Basics of International Business: Trade, Currency, and Organizations

1. C H A P T E R 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 Goal 1 Describe importing and exporting activities. Goal 2 Compare balance of trade and balance of payments. Goal 3 List factors that affect the value of global currencies.

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

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

5. EXAMPLE OF U.S. IMPORT RELIANCE

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. U.S. TRADE BALANCES

9. BALANCE OF TRADE

10. 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.

11. 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

13. Checkpoint  • What factors affect the value of a country’s currency? • Balance of payments • Economic conditions • Political stability

14. 3-2 The Global Marketplace Goal 1 Describe the components of the international business environment. Goal 2 Identify examples of formal trade barriers. Goal 3 Explain actions to encourage international trade.

15. KEY TERMS • infrastructure • trade barrier • quota • tariff • embargo

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

17. ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

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

19. INTERNATIONAL TRADE BARRIERS • Quotas • Tariffs • Embargoes

20. 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

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

22. 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? • Quotas • Tariffs • Embargoes

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

25. 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

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

27. COMMON MARKETS • Allow companies to invest freely in each member’s country • Allow 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? • 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 Goal 1 Discuss activities of multinational organizations. Goal 2 Explain common international business entry modes. Goal 3 Describe activities of international trade organizations and agencies.

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

31. MULTINATIONAL COMPANIES (MNC) • Organizations that do business in several countries • Home country • Host country

32. MNC STRATEGIES • Global strategy • Multinational strategy

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

34. 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? • Global strategy (offering the same product the same way everywhere) • Multinational strategy (approaching each country market differently).

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

37. 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. 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. 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 because 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? • 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. INTERNATIONAL TRADE ORGANIZATIONS • World Trade Organization • International Monetary Fund • World Bank

42. WORLD TRADE ORGANIZATION (WTO) • 150 member countries • Promotes trade • Settles trade disputes • Enforces free-trade agreements • Other 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. INTERNATIONAL MONETARY FUND (IMF) • Helps to promote economic cooperation • Maintains an orderly system of world trade and exchange rates • Includes more than 150 member nations

44. WORLD BANK • Created in 1944 to provide loans for rebuilding after World War II • Today the World Bank has more than 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? • 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.