WARM UP

• Look around the room and even in your book bags and on you. Can you identify things that were made in other countries? Why do you think they were? What are some advantages and disadvantages of getting those items from that country?

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ESSENTIAL STANDARD1.00UNDERSTAND THE ROLE OF BUSINESS IN THE GLOBAL ECONOMY.

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OBJECTIV

E 1.03

UNDERSTAND B

USINESS IN

THE G

LOBAL MARKETPLACE.

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TOPICS

Factors and regulations companies have to consider when doing business in the global market place

Main entry modes for companies to enter the global marketplace

Main international trade organizations

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Factors and regulations companies have to consider when doing business in the global market place

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DOMESTIC VS. INTERNATIONALBUSINESSES

• Domestic business is the making, buying, and selling of goods and service within a country.

• International business, also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders.

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BUSINESS ADVANTAGE FACTORS

Absolute advantage exists when a country can produce a good or service at a lower cost than other countries.

• Example: Saudi Arabia-Oil production, Columbia-coffee, Virgin Islands-sand

Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient.

• Examples: China-manufacturing of clothes and household goods, America-Technology, Japan-Electroncs

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INTERNATIONAL TRADE

Imports are items bought from other countries.• Examples may include furniture, tax preparation services, or

bananas.

Exports are goods and services sold to other countries.• Examples may include silver, or software.

http://www.census.gov/indicator/www/ustrade.html http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh7.pdf http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh8.pdf

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THINK ABOUT IT…

Make 2 charts comparing advantages and disadvantages for both exporting and importing. Be prepared to share.

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IMPORTINGADVANTAGES AND DISADVANTAGESAdvantages

Some goods would not otherwise be available (diamonds)Lower cost due to lower labor or raw material costsPerceived higher quality of goods (French perfume)Some consumers just like to own foreign goods

DisadvantagesSome goods would cost more without competition of

imported goods.Possibly goods may be unavailable.

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EXPORTINGADVANTAGES AND DISADVANTAGE(S)AdvantagesExporting creates jobs.Exporting provides access to goods usually unavailable.

Disadvantage(s)Jobs may depend on global business.

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MEASURING OF TRADE RELATIONSWhat is a way to measure trade relations?

Balance of trade or balance of payments

Why are measures of trade relations completed?

Nations are concerned with balancing income with expenditures.

Foreign debt is the amount of money a country owes to other countries.

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MEASURING OF TRADE RELATIONS CONTINUED

Balance of trade is the difference between a country’s total exports and total imports.

If a country exports more than it imports, it has a trade surplus. This is favorable.

If a country imports more than it exports, it has a trade deficit. This is unfavorable.

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PRACTICE

http://www.census.gov/foreign-trade/balance/ Select 2 countries that you think the U.S. does the

most trading with and a third that you are just curious about.

Use the above website to find the values of its exports? Imports? Balance of Trade? For the most recent year.

Find previous balance of trades to discover a trend.

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US TRADE IN US DOLLARS

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Country Imports Exports 2010Trade Balance

2009 Trade Balance

2008 Trade Balance

2007 Trade Balance

MEASURING OF TRADE RELATIONSCONTINUED

Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

If a country receives more money in a year than it pays out, it has favorable balance.

If a country sends more money out than it brings in, it has an unfavorable balance.

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WARM UP- COMPARATIVE VS. ABSOLUTE ADVANTAGE

Assume LeBron is both a great basketball player and a great lawn mower. However, LeBron has a young neighbor named Scotty who is willing to mow his lawn. Write the following facts on the board (perhaps in the form of a table):

LeBron can mow his lawn in two hours. He could also film a Nike commercial in two hours and make $10,000. So, James' opportunity cost of mowing his lawn is $10,000.

Neighbor Scotty can mow LeBron's lawn in four hours. He could also work at McDonald's for four hours and make $8 per hour. So, Scotty's opportunity cost of mowing LeBron's lawn is $32.

Who has an absolute advantage in mowing the lawn? (less resources- time)

Who has comparative advantage in mowing the lawn? (lower opportunity cost)

Would LeBron and Scotty both benefit from a trade? (if ..)

http://www.econedlink.org/lessons/index.php?lid=794&type=educator

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INTERNATIONAL CURRENCY EXCHANGE RATE MAIN FACTORSThe foreign exchange market is where banks buy and

sell different currencies.

The exchange rate is the value of a currency in one country when compared with the value in another.

http://www.x-rates.com/

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INTERNATIONAL CURRENCY EXCHANGE RATE MAIN FACTORS CONTINUED

Main factors affecting currency exchange rates are: Balance of payments

influenced by demand for a nations goods and services. If the balance of payment is favorable, then usually currency is steady

and rising in value. If unfavorable, then usually the currency is declining in value.

Economic conditions Inflation decreases buying power of currency Interest rates that are high decreases demand to borrow money.

Political stability Could be impacted by changes in government or laws.

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS

The main environmental issues that could impact conducting business in the global marketplace.•Cultural influences

• In a country company executives may prefer to meet with people of the same culture.

•Economic development• A country may have limited transportation methods that may limit

travel distances to purchase imported goods.•Geography

• A country with a lot of natural resources may have to rely on exports more.

•Political-legal issues• A country’s government only collects about ¼ of his housing

property taxes. This could be a sign of weak government that is ignored by the its citizens.

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED

Four main factors:Geography

Cultural Influences

Economic Development

Political and Legal Concerns

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED

A country’s geography includes: LocationClimateTerrainSeaportsNatural ResourcesThe geography of a country could impact its natural resources and export and import of resources.

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED

Cultural factors that may Influence how business is conducted in the global marketplace:

• Language• Religion• Family• Food• Values• Customs• Social Relationships

The accepted behavior, customs and values of a society could impact business activities.

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUEDKey effects of a country’s economics that may influence conducting business in a global marketplace:

Education and Literacy level InflationTechnologyExchange rateAgricultural dependency InfrastructureTransportationCommunicationUtilities systems

A country’s economic development impacts its citizens standard of living and business activities.

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INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED

Political and legal concerns that may influence business activities in a global marketplace:

Type of GovernmentStability of governmentGovernment policies for businesses relevant to trade

barriersPolitical and legal concerns influence business activities in the global marketplace.

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MAIN INTERNATIONAL TRADE BARRIER FACTORSEmbargo

Government bans the import or export of specified goods. Why would a government place an embargo?

• To protect a good or service from too much competition in a global market place more that what a quota or tariff could.

• To protect sensitive goods.

Quotas A limit on the quantity of good that may be imported or exported

within a given period to regulate international trade. Why would a company or country set a quota?

• To regulate the supply and prices.• To protect a good or service from too much competition in a global market place.

Tariffs Taxes on certain imported products which increases prices. Why would a government use a tariff?

To protect the supply of goods.

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ENCOURAGEMENT OF INTERNATIONALTRADE FACTORS

Main factors are: Common Market: Countries that are members freely invest in one another.

Examples:European Union (EU)Latin American Integration Association (LAIA)

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ENCOURAGEMENT OF INTERNATIONALTRADE FACTORS CONTINUEDFree-Trade Agreement: Countries that are members remove duties and

trade barriers on products traded among them to increase trade between members.

Example NAFTA (the North American Free Trade Agreement) between the United States, Canada, and Mexico.

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ENCOURAGEMENT OF INTERNATIONALTRADE FACTORS CONTINUED

Free-trade zones: Include selected areas that allow duty-free

products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport.

Main entry modes for companies to enter the global marketplace

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MAIN ENTRY MODES TO THE GLOBAL MARKETPLACE Franchising is allowing a business the rights to use another company’s name or

process in a specific way. Examples:

• H & R Block• Dunkin’ Donuts

Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty. Examples:

• Beyond Juice Cafés

MAIN ENTRY MODES TO THE GLOBAL MARKETPLACE CONTINUEDJoint venture happens when two or more companies agree to share a business

project. What are some examples?

• Cable company and television stations• Oil lube and tire service company

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Main international trade organizations

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MAIN INTERNATIONAL TRADE ORGANIZATIONS

International Monetary Fund (IMF)

World Bank

World Trade Organization (WTO)

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MAIN INTERNATIONAL TRADE ORGANIZATIONS CONTINUEDInternational Monetary Fund (IMF) Helps promote economic cooperation and maintain an orderly system of world trade

and exchange rates.

World Bank Provides economic aid to developing countries to fund building communications

systems, transportation networks, and energy plans.

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MAIN INTERNATIONAL TRADE ORGANIZATIONS CONTINUEDWorld Trade Organization (WTO) Settles trade disputes and enforces free-trade agreements among its members.