Essential Standard1.00 Understand the role of business in the global economy. 1

Objective 1.03 Understand business in the global marketplace. 2

Topics  Factors and regulations companies have to consider when doing business in the global market place (1.03A PP)  Main entry modes for companies to enter the global marketplace (1.03B PP)  Main international trade organizations (1.03C PP) 3

Essential Question  Which factors and regulations must be considered when conducting business in the global marketplace?

Domestic vs. International Businesses  What activities are included in domestic business transactions? Where do they take place?  What activities are included international business transactions? Where do they take place? 5

Business Advantage Factors  Absolute advantage exists when a country can produce a good or service at a lower cost than other countries.  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.  What are some examples of absolute and comparative advantages? Absolute advantage example:  Saudi Arabia-Oil production  Columbia-coffee  Virgin Islands-sand Comparative advantage example:  China-manufacturing of clothes and household goods  America-Technology  Japan-Electronics 6

International Trade  From where do imports come? items bought from other countries.  From where do exports come? goods and services sold to other countries.  What are some examples of imports? furniture, tax preparation services, bananas, or automobile parts.  What are some examples of exports? silver, automobile parts, or software. 7

Importing Advantages and Disadvantages  Advantages Goods available for purchase. Goods could have cost less since they were imported. Goods may be a better quality since imported. Goods imported and owned may provide satisfaction.  Disadvantages Some goods would cost more without competition of imported goods. Possibly goods may be unavailable. 8

Exporting Advantages and Disadvantage(s)  Advantages Exporting creates jobs. Exporting provides access to goods usually unavailable.  Disadvantage(s) Jobs may depend on global business. 9

Measuring of Trade Relations  What 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. 10

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. Measuring of Trade Relations continued 11

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. Measuring of Trade Relations continued 12

International Currency Exchange Rate Main Factors  The 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. 13

International Currency Exchange Rate Main Factors Continued Main factors affecting currency exchange rates are: Balance of payments Economic conditions Political stability 14

International Business Environment Factors  What are the main environmental issues that could make a difference when conducting business in the global marketplace? Cultural influences, economic development, geography, and political-legal issues  How could these issues impact businesses? Cultural influences  In a country company executives may prefer to meet with people of the same culture. Geography  A country with a lot of natural resources may have to rely on exports more. Economic development  A country may have limited transportation methods that may limit travel distances to purchase imported goods. Political-legal concerns  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. 15

International Business Environment Factors continued Four main factors: Geography Cultural Influences Economic Development Political and Legal Concerns 16

International Business Environment Factors continued  What is included in a country’s geography? Location Climate Terrain Seaports Natural Resources  The geography of a country could impact its natural resources and export and import of resources. 17

International Business Environment Factors continued  What main cultural factors 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. 18

International Business Environment Factors Continued  What key effects of a country’s economics that may influence conducting business in a global marketplace? Education and Literacy level Inflation Technology Exchange rate Agricultural dependency Infrastructure  Transportation  Communication  Utilities systems  A country’s economic development impacts its citizens standard of living and business activities. 19

International Business Environment Factors continued  What political and legal concerns may influence business activities in a global marketplace? Type of Government Stability of government Government policies for businesses relevant to trade barriers  Political and legal concerns influence business activities in the global marketplace. 20

Main International Trade Barrier Factors  Embargo 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. 21

Encouragement of International Trade Factors Main factors are: Common Market: Countries that are members freely invest in one another.  Examples: European Union (EU) Latin American Integration Association (LAIA) 22

Encouragement of International Trade Factors continued Free-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. 23

Encouragement of International Trade 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. 24