are dependent on twofactors: the consumers interest in their product or servicesand the consumers ability and willingness to buy them.
B) Acquire Resources: products, services, technology, andinformation
C) Diversify Sources of Sales and Supplies
D) Minimize Competitive Risk: companies move internationallyfor defensive reasons. Profits from one market can be used toexpand operations in other markets
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Studying international business is
important because:
Most companies are eitherinternational or compete with
international companies.
Modes ofoperation may differ from those used
domestically.
The best way of conducting business may differ by country.
An understanding helps you make bettercareerdecisions.
An understanding helps you decide what governmental
policies to support.
http://en.wikipedia.org/wiki/Internationalhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Careerhttp://en.wikipedia.org/wiki/Governmentalhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Governmentalhttp://en.wikipedia.org/wiki/Careerhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/International -
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The Nature of International Business.
Levels of International Activity:
a domestic business acquires essentially all of its resources andsells all of its products or services within a single country
an international business is primarily based in a single country butacquires some meaningful share of its resources or revenues from
other countries. a multinational business transcends national boundaries - it has a
worldwide marketplace from which it buys raw materials, borrowsmoney, manufactures its products, and to which it subsequentlysells its products.
More and more companies are following this path. Domesticcompanies are becoming international, and international companiesare becoming multinational.
This pattern is prompting the evolution of a worldwide phenomenoncalled globalizationthe evolution of an integrated global economythat comprises interrelated markets.
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Interdependence of Nations
Economic interdependence happens whencountries must rely on each others help to
produce all the goods they need to survive.Different countries can produce specific goodssuch as:
U.S. and Canada: Agriculture
Saudi Arabia and Russia: Oil
India and Japan: Computer science andTechnology
Marketing Essentials Chapter 4, Section 4.1
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Absolute Advantage and
Comparative Advantage
There are two types of advantages in internationaltrade:
Absolute
Comparative
Absolute advantage occurs when a country hasnatural resources or talents that allow it toproduce an item at the lowest cost possible. Chinahas an absolute advantage in the production ofsilk.
Marketing Essentials Chapter 4, Section 4.1
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Benefits of International Trade
Consumers benefit because competitionencourages the production of high-quality goods
with lower prices.Producers gain higher profit by expanding theiroperations into international markets.
Workers benefit because international trade leadsto higher employment rates.
Nations benefit because foreign investment in acountry often improves the standard of living forthat countrys people.
Marketing Essentials Chapter 4, Section 4.1
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Government Involvement in
International Trade
All nations control and monitor their trade withforeign businesses. In the U.S., the customs
division of the Treasury Department monitors allimports whether carried by individuals or shippedby trading firms.
Marketing Essentials Chapter 4, Section 4.1
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Balance of Trade
The difference in value between the exports andimports of a nation is called its balance oftrade X. A positive balance happens when a nation
exports more than it imports. A negative balance,also called a trade deficit, results when a nationimports more than it exports.
balance oftrade
The difference invalue between anations exports
and its imports.
Marketing Essentials Chapter 4, Section 4.1
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Balance of Trade
A negative balance of trade reduces a nationsrevenue. When more money leaves a country than
comes in, the country is in debt or is a debtornation.
Unemployment can also be another negative resultof a large trade deficit.
Marketing Essentials Chapter 4, Section 4.1
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Trade Barriers
Many countries favor and practice free trade X, or
trade that is done purely on free market principles,without restrictive regulations.
Other nations impose controls and restrictions toregulate the flow of goods and services. There arethree main types:
Tariffs
Quotas
Embargoes
free trade
Commercialexchangebetween nationsthat is conducted
on free marketprinciples,without tariffs,import quotas, orother restrictiveregulations.
Marketing Essentials Chapter 4, Section 4.1
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Trade Barriers
A tariffX is a tax on imports. Tarrifs come in two
different types:
Revenue-producing: a source of federal income
Protective: raises the price of imports toencourage consumers to buy locally madegoods.
An import quota Xlimits either the quantity or the
monetary value of a product that may beimported. These help local business compete withforeign companies.
tariff
A tax onimports; alsoknown as a duty.
quota
A limit on eitherthe quantity ormonetary valueof a product thatmay beimported.
Marketing Essentials Chapter 4, Section 4.1
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Trade Barriers
An embargo X is a total ban on specific goods
coming into and leaving a country. An embargocan be imposed for different reasons:
Poisoned or defective goods
Political reasons
Protectionism Xis a governments establishment
of economic policies that systematically restrictimports in order to protect domestic industries. Itis the opposite of free trade.
embargo
A total ban onspecific goodscoming into andleaving a
country.protectionism
A governmentsestablishment ofeconomic policiesthat restrict
imports toprotect domesticindustries.
Marketing Essentials Chapter 4, Section 4.1
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Trade Agreements and Alliances
Governments make agreements with each other toestablish guidelines for international trade and toset up trade alliances.
The World Trade Organization (WTO) X was
formed in 1995 and is designed to:
Open markets and promote global free trade
Reduce tariffs
Standardize trade rules
Study important trade issues
Evaluate the health of the world economy
World TradeOrganization(WTO)
A global coalitionof more than 140
governmentsthat makes rulesgoverninginternationaltrade.
Marketing Essentials Chapter 4, Section 4.1
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Trade Agreements and Alliances
The North American Free Trade Agreement(NAFTA) X is an international trade agreement
among the United States, Canada, and Mexico.Founded on January 1, 1994, its goal is to get ridof all trade barriers between the countries by2009.
NorthAmericanFree TradeAgreement(NAFTA)
An internationaltrade agreementamong theUnited States,Canada, andMexico.
Marketing Essentials Chapter 4, Section 4.1
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Trade Agreements and Alliances
The European Union (EU)Xis Europes tradingbloc. It was established to:
Establish free trade among its member nations
Create a single European currency and centralbank
Maintain competitive practices
Maintain environmental and safety standards
Provide security
EuropeanUnion (EU)
European tradingbloc.
Marketing Essentials Chapter 4, Section 4.1
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Trade Agreements and Alliances
Marketing Essentials Chapter 4, Section 4.1
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SECTION 4.1 REVIEW
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SECTION 4.1 REVIEW
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The Global Marketplace
Objectives
List forms of international trade
Identify political, economic, socio-cultural, andtechnological factors that affect internationalbusiness
Suggest global marketing strategies
Key Terms
licensing
contractmanufacturing
joint venture
foreign directinvestment(FDI)
multinationals
mini-nationalsglobalization
adaptation
customization
Marketing Essentials Chapter 4, Section 4.2
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The Global Marketplace
Study Organizer
Create a chart like this one to list factors that
affect international business.
Marketing Essentials Chapter 4, Section 4.2
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Doing Business Internationally
Trade agreements by governments set theguidelines for business to operate in the globalmarketplace. Getting involved in internationaltrade can mean:
Importing
Exporting
Licensing
Contract manufacturing
Joint ventures
Foreign direct investment
Marketing Essentials Chapter 4, Section 4.2
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Importing
Importing involves purchasing goods from anothercountry. The products must meet the samestandards as domestic products.
The rules governing importing are complex. MostU.S. businesses hire customs brokers to keep thebusiness within the laws and procedures affectingimports.
Marketing Essentials Chapter 4, Section 4.2
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Exporting
A domestic company that wishes to enter into theglobal marketplace with minimal risk and controlmight consider exporting. These companies canget help from the U.S. government in their trade.
Marketing Essentials Chapter 4, Section 4.2
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Licensing
Licensing X involves letting another company use
one of the following for a fee:
Trademark
Patent
Special formula
Company name
Intellectual property
A franchise is a different kind of licensing whereprivate investors can operate under the companyname.
licensing
The process ofletting anothercompany(licensee) use a
trademark,patent, specialformula,company name,or some otherintellectualproperty for a
fee or royalty.
Marketing Essentials Chapter 4, Section 4.2
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Contract Manufacturing
Contract manufacturing X involves hiring a
foreign manufacturer to make your products,according to your specifications. The finishedgoods are sold in that country or exported.
The major benefit of this technique is lower wages,but the risk is that production information can belost or stolen in the production countries.
Ajoint venture X is a business enterprise thatcompanies set up together.
contractmanufacturing
The process ofhiring a foreignmanufacturer tomake products
according to certainspecifications.
joint venture
A businessenterprise thatdifferent companiesset up together;often, the ventureinvolves a domesticcompany and aforeign company.
Marketing Essentials Chapter 4, Section 4.2
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Contract Manufacturing
A foreign direct investment (FDI) X is the
establishment of a business in a foreign country.This process can include:
Setting up a small office in another country
Constructing manufacturing plants and retailstores abroad
foreign directinvestment(FDI)
Investments infactories, offices,
and otherfacilities inanother countrythat are used fora businesssoperations.
Marketing Essentials Chapter 4, Section 4.2
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Contract Manufacturing
Multinationals X are large corporations that have
operations in several countries.
Mini-nationals X are mid-size or smallercompanies that have operations in foreigncountries.
multinationalsLargecorporations thathave operationsin multiplecountries.
mini-nationalsMidsize orsmallercompanies thathave operationsin multiplecountries.
Marketing Essentials Chapter 4, Section 4.2
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Global Environmental Scan
A global environmental scan includes analysis of:
Political factors
Economic factors
Socio-cultural differences
Technological levels
This scans acronym is PEST.
Marketing Essentials Chapter 4, Section 4.2
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Political Factors
Political factors include:
A governments stability
Its trade regulations and agreements
Any other laws that impact a companysoperation
Marketing Essentials Chapter 4, Section 4.2
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Political Factors
Political uprisings can endanger a businesss well-being, and even when the governments are stable,companies must be aware of local trading laws toavoid complications. For example:
Chile has strengthened its standards for theprotection of intellectual property rights.
Toys cannot be advertised in Greece.
Marketing Essentials Chapter 4, Section 4.2
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Economic Factors
Key economic factors relevant to doing business inanother country include:
Infrastructure: The reliability of a nationsroads, communication, and energy plants, etc.
Labor force: The quality, cost, and educationlevel of local workers.
Employee benefits: Some countries have
different policies for employees, such as Francewhere the work week is only 35 hours insteadof 40.
Marketing Essentials Chapter 4, Section 4.2
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Economic Factors
Taxes: Taxes on property and profits vary indifferent nations.
Standard of living: Companies consider thisfactor more when eyeing a country as a marketto see what kind of consumers are there, andhow many.
Foreign exchange rate: Changes in an exchange
rate positively or negatively affect businessesthat sell abroad.
Marketing Essentials Chapter 4, Section 4.2
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Socio-cultural Factors
Marketers need to conduct a cross-culturalanalysis in order to understand:
Languages and symbols: Businesses take intoconsideration aspects such as the aversion tothe number thirteen in the U.S. and the numberfour in China and Japan.
Holidays and religious observances: Companies
need to know local religious beliefs if they areto attract customers.
Social and Business Etiquette: Actions such asgift-giving or receiving can have differentundertones in different cultures.
Marketing Essentials Chapter 4, Section 4.2
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Technological Factors
Studying a countrys technology means taking intoconsideration even the most basic factors such as:
Measurement systems
Electric voltage standards
Marketing Essentials Chapter 4, Section 4.2
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Globalization
Globalization X is selling the same product and
using the same promotion methods in allcountries. Examples would be:
Coca-Cola
Nike
globalization
The process ofselling the sameproduct andusing the samepromotionmethods in allcountries.
Marketing Essentials Chapter 4, Section 4.2
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Adaptation
Adaptation Xis a companys use of an existing
product/promotion to which changes are made tobetter suit the characteristics of a country.
Products and promotions can be changed tobetter fit languages or cultural boundaries.
adaptation
Changing anexisting productand/orpromotion tobetter suit thecharacteristics ofa targetedcountry orregion.
Marketing Essentials Chapter 4, Section 4.2
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Customization
Customization X involves creating products or
promotions for certain countries or regions.
customization
The process ofcreating productsor promotions forcertain countriesor regions.
Marketing Essentials Chapter 4, Section 4.2
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SECTION 4.2 REVIEW
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SECTION 4.2 REVIEW
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Section 4.1
International trade is necessary because of the
interdependence of nations. It benefitsconsumers, producers, workers, and nations indifferent ways.
Governments are involved in international tradethrough monitoring trade between countries and
establishing trade regulations. Currently, theUnited States has a negative balance of trade,also called a trade deficit.
continued
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Section 4.2
Businesses can get involved in international trade
through importing, exporting, licensing, contractmanufacturing, joint ventures, and foreign directinvestments.
A global environmental scan analyzes political,economic, socio-cultural, and technological
factors. Global marketing strategy options include
globalization, adaptations of product and/orpromotion, and customization.
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This chapter has helped prepare you to meet thefollowing DECA performance indicators:
Explain the nature of international trade
Identify the impact of cultural and socialenvironments on world trade
Explain the principles of supply and demand
Orient new employees
Address people properly
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CHAPTER 4 REVIEW
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CHAPTER 4 REVIEW