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Business in the Global Economy Intro to Business Chapter 3.

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Presentation on theme: "Business in the Global Economy Intro to Business Chapter 3."— Presentation transcript:

1 Business in the Global Economy Intro to Business Chapter 3

2 Trading Among Nations Countries have become economically interdependentCountries have become economically interdependent Absolute Advantage – when a country can produce a good/service at a lower cost than other countriesAbsolute Advantage – when a country can produce a good/service at a lower cost than other countries Comparative Advantage – situation when a country specializes in the production of a good/service at which it is relatively more efficientComparative Advantage – situation when a country specializes in the production of a good/service at which it is relatively more efficient

3 Importing/Exporting Importing – items bought from another country. US imports 50% of its crude oil and fish. Also must import raw materials not readily available in US (see figure 3-1)Importing – items bought from another country. US imports 50% of its crude oil and fish. Also must import raw materials not readily available in US (see figure 3-1) Exporting – goods and services sold to other countries. Main US exports are food stuffs, movies, media.Exporting – goods and services sold to other countries. Main US exports are food stuffs, movies, media.

4 Trade Relations Balance of Trade – the difference between a countries total imports and total exports.Balance of Trade – the difference between a countries total imports and total exports. The US has a trade imbalance of approx. $490 billionThe US has a trade imbalance of approx. $490 billion Balance of Payments – difference between the amount of money that comes into a country and the amount that goes out.Balance of Payments – difference between the amount of money that comes into a country and the amount that goes out.

5 International Currency Exchange Rate – the value of a currency in one country compared with the value of anotherExchange Rate – the value of a currency in one country compared with the value of another Factors Affecting Currency Values:Factors Affecting Currency Values: –Balance of Payments –Economic Conditions (Interest Rates) –Political Stability

6 International Business Envorinment Geography (location, climate, terrain, seaports, natural resources)Geography (location, climate, terrain, seaports, natural resources) Cultural Influences (language, religion, values, customs, social relationships)Cultural Influences (language, religion, values, customs, social relationships) Economic Development (literacy level, technology, agricultural dependency, infrastructure)Economic Development (literacy level, technology, agricultural dependency, infrastructure) Political and Legal ConcernsPolitical and Legal Concerns

7 International Trade Barriers Quotas – limit on the quantity of a product that may be imported/exported within a given periodQuotas – limit on the quantity of a product that may be imported/exported within a given period Tariffs – a tax that a government places on certain imported productsTariffs – a tax that a government places on certain imported products Embargoes – stopping the import/export of a particular product (Cuba)Embargoes – stopping the import/export of a particular product (Cuba)

8 Encouraging Intl Trade Free Trade Zones - a selected are where products can be imported duty-free and then stored, assembled, and/or used in manufactureFree Trade Zones - a selected are where products can be imported duty-free and then stored, assembled, and/or used in manufacture Free Trade Agreements – removes duties and trade barriers between countriesFree Trade Agreements – removes duties and trade barriers between countries Common Markets – More freedom than free trade agreements. Workers may cross borders; expands trade and promote economic integration.Common Markets – More freedom than free trade agreements. Workers may cross borders; expands trade and promote economic integration.

9 Multinational Companies (MNC) MNC – an organization that does business in several countriesMNC – an organization that does business in several countries Global Strategy – uses the same product and marketing strategy worldwideGlobal Strategy – uses the same product and marketing strategy worldwide Multinational Strategy – treats each country market differently. Adapt products and marketing strategies to customs, tastes, and buying habits.Multinational Strategy – treats each country market differently. Adapt products and marketing strategies to customs, tastes, and buying habits.

10 MNC (continued) MNC Benefits:MNC Benefits: –Consumers have large amount of goods available –Lower Prices –Expanded Career Opportunities –Foster understanding/respect of people from different cultures Drawbacks of MNC – becomes too involved and powerful in culture a nd politics of host country

11 Global Market Entry Modes Licensing – selling the right to use intangible property for a fee or royaltyLicensing – selling the right to use intangible property for a fee or royalty Franchising – right to use a company name or business process in a specific wayFranchising – right to use a company name or business process in a specific way Joint Venture – agreement between two or more companies to share a business productJoint Venture – agreement between two or more companies to share a business product

12 International Trade Organizations World Trade Organization (WTO) – created in 1995 to promote trade around the worldWorld Trade Organization (WTO) – created in 1995 to promote trade around the world –Lower tariffs that discourage free trade –Eliminate import quotas –Reduce barriers for banks, insurance companies, and other financial services –Assist poor countries with economic growth

13 Intl Trade Organizations (cont.) International Monteary Fund – promotes economic cooperation by stabilizing monetary exchange system. International Monteary Fund – promotes economic cooperation by stabilizing monetary exchange system. World Bank: World Bank: –Created to provide loans for rebuilding after WWII –Today gives economic aide to undeveloped countries


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