1. 3 Business in the Global Economy 3-1 International Business Basics
C H A P T E R 3
Business in the Global Economy
3-1 International Business Basics
3-2 The Global Marketplace
3-3 International Business Organizations

2. 3-1 International Business Basics
Goal 1 Describe importing and exporting activities.
Goal 2 Compare balance of trade and balance of payments.
Goal 3 List factors that affect the value of global currencies.

3. KEY TERMS imports exports balance of trade balance of payments
exchange rate

4. TRADING AMONG NATIONS Absolute advantage Comparative advantage
Importing
Exporting

5. EXAMPLE OF U.S. IMPORT RELIANCE

6. Checkpoint  How does importing differ from exporting?
Importing is bringing items from other countries into a country.
Exporting is selling goods and services to other countries.

7. MEASURING TRADE RELATIONS
Balance of trade
Balance of payments

8. U.S. TRADE BALANCES

9. BALANCE OF TRADE

10. Checkpoint 
How does balance of trade differ from balance of payments?
Balance of trade is the difference between a country’s total exports and total imports.
Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

11. INTERNATIONAL CURRENCY
Foreign exchange rates
Factors affecting currency values
Three main factors affect currency
Balance of payments
Economic conditions
Political disability

12. RECENT VALUES OF CURRENCIES

13. Checkpoint  What factors affect the value of a country’s currency?
Balance of payments
Economic conditions
Political stability

14. 3-2 The Global Marketplace
Goal 1 Describe the components of the international business environment.
Goal 2 Identify examples of formal trade barriers.
Goal 3 Explain actions to encourage international trade.

15. KEY TERMS
infrastructure
trade barrier
quota
tariff
embargo

16. INTERNATIONAL BUSINESS ENVIRONMENT
Geography
Cultural influences
Economic development
Literacy level
Technology
Agricultural dependency
Political and legal concerns

17. ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

18. Checkpoint 
List the four main elements of the international business environment.
Geography
Cultural influences
Economic development
Political and legal concerns

19. INTERNATIONAL TRADE BARRIERS
Quotas
Tariffs
Embargoes

20. QUOTAS Reasons for quotas To keep supply low and prices the same
To express displeasure at the policies of the importing country
To protect one of a country’s industries from too much competition from abroad

21. TARIFFS Reasons for tariffs
To set amount per pound, gallon, or other unit
To set the value of a good

22. EMBARGOES Reasons for embargoes
To protect a country’s industries from international competition more than the quota or tariff will achieve
To prevent sensitive products from falling into the hands of unfriendly groups or nations

23. Checkpoint  What are three formal trade barriers? Quotas Tariffs
Embargoes

24. ENCOURAGING INTERNATIONAL TRADE
Free-trade zones
Free-trade agreements
Common markets

25. FREE-TRADE ZONES
Used to promote international business in a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing
Usually located around a seaport or airport

26. FREE-TRADE AGREEMENTS
Member countries agree to remove duties and trade barriers on products traded among them
Results in increased trade between members

27. COMMON MARKETS
Allow companies to invest freely in each member’s country
Allow workers to move freely across borders
Examples
European Union (EU)
Latin American Integration Association (LAIA)

28. Checkpoint 
What actions could be taken to encourage international trade?
Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

29. 3-3 International Business Organizations
Goal 1 Discuss activities of multinational organizations.
Goal 2 Explain common international business entry modes.
Goal 3 Describe activities of international trade organizations and agencies.

30. KEY TERMS
multinational company (MNC)
joint venture

31. MULTINATIONAL COMPANIES (MNC)
Organizations that do business in several countries
Home country
Host country

32. MNC STRATEGIES
Global strategy
Multinational strategy

33. MNC BENEFITS Large amount of goods available Lower prices
Career opportunities
Foster understanding, communication, and respect
Friendly international relations

34. DRAWBACKS OF MULTINATIONAL COMPANIES
Economic power
Worker dependence on the MNC
Consumer dependence
Political power

35. Checkpoint 
What are two strategies commonly used by multinational companies?
Global strategy (offering the same product the same way everywhere)
Multinational strategy (approaching each country market differently).

36. GLOBAL MARKET ENTRY MODES
Licensing
Franchising
Joint venture

37. LICENSING
Allows companies to produce items in other countries without being actively involved
Has a low financial investment, so the potential financial return for the company is often low
The risk for the company is low

38. FRANCHISING
Allows organizations to enter into contracts with people in other countries to set up a business that looks and runs like the parent company
Marketing elements, such as food products, packaging, and advertising, must meet both cultural sensitivities and legal requirements
Commonly involves selling a product or service

39. JOINT VENTURE
Allows two or more companies to share raw materials, shipping facilities, management activities, or production activities
Concerns include the sharing of profits and not as much control because several companies are involved
Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers

40. Checkpoint  How does licensing differ from a franchise?
Licensing does not require as much financial investment or risk as franchising.
Both licensing and franchising involve royalty payments, but licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.

41. INTERNATIONAL TRADE ORGANIZATIONS
World Trade Organization
International Monetary Fund
World Bank

42. WORLD TRADE ORGANIZATION (WTO)
150 member countries
Promotes trade
Settles trade disputes
Enforces free-trade agreements
Other goals
Lowering tariffs that discourage free trade
Eliminating import quotas
Reducing barriers for banks, insurance companies, and other financial services
Assisting poor countries with economic growth

43. INTERNATIONAL MONETARY FUND (IMF)
Helps to promote economic cooperation
Maintains an orderly system of world trade and exchange rates
Includes more than 150 member nations

44. WORLD BANK
Created in 1944 to provide loans for rebuilding after World War II
Today the World Bank has more than 180 member countries and two main divisions
International Development Association (IDA), which makes loans to help developing countries
International Finance Corporation (IFC), which provides technical capital and technical help to private businesses in nations with limited resources

45. Checkpoint 
How does the International Monetary Fund assist countries?
The International Monetary Fund assists countries by promoting economic cooperation and maintaining an orderly system of world trade and exchange rates.
This cooperation makes harmful trade wars among IMF nations less likely.