Understand Business in the Global Marketplace Objective 1.03 Understand Business in the Global Marketplace

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

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

Domestic vs. International Businesses Domestic Business – Making, buying, and selling of goods and service within a country International Business – also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders

Business Advantage Factors Absolute Advantage – 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 – a situation in which a country specialized in 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

International Trade Imports – items bought from other countries Examples: furniture, tax preparation services, bananas, or automobile parts Exports – goods and services sold to other countries Examples: Silver, automobile parts, or software

Advantages and Disadvantages 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 Disadvantages: Some goods would cost more without competition of imported goods Possibly goods may be unavailable

Advantages and Disadvantages of Exporting Creates jobs Provides access to goods not usually unavailable Disadvantages: Jobs may depend on global business A natural disaster may curtail (cut) production

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.

Measuring of Trade Relations Continued Balance of Trade – 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 Balance of Payments – 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.

International Currency Exchange Rate Foreign Exchange Market – where banks buy and sell different currencies Exchange Rate – the value of currency in one country when compared with the value in another

International Currency Exchange Rate Main Factors Balance of Payments - 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

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

International Business Environment Factors Continued What is included in a country’s geography? Location Climate Terrain Seaports Natural Resources How can this affect a country’s trade? The geography of a country could impact its natural resources and import/export of resources

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? Accepted behavior, customs, and values of a society could impact business activities

International Business Environment Factors Continued What key effects of a country’s economics may influence conducting business in a global marketplace? Education and Literacy Levels 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

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

Main International Trade Barrier Factors Trade barriers are restrictions to free trade. Embargo – when a government bans the import or export of specified goods Why would a government place an embargo? Protect a good or service from too much competition (similar to a quota or tariff) Protect sensitive goods Quota – A limit on the quantity of goods that may be imported or exported within a given period to regulate international trade Why would a company or country set a quota? Regulate the supply and price Protect a good or service from too much competition

Main International Trade Barrier Factors Continued Tariffs - taxes on certain imported products which increases prices. Why would a government use a tariff? To protect the supply of goods.

Encouragement of International Trade Factors Main factors are: Common Markets – When countries that are members freely invest in one another European Union (EU) Latin American Integration Association (LAIA) Free-Trade Agreements – When countries that are members remove duties and trade barriers on products traded among them to increase trade between members NAFTA (North American Fee Trade Agreement between the United States, Canada, and Mexico

Encouragement of International Trade Factors Free-Trade Zone – selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing Seaport Airports

Main Entry Modes to the Global Marketplace Franchising – Allowing a business the rights to use another company’s name or process in a specific way Examples – H & R Block; Dunkin’ Donuts Licensing – Selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty Dick Idol (furniture/products) Beyond Juice Cafés

Main Entry Modes to the Global Marketplace Continued Joint venture – when two or more companies agree to share a business project. Examples: Cable company and television stations; Oil lube and tire service company

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