International Business Chapter 4

Independent Practice Research the U.S. Customs and Border Protection Department Examine and explain 2 regulations regarding importing Examine and explain 2 regulations regarding exporting Find and explain 3 Careers at the U.S. Customs Department

The Nature of International Trade What is International Trade? All business activities conducted between individuals, companies and governments from different countries Business Activities: Buying, selling, shipping, receiving, paperwork, credit, payments, servicing. Importing And Exporting Imports – goods and services people in one country buy from people in another country Exports – goods and services people in one country sell to people in another country 4.1

The Nature of International Trade Goods and Services Goods Tangible items, made, manufactured or grown Services A task provided by a business (you cannot touch) Goods with Services Often goods are sold with services Buying an extended warranty on a product Importing Process Identify Need Search for Supplies Create and Finalize Purchase Agreement Contract between the buyer and the seller Receive Goods Confirm the Purchase

The Nature of International Trade Exporting Process Assess Demand Export Potential Company Potential Identify Customers and Make Contacts Create and Finalize Purchase Agreement Shipping Costs FOB – Free (Freight) On board CIF – Cost, Insurance, Freight – all included in quote to buyer C&F – Cost & Freight – insurance is paid separately Deliver Goods and Services Complete the Transaction

The Nature of International Trade Research 1. Generate a list of internationally available items 2. List suppliers of an item from list 3. Make a chart to fill in information about suppliers SupplierLocationItem Availability PriceComplications/ Regulations

International Trade Relationships Understanding Trade Relationships Why Companies Export Opens them up to new markets Why Companies Import When the company has an unmet need or finds and opportunity in a product from another country Why Countries Import To fill needs Why Countries Export Economic growth and Political ties. 4.2

International Trade Relationships Direct Exporting A company that exports its own products Benefits: Control over negotiations, prices, distribution, and marketing programs Can choose how and where products will be sold Costs: Primary cost is shipping Often raises a products price

International Trade Relationships Indirect Exporting Requires less work than direct, hires another company in the importing country to handle items 4 Types of Independent Exporters Manufacturers Export Agent Export Commission Agent Export Merchants International Firms Benefits Volume and Simplicity Disadvantages Company has less control over the export process

International Trade Relationships Exporting and Risk Time Risk How long it takes to get your money back on an investment (The longer the riskier) Economic Risk Possibility of downturns in economic conditions can affect businesses locally, nationally, or globally Product Risk Some products are more risky than others Country Risk Investment could be lost due to political changes in a country Importing and Risk Dependency (biggest risk) – Relying too much on one trading partner

International Trade Relationships The Role of Trade Balances Balance of Trade – Difference between how much a country imports and exports Trade Surplus (More exports than imports) Trade Deficit (More imports than exports) Increasing Exports Governments give subsidies and promotions for products or companies Decreasing Imports Tariffs – Tax imposed on imported goods Quotas – Limits # of items that can be sold in a country Embargoes – Complete ban on imports or exports from a particular country Boycotts – Do not buy goods from certain countries Protectionism System of imposing extra costs on imports to protect the interest of local businesses

International Trade Relationships International Trade Agreements Economic Integration The practice of removing trade barriers and establishing cooperation to connect businesses and business people across national borders Globalization Having operations in a variety of nations Investments are easier to make in new areas Can share technological innovations Everyone has access to more and better goods and services

International Trade Relationships Trade Alliances General Agreement on Tariffs and Trades (GATT) Goal was to reduce tariffs between member organizations World Trade Organization (WTO) Most Favored Nations Status – Any favor or privilege given to one member must be granted to all members National Treatment – Principle that once a product has cleared customs at a member nations border, that nation will treat it as a domestic good Escape Clause – Allows a developing country to charge higher tariffs to develop new and growing companies Dumping Policies – Protects against dumping Dumping – the practice of selling goods in another country for less than the cost of manufacturing them or less than market price.

International Trade Relationships European Union (EU) More than 25 members, geographically close Many use the “euro” as currency Open trade with few tariffs or restrictions NAFTA – North American Free Trade Agreement Eliminates trade barriers between U.S., Canada and Mexico