3-1 International Business Basics 3-2 The Global Marketplace

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 • Most business activities occur within a country’s own borders. • Domestic business is the making, buying, and selling of goods and services within a country. • International business refers to business activities needed for creating, shipping, and selling goods and services across national borders

5. TRADING AMONG NATIONS • In the past, economies were viewed in terms of national borders. With international trade expanding every day, these boundaries are no longer fully valid in defining economies.

6. TRADING AMONG NATIONS • http://www.youtube.com/watch?v=RDC2ohDG4BI • http://www.youtube.com/watch?v=5_YPidwfylM • http://www.youtube.com/watch?v=1EbkXmVbTDg • Homework:using the news clip as a guide identify the country of origin of 5 products in your home.

7. TRADING AMONG NATIONS International Business • Business activities needed for creating, shipping, and selling goods and services across borders • Economies are interconnected Domestic Business • The making, buying, and selling of goods and services within a country

8. TRADING AMONG NATIONS Absolute Advantage • When a country can produce a good or service at a lower cost than other countries (can be several items) • Abundance of resources or raw materials • Saudi Arabia: Oil • Brazil: Coffee Comparative Advantage • A country specializes in the production of a good or service at which it is relatively more efficient

9. TRADING AMONG NATIONS Importing • Items bought from other countries • Lower Cost • Availability of goods Exporting • Goods and services sold to other countries

10. TRADING AMONG NATIONS • Without foreign trade, many things you buy would cost more or not be available. • Other countries can produce goods at a lower cost because they have the needed raw materials or have lower labor costs.

11. TRADING AMONG NATIONS • Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods • One of every six jobs in the United States depends on International business.

12. TRADING AMONG NATIONS • The United States conducts trade with more than 180 countries.

13. 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.

14. MEASURING TRADE RELATIONS • Balance of Trade: the difference between a country’s total exports and total imports • Country exports more than it imports has a trade surplus • Country imports more than it exports has a trade deficit

15. MEASURING TRADE RELATIONS • Balance of Payments: the difference between the amount of money that comes into a country and goes out of a country • Favorable: receives more money in a year than it pays out (positive balance of trade) • Unfavorable: sending out more money that it brings in (negative balance of trade) • Some countries even limit the amount of money their citizens can take with them when they travel. • How? • Investment in a corporation, factory, office building • Give financial aid to a country or military aid • Foreign banking • Travel

16. U.S. TRADE BALANCES

17. BALANCE OF TRADE

18. 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.

19. INTERNATIONAL CURRENCY • Each County has: • Its own banking system • currency • Foreign exchange rates: the value of currency In one country compared with value in another • Exchanging Currency for business or travel • Currency exchange business (airport, hotel, train station, etc) • Bank • Rates vary

20. International Currency • Mary is planning to visit Canada. How much is a dollar worth in Canadian Currency? • 1,000.00 USD = 976.248 CAD • United States Dollars  1.00 USD = 0.976237 CAD • Canada Dollars 1.00 CAD = 1.02429 USD • http://www.xe.com/ucc/ (currency converter website)

21. INTERNATIONAL CURRENCY • Three main factors affect currency rates • Balance of payments: favorable balance of payments = stable rate • Economic conditions: inflation and higher interest rates reduces buying, lowering value of currency • Political stability: government change, new laws create uncertainty

22. Checkpoint  • What factors affect the value of a country’s currency? • Balance of payments • When a country has a favorable balance of payments, the value of its currency is usually constant or rising • Economic conditions • Prosperity increases currency value • Political stability • Stable governments favor currency values

23. 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.

24. International Business Environment • Doing business in other countries requires knowledge of the differences that exist among people and places. • Businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns.

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

26. INTERNATIONAL BUSINESS ENVIRONMENT • Geography - the location, climate, terrain, seaports, and natural resources of a country influence business activity • Cultural influences (accepted behaviors, customs, & values of society) • The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships.

27. INTERNATIONAL BUSINESS ENVIRONMENT • Economic development (infrastructure: transportation, communication, utility systems) • Key Factors for Economic Development • Literacy level (education) • Technology (automation, distribution, communication) • Agricultural dependency (does not have the manufacturing base to provide citizens with great quantity and high quality of goods and services) • Political and legal concerns • type of government, the stability of the government, and government policies toward business.

28. ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

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

30. INTERNATIONAL TRADE BARRIERS • Trade Barrier: restrictions to free trade

31. Trade barriers • Formal – • Set up by government Quota, Tariff and embargo • Informal – • Created by culture, traditions, and religion

32. QUOTAS • Quota: limit on the quantity of a product that may be imported/exported • 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

33. TARIFFS • Tariffs: a tax that governments use to control international trade • Reasons for tariffs • To set amount per pound, gallon, or other unit • To set the value of a good

34. EMBARGOES • Embargoes: stopping the export or import of a product • 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

35. Checkpoint  • What are three formal trade barriers? • Set up by Government • Quotas • Tariffs • Embargoes

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

37. 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 • Duty paid when product leaves the free trade zone

38. FREE-TRADE AGREEMENTS • Member countries agree to remove duties and trade barriers on products traded among them • Results in increased trade between members • North American Free Trade Agreement (NAFTA), 1994

39. 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)

40. Common Markets continued • Have a common external duty on products being imported from nonmember countries. • Expand trade/promote regional economic integration

41. 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.

42. 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.

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

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

45. MNC STRATEGIES • Global strategy: use of the same product and marketing strategy worldwide • Multinational strategy: treats each country market differently (adapt to customs, tastes, etc

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

47. DRAWBACKS OF MULTINATIONAL COMPANIES • Economic power • Worker dependence on the MNC • Consumer dependence • Political power

48. 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). • http://www.hulu.com/#!watch/74337

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

50. LICENSING • Selling the right to use some intangible property for a fee or royalty • Allows companies to produce items in other countries without being actively involved (gives another company the License to manufacture products) • Has a low financial investment, so the potential financial return for the company is often low • The risk for the company is low