The PROFILE at the beginning of this chapter is "Getting to Know Mary Lou Wilson of Enrich International." MARY LOU WILSON is one of a growing number of U.S. businesspeople who have identified and taken advantage of global markets.

1. THE DYNAMIC GLOBAL MARKET.

Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in international trade.

1. A few statistics can help illustrate the IMPORTANCE OF INTERNATIONAL MARKETS:
1. Whereas there are 270 million people in the U.S., THERE ARE 6 BILLION POTENTIAL CUSTOMERS IN THE WORLD.
2. Of these, approximately 75% live in developing areas.
2. The U.S. IS THE LARGEST EXPORTING NATION in the world. It is often the world s largest importer as well.
1. EXPORTING is selling products to another country.
2. IMPORTING is buying products from another country.
3. COMPETITION IS INTENSE—The U.S. must compete against aggressive exporters.
3. Global trade is growing more important in the 21st century.
4. The purpose of this chapter is to discuss the POTENTIAL AND PROBLEMS OF INTERNATIONAL BUSINESS.
2. WHY TRADE WITH OTHER NATIONS?

Explain the importance of importing and exporting, and understand key terms used in international business.

1. Reasons for trading with other nations include:
1. NO NATION CAN PRODUCE ALL THE PRODUCTS IT NEEDS.
2. Nations demand trade with countries to MEET THE NEEDS OF THEIR PEOPLE.
3. MUTUALLY BENEFICIAL EXCHANGE.
1. Some nations have abundant natural resources and lack technological know-how.
2. Others have sophisticated technology but few natural resources.
3. Trade relations enable countries to produce what they can and buy the rest in a MUTUALLY BENEFICIAL EXCHANGE.
2. FREE TRADE is the movement of goods and services among nations without political or economic obstruction.
3. THE THEORIES OF COMPARATIVE AND ABSOLUTE ADVANTAGE CONCEPT CHECK .
1. COMPARATIVE ADVANTAGE THEORY states that a country should sell to other countries those products that it produces most efficiently and should buy from other countries those products it cannot produce as effectively or efficiently.
2. ABSOLUTE ADVANTAGE exists when a country has a monopoly on producing a product or is able to produce it more efficiently than all other countries.
3. GETTING INVOLVED IN GLOBAL TRADE.

Describe the current status of the United States in global business.

1. The real potential in global markets may be with SMALL BUSINESSES, which generate about half of the private sector commerce, but account for only 20% of exports.
2. Getting started in global trade is often a matter of observation, determination, and risk.
3. IMPORTING GOODS AND SERVICES.
1. Foreign students attending U.S. schools often notice some products widely available in their countries are not available here.
2. Importing these goods into the U.S. can be quite profitable.
4. EXPORTING GOODS AND SERVICES.
1. EXPORTING is selling products to another country.
2. WHAT CAN YOU SELL TO OTHER COUNTRIES?
1. Just about anything that is used in the United States can be used in other countries.
2. Competition abroad is often not as intense for U.S. producers as it is at home.
3. The text offers the example of snow plows to Saudi Arabia for airport sand removal.
3. Exporting creates GREAT OPPORTUNITIES and is a terrific boost to the U.S. economy.
4. Selling in global markets, however, involves many HURDLES.
5. The text supplies several sources for information about exporting including a government pamphlet, a trade magazine, and the SBA.
5. MEASURING GLOBAL TRADE .
1. BALANCE OF TRADE is a nation’s relationship of exports to imports. CONCEPT CHECK
2. TRADE DEFICIT, or UNFAVORABLE BALANCE OF TRADE, is buying more goods from other nations than are sold to them.
3. BALANCE OF PAYMENTS is the difference between money coming into a country (from exports) and money leaving the country (for imports plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.)
1. A FAVORABLE BALANCE OF PAYMENTS means more money is flowing into than flowing out of the country.
2. Likewise, an UNFAVORABLE BALANCE OF PAYMENTS means more is leaving than coming into the country.
4. DUMPING is the practice of selling products for less in a foreign country than is charged in the producing country.
1. The U.S. has laws against dumping by foreign firms.
2. Dumping can take time to prove as some governments subsidize certain industries to sell goods in global markets for less.
4. TRADING IN GLOBAL MARKETS: THE U.S. EXPERIENCE.
1. Even though 95% of the world s population lives outside of the U.S., AMERICA HAS NEVER FOCUSED ON EXPORTING.
1. In the early 1980s, no more than 10% of American businesses exported products.
2. In the 21st century a majority of large businesses are involved in global trade and growing numbers of small businesses are going global.
2. Although the UNITED STATES IS THE WORLD S LARGEST EXPORTER, it buys more goods from other nations that it sells to other nations—called a TRADE DEFICIT or UNFAVORABLE BALANCE OF TRADE.
3. Economists measure a nation’s economic activity by comparing the amount of money it owes to foreign creditors and the value of what foreign investors own CONCEPT CHECK .
1. During the 1980s, it was widely reported that the United States had become a DEBTOR NATION, that is, a country that owes more money to other nations than they owe it.
2. This is not necessarily a bad sign when foreign businesses invest here.
3. There is a trend emerging toward more foreign direct investment in the U.S.
5. STRATEGIES FOR REACHING GLOBAL MARKETS.

Illustrate the strategies used in reaching global markets. There are many ways an organization can participate in global trade.

1. LICENSING.
1. LICENSING involves granting to a foreign company the right to manufacture its product or use its trademark on a fee basis.
2. The ADVANTAGES of licensing are:
1. A company can gain ADDITIONAL REVENUES from a product it would not have normally produced domestically.
2. A company can gain ADDITIONAL REVENUES from the sale of start-up supplies, component materials, and consulting services from the licensing firm.
3. LICENSOR SPENDS LITTLE OR NO MONEY to produce and market the product; costs come from the licensee’s pocket.
3. The DISADVANTAGES of licensing are:
1. Often a firm must GRANT LICENSING RIGHTS to its product for an extended period.
2. If a product experiences remarkable growth in the foreign market, the BULK OF THE REVENUES GO TO THE LICENSEE.
3. If the foreign licensor learns the technology, it may BREAK THE AGREEMENT and begin to produce A SIMILAR PRODUCT ON ITS OWN. The licensing firm loses its trade secrets, plus the royalties.
2. EXPORTING CONCEPT CHECK .
1. EXPORT ASSISTANCE CENTERS (EAC’s) were created by the U.S. government to provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses.
2. EXPORT-TRADING COMPANIES serve the role of matching buyers and sellers from different countries.
3. An export trading company is a good place to get career training in international trade.
3. FRANCHISING.
1. Franchising is popular both domestically and in global markets.
2. FRANCHISERS MUST ADAPT IN THE COUNTRIES THEY SERVE.
3. Domino’s Pizza found that Germans like small individual pies and Japanese enjoyed squid and sweet mayonaisse pizza.
4. CONTRACT MANUFACTURING.
1. CONTRACT MANUFACTURING involves the production of private-label goods by a foreign company to which a company then attaches its brand name or trademark.
2. Through contract manufacturing a company can often experiment in a new market without heavy start-up costs.
3. A firm can also use contract manufacturing temporarily to meet an unexpected increase in orders.
5. INTERNATIONAL JOINT VENTURES AND STRATEGIC ALLIANCES.
1. A JOINT VENTURE is a partnership in which companies (often from different countries) join to undertake a major project.
2. The text offers the example of the 35-year joint venture between Xerox Corporation and Fuji Photo Film Co.
3. The BENEFITS of joint venture include:
1. SHARED TECHNOLOGY,
2. SHARED MARKETING AND MANAGEMENT EXPERTISE,
3. ENTRY INTO MARKETS WHERE FOREIGN GOODS ARE NOT ALLOWED UNLESS PRODUCED LOCALLY, and
4. SHARED RISK.
4. The DRAWBACKS are:
1. One partner can learn the technology and practices of the other and LEAVE TO BECOME A COMPETITOR;
2. The TECHNOLOGY may become OBSOLETE.
3. FLEXIBLE as needed.
5. A STRATEGIC ALLIANCE is a long-term partnership between two or more companies established to help each build competitive market advantages.
1. Alliances can provide ACCESS TO MARKETS, CAPITAL, AND TECHNICAL EXPERTISE.
2. They usually do not involve sharing costs, risks, management, or profits.
3. Strategic alliances can be flexible and can be effective between firms of different sizes.
4. The text uses the example of Oracle Corporation and the Ford Motor Company.
6. FOREIGN SUBSIDIARIES.
1. A FOREIGN SUBSIDIARY is a company owned by another company (parent company) in a foreign country.
2. THE LEGAL REQUIREMENTS OF BOTH THE HOME AND THE HOST COUNTRY MUST BE OBSERVED.
3. The ADVANTAGES of foreign subsidiaries include that the COMPANY MAINTAINS COMPLETE CONTROL over any technology or expertise it may possess.
4. The major DISADVANTAGE is: The firm s ASSETS COULD BE TAKEN OVER BY THE FOREIGN GOVERNMENT, called EXPROPRIATION, if relations with the host country fail.
6. FORCES AFFECTING TRADING IN GLOBAL MARKETS.

Evaluate the forces that affect trading in world markets.

1. Succeeding in any business takes work and effort with many challenges.
2. SOCIOCULTURAL FORCES.
1. American businesspeople are notoriously bad at adapting to cultural differences among nations.
1. American businesspeople have been accused of ETHNOCENTRICITY, which is an attitude that our culture is superior to all others.
2. Foreign businesspeople are very good at adapting to U.S. culture.
2. RELIGION is an important part of any society’s culture and can have a significant impact on business operations.
3. SOCIOCULTURAL DIFFERENCES can also have an impact on business functions such as human resource management.
4. Learning about cultural perspectives about time, change, competition, natural resources, achievement, and even work itself can be of great assistance.
5. Cultural differences affect not only management behaviors but INTERNATIONAL MARKETING STRATEGIES as well.
1. GLOBAL MARKETING is used to describe selling the same product in essentially the same way everywhere in the world.
2. BRAND NAMES such as Coca-Cola, Disney, and IBM have widespread global appeal and recognition.
3. However, translating a theme into a different language can be disastrous.
6. A sound global philosophy is "never assume what works in one country will work in another."
7. The U.S. is one of only five nations that still refuse to conform to the metric system.
3. ECONOMIC AND FINANCIAL FORCES.
1. Global opportunities may not be viable at all due to economic conditions.
2. Understanding currency fluctuations and financial opportunities is vital to success in the global market.
1. The EXCHANGE RATE is the value of one nation’s currency relative to the currencies of other countries.
2. A high value of the dollar means the products of foreign producers would be cheaper, but U.S.-produced goods would be more expensive. CONCEPT CHECK
3. A low value of the dollar means foreign goods become more expensive because it takes more dollars to buy them.
3. Global markets operate under a system of FLOATING EXCHANGE RATES in which currencies "float" according to supply and demand in the currency market.
1. At certain times, a country itself will intervene and adjust the value of its currency.
2. DEVALUATION is lowering the value of a nation’s currency relative to other currencies.
3. Changes in currencies causes other problems—labor costs can vary considerably as currency values shift.
4. In many developing nations the only trade possible is BARTERING.
1. COUNTERTRADING is a complex form of bartering in which several nations may be involved.
2. Approximately 25% of the international exchanges involve countertrading.
3. The text uses the example of the Ford Motor Company trading vehicles in Jamaica for bauxite.
4. Barter is especially important to POOR COUNTRIES that have little case for trade.
5. Understanding currency fluctuations and financing opportunities is vital to success in the global market.
1. When U.S. banks are not willing to provide export financing, U.S. exporters often turn to foreign banks.
2. A growing number of U.S. government, multilateral, and interregional agencies now provide financing to all companies.
4. LEGAL AND REGULATORY FORCES.
1. In global markets, several groups of laws and regulations may apply.
2. Businesspeople find global markets governed by a myriad of LAWS AND REGULATIONS that are often INCONSISTENT.
3. American businesspeople are bound to follow U.S. laws and regulations.
1. The FOREIGN CORRUPT PRACTICES ACT OF 1978 prohibits "questionable" or "dubious" payments to foreign officials to secure business contracts.
2. The problem is this law runs contrary to beliefs and practices in many countries.
4. It is often important to contact local businesspeople and gain their cooperation.
5. PHYSICAL AND ENVIRONMENTAL FORCES.
1. Technological constraints may make it difficult to build a large global markets.
2. Some developing nations have such primitive transportation and storage systems that international distribution is ineffective.
3. Certain technological differences affect the nature of exportable products (lack of telephones and the difference between 110 and 220 voltage).
7. TRADE PROTECTIONISM.

Debate the advantages and disadvantages of trade protectionism.

1. TRADE PROTECTIONISM is the use of government regulations to limit the import of goods and services. CONCEPT CHECK
1. Countries often use trade protectionism measures to protect their industries against dumping and foreign competition.
2. Another barrier to international trade is the overall political atmosphere between nations.
2. For centuries businesspeople advocated an economic principle called MERCANTILISM.
1. MERCANTILISM is selling more goods to other nations than you bought from them; that is, to have a favorable balance of trade.
2. This was expected to result in a flow of money to the country that sold the most globally.
3. Governments charged a tariff on imports, making them more expensive.
3. There are two kinds of TARIFFS:
1. PROTECTIVE TARIFFS are import taxes designed to raise the price of imported products so that domestic products are more competitive.
2. REVENUE TARIFFS are import taxes designed to raise money for the government.
4. There is much debate about the degree of protectionism a government should practice.
1. One form, the IMPORT QUOTA, describes limiting the number of products in certain categories that can be imported.
2. EMBARGO is a complete ban on the import or export of certain products.
3. International trade is also limited by NONTARIFF BARRIERS (including requiring imports to go through undermanned, out-of-the-way customs posts and unusual packaging regulations.)
1. Japanese companies forge semi-permanent ties, called KEIRETSU, with suppliers, customers, and distributors.
2. During the 1990s and 2000, the keiretsu experienced problems related to factors such as consensus-driven management and lifetime employment that did not fit changing market demands.
4. Overcoming trade constraints is a tremendous business opportunity.
5. THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) AND THE WORLD TRADE ORGANIZATION (WTO.)
1. In 1948, the GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) was established.
2. This agreement among 23 countries provided a forum for negotiating mutual reductions in trade restrictions.
3. The 1986 Uruguay Round of GATT talks were convened to renegotiate trade agreements.
1. After eight years, 124 nations agreed to a new GATT agreement.
2. The U.S. House of Representatives and Senate approved the pact in 1994.
4. THE NEW GATT AGREEMENT:
1. LOWERS TARIFFS on average by 38% worldwide.
2. EXTENDS GATT RULES to new areas such as agriculture, services and the protection of copyrights and patents.
5. On January 1, 1995 the WORLD TRADE ORGANIZATION (WTO) replaced GATT and was assigned the primary task of mediating trade disputes.
6. WTO acts as an independent entity that oversees key cross-border issues and global business practices.
7. The GATT agreement did not resolve many of the internal national laws that IMPEDE TRADE EXPANSION.
1. It did not fully address areas such as INTELLECTUAL PROPERTY RIGHTS.
2. The ADMISSION OF CHINA TO THE WTO may also stir conflicting emotions within the organization.
6. COMMON MARKETS.
1. A COMMON MARKET (also called a TRADING BLOC) is a regional group of countries that have no internal tariffs, a common external tariff, and the coordination of laws to facilitate exchange among countries.
2. The EUROPEAN UNION (EU) is a group of 15 nations in Western Europe that dissolved their economic borders in the early 1990s.
1. The objective was to make Europe an even stronger competitor in global commerce.
2. It is possible the EU could grow to 25 nations in the next decade.
3. The path to unification has been slow and difficult, yet significant progress has been made.
1. On January 1, 1999, the EU officially launched its JOINT CURRENCY.
2. At the end of this effort in July 2002, the separate currencies of the EU nations will be transformed into A SINGLE MONETARY UNIT: THE EURO.
3. The European Union hopes that having a unified currency will bring its nations more economic clout.
4. Another common market is MERCOSUR, a group that includes Brazil, Argentina, Paraguay, Uruguay, Chile, and Bolivia.
7. The NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA).
1. The primary concerns of NAFTA OPPONENTS revolve around the issues of U.S. employment, exports, and the environment.
2. PROPONENTS PREDICT A VAST NEW MARKET FOR EXPORTS THAT WOULD CREATE JOBS AND OPPORTUNITIES in the long term.
3. In 1994 Congress approved the NAFTA treaty.
4. The combination of the United States, Canada, and Mexico created a market of over 370 million people with a gross domestic product of over $7 trillion.
5. NAFTA creates a FREE TRADE AREA where nations can trade freely with each other without tariffs or other trade barriers.
6. NAFTA has experienced both success and difficulties.
1. The DEVALUATION OF THE MEXICAN PESO caused economic upheaval in 1995.
2. CONCERNS continue to persist regarding issues such as job loss, child-labor laws, sweatshop violations, illegal immigration, environmental concerns, and the strength of the peso.
3. On the positive side, U.S. exports to the NAFTA partners have increased 66%.
7. The emergence of economic blocs like NAFTA has changed the landscape of global trade.
1. Possible expansion of NAFTA into a FREE TRADE AREA OF THE AMERICANS could create a free-trade area of 800 million people.
2. A transatlantic FREE TRADE AREA in union with the EU is also possible.
8. MULTINATIONAL CORPORATIONS. CONCEPT CHECK

Explain the role of multinational corporations in global markets.

1. The annual sales of just one multinational company can be larger than the gross domestic product of a nation.
2. A MULTINATIONAL CORPORATION (MNC) is an organization that MANUFACTURES AND MARKETS in many different countries; it has multinational stock ownership and multinational management.
3. The more multinational a company is, the more it attempts to operate without being influenced by restrictions from various governments.
4. Only firms that have MANUFACTURING CAPACITY or other physical presence in different nations can truly be called multinational.
9. THE FUTURE OF GLOBAL TRADE: GLOBAL E-COMMERCE.
1. New markets present new opportunities for trade and development, particularly in the emerging nations in Asia.
2. Advanced communications have made distant markets instantly accessible, particularly the PEOPLE’S REPUBLIC OF CHINA.
1. Multinational companies such as General Motors have invested heavily in China’s future.
2. Concerns still remain about China’s one-party political system, trade imbalances, and human rights policies.
3. But in 2000 the U.S. Congress granted the nation PERMANENT NORMAL TRADING RIGHTS, which may pave the way for China’s entry into the WTO.
3. OTHER GLOBAL OPPORTUNITIES.
1. RUSSIA’S 150 million potential customers are prized by global traders.
2. OTHER POTENTIAL MARKETS include India, Taiwan, Indonesia, Thailand, Singapore, The Phillippines, Korea, and Malaysia.
4. The GROWTH OF THE INTERNET and advances in e-commerce help companies worldwide bypass normal distribution channels to reach a large market.
5. OBSTACLES AND PROBLEMS WITH TECHNOLOGY still exist in global trade.

Explain how technology affects global e-commerce.

1. Communication with some Asia countries still depend on faxing hard copies of documents.
2. Developing nations fear e-commerce will erode local languages and cultures.
6. Technology has the potential to radically change industries and create opportunities for global trade.
7. GLOBALIZATION AND YOU.
1. Those students who are prepared to manage global operations will have an advantage over other graduates.
2. Students are encouraged to study foreign languages, foreign cultures, and international business.
3. SMALL AND MEDIUM-SIZED BUSINESSES are often better prepared to enter global markets.