Business in a Global Economy Intro To Business Chapter 10

The Global Marketplace Learning Targets Explain why the world has become a global economy Explain why people and countries specialize in producing goods and services The Global Economy The interconnected economies of the nations of the world We live in a global economy fueled by international trade Globalization – the development of the global economy Multinational Corporation A company that does business in many countries and has facilities and offices around the world. 8-1

The Global Marketplace International Trade The exchange of goods and services between nations Types of Trade Domestic Trade The production, purchase and sale of goods within a country World Trade The exchange of goods and services across international boundaries Why? Cannot produce good because it does not have a suitable climate or raw materials Business in one country may produce a better product or service at a cheaper rate.

The Global Marketplace Imports Goods and services that one country buys from another What are some imports the U.S. receives? Exports Goods and services that one country sells to another What are some of the U.S. exports? Balance of Trade Difference in value between a country’s imports and exports over a period of time Trade surplus – Exports more than imports Trade deficit – Imports more than exports A country can have a trade deficit with one country but a surplus with another.

The Global Marketplace Specialization To focus on a particular activity, area or product. Many countries specialize in certain products or service Take advantage of these specialties by trading them in the global marketplace Using Resources to Specialize Countries specialize and trade some of the items that they produce in order to obtain other countries goods and services Comparative Advantage The ability of a country or company to produce a particular good more efficiently than another country or company Ex. U.S., Japan and Germany have a comparative advantage in producing vehicles.

The Global Marketplace Currency Countries pay for products and services using currency (money). Every country has their own form of currency To trade with another country businesses/countries have to convert their money into that nations currency. Currency is exchanged on the Foreign Exchange Market Exchange Rates ( www.xe.com/ucc/) The price at which one currency can buy another currency (Changes day to day and from country to country) Prices Companies follow the change in exchange rates to find the best prices for products

Questions/Reflection What is the global economy? What is the difference between domestic trade and international trade? Why would a country want its currency rate to appreciate? What are 2 reasons why the world has become a global economy? Explain why people and countries specialize in producing goods and services Why does free trade generally increase people’s standard of living? If the dollar decreases in value in relation to the Euro, what is the probable effect that this will have on exports to Europe? If the dollar increases in relation to the British pound, what is the probable effect on imports from Britain?

Global competition Learning Targets Protectionism and Free Trade Describe Free Trade Indicate who benefits and who does not benefit from free trade Protectionism and Free Trade Global competition can lead to trade disputes These occur when nations put barriers on trading particular items with another country Should there be limits on trade? 10-2

Global competition Protectionism The practice of the government putting limits on foreign trade to protect businesses at home. To keep out foreign competition Also some countries don’t want to share what they produce Reasons to restrict trade: Foreign competition can lower the demand for products made at home Companies at home need to be protected from unfair foreign competition Industries that make products related to national defense need to be protected The use of cheap labor in other countries can lower wages or threaten jobs at home A country can become too dependant on another country for important products Other countries might not have the same environmental or human rights standards

Global competition Trade Barriers Government limiting competition from other countries, 3 types of trade barriers: Tariff A tax placed on imports to increase their price in the domestic market Quota A limit placed on the quantities of a product that can be imported Embargo A ban on the import or export of a product. Rare and usually used against another country for political or military reasons

Global competition Free Trade Occurs when there are few or no limits on trade between countries Economic or foreign policy determine which countries trade with each other. Free Trade offers: Opens up new markets in other countries It creates new jobs, especially in areas related to global trade (shipping, banking, and communication) Competition forces businesses to be more efficient and productive Consumers have more choices in the variety, prices, and quality of products Promotes cultural understanding and encourages countries to cooperate with each other Helps countries raise their standard of living

Global Competition Trade Alliances Many countries merge their economies into one huge market Major Alliances: North American Free Trade Alliance (NAFTA) Free trade between U.S., Canada and Mexico European Union An economic and political union of 28 European members Free movement of people (no passports), goods, services and capital. One common currency Association of Southeast Asian Nations (ASEAN) Group of 10 Southeast Asian countries Aims for economic growth, social progress, cultural development among its members, and peace and stability.

European Union

ASEAN Map

Questions/Reflection Give 3 reasons for protectionism? Give 3 reasons for free trade? What are some of the major trade alliances in the world today? Describe Free Trade Indicate who benefits and who does not benefit from free trade Why would a nation choose not to produce everything its citizens want? Why is an embargo a stronger measure against free trade than tariffs? Should companies making items for national defense b protected by trade barriers?