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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