Business in the Global Economy CHAPTER 3 4/15/2017 3 Business in the Global Economy 3-1 International Business Basics 3-2 The Global Marketplace 3-3 International Business Organizations ITB

LESSON 3-1 International Business Basics CHAPTER 3 4/15/2017 LESSON 3-1 International Business Basics Goals Describe importing and exporting activities. Compare balance of trade and balance of payments. List factors that affect the value of global currencies. Chapter 3 ITB

Key Terms balance of payments balance of trade exchange rate exports CHAPTER 3 4/15/2017 Key Terms balance of payments balance of trade exchange rate exports imports Chapter 3 ITB

Domestic vs. International CHAPTER 3 4/15/2017 Domestic vs. International Domestic Business: making, buying, selling within a country International Business: making, buying, selling across national borders Chapter 3 ITB

CHAPTER 3 4/15/2017 TRADING AMONG NATIONS Absolute advantage- exists when a country can produce a good or service at a lower cost than other countries Comparative advantage- when a country specializes in the production of a good or service at which it is relatively more efficient Chapter 3 ITB

TRADE AMONG NATIONS What are imports? CHAPTER 3 4/15/2017 TRADE AMONG NATIONS What are imports? Items bought from other countries Chapter 3 ITB

CHAPTER 3 4/15/2017 IMPORTING Chapter 3 ITB

MEASURING TRADE RELATIONS CHAPTER 3 4/15/2017 MEASURING TRADE RELATIONS Balance of trade- the difference between a country’s total exports and total imports Trade Surplus: exports > imports Trade Deficit: exports < imports Balance of payments- the difference between the amount of money that comes in and the amount that goes out Chapter 3 ITB

CHAPTER 3 4/15/2017 U.S. TRADE BALANCES Chapter 3 ITB

CHAPTER 3 4/15/2017 BALANCE OF TRADE Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T How does balance of trade differ from balance of payments? Chapter 3 ITB

INTERNATIONAL CURRENCY CHAPTER 3 4/15/2017 INTERNATIONAL CURRENCY Foreign Exchange Market- the process of exchanging one currency for another occurs on the foreign exchange market Foreign exchange rates- the value of one currency compared to the value of another Chapter 3 ITB

INTERNATIONAL CURRENCY CHAPTER 3 4/15/2017 INTERNATIONAL CURRENCY Three main factors affect currency Balance of payments positive  value rising Negative  value decreasing Economic conditions- high prices, inflation, or interest rates tend to low currency value Political disability- reduces foreign confidence Chapter 3 ITB

RECENT VALUES OF CURRENCIES CHAPTER 3 4/15/2017 RECENT VALUES OF CURRENCIES Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T What factors affect the value of a country’s currency? Chapter 3 ITB

LESSON 3-2 The Global Marketplace CHAPTER 3 4/15/2017 LESSON 3-2 The Global Marketplace Goals Describe the components of the international business environment. Identify examples of formal trade barriers. Explain actions to encourage international trade. Chapter 3 ITB

Key Terms infrastructure trade barrier quota tariff embargo Chapter 3 4/15/2017 Key Terms infrastructure trade barrier quota tariff embargo Chapter 3 ITB

THE INTERNATIONAL BUSINESS ENVIRONMENT CHAPTER 3 4/15/2017 THE INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development Literacy level Technology Agricultural dependency Political and legal concerns Chapter 3 ITB

THE INTERNATIONAL BUSINESS ENVIRONMENT CHAPTER 3 4/15/2017 GEOGRAPHY location climate terrain waterways natural resources ECONOMICS technology education inflation exchange rate infrastructure THE INTERNATIONAL BUSINESS ENVIRONMENT CULTURE language family religion customs traditions food POLITICAL–LEGAL FACTORS government system political stability trade barriers Chapter 3 ITB

International Business Environment CHAPTER 3 4/15/2017 International Business Environment Infrastructure: refers to a nation’s transportation, communication, and utility systems Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T List the four main elements of the international business environment. Chapter 3 ITB

INTERNATIONAL TRADE BARRIERS CHAPTER 3 4/15/2017 INTERNATIONAL TRADE BARRIERS Quotas- governments set a limit on the quantity of a product that may be imported or exported within a given period Tariffs- a tax that a government places on certain imported products Embargoes- stop the export or import of a product completely Chapter 3 ITB

QUOTAS Reasons for quotas To keep supply low and prices the same CHAPTER 3 4/15/2017 QUOTAS Reasons for quotas To keep supply low and prices the same To express displeasure at the policies of the importing country To protect one of a country’s industries from too much competition from abroad Chapter 3 ITB

TARIFFS Reasons for tariffs CHAPTER 3 4/15/2017 TARIFFS Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good Chapter 3 ITB

EMBARGOES Reasons for embargoes CHAPTER 3 4/15/2017 EMBARGOES Reasons for embargoes To protect a country’s industries from international competition more than the quota or tariff will achieve To prevent sensitive products from falling into the hands of unfriendly groups or nations Chapter 3 ITB

>> C H E C K P O I N T What are three formal trade barriers? CHAPTER 3 4/15/2017 >> C H E C K P O I N T What are three formal trade barriers? Chapter 3 ITB

ENCOURAGING INTERNATIONAL TRADE CHAPTER 3 4/15/2017 ENCOURAGING INTERNATIONAL TRADE Free-trade zones- a selected area where products can be imported duty free and then stored, assembled, and/or used in manufacturing Free-trade agreements- member countries agree to remove duties and trade barriers on products Common markets- members do away with duties and other trade barriers Chapter 3 ITB

CHAPTER 3 4/15/2017 FREE-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 Chapter 3 ITB

FREE-TRADE AGREEMENTS CHAPTER 3 4/15/2017 FREE-TRADE AGREEMENTS Member countries agree to remove duties and trade barriers on products traded among them Results in increased trade between members Chapter 3 ITB

CHAPTER 3 4/15/2017 COMMON MARKETS Allows companies to invest freely in each member’s country Allows workers to move freely across borders Examples European Union (EU) Latin American Integration Association (LAIA) Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T What actions could be taken to encourage international trade? Chapter 3 ITB

LESSON 3-3 International Business Organizations CHAPTER 3 4/15/2017 LESSON 3-3 International Business Organizations Goals Discuss activities of multinational organizations. Explain common international business entry modes. Describe activities of international trade organizations and agencies. Chapter 3 ITB

Key Terms multinational company (MNC) joint venture Chapter 3 4/15/2017 Key Terms multinational company (MNC) joint venture Chapter 3 ITB

CHAPTER 3 4/15/2017 MNC STRATEGIES Global strategy- uses the same product and marketing strategy world-wide (Coca-Cola) Multinational strategy- treats each country market differently Chapter 3 ITB

MNC BENEFITS Large amount of goods available Lower prices CHAPTER 3 4/15/2017 MNC BENEFITS Large amount of goods available Lower prices Career opportunities Foster understanding, communication, and respect Friendly international relations Chapter 3 ITB

DRAWBACKS OF MULTINATIONAL COMPANIES CHAPTER 3 4/15/2017 DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T What are two strategies commonly used by multinational companies? Chapter 3 ITB

GLOBAL MARKET ENTRY MODES CHAPTER 3 4/15/2017 GLOBAL MARKET ENTRY MODES Licensing- selling the right to use some intangible property for a fee or royalty (production process, trademark, brand name) Franchising- the right to use a company name or business process in a specific way (fast food) Joint venture- an agreement between two or more companies to share a business project (Japanese and American automobile manufacutring) Chapter 3 ITB

CHAPTER 3 4/15/2017 LICENSING 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 Chapter 3 ITB

CHAPTER 3 4/15/2017 FRANCHISING 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 Chapter 3 ITB

CHAPTER 3 4/15/2017 JOINT 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 Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T How does licensing differ from a franchise? Chapter 3 ITB

INTERNATIONAL TRADE ORGANIZATIONS CHAPTER 3 4/15/2017 INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization- settles trade disputes and enforces free-trade agreements International Monetary Fund- helps to promote economic cooperation; maintains an orderly system of world trade World Bank- provide economic aid to less developed countries Chapter 3 ITB

WORLD TRADE ORGANIZATION (WTO) CHAPTER 3 4/15/2017 WORLD TRADE ORGANIZATION (WTO) WTO Goals Lowering tariffs that discourage free trade Eliminating import quotas Reducing barriers for banks, insurance companies, and other financial services Assisting poor countries with economic growth Chapter 3 ITB

INTERNATIONAL MONETARY FUND (IMF) CHAPTER 3 4/15/2017 INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world trade and exchange rates Includes over 150 member nations Chapter 3 ITB

CHAPTER 3 4/15/2017 WORLD 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 Chapter 3 ITB

CHAPTER 3 4/15/2017 >> C H E C K P O I N T How does the International Monetary Fund assist countries? Chapter 3 ITB