Welcome to Chapter 3. Hopefully, you have completed your reading before you view the lecture. If you haven't read the chapter yet, STOP! and read the chapter first.

Business without Borders
Balance of Trade/Balance of Payments
International Trade-reasons and barriers
Strategies for reaching global markets

Business without Borders

Have you dreamed of traveling to cities like Paris, London, Rio de Janeiro, or Moscow? According to the Economic Policy Institute, NINETY percent of the companies doing business globally believe it's important for their employees to have experience working in other countries. The reason is not surprising—although the United States is a market of over 317 million people, there are over 7.1 billion potential customers in the 194 countries that make up the global market. (Source)That's too many people to ignore! So, here is the question...Why should nations trade with other nations?

No country is self-sufficient.
Other countries need products that prosperous countries produce.
Natural resources and technological skills are not distributed evenly around the world.

Business Without Borders

Today U.S. consumers buy billions of dollars' worth of goods from China. United Parcel Service (UPS) has experienced double-digit market growth in its global operations and Walmart operates more than 350 stores in Africa. The National Basketball Association (NBA) played eight preseason games in Europe, Asia, and South America in 2013 and the National Football League (NFL) plans to play three games in London's Wembley Stadium in 2014. NBC paid $250 million to telecast three full seasons of England's Barclays Premier Soccer League in the United States. U.S. film stars Matt Damon, Tom Cruise, and Meryl Streep draw crowds to movie theaters around the globe. Doing business in a global environment is mandatory for business, both small and large.

From Setting Picks to Picking Grapes

Although Americans love to watch sports, professional athletes often receive criticism for collecting enormous paychecks. After all, some sports stars make more money in a single season than many educators or nurses would see in a lifetime. But matters can change drastically for athletes once their playing days end. Suddenly skills that you've spent your entire life honing are obsolete, often leading to confusion over what to do next.

picture of NBA star Yoa Ming

When faced with this problem, the groundbreaking former NBA center Yao Ming opted to use his resources to start a business. Although this is a common postretirement tactic for many athletes, Yao didn't unveil a line of athletic wear or open a chain of sports bars. Instead, he established a high-end winery in California's famous Napa Valley. Although many wealthy Chinese celebrities have bought vineyards, Yao has set himself apart by building a brand from scratch rather than investing in an existing operation. A national hero in China, Yao Family Wines uses the name recognition of its seven-and-half-foot founder to appeal to the nation's growing consumer class. Yao's wines are intentionally expensive: the cheapest vintage goes for about $87 while the priciest bottle, Yao Ming Family Reserve, lists for more than $1,000. With premium brands still a rarity in China, Yao could end up being just as influential in the Chinese business world as he was on the basketball court.
Sources: Jason Chow, “Yao Ming's Napa Winery Stoops to Conquer China's Middle Class,” The Wall Street Journal, September 5, 2013; and Michelle FlorCruz, “Yao Ming's Wine Company Sets Sights on China's Growing Middle Class,” International Business Times, September 6, 2013.

Balance of trade/balance of payments

People interested in a job in global business often think they are limited to firms large multinational companies. But the real global job potential is with small businesses. In the United States, only 1 percent of the 30 million small businesses export yet they account for about 30 percent of the total U.S. exports. In 2010, President Obama challenged small businesses to think big and help double exports by 2015. With the support of the U.S. Department of Commerce, U.S. exports increased significantly but not quite at the level the president requested. Getting started globally is often a matter of observing, being determined, and taking risks.

In measuring global trade, nations rely on two key indicators: balance of trade and balance of payments.

The balance of trade is the total value of a nation's exports compared to its imports measured over a particular period. A favorable balance of trade, or trade surplus, occurs when the value of a country's exports exceeds that of its imports. An unfavorable balance of trade, or trade deficit, occurs when the value of a country's exports is less than its imports. It's easy to understand why countries prefer to export more than they import. If I sell you $200 worth of goods and buy only $100 worth, I have an extra $100 available to buy other things. However, in an unfavorable position if I buy $200 worth of goods from you and sell you only $100.
The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment. The goal is to have more money flowing into the country than out—a favorable balance of payments.

This balance or imbalance often can lead to a trade war. Check out the video below that explains the trade war we are currently in...

International Trade

Reasons
One simple reason!!! The creation of wealth!! But there are a few more. They include:

reasons for internaational trade

Barriers
The hurdles to success are higher and more complex in global markets than at home. These include dealing with differences in sociocultural forces, economic and financial forces, and legal and regulatory forces. Let's look at each one:

Sociocultural Forces
The word culture refers to the set of values, beliefs, rules, and institutions held by a specific group of people. Culture can include social structures, religion, manners and customs, values and attitudes, language, and personal communication. Unfortunately, while the United States is a multicultural nation, U.S. businesspeople are often accused of ethnocentricity, an attitude that your own culture is superior to other cultures. In contrast, many foreign companies are very good at adapting to U.S. culture.
Economic and Financial Forces
Economic differences can muddy the water in global markets. It's difficult for us to imagine buying chewing gum by the stick. Yet this behavior is commonplace in economically depressed nations where customers can afford only small quantities. Changes in a nation's exchange rates have effects in global markets. A high value of the dollar means a dollar is trading for more foreign currency than previously.
Legal and Regulatory Forces
The conduct and the direction of business are firmly tied to the legal and regulatory environment. In global markets, no central system of law exists, different systems of laws and regulations may apply in different places. This makes conducting global business difficult as businesspeople navigate a sea of laws and regulations that are often inconsistent. U.S. businesses must follow U.S. laws and regulations in conducting business globally, although legislation such as the Foreign Corrupt Practices Act of 1978 which prohibits “questionable” or “dubious” payments to foreign officials to secure business contracts.

Strategies for reaching global markets

Businesses use MANY different strategies to compete in global markets. We are going to focus on a few: exporting, franchising, international joint ventures, and strategic alliances. Each provides different economic opportunities, along with specific commitments and risks

Exporting is selling products to other countries. Though it is not necessarily easy, just about any product can be imported or exported. As you might suspect, competition among exporting nations is intense. The United States is the largest importing nation in the world and is the second-largest exporting nation, behind China. Guess where we and they export to most?? Each other!!!
Franchising is a contractual agreement where someone with a good idea for a business, sells others the rights to use the business name and sell a product or service in a specified manner. We encounter franchises daily. Franchising is popular both domestically and globally.
A joint venture is a partnership in which two or more companies (often from different countries) join to undertake a major project. Joint ventures are often mandated by governments as a condition of doing business in their country. For example, Disney and state-owned Shanghai Shendi Group entered a joint venture to create a Disneyland Shanghai. The benefits of international joint ventures are:
- Shared technology and risk, shared marketing and management expertise, a competitive advantage for entry into markets where foreign companies are often not allowed unless goods are produced locally.
A strategic alliance is a long-term partnership between two or more companies established to help each company build competitive market advantages. Unlike joint ventures, strategic alliances don't share costs, risks, management, or even profits. The global market has also fueled the growth of strategic alliances.

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