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Chapter 3: International Business

Introduction To Business. Chapter 3: International Business. Domestic vs. International Business. Domestic Business : A Company making, buying, and selling goods and services within a country

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Chapter 3: International Business

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  1. Introduction To Business Chapter 3: International Business

  2. Domestic vs. International Business • Domestic Business: A Company making, buying, and selling goods and services within a country • International Business: Business activities needed for creating, shipping, and selling goods and services across international borders

  3. Absolute Advantage • Occurs when a country can produce a good or service at a lower cost than other countries (usually due to a large supply of natural resources) • Ex. Saudi Arabia producing oil • Ex. Columbia producing coffee

  4. Comparative Advantage • Occurs when a country chooses to specialize in the production of a certain good or service • Ethanol, wind, solar

  5. Imports vs. Exports • Import- Buying of goods and services produced from foreign countries • bananas, coffee, oil, etc. • Export- Selling of goods and services to foreign countries • McDonald’s, ESPN, Nike, Dell, etc.

  6. Balance of Trade • The difference between a country’s total imports vs. total exports • Trade surplus- when a country exports more than it imports • Trade deficit- when a country imports more than it exports

  7. Balance of Payments • The difference between the amount of money that comes into a country and the amount of money that goes out • Positive Balance of Payments: A nation receives more money into the country than it pays out in one year. • Negative Balance of Payments: A nation sends more money out of the country than it receives into the country in one year.

  8. International Currency

  9. Exchange Rates • The value of a currency in one country compared with the value in another. • How much will it cost in US $’s to buy and sell products or services from another country?

  10. Factors Influencing Exchange Rates • Supply and Demand: the demand for a nations goods increases the demand for a nation’s currency and exchange rates are higher • Economic Conditions: Inflation, higher interest rates usually lowers the demand for a nation’s currency • Political Stability: The security of the government of a nation affects the currency demand of a nation.

  11. Doing Business in a Foreign Country? Things to consider: • 1. Geography- Location, climate, terrain, seaports, and resources • 2. Cultural Influences- Accepted behaviors, customs and values • 3. Economic Development- Literacy level, Technology, Infrastructure • 4. Political/Legal Concerns- Type of government and policies towards business

  12. Trade Barriers • Trade Barriers: are government imposed regulations that increase the cost and/or restrict the number of imported goods

  13. Types of Trade Barriers • Tariff: is a tax on imported goods • Ex: You are buying an imported couch for your tv room. The manufacturer charges $2,000, but the government imposes a 20% tariff, which brings the price up to $2,400 • Quota: are limits on the volume of imported goods to protect domestic interests • Export Restraints: are limits on the volume of exported goods to protect domestic interests

  14. Types of Trade Barriers • Embargo: prohibits the import or export of a product altogether • Ex: Cuba—United States relations dating back to 1960’s • Government Sanctions: government imposed restrictions on foreign trade due to inappropriate business practices • Ex: Burma has the highest rate of inhumane work conditions • Ex: Mexico breaking fishing laws while fishing for tuna

  15. Encouraging Trade • Free Trade Zones: where products can be imported into a country without additional fees (duties) paid on the import of the product. • Ex: airports/seaports • Free Trade Agreements: Trading countries agree to remove duties and trade barriers on products traded between the two nations. • Ex: NAFTA: trade between US, Mexico, Canada

  16. Multinational Companies • A Company that does business in several different countries • Usually has a “Parent” Company in a home country. • Example: Johnson and Johnson’s headquarters is in New Jersey, but has several manufacturing plants in China and Thailand and sells product world-wide • Firms develop products and strategies that adapt to the customs , tastes and buying habits of a specific national market

  17. Entering The Global Market • How does a Company enter the Global Market? • Licensing: A Company allows a foreign manufacture to use their license to produce products and sell in that country for a fee. • Franchising: A Company enters into a contract that allows a business owner to manage a chain Company and the Franchisor is paid a fee. • Examples: Burger King, McDonald’s • Joint Venture: Two Companies come together to to share a business project. Example: Ford and Mazda

  18. International Trade Organizations • World Trade Organization (WTO): Promotes trade around the world. • Lowers fees, eliminates quotas, establishes economic growth • International Monetary Fund (IMF): Maintains an orderly system of world trade and exchange rates, eliminates trade wars. • World Bank: Established to give economic aid to less developed countires

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