Chapter Three

Business in a
Borderless World
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International Business
The buying, selling,
and trading of goods
and services across
national boundaries.
FAST FACT:
McDonalds serves 45 million
customers a day at 29,000
restaurants in 120 countries.
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Absolute Advantage
Absolute advantage exists when a country
is the only source of an item,
the only producer of an item, or the most
efficient producer of an item.
Example: DeBeers Consolidated Mines,
Ltd. (virtually controls the worlds
diamond trade).
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Comparative Advantage
Comparative advantage occurs when a
country specializes in products that it
can supply more efficiently or at a
lower cost than it can produce other
items.
Example: U.S. agricultural
commodities, such as corn and wheat.

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Importing & Exporting

Buying from
foreign markets
Selling to
foreign markets

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The U. S. Trade Deficit

1978-2008 (projected)
In $ Billions

Source: Exports and Imports of Goods and Services, 1978-2008, Infoplease

http://www.infoplease.com/ipa/A0855074.html (accessed May 2, 2001)
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Top 10 Countries Maintaining Trade

Deficits & Surpluses with the US

4-5

Trade Deficit
1. China
2. Japan
3. Canada
4. Mexico
5. Federal Republic of Germany
6. Taiwan
7. Malaysia
8. Italy
9. Republic of Korea
10. Ireland

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Trade Surplus
1. Netherlands
2. United Kingdom
3. Brazil
4. Hong Kong
5. Australia
6. Belgium
7. Singapore
8. Switzerland
9. Kenya
10. Argentina

Source: Top Ten Countries with which the U.S. Has a Trade Deficit, June
2001 from http://www.census.gov/foreign-trade/top/dst/current/deficit.html
(accessed August 20, 2001) and Top Ten countries with which the U.S. Has
A Trade Surplus, June 2001 from
http://www.census/gov/foreign-trade/top/dst/current/surplus.html (accessed
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International Barriers

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Economic
Legal/political
Social/cultural
Technological

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Economic Barriers
The level of a countrys economic
development
Industrialized nations U.S., Japan, Great
Britain
Less-developed countries Costa Rica

The level of existing infrastructure

Currency exchange rates

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Political & Legal Barriers

Laws and regulations
Tariffs and trade restrictions
Import tariffs, exchange controls, quotas,
embargos, anti-dumping regulations

Political barriers
Political instability, cartels

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Social & Cultural Barriers

The overall culture of
a country
The culture of the
marketplace
The culture of how
business is practiced
Think globally, but act locally

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Mexican Workers are Most

Satisfied with their Jobs*
1.
2.
3.
4.
5.

Mexico
Switzerland
Austria
Canada
Australia &
Brazil

*Based on base pay, merit pay, job challenge, treatment, leadership, sense of
achievement and sense of direction, in a survey of 1.7 million employees in 20
different countries.
Source: USA TODAY Snapshots, USA TODAY, October 23, 2001, p. B1.

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Technological Barriers
Varying levels of technological
development and infrastructure

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Trade Agreements, Alliances &

Organizations

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GATT
WTO
NAFTA
EU
MERCOSUR
APEC
World Bank
IMF
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GATT and NAFTA

4-10

General Agreement on Tariffs and Trade

(GATT):
Trade agreement that provided a forum for tariff
negotiations and a place where international trade
problems could be discussed/solved.

North American Free Trade Agreement

(NAFTA):
Eliminates most tariffs and trade restrictions on
agricultural and manufactured products between
Canada, Mexico, and U.S. (1994-2009).
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Levels of Involvement in
International Trade
Level
of
Risk

The MNC
Direct Investment
Joint Ventures & Alliances
Contract Manufacturing
Licensing & Franchising
Trading Companies
Import/Export

Level of Involvement
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Developing International
Business Strategies
Multinational
Strategy:
Customizing and
adapting products,
promotion and
distribution to the local
market condition

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Global Strategy
(Globalization):
Standardizing
products, promotion,
and distribution to one
world market

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Opportunities & Challenges of

Global Business
Fewer political barriers
Movement toward market economies
Growing opportunities for small as well as
large businesses

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Solve the Dilemma

1. What are the key issues that need to be
considered in determining global
expansion?
2. What are some of the unique problems that
a small business might face in global
expansion that larger firms would not?
3. Should Audiotech consider a joint venture?
Should it hire a sales force of people native
to the countries it enters?
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Explore Your Career Options

What are some of the skills
required to be a successful
businessperson in the borderless
world of the 21st century?

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Additional Discussion
Questions and Exercises
1.

2.

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Look at the Foreign Exchange section of

the business section of a newspaper. What
nations currency or exchange rate is listed?
How much of that nations currency would
equal one dollar?
Assume your firm wishes to do business by
selling manufactured products in other
countries but does not wish to do actual
manufacturing in the United States other
country. What options are available?

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Additional Discussion
Questions and Exercises
3.

4.

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Consider the world situation in general. What

are the political hot spots or areas of unrest in
which doing business would be risky? What
would be the possible advantage for a
company setting up a business venture in
these areas of unrest at the first sign of
political stability?
What are some of the reasons for the United
States trade deficit?
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Chapter 3 Quiz
1.A negative balance of trade occurs when
a. a country imports more than it exports.
b. a company has a monopoly on the production of a
specific resource.
c. a country exports more than it imports.
d. a countrys currency can be exchanged for anothers
currency or gold.
2. A partnership between a foreign company and a
partner is called:
a.a trading company.
b. an export agency company.
c.a direct investment.
d. a joint venture.

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local

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Chapter 3 Quiz
3. When the United States established a policy forbidding
trade with Cuba, this was an example of what type of trade
restriction?
a.a quota
b. an embargo
c.a countertrade agreement
d. an import tariff
4. A comparative advantage exists when
a.a firm supplies a product at lower costs.
b. a firm is the only supplier of a product.
c.a country supplies a product at lower costs.
d. a country is the most efficient supplier of an

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item.

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Multiple Choice Questions

about the Video
1.Which of the following is not a consideration in selecting a
transportation mode for international distribution?
a. cost
b.speed
c. flexibility
d.diversity
2.________ is the practice of consolidating many items into a single
large container that is sealed at its point of origin and opened at its
destination.
a. Consolidation
b.Containerization
c. Double-stack technology
d.The Stacktrain process

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