Business in the Global Economy

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

2. LESSON 3-1International 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. Chapter 3

3. Create a new document in MS Word for Chp. 3 Key Terms • balance of payments • balance of trade • exchange rate • exports • imports Chapter 3

4. TRADING AMONG NATIONS • Domestic business – business activities within a country • International business – business activities across national borders. • AKA – foreign or world trade • US conducts trade with over 180 countries Chapter 3

5. Trading Among Nations • Absolute Advantage • Exists when a country can produce a good or service at a lower cost than other countries • Comparative Advantage • A country specializes in the production of a good or service at which it is efficient Chapter 3

6. Trading Among Nations • Importing • Items bought from other countries • Exporting • Goods and services sold to other countries Chapter 3

7. IMPORTING Chapter 3

8. MEASURING TRADE RELATIONS • Balance of trade • Trade surplus – when a country exports more than it imports (favorable) • Trade deficit – when a country imports more than it exports (unfavorable) • Balance of payments • The difference between the amount of money that comes in and the amount that goes out. Chapter 3

9. U.S. TRADE BALANCES Chapter 3

10. BALANCE OF TRADE Chapter 3

11. >> C H E C K P O I N T How does balance of trade differ from balance of payments? Chapter 3

12. INTERNATIONAL CURRENCY • Foreign exchange rates • Consists of banks that buy and sell different currencies. • Factors affecting currency values • Three main factors affect currency exchange rates • Balance of payments • Favorable balance causes the value of currency to rise • Unfavorable balance causes currency values to decline • Economic conditions • Inflation reduces the buying power of currency • Interest rates – the cost of using someone else’s money • High rates reduce demand for a nation’s currency causing a decline in value • Political stability • Changes in government • New laws put in place Chapter 3

13. RECENT VALUES OF CURRENCIES Chapter 3

14. >> C H E C K P O I N T What factors affect the value of a country’s currency? Chapter 3

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

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

17. THE INTERNATIONAL BUSINESS ENVIRONMENT • Factors to consider to do business in other countries: • Geography • Climate, location, terrain, seaports, and natural resources • Cultural influences • Culture – the accepted behaviors, customs, and values of a society • Language, religion, values, customs, and social relationships • Economic development • Literacy level • Technology • Agricultural dependency • Infrastructure – refers to a nation’s transportation, communication, and utility systems • Political and legal concerns Chapter 3

18. GEOGRAPHY • location • climate • terrain • waterways • natural resources • ECONOMICS • technology • education • inflation • exchange rate • infrastructure THE INTERNATIONAL BUSINESS ENVIRONMENT • CULTURE • language • family • religion • customs • traditions • food • POLITICAL–LEGAL • FACTORS • government system • political stability • trade barriers Chapter 3

19. >> Warm Up List the four main elements of the international business environment. Chapter 3

20. INTERNATIONAL TRADE BARRIERS • Trade barriers – restrictions to free trade • Formal trade barriers - Political actions restricting trade • Common formal trade barriers – quotas, tariffs, and embargoes • Quotas – a limit set on the quantity of a product that may be imported or exported within a given period • Tariffs – a tax on certain imported goods • Embargoes – the stopping of importing or exporting of goods • Informal trade barriers – not based on government actions but possibly on culture, traditions, and religious actions restricting trade Chapter 3

21. 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 from abroad Chapter 3

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

23. 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 Chapter 3

24. >> C H E C K P O I N T What are three formal trade barriers? Chapter 3

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

26. 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 or airport Chapter 3

27. FREE-TRADE AGREEMENTS • Countries come together and agree to remove taxes and trade barriers on products traded among them • Results in increased trade between countries • NAFTA Chapter 3

28. COMMON MARKETS • Countries do away with taxes and other trade barriers • Allows companies to invest freely in each other’s country • Allows workers to move freely across borders • Examples • European Union (EU) • Latin American Integration Association (LAIA) Chapter 3

29. >> C H E C K P O I N T What actions could be taken to encourage international trade? Chapter 3

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

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

32. Multinational Companies • MNC – a company or organization that does business in several countries • Consists of a parent company (in a home country) and divisions in 1 or more host countries Chapter 3

33. MNC STRATEGIES • Global strategy • Uses the same product and marketing strategy worldwide • Multinational strategy • Treats each country market differently • Strategies are adapted to the customs, tastes, and buying habits of the customers Chapter 3

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

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

36. >> C H E C K P O I N T What are two strategies commonly used by multinational companies? Chapter 3

37. GLOBAL MARKET ENTRY MODES • Licensing • Selling the right to use some intangible property for a fee or royalty • Common use: television characters, sports team emblems • Low risk • Franchising • The right to use a company name or business process in a specific way for a fee • Commonly used when selling a product or service, such as fast-food companies • Joint venture • An agreement between 2 or more companies to share a business project • Popular for manufacturing cars • Shares profits and costs of project Chapter 3

38. 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 Chapter 3

39. 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 Chapter 3

40. 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 Chapter 3

41. >> C H E C K P O I N T How does licensing differ from a franchise? Chapter 3

42. INTERNATIONAL TRADE ORGANIZATIONS Chapter 3

43. 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 Chapter 3

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

45. 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 Chapter 3

46. >> C H E C K P O I N T How does the International Monetary Fund assist countries? Chapter 3