Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE1 CHAPTER International Business Basics The Global Marketplace International Business Organizations Business in the Global Economy

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE2 International Business Basics Objectives 20.Describe importing and exporting activities. 21.Compare balance of trade and balance of payments. 22.List factors that affect the value of global currencies. 3-1

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 3 Key Terms balance of payments balance of trade domestic business exchange rate exports foreign (world) trade imports international business

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Domestic Business The making, buying, and selling of G&S within a country International Business aka: Foreign or World Trade Business activities needed for creating, shipping, and selling G&S across national borders Chapter TRADING AMONG NATIONS

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 5 TRADING AMONG NATIONS Absolute advantage When a country can produce a GorS at a lower cost than other countries Comparative advantage When a country specializes in the production of a GorS at which it is relatively more efficient EXAMPLE: EXAMPLE:

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 6 Source: United States Geological Survey Minerals Information U.S. Import Reliance for Selected Raw Materials Used in iron and steel production. Processed into aluminumProcessed into aluminum. Used in construction, shingles, joint work, etc.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Imports Items bought from other countries Exports G&S sold to other countries Link to 2012 data chartchart Chapter 3 7 TRADING AMONG NATIONS

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 8 Checkpoint >> How does importing differ from exporting? Answer Importing is bringing items from other countries into a country. Exporting is selling goods and services to other countries.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 9 Objective 21 MEASURING TRADE RELATIONS Balance of trade Difference between a country’s total exports and total imports Exports > Imports = TRADE SURPLUS Imports > Exports = TRADE DEFICIT Balance of payments Difference between the amount of money that comes into a country and the amount that goes out of it. Nation receives more $ than it puts out = Positive ( Favorable) Balance Nation sends more $ out than it brings in = Negative (Unfavorable) Balance Graph of 2011 Graph

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 10 Current U.S. Trade Balances U.S. Trade Balances

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 11 Balance of Trade

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 12 Checkpoint >> How does balance of trade differ from balance of payments? Answer Balance of trade is the difference between a country’s total exports and total imports. Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 13 INTERNATIONAL CURRENCY Foreign exchange rates Value of currency in one country compared with the value in another Factors affect currency values Three main factors Balance of payments Economic conditions (including interest rates) Political disability e_united_states_save_by_ditching_paper_money_.html e_united_states_save_by_ditching_paper_money_.html

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 14 Recent Values of Currencies Recent Values of Currencies * U.S. dollars

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 15 Factors that affect the value of a country’s currency: balance of payments economic conditions political stability 7 Currency Blunders You Could Cash In On.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Reinforcement3-1 Page (1 point each) AND 4 or 5 (3 points) Chapter 3 16

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE17 The Global Marketplace Objectives 23.Describe the components of the international business environment. 24.Identify examples of formal trade barriers. 25.Explain actions to encourage international trade. Chinese Subsidies: subsidies-china-analysis-china%E2%80%99s-steel-industry

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 18 Key Terms infrastructure trade barrier quota tariff embargo

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development Literacy level Technology Agricultural dependency Political and legal concerns

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 20  location  climate  terrain  waterways  natural resources  technology  education  literacy level  agricultural dependency  inflation  exchange rate  Infrastructure  language  family  religion  customs  traditions  food GEOGRAPHYECONOMICS CULTURE  government system  political stability  trade barriers  business regulations INTERNATIONAL BUSINESS ENVIRONMENT POLITICAL–LEGALFACTORS Elements of International Business Environment

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 21 Checkpoint >> List the four main elements of the international business environment. Answer geography cultural influences economic development political and legal concerns

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter INTERNATIONAL TRADE BARRIERS Why would countries want to limit international trade??? Three ways countries discourage international trade: Quotas Tariffs Embargoes

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 23 QUOTA – quantity limit on imports 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 24 TARIFF – tax on imports Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 25 EMBARGO – complete block on trade Reasons for embargoes For POLITICAL reasons To prevent sensitive products from falling into the hands of unfriendly groups or nations

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 26 Checkpoint >> What are three formal trade barriers? Answer quotas tariffs embargoes

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter ENCOURAGING INTERNATIONAL TRADE Why would countries want to encourage international trade??? Three ways countries encourage international trade: Free-trade zones Free-trade agreements Common markets

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 28 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE More on FTZ’s Most FTZs are located in developing countries: Brazil, China, the Philippines, Malaysia, Pakistan, Mexico, Costa Rica, Honduras, and Madagascar Corporations setting up in a zone may be given tax breaks as an incentive. Usually, these zones are set up in underdeveloped parts of the host country; the rationale is that the zones will attract employers and thus reduce poverty and unemployment, and stimulate the area's economy. These zones are often used by multinational corporations to set up factories to produce goods (such as clothing or shoes). Chapter 3 29

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 30 FREE-TRADE AGREEMENTS Member countries agree to remove duties and trade barriers on products traded among them Results in increased trade between members

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 31 COMMON MARKETS Allows companies to invest freely in each member’s country Allows workers to move freely across borders Examples European Union (EU) ~ The European Union (EU) is an economic and political union of 27 member states, located primarily in Europe. The EU has developed a single market through a standardized system of laws which apply in all member states, ensuring the free movement of people, goods, services, and capital. Latin American Integration Association (LAIA) ~ Its main objective is the establishment of a common market, in pursuit of the economic and social development of the region.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 32 Checkpoint >> What actions could be taken to encourage international trade? Answer Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Reinforcement 3-2 Page (1 point each) And Choose ONE from 5-7 (6 points) Chapter 3 33

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE34 International Business Organizations Objectives 26.Discuss activities of multinational organizations. 27.Explain common international business entry modes. 28.Describe activities of international trade organizations and agencies. 3-3

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 35 Key Terms Multinational company (MNC) Joint venture Global strategy Multinational strategy Licensing Franchising

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 36 MULTINATIONAL COMPANIES (MNC) MNC strategies MNC benefits Drawbacks of multinational companies

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 37 MNC STRATEGIES Global strategy offering the same product the same way everywhere Multinational strategy approaching each country market differently

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 38 MNC BENEFITS Large amount of goods available Lower prices Career opportunities Foster understanding, communication, and respect Friendly international relations

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 39 DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 40 Checkpoint >> What are two strategies commonly used by multinational companies? Answer global strategy (offering the same product the same way everywhere) multinational strategy (approaching each country market differently).

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 41 GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 42 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 43 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 44 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 45 Checkpoint >> How does licensing differ from a franchise? Answer Licensing does not require as much financial investment or risk as franchising. Both licensing and franchising involve royalty payments, but licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 46 INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 47 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 48 INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world trade and exchange rates Includes over 150 member nations

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 49 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

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 3 50 Checkpoint >> How does the International Monetary Fund assist countries? Answer The International Monetary Fund assists countries by promoting economic cooperation and maintaining an orderly system of world trade and exchange rates. This cooperation makes harmful trade wars among IMF nations less likely.

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Reinforcement 3-3 Page 68 1, 2, and 3 or 4 51

Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE CHAPTER 3 REVIEW Pages And choose two (2) from Chapter 3 52