INTRODUCTION TO BUSINESS

1. INTRODUCTION TO BUSINESS CHAPTER 4 Assessing Global Conditions

2. How International Business Can Enhance Performance • Attract Foreign Demand • Capitalize on Technology • Use Inexpensive Resources • Diversify Internationally • Combination of Motives

3. How International Business Can Enhance Performance • Use Inexpensive Resources • Diversify Internationally • The amount of products imported through harbors is higher when international trade restrictions are reduced or eliminated. • Combination of Motives

4. The economy of China has grown substantially because of its ability to produce products at very low cost. Many firms in the United States and other countries have their products produced in China. How International Business Can Enhance Performance

5. How International Business Can Enhance PerformanceApproximate Hourly Compensation Costs for Manufacturing Across Countries

6. How to Conduct International Business • Importing • The purchase of foreign products or services. • Tariff: a tax on imported products. • Quota: a limit on the amounts of specific products that can be imported. • Exporting • The sale of products or services (called exports) to purchasers residing in other countries. • Balance of trade: the level of exports minus the level of imports. • Trade deficit: the amount by which imports exceed exports.

7. Trend of U.S. Exports and Imports How to Conduct International Business

8. How to Conduct International Business • Direct Foreign Investment (DFI) • A means of acquiring or building subsidiaries in one or more foreign countries. • Outsourcing • Sending some services to foreign countries as a means of using cheaper labor.

9. How to Conduct International Business • Strategic Alliances • A business agreement between firms whereby resources are shared to pursue mutual interests. • Joint venture: an agreement between two firms about a specific project. • International licensing agreement: a type of alliance in which a firm allows a foreign company (called the “licensee”) to produce its products according to specific instructions.

10. U.S. firms commonly engage in strategic alliances with manufacturers where labor costs are very low, such as Africa and Asia. How to Conduct International Business

11. Barriers to International Business • Reduction in Barriers • NAFTA: North American Free Trade Agreement. • GATT: General Agreement on Tariffs and Trade. • Remaining Barriers • Dumping: selling products in a foreign country at a price below the cost of producing those products.

12. Barriers to International Business • Disagreements About International Trade Policy • Firms in different countries are subject to different environmental restrictions. • Firms in different countries are not subject to the same labor laws. • Firms in different countries have different policies concerning bribery. • Firms in different countries sometimes have more governmental financial support.

13. How Foreign Characteristics Influence International Business • Culture • A foreign country’s culture can result in poor decisions concerning that country’s tastes, habits, and customs.

14. How Foreign Characteristics Influence International Business • Economic System • Capitalism: an economic system that allows for private ownership of businesses. • Communism: an economic system that involves public ownership of businesses. • Socialism: an economic system that contains some features of both capitalism and communism. • Privatization: the sale of government-owned businesses to private investors.

15. How Foreign Characteristics Influence International Business • Economic Conditions • Economic growth • Sensitivity to foreign economic conditions • Exchange Rates • Political Risk and Regulations • Political risk: the risk that a country’s political actions can adversely affect a business. • Corruption • Regulatory climate

16. The euro is the currency used by many European countries today. Its value against the U.S. dollar changes over time. As the value changes, it affects the amount of dollars needed to purchase European products (denominated in euros) and the amount of euros needed to purchase U.S. products (denominated in dollars). How Foreign Characteristics Influence International Business

17. How Exchange Rate Movements Can Affect Performance • Impact of a Weak Dollar on U.S. Importers • Appreciates: strengthens in value • Impact of a Strong Dollar on U.S. Importers • Depreciates: weakens in value • Actual Effects of Exchange Rate Movements on U.S. Importers

18. How Exchange Rate Movements Can Affect Performance

19. How Exchange Rate Movements Can Affect Performance • Hedging Against Exchange Rate Movements • Hedge: action taken to protect a firm against exchange rate movements. • Hedging future payments in foreign currencies. • Forward contract: provides that an exchange of currencies will occur at a specified exchange rate at a future point in time. • Forward rate: the exchange rate that a bank will be willing to offer at a future point in time. • Spot exchange rate: the exchange rate quoted for immediate transactions. WHY USE THIS????

20. Business Plan • You will all use the spot rate • LIBRARY RESEARCH: • Culture, Economic System, Economic Conditions, Political Risk • Exchange Rate : Three year history and projection for first 12 months of business • 5-7 CITED sources MINIMUM (MLA) • Sample

21. Setting up shop in another country • China… • Guest Speaker: Industry, Location, Investment structure, Mgmt., legal protection.