© 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 SLIDE 4 TRADING AMONG NATIONS ●Domestic business ●The making, buying, and selling of goods and services with a country ●International business ●Business activities needed for creating, shipping, and selling goods and services across national borders ●Foreign or world trade ●More the norm than the exception

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 5 TRADING AMONG NATIONS ●Two economic principles define buying and selling among companies in different countries ●Absolute Advantage ●A country can produce a good or service at a lower cost than other countries ●Abundance of natural resources or raw materials ●South America and coffee ●Saudi Arabia and oil

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 6 TRADING AMONG NATIONS ●Comparative Advantage ●A country specializes in the production of a good or service at which it is relatively more efficient ●A country may have an absolute advantage in more than one area ●If so, it must decide how to maximize its economic wealth ●Clothing and computers better, but the world market is stronger for computers. Therefore, it should focus on producing computers and buying the clothes from other countries

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 7 TRADING AMONG NATIONS ●Importing ●Items bought from other countries ●Account for the total supply of bananas, coffee, cocoa, spices, tea, silk, and crude rubber in the US ●Half the crude oil and fish ●Very dependent on raw minerals ●Foreign trade helps keep costs down for consumers ●Sometimes consumers are willing to pay more for foreign products. ●Example?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 8 EXAMPLE OF U.S. IMPORT RELIANCE

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 9 TRADING AMONG NATIONS ●Exporting ●Goods and services sold to other countries ●Factory and farm machinery ●Agricultural products ●Chemicals, fertilizers, medicines, and plastics ●Movies and entertainment, books, etc. ●1 in 6 jobs in the US depends on international business

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 10 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 SLIDE 11 MEASURING TRADE RELATIONS ●Balance of trade ●Balance of payments

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 12 MEASURING TRADE RELATIONS ●Foreign debt ●The amount a country owes to other countries ●Nations are concerned with balancing income with expenditures ●They also do not want to have an unfavorable balance of trade ●Balance of trade ●The difference between a country’s total exports and total imports

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 13 MEASURING TRADE RELATIONS ●Trade surplus ●Sells (exports) more than it buys (imports) ●Favorable, why? ●Trade deficit ●Sells (exports) more than it buys (imports) ●Unfavorable, why? ●Balance can vary between trading partners ●Balance is good, US?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 14 U.S. TRADE BALANCES

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 15 BALANCE OF TRADE

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 16 MEASURING TRADE RELATIONS ●Balance of Payments ●The difference between the amount of money that comes into a country and the amount that goes out of it ●Positive or favorable ●Negative or unfavorable ●Imports, exports, tourism, military aid, foreign investment, corporate investment, etc.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 17 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 18 INTERNATIONAL CURRENCY ●International Currency ●Each nation has its own currency and banking system ●Presents a challenge for doing business

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 19 RECENT VALUES OF CURRENCIES

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 20 INTERNATIONAL CURRENCY ●Foreign exchange rates ●The process of exchanging one currency for another ●Exchange rates ●The value of a currency in one country compared with the value in another ●Affected by supply and demand ●Tourists and travel

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 21 INTERNATIONAL CURRENCY ●Factors affecting currency values ●Balance of payments ●When a country has a favorable balance of payments, the value of its currency is usually constant or rising ●Caused by an increased demand for both the nation’s products and currency ●Unfavorable balance of payments decreases the value of nation’s currency

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 INTERNATIONAL CURRENCY ●Economic conditions ●When prices increase and buying power decreases, value of currency decreases ●High inflation in Brazil would decrease the value of the real ●Higher interest rates decrease the value of a currency because of lower demand ●Political Stability ●Instability is bad ●People don’t like risk ●Decreases value of currency

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 23 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●Economic conditions ●Political stability

© 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 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 ●Requires companies to have knowledge of the differences that exist among people and places ●Businesses must consider four main factors ●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 27 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 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 29 INTERNATIONAL TRADE BARRIERS ●Restrictions to free trade ●Formal =political ●Informal=culture, traditions, and religion ●Quotas ●Tariffs ●Embargoes

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 QUOTAS ●Governments set a limit on the quantity of a product that may be imported or exported with a given period ●Oil, supply and demand ●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 31 TARIFFS ●A tax that a government places on certain imported products ●Tariffs on imports increases prices to lower demand or balance the playing field ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good ●Should the US use tariffs to protect jobs?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 EMBARGOES ●Stopping the import or export of a product completely ●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 ●Oil embargo in the 1970s

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 Checkpoint ●What are three formal trade barriers? ●Quotas ●Tariffs ●Embargoes

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 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 35 FREE-TRADE ZONES ●A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing ●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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members ●NAFTA in 1994

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 37 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 SLIDE 38 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 40 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 41 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries ●Home country ●Host country ●Divisions or separate companies in one or more host countries

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 42 MNC STRATEGIES ●Global strategy ●Uses the same product and marketing strategy worldwide ●Coca-Cola ●Multinational strategy ●Treats each country market differently ●Develops products and marketing strategies to fit the customs

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 43 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 44 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 45 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 46 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 47 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 ●Example?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 48 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 ●Example?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 49 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 50 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 51 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 52 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 53 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 54 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 55 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.