chapter 03 assignment global business quizlet

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Chapter 3: Business in a Global Environment

It’s a small world.

Kevin Gill – GEBCO_08 with Shaded Blue Marble Landmass – CC BY-SA 2.0.

Do you wear Nike shoes or Timberland boots? Buy groceries at Tops Friendly Markets, Giant Stores, or Stop & Shop? Listen to Beyonce, Pitbull, Britney Spears, Jennifer Lopez, the Dixie Chicks, Foster the People, or the Dave Matthews Band? If you answered yes to any of these questions, you’re a global business customer. Both Nike and Timberland manufacture most of their products overseas. The Dutch firm Royal Ahold owns all three supermarket chains. Sony Music, the label that records Beyonce, J. Lo, the Dixie Chicks, and the other artists mentioned, belongs to a Japanese company.

Take an imaginary walk down Orchard Road, the most fashionable shopping area in Singapore. You’ll pass department stores such as Tokyo-based Takashimaya and London’s very British Marks & Spencer, both filled with such well-known international labels as Ralph Lauren Polo, Burberry, Chanel, and Nokia. If you need a break, you can also stop for a latte at Seattle-based Starbucks.

When you’re in the Chinese capital of Beijing, don’t miss Tiananmen Square. Parked in front of the Great Hall of the People, the seat of Chinese government, are fleets of black Buicks, cars made by General Motors in Flint, Michigan. If you’re adventurous enough to find yourself in Faisalabad, a medium-size city in Pakistan, you’ll see locals riding donkeys, camels pulling carts piled with agricultural produce, and Hamdard University, located in a refurbished hotel. Step inside its computer labs, and the sensation of being in a faraway place will likely disappear: on the computer screens, you’ll recognize the familiar Microsoft flag—the same one emblazoned on screens in Microsoft’s hometown of Seattle and just about everywhere else on the planet.

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What are two of the main arguments favoring the expansion of U.S. businesses into global markets?

• Today, over 90% of companies doing business globally believe it’s important for their employees to have experience working in other countries.
• The global market is huge. There are over 7.1 billion potential customers in the 194 countries that make up the global market.

What is comparative advantage, and what are some examples of this concept at work in the US?

Comparative Advantage– A theory by David Ricardo. It states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively or efficiently.

The US has a comparative advantage in producing goods and services such as software and engineering services. In contrast, it lacks a comparative advantage in growing coffee or making shoes.

By specializing and trading, the US and its trading partners can realize mutually beneficial exchanges.

How are a nation’s balance of trade and balance of payments determined?

Balance of Trade– the total value of a nation’s exports compared to its imports measured over a particular period. Balance of Payments– the difference between money coming into a country (from exports) and money leaving a 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.

What is meant by the term DUMPING in global trade?

DUMPING is selling products in a foreign country at lower prices than those charged in the producing country.

This predatory pricing tactic is sometimes used to reduce surplus products in foreign markets or to gain a foothold in a new market.

What are the advantages to a firm of using licensing as a method of entry in global markets? What are the disadvantages?

Advantages: Licensing has the least amount of risks associated. It gives the right to manufacture its product or use its trademark to a foreign company for a fee.

The firm can gain revenues it would not otherwise have generated in its home market.

Also, foreign licensees often must purchase start-up supplies, materials, and consulting services from the licensing firm.

Licensors spend little or no money to produce and market their products. These costs come from licensee.

Disadvantage: Often, a firm must grant licensing rights to its product for an extended period of time (20 years or longer). If a product experiences remarkable growth in the foreign market, the bulk of the revenues belong to the licensee. The licensee may get cocky and take all the firms trade secrets and leave to start a competing company.

What services are usually provided by an export-trading company?

US firms that are still hesitant can engage in INDIRECT exporting through specialists called export-trading companies that assist in negotiating and establishing trading relationships.

An export-trading company not only matches buyers and sellers from different countries but also deals with foreign customs offices, documentation, and even weights and measures conversions to ease the process of entering global markets.

It also can assist exporters with warehousing, billing, and insuring.

What is the key difference between a joint venture and a strategic alliance?

Joint Venture– 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 (ex. China) JV: Shared technology and risk. Shared marketing and management expertise. Entry into markets where foreign companies are often not allowed unless goods are produced locally.

Strategic Alliance– 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.

Such alliances provide broad access to markets, capital, and technical expertise. Thanks to their flexibility, strategic alliances can effectively link firms from different countries and firms of vastly different sizes. (ex. Hewlett-Packard & Hitachi & Samsung)

What makes a company a multinational corporation?

An MNC is an organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management. (ex. Nestle)

Only firms that have MANUFACTURING CAPACITY or some other physical presence in different nations can truly be called multinational.

What are four major hurdles to successful global trade?

• Dealing with differences in sociocultural forces
• Economic and financial forces
• Legal and regulatory forces
• Physical and environmental forces

What does ETHNOCENTRICITY mean, and how can it affect global success?

An attitude that your own culture is superior to other cultures.

It can affect global success because if you want to get involved, it is critical you are aware of the cultural differences amongst nations.

How would a low value of the dollar affect US exports?

A low value of the dollar means a dollar is traded for less foreign currency–foreign goods become more expensive because it takes more dollars to buy them, but the US goods become cheaper to foreign buyers because it takes less foreign currency to buy them.

What does the Foreign Corrupt Practices Act prohibit?

This law prohibits ‘questionable’ or ‘dubious’ payments to foreign officials to secure business contracts

What are the advantages and disadvantages of trade protectionism and of tariffs?

Trade Protectionism– the use of government regulations to limit the import of goods and services.

Advantages: It allows domestic producers to survive and grow, producing more jobs. Tariffs imposed are meant to save jobs for domestic workers and keep industries-especially infant industries that have companies in the early stages of growth- from closing down because of foreign competition

Disadvantages: It can turn off potential exporters from engaging in global trade.

What is the primary purpose of the WTO?

WTO mediates trade disputes amongst nations.

Is an independent entity of 159 member nations whose purpose is to oversee cross-broder trade issues and global business practices.

What is the key objective of a common market like the EU?

The EU, European Union, is a group of 28 nations with a population of over 500 million and a GDP of $17.2 trillion.

Key objective: Although the EU will face challenges in the future, it still considers economic integration among member nations as the way to compete globally against major competitors like the US and China.

What three nations comprise NAFTA?

US, Mexico, and Canada.

What are the major threats to doing business in global markets?

Terrorism, nuclear proliferation, rogue states, income inequality, and other issues cast a dark shadow on global markets.

What key challenges must India and Russia face before becoming global economic leaders?

Mostly the protectionist laws that inhibit them from succeeding. India remains a nation with difficult trade laws and an inflexible bureaucracy. Russia is plagued by political, currency, ad social problems and is considered as the world’s most corrupt major economy.

What does the acronym BRIC stand for?

Represents the economies of Brazil, Russia, India, and China.

What are the two primary concerns associated with offshore outsourcing?

• Loss of jobs

2. Product quality may not be up to par, damaging brand’s reputation

Sovereign Wealth Funds (SWF)

Investment funds controlled by governments holding stakes in foreign companies.

Floating Exchange Rates

Means that currencies ‘float’ in value according to the supply and demand for them in the global market for currency.

This supply and demand is created by global currency traders who develop a market for a nation’s currency based on the country’s perceived trade and investment potential.

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

Decks in Fundamentals of Business Class (5):

• Chapter 1 Taking Risks And Making Profits Within The Dynamic Business Environment
• Chapter 2 Understanding Economics And How It Affects Business
• Chapter 3 Doing Business In Global Markets
• Chapter 4 Demanding Ethical And Socially Responsible Behavior
• Chapter 5 How To Form A Business
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3.4: Global Buisness Strategies

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What you’ll learn to do: evaluate common strategies used to reach global markets

Globalization introduces a number of challenges that are unique to operating simultaneously in different countries and global markets. What is the best way to enter or take advantage of a global market? When should you adjust a product’s features to customize it to consumer needs in a different global market? How do you manage the costs and complexities of producing and/or promoting products in different locations, with different languages, cultural sensitivities, and consumer expectations?

While this next section doesn’t attempt to answer all of these questions, it explains common strategies and approaches used by multinational corporations to take advantage of global business opportunities.

Learning Objectives

• Explain how firms use licensing and franchising to reach global markets
• Explain how firms use joint ventures and foreign strategic alliances to reach global markets

Global Business Strategies

In today’s economy, once a nation or business has developed an advantage—either comparative or absolute—it’s likely to look beyond its own borders or storefront to seek greater economic opportunity. But how do you enter a global market? It’s certainly not as simple as loading up your products in a van, driving to the next town, and knocking on doors. Below are some of the common strategies companies and countries use to get their goods and services into global markets.

Exporting/Importing

Exporting is the easiest and most straightforward way to engage with the global market. Exporting is taking goods that were produced within a company’s home country and shipping them to another country. The party sending the good is called an exporter . It is impossible to discuss exporting without mentioning its complement, importing. Importing is the process by which a good is brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer . Simply put, one country’s exports become another country’s imports. Examples of U.S. imports are everywhere: Take a look at the labels in your clothes or the contents of your backpack. From our vantage point, U.S. exports may be a little harder to see, but they exist all the same and are plenty visible in other countries. According to World’s Top Exports , the following export product groups represent the highest dollar value in American global shipments during 2015. In parentheses is the percentage share each export category represents in terms of overall U.S. exports:

• Machines, engines, pumps: US$205.8 billion (13.7% of total exports)
• Electronic equipment: $169.8 billion (11.3%)
• Aircraft, spacecraft: $131.1 billion (8.7%)
• Vehicles: $127.1 billion (8.4%)
• Oil: $106.1 billion (7.1%)
• Medical, technical equipment: $83.4 billion (5.5%)
• Plastics: $60.3 billion (4%)
• Gems, precious metals, coins: $58.7 billion (3.9%)
• Pharmaceuticals: $47.3 billion (3.1%)
• Organic chemicals: $38.8 billion (2.6%) [1]

Advantages and Disadvantages

Since exporting doesn’t require a company to manufacture its products in the target country, the company doesn’t have to invest in factories, equipment, or other production facilities located halfway around the globe. Most of the costs involved in exporting are associated with finding a buyer or distributor in the destination market. For these reasons, exporting is considered to be the quickest and least expensive means to enter the global market. However, there are disadvantages, too.

Once products arrive in the destination market, the business loses control of them, which can result in products being misrepresented, copied by other manufacturers, or even sold on a black market. In addition, because the business isn’t active in the new market, it can’t gain insight into or experience with local consumer preferences and demand. This lack of information can create uncertainty and potentially cost the company opportunities down the road. As you will learn later in this module, businesses operating in other countries may find themselves subject to taxes, regulations, and/or restrictions that can substantially affect the profitability of the entire export venture.

Outsourcing/Offshoring

Outsourcing and offshoring are two additional strategies that a business can use in order to take advantage of the global market. Outsourcing contracts out a business process to another party and may include either or both foreign and domestic contracting. You may be familiar with outsourcing if your college has outsourced the bookstore to a national chain such as Barnes & Noble, or the food services are provided by a company such as Starbucks or Aramark. Although the employees work on your college campus, they are not college employees. Offshoring , on the other hand, is the actual relocation of a business process from one country to another—typically it’s an operational process, such as manufacturing, or sometimes a supporting process, such as accounting. In the case of offshoring, the employees still work for the company that’s offshoring its operations, but instead of working in a facility within the United States, they are located in a foreign country. In general, outsourcing and offshoring are strategies that companies use to try to lower their costs.

If a business chooses outsourcing as a way to engage with the global market, it might have a single component part manufactured in, say, Tibet and then shipped back to Iowa, where the factory workers in Iowa would use the outsourced part in the assembly of the final product. The business would have a contract with the company making the component part at an agreed-upon price, but it would not have an employer-employee relationship with the workers in Tibet. On the other hand, if the business wants to take advantage of offshoring, it would move the entire plant from Iowa to Tibet and hire workers in Tibet who would work directly for the business.

The following video is an example of how a small business is outsourcing its manufacturing to China. Especially for small start-up companies, using established manufacturing facilities located outside of the U.S. allows them to enter the global marketplace. Cost, logistics, finances, and speed are just some of the things that this type of arrangement can bring to businesses looking to take advantage of the growing global demand for U.S.-branded products.

Offshoring and outsourcing are both the subject of ongoing heated public debate—both in the U.S. and in other countries. Those in favor assert that these strategies benefit both sides of the arrangement: Free trade is enhanced, the destination country gains jobs, and the origin country gets cheaper goods and services. Some supporters go further and assert that outsourcing and offshoring raise the gross domestic product (GDP) and increase the total number of jobs domestically, too. This claim is based on the idea that workers who lose their jobs will move to higher-paying jobs in industries where the origin country has a comparative advantage.

On the other hand, job losses and wage erosion “at home” have sparked opposition to offshoring and outsourcing. Many argue that the jobs that are shipped overseas are not replaced by better, higher-paying ones. And it’s not just low-skilled workers who are feeling the pain. Increasingly, critics say, even highly trained workers (such as software engineers) with high-paying jobs are finding themselves replaced by cheaper workers in India and China. Some firms, while realizing financial gains from lowering their production costs, are finding that offshoring and outsourcing are very costly in terms of lack of control over product quality, working conditions, and labor relations. For example, companies like Nike and Apple have come under fire by human rights organizations and consumers over reports of worker abuse, dangerous working conditions, and ridiculously low wages. It was recently reported that apparel workers in Bangladesh are sometimes paid as little as $0.21 per hour. We will explore some of the ethical issues raised by offshoring and outsourcing later in the course in the business ethics module.

Licensing and Franchising

Increasingly, businesses are getting their products and services into global markets via licensing and franchise agreements. Under a licensing agreement , the licensor agrees to let someone else (the licensee) use the property of the licensor in exchange for a fee. License agreements usually cover property that is intangible, such as trademarks, images, patents, or production techniques. Since its debut in the late 1970s, Star Wars remains the most lucrative source of licensing in the entertainment business, generating more than $42 billion from the sale of licensed merchandise.

A longer-term and more comprehensive way to access the global market is through franchising. Under the terms of a franchise agreement, a party (franchisee) acquires access to the knowledge, processes, and trademarks of a business (the franchisor) in order to sell a product or service under the business’s (franchise’s) name. In exchange for the franchise, the franchisee usually pays the franchisor both initial and annual fees. McDonald’s, Holiday Inn, Hertz Car Rental, and Dunkin’ Donuts have all expanded into foreign markets through franchising.

Licensing and franchising both offer advantages for the involved parties: The licensee and franchisee both gain a competitive advantage in the market. The licensee/franchisee gets immediate brand recognition and may quickly overtake the competition by offering a product or service for which there is existing unmet demand. For example, a local sandwich shop may have a hard time competing when a Subway franchise opens because the brand is so well known. Also, because franchises are usually “turnkey” operations in which processes, supply chains, training, and products are already in place, the new business can quickly begin efficient and profitable operations. For the franchisor, this arrangement enables them to gain inexpensive access to a new market, since the initial cost of the franchise is borne by the franchisee. Under a licensing agreement, all of the costs of production, sales, and distribution are the responsibility of the licensee. If financial capital is scarce, both approaches allow companies to have a global presence without heavy investments.

These methods do contain some risks and disadvantages, however. They are typically the least profitable way of entering a foreign market, since the profits go to the franchisee or licensee. Although the licensor or franchisor receives up-front money and/or a small percentage of future sales, the majority of the revenue remains in the destination country with the licensee or franchisee. Franchising entails a long-term commitment on the part of the franchisor to provide ongoing support in the form of training, logistics, product development, and brand marketing. Once a business begins to establish a global franchise presence, the pressure to maintain brand integrity and fiscal responsibility becomes more intense as the failure of the franchise now has global consequences. For companies selling licensing rights there is a risk that their intellectual property may be misrepresented or used in a manner that could tarnish the brand’s image. Also, once a license to use an image or other intellectual property has been granted to a company in another country, the probability that knock-off products will enter the market goes up. For both franchisors and licensors, maintaining quality standards on a global scale is a massive undertaking, and for this reason many companies are choosing to exert a higher degree of control over their products, brands, and intellectual property than they have in the past.

Joint Ventures/Strategic Alliances

There are times when businesses have opportunities within the global market that are better undertaken with a partner. Sometimes these projects are extremely large and capital-intensive or are so comprehensive that it makes sense to include multiple businesses or even governments. These large-scale, global projects usually take one of two forms: strategic alliances or joint ventures.

A joint venture establishes a new business that is jointly owned by two or more otherwise independent businesses. The most common joint ventures involve two companies that are equal partners in the new firm, investing money and resources while sharing control of the newly formed firm. Often, the foreign partner provides expertise on the new market, business connections and networks, and access to other in-country aspects of business such as real estate and regulatory compliance. For example, in 2015 Fiat Chrysler entered into a joint venture with Tata Motors of India to expand the production of Jeeps in India. The company created in this joint venture is Fiat India Automobiles Private Limited.

Joint ventures require a greater commitment from firms than other global strategies, because they are riskier and less flexible. Joint ventures may afford tax advantages in many countries, particularly where foreign-owned businesses are taxed at higher rates than locally owned businesses. Some countries require all business ventures to be at least partially owned by domestic business partners.

A less permanent, but equally effective way to enter the global market is through a strategic alliance . A strategic alliance is formed between two or more corporations, each based in their home country, for a specified period of time. Unlike a joint venture, a new company is not formed. Generally, strategic alliances are pursued when businesses find that they have gained all they can from exporting and want to expand into a new geographic market or a related business. This approach can be particularly useful when a government prohibits imports in order to protect domestic industry. The cost of a strategic alliance is usually shared equitably among the corporations involved, and it’s generally the least expensive way for all concerned to form a partnership. An example of this is the alliance between General Mills and Nestlé: Honey Nut Cheerios are manufactured in bulk by General Mills in the United States and then shipped to Nestlé Europe, where they are packaged and shipped to France, Spain, and Portugal.

The greatest advantage of joint ventures and strategic alliances is the knowledge and experience of the market offered by the local partner—on everything from consumer preferences to cultural differences, language, and political/economic systems. Another advantage is that the risk of entering the market with a new product is shared by more than one firm, thereby reducing each company’s exposure to potential losses.

However, these types of partnerships also have their drawbacks. When companies share their technology and industry know-how, they run the risk that the partner firm will take that technology or innovation and use it to become a competitor in the future. This was a primary concern when Boeing collaborated with Mitsubishi (it was ultimately resolved in the legal details of the partnership agreement, which both companies signed). Conflicts over control of these partnerships can also arise if the owners of the partner firms do not agree on key business decisions.

Of all of the ways that a business can reach the global market, the most intensive approach is through foreign direct investment or FDI. Foreign direct investment is an investment in the form of a controlling ownership in a business enterprise in one country by an entity based in another country. FDI can take one of two forms: Greenfield ventures or mergers/acquisitions.

In a Greenfield venture, the company enters a foreign market and establishes a new subsidiary as a start-up business. A good example of this is the BMW US Manufacturing Company, a vehicle-assembly facility located in Greer, South Carolina, that is part of the BMW Group. Although it’s BMW’s only assembly plant in the United States, it represents a direct investment inside the United States by the German manufacturer, and it’s one of the most successful Greenfield ventures in the U.S.

Businesses that are not ready to take on the challenge of establishing a new facility or subsidiary in a foreign country will usually choose either a merger or acquisition as a means of expanding their global reach. Mergers and acquisitions represent the vast majority of FDI and range from 50 percent to 80 percent of all FDI in some industries. According to Forbes ,

"U.S. companies completed 116 emerging market acquisitions in the first half of 2013, up from 110 in the second half of 2012. . . . The most popular geographic targets for U.S. companies in the first half of 2013 were Brazil (25 deals), India (18 deals), South American countries excluding Brazil (15), South and East Asia (15), and Central America and Caribbean (14). [2] "

Mergers and acquisitions aren’t just carried out by U.S. companies, either—it’s an incredibly pervasive global business strategy, and ownership of many well-known products and brands has long been separated from the country of origin. For example, the Chinese just bought Smithfield Foods, Stolichnaya (“Stoli”) Russian vodka is actually owned by a company in the United Kingdom, Anheuser-Busch is owned by Belgian-Brazilian conglomerate InBev, and 7-Eleven is owned by the Japanese. [3]

Because the level of commitment and investment associated with FDI is so high, companies expend a great deal of time and effort scrutinizing potential opportunities. With Greenfield ventures, the amount of time it takes to build a presence in the foreign country is substantial. If a business is not already established in other global locations and lacks experience with FDI, it may be in for a series of unpleasant surprises in the form of regulations, licensing, taxes, and other “red tape”—much of which we will look at later in this module.

On the other hand, mergers and acquisitions are faster to execute than Greenfield ventures, and by merging with or acquiring an existing foreign company already in the market, outside companies can quickly take advantage of that presence. Another benefit is that a merger or acquisition involves the purchase of assets such as property, plants, and equipment that are already producing a product with a known revenue stream. The key to a successful merger or acquisition is paying the right price for the company, because, no matter how successful the business was before it was acquired (or merged), overpaying can turn a formerly profitable operation into a money pit.

• United States Top 10 Exports. (2016). Retrieved August 17, 2016, from http://www.worldstopexports.com/united-states-top-10-exports/ ↵
• Rapoza, K. (2013, September 13). U.S. Companies Buying up Foreign Competition. Retrieved August 18, 2016, from http://www.forbes.com/sites/kenrapoza/2013/09/15/u-s-companies-buying-up-foreign-competition/#7a6b71ef2177 ↵
• Frohlich, T. C., & Sauter, M. B. (n.d.). Ten Classic American Brands That Are Foreign-Owned. Retrieved August 19, 2016, from http://247wallst.com/special-report/...foreign-owned/ ↵

Introduction

Learning outcomes.

After reading this chapter, you should be able to answer these questions:

• Why is global trade important to the United States, and how is it measured?
• Why do nations trade?
• What are the barriers to international trade?
• How do governments and institutions foster world trade?
• What are international economic communities?
• How do companies enter the global marketplace?
• What threats and opportunities exist in the global marketplace?
• What are the advantages of multinational corporations?
• What are the trends in the global marketplace?

Exploring Business Careers

Mike schlater domino’s pizza.

Domino’s Pizza has more than 14,000 stores worldwide. As executive vice president of Domino’s Pizza’s international division, Mike Schlater is president of Domino’s Canada with more than 440 stores. Originally from Ohio, Schlater started his career with Domino's as a pizza delivery driver and worked his way up into management. Schlater saved his earnings, and with some help from his brother, he was able to accept the opportunity to have the first international Domino's franchise in Winnipeg, Manitoba, in 1983. Within weeks, Schlater’s store in Canada reached higher sales than his previous store in Ohio had ever attained. However, it was not an easy start. Schlater had to identify the international suppliers and get them approved to sell their products to Domino's . This shows one of the challenges that organizations face when entering new global markets. To meet quality standards designed to protect a brand, companies must undertake an extensive review of potential new suppliers to ensure consistent product quality. By 2007, Schlater and a partner unified all of the franchises under one corporate umbrella, and Schlater is now president of Domino's of Canada, Ltd., which operates more than 440 stores located in every province, as well as the Yukon and Northwest Territories.

Such an impressive career path might seem like luck to some, but Schlater achieved his success due to determination and attention to detail. Luck did play a role in a recent event in his live, though. Schlater manages dough in his business but also came into “dough” by winning $250,000 in a lottery. Since Schlater believes in philanthropy, he donated the entire amount to Cardinal Carter High School in his hometown. Over the years, Schlater has donated millions of dollars to foundations and charities, such as The London Health Sciences Foundation, because he now has the ability to indulge after spending decades climbing the corporate ladder at Domino’s Pizza. A father of three, he moved to Essex County from Winnipeg after buying the Domino’s master franchise for Canada. He wanted to live close to the border because one of his daughters was in a private school in Ohio and another was headed to university there.

The master franchisees of Domino’s Pizza’s international business are individuals or entities who, under a specific licensing agreement with Domino’s , control all operations within a specific country. They operate their own stores, set up a distribution infrastructure to transport materials into and throughout the country, and create subfranchisees. One particular benefit of master franchisees is their local knowledge. As discussed in this chapter, a major challenge when opening a business on foreign soil is negotiating the political, cultural, and economic differences of that country. Master franchisees allow Domino’s, and the franchisee, to take advantage of their local expertise in dealing with marketing strategies, political and regulatory issues, and the local labor market. It takes local experience to know, for example, that only 30 percent of the people in Poland have phones, so carryout needs to be the focus of the business; that Turkey has changed its street names three times in the past 30 years, so delivery is much more challenging; or that, in Japanese, there is no word for pepperoni, the most popular topping worldwide. These are just a few of the challenges that Domino’s has had to overcome on the road to becoming the worldwide leader in the pizza delivery business. Under the leadership of people like Schlater, and with the help of dedicated, local master franchisees, Domino’s has been able to not only compete in but to lead the global pizza delivery market.

Sources: “Domino’s Pizza Corporate Facts,” http://phx.corporate-ir.net, accessed June 20, 2017; Domino’s Canada website, https://www.dominos.ca, accessed June 20, 2017; Trevor Wilhelm, “Domino's CEO, who lives in Leamington, will donate $250K lotto winnings to high school,” Windsor Star , February 27, 2015.

This chapter examines the business world of the global marketplace. It focuses on the processes of taking a business global, such as licensing agreements and franchisees; the challenges that are encountered; and the regulatory systems governing the world market of the 21st century.

Today, global revolutions are under way in many areas of our lives: management, politics, communications, and technology. The word global has assumed a new meaning, referring to a boundless mobility and competition in social, business, and intellectual arenas. The purpose of this chapter is to explain how global trade is conducted. We also discuss the barriers to international trade and the organizations that foster global trade. The chapter concludes with trends in the global marketplace.

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Chapter 3: Global Environment

Module: global environment.

Why does Global Environment matter?

Take this pre-test to see what you already know about the concepts in this section. The pre-test does not count toward your grade, but will help you plan where to focus your time and effort as you study. The pre-test is optional.

Define globalization in the context of international business operations

Explain the reasons why companies and nations engage in global trade

Summarize the principles of absolute advantage, competitive advantage and comparative advantage

Describe how cultural, economic and legal or political barriers can impact, restrict or support international trade

Describe ethical issues that businesses face when engaging in international markets

Summarize the impact that currency valuation has on a nation’s balance of trade and balance of payments

Explain the roles of the International Monetary Fund (IMF) and the World Bank in promoting international trade

Explain the historical role of GATT in international trade and the World Trade Organization’s impact on international trade

Global Environment

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Chapter 3: Business in the Global Econom...

9th - 12th grade.

Chapter 3: Business in the Global Economy

21 questions

Introducing new   Paper mode

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An action imposed by the government to stop the export of import of a product completely

Member countries agree to remove duties and trade barriers of products traded among them.

Free Trade Zone

Free Trade Agreements

Common Markets

Restrictions to free trade

Trade Barrier

The value of a currency in one country compared to the value in another

Trade Balance

Balance of Payments

Foreign Exchange Market

Exchange Rate

Goods and services bought from other countries

A country in which an MNC places business activities is called the

Home Country

Host Country

Economic Community

Free-trade zone

A tax the government places on certain imported goods

A unique business organized by two or more other businesses to operate for a limited time and for a specific project.

Independent Contracting

Franchising

Joint Venture

Selling the right to use some intangible property (production process, trademark, or brand name for a fee or royalty

Strategic Alliance

A written contract granting permission to operate a business to sell products and services in a set way.

• 11. Multiple Choice Edit 20 seconds 1 pt The making, buying, and selling of goods and services within a country is called international business world trade imporing domestic business
• 12. Multiple Choice Edit 20 seconds 1 pt The United States conducts trade with more than ________ countries. 10 50 100 180
• 13. Multiple Choice Edit 20 seconds 1 pt The difference between a country’s total exports and total imports is called the foreign debt balance of trade trade surplus trade deficit
• 14. Multiple Choice Edit 20 seconds 1 pt The difference between the amount of money that comes into a country and the amount that goes out is called the balance of payments balance of trade foreign debt all of these
• 15. Multiple Choice Edit 20 seconds 1 pt Which of the following scenarios is likely to cause the value of a country’s currency to rise? prolonged inflation sudden change in government increased demand for the nation’s products and currency higher interest rates
• 16. Multiple Choice Edit 20 seconds 1 pt Which of the following is NOT a cultural/social factor that affects international business? language religion values climate
• 17. Multiple Choice Edit 20 seconds 1 pt One goal of the World Trade Organization is to eliminate import quotas. True False
• 18. Multiple Choice Edit 20 seconds 1 pt Infrastructure refers to a country’s educational system system of local government transportation, communication, and utility systems legal system
• 19. Multiple Choice Edit 20 seconds 1 pt Which of the following tends to discourage international trade? an embargo a free-trade  zone a free-trade agreement a common market
• 20. Multiple Choice Edit 20 seconds 1 pt A market in which members do away with duties and other trade barriers. Free Trade Zone Common Markets  Free Trade Agreements  Embargo

About how many U.S. jobs depend on international business

1 out of 10

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