business in the global economy -...

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e

C H A P T E R 3 SLIDE 1

3-1 International Business Basics

3-2 The Global Marketplace

3-3 International Business Organizations

3 C H A P T E R

Business in the

Global Economy

© 2012 Cengage Learning. All Rights Reserved. SLIDE 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.



KEY TERMS

● imports

● exports

● balance of trade

● balance of payments

● exchange rate



TRADING AMONG NATIONS

● Absolute advantage

● Comparative advantage

● Importing

● Exporting


C H A P T E R 3 SLIDE 5 EXAMPLE OF U.S. IMPORT

RELIANCE



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.


C H A P T E R 3 SLIDE 7 MEASURING TRADE

RELATIONS

● Balance of trade

● Balance of payments



U.S. TRADE BALANCES



BALANCE OF TRADE



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.



INTERNATIONAL CURRENCY

● Foreign exchange rates

● Factors affecting currency values

● Three main factors affect currency


● Economic conditions

● Political disability


C H A P T E R 3 SLIDE 12 RECENT VALUES OF

CURRENCIES



Checkpoint

● What factors affect the value of a

country’s currency?


● Economic conditions

● Political stability


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.



KEY TERMS

● infrastructure

● trade barrier

● quota

● tariff

● embargo


C H A P T E R 3 SLIDE 16 INTERNATIONAL BUSINESS

ENVIRONMENT

● Geography

● Cultural influences

● Economic development

● Literacy level

● Technology

● Agricultural dependency

● Political and legal concerns


C H A P T E R 3 SLIDE 17 ELEMENTS OF INTERNATIONAL

BUSINESS ENVIRONMENT



Checkpoint

● List the four main elements of the

international business environment.

● Geography

● Cultural influences

● Economic development

● Political and legal concerns


C H A P T E R 3 SLIDE 19 INTERNATIONAL

TRADE BARRIERS

● Quotas

● Tariffs

● Embargoes



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



TARIFFS

● Reasons for tariffs

● To set amount per pound, gallon, or other unit

● To set the value of a good



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



Checkpoint

● What are three formal trade barriers?

● Quotas

● Tariffs

● Embargoes


C H A P T E R 3 SLIDE 24 ENCOURAGING

INTERNATIONAL TRADE

● Free-trade zones

● Free-trade agreements

● Common markets



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



FREE-TRADE AGREEMENTS

● Member countries agree to remove duties

and trade barriers on products traded

among them

● Results in increased trade between

members



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)



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.


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.



KEY TERMS

● multinational company (MNC)

● joint venture


C H A P T E R 3 SLIDE 31 MULTINATIONAL

COMPANIES (MNC)

● Organizations that do business in several

countries

● Home country

● Host country



MNC STRATEGIES

● Global strategy

● Multinational strategy



MNC BENEFITS

● Large amount of goods available

● Lower prices

● Career opportunities

● Foster understanding, communication, and

respect

● Friendly international relations


C H A P T E R 3 SLIDE 34 DRAWBACKS OF

MULTINATIONAL COMPANIES

● Economic power

● Worker dependence on the MNC

● Consumer dependence

● Political power



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).


C H A P T E R 3 SLIDE 36 GLOBAL MARKET

ENTRY MODES

● Licensing

● Franchising

● Joint venture



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



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



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



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.


C H A P T E R 3 SLIDE 41 INTERNATIONAL TRADE

ORGANIZATIONS

● World Trade Organization

● International Monetary Fund

● World Bank


C H A P T E R 3 SLIDE 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


C H A P T E R 3 SLIDE 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



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



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.

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