Chapter 3 Global Business
The basis for international business
➔ International Business- All business activities that involve exchanges across national boundaries.
◆ firm is engaged in international business when buys portions of its input from/sell portion of it
output to, an organisation located in foreign country.
ABsolute & Comparative ADvantage
➔ Absolute advantage- the ability to produce a specific product more efficiently than any other nation.
◆ one country might have absolute adv. another might not, but worthwhile to trade w/ e/ other.
➔ Comparative advantage- the ability to produce a specific product more efficiently than any other
product.
◆ U.S comparative advantage: research/development, technology, identifying new markets.
Exporting & importing
➔ Exporting: selling, and shipping raw materials/products to other nations.
● Example: the Boeing company exports its aeroplanes to a number of countries for use by their
airlines.
➔ Importing: purchasing raw materials/products in other nations & bringing them into one’s own
company.
● Example: buyers for Macy’s department stores purchase rugs in India and have them shipped
back to the U.S.
➔ Balance of trade: total value of a nation’s exports minus total value of its imports over a period of
time.
● If a country imports more than it exports, its balance of trade is negative & is unfavourable
➔ Trade Deficit: a negative balance of trade.
➔ Balance of payments: the total flow of money into the country minus total flow of money out of
country over period of time.
◆ Includes:
- imports and exports
- Investments
- Money spent by foreign tourists
- Payments by foreign country
Licensing
➔ contractual agreement which one firm permits another to produce & market its product + use its
brand name in return for a royalty or other compensation.
◆ Advantage:
● provides a simple method for expanding into a foreign market w/ virtually no
investment.
, Disadvantage:
● if licensee doesn’t maintain the licensor's product standards, the products it made may
be damaged.
● A licensing arrangement may not provide the original producer w/ any foreign
marketing experience.
EXporting
● a firm may manufacture its products in its home country and export them for sale in foreign markets.
○ Advantage:
■ can be a low risk method of entering foreign markets.
○ Disadvantage:
■ not a simple method
● At most basic level, the exporting firm may sell its products outright to an export-import merchant,
which is essentially a merchant wholesaler.
● Alternatively, the exporting firm may ship its products to an export-important agent, which arranges
the sale of the products to foreign intermediaries for a commission fee.
● A supporting firm may also establish its own sales offices, or branches, in foreign countries.
Exporting to international markets
➔ letter of credit- issued by a bank on request of an importer stating that the bank will pay an amount
of money to a stated beneficiary
➔ Bill of lading- a document issued by a transport carrier to an exporter to prove that merchandise has
been shipped.
➔ Draft- issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus
guaranteeing payment once accepted by the importer’s bank.
Joint ventures
➔ A partnership formed to achieve a specific goal or to operate for a specific period of time.
● may be used to produce & market an existing product in a foreign nation or develop new
product.
Advantage:
- Provides immediate market knowledge and access, reduced risk, and control over product attributes.
Disadvantage:
- agreements established across national borders can become v risky
- agreements require high level of commitment from all the parties involved.
totally owned facilities
➔ A firm's own production & marketing facilities in one or more foreign nations.
Advantages:
- direct investment provides complete control over operations.
The basis for international business
➔ International Business- All business activities that involve exchanges across national boundaries.
◆ firm is engaged in international business when buys portions of its input from/sell portion of it
output to, an organisation located in foreign country.
ABsolute & Comparative ADvantage
➔ Absolute advantage- the ability to produce a specific product more efficiently than any other nation.
◆ one country might have absolute adv. another might not, but worthwhile to trade w/ e/ other.
➔ Comparative advantage- the ability to produce a specific product more efficiently than any other
product.
◆ U.S comparative advantage: research/development, technology, identifying new markets.
Exporting & importing
➔ Exporting: selling, and shipping raw materials/products to other nations.
● Example: the Boeing company exports its aeroplanes to a number of countries for use by their
airlines.
➔ Importing: purchasing raw materials/products in other nations & bringing them into one’s own
company.
● Example: buyers for Macy’s department stores purchase rugs in India and have them shipped
back to the U.S.
➔ Balance of trade: total value of a nation’s exports minus total value of its imports over a period of
time.
● If a country imports more than it exports, its balance of trade is negative & is unfavourable
➔ Trade Deficit: a negative balance of trade.
➔ Balance of payments: the total flow of money into the country minus total flow of money out of
country over period of time.
◆ Includes:
- imports and exports
- Investments
- Money spent by foreign tourists
- Payments by foreign country
Licensing
➔ contractual agreement which one firm permits another to produce & market its product + use its
brand name in return for a royalty or other compensation.
◆ Advantage:
● provides a simple method for expanding into a foreign market w/ virtually no
investment.
, Disadvantage:
● if licensee doesn’t maintain the licensor's product standards, the products it made may
be damaged.
● A licensing arrangement may not provide the original producer w/ any foreign
marketing experience.
EXporting
● a firm may manufacture its products in its home country and export them for sale in foreign markets.
○ Advantage:
■ can be a low risk method of entering foreign markets.
○ Disadvantage:
■ not a simple method
● At most basic level, the exporting firm may sell its products outright to an export-import merchant,
which is essentially a merchant wholesaler.
● Alternatively, the exporting firm may ship its products to an export-important agent, which arranges
the sale of the products to foreign intermediaries for a commission fee.
● A supporting firm may also establish its own sales offices, or branches, in foreign countries.
Exporting to international markets
➔ letter of credit- issued by a bank on request of an importer stating that the bank will pay an amount
of money to a stated beneficiary
➔ Bill of lading- a document issued by a transport carrier to an exporter to prove that merchandise has
been shipped.
➔ Draft- issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus
guaranteeing payment once accepted by the importer’s bank.
Joint ventures
➔ A partnership formed to achieve a specific goal or to operate for a specific period of time.
● may be used to produce & market an existing product in a foreign nation or develop new
product.
Advantage:
- Provides immediate market knowledge and access, reduced risk, and control over product attributes.
Disadvantage:
- agreements established across national borders can become v risky
- agreements require high level of commitment from all the parties involved.
totally owned facilities
➔ A firm's own production & marketing facilities in one or more foreign nations.
Advantages:
- direct investment provides complete control over operations.
