1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 1 3-1 3-1International Business Basics 3-2 3-2The Global Marketplace 3-3 3-3International Business Organizations 3 C H A P T E R Business in the Global Economy

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 3-1International Business Basics Goal 1Describe importing and exporting activities. Goal 2Compare balance of trade and balance of payments. Goal 3List factors that affect the value of global currencies.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 3 KEY TERMS ●imports ●exports ●balance of trade ●balance of payments ●exchange rate

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 4 TRADING AMONG NATIONS ●Most trading happens within a countries borders (Domestic Trade) ●International Trade: shipping, selling, buying of good and services across our borders. (AKA: Foreign Trade) ●U.S. trades with over 180 countries ●What do we get? ●What do we sell?

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 5 TRADING AMONG NATIONS ●There are 2 economic principles that define buying and selling in different countries: ●Absolute advantage: when a country can produce a good or service at a lower cost than other countries ●South America has absolute adv. In coffee production ●Saudi Arabia has oil production

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 6 TRADING AMONG NATIONS ●There are 2 economic principles that define buying and selling in different countries: ●Comparative advantage: a country specializes in the production of a good or service with more efficiency. ●Ex: a country may be good at producing computers and clothing better then other countries. Market for computers is better so they build those and buy clothing. Absolute vs. Comparative AdvantagesAbsolute vs. Comparative Advantages

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 7 TRADING AMONG NATIONS ●Importing (buying): items bought from other countries. ●We import all of the following: ●Bananas, coffee, silk, tea, cocoa ●We also import over half of our crude oil. ●We import important materials to make products here (see slide)

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 8 EXAMPLE OF U.S. IMPORT RELIANCE

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 9 TRADING AMONG NATIONS ●Exporting (selling): Goods and services sold to other countries ●Farm machinery, wheat and other agricultural products, medicines, plastics ●1 of every 6 jobs here depends on the international business.

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 10 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.

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 11 MEASURING TRADE RELATIONS ●We work to make money, we use that money for????? ●We keep track of how we spend, if we spend more than we earn we go into debt ●Countries do the same: ●Balance of trade: Difference between a countries total exports and total imports ●Surplus is when Exports > Imports ●Deficit: is when Imports > Exports

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 12 U.S. TRADE BALANCES

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 13 MEASURING TRADE RELATIONS ●Balance of payments: the difference between the amount of money that comes into a country vs. going out. ●Favorable: we receive more money than we pay out ●Unfavorable: paying more money than we bring in.

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 14 BALANCE OF TRADE

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 15 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.

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 16 INTERNATIONAL CURRENCY ●Foreign exchange rates: exchanging of one currency for another ●Exchange Rate: value of a countries currency ●Three main factors affect currency ●Balance of payments: favorable ●Economic conditions: Prices and buying power the value declines ●Political disability

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 17 RECENT VALUES OF CURRENCIES

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 18 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●Economic conditions ●Political stability

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 Research Paper ●Today: ●Decide on a country we want to research ●The country maybe a place you want to ●Visit ●Vacation ●Live ●Or are just curious about ●Begin listing the products/services that they : ●Import ●Export SLIDE 19

20. © 2012 Cengage Learning. All Rights Reserved. SLIDE 20 3-2 The Global Marketplace Goal 1Describe the components of the international business environment. Goal 2Identify examples of formal trade barriers. Goal 3Explain actions to encourage international trade.

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 21 KEY TERMS ●infrastructure ●trade barrier ●quota ●tariff ●embargo

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 INTERNATIONAL BUSINESS ENVIRONMENT ●Four Main Factors to consider when doing business Internationally. 1.Geography 2.Cultural influences 3.Economic development and INFRASTRUCTUREINFRASTRUCTURE ●Literacy level ●Technology ●Agricultural dependency 4.Political and legal concerns

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 23 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 24 Checkpoint ●List the four main elements of the international business environment. ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 25 INTERNATIONAL TRADE BARRIERS ●What is a BARRIER?? ●Quotas: a set limit on the quantity of a product that may be imported and exported during a given time period ●Tariffs: a tax that a government places on certain imported products Tariffs in China with US carsTariffs in China with US cars ●Embargoes: stopping the importing and exporting of a product completely. Cuba EmbargoCuba Embargo

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 26 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

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 27 TARIFFS ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 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

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 29 Checkpoint ●What are three formal trade barriers? ●Quotas ●Tariffs ●Embargoes

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 ENCOURAGING INTERNATIONAL TRADE ●Free-trade zones : a selected area where products can be imported Duty-Free, they then are stored, assembled, and used in manufacturing. ●Free-trade agreements : member countries agree to remove duties (import taxes) and trade barriers on products traded. FTAFTA ●Common markets : Do away with barriers and allow companies to invest freely with each members country.

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 31 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

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 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)

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 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.

35. © 2012 Cengage Learning. All Rights Reserved. SLIDE 35 3-3International Business Organizations Goal 1Discuss activities of multinational organizations. Goal 2Explain common international business entry modes. Goal 3Describe activities of international trade organizations and agencies.

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 KEY TERMS ●multinational company (MNC) ●joint venture

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 37 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries MNC'sMNC's ●Home country ●McDonald’s (USA) ●Host country ●McDonald’s (All over the World)

38. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 38 MNC STRATEGIES ●Global strategy ●Uses the same product and marketing strategy worldwide ●Subway : ●Coca Cola:

39. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 39 MNC STRATEGIES ●Multinational strategy ●Treats each country market differently. Firms develop products and marketing strategies to adapt to customs, tastes, and buying habits. McDonald’s

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 40 MNC BENEFITS ●Large amount of goods available ●Lower prices ●Career opportunities ●Foster understanding, communication, and respect ●Friendly international relations

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 41 DRAWBACKS OF MULTINATIONAL COMPANIES ●Economic power ●Worker dependence on the MNC ●Consumer dependence ●Political power

42. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 42 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).

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 43 GLOBAL MARKET ENTRY MODES ●Licensing ●Selling the right to use some intangible property (trademark, brand name)

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 44 GLOBAL MARKET ENTRY MODES ●Franchising ●The right to use a company name or business process in a specific way. ●A contract

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 45 GLOBAL MARKET ENTRY MODES ●Joint venture ●An agreement between two or more companies to share a business project ●Automobile Joint Ventures in RussiaAutomobile Joint Ventures in Russia

46. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 46 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

47. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 47 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

48. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 48 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

49. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 49 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.

50. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 50 INTERNATIONAL TRADE ORGANIZATIONS ●World Trade Organization ●International Monetary Fund ●World Bank

51. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 51 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

52. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 52 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

53. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 53 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

54. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 54 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.