Business in the Global Economy

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.