Understand business in the global marketplace. POB 1.03 Part 1 Understand business in the global marketplace.

Domestic Vs. Foreign Business Domestic Business The making, buying, and selling of goods and services within a country. Foreign Business Business activities needed for creating, shipping, and selling goods and services across international borders Also called international business or world trade

Absolute Vs. Comparative Advantage Absolute Advantage Exists when a country can produce a good or service at a lower cost than other countries (ex. Saudi Arabia and oil) Comparative Advantage Exists when a country specializes in the production of goods and services at which it is relatively more efficient

Imports Vs. Exports Imports – items brought into the US from other countries Common imports: bananas, coffee, cocoa, spices, tea, silk Exports – goods and services sold to other countries Common exports: agricultural products & machinery, medicines, movies, music

Measuring Trade Relations People work to buy things …. We sell our labor for wages We spend wages on goods and services We try to keep spending and income in balance Countries want to keep a balance too

Balance of Trade Balance of Trade – difference between a country’s total exports and total imports Trade surplus is favorable exports > imports Trade deficit is unfavorable Imports > exports Can have a surplus with one country and deficit with another Don’t want to be dependent on other countries

Balance of Payments Balance of Payments – difference between the amount of money that comes into the country and the amount that goes out of it Favorable: $ in > $ out Unfavorable: $ out > $ in How does money go in and out? Investments in companies Financial and military aid Tourism Banks depositing in foreign banks

Foreign Debt Foreign Debt is the amount of money a country owes other countries We want to have a balance of trade and a balance of payments

Foreign Exchange Market Foreign Exchange Market – banks that buy and sell different currencies Exchange Rate – the value of a currency in one country compared with the value in another

What factors affect the exchange rate? Balance of Payments – rate rises when there is a favorable balance Economic Conditions – inflation and high interest rates reduce buying power Political Stability – avoid risk! Changes in govt. party New laws put into place

Understand business in the global marketplace. POB 1.03 Part 2 Understand business in the global marketplace.

What Factors Impact the International Business Environment? Geography Culture Economy Political & legal Concerns

Geographic Factors Location Climate Terrain Seaports Natural Resources

Cultural Factors Culture – accepted behaviors, customs and values of a society Factors include … Language Religion Values Customs Social relationships

Economic Factors What are the differences in the living and work environments? 3 Key Effects: Literacy Level – better ed = more & better products for citizens Technology – automated production, distribution and communication = ability to create and deliver products quickly Agricultural Dependency – usually either heavy ag focus or manufacturing Infrastructure: nation’s transportation, communication, and utility systems

Political and Legal Factors Regulations on advertising and the enforcement of contracts Safety inspections Type of government, stability of government and policies towards businesses

What are trade barriers? Trade barrier – a restriction to free trade Formal barriers Embargo Quota Tariff Informal barriers Culture Tradition Religion

Embargo Embargo – an action imposed by a government to stop the export or import of a product completely Why? To protect its own industries from international competition Prevent products from getting to other countries (ex: defense weapons) Express disapproval of actions/policies

Quota Quota – limit on the quantity of a product that may be imported or exported within a given time period Why? To keep prices stable (high) Express displeasure toward a country Protect its own country’s industry

Tariff Tariff – tax the government places on certain imported goods and services Why? Increase the price of a good High tariff lowers demand and reduces the amount imported

Encouraging International Trade A few things that encourage international trade Common Markets Free-Trade Agreements Free-Trade Zones

Common Markets In a common market, the member countries do away with the duties and other trade barriers AKA “economic community” Examples: European Union (EU), Latin American Integration Association (LAIA)

Free-Trade Agreements In a Free-Trade Agreement, member countries agree to remove the duties and trade barriers on products traded among them Example: North American Free Trade Agreement (NAFTA) 1993

Free Trade Zone A Free Trade Zone is a selected are where products can be imported duty free and then stored, assembled, and/or used in manufacturing Usually near a seaport or airport Importer pays duties when items leave the zone

Understand business in the global marketplace. POB 1.03 Part 3 Understand business in the global marketplace.

What is a Multinational Company? Multinational Company (MNC) is an organization that does business in several countries The parent company is in the home country and does business activities in the host country. Pros: cheaper goods and career opportunities Cons: may become an economic power; host may depend on the MNC for jobs & products

International Business Strategies Global Strategy: selling the same product and using the same marketing strategy worldwide Multinational Strategy: treats each country market differently

Entry Modes into the Global Marketplace Franchising Licensing Joint Venture

Franchising Franchising is the right to use a company name or business process in a specific way. Usually involves selling a product or service. Example: McDonalds, KFC

Licensing Licensing is selling the right to use some intangible property for a fee or royalty Production process, trade mark or brand name

Joint Venture A Joint Venture is an agreement between 2 or more companies to share a business project Popular in manufacturing

Major International Trade Organizations International Monetary Fund 150 member nations; helps to promote economic cooperation; keeps orderly system of trade and exchange rates World Bank Formed in 1944; gives economic aid to less developed countries World Trade Organization (WTO) Formed in 1995 to promote trade; over 150 countries; settles disputes and enforces free trade agreements