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POB 1.03 Part 1. Understand business in the global marketplace. Domestic Vs. Foreign Business. Domestic Business The making, buying, and selling of goods and services within a country. Foreign Business

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pob 1 03 part 1

POB 1.03 Part 1

Understand business in the global marketplace.

domestic vs foreign business
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
absolute vs comparative advantage
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
imports vs exports
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
measuring trade relations
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
balance of trade
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
balance of payments
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
foreign debt
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
foreign exchange market
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
what factors affect the exchange rate
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
pob 1 03 part 2

POB 1.03 Part 2

Understand business in the global marketplace.

what factors impact the international business environment
What Factors Impact the International Business Environment?
  • Geography
  • Culture
  • Economy
  • Political & legal Concerns
geographic factors
Geographic Factors
  • Location
  • Climate
  • Terrain
  • Seaports
  • Natural Resources
cultural factors
Cultural Factors
  • Culture – accepted behaviors, customs and values of a society
  • Factors include …
    • Language
    • Religion
    • Values
    • Customs
    • Social relationships
economic factors
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
political and legal factors
Political and Legal Factors
  • Regulations on advertising and the enforcement of contracts
  • Safety inspections
  • Type of government, stability of government and policies towards businesses
what are trade barriers
What are trade barriers?
  • Trade barrier – a restriction to free trade
  • Formal barriers
    • Embargo
    • Quota
    • Tariff
  • Informal barriers
    • Culture
    • Tradition
    • Religion
  • 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
  • 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
  • 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
encouraging international trade
Encouraging International Trade
  • A few things that encourage international trade
    • Common Markets
    • Free-Trade Agreements
    • Free-Trade Zones
common markets
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)
free trade agreements
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
free trade zone
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
pob 1 03 part 3

POB 1.03 Part 3

Understand business in the global marketplace.

what is a multinational company
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
international business strategies
International Business Strategies
  • Global Strategy: selling the same product and using the same marketing strategy worldwide
  • Multinational Strategy: treats each country market differently
entry modes into the global marketplace
Entry Modes into the Global Marketplace
  • Franchising
  • Licensing
  • Joint Venture
  • 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
  • Licensing is selling the right to use some intangible property for a fee or royalty
    • Production process, trade mark or brand name
joint venture
Joint Venture
  • A Joint Venture is an agreement between 2 or more companies to share a business project
    • Popular in manufacturing
major international trade organizations
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