© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE International Business Basics The Global Marketplace International Business Organizations 3 C H A P T E R Business in the Global Economy

© 2012 Cengage Learning. All Rights Reserved. SLIDE 2 3-1International Business Basics Goal 1Describe importing and exporting activities. Goal 2Compare balance of trade and balance of payments. Goal 3List factors that affect the value of global currencies.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 3 KEY TERMS ●imports ●exports ●balance of trade ●balance of payments ●exchange rate

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Most business activities occur within a country’s own borders. ●Domestic business is the making, buying, and selling of goods and services within a country. ●International business refers to business activities needed for creating, shipping, and selling goods and services across national borders SLIDE 4

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●In the past, economies were viewed in terms of national borders. With international trade expanding every day, these boundaries are no longer fully valid in defining economies. SLIDE 5

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ● RDC2ohDG4BIhttp:// RDC2ohDG4BI ● 5_YPidwfylMhttp:// 5_YPidwfylM ● kXmVbTDghttp:// kXmVbTDg ●Homework: using the news clip as a guide identify the country of origin of 5 products in your home. SLIDE 6

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS International Business ●Business activities needed for creating, shipping, and selling goods and services across borders ●Economies are interconnected Domestic Business ●The making, buying, and selling of goods and services within a country SLIDE 7

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS Absolute Advantage ●When a country can produce a good or service at a lower cost than other countries (can be several items) ●Abundance of resources or raw materials ●Saudi Arabia: Oil ●Brazil: Coffee Comparative Advantage ●A country specializes in the production of a good or service at which it is relatively more efficient SLIDE 8

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS Importing ●Items bought from other countries ●Lower Cost ●Availability of goods Exporting ●Goods and services sold to other countries SLIDE 9

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Without foreign trade, many things you buy would cost more or not be available. ●Other countries can produce goods at a lower cost because they have the needed raw materials or have lower labor costs. SLIDE 10

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods ●One of every six jobs in the United States depends on International business. SLIDE 11

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●The United States conducts trade with more than 180 countries. SLIDE 12

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 13 Checkpoint ●How does importing differ from exporting? ●Importing is bringing items from other countries into a country. ●Exporting is selling goods and services to other countries.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 MEASURING TRADE RELATIONS ●Balance of Trade: the difference between a country’s total exports and total imports ●Country exports more than it imports has a trade surplus ●Country imports more than it exports has a trade deficit SLIDE 14

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 MEASURING TRADE RELATIONS ●Balance of Payments: the difference between the amount of money that comes into a country and goes out of a country ●Favorable: receives more money in a year than it pays out (positive balance of trade) ●Unfavorable: sending out more money that it brings in (negative balance of trade) ●Some countries even limit the amount of money their citizens can take with them when they travel. ●How? ●Investment in a corporation, factory, office building ●Give financial aid to a country or military aid ●Foreign banking ●Travel SLIDE 15

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 16 U.S. TRADE BALANCES

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 17 BALANCE OF TRADE

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 18 Checkpoint ●How does balance of trade differ from balance of payments? ●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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 19 INTERNATIONAL CURRENCY ●Each County has: ●Its own banking system ●currency ●Foreign exchange rates: the value of currency In one country compared with value in another ●Exchanging Currency for business or travel ●Currency exchange business (airport, hotel, train station, etc) ●Bank ●Rates vary

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 International Currency ●Mary is planning to visit Canada. How much is a dollar worth in Canadian Currency? ●1, USD = CAD ●United States Dollars 1.00 USD = CADUnited States Dollars ●Canada Dollars 1.00 CAD = USDCanada Dollars ● (currency converter website)

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 INTERNATIONAL CURRENCY ●Three main factors affect currency rates ●Balance of payments: favorable balance of payments = stable rate ●Economic conditions: inflation and higher interest rates reduces buying, lowering value of currency ●Political stability: government change, new laws create uncertainty SLIDE 21

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●When a country has a favorable balance of payments, the value of its currency is usually constant or rising ●Economic conditions ●Prosperity increases currency value ●Political stability ●Stable governments favor currency values

© 2012 Cengage Learning. All Rights Reserved. SLIDE The Global Marketplace Goal 1Describe the components of the international business environment. Goal 2Identify examples of formal trade barriers. Goal 3Explain actions to encourage international trade.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 International Business Environment ●Doing business in other countries requires knowledge of the differences that exist among people and places. ●Businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns. SLIDE 24

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 25 KEY TERMS ●infrastructure ●trade barrier ●quota ●tariff ●embargo

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 26 INTERNATIONAL BUSINESS ENVIRONMENT ●Geography - t he location, climate, terrain, seaports, and natural resources of a country influence business activity ●Cultural influences (accepted behaviors, customs, & values of society) ●The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 INTERNATIONAL BUSINESS ENVIRONMENT ●Economic development (infrastructure: transportation, communication, utility systems) ●Key Factors for Economic Development ●Literacy level (education) ●Technology (automation, distribution, communication) ●Agricultural dependency (does not have the manufacturing base to provide citizens with great quantity and high quality of goods and services) ●Political and legal concerns ●type of government, the stability of the government, and government policies toward business. SLIDE 27

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 29 Checkpoint ●List the four main elements of the international business environment. ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 INTERNATIONAL TRADE BARRIERS ●Trade Barrier: restrictions to free trade

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 Trade barriers ●Formal – ●Set up by government Quota, Tariff and embargo ●Informal – ●Created by culture, traditions, and religion SLIDE 31

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 QUOTAS ●Quota: limit on the quantity of a product that may be imported/exported ●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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 TARIFFS ●Tariffs: a tax that governments use to control international trade ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 EMBARGOES ●Embargoes: stopping the export or import of a product ●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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 35 Checkpoint ●What are three formal trade barriers? ●Set up by Government ●Quotas ●Tariffs ●Embargoes

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 ENCOURAGING INTERNATIONAL TRADE ●Free-trade zones ●Free-trade agreements ●Common markets

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 37 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 or airport ●Duty paid when product leaves the free trade zone

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 38 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members ●North American Free Trade Agreement (NAFTA), 1994

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 39 COMMON MARKETS ●Allow companies to invest freely in each member’s country ●Allow workers to move freely across borders ●Examples ●European Union (EU) ●Latin American Integration Association (LAIA)

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 Common Markets continued ●Have a common external duty on products being imported from nonmember countries. ●Expand trade/promote regional economic integration SLIDE 40

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 41 Checkpoint ●What actions could be taken to encourage international trade? ●Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

© 2012 Cengage Learning. All Rights Reserved. SLIDE International Business Organizations Goal 1Discuss activities of multinational organizations. Goal 2Explain common international business entry modes. Goal 3Describe activities of international trade organizations and agencies.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 43 KEY TERMS ●multinational company (MNC) ●joint venture

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 44 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries ●Home country ●Host country

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 45 MNC STRATEGIES ●Global strategy: use of the same product and marketing strategy worldwide ●Multinational strategy: treats each country market differently (adapt to customs, tastes, etc

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 46 MNC BENEFITS ●Large amount of goods available ●Lower prices ●Career opportunities ●Foster understanding, communication, and respect ●Friendly international relations

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 47 DRAWBACKS OF MULTINATIONAL COMPANIES ●Economic power ●Worker dependence on the MNC ●Consumer dependence ●Political power

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 48 Checkpoint ●What are two strategies commonly used by multinational companies? ●Global strategy (offering the same product the same way everywhere) ●Multinational strategy (approaching each country market differently). ●

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 49 GLOBAL MARKET ENTRY MODES ●Licensing ●Franchising ●Joint venture

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 50 LICENSING ● Selling the right to use some intangible property for a fee or royalty ●Allows companies to produce items in other countries without being actively involved (gives another company the License to manufacture products) ●Has a low financial investment, so the potential financial return for the company is often low ●The risk for the company is low

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 51 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 52 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 because several companies are involved ●Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers ●Hong Kong Disney (Disney 43%, Hong Kong Government 57%)

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 53 Checkpoint ●How does licensing differ from a franchise? ●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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 54 INTERNATIONAL TRADE ORGANIZATIONS ●World Trade Organization ●International Monetary Fund ●World Bank

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 55 WORLD TRADE ORGANIZATION (WTO) ●150 member countries ●Promotes trade ●Settles trade disputes ●Enforces free-trade agreements ●Other 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 56 INTERNATIONAL MONETARY FUND (IMF) ●Helps to promote economic cooperation ●Maintains an orderly system of world trade and exchange rates ●Includes more than 150 member nations

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 57 WORLD BANK ●Created in 1944 to provide loans for rebuilding after World War II ●Today the World Bank has more than 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 58 Checkpoint ●How does the International Monetary Fund assist countries? ●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.