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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

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

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

13. Geographic Factors
Location
Climate
Terrain
Seaports
Natural Resources

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

15. 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

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

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

18. 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

19. 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

20. 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

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

22. 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)

23. 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

24. 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

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

26. 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

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

28. Entry Modes into the Global Marketplace
Franchising
Licensing
Joint Venture

29. 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

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

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

32. 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