Business in the Global Economy

1. 3 Business in the Global Economy 3-1 International Business Basics 3-2 The Global Marketplace 3-3 International Business Organizations

2. TRADING AMONG NATIONS 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. Also known as: foreign or world trade. United States conducts trade with over 180 countries Chapter 3

3. TRADING AMONG NATIONS • Absolute advantage – a country can produce a good or service at a lower cost than other countries. Ex – country has many natural resources or raw materials South America – coffee production Saudi Arabia – oil production Chapter 3

4. TRADING AMONG NATIONS • Comparative advantage - country specializes in the production of a good or service at which it is relatively efficient • Importing – items brought from other countries. Examples – bananas, coffee, cocoa, spices, tea, silk, fish, carpets, sugar, dishes, tin, chrome, nickel, copper • Without foreign trade, many things you buy would cost more or not be available. Chapter 3

5. TRADING AMONG NATIONS • Exporting – goods and services sold to other countries. Workers throughout the world use factory and farm machinery made in the U.S. More examples: chemicals, fertilizers, medicines, and plastics. Chapter 3

6. IMPORTING Chapter 3

7. MEASURING TRADE RELATIONS • Balance of trade- the difference between a country’s total exports and total imports. If a country exports (sells) more than it imports (buys), it has a tradesurplus. Its trade position is favorable. If it imports more than it exports, it has a trade deficit. Its trade position is unfavorable. A country can have a trade surplus with one country and a trade deficit with another. • Balance of payments – the difference between the amount of money that comes into a country and the amount that goes out of it. Chapter 3

8. U.S. TRADE BALANCES Chapter 3

9. BALANCE OF TRADE Chapter 3

10. INTERNATIONAL CURRENCY – foreign exchange market • Foreign exchange rates – the value of currency in one country compared with the value in another. • Factors affecting currency values Three main factors affect currency • Balance of payments – value of currency is usually constant or rising • Economic conditions • Political disability Chapter 3

11. RECENT VALUES OF CURRENCIES Chapter 3

12. THE INTERNATIONAL BUSINESS ENVIRONMENT • Geography – climate, location, seaports, etc. • Cultural influences – language, religion, values, customs, and social relationships • Economic development • Literacy level • Technology • Agricultural dependency • Political and legal concerns Chapter 3

13. GEOGRAPHY • location • climate • terrain • waterways • natural resources • ECONOMICS • technology • education • inflation • exchange rate • infrastructure THE INTERNATIONAL BUSINESS ENVIRONMENT • CULTURE • language • family • religion • customs • traditions • food • POLITICAL–LEGAL • FACTORS • government system • political stability • trade barriers Chapter 3

14. INTERNATIONAL TRADE BARRIERS – restrictions to free trade. • Quotas – set a limit on the quantity of a product that may be imported or exports within a given period. U.S. has imposed quotas on sugar, cattle, dairy products and textiles. • Tariffs – a tax that government places on certain imported products. Many people believe that tariffs should be used to protect U.S. jobs from foreign competition. • Embargoes – stop the export or import of a product completely. Protect industries from international competition. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country. Chapter 3

15. 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 form abroad Chapter 3

16. TARIFFS Reasons for tariffs • To set amount per pound, gallon, or other unit • To set the value of a good Chapter 3

17. 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 Chapter 3

18. ENCOURAGING INTERNATIONAL TRADE • Free-trade zones • Free-trade agreements • Common markets Chapter 3

19. 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 of airport Chapter 3

20. FREE-TRADE AGREEMENTS • Member countries agree to remove duties and trade barriers on products traded among them • Results in increased trade between members Chapter 3

21. COMMON MARKETS • Allows companies to invest freely in each member’s country • Allows workers to move freely across borders • Examples • European Union (EU) • Latin American Integration Association (LAIA) Chapter 3

22. MULTINATIONAL COMPANIES (MNC) • MNC strategies • MNC benefits • Drawbacks of multinational companies Chapter 3

23. MNC STRATEGIES(MNC-Multinational Company) does business in several countries. MNC’s usually consist of a parent company in a home country and divisions in host countries. • Global strategy- uses the same product and marketing strategy worldwide. Example: Coca-Cola • Multinational strategy- treats each country market differently. Example: Restaurant Chains- modify menus to local tastes Chapter 3

24. MNC BENEFITS • Large amount of goods available • Lower prices • Career opportunities • Foster understanding, communication, and respect • Friendly international relations Chapter 3

25. DRAWBACKS OF MULTINATIONAL COMPANIES • Economic power • Worker dependence on the MNC • Consumer dependence • Political power Chapter 3

26. GLOBAL MARKET ENTRY MODES • Licensing • Franchising • Joint venture Chapter 3

27. 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 Chapter 3

28. 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 Chapter 3

29. 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 since several companies are involved • Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers Chapter 3

30. INTERNATIONAL TRADE ORGANIZATIONS • World Trade Organization • International Monetary Fund • World Bank Chapter 3

31. WORLD TRADE ORGANIZATION (WTO) WTO 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 Chapter 3

32. INTERNATIONAL MONETARY FUND (IMF) • Helps to promote economic cooperation • Maintains an orderly system of world trade and exchange rates • Includes over 150 member nations Chapter 3

33. WORLD BANK • Created in 1944 to provide loans for rebuilding after World War II • Today the World Bank has over 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 Chapter 3