3 -1 International Business Basics 3 -2 The Global Market Place

1. C H A P T E R 3 Business in the Global Economy 3-1International Business Basics 3-2The Global Market Place 3-3International Business Organizations

2. 3-1 International 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

3. Trading Among Nations • Most business activities occur within a country’s own boarders • Domestic Business – 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 boarders. • Foreign or World Trade

4. Absolute/Comparative Advantage • Two economic principles define buying and selling among companies in different countries • Absolute Advantage – exists when a country can produce a good or service at a lower cost than other countries • Comparative Advantage – a situation in which a country specializes in the production of a good or service at which it is relatively more efficient

5. Importing / Exporting • Imports – Items bought from other countries • Without foreign trade, many things you buy would cost more or not be available. • Exports – Goods and services sold to other countries • The goods and services exported by the U.S. create many jobs. • 1 out of 6 jobs in the U.S. depend on international business.

7. Checkpoint #1 • 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.

8. Measuring Trade Relations • People usually try to keep their income and spending in a balance. • Nations are also concerned about balancing income with expenditures. • Foreign Debt – the amount the country owes to other countries

9. Balance of Trade • The difference between a country’s total exports and total imports. • Trade Surplus - If a country exports more than it imports (Trade favorable) • Trade Deficit - Country imports more than its exports (Trade is unfavorable) • U.S. has had a trade deficit in recent years

10. Balance of Payments • Money goes from one country to another through investments and tourism • Business Factory • Financial or Military aid • Bank deposit funds in foreign banks • Balance of Payments – the difference between the amount of money that comes into a country and the amount that goes out.

11. Checkpoint #2 • How does balance of trade differ from balance of payments? • Trade is not the only thing influencing the balance of payments. • Money can enter or leave a country through investments, tourism, financial aid, and bank deposits.

12. International Currency • A challenge faced by many businesses are the various currencies used around the world. • Foreign Exchange Market – exchanging one currency for another. Consists of banks that buy and sell different currencies • Exchange Rate– the value of a currency in one country compared with the value of another. • Supply and demand affect the value of currency

13. Factors Affecting Currency Values • 3 main factors affect currency exchange rates: • Balance of Payments – favorable balance of payments, the value of its currency is usually constant or rising. • Economic Conditions – Buying power in decline, inflation, interest rates. • Political Stability – Government change might create unfriendly setting got foreign business. New laws might be put in placed.

14. Checkpoint #3 • What factors affect a countries currency ? • Balance of payments • Economic Conditions • Political Stability

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

16. International Business Environment • Businesses must consider 4 main factors when doing business in other countries: • Geography • Cultural Influence • The accepted behaviors, customs, values of society • Economic development • Infrastructure (transportation, communication, utility systems) • Political and Legal Concerns

18. Checkpoint #4 • List the four main elements of the international business environment? • Geography • Cultural Influences • Economic Development • Political and Legal Concerns

19. International Trade Barriers • Government actions can create Trade Barriers • Restrictions to free trade • Formal Trade Barriers – political actions • Quotas , Tariffs , Embargos • Informal Trade Barriers – Culture, traditions, and religion • Not based on government actions but they can restrict trade

20. Quotas • Government sets a limit on a quantity of a product that may be imported or exported within a given period • Quotas can be set for many reasons • Crude oil (Supply remains low) • Imports (Express displeasure at the politics) • Competition abroad

21. Tariffs • A tax that a government places on certain imported products • Some tariffs are a set amount per pound, gallon, or other unit. • High Tariff • Lower Demand • Quantity of that import

22. Embargoes • Government stops the export or import of a product completely • Wish to protect their own industries from international competition • Prevent sensitive products • Vital to a nations defense • Express disapproval of the actions or politics of another country

23. Checkpoint #5 • What are 3 formal trade barriers? • Quotas • Tariffs • Embargos

24. Encouraging International Trade • Specific actions by government can promote international business activities • Exporting is an effective way to create jobs and foster economic prosperity • Free trade zone • Free-trade agreements • Common Markets

25. Free-Trade Zones • A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing • Located usually around a seaport or airport • The importer only pays duty only when the product leaves the zone

26. Fair-Trade Agreements • Member countries agree to remove duties (import taxes), and trade barriers on products traded among them • Results in increase trade • NAFTA (North American Free Trade Agreement) • Eases the movement of goods

27. Common Markets • Member do away with duties and other trade barriers • Allow companies to invest freely in each member’s country • Economic Community • European Union (EU) • Latin American Integration Association (LAIA) • Goal is to expand trade among member nations and promote regional economic integration

28. Checkpoint #6 • What actions can be taken to encourage international trade? • Free-Zones • Free-Trade Agreements • Common Markets

29. 3-3 International Business Organizations • Goals • Discuss activities of multinational organizations • Explain common international business entry modes • Describe activities of international trade organizations and agencies

30. Multinational Companies • An organization that does business in several countries • Usually consists of a parent company in a home country and divisions • Separate companies in one or more host countries • The country in which a MNC places business activities

31. MNC Strategies • Global or Multinational Strategy • Global Strategy – uses the same product and some marketing strategy worldwide • Product is sold in the manner across the world (Coca-Cola) • Multinational Strategy - treats each country market differently • Firms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a market.

32. MNC Benefits • Large amount of goods available • Lower price than goods made domestically • Career opportunities expand as a company does business • Foster understanding, communication, and respect among people of different countries.

33. Drawbacks of MNC • Workers of the host country may depend on the MNC for jobs • Consumers become dependent upon it for goods and services • Control or influence the political power of the country

34. Checkpoint #7 • What are two strategies commonly used by MNC? • Global strategy – offering the same product the same way everywhere • Multinational Strategy – Approaching each countries market differently

35. Global Market Entry Modes • Licensing – selling the right to use some intangible property (production process, trademark, brand name) for a fee or royalty • Gerber company selling in Japan • Licensing has a low financial investment, so return in low • Franchising – the right to use a company name or business process in a specific way.

36. Global Market Entry Modes • Marketing elements such as food product, packaging and advertising must meet cultural sensitivities and legal requirement • Joint Venture – an agreement between two or more companies to share a business project • Sharing of Raw materials, shipping facilities, management activities, or production facilities. • Sharing of profits and not as much control

37. Checkpoint #8 • How does licensing differ from a franchise? • Licensing does not require as much financial investment or risk as a franchise • Both involve royalty payments, but licensing involves manufacturing process, while franchising involves selling a product or service.

38. World Trade Organization • Created in 1995 to create trade around the world • Settles trade disputes and enforces free-trade agreements • 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

39. International Monetary Fund • Helps promote economic cooperation • Maintains an orderly system of world trade and exchange rates. • Cooperation among IMF nations makes trade war less likely

40. World Bank • Was created in 1944 to provide loans for rebuilding after WW II • Today the bank function is to give economic aid to less developed countries • Build communication systems, transportation networks, and energy plants.

41. Checkpoint #9 • How does the International Monetary Find assist countries? • By promoting economic cooperation and maintaining an orderly system of world trade and exchange rates.