Chapter 3 Business in the Global Economy

1. Chapter 3Business in the Global Economy Business Essentials Mrs. Wilson

2. Before Activity • Think-Pair-Share • List imports & exports of the U.S.

3. Importing, exporting, trade relations, and global currencies are covered in this lesson. 3-1 International business basics

4. Trading Among Nations • Domestic business is the making, buying, and selling of goods and services within a country • International business refers to business activities needed for creating, shipping, and selling goods and services across national borders; also known as foreign or world trade • Although the U.S. has many natural resources, a skilled labor force, and modern production facilities, American companies and consumers go beyond our borders to obtain many things

5. Trading Among Nations • The U.S. conducts trade with more than 180 countries • Consumers have come to expect goods and services from around the world • What are some of the advantages and disadvantages of international trade?

6. Trading Among Nations Absolute vs. Comparative Advantage • Absolute advantage exists when a country can produce a good or service at a lower cost than other countries • This may result from an abundance of natural resources or raw materials in a country • Ex) South American countries have an absolute advantage in coffee production, Saudi Arabia has an absolute advantage in oil production

7. Trading Among Nations Absolute vs. Comparative Advantage • A country may have an absolute advantage in more than one area • If so, it must decide how to maximize its economic wealth • A country may be able to produce both computers and clothing better than other countries

8. Trading Among Nations Absolute vs. Comparative Advantage • The world market for computers may be stronger than market for clothing • This means it would be better for the country to produce computers but to buy clothing from other countries • Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient

9. Trading Among Nations • Imports – items bought from other countries • Imports account for the total supply of bananas, coffee, cocoa, spices, tea, silk, and crude rubber in the U.S. • Without foreign trade, many things you buy would cost more or not be available • Exports – goods and services sold to other countries • Exports benefit consumers in other countries (p55)

10. Measuring Trade Relations • Countries are concerned about balancing income with expenses • When a country has an unfavorable balance of trade it owes money to others • Foreign debt is the amount a country owes to other countries • Balance of trade – the difference between a country’s total exports and total imports • If a country exports (sells) more than it imports (buys), it has a trade surplus

11. Measuring Trade Relations • If a country imports more than it exports, it has a trade deficit • In addition to exporting and importing, other forms of exchange take place among nations • Money goes from one country to another through investments and tourism • Balance of payments – the difference between the amount of money that comes in a country and the amount that goes out of it

12. International Currency • One challenge faced by businesses involved in international trade is the various currencies used around the world • Countries have their own banking systems and money • Russia: ruble • European Union: euro • Brazil: real • India: rupee • Saudi Arabia: riyal

13. International Currency • Exchange rate – the value of currency in one country compared with the value in another • The values of currencies may change day to day • Factors affecting exchange rates (p58-59): • Country’s balance of payments • Economic conditions • Political stability

14. Geographic, economic, cultural, and political aspects of international business, along with trade relations, are the focus of this lesson. 3-2 The global marketplace

15. International Business Environment • Doing business in other countries requires knowledge of the differences that exist among people and places • Businesses must consider 4 main factors: • Geography • Location, climate, terrain, waterways, natural resources • Economics • Technology, education, inflation, exchange rate, infrastructure

16. International Business Environment • Infrastructure – a nation’s transportation, communication, and utility system • Businesses must consider 4 main factors: • Culture • Language, family, religion, customs, traditions, food • Political-legal factors • Government system, political stability, trade barriers, business regulations

17. International Business Environment • Examples: • In India, time is fairly fluid so bee prepared for meetings to start and finish late and for interruptions to occur on a regular basis. • In Germany, in formal German business meetings, it is customary for the highest-ranking person to enter the room first. • In China, gift giving is an everyday part of Chinese business culture, giving and receiving gifts helps to cement relationships. Take gifts with you when visiting and put some thought into it.

18. International Trade Barriers • Government actions can create trade barriers – restrictions to free trade • 3 common trade barriers: • Quota – a limit on the quantity of a product that may be imported or exported within a given period • Tariff – a tax that government place on certain imported products • Embargo – stopping the importing or exporting of a certain product or service

19. Encouraging International Trade • Specific actions by governments can promote international business activities • Common efforts to encourage international trade include (p63-64): • free-trade zones • free-trade agreements (NAFTA) • common markets

20. Methods of organizing international business activities, such as joint ventures and multinational corporations, are the basis for this lesson. 3-3 International business organizations

21. International Business Organizations • Multinational company (MNC) – an organization that does business in several countries • MNCs usually consist of a parent company in a home country and divisions or separate companies in one or more hose countries

22. Global Market Entry Modes • As companies expand into other countries, several methods are available for their use (p66-67) • Licensing • Franchising • Joint venture – an agreement between 2 or more companies to share a business project

23. International Trade Organizations • International business organizations can be very complex • As a result, several organizations have been created to help companies with global trade activities (67-68) • World Trade Organization (WTO) • International Monetary Fund (IMF) • World Bank

24. After Activity • Internet Search • Find the exchange rate for the U.S. dollar for 3 countries.