International Business Basics:

Business on a Global Scale  The making, buying, and selling of goods and services inside a county is Domestic Business  The making, shipping, buying, and selling of goods and services across national borders is called International Business (foreign or world business)

Advantages in International Business  Absolute Advantage  Absolute Advantage exists when a country can produce a good or service at a lower cost than other countries. (Usually occurs with abundance of natural resource. i.e. oil in ME or Coffee in SA)  Comparative Advantage  Comparative Advantage is when a country chooses to specialize is something they have an absolute advantage in because it is efficient and the world market demands it.

Goods Coming and Goods Going  Imports  Imports are items brought from other countries. The US imports 100% of its: bananas, coffee, cocoa, spices, tea, silk, and crude rubber % of its: carpets, sugar, leather gloves, and dishes. Imports are items brought from other countries. The US imports 100% of its: bananas, coffee, cocoa, spices, tea, silk, and crude rubber % of its: carpets, sugar, leather gloves, and dishes.  Exports are goods and services sold to other countries Exports are goods and services sold to other countries

Measuring Trade Relations  Balance of Trade  Balance of Trade is the difference between a country’s total exports and total imports. trade surplus trade deficit  If a country sells(exports) more that in buys(imports), it has a trade surplus. The other way around is a trade deficit.  Trade Surplus = good, Trade Deficit = not so much  Countries can have surplus with one country while having a deficit with another.

Measuring Trade Relations cont.  Balance of Payments  Balance of Payments is the difference between the amount of money that goes into a country and the amount that goes out.  A Positive or Favorable BOP happens when a country receives more money than it pays out

Doing Business in Other Countries  How do businesses do business in other countries that have a different currency and banking system?  Exchange Rate:  Exchange Rate: Value of a currency in one country compared with the value of another. Exchange Rate: Exchange Rate:  Travelers must exchange their currency for the local currency. The amount they receive is dependent on how much the currencies are worth at the time.

What Affects the Value of Currency  Balance of Payments:  Balance of Payments: When a country have a favorable BOP, their currency is usually stable or rising.  Economic Conditions:  Economic Conditions: Inflation will decrease buying power and decrease the value of a countries money. High Interest rates will drive down demand of a countries money and make it less valuable.  Political Stability:  Political Stability: The money of an unstable government is less desirable, therefore less valuable.

Understanding the International Business Environment  Geography:  Geography: location, climate, terrain, natural resources and proximity to water effect a countries business  Cultural Influence:  Cultural Influence: accepted behaviors, customs, and values of a society. Major ones are language, religion, and values.  Economic Development: ○ Literacy level: ○ Literacy level: Better education usually equals better and more abundant goods and services ○ Technology: ○ Technology: Better technology can make production and delivery of goods and services more efficient ○ Agricultural Dependency: ○ Agricultural Dependency: The more dependent a country is on agriculture, they tend to produce less goods and services. ○ Infrastructure: ○ Infrastructure: transportation, communication, and utilities. The more developed these are, the higher a countries economic development.  Political and Legal Concerns:  Political and Legal Concerns: Government regulates many aspects of business. This can greatly affect the business environment. The most common factors of this are type of government, stability of government, and government policies toward business.

Discussion Activity  Knowledge of the international business environment is important for all global activities. As a group, create a list of items for each of the following categories: 1. Geography 2. Cultural Influence 3. Economic Development 4. Political-Legal Concerns  You will have 10 minutes, then your group will give a 2-3 presentation over your discussion.

Barriers in International Business  Government actions can create formal trade barriers in a country, while customs, religion, and tradition create informal trade barriers  3 Common Formal Trade Barriers ○ Quota- A limit on the amount of a product that may be imported or exported (control S & D, express displeasure, control competition) ○ Tariffs- A tax that a government places on certain imported goods ○ Embargoes- The complete stop of all exports and imports of a product (Cuba)

Encouraging International Trade  Free Trade Zones- Selected area where products can be imported and stored duty free.  Free-Trade Agreement- An agreement among two or more countries to remove trade barriers for all countries involved with the agreement. (NAFTA- America, Canada, and Mexico)  Common Markets- An agreement that effectively combines multiple countries into one economic entity. All barriers are removed for member countries and workers are allowed to move freely across borders. All countries agree on barriers to impose on other, non- member countries.

Companies That Operate Internationally (MNC)  Multinational Companies usually consist of a parent company in a home country and divisions or separate companies in one or more host countries. ○ Global Strategy is when a MNC markets the same product using the same campaign all over the world (Coca-Cola) ○ Multinational Strategy is when the MNC changes their approach and even their product in order to treat each country as a different market. They adapt their marketing campaign to fit local customs, tastes, and buying habits.

Benefits of a MNC  Large Amount of Goods Available  Career Opportunities Expand as Company Expands  Ultimately they foster understanding, communication, and respect among different people from all over the world.

Drawbacks to MNC  Can become too powerful in a host country  Can affect economy and political policy and power of host country  Workers in the host country can become too dependent on the MNC

How to Get Into the Global Market  Licensing- Selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalties.  Franchising- Similar to Licensing, but will usually consist of a physical company and its likeness. (setting up a Wendy’s in China)  Joint Venture- When two companies get together and decide to share a business project. This is good for companies because it cuts risk, cost, and need for materials in half. (Ford and Mazda did this. Ford used Mazda produced parts and Mazda set up Ford an assembly plant for Ford Vehicles)