Unit 2.02 The Global Marketplace Unit 2 – Business in the global economy Unit 2.02 The Global Marketplace

INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development Political and legal concerns

INTERNATIONAL BUSINESS ENVIRONMENT Geography Location, climate, terrain, seaports, natural resources… How does this influence international business?: Very hot – limits the types of crops that can be grown Many rivers/seaports – easily ship products for foreign trade Limited natural resources – must depend on imports

INTERNATIONAL BUSINESS ENVIRONMENT Cultural influences Culture – the accepted behaviors, customs, and values of a society How does this influence international business?: Language – communication Religion – what is sacred to one may not be to another Values – is bribery considered wrong in different cultures? Customs – is it offensive to give a gift? Social Relationships – how men and women interact in business

INTERNATIONAL BUSINESS ENVIRONMENT Cultural influences Most Common world language? Mandarin Chinese Spanish English Hindi Arabic Most Common world religion? Christianity Islam Secular/Nonreligious/Agnostic/Atheist Hinduism Chinese Traditional Religion

INTERNATIONAL BUSINESS ENVIRONMENT Cultural influences Most Common US language? English 80.0% Spanish 12.4% Indo-European 3.7% Asian 3.0% Most Common US religion? Christianity 70.6% Protestant 46.5% Catholic 25.4% Mormon 2% Other 1% None 22.8% Judaism 1.9% Islam 0.9% Hinduism 0.7% Other 2.7% US education levels High School 88% Some College 58% Bachelors 32% Masters 11% Doctorate 2%

INTERNATIONAL BUSINESS ENVIRONMENT Economic development Progress in an economy Going to work on a high-speed bullet train to manage a computer network in a high-rise building versus riding an oxcart to a grass hut to operate a hand loom to make cloth for people in their village How does this influence international business?: Literacy Level – high levels literacy > better education > more and better goods & services Technology – high automation > create and deliver goods quickly Agricultural Dependency – highly dependent > weaker manufacturing base > fewer quantity/quality of products Infrastructure – nations’ transportation, communication, and utility systems Stronger infrastructure > better prepared for international business

INTERNATIONAL BUSINESS ENVIRONMENT Economic development Developed Countries High Human Development Index (HDI) Approx. 50 countries Norway, Australia, Netherlands, USA, New Zealand, Canada, Japan, Hong Kong, Chile, Croatia Developing Countries Newly industrialized countries Approx. 100 countries Afghanistan, Argentina, China, Mexico, Peru, Poland, Russia Less Developed Countries Low standard of living, low industrial base, low HDI Africa – 34 countries Asia – 9 countries Oceania – 4 countries Americas – 1 country (Haiti)

INTERNATIONAL BUSINESS ENVIRONMENT Political and legal concerns Type of government, stability of government, and the government’s policies toward business How does this influence international business?: Regulations on fair trade Require safety inspections Enforce contracts

ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

INTERNATIONAL TRADE BARRIERS Trade Barriers – restriction to free trade Quotas Tariffs Embargoes

QUOTAS A limit on the quantity of a product that may be imported or exported within a given period Reasons for quotas To keep supply low and prices the same Protects domestic producers from international competition To express displeasure at the policies of the importing country To protect one of a country’s industries from too much competition from abroad Critics of import quotas Corruption (bribes to get a quota allocation) Smuggling (circumventing a quota)

A tax that a government places on certain imported products TARIFFS A tax that a government places on certain imported products Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good In 2010, the US collected over $25 Trillion in import tariffs Example of tariffed goods: Chickens $0.90 each Rice $0.018/kg

Government stops the export or import of a product completely EMBARGOES Government stops the export or import of a product completely Reasons for embargoes To protect a country’s industries from international competition more than the quota or tariff will achieve Sanctions related to Terrorism Diamond Trading Narcotics Nuclear proliferation Human rights violations

EMBARGOES Sanctions imposed by the US government No arms-related exports Controls over dual-use exports Restrictions on economic assistance Financial restrictions Requiring the US to oppose loans by the World Bank Tax credits denied for companies who earned income in listed countries Authority to prohibit a US citizen from engaging in financial transactions with the government on the list without a license from the US Prohibition of Defense Department contracts above $100,000 with companies controlled by countries on the list

EMBARGOES The US currently has sanctions against 6 countries Cuba  Sudan Iran  Syria North Korea  Burma 18 persons or groups within the country of Belarus  Russia  Ukraine/ Russia/ Crimea Ivory Coast  Somalia  Central African Republic DRC  Yugoslavia  South Sudan Iraq  Yemen  Libya Lebanon  Zimbabwe  Venezuela

ENCOURAGING INTERNATIONAL TRADE Free-trade zones Free-trade agreements Common markets

FREE-TRADE ZONES A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing Usually located around a seaport or airport Importer pays duty only when the product leaves the zone

FREE-TRADE AGREEMENTS Member countries agree to remove duties (import taxes) and trade barriers on products traded among them US has 14 Free-Trade Agreements in place with 20 countries Results in increased trade between members NAFTA (North American Free Trade Agreement) Began on January 1, 1994 Canada & Mexico are US #1 and #3 trading partners, respectively

Members do away with duties and other trade barriers COMMON MARKETS Members do away with duties and other trade barriers Allow companies to invest freely in each member’s country Allow workers to move freely across borders Examples European Union (EU) 27 member states Single market with common standardized laws Common currency Highest GDP in world Latin American Integration Association (LAIA)

Largest US Trading Partners (in billions for year 2011) assignment NAFTA Pros & Cons Largest US Trading Partners (in billions for year 2011) Country Exports Imports Total Trade Balance Canada 286.9 316.5 597.4 -35.7 China 103.9 399.3 503.2 -295.4 Mexico 197.5 263.1 460.6 -65.6 Japan 66.2 128.8 195 -62.6