1. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE1 CHAPTER 3 3-1 3-1International Business Basics 3-2 3-2The Global Marketplace 3-3 3-3International Business Organizations Business in the Global Economy

2. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE2 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. 3-1

3. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 3 Key Terms balance of payments-difference between amount of money that comes in a country and amount that goes out of it. balance of trade-difference between exports and imports exchange rate-value of currency in one country compared with value in another. Exports-Goods and services sold to other countries Imports-Items bought from other countries

4. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 4 TRADING AMONG NATIONS Absolute advantage-can produce good/service at a lower price. “I absolutely can do that better/cheaper” Comparative advantage-specializes in good/service; can be more efficient at production.

5. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 5 Source: United States Geological Survey Minerals Information U.S. Import Reliance for Selected Raw Materials

6. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 6 Checkpoint >> How does importing differ from exporting? Answer Importing is bringing items from other countries into a country. Exporting is selling goods and services to other countries.

7. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 7 MEASURING TRADE RELATIONS Balance of trade-difference between country’s exports and imports. Export(sell)>imports(buy)=trade surplus Import(buy)>Export(sell)=trade deficit Balance of payments-$ to countries through investments, tourism. Difference is positive or negative.

8. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 8 U.S. Trade Balances

9. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 9 Grade for Poster Create poster using your term- Accuracy of Definition and steps-10pt Photos to help illustrate concept-5 pts Summarize text, not word for word-10 pts Color and neatness-5 pts Counted as a quiz grade total 30 pts

10. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 10 Balance of Trade

11. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 11 Checkpoint >> How does balance of trade differ from balance of payments? Answer 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.

12. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 12 INTERNATIONAL CURRENCY Foreign exchange rates-value of currency in one country compared to another. Three main factors affect currency values Balance of payments Economic conditions-prices increase, buying power declines. Political Stability-changes in government.

13. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 13 Recent Values of Currencies * U.S. dollars

14. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 14 Checkpoint >> What factors affect the value of a country’s currency? Answer balance of payments economic conditions political stability

15. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE15 The Global Marketplace Goals Describe the components of the international business environment. Identify examples of formal trade barriers. Explain actions to encourage international trade. 3-2

16. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 16 Key Terms infrastructure trade barrier quota tariff embargo

17. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 17 INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development Literacy level Technology Agricultural dependency Political and legal concerns

18. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 18  location  climate  terrain  waterways  natural resources  technology  education  inflation  exchange rate  infrastructure  language  family  religion  customs  traditions  food GEOGRAPHYECONOMICS CULTURE  government system  political stability  trade barriers  business regulations INTERNATIONAL BUSINESS ENVIRONMENT POLITICAL–LEGALFACTORS Elements of International Business Environment

19. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 19 Checkpoint >> List the four main elements of the international business environment. Answer geography cultural influences economic development political and legal concerns

20. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 20 INTERNATIONAL TRADE BARRIERS Quotas Tariffs Embargoes

21. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 21 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

22. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 22 TARIFFS Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good

23. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 23 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

24. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 24 Checkpoint >> What are three formal trade barriers? Answer quotas tariff s embargoes

25. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 25 ENCOURAGING INTERNATIONAL TRADE Free-trade zones Free-trade agreements Common markets

26. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 26 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

27. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 27 FREE-TRADE AGREEMENTS Member countries agree to remove duties and trade barriers on products traded among them Results in increased trade between members

28. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 28 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)

29. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 29 Checkpoint >> What actions could be taken to encourage international trade? Answer Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

30. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE30 International Business Organizations Goals Discuss activities of multinational organizations. Explain common international business entry modes. Describe activities of international trade organizations and agencies. 3-3

31. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 31 Key Terms multinational company (MNC) joint venture

32. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 32 MULTINATIONAL COMPANIES (MNC) MNC strategies MNC benefits Drawbacks of multinational companies

33. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 33 MNC STRATEGIES Global strategy Multinational strategy

34. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 34 MNC BENEFITS Large amount of goods available Lower prices Career opportunities Foster understanding, communication, and respect Friendly international relations

35. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 35 DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power

36. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 36 Checkpoint >> What are two strategies commonly used by multinational companies? Answer global strategy (offering the same product the same way everywhere) multinational strategy (approaching each country market differently).

37. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 37 GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture

38. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 38 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

39. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 39 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

40. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 40 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

41. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 41 Checkpoint >> How does licensing differ from a franchise? Answer 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.

42. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 42 INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank

43. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 43 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

44. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 44 INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world trade and exchange rates Includes over 150 member nations

45. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 45 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

46. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 46 Checkpoint >> How does the International Monetary Fund assist countries? Answer 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.