1. Business in the Global Economy
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Business in the Global Economy
3-1 International Business Basics
3-2 The Global Marketplace
3-3 International Business Organizations
ITB

2. TRADING AMONG NATIONS
Domestic Business is the making, buying, and selling of goods and services within a country.
International Business refers to business activities needed for creating, shipping, and selling goods and services across national borders. Also known as: foreign or world trade.
United States conducts trade with over 180 countries
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3. TRADING AMONG NATIONS
Absolute advantage – a country can produce a good or service at a lower cost than other countries. Ex – country has many natural resources or raw materials
South America – coffee production
Saudi Arabia – oil production
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4. TRADING AMONG NATIONS
Comparative advantage - country specializes in the production of a good or service at which it is relatively efficient
Importing – items brought from other countries. Examples – bananas, coffee, cocoa, spices, tea, silk, fish, carpets, sugar, dishes, tin, chrome, nickel, copper
Without foreign trade, many things you buy would cost more or not be available.
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5. TRADING AMONG NATIONS
Exporting – goods and services sold to other countries. Workers throughout the world use factory and farm machinery made in the U.S. More examples: chemicals, fertilizers, medicines, and plastics.
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6. IMPORTING
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7. MEASURING TRADE RELATIONS
Balance of trade- the difference between a country’s total exports and total imports.
If a country exports (sells) more than it imports (buys), it has a trade surplus. Its trade position is favorable. If it imports more than it exports, it has a trade deficit. Its trade position is unfavorable. A country can have a trade surplus with one country and a trade deficit with another.
Balance of payments – the difference between the amount of money that comes into a country and the amount that goes out of it.
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8. U.S. TRADE BALANCES
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9. BALANCE OF TRADE
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10. INTERNATIONAL CURRENCY – foreign exchange market
Foreign exchange rates – the value of currency in one country compared with the value in another.
Factors affecting currency values
Three main factors affect currency
Balance of payments – value of currency is usually constant or rising
Economic conditions
Political disability
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11. RECENT VALUES OF CURRENCIES
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12. THE INTERNATIONAL BUSINESS ENVIRONMENT
Geography – climate, location, seaports, etc.
Cultural influences – language, religion, values, customs, and social relationships
Economic development
Literacy level
Technology
Agricultural dependency
Political and legal concerns
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13. THE INTERNATIONAL BUSINESS ENVIRONMENT
GEOGRAPHY
location
climate
terrain
waterways
natural resources
ECONOMICS
technology
education
inflation
exchange rate
infrastructure
THE INTERNATIONAL BUSINESS ENVIRONMENT
CULTURE
language
family
religion
customs
traditions
food
POLITICAL–LEGAL
FACTORS
government system
political stability
trade barriers
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14. INTERNATIONAL TRADE BARRIERS – restrictions to free trade.
Quotas – set a limit on the quantity of a product that may be imported or exports within a given period. U.S. has imposed quotas on sugar, cattle, dairy products and textiles.
Tariffs – a tax that government places on certain imported products. Many people believe that tariffs should be used to protect U.S. jobs from foreign competition.
Embargoes – stop the export or import of a product completely. Protect industries from international competition. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country.
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15. 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 form abroad
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16. TARIFFS Reasons for tariffs
To set amount per pound, gallon, or other unit
To set the value of a good
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17. 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
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18. ENCOURAGING INTERNATIONAL TRADE
Free-trade zones
Free-trade agreements
Common markets
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19. 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 of airport
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20. FREE-TRADE AGREEMENTS
Member countries agree to remove duties and trade barriers on products traded among them
Results in increased trade between members
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21. COMMON MARKETS
Allows companies to invest freely in each member’s country
Allows workers to move freely across borders
Examples
European Union (EU)
Latin American Integration Association (LAIA)
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22. MULTINATIONAL COMPANIES (MNC)
MNC strategies
MNC benefits
Drawbacks of multinational companies
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23. Multinational strategy- treats each country market differently.
MNC STRATEGIES (MNC-Multinational Company) does business in several countries. MNC’s usually consist of a parent company in a home country and divisions in host countries.
Global strategy- uses the same product and marketing strategy worldwide. Example: Coca-Cola
Multinational strategy- treats each country market differently.
Example: Restaurant Chains- modify menus to local tastes
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24. MNC BENEFITS Large amount of goods available Lower prices
Career opportunities
Foster understanding, communication, and respect
Friendly international relations
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25. DRAWBACKS OF MULTINATIONAL COMPANIES
Economic power
Worker dependence on the MNC
Consumer dependence
Political power
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26. GLOBAL MARKET ENTRY MODES
Licensing
Franchising
Joint venture
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27. 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
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28. 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
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29. 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 since several companies are involved
Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers
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30. INTERNATIONAL TRADE ORGANIZATIONS
World Trade Organization
International Monetary Fund
World Bank
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31. WORLD TRADE ORGANIZATION (WTO)
WTO 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
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32. INTERNATIONAL MONETARY FUND (IMF)
Helps to promote economic cooperation
Maintains an orderly system of world trade and exchange rates
Includes over 150 member nations
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33. WORLD BANK
Created in 1944 to provide loans for rebuilding after World War II
Today the World Bank has over 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
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