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

6. U.S Trade Balance With Top Trading Partners (In Billions)
Country
Goods Exported
Goods Imported
U.S Trade Balance
All Countries
1056.9
1558.1
-501.2
1. Canada
204.7
224.9
-20.2
2. China
69.6
296.4
-226.8
3. Mexico
129.0
176.5
-47.5
4. Japan
51.2
95.9
-44.7
5. Germany
43.3
71.3
-28.0
6. United Kingdom
45.7
47.5
-1.8
7. South Korea
28.6
39.2
-10.6
8. France
26.5
34.0
-7.5
9. Netherlands
32.3
16.1
16.2

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

17. Political/Legal Factors
International Business Environment
Geographic Factors
Location
Climate
Terrain
Waterways
Natural Resources
Economic Factors
Technology
Education
Inflation
Exchange Rate
Infrastructure
Cultural Factors
Language
Family
Religion
Customs
Traditions
Food
Political/Legal Factors
Government System
Political Stability
Trade Barriers
Business Regulations

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.