Unit One Global Economy and Market Globalization

A Case Story in the Global Economy TodayDavid is a college student majoring in international trade. On a recent Sunday, David was

thinking to buy his dad a gift for his birthday and he went shopping at a local shopping mall. He

perused neckties with Italian and French brand names, and others made in China, Mexico, and

Romania. He also considered electric shavers made by Braun (a German brand) and Philips (a

Dutch brand). He eventually bought a Panasonic (a Japanese brand).

David was dreaming of buying a laptop computer. At the electronics store, he explored

several models made in China’s mainland, Ireland, Malaysia, and Taiwan. As he passed a travel

agency, he remembered that his spring vacation was just around the corner and decided to consult

his girl friend Melissa. Whipping out his Huawei cell phone (a Chinese brand, but has R & D

institutes in China, the United States, Canada, the United Kingdom, Pakistan, Finland, France,

and so on), he reached Melissa. Melissa answered on her iPhone(a U.S. brand, but assembled in

China). The two chatted about their dream trip to the beaches of southern Spain, considered

Mexico, but decided they would probably end up in Panama City, Florida. David looked at a

blouse made in Vietnam, but hesitated to purchase it because he had read that some products from

Southeast Asia are made by child labor.

David left the mall and drove away in his Hyundai (a Korean brand, but made in China). He

was envious of Melissa’s car, a BMW (a German brand, but assembled in the United States with

Asian, European, and South African components). Over the following weeks, David and his

exchange-student friend, Anders met up several times at restaurants featuring food from various

nations, including France, India, Lebanon, Mexico, and etc. On a Friday night, they watched the

latest movie in the Matrix series (made in Australia and the United States, financed by the

Japanese) on a friend’s big-screen TV (a Dutch brand, but made in Indonesia). Over dinner, David

and Anders enjoyed pasta from Italy and shrimp from El Salvador, and chatted about their school

life and future. David was dreaming of an international career.

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国际商务英文与函电 ( 第 2 版 )

Globalization of Markets

As you can see from the opening story, international business touches our daily life. The globalization of markets refers to the ongoing economic integration and growing interdependency of countries worldwide. In practical terms, the globalization of markets is evident in several related trends. First is the unprecedented growth of international trade. In 1960, cross-border trade was modest — about $100 billion per year. Today, it accounts for a substantial proportion of the world economy, amounting to some $10 trillion annually. Second, trade between nations is accompanied by substantial flows of capital, technology, and knowledge. Third is the development of highly sophisticated global financial systems and mechanisms that facilitate the cross-border flow of products, money, technology, and knowledge. Fourth, globalization has brought about a greater degree of collaboration among nations through multilateral regulatory agencies such as the World Trade Organization (WTO) and the International Monetary Fund (IMF).

Globalization both compels and facilitates companies to pursue cross-border business activities and international expansion. Simultaneously, going international for a firm has become easier than ever before. A few decades ago, international business was largely the domain of large, multinational companies. Recent developments have created a more level playing field that allows firms of any size to benefit from active participation in international business. In addition, where cross-border business was once mainly undertaken by manufacturing firms, this is no longer the case. Companies in the service sector are also internationalizing, in such industries as banking, transportation, engineering, design, advertising, and retailing.

Phases of Globalization

Since the 1800s, we can identify four distinct phases in the evolution of market globalization. Each phase is accompanied by revolutionary technological developments and international trends.

The first phase of globalization began in about 1830 and peaked around 1880. International business became widespread during this period due to the growth of railroads, efficient ocean transport, and the rise of large manufacturing and trading companies. Invention of the telegraph and telephone in the late 1800s facilitated information flows between and within nations, and greatly aided early efforts to manage companies’ supply chains.

Unit One Global Economy and Market Globalization

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The second phase of globalization began around 1900 and was associated with the rise of electricity and steel production. The phase reached its height just before the Great Depression, a worldwide economic downturn that began in 1929. In 1900, Western Europe was the most industrialized region in the world. Europe’s colonization of countries in Asia, Africa, the Middle East, and beyond led to the establishment of some of the earliest subsidiaries of multinational firms. European companies such as BASF, British Petroleum, Nestle, Shell, and Siemens had established foreign manufacturing plants by 1900. In the year before World War I (pre-1914), many firms were already operating globally. The Italian manufacturer Fiat supplied vehicles to nations on both sides of the war.

The third phase of globalization began after World War II. At the war’s end in 1945, substantial pent-up demand existed for consumer products, as well as for input goods to rebuild Europe and Japan. The United States was least harmed by the war and became the world ’s dominant economy. Substantial government aid helped stimulate economic activity in Europe. Before the war, tariffs and other trade barriers had been high, and there had been strict controls on currency and capital movements. Several industrialized countries, including Australia, Britain, and the United States, systematically sought to reduce barriers to international trade. The result of this effort was the General Agreement on Tariffs and Trade (GATT). Emerging from the Bretton Woods Conference of 23 nations in 1947, the GATT served as a global negotiating forum for liberalizing trade barriers. The GATT marked the beginning of a series of annual negotiating meetings aiming at reducing barriers to international trade and investment. The GATT eventually transformed into the World Trade Organization (WTO) as more countries joined this multinational agency. The World Trade Organization is a multilateral governing body empowered to regulate international trade and investment. The WTO aims to ensure fairness and efficiency in international transactions. Some 162 nations are now members of the WTO. Additional global cooperation in the post-war era gave birth to other international organizations such as the International Monetary Fund and the World Bank. Early multinationals of this third phase of globalization originated from the United States, Western Europe, and Japan. The Europeans often expanded into former colonies. Firms like Unilever, Philips, Royal Dutch Shell, British Petroleum, and Bayer organized their businesses by establishing independent subsidiaries in each of the foreign countries where they did business. American multinationals such as IBM, Boeing, Texas Instruments, Xerox, and McDonnell Douglas spread out across the globe on the strength of technological and competitive advantages. Growing multinational enterprise (MNE) activities and early efforts at trade liberalization resulted in substantial increases in international trade and

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国际商务英文与函电 ( 第 2 版 )investment beginning in the 1960s. Recovered from World War II, MNEs in Europe and Japan began to challenge the global dominance of U.S. multinationals. With the easing of trade barriers and currency controls, capital began to flow freely across national borders, leading to integration of global financial markets.

The fourth and current phase of globalization began in the early 1980s. This period witnessed enormous growth in cross-border trade and investment. The current phase was triggered by key trends, including the commercialization of the personal computer, the development of the Internet and the Web browser, advances in communications and manufacturing technologies, the collapse of the Soviet Union and ensuring market liberalization in central and Eastern Europe, and the industrialization and modernization efforts of East Asian economies, including China.

Growing international prosperity began to reach emerging markets such as Brazil, India, and Mexico. The 1980s witnessed huge increases in foreign direct investment (FDI), especially in capital- and technology-intensive sectors. Technological advances in information, communications, and transportation made it feasible for managers to organize far-flung operations around the world, geographically distant yet electronically interconnected. These technologies also facilitated the globalization of the service sector in areas such as banking, entertainment, tourism, insurance, and retailing. The merger of major firms once viewed as strongholds of national corporate power exemplified the growing integration of the world economy. For example, GM acquired Saab in Sweden, Ford acquired Mazda in Japan, and Daimler Benz bought Chrysler in the United States.

In the contemporary era, countless firms configure and coordinate trade and investment activities in a giant global marketplace. The ensuing phases of globalization have gradually shrunk the world into a manageable global marketplace.

Dimensions of Market Globalization

As a broad phenomenon, globalization has been investigated from the perspective of various disciplines, including economics, history, anthropology, political science, sociology, and technology. In terms of international business, market globalization can be viewed simultaneously as a ① consequence of economic, technological, and government policy trends; ② driver of economic, political, and social phenomena; and ③ driver and consequence of firm-level internationalization. Globalization of markets is a multifaceted phenomenon, with five major dimensions:

Unit One Global Economy and Market Globalization

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(1) Integration and interdependence of national economiesInternationally active firms devise multinational operations through trade, investment,

geographic dispersal of company resources, and integration and coordination of value chain activities — the sequence of value-adding activities performed by the firm in the process of developing, producing, marketing, and servicing a product. The aggregate activities of these firms give rise to economic integration. Governments contribute to this integration by various means. First, they gradually lower barriers to international trade and investment (for example, by negotiating trade agreements). Second, they increasingly harmonize their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), such as the European Union. Third, they devise the supervision supranational institutions — such as the World Bank, International Monetary Fund, and the World Trade Organization — that seek further reductions in trade and investment barriers.

(2) Rise of regional economic integration blocsClosely related to the previous trend is the emergence since the 1950s of regional economic

integration blocs. Examples include the North American Free Trade Agreement area (NAFTA), the Asia Pacific Economic Cooperation zone (APEC), and Mercosur in Latin America. These regional economic blocs incorporate groups of countries within which trade and investment flows are facilitated through the reduction of trade and investment barriers. In more advanced arrangements, such as the “common market”, barriers to the cross-border flow of factors of production (mostly labor and capital) are removed. The European Union, in addition to adopting free trade among its members, is harmonizing fiscal and monetary policies and adopting common business regulations.

(3) Growth of global investment and financial flowsIn the process of conducting international transactions, firms and governments buy and sell

large volumes of national currencies (such as dollars, euros, and yen). The free movement of capital around the world — the globalization of capital — extends economic activities across the globe and is fostering interconnectedness among world economies. Commercial and investment banking is a global industry. The bond market has gained worldwide scope, with foreign bonds representing a major source of debt financing for governments and firms. Information and communications networks facilitate heavy volumes of financial transactions every day, integrating national markets. Nevertheless, widespread integration can have negative effects. For example, when Thailand and Malaysia experienced a monetary crisis in 1997, it quickly spread to South Korea, Indonesia, and the Philippines, causing prolonged recession in most East Asian economies.

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国际商务英文与函电 ( 第 2 版 )(4) Convergence of consumer lifestyles and preferencesAround the world, many consumers are increasingly similar in how they spend their money

and time. Lifestyles and preferences are converging. Consumers in Tokyo, New York, and Paris demand similar household goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPads, iPhones, and Levi’s jeans. Major brands have gained a worldwide following. The trend is encouraged by greater international travel, movies, global media, and the Internet, which expose people to products, services, and living patterns from around the world. Hollywood films such as Kill Bill and Lord of the Rings receive much attention from a global audience. Convergence of preferences is also occurring in industrial markets, where professional buyers source raw materials, parts, and components that are increasingly standardized — that is, very similar in design and structure. Yet, while converging tastes facilitate the marketing of highly standardized products and services to buyers worldwide, they also promote the loss of traditional lifestyles and values in individual countries.

(5) Globalization of productionIntense global competition is forcing firms to reduce the cost of production and marketing.

Companies strive to drive down prices through economies of scale and by standardizing what they sell. They seek economies in manufacturing and procurement by shifting these activities to foreign locations in order to take advantage of national differences in the cost and quality of factor inputs. Firms in the auto and textile industries, for example, have relocated their manufacturing to low labor-cost locations such as China, Mexico, and Eastern Europe. Production on a global basis is occurring in the service sector as well, in such industries as retailing, banking, insurance, and data processing. As an example, the real estate firm RE/MAX has established more than 7,000 offices in over 100 countries. The French firm Accor operates more than four thousand hotels worldwide.

Drivers of Market Globalization

(1) Worldwide reduction of barriers to trade and investmentThe tendency of national governments to reduce trade and investment barriers has

accelerated global economic integration. For example, tariffs on the import of automobiles, industrial machinery, and countless other products have declined nearly to zero in many countries, encouraging freer international exchange of goods and services. Reduction in trade barriers is greatly aided by the WTO. China joined the WTO in 2001 and has committed to making its

Unit One Global Economy and Market Globalization

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market more accessible to foreign companies. Reduction of trade barriers is also associated with the emergence of regional economic integration blocs, a key dimension of market globalization.

(2) Market liberalization and adoption of free marketsThe collapse of the Soviet Union’s economy in 1989, the tearing down of the Berlin Wall

that same year, and China’s economic reforms smoothed the integration of former economics into the global economy. Numerous East Asian economies, stretching from South Korea to Malaysia and Indonesia, had already embarked on ambitious market-based reforms. India joined the trend in 1991. These events opened roughly one-third of the world to freer international trade and investment. China, India, and Eastern Europe have become some of the most cost-effective locations for producing goods and services worldwide. These processes encouraged economic efficiency and attracted massive foreign capital into their national economies.

(3) Industrialization, economic development, and modernizationIndustrialization implies that emerging markets — rapidly developing economies in Asia,

Latin America, and Eastern Europe — are moving from being low value-adding commodity producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of premium products such as electronics, computers, and aircraft. For example, Brazil has become a leading producer of private aircraft, and the Czech Republic now excels in the production of automobiles. India is now a leading supplier of computer software. Economic development is enhancing standards of living and discretionary income in emerging markets. Perhaps the most important measure of economic development is Gross National Income (GNI) per head. Africa is home to the lowest-income countries, along with India and a few other countries in Asia and Nicaragua. These areas are also characterized by low levels of market globalization. The adoption of modern technologies, improvement of living standards, and adoption of modern legal and banking practices are increasing the attractiveness of emerging markets as investment targets and facilitating the spread of ideas, products, and services across the globe.

(4) Integration of world financial markets

Integration of world financial markets makes it possible for internationally active firms to

raise capital, borrow funds, and engage in foreign currency transactions. Financial services firms

follow their customers to foreign markets. Cross-border transactions are made easier partly as a

result of the ease with which funds can be transferred between buyers and sellers, through a

network of international commercial banks. For example, as an individual you can transfer funds

to a friend in another country using the Society for Worldwide Interbank Financial

Telecommunication (SWIFT) network. Connecting over 7,800 financial institutions in some 200

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国际商务英文与函电 ( 第 2 版 )countries, SWIFT facilitates the exchange of financial transactions. The globalization of finance

contributes to firms’ ability to develop and operate world-scale production and marketing

operations. It enables companies to pay suppliers and collect payments from customers

worldwide.

(5) Technological advances

Perhaps the most important drivers of market globalization since the 1980s have been

technological advances in communications, information, manufacturing, and transportations.

While globalization makes internationalization an imperative, technological advances provide the

means for internationalization. Initially, technological advances have greatly eased the

management of international operations. Firms now interact more efficiently with foreign partners

and value-chain members than ever before. Firms transmit all variety of data, information, and

vital communications that help ensure the smooth running of their operations worldwide. In

addition, companies use information technology to improve the productivity of their operations,

which provides substantial competitive advantages. For example, information technology allows

firms to adapt products more efficiently for international markets, or produce goods in smaller lots

to target international markets. In addition, technological advances have made the cost of

international operations affordable for all types of firms, explaining why so many small- and

medium-sized enterprises (SMEs) have internationalized during the past two decades.

Technological advances have also spurred the development of new products and services that

appeal to a global audience. China and India are the new beachheads of technological advances.

India has become a focus of global Internet- and knowledge-based industries. Top management at

Intel and Motorola, two of the world’s premier technology companies, agree that China is the

place to be when it comes to technological progress. Both firms receive a substantial portion of

their revenue from sales in China. Management predicts double-digit increases in demand for

technology products in China far into the future. Intel’s CEO commented, “I come back from

visiting China and feel as if I’ve visited the fountain of youth of computing.” The most important

activity underlying technological advances is innovation. Societies and organizations innovate in

various ways, including new product designs, new production processes, new approaches to

marketing, and new ways of organizing or training. Technological advances have had the greatest

impact in several key areas: information technology, communications, manufacturing, and

transportation.

Unit One Global Economy and Market Globalization

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Firm-level Consequences of Market Globalization: Internationalizationof the Firm’s Value Chain

The globalization of markets has opened up countless new business opportunities for internationalizing firms. At the same time, globalization implies that firms must accommodate new risks and intense rivalry from foreign competitors. Globalization results in buyers who are more demanding and who shop for the best deals from suppliers worldwide. A purely domestic focus is no longer viable for firms in most industries. Companies need to proactively internationalize their value chain in order to profit from new opportunities and reduce the harm of potential threats. Managers must increasingly adopt a worldwide orientation rather than a local focus. Internationalization may take the form of global sourcing, exporting, or investment in key markets abroad. The more proactive firms seek a simultaneous presence in all major trading regions, especially Asia, Europe, and North America. They concentrate their activities in those countries where they can achieve and sustain competitive advantage.

The most direct implication of market globalization is on the firm’s value chain. Market globalization compels firms to organize their sourcing, manufacturing, marketing, and other value-adding activities on a global scale. As noted earlier, a value chain is the sequence of value-adding activities performed by the firm in the process of developing, producing, marketing, and servicing a product. In a typical value chain, the firm conducts product research and development (R&D), purchases production inputs, and assembles or manufactures a product or service. Next, the firm performs marketing activities such as pricing, promotion, and selling, followed by distribution of the product in targeted markets and after-sales services. Value chains vary in complexity and across industries and product categories. The value chain concept is useful in international business because it helps clarify what activities are performed where in the world. For instance, exporting firms perform most “upstream” value-chain activities (R&D and production) in the home market and most “downstream” activities (marketing and after-sales services) abroad.

The following form illustrates some typical international firms’ value chains. Each value-adding activity is subject to internationalization; that is, it can be performed abroad instead of at home. As the examples suggest, companies have considerable latitude regarding where in the world they locate or configure key value-adding activities. The most typical reasons for locating value-chain activities in particular countries are to reduce the costs of R&D and production or to gain closer access to customers. The practice of internationalizing the value chain is often referred

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国际商务英文与函电 ( 第 2 版 )to as off shoring, where the firm relocates a major value-chain activity by establishing a factory or other subsidiary abroad. A related trend is global sourcing, in which the firm delegates performance of the value-adding activity to an external supplier or contractor located abroad. Globalization drove these firms to relocate key value-adding activities to the most advantageous locations around the world.

Firms’ Value Chains

Stages in the

Firms’ Value

Chains

Research &

Development

Procurement

(sourcing)

Manufacturing Marketing Distribution Sales &

Services

Examples The

pharmaceutical

Firm Pfizer

conducts

R&D in

Singapore,

Japan, and

other

countries to

gain access to

scientific

talent for

collaborating

with local

partner firms

Office

furniture

manufacturer

Steelcase

sources low-

cost parts

from suppliers

in China and

Mexico. Dell

has business

processes

such as data

entry, call

centers, and

payroll

processing

performed in

India

Genzyme

Corp. does

much of the

manufacturing

and testing of

its surgical

and diagnostic

products in

Germany,

Switzerland,

and the United

Kingdom.

Renault

produces cars

via low-cost

factories in

eastern

Europe

BMW and

Honda locate

marketing

subsidiaries in

the United

States to more

effectively

target their

vehicles to the

huge U.S.

market.

Carrefour and

Barclays Bank

establish

worldwide

networks of

stores and

offices to be

near their

customers

Wolverine

World Wide,

marketer of

popular shoe

brands (e.g.,

Hush Puppies,

Bates),

contracts with

independent

retail stores

abroad to

reach its

customers

Direct sales

companies

such as

Amway and

Avon employ

their own

independent

sales force

in China,

Mexico, and

elsewhere, in

order to reach

end-users.

Toyota

maintains

sales and

customer

service

operations

abroad in

order to meet

customer

requirements

more

effectively

Unit One Global Economy and Market Globalization

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China in Global Economy

A huge population and rapidly growing economy make China a huge importer of consumer products, technology, and commodities. China began pursuing market reforms in the late 1970s. It achieved explosive economic growth, quadrupling its GDP during the succeeding 30 years. China’s growth was especially fast in the 1990s while exports amounted to just $78 billion in 1993, and surged to $974 billion by 2006. Although income per person is still modest at around $6,800, China in 2007 stood as the second-largest economy in the world (after the United States).

China has been a member of WTO since 11 December 2001. China’s economic reforms have progressed in fits and starts, with the national government periodically loosening or tightening central controls. China has struggled to sustain job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the workforce. Roughly one hundred million rural workers drift between villages and the huge cities, many subsisting through part-time, low-paying jobs. Poor infrastructure in communications and transportation remains a major challenge, especially in the countryside.

These trends are both a boon and a bane to international business. While it is a booming new market, China also puts considerable strain on world resources, leading to higher commodity prices. It also means environmental degradation. Eight of the ten most polluted cities in the world are now in China. Nevertheless, it suggests opportunities for western firms marketing technologies and equipment for the protection of the environment.

To profit from China’s low-cost labor and growing affluence, thousands of foreign companies set up sales offices and manufacturing facilities here. Many companies have succeeded in China, including Coca-Cola, General Motors, McDonald’s, Motorola, Airbus, and Volkswagen. Wal-Mart saved immense sums by sourcing over $30 billion of merchandise from China in 2007. Success in China requires a deep understanding of the market and long-term commitments. The country holds huge long-term potential for firms that take the time and invest the resources to succeed here. China surely will continue its open policy and combine to the outside world market more widely. Its economy status will be on the high line in global economy.

Discussion Issues in Class1. Define market globalization, and give your understanding of global economy.2. Describe the four phases of globalization.3. Summarize the five dimensions of globalization.

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国际商务英文与函电 ( 第 2 版 )4. Describe the five drivers of globalization.5. In what areas have technological advances had their greatest effect on facilitating world trade

and investment?6. What is your opinion about the situation of China in global economy?

Vocabulary

1. international business 国际商务2. economic integration 经济一体化3. globalization of markets 市场全球化4. the International Monetary Fund (IMF) 国际货币基金组织5. World Trade Organization (WTO) 世界贸易组织6. global financial system 全球金融体系7. multinational company 跨国公司8. supply chain 供应链9. trade barrier 贸易壁垒10. the General Agreement on Tariffs and Trade (GATT) 关税与贸易总协定11. the Bretton Woods Conference 布雷顿森林会议12. the World Bank 世界银行13. market liberalization 市场自由化14. emerging markets 新兴市场15. the globalization of capital 资本全球化16. Gross National Income (GNI) 国民总收入17. the Society for Worldwide Interbank Financial Telecommunication (SWIFT) 环球同业

银行金融电讯协会18. economic integration blocs 经济一体化集团

Unit Two International Business

Introduction

As we can see from the last unit, the global economy is around our daily life. Almost every enterprise is engaging in international business. International business refers to the performance of trade and investment activities by firms across national borders. Firms organize, source, manufacture, market, and conduct other value-adding activities on an international scale. They seek foreign customers and engage in collaborative relationships with foreign business partners. While international business is primarily carried out by individual firms and governments, international agencies also engage in international business transactions. Firms and nations exchange many physical and intellectual assets including products, services, capital, technology, know-how, and labor.

While international business has been around for centuries, it has gained much speed and complexity over the past two decades. Today firms seek international market opportunities more than ever before, touching the lives of billions of people around the world. Daily lives such as shopping and leisure activities like listening to music, watching a movie, or surfing the Internet involve international business transactions that connect you to the global economy. International business gives you access to products and services from around the world and profoundly affects your quality of life and economic well-being.

The growth of international business activity coincides with the broader phenomenon of globalization of markets. The globalization of markets refers to the ongoing economic integration and growing interdependency of countries worldwide. While internationalization of the firm refers to the tendency of companies to systematically increase the international dimension of their business activities, globalization refers to a macrotrend of intense economic interconnectedness between countries. In essence, globalization leads to compression of time and space. It allows many firms to internationalize and has substantially increased the volume and variety of cross-border transactions in goods, services, and capital flows. It has also led to more rapid and widespread diffusion of products, technology, and knowledge worldwide, regardless of region.

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国际商务英文与函电 ( 第 2 版 )

Activities in International Business

The two main forms of international business transactions are international trade and investment.

International trade refers to an exchange of products and services across national borders. Trade involves both products (merchandise) and services (intangibles). Exchange can be through exporting, and entry strategy involving the sale of products or services to customers located abroad, from a base in the home country or a third country. Exchange can also take the form of importing or global sourcing — the procurement of products or services from suppliers located abroad for consumption in the home country or a third country. Therefore, exporting is an outbound activity, while importing is an inbound flow of products and services. Both finished products and intermediate goods, such as raw materials and components, are subject to importing and exporting.

International investment refers to the transfer of assets to another country, or the acquisition of assets in that country. These assets include capital, technology, managerial talent, and manufacturing infrastructure. Economists refer to such assets as factors of production. With trade, products and services cross national borders. With investment, by contrast, the firm itself crosses borders to secure ownership of assets located abroad.

The two essential types of cross-border investment are portfolio investment and foreign direct investment. International portfolio investment refers to the passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns. It does not entail active management or control over these assets. The foreign investor has a relatively short-term interest in the ownership of these assets. Foreign direct investment (FDI) refers to an internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment. It is a foreign-market entry strategy that gives investors partial or full ownership of a productive enterprise dedicated to manufacturing, marketing, or research and development activities. Firms usually have a long-term plan to invest such resources in foreign countries.

The Nature of International Trade

Gross Domestic Products (GDP) is the total value of products and services produced in a country over the course of a year. The growth of export activity by nations has continued to outpace the growth of domestic production during the last few decades, illustrating the fast pace

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of globalization. In fact, world exports grew more than thirtyfold during this period, while world GDP grew more than tenfold. This difference is in part due to advanced economies, such as Canada and Japan, now sourcing many of the products that they consume from low-cost manufacturing locations such as China and Mexico. For example, although the United States once produced most of the products that it consumes, today it has become much more dependent on imports. Rapid integration of world economies is fueled by such factors as advances in information and transportation technologies, the decline of trade barriers, liberalization of markets, and the remarkable economic growth of emerging market countries. While the United States is the leading country in terms of the absolute value of total merchandise trade, trade accounts for only 19% of its GDP. In contrast, merchandise trade is a much larger component of economic activity in countries such as Belgium (167%), the Netherlands (117%), and Germany (59%). These percentages show that some economies are very dependent on international trade relative to the value of all goods and services produced domestically. The same is true for countries such as Singapore, South Korea, and Malaysia, because trade accounts for more than 100 percent of their GDPs. These countries are known as entrepot economies because they import a large volume of products, some of which they process into higher value-added products, and some they simply re-export to other destinations. For example, Singapore is a major entrepot, or depot, for petroleum products received from the Middle East, which it then exports to China and other destinations in Asia.

The Nature of International Investment

Of the two types of investment flows between nations — portfolio investment and foreign direct investment — we are concerned primarily with FDI, because it is the ultimate stage of internationalization, and encompasses the widest range of international business involvement. FDI is the foreign entry strategy practiced by the most internationally active firms. Companies usually engage in FDI for the long term, and retain partial or complete ownership of the assets they acquire.

Firms undertake FDI for a variety of strategic reasons, including ① to set up manufacturing or assembly operations, or other physical facilities; ② to open a sales or representative office or other facility to conduct marketing or distribution activities; or ③ to establish a regional headquarters. In the process, the firm establishes a new legal business entity, subject to the regulations of the host government.

FDI is especially common among large, resourceful companies with substantial international operations. For instance, many European and U.S. firms have invested in China, India, and Russia

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国际商务英文与函电 ( 第 2 版 )to manufacture or assemble products, taking advantage of low-cost labor and other resources in these countries. At the same time, companies from these rapidly developing economies have begun to invest in western markets. For example, India’s Mittal Steel Co. acquired the Luxembourg-based Arcelor SA in 2006, creating a $38 billion conglomerate — the world’s largest steel company. Also, the Russian oil & gas firm Lukoil established thousands of service stations in the United States and Europe.

The dollar volume of FDI has grown immensely since the 1980s, especially in advanced economies such as Japan, Europe, and North America. FDI flows were interrupted in 2001 by the worldwide panic—the September 11 terrorist attacks in the United States, and the trend remained strong and was growing over time. Of particular significance is the growth of FDI into developing economies, nations with lower incomes, less-developed industrial base, and less investment capital than advanced economies. Most of the developing economies are located in parts of Africa, Asia, and Latin America. Despite poor income levels, developing economies collectively comprise a substantial and growing proportion of international trade and investment activities. The ability to invest in other countries provides customers in both developing and advanced economies with a wider selection of products and services at lower prices. Living standards of billions of people are much better because of international trade and investment activities.

Services Trade as Normal Products

Traditionally, international trade and investment have been regarded as the domain of companies that make and sell products — tangible merchandise such as clothing, computers, and cars. Today, firms that produce services (intangible) are key international business players as well. Services are deeds, performances, or efforts performed directly by people working in banks, consulting firms, hotels, airlines, construction companies, retailers, and countless other firms in the services sector. For instance, advertising for the Procter & Gamble products that you purchased may have been created by Saatchi & Saatchi, headquartered in the United Kingdom. If you own a house, the mortgage may be underwritten by the Dutch bank ABN Amro. Perhaps you eat lunch in a cafeteria owned by the French firm Sodexho, which manages the food and beverage operations on numerous university campuses. In the United States and several European countries, travel and tourism are now the number one source of revenue from foreigners.

International trade in services accounts for about one quarter of all international trade and is growing rapidly. In recent years, services trade has been growing faster than products trade. As with products, larger advanced economies account for the greatest proportion of world services trade. Even though trade in services is rapidly rising, the absolute value of merchandise trade is

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still several times larger than the value of services trade. One reason is that services face greater challenges and barriers in cross-border trade than merchandise goods.

Not all services can be exported. As examples, you cannot export the construction work to build a house, repair work done on your car, or the experience of eating a meal in a restaurant — even though some services can be digitized and moved across borders. Most services can be offered internationally only by establishing a physical presence abroad through direct investment. Firms employ FDI to set up restaurants, retail stores, and other physical facilities, through which they sell trillions of dollars worth of services abroad every year.

There are numerous industries in the services sector with strong potential for internationalization. The largest auction-based retailer on the Internet is eBay. The firm earned over 6 billion dollars in 2006, of which about 40% came from international sales. The company expects most future revenue growth will come from abroad. When developing its business in India, eBay acquired the Mumbai-based e-retailer Baazee. The acquisition followed eBay’s expansion into China, Korea, and Europe. With more than 1 billion people, India is the world ’s second most populous nation (China is the first, with 1.3 billion). There are an estimated 40 million Internet users in India, compared with 132 million in China and 210 million in the United States. However, the number of Indian consumers who shop online is growing rapidly.

International banking and financial services are among the most internationally active service industries. The explosive growth of investment and financial flows beginning in the 1970s led to the development of capital markets worldwide. Much of this growth is due to two factors: money flowing across national borders into portfolio investments and pension funds, and the internationalization of banks. The activities of banks and other financial institutions help increase economic activity in developing economies by increasing the amount of cheap, local investment capital, stimulating development of local financial markets, and encouraging people to save money.

International banking is flourishing in such regions as the Middle East, where the return on equity in Saudi Arabia, for instance, exceeds 20% (as compared to 15% in the United States and much less in France and Germany). Citibank, Deutsche Bank, BNP Paribas, and other international banks are thriving because of high oil prices, a boom in consumer banking, and low taxes. National Commercial Bank, the biggest bank in the region, calculates that non- interest-bearing deposits comprise nearly 50% of total deposits in Saudi Arabia. Banks lend this free money to companies and consumers at high margins. Banks bypass Islamic rules against paying interest by structuring loans as partnerships.

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How does International Business Differfrom Domestic Business?

Firms engaged in international business operate in business environments characterized by unique economic conditions, political systems, laws and regulations, and culture. For instance, the economic environment of China is quite different from that of US. Not only does the firm find itself in less familiar surroundings than it does domestically, it would face many uncontrollable and variable factors which for the firm are hard to deal with. These variable factors introduce more risks for the firm involved in international business.

The Four Risks in Internationalization

Internationalizing firms are routinely exposed to four major types of risk: cross-cultural risk, country risk, currency risk, and commercial risk. The firm must manage these risks to avoid financial loss or product failures.

Cross-cultural risk refers to a situation or event in which a cultural miscommunication puts some human value at stake. Cross-cultural risk is posed by differences in language, lifestyles, mindsets, customs, or religion. Values unique to a culture tend to be long-lasting and transmitted from one generation to the next. These values influence the mindset and work style of employees and the shopping patterns of buyers. Foreign customers’ characteristics differ significantly from those of buyers in the home market. Language is a critical dimension of culture. In addition to facilitating communication, language is a window on people’s value systems and living conditions. When translating from one language to another, it is often difficult to find words that convey the same meanings. Such challenges impede effective communication and cause misunderstandings. Miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers.

Country risk (also known as political risk) refers to the potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country. Country risk includes the possibility of foreign government intervention in firms’ business activities. For example, governments may restrict access to markets, impose bureaucratic procedures on business transactions, and limit the amount of earned income that firms can bring home from foreign operations. The degree of government intervention in commercial activities varies from country to country. Country risk also includes laws and regulations that potentially hinder company operations and performance. Critical legal dimensions

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include property rights, intellectual property protection, product liability, and taxation policies. Nations also experience potentially harmful economic conditions, often due to high inflation, national debt, and unbalanced international trade.

Currency risk (also referred to as financial risk) refers to the risk of adverse fluctuations in exchange rates. Fluctuation is common for exchange rates, or the value of one currency in terms of another. Currency risk arises because international transactions are often conducted in more than one national currency. When currencies fluctuate significantly, however, the value of the firm’s assets, earnings, and operating income can be reduced. The cost of importing parts or components used in manufacturing finished products can increase dramatically if the value of the currency in which the imports are denominated rises sharply. Inflation and other harmful economic conditions experienced in one country may have immediate consequences for exchange rates due to the growing interconnectedness of national economies.

Commercial risk refers to the firm’s potential loss or failure from poorly developed or executed business strategies, tactics, or procedures. Managers may make poor choices in such areas as the selection of business partners, timing of market entry, pricing, creation of product features, and promotional themes. While such failures also exist in domestic business, the consequences are usually more costly when they are committed abroad. For example, in domestic business a company may terminate a poorly performing distributor simply with advance notice. In a foreign market, however, terminating business partners can prove costly due to regulations that protect local firms. Marketing inferior or harmful products, falling short of customer expectations, or failing to provide adequate customer service may harm the firm’s reputation and international performance.

The four types of international business risks are omnipresent. The firm may encounter them around every corner. While these risks cannot be avoided, they can be anticipated and managed. Experienced international firms conduct research to anticipate potential risks, understand their implications, and take proactive action to reduce their effects.

Some international risks are extremely challenging. An example is the East Asian economic crisis of the late 1990s. Between January and July of 1998, the currencies of several East Asian countries lost between 35 to 70 percent of their value, leading to the collapse of national stock markets, deepening trade deficits, and suspension of normal business activity. Political and social unrest soon followed in Indonesia, Malaysia, South Korea, Thailand, and the Philippines. In all, the East Asian economic crisis generated substantial commercial, currency, and country risks.

National differences require managers to formulate approaches tailored to conditions in each country where the firm does business. Differences typically require firms to substantially alter their products and services. For instance, Citibank varies its banking practices around the world.

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国际商务英文与函电 ( 第 2 版 )Approaches for loaning funds must conform to unique regulatory and cultural conditions from Africa, to Asia, to the Middle East. Nestle must alter the packaging and ingredients it uses for the breakfast cereals that it sells abroad. For example, compared with North Americans, Asians generally prefer less sugar in their cereals.

Who Participates in International Business?

Among the most important are focal firms, the firms that directly initiate and implement international business activity. Let’s briefly highlight two types of focal firms in international business: the multinational enterprise (MNE) and small and medium-sized enterprise (SME).

Multinational enterprises (MNE), also known as multinational corporations, have historically been the most important type of focal firms. A multinational enterprise is a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. One of the hallmarks of MNEs is that they tend to carry out R&D, procurement, manufacturing, and marketing activities wherever in the world it makes most economic sense. In addition to a home office or headquarters, the typical MNE owns a worldwide network of subsidiaries. It collaborates with numerous suppliers and independent business partners abroad.

Typical MNEs include Caterpillar, Disney, Samsung, Unilever, Vodafone, Carrefour, DHL, ect. The most well-known multinational firms are ranked, based on international sales revenue, in annual listings such as Fortune Magazine’s Global 500. In recent years, the largest MNEs are found in the oil industry and the automotive industry, as well as retailing, such as Exxon Mobil, General Motors and Wal-Mart. The United States hosts 170 MNEs, whose combined revenues amount to $6,645 billion.

While MNEs are among the leading participants, international business is not the domain of large, resourceful firms alone. Many small and medium-sized enterprises (SMEs) participate as well. In the United States, an SME is a company with 500 or fewer employees, although this number may need to be adjusted downward for other countries. In addition to being smaller players in their respective economies, SMEs tend to have limited managerial and other resources, and primarily use exporting to expand internationally. In most nations, SMEs constitute between 90 and 95 percent of all firms.

With the globalization of markets, advances in various technologies, and other facilitating factors, more and more SMEs are pursuing business opportunities around the world. SMEs account for about one third of exports from Asia and about a quarter of exports from the affluent countries in Europe and North America. In selected countries such as Italy, South Korea, and

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China, SMEs contribute more than 50 percent of total national exports.International business requires specialized knowledge, commitment of resources, and

considerable time to develop foreign business partnerships. How do SMEs succeed in international business despite resource limitations? First, compared with large MNEs, smaller firms are often more innovative, more adaptable, and have quicker response time when it comes to implementing new ideas and technologies and meeting customer needs. Second, SMEs are better able to serve niche markets around the world that hold little interest for MNEs. Third, smaller firms are usually avid users of new information and communication technologies, including the Internet. Fourth, as they usually lack substantial resources, smaller firms minimize overhead or fixed investments. Instead, they rely on external facilitators such as FedEx and DHL, as well as independent distributors in foreign markets. Fifth, smaller firms tend to thrive on private knowledge that they possess or produce. They access and mobilize resources through their cross-border knowledge networks, or their international social capital.

Firms pursue internationalization strategies for a variety of reasons. Firms often have more than one motive for international expansion.

(1) Seek opportunities for growth through market diversification. Substantial market potential exists outside the home country. Many large and small companies, including Gillette, Siemens, Sony and Biogen, derive more than half of their sales from abroad. When they diversi fy into foreign markets, firms can generate sales and profit opportunities that cannot be matched at home. Internationalization can also extend the marketable life of products or services that have reached their maturity in the home country.

(2) Earn higher margins and profits. For many types of products and services, market growth in mature economies is sluggish or flat. Competition is often intense, forcing firms to get by on slim profit margins. By contrast, most foreign markets may be underserved (typical of high-growth emerging markets) or not served at all (typical of developing economies). Less intense competition, combined with strong market demand, implies that companies can command higher margins for their offerings.

(3) Gain new ideas about products, services, and business methods. International markets are characterized by tough competitors and demanding customers with various needs. Unique foreign environments expose firms to new ideas for products, processes, and business methods. The experience of doing business abroad helps firms acquire new knowledge for improving organizational effectiveness and efficiency.

(4) Better serve key customers that have relocated abroad. In a global economy, many firms internationalize to better serve clients that have moved into foreign markets.

(5) Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility

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国际商务英文与函电 ( 第 2 版 )in the sourcing of products. Companies in extractive industries such as petroleum, mining, and forestry establish international operations where these raw materials are located. In addition, some firms internationalize to gain flexibility from a greater variety of supply bases. For instance, Dell Computer has assembly facilities in Asia, Europe, and the Americas that allow management to quickly shift production from one region to another. In particular, it allows the firm to skillfully manage currency exchange rate fluctuations.

(6) Gain access to lower-cost or better-value factors of production. Internationalization enables the firm to access capital, technology, managerial talent, labor, and land at lower costs, higher-quality, or better overall value at locations worldwide. For instance, some Taiwanese computer manufacturers have established subsidiaries in the United States to access low-cost capital. More commonly, firms venture abroad in search of skilled or low-cost labor. For example, the Japanese firm, Canon, relocated much of its production to China to profit from its inexpensive, productive workforce.

(7) Develop economies of scale in sourcing, production, marketing, and R&D. Economies of scale refer to the reduction of the per-unit cost of manufacturing and marketing due to operating at high volume. By expanding internationally, the firm greatly increases the size of its customer base, thereby increasing the volume of products that it manufactures. On a per-unit-of-output basis, the greater the volume of production, the lower the total cost. Economies of scale are also present in R&D, sourcing, marketing, distribution, and after-sales service.

(8) Invest in a potentially rewarding relationship with a foreign partner. Firms often have long-term strategic reasons for venturing abroad. Joint ventures or project-based alliances with key foreign players can lead to the development of new products, early positioning in future key markets, or other long-term, profit-making opportunities.

Why Should We Study International Business?

There are many reasons to study international business. We can examine the reasons from the perspectives of the global economy, the national economy, the firm, and you as a future manager.

Facilitator of the Global Economy and Interconnectedness

International business is transforming the world as never before, as we have discussed in Unit One. The decades following the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947 witnessed unprecedented growth in international trade and investment. Companies focused more and more on the mass production of products and services to meet insatiable world demand.

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Since the 1980s, emerging markets provided new opportunities for worldwide economic interconnectedness. These fast-growth developing economies — some two dozen countries including Brazil, India, China, and Poland — are experiencing substantial markets, located on every continent, and are gradually breaking away from the stagnation typical of developing economies. Collectively, the emerging markets are home to the largest proportion of world population and participate increasingly in foreign trade. Along with market globalization, advances in technology have also served to transform the global economy.

Contributor to National Economy

International business contributes to economic prosperity and standards of living, provides interconnectedness to the world economy and access to a range of valuable intermediate and finished products and services, and helps countries use their resources more efficiently. Consequently, governments have become more willing to open their borders to foreign trade and investment.

International trade is a critical engine for job creation. It is estimated that every $1 billion increase in exports creates more than 20,000 new jobs. In the United States, cross-border trade directly supports at least 12 million jobs. One of every seven dollars of U.S. sales is made abroad. One of every three U.S. farm acres and one of every six U.S. jobs is producing for export markets. Generally, exporting firms create jobs faster than nonexporting firms. Wages and benefits for export-related jobs are better, on average, than those for nonexporting jobs.

There is a strong relationship between a nation’s level of prosperity and its participation in cross-border trade and investment. International business is both a cause and a result of increasing national prosperity. It is helping to spread national prosperity and abundance beyond advanced economies into developing economies. Nations once suffering from economic stagnation are now increasingly prosperous. For instance, China, India, and Eastern European nations are active international traders. The proportion of affluent citizens in these countries is rapidly growing. In terms of material gain, households in many developing economies have recently experienced huge increases in the ownership of televisions, refrigerators, and other mass-produced products. While these gains are attributable to various causes, the benefits of free exchange of products, services, capital, and technology among nations are paramount.

International trade and investment can also help reduce poor economic conditions in developing economies. The rapid economic growth of emerging countries is stimulating solid gains in living standards. Growing prosperity is accompanied by gains in literacy rates, nutrition, and health care. Trade and investment help to reduce the likelihood of cross-border conflict. The world has recently entered a new era of international tension, sometimes accompanied by

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国际商务英文与函电 ( 第 2 版 )terrorism. International business can help to limit such tension, by reducing world poverty and increasing interactions that help soothe relations among nations.

The development of the European Union (EU) is helping to raise living standards of millions of EU citizens, particularly in Eastern Europe. The EU is making international trade and investment much easier for European businesses. It is transforming Europe into a new powerhouse in global trade.

Cross-border business also helps integrate world economies. The North American Free Trade Agreement (NAFTA), launched in 1994, integrates the economies of Canada, Mexico, and the United States in a giant market of roughly 450 million consumers. Multicountry collaboration in the automobile industry and other sectors created good-paying jobs and helped make Mexico one of the top U.S. trading partners. Following NAFTA’s launch, the volume of trade among the three countries increased dramatically, helping to improve living standards for millions of people. In Mexico, NAFTA led to substantially higher wages, better social systems, and higher employment rates.

A Competitive Advantage for the Firm

To sustain a competitive advantage in the global economy, firms must readily participate in cross-border business and acquire the necessary skills, knowledge, and competence. Procter & Gamble sells shampoo, disposable diapers, and other consumer products in more than 150 countries. Nestle sells its food and beverage products worldwide, obtaining nearly all its revenue from foreign operations. As these examples imply, going international offers countless opportunities for firms to increase revenue. Young companies can achieve substantial growth by targeting new markets and opportunities to earn additional profits. Foreign markets are likely to generate favorable outcomes for the firm in terms of sales, profit margins, growth, and new knowledge.

In addition, firms can maximize the efficiency of their operations through international business. Companies secure cost-effective factor inputs by establishing manufacturing in emerging markets like Brazil, Mexico, and Poland, or sourcing from foreign suppliers. For example, Microsoft cuts the costs of its operations by having much of its software written in India. Renault achieves efficiency by assembling cars at low-cost factories in Romania.

International business also allows firms to access critical resources that may be unavailable

at home. It helps firms reduce the costs of new product development, after-sales service, and other

critical business activities. Companies access foreign sources of information and knowledge that

provide the basis for future R&D, improved production and administrative processes, and other

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innovations. Internationalization broadens the options for dealing with competitors, offering

opportunities to make globally strategic moves and countermoves that help the firm compete more

effectively with domestic and foreign rivals.

A Competitive Advantage for Us

David, the student in the opening story in this textbook, is touched everyday by a variety of international business transactions. He is considering a career in international business because he is starting to grasp its growing importance. While most international careers are based in one ’s home country, managers travel around the world and meet people from various cultures and backgrounds. Traveling to countries such as Argentina, China, India, Poland, or South Africa can lead to exciting learning experiences and provide challenges.

Managers rising to the top of most of the world’s leading corporations — AIG, ABB, Citigroup, Coca-Cola, McDonald’s, Oracle, Nissan — honed their managerial skills in international business. Working across national cultures exposed these managers to a range of enlightening experiences, new knowledge, novel ways of seeing the world, and various unusual challenges. Managers with extensive international experience are generally more confident, cosmopolitan, and better suited to meet the variety of challenges they may encounter throughout their careers. In short, acquiring knowledge and managerial skills in international business is not only exciting, challenging, and fun, but it is also a unique professional development opportunity.

In a word, international business is more and more important in our daily life and global economy. Writing business letters is one of the ways to communicate with outside world in business activities. In this textbook, we will mainly give you the way to master the writing skill of business letters. The business cases shown in this textbook will include the commodities imports and exports, foreign investment, service trade and other business activities which are normally named in the international business.

Discussion Issues in Class1. What is international business?2. Describe the activities of international business.3. What is the difference between the international business and domestic business?4. Please give one case to explain the importance of international business.5. What skills should you learn if you will be a manager doing international business in your

future career?

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Vocabulary

1. coincide with 与……相符2. surfing n. 网上冲浪3. interdependency n. 相互依赖4. macrotrend n. 大趋势5. interconnectedness n. 相互联系6. collaboration n. 合作7. multilateral adj. 多边的8. simultaneously adv. 同时9. diffusion n. 扩散10. domain v. 领域11. entail vt. 使成为必要12. foreign direct investment 外国直接投资13. dedicated adj. 专用14. international portfolio investment 国际证券投资15. outpace vt. 超过16. entrepot n. 转口港17. depot n. 仓库18. conglomerate n. 砾岩19. encompass vt. 包括20. panic n. 恐慌21. comprise vt. 包括22. digitize vt. 数字化23. auction-based 拍卖为基础24. acquire vt. 获得25. explosive adj. 爆炸物26. BNP Paribas 法国巴黎银行27. pension fund 退休基金28. omnipresent adj. 无所不在29. anticipate vt. 预计30. implication n. 影响31. suspension n. 暂停32. ingredient n. 成分

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33. tailored adj. 定制的34. formulate vt. 系统地表述

Unit Three Business Letter Writing

Writing Principles of Business Letters

It’s very important to master good communication skills in the business community. The functions of a business letter are as follows:

(1) to gain or to convey business information;(2) to make or to accept an offer;(3) to deal with matters concerning negotiation of business.This means that the writer is courteous, honest, tactful and genuinely interested in promoting

a mutually beneficial business arrangement, taking into account the reader’s requirements, level of understanding, and probable reaction to the information.

There are certain essential qualities that one needs in writing business letters. When you write a business letter, you can follow the principles below.

1. Courtesy

Courtesy is more than politeness. The courteous writer should be sincere and tactful, thoughtful and appreciative.

First of all, reply to your customer promptly.Secondly, do not doubt a statement made in good faith by the other side and even worse to

contradict it.Finally, adopt a sincere You-attitude. You-viewpoint presentation sounds better than We-

viewpoint. For example, if the seller has taken into consideration the benefits or difficulties of the buyer and suggests a possible settlement, the buyer would cooperate more closely with the seller.

2. Clearness

The writer must try to express himself clearly. To achieve this, he should make sure that what he wants to say and keep in mind the appropriate words in correct sentence structure and fully convey his meaning. In a word, write in good, straightforward, and simple English.

3. Conciseness

To achieve conciseness is to use concise sentences and fewest words, without losing courtesy and clearness, to explain the purpose of a letter clearly. Try to avoid wordiness or redundancy.

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To achieve conciseness is to paragraph a letter carefully and properly. One paragraph for each point is a good general rule.

Layout of Business Letters

1. Parts of the Business Letter

1) letter-head 信头2) reference and date 编号和日期3) inside name and address 封内名称和地址 4) attention line 经办人5) salutation 客气称呼 6) subject line 标题(事由) 7) message 信的正文8) complimentary close 结尾敬辞9) signature 签名10) enclosure 附件 11) carbon copy notation 抄送12) postscript 附言 13) identification line 辨认记号14) margins 页面边缘空白15) the second page 第二页 The following letter is designed to illustrate the position of each part mentioned above.1) Xiamen Trading Company Xiamen, China

Tel: (0592) 8453332 Fax: (0592) 8453336 E-mail: XMTC@YAHOO.COM.CN2) Your ref: C0527

Our ref: lt/lt Date: 27 July, 2017

3) Messrs. J. Smith & Co. 402 NorthcheapLondon, E. C. 5

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国际商务英文与函电 ( 第 2 版 )4) Attention: Import Dept.5) Dear Sirs,6) Chinese arts and handcrafts 7) We thank you for your letter of 20 July, 2017.

At your request, we are sending you herewith a copy of our latest price list for your information.All prices are understood to be CIF European Main Ports, subject to our final confirmation. Payment is to be made by irrevocable Letter of Credit available by draft at sight.As there is a backlog for the goods, we would suggest that you advise us by e-mail if you are interested in these lines of goods.We are looking forward to your reply soon.

8) Yours faithfully,9) Xiamen Trading Company

(Signed) …10) Encl. as stated11) c.c. our Branch Office in Hong Kong12) P. S. Your letter of July 25 has just come to hand. As requested, we will airmail you three

samples tomorrow.

2. The Ways of Writing

1) letter-head Letter-head includes the sender’s name and address, telephone numbers, fax number, e-mail,

homepage, and the kind of business carried on. The letter-head’s styles vary considerably. It helps to form one’s impression of the sender’s firm.

2) reference and date Reference numbers and letters enable replies to be linked with earlier correspondence and

ensure that they reach the right person or department without delay. It may include a file number, departmental code or the initials of the signer of the letter to follow by the typist ’s initials. They are marked “Our ref.” and “Your ref.” to avoid confusion. They may be placed immediately below the letter-head.

The date should be placed two or four spaces below the letter-head, written in full and not abbreviated. To give the date in figures is in bad taste, for the practice to write dates varies in different countries. The preferred order of the parts that make up the date is as follows: the day of the month, the month, the year. There is a growing tendency to omit the -th, -st, -nd and -rd that

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follow the day.3) inside name and address The name and the address of one’s correspondent is typed at the left-hand margin at least two

lines below the date. It appears exactly the same way as on the envelope.Mr. (or Esq.), Messrs., Mrs., Miss, and Ms.—the courtesy titles in correspondence are used

to address one person. Mr. for a man, Messrs. for partnerships whose firm’s name includes a personal element, as in Messrs. MacDonald & Evans, Mrs. for a married woman, Miss for an unmarried woman, and Ms. for all women.

After the name, his or her official position should follow, if there is any.e.g. Mr. Smith, the Vice President The London Export Corporation 8 and 9 Clifford Street London, W. 1, England4) attention line It’s typed two line-spacings above the salutation, underlined, and centered over the body of

the letter. Attention line is used to direct the letter to a specific individual or section of the firm.5) salutation The salutation is the greeting with which every letter begins. The form depends upon the

writer’s relationship with the receiver. The customary formal greeting in a business letter is Dear Sir (Madam), Dear Sirs (Mesdames), or Gentlemen (AmE). If the receiver is known to the writer personally, an informal but warmer greeting, “Dear Mr. Brown” is then preferred.

6) subject line Subject line is actually the general idea of a letter. It’s often inserted between the salutation

and the body of a business letter to call attention to the topic of the letter.If the business letter includes more than one topic, paragraph headings may be useful, but it

is better to confine each letter to one subject if possible, because different subjects may need attention by different departments or different persons.

7) message This is the main part of the letter. It conveys the writer’s idea, opinion, purpose and wishes,

etc., so before you write, you must pay attention to the following:a) Write simply, clearly, courteously, grammatically, and to the point;b) Paragraph correctly, confining each paragraph to one topic;c) See that your typing is accurate and the display artistic. Aim at an attractive and pleasing

appearance for your letter.

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国际商务英文与函电 ( 第 2 版 )If there has been previous correspondence, the reply letter will refer to it in the first

paragraph. In the last paragraph, it’s better to express the writer’s plans, hopes, expectations and future actions.

8) complimentary close The complimentary close should match the form of the salutation. It’s merely a matter of

custom and a polite way of bringing a letter to a close. The most commonly used salutations, with their matching closes are as follows:

Formal:Dear Sir(s) / Dear Madam, Yours faithfully,Gentlemen: Truly yours,Informal:Dear Mr. Brown,(:) Yours sincerely, (or Sincerely yours,) As the salutation and complimentary close are purely a matter of courtesy and don’t mean

anything to the message, they can be omitted in the simplified form used nowadays. The complimentary close, when used, must never be separated from the substance of a letter but carried to a separate sheet.

9) signature The signature is the signed name or mark of the person writing the letter or that of the firm

he or she represents. It’s written in ink immediately below the complimentary close. Since hand-written signatures are illegible, the name of the signer is usually typed below the

signature, and followed by his job title or position.Never sign a letter with a rubber stamp.10) enclosure If something is enclosed with the letter, note it below the signature. With a figure indicating

the number of enclosures, if there are more than one.Examples:Enclosure:Encl.3 Encls. 11) carbon copy notation When copies of the letter are sent to others, type C.C. below the signature at the left margin.e.g. C.C. Mr. G Wall12) postscript If the writer wishes to add something he forgot to mention or for emphasis, he may add his

postscript two spaces below the carbon copy notation.

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Try to avoid the use of P.S. in formal letter, since it may suggest that the writer failed to plan his letter well before he typed it.

e.g. P.S. The samples will be sent to you tomorrow morning.13) identification line This line typed two spaces below the typed signature, and shows the initials of the person

who dictated the letter and those of the secretary or typist. The following examples are acceptable forms of the identification line.

e.g. Bill Clinton / Nancy Brown BC/NB14) margins Margins are especially important, since they serve to “frame” your letter. Both left-hand and

right-hand margins are generally 30 mm. A brief letter can have margins as wide as 34 mm. 15) the second page Business letters are usually one page long, but sometimes you need two or more pages.

When you have continuous sheets or pages, the phrase “-to be continued-” may be added on the right hand side at the bottom of the first page, making sure that the second and succeeding pages have the same quality, size and color as the first page. Type with a heading to show:

a) the number of the sheet (in the center of the page);b) the name of your correspondent (on the left-hand side);c) the date of the letter (on the right-hand side).e.g.

-2- The Asian Trading Co. Ltd. 16 July, 2017

Letter Forms

The main aim of designing a letter is to make the letter not only pleasing to the eyes, but also convenient to be typed. Which form a sender likes to choose depends on his or her preference. The two main kinds of form are as follows:

Semi-indented Letter Style

Xiamen Textile Import & Export Corp.189, Seaside Road, Xiamen, China

Tel: 592-3335876 Fax: 592-3335877 E-mail: XMTIEC@YAHOO.COM.CN

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国际商务英文与函电 ( 第 2 版 )Our ref: C256Your ref: I890

Date: 29 April, 2017Mr. Jackson305, Eastlake StreetLondon, England

Dear Mr. Jackson

Semi-indented Letter StyleThis letter is typed in the traditional style. The inside name and address is typed in block

form, but the paragraphs forming the body of the letter are all indented six spaces. Some typists prefer a deeper indentation and may use as many as ten spaces though six are sufficient to show the separation of paragraphs clearly.

Left-hand and right-hand margins of inches have been adopted. The date appears above

the inside name and address, but in most letters typed in this style it appears on the right-hand side, being so placed that the last figure serves as a guide for the right-hand margin.

The letter is of course typed in single line-spacing. The subject heading is centered two line-spicing below the salutation, which in turn begins three line-spacing below the inside name and address. The paragraphs are separated by double line-spacing.

The complimentary close is typed to fall evenly across the center of the typing line, with the designation similarly centered. Some typists using this style prefer to place the complimentary close to the right of center rather than in the center.

Yours sincerely for Xiamen Textile Import & Export Corp. Managing Director

Blocked Letter Style

Xiamen Textile Import & Export Corp. 189, Seaside Road, Xiamen, China

Tel: 592-3335876 Fax: 592-3335877 E-mail: XMTIEC@YAHOO.COM.CN

Our ref: C256Your ref: I890

Unit Three Business Letter Writing

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Date: 29 April, 2017Mr. Jackson305, Eastlake StreetLondon, England

Dear Mr. JacksonBlocked Letter StyleThis letter style is very modern. It is now being increasingly adopted in Britain and is popular in the United States. Its main feature is that all typing lines, including those for the date, the inside name and address, the salutation, the subject heading and the complimentary close, begin at the left-hand.

For this letter, the open style of punctuation has been adopted. For example, a complete absence of punctuation marks from the date, the salutation, the complimentary close, and from the ends of lines forming the inside name and address, except of course the full-stops to mark abbreviations.

Some people who use this style prefer to place the date in its usual position on the right, because it helps to give the letter a more balanced appearance. It also makes it easier to find particular letters in the files.Yours sincerelyManaging Director

Words and Expressions Commonly Used in Foreign Trade

1. trade(1) vi. 经商；做买卖

a) trade with 与……做生意We trade with other countries on the basis of equality and mutual benefit.我们在平等互利的基础上与其他国家进行贸易。

b) trade in 经营(商品)They trade mainly in light industrial products.他们主要经营轻工业产品。

(2) n. 贸易、行业a) Our foreign trade is expanding day by day. 我们的对外贸易日益发展。b) The students can be trained for many trades.

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国际商务英文与函电 ( 第 2 版 )学生可以获得多种行业培训。

Unit Three Business Letter Writing

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2. market(1) n. 市场

The market determines what goods are made.市场决定商品的生产。(2) n. 市价；行情

a) Your price is out of line with the market.你方价格与市场不符。b) The market is strengthening. 市价行情上扬。

(3) n. 销路There is no market here for such goods.这种商品在这儿没有销路。

(4) be in the market for… 想要购买They might be in the market for sophisticated equipments.他们可能要购买尖端设备。

(5) come to (into) the market 上市We’ll contact you as soon as the new crops come to the market.一旦有收成上市，我们将尽快与你联系。

(6) v. 销售；推销 This product is being marketed in all European countries. 这种产品行销欧洲所有国家。

3. enclosev. 随函寄，附寄(在函电中往往倒装使用)a) Enclosed is a set of cutting samples. 随函寄去剪样一套。b) Enclosed please find our pricelist.随函寄去我价目单一份，请查收。

4. particularlyadv. 特别地；尤其(=especially)a) One of our customers is interested in your bicycles, particularly Model No. PA-18. 我们的一个客户对你们的自行车感兴趣，特别是 PA-18型。b) The last thing we want to do is to disappoint a customer, particularly an old customer

like you.我们最不愿意做那些使顾客失望的事，特别是像您这样的老顾客。5. due to = owing to = on account of = because of = as a result of = thanks to, 以上均为介词

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国际商务英文与函电 ( 第 2 版 )短语，其后只能接名词。

Due to the bad weather, we were not able to settle the shipment. 因为天气恶劣，我们无法安排装运。注意：because, since, as, for (因为)等是连词，其后要接句子。Discussion Issues in Class1. What are the functions of a business letter?2. We often hear people say the three C’s. What are they?3. Is a concise letter always a short one?4. In what way can a letter be made clearer, easier to read and more attractive to look at?5. What does “promptness” mean in the passage concerning courtesy?6. Differences are bound to occur in business, and then in what way can you overcome and

settle the differences?7. What are the two letter styles? Which one do you prefer?8. How many principal parts does a business letter consist of?9. What must we consider first before writing the letter?10. How do you write a good business letter