1. Business in the Global Economy
Intro to Business
Chapter 3

2. Trading Among Nations
Countries have become economically interdependent
Absolute Advantage – when a country can produce a good/service at a lower cost than other countries
Comparative Advantage – situation when a country specializes in the production of a good/service at which it is relatively more efficient

3. Importing/Exporting
Importing – items bought from another country . US imports 50% of its crude oil and fish. Also must import raw materials not readily available in US (see figure 3-1)
Exporting – goods and services sold to other countries. Main US exports are food stuffs, movies, media.

4. Trade Relations
Balance of Trade – the difference between a countries total imports and total exports.
The US has a trade imbalance of approx. $490 billion
Balance of Payments – difference between the amount of money that comes into a country and the amount that goes out.

5. International Currency
Exchange Rate – the value of a currency in one country compared with the value of another
Factors Affecting Currency Values:
Balance of Payments
Economic Conditions (Interest Rates)
Political Stability

6. International Business Envorinment
Geography (location, climate, terrain, seaports, natural resources)
Cultural Influences (language, religion, values, customs, social relationships)
Economic Development (literacy level, technology, agricultural dependency, infrastructure)
Political and Legal Concerns

7. International Trade Barriers
Quotas – limit on the quantity of a product that may be imported/exported within a given period
Tariffs – a tax that a government places on certain imported products
Embargoes – stopping the import/export of a particular product (Cuba)

8. Encouraging Int’l Trade
Free Trade Zones - a selected are where products can be imported duty-free and then stored, assembled, and/or used in manufacture
Free Trade Agreements – removes duties and trade barriers between countries
Common Markets – More freedom than free trade agreements. Workers may cross borders; expands trade and promote economic integration.

9. Multinational Companies (MNC)
MNC – an organization that does business in several countries
Global Strategy – uses the same product and marketing strategy worldwide
Multinational Strategy – treats each country market differently. Adapt products and marketing strategies to customs, tastes, and buying habits.

10. MNC (continued) MNC Benefits:
Consumers have large amount of goods available
Lower Prices
Expanded Career Opportunities
Foster understanding/respect of people from different cultures
Drawbacks of MNC – becomes too involved and powerful in culture a nd politics of host country

11. Global Market Entry Modes
Licensing – selling the right to use intangible property for a fee or royalty
Franchising – right to use a company name or business process in a specific way
Joint Venture – agreement between two or more companies to share a business product

12. International Trade Organizations
World Trade Organization (WTO) – created in 1995 to promote trade around the world
Lower tariffs that discourage free trade
Eliminate import quotas
Reduce barriers for banks, insurance companies, and other financial services
Assist poor countries with economic growth

13. Int’l Trade Organizations (cont.)
International Monteary Fund – promotes economic cooperation by stabilizing monetary exchange system.
World Bank:
Created to provide loans for rebuilding after WWII
Today gives economic aide to undeveloped countries