business in the global economy

Introduction to Business© Thomson South-Western

ChapterChapterChapterChapter

Business in the Global Economy

3-13-1 International Business Basics

3-23-2 The Global Marketplace

3-33-3 International Business Organizations

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Chapter 3

Slide 2Introduction to Business

© Thomson South-Western

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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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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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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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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IMPORTING

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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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U.S. TRADE BALANCES

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BALANCE OF TRADE

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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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RECENT VALUES OF CURRENCIES

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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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GEOGRAPHY location climate terrain waterways natural resources

GEOGRAPHY location climate terrain waterways natural resources

ECONOMICS technology education inflation exchange rate infrastructure

ECONOMICS technology education inflation exchange rate infrastructure

CULTURE language family religion customs traditions food

CULTURE language family religion customs traditions food

POLITICAL–LEGALFACTORS government system political stability trade barriers

POLITICAL–LEGALFACTORS government system political stability trade barriers

THE INTERNATIONAL BUSINESS ENVIRONMENT

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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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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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TARIFFS

Reasons for tariffs To set amount per pound, gallon, or

other unit To set the value of a good

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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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ENCOURAGING INTERNATIONAL TRADE Free-trade zones Free-trade agreements Common markets

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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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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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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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MULTINATIONAL COMPANIES (MNC) MNC strategies MNC benefits Drawbacks of multinational companies

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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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MNC BENEFITS

Large amount of goods available Lower prices Career opportunities Foster understanding, communication,

and respect Friendly international relations

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DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power

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GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture

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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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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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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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INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank

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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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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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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

business in the global economy

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