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Business in the Global Economy

Learn about global trade relations, impact of currency values, trade barriers, and ways to encourage international trade. Explore key terms and factors influencing the international business environment.

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Business in the Global Economy

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  1. CHAPTER 3 Business in the Global Economy 3-1 International Business Basics 3-2 The Global Marketplace 3-3 International Business Organizations

  2. 3-1 International Business Basics Goals Describe importing and exporting activities. Compare balance of trade and balance of payments. List factors that affect the value of global currencies.

  3. Chapter 3 Key Terms • balance of payments • balance of trade • exchange rate • exports • imports

  4. Chapter 3 TRADING AMONG NATIONS • Absolute advantage • Comparative advantage • Importing • Exporting

  5. Source: United States Geological Survey Minerals Information Chapter 3 U.S. Import Reliance for Selected Raw Materials

  6. Checkpoint >> How does importing differ from exporting? Chapter 3 Answer • Importing is bringing items from other countries into a country. • Exporting is selling goods and services to other countries.

  7. Chapter 3 MEASURING TRADE RELATIONS • Balance of trade • Balance of payments

  8. Chapter 3 U.S. Trade Balances

  9. Balance of Trade Chapter 3

  10. Checkpoint >> How does balance of trade differ from balance of payments? Chapter 3 Answer • Balance of trade is the difference between a country’s total exports and total imports. • Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

  11. Chapter 3 INTERNATIONAL CURRENCY • Foreign exchange rates • Factors affecting currency values • Three main factors affect currency • Balance of payments • Economic conditions • Political disability

  12. Recent Values of Currencies Chapter 3 * U.S. dollars

  13. Checkpoint >> What factors affect the value of a country’s currency? Chapter 3 Answer • balance of payments • economic conditions • political stability

  14. 3-2 The Global Marketplace Goals Describe the components of the international business environment. Identify examples of formal trade barriers. Explain actions to encourage international trade.

  15. Chapter 3 Key Terms • infrastructure • trade barrier • quota • tariff • embargo

  16. Chapter 3 INTERNATIONAL BUSINESS ENVIRONMENT • Geography • Cultural influences • Economic development • Literacy level • Technology • Agricultural dependency • Political and legal concerns

  17. Chapter 3 • location • climate • terrain • waterways • natural resources • technology • education • inflation • exchange rate • infrastructure GEOGRAPHY ECONOMICS INTERNATIONAL BUSINESS ENVIRONMENT • language • family • religion • customs • traditions • food CULTURE • government system • political stability • trade barriers • business regulations POLITICAL–LEGAL FACTORS Elements of International Business Environment

  18. Checkpoint >> List the four main elements of the international business environment. Chapter 3 Answer • geography • cultural influences • economic development • political and legal concerns

  19. Chapter 3 INTERNATIONAL TRADE BARRIERS • Quotas • Tariffs • Embargoes

  20. Chapter 3 QUOTAS Reasons for quotas • To keep supply low and prices the same • To express displeasure at the policies of the importing country • To protect one of a country’s industries from too much competition form abroad

  21. Chapter 3 TARIFFS Reasons for tariffs • To set amount per pound, gallon, or other unit • To set the value of a good

  22. Chapter 3 EMBARGOES Reasons for embargoes • To protect a country’s industries from international competition more than the quota or tariff will achieve • To prevent sensitive products from falling into the hands of unfriendly groups or nations

  23. Checkpoint >> What are three formal trade barriers? Chapter 3 Answer • quotas • tariff s • embargoes

  24. Chapter 3 ENCOURAGING INTERNATIONAL TRADE • Free-trade zones • Free-trade agreements • Common markets

  25. Chapter 3 FREE-TRADE ZONES • Used to promote international business in a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing • Usually located around a seaport of airport

  26. Chapter 3 FREE-TRADE AGREEMENTS • Member countries agree to remove duties and trade barriers on products traded among them • Results in increased trade between members

  27. Chapter 3 COMMON MARKETS • Allows companies to invest freely in each member’s country • Allows workers to move freely across borders • Examples • European Union (EU) • Latin American Integration Association (LAIA)

  28. Checkpoint >> What actions could be taken to encourage international trade? Chapter 3 Answer • Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

  29. 3-3 International Business Organizations Goals Discuss activities of multinational organizations. Explain common international business entry modes. Describe activities of international trade organizations and agencies.

  30. Chapter 3 Key Terms • multinational company (MNC) • joint venture

  31. Chapter 3 MULTINATIONAL COMPANIES (MNC) • MNC strategies • MNC benefits • Drawbacks of multinational companies

  32. Chapter 3 MNC STRATEGIES • Global strategy • Multinational strategy

  33. Chapter 3 MNC BENEFITS • Large amount of goods available • Lower prices • Career opportunities • Foster understanding, communication, and respect • Friendly international relations

  34. Chapter 3 DRAWBACKS OF MULTINATIONAL COMPANIES • Economic power • Worker dependence on the MNC • Consumer dependence • Political power

  35. Checkpoint >> What are two strategies commonly used by multinational companies? Chapter 3 Answer • global strategy (offering the same product the same way everywhere) • multinational strategy (approaching each country market differently).

  36. Chapter 3 GLOBAL MARKET ENTRY MODES • Licensing • Franchising • Joint venture

  37. Chapter 3 LICENSING • Allows companies to produce items in other countries without being actively involved • Has a low financial investment, so the potential financial return for the company is often low • The risk for the company is low

  38. Chapter 3 FRANCHISING • Allows organizations to enter into contracts with people in other countries to set up a business that looks and runs like the parent company • Marketing elements, such as food products, packaging, and advertising must meet both cultural sensitivities and legal requirements • Commonly involves selling a product or service

  39. Chapter 3 JOINT VENTURE • Allows two or more companies to share raw materials, shipping facilities, management activities, or production activities • Concerns include the sharing of profits and not as much control since several companies are involved • Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers

  40. Checkpoint >> How does licensing differ from a franchise? Chapter 3 Answer • Licensing does not require as much financial investment or risk as franchising. • Both licensing and franchising involve royalty payments, but licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.

  41. Chapter 3 INTERNATIONAL TRADE ORGANIZATIONS • World Trade Organization • International Monetary Fund • World Bank

  42. Chapter 3 WORLD TRADE ORGANIZATION (WTO) WTO Goals • Lowering tariffs that discourage free trade • Eliminating import quotas • Reducing barriers for banks, insurance companies, and other financial services • Assisting poor countries with economic growth

  43. Chapter 3 INTERNATIONAL MONETARY FUND (IMF) • Helps to promote economic cooperation • Maintains an orderly system of world trade and exchange rates • Includes over 150 member nations

  44. Chapter 3 WORLD BANK • Created in 1944 to provide loans for rebuilding after World War II • Today the World Bank has over 180 member countries and two main divisions • International Development Association (IDA), which makes loans to help developing countries • International Finance Corporation (IFC), which provides technical capital and technical help to private businesses in nations with limited resources

  45. Checkpoint >> How does the International Monetary Fund assist countries? Chapter 3 Answer • The International Monetary Fund assists countries by promoting economic cooperation and maintaining an orderly system of world trade and exchange rates. • This cooperation makes harmful trade wars among IMF nations less likely.

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