CHAPTER 3 BUSINESS IN THE GLOBAL ECONOMY

1. CHAPTER 3 BUSINESS IN THE GLOBAL ECONOMY

2. 3.1 INTERNATIONAL BUSINESS BASICS

3. 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. • International business is frequently referred to as foreign or world trade.

4. Trading Among Nations Con’t • Absolute Advantage • Exists when a country can produce a good or service at a lower cost than other countries.

5. Trading Among Nations Con’t • Comparative Advantage • A situation in which a country specializes in the production of a good or service at which it is relatively more efficient.

6. Trading Among Nations Con’t • Importing • Imports are items bought from other countries. • Impacts of Importing • Without foreign trade, many things you buy would be more expensive. – Other countries can produce some things cheaper. • Quality of imported goods may be better.

7. Trading Among Nations Con’t • Exporting • Goods and services sold to other countries. • One of every 6 jobs in the U.S. depends on international business.

8. Measuring Trade Relations • Nations are concerned about balancing income with expenditures. • Foreign debt is the amount a country owes to other countries.

9. Measuring Trade Relations Con’t • Balance of Trade • The difference between a country’s total exports and total imports. • If a country exports more than it imports, it has a trade surplus. • If a country imports more than it exports, it has a trade deficit, which is unfavorable.

10. Measuring Trade Relations Con’t • Balance of Payments • Money goes from one country to another through investments and tourism. • The balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it. • A positive or favorable balance of payments occurs when a nation receives more $ than it pays out. • A negative balance of payments is unfavorable and happens when a country spends more than it brings in.

11. International Currency • Foreign Exchange Rates • The process of exchanging one currency for another occurs in the foreign exchange markets, which consists of banks that buy and sell different currencies. • The exchange rate is the value of a currency in one country compared with the value in another. • Supply and demand affects the value of currency.

12. International Currency Con’t • Factors Affecting Currency Values • Balance of Payments – Positive or Negative Flow of $ • Economic Conditions – Inflation and Interest Rates Evaluated • Political Stability – Stable or Unstable

13. 3.2 THE GLOBAL MARKET PLACE

14. The International Business Environment • Things that affect the international business environment: • Geography – Location, Climate, Terrain, Natural Resources, Etc • Cultural Influences • Culture is the accepted behaviors, customs and values of a society. A country’s culture has a big influence on business activities. – Language, Religion, Values, Etc.

15. The International Business Environment Con’t • Economic Development • The differences in living and work environments reflect the level of economic development • Literacy Level • Technology • Agricultural Dependency • Infrastructure refers to a nation’s transportation, communication, and utility systems.

16. The International Business Environment Con’t • Political and Legal Concerns • The most common factors include the type of government, the stability of the government, and government policies toward business.

17. International Trade Barriers • Trade barriers are restrictions to free trade. • Formal trade barriers political actions and include, quotas, tariffs, and embargoes. • Informal trade barriers are created because of culture, traditions and religions of different countries.

18. International Trade Barriers Con’t • Quotas • To regulate international trade, governments set a limit on the quantity of a product that may be imported or exported within a given period. • May do this to conserve supply. ex/oil • Protect industry from competition

19. International Trade Barriers Con’t • Tariffs • A tax that a government places on certain imported products. • Increases the price for an imported project.

20. International Trade Barriers Con’t • Embargoes • A government stops the export or import of a product completely. • Protects inside industries. • Protects country’s technology • To express disapproval towards another country’s actions.

21. Encouraging International Trade • Free-Trade Zones • A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing. • Usually located near a seaport or airport.

22. Encouraging International Trade Con’t • Free-Trade Agreement • Member countries agree to remove duties and trade barriers on products traded among them. • Results in an increase in trade among countries. • NAFTA

23. Encouraging International Trade Con’t • Common Markets • Members do away with duties and other trade barriers. They allow companies to invest freely in each member’s country. • Also called an economic community • EU • LAIA

24. 3.3 International Business Organizations

25. Multinational Companies • A MNC is an organization that does business in several other countries. • MNCs usually consist of a parent company in home country and then branches elsewhere. • The country in which the MNC places business activities is called the host country.

26. Multinational Companies Con’t • MNC Strategies • A global strategy uses the same product and marketing strategy worldwide. • A multinational strategy treats each country market differently.

27. Multinational Companies Con’t • MNC Benefits • Opens up to larger amounts of goods, lower prices, and more career opportunities. • Also opens up to understanding of other countries. • Drawbacks of MNC • MNC can become controlling and overpowering in the host country.

28. Global Market Entry Modes • Licensing • Selling the right to use some intangible property for a fee or royalty. Ex. production process, trademark, or brand name. • Low financial investment, low risk, low financial return.

29. Global Market Entry Modes Con’t • Franchising • The right to use a company name or business process in a specific way. • A royalty payment is used for the right to use a process or company name. • Commonly involves selling a product or service. • Ex. McDonald’s

30. Global Market Entry Modes Con’t • Join Venture • An agreement between two or more companies to share a business project. • Main benefit is sharing of raw materials, shipping facilities, management activities, or production facilities. • Ex. Ford and Mazda

31. International Trade Org. • World Trade Org. • Developed in 1995 to promote trade around the world. • Over 150 members settle trade disputes works on trade agreements • 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.

32. International Trade Org. Con’t • International Monetary Fund • Over 150 members promote economic cooperation. • Started in 1946 • Makes trade wars less likely.

33. International Trade Org. Con’t • World Bank • Created in 1944 in response to WWII • Gives economic aid to less developed countries.