business in the global economy

Intro to Business, 7eIntro to Business, 7e

© 2009 South-Western, Cengage Learning 1SLIDE

CHAPTER 3

3-13-1 International Business Basics

3-23-2 The Global Marketplace

3-33-3 International Business Organizations

Business in the Global Economy



International Business International Business Basics Basics

GoalsDescribe importing and exporting activities.Compare balance of trade and balance of

payments.List factors that affect the value of global

currencies.

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© 2009 South-Western, Cengage Learning

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Key TermsKey Terms

balance of payments-difference between amount of money that comes in a country and amount that goes out of it.

balance of trade-difference between exports and imports

exchange rate-value of currency in one country compared with value in another.

Exports-Goods and services sold to other countries Imports-Items bought from other countries



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TRADING AMONG NATIONSTRADING AMONG NATIONS

Absolute advantage-can produce good/service at a lower price. “I absolutely can do that better/cheaper”

Comparative advantage-specializes in good/service; can be more efficient at production.



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Source: United States Geological Survey Minerals Information

U.S. Import Reliance for Selected Raw MaterialsU.S. Import Reliance for Selected Raw Materials



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Checkpoint >>Checkpoint >>

How does importing differ from exporting?

Answer Importing is bringing items from other countries into a

country. Exporting is selling goods and services to other countries.



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MEASURING TRADE MEASURING TRADE RELATIONSRELATIONS

Balance of trade-difference between country’s exports and imports.Export(sell)>imports(buy)=trade surplus Import(buy)>Export(sell)=trade deficit

Balance of payments-$ to countries through investments, tourism. Difference is positive or negative.



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U.S. Trade U.S. Trade BalancesBalances



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Grade for PosterCreate poster using your term-

•Accuracy of Definition and steps-10pt

•Photos to help illustrate concept-5 pts

•Summarize text, not word for word-10 pts

•Color and neatness-5 pts

•Counted as a quiz grade total 30 pts



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Balance of TradeBalance of Trade



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How does balance of trade differ from balance of payments?

AnswerBalance 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.



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INTERNATIONAL CURRENCYINTERNATIONAL CURRENCY

Foreign exchange rates-value of currency in one country compared to another.

Three main factors affect currency valuesBalance of paymentsEconomic conditions-prices increase,

buying power declines.Political Stability-changes in government.



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Recent Values of CurrenciesRecent Values of Currencies

* U.S. dollars



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What factors affect the value of a country’s currency?

Answerbalance of paymentseconomic conditionspolitical stability



The Global MarketplaceThe Global Marketplace

GoalsDescribe the components of the international

business environment. Identify examples of formal trade barriers.Explain actions to encourage international

trade.

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Key TermsKey Terms

infrastructuretrade barrierquotatariffembargo



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INTERNATIONAL INTERNATIONAL BUSINESS ENVIRONMENTBUSINESS ENVIRONMENT

GeographyCultural influencesEconomic development

Literacy levelTechnologyAgricultural dependency

Political and legal concerns



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location climate terrain waterways natural resources

location climate terrain waterways natural resources

technology education inflation exchange rate infrastructure

technology education inflation exchange rate infrastructure

language family religion customs traditions food

language family religion customs traditions food

GEOGRAPHYGEOGRAPHYGEOGRAPHYGEOGRAPHY ECONOMICSECONOMICSECONOMICSECONOMICS

CULTURECULTURECULTURECULTURE

government system political stability trade barriers business regulations

government system political stability trade barriers business regulations

INTERNATIONAL BUSINESS ENVIRONMENTINTERNATIONAL BUSINESS ENVIRONMENT

POLITICAL–LEGALPOLITICAL–LEGALFACTORSFACTORS

POLITICAL–LEGALPOLITICAL–LEGALFACTORSFACTORS

Elements of Elements of International International Business Business EnvironmentEnvironment



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List the four main elements of the international business environment.

Answergeographycultural influenceseconomic developmentpolitical and legal concerns



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INTERNATIONAL INTERNATIONAL TRADE BARRIERSTRADE BARRIERS

QuotasTariffsEmbargoes



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QUOTASQUOTAS

Reasons for quotasTo keep supply low and prices the

sameTo express displeasure at the policies

of the importing countryTo protect one of a country’s industries

from too much competition form abroad



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TARIFFSTARIFFS

Reasons for tariffsTo set amount per pound, gallon, or

other unitTo set the value of a good



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EMBARGOESEMBARGOES

Reasons for embargoesTo 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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What are three formal trade barriers?

Answerquotas tariff sembargoes



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ENCOURAGING ENCOURAGING INTERNATIONAL TRADEINTERNATIONAL TRADE

Free-trade zonesFree-trade agreementsCommon markets



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FREE-TRADE ZONESFREE-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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FREE-TRADE FREE-TRADE AGREEMENTSAGREEMENTS

Member countries agree to remove duties and trade barriers on products traded among them

Results in increased trade between members



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COMMON MARKETSCOMMON MARKETS

Allows companies to invest freely in each member’s country

Allows workers to move freely across borders

ExamplesEuropean Union (EU)Latin American Integration Association

(LAIA)



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What actions could be taken to encourage international trade?

AnswerActions that could be taken to encourage international trade

include free-trade zones, free-trade agreements, and common markets.



International Business International Business OrganizationsOrganizations

GoalsDiscuss activities of multinational

organizations.Explain common international business entry

modes.Describe activities of international trade

organizations and agencies.

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Key TermsKey Terms

multinational company (MNC)joint venture



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MULTINATIONAL MULTINATIONAL COMPANIES (MNC)COMPANIES (MNC)

MNC strategiesMNC benefitsDrawbacks of multinational companies



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MNC STRATEGIESMNC STRATEGIES

Global strategyMultinational strategy



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MNC BENEFITSMNC BENEFITS

Large amount of goods availableLower prices Career opportunitiesFoster understanding, communication,

and respect Friendly international relations



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DRAWBACKS OF DRAWBACKS OF MULTINATIONAL COMPANIESMULTINATIONAL COMPANIES

Economic powerWorker dependence on the MNCConsumer dependencePolitical power



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What are two strategies commonly used by multinational companies?

Answerglobal strategy (offering the same product the same way

everywhere)multinational strategy (approaching each country market

differently).



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GLOBAL MARKET GLOBAL MARKET ENTRY MODESENTRY MODES

LicensingFranchisingJoint venture



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LICENSINGLICENSING

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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FRANCHISINGFRANCHISING

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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JOINT VENTUREJOINT 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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How does licensing differ from a franchise?

AnswerLicensing 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.



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INTERNATIONAL TRADE INTERNATIONAL TRADE ORGANIZATIONSORGANIZATIONS

World Trade OrganizationInternational Monetary FundWorld Bank



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WORLD TRADE WORLD TRADE ORGANIZATION (WTO)ORGANIZATION (WTO)

WTO GoalsLowering tariffs that discourage free tradeEliminating import quotasReducing barriers for banks, insurance

companies, and other financial servicesAssisting poor countries with economic

growth



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INTERNATIONAL INTERNATIONAL MONETARY FUND (IMF)MONETARY FUND (IMF)

Helps to promote economic cooperationMaintains an orderly system of world

trade and exchange ratesIncludes over 150 member nations



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WORLD BANKWORLD 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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How does the International Monetary Fund assist countries?

AnswerThe 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.

business in the global economy

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