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									                              CLASS 26: CHAPTER 5
                            INTERNATIONAL BUSINESS
Chapter Overview
All managers need to be aware of the opportunities and dangers present in today’s international
marketplace. Global competition is a reality that must be faced daily. If strategic planning is to be
accurate and of any real value, it must recognize and account for the international environment. Being a
good domestic enterprise is not sufficient in the new competitive arena.
The decision to internationalize is normally based on profits, stability, or competition considerations.
Comparative advantages must be recognized and sought. The development of a global strategy is
extremely important to the long-term future of the firm. Given the unique environmental differences that
are faced in the international market, management must redefine the way that it studies and appraises that
environment. Factors such as cultural differences, foreign exchange risk, coalitions between countries and
trading blocks, political changes, terrorism, and human rights do not normally become part of the
domestic strategic plan for the company. In the international marketplace, these considerations are critical
to success.
There are numerous forms for organizing firms with respect to global business. Though many firms begin
with simple exporting and importing, there are many creative adaptations such as licensing and joint
ventures that must be studied and understood by the manager. As the emphasis on international issues
continues to grow, astute managers will, by necessity, need to continue studying and expanding their
knowledge of international issues and the new competitive environment.

Lecture Outline

I.      Introduction
        A. International trade consists of the exchange of goods and services by different countries.
        B. Countries may trade because they are unable to produce a good or they have an advantage.

II.     Absolute Advantage—the ability to produce more of a good than another producer.

III.    Comparative advantage—producers should produce the goods they are most efficient at
        producing and purchase from others the goods they are less efficient at producing.

IV.     Exporting and Importing
        A. Exports—goods and services that are sold abroad.
           1. Exports are an important source of revenue for many companies.
           2. Companies export to reach the world’s consumers and to diversify their revenue sources.
           3. Determining if there is sufficient overseas demand involves analyzing demographic
                figures, economic data, country reports, consumer tastes, market competition,
                restrictions, and requirements.
        B. Imports—goods and services purchased abroad.
           1. Many companies import some or all of the their materials to reduce production costs.
           2. Other companies import because domestically made inputs are not available or their
                quality is not as good.
           3. Companies also import products they can resell in their own countries.

       C. The balance of trade is the difference between the value of the goods a country exports and
          the value of the goods it imports; the U.S. runs a trade deficit.
       D. Foreign exchange—companies that purchase goods or services from foreign countries must
          pay for them with foreign currency; exchange rates fluctuate from day-to-day.

V.     Protectionism
       A. To help domestic manufacturers compete against foreign companies, governments sometimes
           impose protectionist measures, which reduce the volume of international trade.
       B. Tariffs—government-imposed taxes charged on goods imported into a country.
       C. Quotas—establish the maximum quantity of a product that can be imported or exported
           during a given period.
       D. Embargo—involves stopping the flow of exports to or imports from a foreign country.

VI.    The Rise of the Global Economy
       A. Global economy—economy in which companies compete actively with businesses from
          around the world.
       B. Improvements in Telecommunications Technology
          1. Exchanges of information have quickened as a result of fax machines and e-mail.
          2. The Internet has also led to e-commerce (sales made on the World Wide Web).
       C. Political Changes
          1. End of the cold war with Russia
          2. Thawing of relations with China
       D. Free Trade Areas—regions within which trade restrictions are reduced or eliminated.
          1. NAFTA—United States, Mexico, and Canada
          2. Consumers and producers have benefited.
          3. Some American workers have lost their jobs due to lower labor costs in Mexico.

VII.   Doing Business Globally
       A. Forms of International Operations
          1. Working through a foreign intermediary (a wholesaler/agent who markets products)
          2. Signing a licensing agreement with a foreign company (an agreement that permits one
              company to sell another company’s products abroad in return for a percentage of
          3. Forming a strategic alliance, which involves pooling resources and skills in order to
              achieve common goals.
          4. Becoming a multinational corporation, which is a company willing to make a
              significant financial commitment; these companies often establish manufacturing and
              distribution facilities in foreign countries.
       B. Challenges of Working in an International Environment
       C. Understanding Foreign Cultures
       D. Coalitions of Cooperating Countries and Trading Blocs (European Union, OPEC, NAFTA)
       E. Political Changes
       F. Human Rights and Ethics
          1. Business ethics have not been globalized.

2. The norms of ethical behavior vary widely, even in Western capitalist countries.
3. No clear and easy choices exist.


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