International Business Basics

Goals Describe importing and exporting Describe importing and exporting Compare balance of trade and balance of payments Compare balance of trade and balance of payments List factors that affect the value of global currency List factors that affect the value of global currency

Domestic Business Defined The making, buying, and selling of goods and services within a country. The making, buying, and selling of goods and services within a country. “Made for the U.S. by the U.S.”“Made for the U.S. by the U.S.” Buy American……Buy American……

International Business Defined Business activities needed for creating, shipping, and selling goods and services across national borders. Business activities needed for creating, shipping, and selling goods and services across national borders. For example: You go to Meijers and purchase a tool that was manufactured in China. You go to Meijers and purchase a tool that was manufactured in China.

Advantages What might be some of the advantages of taking your business international vs. staying domestic? What might be some of the advantages of taking your business international vs. staying domestic?

Benefits To Businesses Participating in International Business 1. Access to many more markets 2. Access to cheaper labor 3. Increased quality or quantity of goods 4. Access to resources that may not be available at home.

Access To Markets U.S. Population: Roughly 320,119,930 As of January 6, 2015 at 9 a.m. World Population: Roughly 7 ( as of same time above ) Roughly 7,216,140,340 ( as of same time above )Conclusion: The Global market can reach roughly 22 times more consumers than simply just U.S. consumers. The Global market can reach roughly 22 times more consumers than simply just U.S. consumers.

Types of Advantages Absolute Advantage Absolute Advantage This exists when a country can produce a good or service at a lower cost than other countriesThis exists when a country can produce a good or service at a lower cost than other countries Could be due to an abundance of nat. resources (South Amer. = coffee, Saudi Arabia = oil) Could be due to an abundance of nat. resources (South Amer. = coffee, Saudi Arabia = oil) Comparative Advantage Comparative Advantage Where a country specializes in the production of a G&S at which it is relatively more efficientWhere a country specializes in the production of a G&S at which it is relatively more efficient

Flow of Goods And Services Imports Goods and services flowing/coming into Canada Goods and services flowing/coming into CanadaExports Goods and services flowing/going out of Canada Goods and services flowing/going out of Canada Imports may include: Raw materials Raw materials Processed materials Processed materials Simi-finished goods, Simi-finished goods, Manufactured goods ready for sale. Manufactured goods ready for sale.

U.S. Imports & Exports 2010 RankCountryExportsImports% 1Canada % 2China % 3Mexico % 4Japan % 5Germany % 6 United Kingdom % 7 South Korea % 8France % 9Taiwan % 10Brazil % Source =

Canada and US Trade Relationship Why does it make sense to establish a solid trading relationship with the US? 1. Shipping costs are cheaper (proximity factor) 2. Similar culture and interests so same types of products and services will appeal to citizens 3. Speak the same language, watch same TV programs, movies, sports and similar fashion styles 4. Population of the states is 10x that of Canada’s

Balance of Trade Relationship between a country’s total imports and total exports. Relationship between a country’s total imports and total exports. Trade Surplus = E > I Export$ are greater than Import$. Export$ are greater than Import$. Americans are selling more products to other countries than they are importing. Americans are selling more products to other countries than they are importing. If surplus is made up of primarily manufactured goods, then more jobs are created for Canadians. If surplus is made up of primarily manufactured goods, then more jobs are created for Canadians. Trade Deficit = E < I Americans are spending more money on importing goods from other countries than selling/exporting goods to other countries. Americans are spending more money on importing goods from other countries than selling/exporting goods to other countries. Usually means that fewer Canadian jobs are being provided Usually means that fewer Canadian jobs are being provided

Export Business Two ways a business may export goods: Two ways a business may export goods: 1. Through direct exporting 1. Through direct exporting 2. Through indirect exporting 2. Through indirect exporting

Exporting Business Direct Exporting The exporting company deals directly with the company that will wishes to import the goods into his/her country. The exporting company deals directly with the company that will wishes to import the goods into his/her country. Conducted usually by established companies who have the experience and resources to set up offices and sales staff in foreign countries. Conducted usually by established companies who have the experience and resources to set up offices and sales staff in foreign countries. More risky as the exporting company assumes all risk. More risky as the exporting company assumes all risk. U.S. Company China Company

Exporting Business Indirect Exporting Goods move from the exporter to an intermediary, who is often from the foreign country, and then on to the importing business. Goods move from the exporter to an intermediary, who is often from the foreign country, and then on to the importing business.Intermediary Someone or another company who helps the exporter find a company who wants to purchase and import your goods) Someone or another company who helps the exporter find a company who wants to purchase and import your goods) U.S. Company China Company Intermediary Business or Individual (middle man)

Exporting Business Indirect Exporting Usually conducted by new businesses which don’t have the resources, or global reputation Usually conducted by new businesses which don’t have the resources, or global reputation Business share financial risks with the intermediary Business share financial risks with the intermediary Some countries prohibit direct exporting, likely to create jobs for local intermediaries. (i.e. in the Middle East, Central America and Asia) Some countries prohibit direct exporting, likely to create jobs for local intermediaries. (i.e. in the Middle East, Central America and Asia)

₤ € Currency ℓ ₣ A very large challenge for businesses involved in international trade. A very large challenge for businesses involved in international trade. Exchange Rate – value of a currency in one country compared with the value in another. Exchange Rate – value of a currency in one country compared with the value in another.

Currency 3 things that affect exchange rates: 3 things that affect exchange rates: The country’s balance of paymentsThe country’s balance of payments The difference between $$ that goes into and out of the country The difference between $$ that goes into and out of the country An increase in demand for that country’s products makes the exchange rate increaseAn increase in demand for that country’s products makes the exchange rate increase The country’s economic conditionsThe country’s economic conditions High inflation & interest rates = Low exchange rate High inflation & interest rates = Low exchange rate The country’s political stabilityThe country’s political stability