Lecture 4 The Global Environment

1. Lecture 4 The Global Environment

2. Global Trade

3. Trade • An Individual Cannot Produce All Goods Necessary for Survival of Self • Food, Clothing, and Shelter • Specific Geographic Areas Have an Abundance of Natural Resources • Exchange with Others in Areas Lacking Such Natural Resources to Acquire Those Natural Resources which Are Wanting

4. Early Civilizations Stone Age Era with No Recorded History (Prehistoric Before History or Written Records) Nomadic People, Hunters-Gathers, Who Followed Food Source; Mostly Near Water Sources Little Interaction with Other Tribes or Groups of People

5. Early Civilizations Bronze Age From 3,300 BC Until 1,200 BC Recorded History Begins; Egyptian Hieroglyphics (3,200 BC) Great Civilizations Rise Near Fertile River Valleys ; Farming and Fishing Barter System of Trade: Surplus Food and Grain for Lumber and Gold

6. Early Civilizations Iron Age From 1,200 BC Until 500 AD Great Conquering Civilizations; Tools and Weapons Less Costly to Make Increases in Wealth and Prosperity Need for Trade to Support Great Cities Rome: Over One Million Inhabitants Coins Introduced to Facilitate Trade

7. Early Civilizations Iron Age Bronze Age Stone Age

8. Trade Facts • Trade Ensued During the Bronze Age • The Phoenicians and Mesopotamians • One Cannot Individually Produce All Goods Necessary for Survival • Types of Trade • Barter • Acceptable Trade Unit or Measure • Common Acceptable Coinage Influenced the Development of Trade More than Any Other Event

9. International Marketplace International Trade Is Vital to Economic Growth of Nations Imports Foreign Goods and Services for Purchase by Domestic Customers Exports Domestic Goods and Services for Purchases by Foreign Customers

10. International Involvement Import – Export Fundamental Form for International Business Few Capital Outlays Expands Market of Products Licensing Arrangement Between Companies in Different Countries Use of Brand Name, Trademarks, Patents, or Technology

11. International Involvement Strategic Alliance International Cooperation Between Two Companies for Mutual Gain Joint Venture Partnership Between International Companies to Create New Company Direct Investment Physical Investment in a Foreign Company Build Plant, Acquire Company

12. International Presence Domestic Presence Limited to National Country International Presence in One Foreign Country Multinational Presence in Multiple Foreign Countries Global Ubiquitous Global Presence

13. Measuring International Trade Balance of Trade Variance Between Imports and Exports Surplus – Exports Greater than Imports Deficit – Imports Greater than Exports Balance of Payments Overall Flow of Money Into or Out of a Country Exchange Rate Value of a Country’s Currency Against Other Currencies

14. Balance of Trade 2000 500 0 -500 -2000

15. Advantages Competitive Advantage Advantage of One Firm Over Another Firm in the Same Industry Comparative Advantage Advantage of One Country to Convert Natural Resources into End Products Based Upon Cost or Technology Absolute Advantage Monopolistic Advantage of a Country in Producing End Products

16. Barriers to Trade • Social and Cultural Differences in Language, Values, and Religious Attitudes • Economic Differences in a Country’s Size, Per-Capita-Income, and Stage of Economic Development • Political and Legal Differences in the Legal Environment of Countries • Trade Restrictions Imposed Via Tariffs, Import Quota, and Currency Controls

17. Final Word

18. Lecture 4 The Global Environment