Presentation on theme: "3 Business in the Global Economy 3-1 International Business Basics"— Presentation transcript:
1 3 Business in the Global Economy 3-1 International Business Basics C H A P T E R3Business in the Global Economy3-1 International Business Basics3-2 The Global Market Place3-3 International Business Organizations
2 3-1 International Business Basics GoalsDescribe importing and exporting activitiesCompare balance of trade and balance of paymentsList factors that affect the value of global currencies
3 Trading Among NationsMost business activities occur within a country’s own boardersDomestic Business – 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 boarders.Foreign or World Trade
4 Absolute/Comparative Advantage Two economic principles define buying and selling among companies in different countriesAbsolute Advantage – exists when a country can produce a good or service at a lower cost than other countriesComparative Advantage – a situation in which a country specializes in the production of a good or service at which it is relatively more efficient
5 Importing / Exporting Imports – Items bought from other countries Without foreign trade, many things you buy would cost more or not be available.Exports – Goods and services sold to other countriesThe goods and services exported by the U.S. create many jobs.1 out of 6 jobs in the U.S. depend on international business.
6 U.S Trade Balance With Top Trading Partners (In Billions) CountryGoods ExportedGoods ImportedU.S Trade BalanceAll Countries1056.91558.1-501.21. Canada204.7224.9-20.22. China69.6296.4-226.83. Mexico129.0176.5-47.54. Japan51.295.9-44.75. Germany43.371.3-28.06. United Kingdom45.747.5-1.87. South Korea28.639.2-10.68. France26.534.0-7.59. Netherlands32.316.116.2
7 Checkpoint #1 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.
8 Measuring Trade Relations People usually try to keep their income and spending in a balance.Nations are also concerned about balancing income with expenditures.Foreign Debt – the amount the country owes to other countries
9 Balance of TradeThe difference between a country’s total exports and total imports.Trade Surplus - If a country exports more than it imports (Trade favorable)Trade Deficit - Country imports more than its exports (Trade is unfavorable)U.S. has had a trade deficit in recent years
10 Balance of PaymentsMoney goes from one country to another through investments and tourismBusiness FactoryFinancial or Military aidBank deposit funds in foreign banksBalance of Payments – the difference between the amount of money that comes into a country and the amount that goes out.
11 Checkpoint #2How does balance of trade differ from balance of payments?Trade is not the only thing influencing the balance of payments.Money can enter or leave a country through investments, tourism, financial aid, and bank deposits.
12 International Currency A challenge faced by many businesses are the various currencies used around the world.Foreign Exchange Market – exchanging one currency for another. Consists of banks that buy and sell different currenciesExchange Rate – the value of a currency in one country compared with the value of another.Supply and demand affect the value of currency
13 Factors Affecting Currency Values 3 main factors affect currency exchange rates:Balance of Payments – favorable balance of payments, the value of its currency is usually constant or rising.Economic Conditions – Buying power in decline, inflation, interest rates.Political Stability – Government change might create unfriendly setting got foreign business. New laws might be put in placed.
14 Checkpoint #3 What factors affect a countries currency ? Balance of paymentsEconomic ConditionsPolitical Stability
15 3-2 The Global Marketplace Goals:Describe the components of the international business environmentIdentify examples of formal trade barriersExplain actions to encourage international trade.
16 International Business Environment Businesses must consider 4 main factors when doing business in other countries:GeographyCultural InfluenceThe accepted behaviors, customs, values of societyEconomic developmentInfrastructure (transportation, communication, utility systems)Political and Legal Concerns
17 Political/Legal Factors International Business EnvironmentGeographic FactorsLocationClimateTerrainWaterwaysNatural ResourcesEconomic FactorsTechnologyEducationInflationExchange RateInfrastructureCultural FactorsLanguageFamilyReligionCustomsTraditionsFoodPolitical/Legal FactorsGovernment SystemPolitical StabilityTrade BarriersBusiness Regulations
18 Checkpoint #4List the four main elements of the international business environment?GeographyCultural InfluencesEconomic DevelopmentPolitical and Legal Concerns
19 International Trade Barriers Government actions can create Trade BarriersRestrictions to free tradeFormal Trade Barriers – political actionsQuotas , Tariffs , EmbargosInformal Trade Barriers – Culture, traditions, and religionNot based on government actions but they can restrict trade
20 QuotasGovernment sets a limit on a quantity of a product that may be imported or exported within a given periodQuotas can be set for many reasonsCrude oil (Supply remains low)Imports (Express displeasure at the politics)Competition abroad
21 Tariffs A tax that a government places on certain imported products Some tariffs are a set amount per pound, gallon, or other unit.High TariffLower DemandQuantity of that import
22 EmbargoesGovernment stops the export or import of a product completelyWish to protect their own industries from international competitionPrevent sensitive productsVital to a nations defenseExpress disapproval of the actions or politics of another country
23 Checkpoint #5 What are 3 formal trade barriers? Quotas Tariffs Embargos
24 Encouraging International Trade Specific actions by government can promote international business activitiesExporting is an effective way to create jobs and foster economic prosperityFree trade zoneFree-trade agreementsCommon Markets
25 Free-Trade ZonesA selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturingLocated usually around a seaport or airportThe importer only pays duty only when the product leaves the zone
26 Fair-Trade Agreements Member countries agree to remove duties (import taxes), and trade barriers on products traded among themResults in increase tradeNAFTA (North American Free Trade Agreement)Eases the movement of goods
27 Common Markets Member do away with duties and other trade barriers Allow companies to invest freely in each member’s countryEconomic CommunityEuropean Union (EU)Latin American Integration Association (LAIA)Goal is to expand trade among member nations and promote regional economic integration
28 Checkpoint #6What actions can be taken to encourage international trade?Free-ZonesFree-Trade AgreementsCommon Markets
29 3-3 International Business Organizations GoalsDiscuss activities of multinational organizationsExplain common international business entry modesDescribe activities of international trade organizations and agencies
30 Multinational Companies An organization that does business in several countriesUsually consists of a parent company in a home country and divisionsSeparate companies in one or more host countriesThe country in which a MNC places business activities
31 MNC Strategies Global or Multinational Strategy Global Strategy – uses the same product and some marketing strategy worldwideProduct is sold in the manner across the world (Coca-Cola)Multinational Strategy - treats each country market differentlyFirms develop products and marketing strategies that adapt to the customs, tastes, and buying habits of a market.
32 MNC Benefits Large amount of goods available Lower price than goods made domesticallyCareer opportunities expand as a company does businessFoster understanding, communication, and respect among people of different countries.
33 Drawbacks of MNCWorkers of the host country may depend on the MNC for jobsConsumers become dependent upon it for goods and servicesControl or influence the political power of the country
34 Checkpoint #7 What are two strategies commonly used by MNC? Global strategy – offering the same product the same way everywhereMultinational Strategy – Approaching each countries market differently
35 Global Market Entry Modes Licensing – selling the right to use some intangible property (production process, trademark, brand name) for a fee or royaltyGerber company selling in JapanLicensing has a low financial investment, so return in lowFranchising – the right to use a company name or business process in a specific way.
36 Global Market Entry Modes Marketing elements such as food product, packaging and advertising must meet cultural sensitivities and legal requirementJoint Venture – an agreement between two or more companies to share a business projectSharing of Raw materials, shipping facilities, management activities, or production facilities.Sharing of profits and not as much control
37 Checkpoint #8 How does licensing differ from a franchise? Licensing does not require as much financial investment or risk as a franchiseBoth involve royalty payments, but licensing involves manufacturing process, while franchising involves selling a product or service.
38 World Trade Organization Created in 1995 to create trade around the worldSettles trade disputes and enforces free-trade agreementsLowering tariffs that discourage free tradeEliminating import quotasReducing barriers for banks, insurance companies, and other financial servicesAssisting poor countries with economic growth
39 International Monetary Fund Helps promote economic cooperationMaintains an orderly system of world trade and exchange rates.Cooperation among IMF nations makes trade war less likely
40 World BankWas created in 1944 to provide loans for rebuilding after WW IIToday the bank function is to give economic aid to less developed countriesBuild communication systems, transportation networks, and energy plants.
41 Checkpoint #9How does the International Monetary Find assist countries?By promoting economic cooperation and maintaining an orderly system of world trade and exchange rates.