Essential Standard1.00 Understand the role of business in the global economy. 1

Objective 1.03 Understand business in the global marketplace. 2

Topics Factors and regulations companies have to consider when doing business in the global market place Main entry modes for companies to enter the global marketplace Main international trade organizations 3

Factors and regulations companies have to consider when doing business in the global market place 4

Domestic vs. International Businesses What activities are included in domestic business transactions? Where do they take place? Domestic business is the making, buying, and selling of goods and service within a country. What activities are included international business transactions? Where do they take place? International business, also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders. 5

Business Advantage Factors How can a country have a business advantage over another country? Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. Examples: Saudi Arabia-Oil production, Columbia-coffee, Virgin Islands-sand Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient. Examples: China-manufacturing of clothes and household goods America-Technology Japan-Electronics 6

International Trade From where do imports come? Imports are items bought from other countries. From where do exports come? Exports are goods and services sold to other countries. Import examples may include furniture, tax preparation services, bananas, or automobile parts. Export examples may include silver, automobile parts, or software. 7

Importing and Exporting Advantages and Disadvantages What are some advantages of importing? –Goods available for purchase. –Goods could have cost less since they were imported. –Goods may be a better quality since imported. –Goods imported and owned may provide satisfaction. What are some disadvantages of importing? –Some goods would cost more without competition of imported goods. –Possibly goods may be unavailable. 8

Importing and Exporting Advantages and Disadvantages What are some advantages of exporting? –Exporting creates jobs. –Exporting provides access to goods usually unavailable. What are some disadvantages of exporting? –Jobs may depend on global business. –A natural disaster may curtail production tremendously. 9

Measuring of Trade Relations What is a way to measure trade relations? Balance of trade or balance of payments Why are measures of trade relations completed? Nations are concerned with balancing income with expenditures. Foreign debt is the amount of money a country owes to other countries. 10

What is a balance of trade? Balance of trade is the difference between a country’s total exports and total imports. –If a country exports more than it imports, it has a trade surplus. This is favorable. –If a country imports more than it exports, it has a trade deficit. This is unfavorable. Measuring of Trade Relations continued 11

What is a balance of payments? Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it. –If a country receives more money in a year than it pays out, it has favorable balance. –If a country sends more money out than it brings in, it has an unfavorable balance. Measuring of Trade Relations continued 12

International Currency Exchange Rate Main Factors Where do banks buy and sell different currencies? –The foreign exchange market What is an exchange rate? –the value of a currency in one country when compared with the value in another 13

International Currency Exchange Rate Main Factors Main factors affecting currency exchange rates are: –Balance of payments is influenced by demand for a nations goods and services. If the balance of payment is favorable, then usually currency is steady and rising in value. If unfavorable, then usually the currency is declining in value. – Economic Conditions include the following: inflation decreases buying power of currency interest rates that are high decreases demand to borrow money. –Political stability could be impacted by changes in government or laws. 14

International Business Environment Factors What are the main environmental issues that could make a difference when conducting business in the global marketplace? –Cultural influences, economic development, geography, and political-legal issues 15

International Business Environment Factors How could these issues impact businesses? –Cultural influences-In a country company executives may prefer to meet with people of the same culture. –Geography-A country with a lot of natural resources may have to rely on exports more. –Economic development-A country may have limited transportation methods that may limit travel distances to purchase imported goods. –Political-legal concerns-A country’s government only collects about ¼ of his housing property taxes. This could be a sign of weak government that is ignored by the its citizens. 16

International Business Environment Factors continued Four main factors: –Geography –Cultural Influences –Economic Development –Political and Legal Concerns 17

International Business Environment Factors continued What is included in a country’s geography? The geography of a country could impact its natural resources and export and import of resources. –Location –Climate –Terrain –Seaports –Natural Resources 18

International Business Environment Factors continued What main cultural factors may influence how business is conducted in the global marketplace? Language Religion Family Food Values Customs Social Relationships How can this affect a country’s trade? –The accepted behavior, customs, and values of a society could impact business activities. 19

International Business Environment Factors Continued What key factors of a country’s economics may influence conducting business in a global marketplace? –Education and Literacy level –Inflation –Technology –Exchange rate –Agricultural dependency –Infrastructure –Transportation How can this affect a country’s trade? A country’s economic development impacts its citizens standard of living and business activities. –Communication –Utilities systems 20

International Business Environment Factors continued What political and legal concerns may influence business activities in a global marketplace? –Type of Government –Stability of government –Government policies for businesses relevant to trade barriers How can this affect a country’s trade? Political and legal concerns influence business activities in the global marketplace. 21

Main International Trade Barrier Factors Trade barriers are restrictions to free trade. Embargo: a government bans the import or export of specified goods. Why would a government place an embargo? –To protect a good or service from too much competition in a global market place more that what a quota or tariff could. –To protect sensitive goods. Quota: a limit on the quantity of good that may be imported or exported within a given period to regulate international trade. Why would a company or country set a quota? –To regulate the supply and prices. –To protect a good or service from too much competition in a global market place. Tariffs: taxes on certain imported products which increases prices. Why would a government use a tariff? - To protect the supply of goods. 22

Encouragement of International Trade Factors Main factors are: 1. Common Markets: when countries that are members freely invest in one another. –Examples: European Union (EU) Latin American Integration Association (LAIA) 2. Free-Trade Agreements is when countries that are members remove duties and trade barriers on products traded among them to increase trade between members. –Example: NAFTA (North American Free Trade Agreement between the United States, Canada, and Mexico. 3. Free-Trade Zone include selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport. 23

Main entry modes for companies to enter the global marketplace 24

Main Entry Modes to the Global Marketplace Franchising is allowing a business the rights to use another company’s name or process in a specific way. What are some examples? –H & R Block –Dunkin’ Donuts Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty. What are some examples? –Dick Idol furniture/products –Beyond Juice Cafés Joint venture happens when two or more companies agree to share a business project. What are some examples? –Cable company and television stations –Oil lube and tire service company 25

Main international trade organizations 26

Main International Trade Organizations International Monetary Fund (IMF) Helps promote economic cooperation and maintain an orderly system of world trade and exchange rates. World Bank Provides economic aid to developing countries to fund building communications systems, transportation networks, and energy plans. World Trade Organization (WTO) Settles trade disputes and enforces free-trade agreements among its members. 27