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International Business Basics and the Global Marketplace

Learn about the fundamentals of international business, including importing and exporting activities, balance of trade and balance of payments, factors affecting currency values, and trade barriers. Explore the components of the international business environment and actions to encourage international trade.

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International Business Basics and the Global Marketplace

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  1. C H A P T E R 3 3.1International Business Basics 3.2The Global Marketplace 3.3International Business Organizations Business in the Global Economy

  2. 3.1 International Business Basics Learning Outcomes 3.1.1 Describe importing and exporting activities. 3.1.2 Compare balance of trade and balance of payments. 3.1.3 List factors that affect the value of global currencies.

  3. KEY TERMS • imports • exports • balance of trade • balance of payments • exchange rate

  4. TRADE AMONG NATIONS • Absolute advantage • Comparative advantage • Importing • Exporting

  5. U.S. IMPORT RELIANCE FOR SELECTED RAW MATERIALS

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

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

  8. Balance of Trade Explained

  9. Balance of Payment Explained

  10. Balance of Trade

  11. Checkpoint  How does balance of trade differ from balance of payments? • 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.

  12. Checkpoint  How does balance of trade differ from balance of payments?(continued) • Trade is not the only thing influencing the balance of payments. For example, money can enter or leave a country through investments, tourism, financial aid, and bank deposits.

  13. INTERNATIONAL CURRENCY • Foreign exchange rates • Factors affecting currency values: • Balance of payments • Economic conditions • Political stability

  14. Foreign Exchange Rates Explained

  15. Checkpoint  What factors affect the value of a country’s currency? The three main factors are: • Balance of payments • Economic conditions • Political stability

  16. Imports, Exports, and Exchange Rates: Crash Course 

  17. 3.2 The Global Marketplace Learning Outcomes 3.2.1 Describe the components of the international business environment. 3.2.2 Identify examples of formal trade barriers. 3.2.3 Explain actions to encourage international trade.

  18. KEY TERMS • infrastructure • trade barriers • quota • tariff • embargo

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

  20. Elements of International Business Environment • Geographic Factors • Location • Climate • Terrain • Waterways • Natural resources

  21. Elements of International Business Environment (continued) • Cultural Factors • Language • Family • Religion • Customs • Traditions • Food

  22. Elements of International Business Environment (continued) • Economic Factors • Technology • Education • Inflation • Exchange rate • Infrastructure

  23. Elements of International Business Environment (continued) • Political and Legal Factors • Government system • Political stability • Trade barriers • Business regulations

  24. Checkpoint  List the four main elements of the international business environment. • Geography • Cultural influences • Economic development • Political and legal concerns

  25. INTERNATIONAL TRADE BARRIERS • Quotas • Tariffs • Embargoes

  26. QUOTAS • Reasons for quotas • To keep supply low and prices at a certain level • To express displeasure at the policies of the importing country • To protect one of a country’s industries from too much competition from abroad

  27. Example of a Quota in Global Economics

  28. TARIFFS • Some tariffs are • A set amount per pound, gallon, or other unit • Based on the value of a good • A tariff increases the price of an imported product. • A high tariff tends to lower the demand for the product and reduce the quantity of that import.

  29. Tariffs Explained

  30. EMBARGOES • Reasons for embargoes • To offer more protection from international competition than the quota or tariff will provide • To prevent sensitive products from falling into the hands of unfriendly groups or nations

  31. Checkpoint  What are three formal trade barriers? • Quotas • Tariffs • Embargoes

  32. ENCOURAGING INTERNATIONAL TRADE • Free-trade zones • Free-trade agreements • North American Free Trade Agreement (NAFTA) • Common markets

  33. What is International Trade?

  34. 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

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

  36. Free Trade Zones Explained

  37. COMMON MARKETS • Allow companies to invest freely in each member’s country • Allow workers to move freely across borders • Examples of common markets: • European Union (EU) • Latin American Integration Association (LAIA)

  38. Economic Integration Explained

  39. Checkpoint  What actions could be taken to encourage international trade? • Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

  40. 3.3 International Business Organizations Learning Outcomes 3.3.1 Discuss activities of multinational organizations. 3.3.2 Explain common international business entry modes. 3.3.3 Describe activities of international trade organizations and agencies.

  41. KEY TERMS • multinational company (MNC) • joint venture

  42. MULTINATIONAL COMPANIES (MNC) • Organizations that do business in several countries • Parent company in home country • Divisions or separate companies in other countries

  43. MNC STRATEGIES • Global strategy • Multinational strategy

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

  45. DRAWBACKS OF MULTINATIONAL COMPANIES • An MNC can become an economic power • Worker dependence on the MNC for jobs • Consumer dependence for goods and services • Influence or control of political power

  46. Checkpoint  What are two strategies commonly used by multinational companies? • Global strategy (offering the same product the same way everywhere). • Multinational strategy (approaching each country’s market differently).

  47. GLOBAL MARKET ENTRY MODES • Licensing • Franchising • Joint venture

  48. LICENSING • Allows foreign companies to use a procedure. • Has a low financial investment, so the potential financial return for the company is often low. • The risk for the company is low.

  49. FRANCHISING • Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company. • Commonly involves selling a product or service

  50. JOINT VENTURE • Companies share raw materials, shipping facilities, management activities, or production facilities. • Concerns include the sharing of profits and not as much control because several companies are involved.

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