Page 102 - Introduction to Business

76 PART 1 The Nature of Contemporary Business

EXHIBIT 2.11 Japan, and Germany are the world’s three largest (GDP in nominal terms)
economies and the world’s largest traders as well. During the 1990 to 2000
The Triad Economies: The
Importance of Trade period, the triad economies consistently accounted for almost one-third of
world trade, and they have played a major role in globalization of business. Fur-
The triad economies account
for almost a third of world thermore, each of the triad economies is a leader of trade and investment in
trade. their respective region, the United States leading in the North America region,
Japan leading in Asia, and Germany leading in the
18.0 United States European Union. They represent the tripolarization
of world trade. The triad economies are generally
Share of world trade (percent) 12.0 Germany regions, although Japan’s performance since 1990
16.0
considered the “engine of growth” of their respective
14.0
has been disappointing and is overshadowed by
10.0
China’s booming economy. Although the discussion
here is restricted to international trade, the same can
8.0
be said about international investment (foreign
6.0
Japan
direct investment as well as portfolio investment)
4.0
flows among the triad economies. The net effect is
2.0
that the triad economies are the epicenters for inno-
vation, new product or service development, and
1990 1995 2000
Year entrepreneurship.
Source: IMF, Direction of Trade Statistics, 1997, 2002.

reality How has your state been affected by NAFTA?
CH ECK

Going International

LEARNING OBJECTIVE 9
Define and summarize the various methods of conducting business internationally.

There are several ways that businesses could participate in and profit from inter-
national operations, and much will depend on the amount of risk that entrepre-
neurs are willing to take. A fundamental fact of life in business is the risk-return
trade-off. In general, the greater the risk (loss of capital invested) entrepreneurs
are willing to take, the greater the rewards (profits) they are likely to reap. The con-
verse is also true: The lower the business risk, the lower the rewards (return on
investment). Thus when firms decide to go international (either willingly or
unwillingly), a wide range of opportunities is available and entrepreneurs can
risk profile The potential loss that choose the approach that suits their risk profile, the amount of potential loss they
entrepreneurs are willing to take in a
are willing to take. When domestic firms refrain from entering overseas markets
business
because of concerns such as uncertainty and unfamiliarity with foreign cultures,
foreign firms may take that opportunity to enter the domestic market. Global
competition in a free enterprise system cannot be avoided and businesses must
seek to explore opportunities both at home and abroad simultaneously in order to
succeed. Conducting business internationally is rewarding both financially and
emotionally. In the ensuing approaches to going international, the amount of
business risk that firms will need to take increases as we go along. But, as we dis-
cussed earlier, with increased risk the opportunity to make greater profit also
increases.

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