Business in the Global Economy

Intro to Business, 7eIntro to Business, 7e

© 2009 South-Western, Cengage Learning SLIDE 1

CHAPTER 3

3-13-1 International Business Basics

3-23-2 The Global Marketplace

3-33-3 International Business Organizations

Business in the Global Economy



International Business International Business Basics Basics

Objectives

20.Describe importing and exporting activities.

21.Compare balance of trade and balance of payments.

22.List factors that affect the value of global currencies.

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© 2009 South-Western, Cengage Learning SLIDE

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Key TermsKey Termsbalance of paymentsbalance of tradedomestic businessexchange rateexportsforeign (world) tradeimportsinternational business



Domestic BusinessThe making, buying, and selling of G&S

within a country

International Businessaka: Foreign or World TradeBusiness activities needed for creating,

shipping, and selling G&S across national borders

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20.20.TRADING AMONG NATIONSTRADING AMONG NATIONS



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TRADING AMONG NATIONSTRADING AMONG NATIONS

Absolute advantageWhen a country can produce a GorS at a

lower cost than other countries

Comparative advantageWhen a country specializes in the

production of a GorS at which it is relatively more efficient

EXAMPLE: http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/ABS_Comp_Adv.htm



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Source: United States Geological Survey Minerals Information

U.S. Import Reliance for Selected Raw MaterialsU.S. Import Reliance for Selected Raw Materials

Used in iron and steel production.

Processed into aluminum.

Used in construction, shingles, joint work, etc.



Imports Items bought from other countries

ExportsG&S sold to other countries

Link to 2012 data chart

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TRADING AMONG NATIONSTRADING AMONG NATIONS



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Checkpoint >>Checkpoint >>

How does importing differ from exporting?

Answer Importing is bringing items from other countries into a

country. Exporting is selling goods and services to other countries.



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Objective 21Objective 21MEASURING TRADE MEASURING TRADE RELATIONSRELATIONS

Balance of trade Difference between a country’s total exports and total imports

Exports > Imports = TRADE SURPLUS Imports > Exports = TRADE DEFICIT

Balance of payments Difference between the amount of money that comes into a country

and the amount that goes out of it. Nation receives more $ than it puts out = Positive (Favorable) Balance Nation sends more $ out than it brings in = Negative (Unfavorable) Balance Graph of 2011



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CurrentCurrentU.S. Trade U.S. Trade BalancesBalances



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Balance of TradeBalance of Trade



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How does balance of trade differ from balance of payments?

AnswerBalance of trade is the difference between a country’s total

exports and total imports. Balance of payments is the difference between the amount of

money that comes into a country and the amount that goes out of it.



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INTERNATIONAL CURRENCYINTERNATIONAL CURRENCY

Foreign exchange rates Value of currency in one country compared with the

value in another

Factors affect currency valuesThree main factors

Balance of paymentsEconomic conditions (including interest rates)Political disability http://www.slate.com/articles/business/cashless_society/2012/03/

cashless_society_how_much_would_the_united_states_save_by_ditching_paper_money_.html



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Recent Values of Currencies Recent Values of Currencies

* U.S. dollars



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Factors that affect the value of a country’s currency:

balance of paymentseconomic conditionspolitical stability

7 Currency Blunders You Could Cash In On.http://www.investopedia.com/slide-show/currency-blunders?partner=TOD10#axzz1b9hdoYxl



ReinforcementReinforcement 3-13-1

Page 591-3 (1 point each)AND4 or 5 (3 points)

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The Global MarketplaceThe Global Marketplace

Objectives

23.Describe the components of the international business environment.

24.Identify examples of formal trade barriers.

25.Explain actions to encourage international trade.

Chinese Subsidies:http://americanmanufacturing.org/content/shedding-light-energy-

subsidies-china-analysis-china%E2%80%99s-steel-industry-2000-2007

3-23-2



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Key TermsKey Terms

infrastructuretrade barrierquotatariffembargo



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23. INTERNATIONAL 23. INTERNATIONAL BUSINESS ENVIRONMENTBUSINESS ENVIRONMENT

GeographyCultural influencesEconomic development

Literacy levelTechnologyAgricultural dependency

Political and legal concerns



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location climate terrain waterways natural resources

location climate terrain waterways natural resources

technology education literacy level agricultural dependency inflation exchange rate Infrastructure

technology education literacy level agricultural dependency inflation exchange rate Infrastructure

language family religion customs traditions food

language family religion customs traditions food

GEOGRAPHYGEOGRAPHYGEOGRAPHYGEOGRAPHY ECONOMICSECONOMICSECONOMICSECONOMICS

CULTURECULTURECULTURECULTURE

government system political stability trade barriers business regulations

government system political stability trade barriers business regulations

INTERNATIONAL BUSINESS ENVIRONMENTINTERNATIONAL BUSINESS ENVIRONMENT

POLITICAL–LEGALPOLITICAL–LEGALFACTORSFACTORS

POLITICAL–LEGALPOLITICAL–LEGALFACTORSFACTORS

Elements of Elements of International International Business Business EnvironmentEnvironment



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List the four main elements of the international business environment.

Answergeographycultural influenceseconomic developmentpolitical and legal concerns



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24. INTERNATIONAL 24. INTERNATIONAL TRADE BARRIERSTRADE BARRIERSWhy would countries want to limit international trade???

Three ways countries discourage international trade:

QuotasTariffsEmbargoes



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QUOTA – quantity limit on importsQUOTA – quantity limit on imports

Reasons for quotasTo keep supply low and prices the

sameTo express displeasure at the policies

of the importing countryTo protect one of a country’s industries

from too much competition from abroad



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TARIFF – tax on importsTARIFF – tax on imports

Reasons for tariffsTo set amount per pound, gallon, or

other unitTo set the value of a good



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EMBARGO – EMBARGO – complete block on tradecomplete block on trade

Reasons for embargoesFor POLITICAL reasonsTo prevent sensitive products from

falling into the hands of unfriendly groups or nations



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What are three formal trade barriers?

Answerquotas tariffsembargoes



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25. ENCOURAGING25. ENCOURAGING INTERNATIONAL TRADEINTERNATIONAL TRADEWhy would countries want to encourage international trade???

Three ways countries encourage international trade:

Free-trade zonesFree-trade agreementsCommon markets



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FREE-TRADE ZONESFREE-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



More on FTZ’sMore on FTZ’s

Most FTZs are located in developing countries: Brazil, China, the Philippines, Malaysia, Pakistan, Mexico, Costa Rica, Honduras, and Madagascar

Corporations setting up in a zone may be given tax breaks as an incentive. Usually, these zones are set up in underdeveloped parts of the host country; the rationale is that the zones will attract employers and thus reduce poverty and unemployment, and stimulate the area's economy. These zones are often used by multinational corporations to set up factories to produce goods (such as clothing or shoes).

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FREE-TRADE FREE-TRADE AGREEMENTSAGREEMENTS

Member countries agree to remove duties and trade barriers on products traded among them

Results in increased trade between members

http://www.trade.gov/fta/index.asp



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COMMON MARKETSCOMMON MARKETSAllows companies to invest freely in each

member’s countryAllows workers to move freely across bordersExamples

European Union (EU) ~ The European Union (EU) is an economic and political union of 27 member states, located

primarily in Europe. The EU has developed a single market through a standardized system of laws which apply in all

member states, ensuring the free movement of people, goods, services, and capital.

Latin American Integration Association (LAIA) ~ Its main objective is the establishment of a common market, in pursuit of the economic and

social development of the region.



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What actions could be taken to encourage international trade?

AnswerActions that could be taken to encourage international trade

include free-trade zones, free-trade agreements, and common markets.



Reinforcement 3-2Reinforcement 3-2

Page 641-4 (1 point each)AndChoose ONE from 5-7 (6 points)

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International Business International Business OrganizationsOrganizations

Objectives

26.Discuss activities of multinational organizations.

27.Explain common international business entry modes.

28.Describe activities of international trade organizations and agencies.

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Key TermsKey Terms

Multinational company (MNC)Joint ventureGlobal strategyMultinational strategyLicensingFranchising



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MULTINATIONAL MULTINATIONAL COMPANIES (MNC)COMPANIES (MNC)

MNC strategiesMNC benefitsDrawbacks of multinational companies



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MNC STRATEGIES MNC STRATEGIES

Global strategy offering the same product the same way

everywhere

Multinational strategyapproaching each country market

differently



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MNC BENEFITSMNC BENEFITS

Large amount of goods availableLower prices Career opportunitiesFoster understanding, communication,

and respect Friendly international relations



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DRAWBACKS OF DRAWBACKS OF MULTINATIONAL COMPANIESMULTINATIONAL COMPANIES

Economic powerWorker dependence on the MNCConsumer dependencePolitical power



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What are two strategies commonly used by multinational companies?

Answerglobal strategy (offering the same product the same way

everywhere)multinational strategy (approaching each country market

differently).



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GLOBAL MARKET GLOBAL MARKET ENTRY MODESENTRY MODES

LicensingFranchisingJoint venture



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LICENSINGLICENSING

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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FRANCHISINGFRANCHISING

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 VENTUREJOINT 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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How does licensing differ from a franchise?

AnswerLicensing does not require as much financial investment or

risk as franchising. Both licensing and franchising involve royalty payments, but

licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.



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INTERNATIONAL TRADE INTERNATIONAL TRADE ORGANIZATIONSORGANIZATIONS

World Trade OrganizationInternational Monetary FundWorld Bank



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WORLD TRADE WORLD TRADE ORGANIZATION (WTO)ORGANIZATION (WTO)

WTO GoalsLowering tariffs that discourage free tradeEliminating import quotasReducing barriers for banks, insurance

companies, and other financial servicesAssisting poor countries with economic

growth



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INTERNATIONAL INTERNATIONAL MONETARY FUND (IMF)MONETARY FUND (IMF)

Helps to promote economic cooperationMaintains an orderly system of world

trade and exchange ratesIncludes over 150 member nations



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WORLD BANKWORLD 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



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How does the International Monetary Fund assist countries?

AnswerThe International Monetary Fund assists countries by

promoting economic cooperation and maintaining an orderly system of world trade and exchange rates.

This cooperation makes harmful trade wars among IMF nations less likely.



Reinforcement 3-3Reinforcement 3-3

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CHAPTER 3 REVIEWCHAPTER 3 REVIEW

Pages 70-731-20 And choose two (2) from 21-30

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Business in the Global Economy

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