Quick Learning Guide
Chapter 3
Business in Action, 5th Edition
The Global Marketplace
LEARNING OBJECTIVE 1: Explain why nations trade, and describe how international trade is measured. LEARNING OBJECTIVE 2: Discuss the nature of conflicts in global busi‐
ness, including free trade, fair trade, and government interventions into international trade. LEARNING OBJECTIVE 3: Identify the major organizations that facilitate international trade and the major trading blocs around the world. Summary: Nations and companies trade internationally for any of six reasons: focusing on their relative strengths (producing the goods and services in which they excel and trading for other products they need); expanding into new markets to increase sales revenues; pursuing economies of scale to achieve lower production costs; acquiring materials, goods, and services not available at home; tending to the needs of multinational customers; and keeping up with competitors that are expanding internationally. Two primary measures of a country’s international trade are its balance of trade, exports minus imports, and its balance of payments, a broader measure that includes all incoming payments minus all outgoing payments. Summary: The root cause of trade conflict is that every country has a natural interest in protecting its own security and supporting its industries, workers, and consumers. The result is that countries often deviate from the notion of free trade by intervening in various ways, including the use of tariffs, import quotas, embargoes, sanctions, restrictive import standards, dumping, or export subsidies. Fair trade is an effort to make sure producers in developing countries receive a sufficient level of income to support living wages for workers. Summary: Major organizations that facilitate trade include the World Trade Organization (WTO), the International Monetary Fund (IMF), and at least indirectly, the World Bank. Major regional trading blocs include NAFTA (Canada, Mexico, and the United States), the European Union (more than two dozen countries across Europe), and APEC (21 countries around the Pacific Rim). Critical thinking: (1) Would it be wise for an advertising agency to open offices in Europe and Asia to service a single multinational client? Why or why not? (2) If IBM invests $40 million in a joint venture in China, would that amount be counted in the U.S. balance of trade or the balance of payments? It’s your business: (1) In the last major purchase you made, did you take into consideration whether the product was made in the United States or another country? (2) Does country of origin matter to you when you shop? Critical thinking: (1) What would happen to U.S. workers if all trade intervention suddenly disappeared? (2) What would be the effect on U.S. consumers? It’s your business: (1) Would you be willing to pay more for your clothes in order to keep more apparel manufacturing in the United States? Why or why not? (2) Would you consider purchasing “fair trade” products, even if their prices are higher than comparable products without the fair trade designation? Critical thinking: (1) Why do trade disputes sometimes take years to resolve? (2) If a country currently benefits from high tariffs on imports, why might it consider joining a trading bloc that requires it to lower or eliminate those tariffs? It’s your business: (1) Can you identify any ways in which your life as an employee or a consumer has been affected by U.S. membership in trading blocs such as NAFTA and APEC? (2) How can you confirm that the effect was caused by trading bloc membership? Key terms to know: trading blocs Key terms to know: free trade, fair trade, protectionism, tariffs, import quotas, embargo, dumping, export subsidies Key terms to know: economic globalization, economies of scale, balance of trade, trade surplus, trade deficit, balance of payments, exchange rate Copyright 2011 Bovée and Thill LLC Click here to get the latest information on
Chapter 3 topics at http://real-timeupdates.com
LEARNING OBJECTIVE 4: Discuss the importance of understanding cultural and legal differences in the global business environment. LEARNING OBJECTIVE 5: Define the major forms of international business activity. LEARNING OBJECTIVE 6: Discuss the strategic choices that must be considered before entering international markets. Summary: Elements of culture include language, social values, ideas of status, decision‐making habits, attitudes toward time, use of space, body language, manners, religions, and ethical standards. Awareness of and respect for cultural differences is essential to avoiding communication breakdowns and fostering positive working relationships. Understanding differences in legal systems and specific laws and regulations in other countries is another vital aspect of successful international business. One of the most confusing and frustrating aspects of international trade law is the issue of bribery. Summary: The major forms of international business activity are importing and exporting (buying and selling across national boundaries), licensing (conferring the rights to create a product), franchising (selling the rights to use an entire business system and brand identity), strategic alliances and joint ventures (forming partnerships with other companies), and foreign direct investment (buying companies or building facilities in another country). Summary: The strategic choices to make include the basic organizational strategy that defines what kind of company the firm will be in each country and a variety of functional strategies involving such aspects as products, customer support, promotion, pricing, and staffing. Organizational strategic choices include multidomestic (a highly decentralized approach), global (a highly centralized approach), and transnational (a hybrid approach). Critical thinking: (1) Can a company successfully export to other countries without having staff and facilities in those countries? Why or why not? (2) Why does so much foreign direct investment take place between the industrialized nations? Critical thinking: (1) If a multidomestic approach gives local managers the most flexibility for responding to local market conditions, why wouldn’t every international company use this strategy? (2) How might the choice of overall organizational strategy affect a company’s staffing plans in each country? Critical thinking: (1) What steps could you take to help someone from another country adapt to U.S. business culture? (2) How can you convey respect for another person’s culture even if you don’t agree with it or even understand it? It’s your business: (1) Have you ever experienced a communication breakdown with someone from another country? (2) If so, how did you resolve it, and how could you apply this experience to your business career? Key terms to know: culture, stereotyping, ethnocentrism It’s your business: (1) What connotations does the word “imported” have for you? (2) On what do you base your reaction? Key terms to know: importing, exporting, licensing, foreign direct investment (FDI),multinational corporations (MNCs) It’s your business: (1) Have you ever purchased an imported product that seemed poorly adapted to the U.S. market? (2) How would you advise the company in order to satisfy U.S. customers more effectively? Key terms to know: multidomestic strategy, global strategy, transnational strategy