Business in the Global Economy

1. 3 Business in the Global Economy 3-1 International Business Basics 3-2 The Global Marketplace 3-3 International Business Organizations

2. LESSON 3-1International Business Basics Goals • Describe importing and exporting activities. • Compare balance of trade and balance of payments. • List factors that affect the value of global currencies. Chapter 3

3. Trading Among Nations • Domestic Business is the making, buying, and selling of goods an 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 more than 180 countries. • Countries are interdependent, including economies, on one another. • Countries are mutually reliant on one another. • Absolute Advantage • When a country can produce a good or service at a lower cost than other countries. • They have an abundance of natural or raw resources. (i.e. Brazil with Coffee, Saudi Arabia with oil, United States with wheat) • Comparative Advantage • When a country has an absolute advantage in more than one area. It must decide how to maximize its economic wealth and specialize in the production of a good or service at most likely more efficiently or cheaply.

4. Trading Among Nations • Importing – items bought from other countries. • Without foreign trade, many things you buy would cost more or not be available. • Other countries can produce some goods at a lower cost because they have the needed raw materials or have lower labor costs. • Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods. • Exporting – goods and services sold to other countries • Exports benefit consumers in other countries just like imports benefit us. • Agricultural products, plastics, television shows, movies, books… • One of every six jobs in the United States depends on international business.

5. Chapter 3

6. Measuring Trade Relations • Nations like people need to worry about balancing income and expenditures • Foreign debt is the amount a country owes to other countries • National Debt http://www.usdebtclock.org/ • Who owns most of the U.S. Debt http://money.cnn.com/2015/04/15/news/economy/japan-china-us-debt-treasury/ • Balance of Trade • Difference between a country’s total export and total imports • If a country exports (sells) more than it imports (buys), it has a trade surplus. The reverse, it imports (buys) more than it exports (sells) it has a trade deficit. • A country can have a trade surplus with one country and a trade deficit with another. • List of countries that have surplus and deficit with U.S. http://www.census.gov/foreign-trade/statistics/highlights/toppartners.html • Balance of Payments • Difference between the amount of money that comes into a country and the amount that goes out. • A positive or favorable balance of payment occurs when a nation receives more money in a year than it pays out. A negative or unfavorable balance of payment occurs when a country pays more than receives. • In addition to exporting and importing goods and services, money goes from one country to another through investments and tourism. Investments by a citizen in one country to a corporation in another country can also be an exchange. A business may invest in a factory in another country. A government can give financial or military aid to another country. Banks may deposit funds in foreign banks. • When tourists travel, they aid in the flow of money from their country to the country they are visiting.

7. International Currency • A challenge faced by countries is when trading they have to deal with various currencies. • Exchange Rate • The value of a currency in one country compared with the value in another. Supply and Demand affects the value of currency. • Most large banks provide currency exchanges for businesses and consumers. • Hotels, Airports, Kiosks in the country that you landed in will charge some of the highest exchange rate charges. • Some Credit cards and Debit cards charge a lower fee when exchanging (check with your bank). • Factors that Affect Currency Values • Balance of Payments – When a country has a favorable balance of payments, the value of its currency is either constant or rising. An increased demand for both the nation’s products and its currency caucuses this situation. • Economic Conditions – When prices increase and the buying power of the country’s money declines, its currency is not as appealing. Inflation reduces the buying power of a currency. Higher interest rates usually create owner consumer demand. This results in a reduced demand for a nation’s currency, causing a decline in its value. • Political Stability – If a government changes suddenly, this may create an unfriendly setting for foreign business. Political instability may also occur when new laws are put in place. Uncertainty in a country reduces the confidence that businesspeople have in its currency.

8. Key Terms • balance of payments • balance of trade • exchange rate • exports • imports Chapter 3

9. TRADING AMONG NATIONS • Absolute advantage • Comparative advantage • Importing • Exporting Chapter 3

10. IMPORTING Chapter 3

11. MEASURING TRADE RELATIONS • Balance of trade • Balance of payments Chapter 3

12. U.S. TRADE BALANCES Chapter 3

13. BALANCE OF TRADE Chapter 3

14. >> C H E C K P O I N T How does balance of trade differ from balance of payments? Chapter 3

15. INTERNATIONAL CURRENCY • Foreign exchange rates • Factors affecting currency values • Three main factors affect currency • Balance of payments • Economic conditions • Political disability Chapter 3

16. RECENT VALUES OF CURRENCIES Chapter 3

17. >> C H E C K P O I N T What factors affect the value of a country’s currency? Chapter 3

18. LESSON 3-2The Global Marketplace Goals • Describe the components of the international business environment. • Identify examples of formal trade barriers. • Explain actions to encourage international trade. Chapter 3

19. Key Terms • infrastructure • trade barrier • quota • tariff • embargo Chapter 3

20. THE INTERNATIONAL BUSINESS ENVIRONMENT • Geography • Cultural influences • Economic development • Literacy level • Technology • Agricultural dependency • Political and legal concerns Chapter 3

21. GEOGRAPHY • location • climate • terrain • waterways • natural resources • ECONOMICS • technology • education • inflation • exchange rate • infrastructure THE INTERNATIONAL BUSINESS ENVIRONMENT • CULTURE • language • family • religion • customs • traditions • food • POLITICAL–LEGAL • FACTORS • government system • political stability • trade barriers Chapter 3

22. >> C H E C K P O I N T List the four main elements of the international business environment. Chapter 3

23. INTERNATIONAL TRADE BARRIERS • Quotas • Tariffs • Embargoes Chapter 3

24. 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 Chapter 3

25. TARIFFS Reasons for tariffs • To set amount per pound, gallon, or other unit • To set the value of a good Chapter 3

26. 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 Chapter 3

27. >> C H E C K P O I N T What are three formal trade barriers? Chapter 3

28. ENCOURAGING INTERNATIONAL TRADE • Free-trade zones • Free-trade agreements • Common markets Chapter 3

29. 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 Chapter 3

30. FREE-TRADE AGREEMENTS • Member countries agree to remove duties and trade barriers on products traded among them • Results in increased trade between members Chapter 3

31. 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) Chapter 3

32. >> C H E C K P O I N T What actions could be taken to encourage international trade? Chapter 3

33. LESSON 3-3International Business Organizations Goals • Discuss activities of multinational organizations. • Explain common international business entry modes. • Describe activities of international trade organizations and agencies. Chapter 3

34. Key Terms • multinational company (MNC) • joint venture Chapter 3

35. MULTINATIONAL COMPANIES (MNC) • MNC strategies • MNC benefits • Drawbacks of multinational companies Chapter 3

36. MNC STRATEGIES • Global strategy • Multinational strategy Chapter 3

37. MNC BENEFITS • Large amount of goods available • Lower prices • Career opportunities • Foster understanding, communication, and respect • Friendly international relations Chapter 3

38. DRAWBACKS OF MULTINATIONAL COMPANIES • Economic power • Worker dependence on the MNC • Consumer dependence • Political power Chapter 3

39. >> C H E C K P O I N T What are two strategies commonly used by multinational companies? Chapter 3

40. GLOBAL MARKET ENTRY MODES • Licensing • Franchising • Joint venture Chapter 3

41. 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 Chapter 3

42. 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 Chapter 3

43. 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 Chapter 3

44. >> C H E C K P O I N T How does licensing differ from a franchise? Chapter 3

45. INTERNATIONAL TRADE ORGANIZATIONS • World Trade Organization • International Monetary Fund • World Bank Chapter 3

46. 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 Chapter 3

47. INTERNATIONAL MONETARY FUND (IMF) • Helps to promote economic cooperation • Maintains an orderly system of world trade and exchange rates • Includes over 150 member nations Chapter 3

48. 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 Chapter 3

49. >> C H E C K P O I N T How does the International Monetary Fund assist countries? Chapter 3