The Main Idea In this chapter, students are provided with a foundation knowledge of exporting, international trade, and global business activities. The U.S. has many natural resources, a skilled labor force, and modern production facilities but not everything can be provided. That’s why we must trade with other countries. Can you name things we trade?

Domestic vs International Business What is domestic business? It is the making, buying, and selling of goods and services within a country What is international business? Business activities needed for creating, shipping, and selling goods and services across national borders.

Who can guess how many countries the US trades with?

Class exercise Go to Research and discover at least three jobs that deal with international business On a piece of paper, list the three jobs and tell me: 1. Summarize the nature of the work 2. What the job outlook is 3. Summarize what the earnings (hourly wage or salary) are for the position. 4. Put in bin when finished.

Absolute and Comparative Advantage Absolute Advantage- Exists when a country can produce a good/service at a lower cost than other countries. Examples – South America has AA with coffee production and Saudi Arabia has AA in oil production

Absolute and Comparative Advantage Comparative Advantage- A situation in which a country specializes in the production of a good/service at which it is relatively more efficient at producing Example - A country is great at producing computers and clothes. At the time, computers are more in demand than clothes so the country produces the computers and buys clothes from another country…the country has a comparative advantage of producing computers over clothes

Importing Imports Items bought from other countries Did you know that bananas, coffee, cocoa, spices, tea, silk and crude rubber are 100% imported from other countries?

Imports (cont’d) The US buys about % of: Crude oil Fish Carpets Sugar Leather gloves Dishes Sewing machines

Figure 3-1

Importing exports Goods and services sold to other countries *1 of every 6 jobs in the US depends on international business! Some things the US exports: Factory/farm machinery, food, agricultural products, chemicals, fertilizers, medicines, plastics, movies, tv shows, books, magazines.

Which country has the largest trade imbalance with the US? (From U.S) (Into U.S)

Measuring Trade Relations Why do we work and have jobs? With that money we buy goods/services that we need. If we spend more than we earn, we get into financial troubles (debt)….nothing different than with countries.

Balance of Trade If a country exports (sells) more than it imports (buys), it has a trade If a country imports more than it exports, it has a trade, which is unfavorable Balance of trade The difference between a country’s total exports and total imports (total exports-total imports=balance of trade) surplus. deficit

Balance of payments balance of payments is the difference between the amount of money that comes into a country and the amount that goes out.

Balance of payments Positive/favorable balance of payment? Occurs when a nation receives more money in a year than it pays out Negative/unfavorable When a nation sends out more money than it takes in

How does balance of trade differ from balance of payments? Balance of trade is the difference of imports/exports. Balance of payments is the difference of money that comes into a country and goes out

International Currency Russia uses the ruble, the European Union uses the euro, Brazil the real, India the rupee, and Saudi Arabia the riyal. How can all these different countries accept payment from another if they don’t use the same money?

Foreign Exchange Rates The process of exchanging one currency for another occurs in the foreign exchange market Bunch of banks that buy currencies and resell other ones.

Balance of payments exchange rate is the value of currency in one country compared with the value in another. Most large banks provide currency services for businesses and consumers. Supply and demand affects the value of currency.

Exchange rate calculator Find an online exchange rate calculator How is the U.S. Dollar doing against the EURO?

Graphic Organizer Factors affecting currency values Balance of payments Economic conditions Political Stability

Factors affecting currency values Balance of Payments- Favorable balance of payments = good currency value Unfavorable balance of payments = currency declines in value

Economic Conditions When prices increase and buying power of a country’s money declines, it’s currency will not be as appealing Inflation reduces the buying power of a currency Interest rates- higher interest rates cause a lower demand for the country’s currency.

Political Stability Companies and individuals want to avoid risk when they do business in other nations

3-2. The Global Marketplace – Page 60 Doing business in other countries requires knowledge of the differences that exist among people and places.

Objectives Describe the components of the international business environment Identify examples of formal trade barriers Explain actions to encourage international trade Essential Question – How does a country’s infrastructure assit their business activities?

10 most powerful global brands: Who can guess the #1?

The 4 main elements of the international business environment: Geography Cultural Influences Economic Development Political and Legal Concerns

1. Geography The location, climate, terrain, seaports, and natural resources of a country influence business activity. Countries with many rivers or ocean seaports can easily ship products for foreign trade Countries with few natural resources must depend on imports 

2. Cultural Influences Culture – is the accepted behaviors, customs, and values of a society. A society’s culture has a strong influence on business activities It is considered proper to buy a gift for someone in Japan when doing business with them; here = bribery! Mexico siesta!

Economic Development Every country and every individual faces the problem of scarcity. Some ppl travel to work on a bullet train, some ppl go by oxcart – these are examples of different types of economic development.

3. Economic Development – 3 key effects on a country’s level of economic development LLiteracy Level CCountries with better education systems usually provide more and better goods/services TTechnology MMore technology the better and easier it is to do business AAgricultural Dependency MMore dependent a country is on farming the less time they have to produce other things

Infrastructure infrastructure A nation’s transportation, communication, and utility systems. The better a country’s infrastructure, the faster it can conduct business Ex – Germany’s efficient railway system and fast computers compared to Uganda’s donkeys.

4. Political and legal concerns Many different countries don’t have as much freedom when it comes to business as we do. The most common political and legal factors that affect international business activities are: The type of government The stability of the government The government’s policies towards business

Group work Count off by fours In your group, look at figure 3-5 on page 61. Explain how each bullet listed in each of the four categories could affect a company when doing business in another country. You will have 19 answers

Trade barriers Government actions can create restrictions to free trade Formal trade barriers are political actions by the government Informal trade barriers are when the culture, traditions, and religion of a country hinder trade

International trade barriers Quota Tariff Embargo

quota When a gov’t sets a limit on the quantity of a product that may be imported or exported Countries do this to regulate international trade Why would a country want to set a quota on international trade?

International trade barriers tariff A tax that a gov’t places on certain imported products Boston tea party – what happened? Many people believe that tariffs should be used to protect US jobs from foreign competition. What would happen to the prices at the store for us?

International trade barriers embargo When a gov’t stops the export or import of a product completely Embargos can be placed on an entire country…anyone know who we have an embargo against? Cuba Gov’ts enact these to protect their products/services more than a quota or tariff can

As of October, 2007, the United States has sanctions (embargos) against: –Colombia, no drug-related exports, since 1972 (see Colombia-United States relations)ColombiaColombia-United States relations –Côte d'Ivoire/Ivory Coast, since 1986 (see Côte d'Ivoire – United States relations)Côte d'IvoireCôte d'Ivoire – United States relations –Cuba, since 1962 (see United States embargo against Cuba)CubaUnited States embargo against Cuba –Democratic Republic of the Congo, since 1998 (see Democratic Republic of the Congo – United States relations)Democratic Republic of the CongoDemocratic Republic of the Congo – United States relations –Iran, since 1979 (see Sanctions against Iran)IranSanctions against Iran –Republic of the Congo (see Republic of the Congo-United States relations)Republic of the CongoRepublic of the Congo-United States relations –Somalia, since 1990 (supplies arms to the Transitional Federal Government, but no general trade. See Somalia-United States relations)SomaliaTransitional Federal GovernmentSomalia-United States relations –Myanmar, since 1997 (see Burma – United States relations)MyanmarBurma – United States relations –North Korea, since 1950 (see North Korea – United States relations)North KoreaNorth Korea – United States relations –Sudan, since 2002 (see Sudan – United States relations)SudanSudan – United States relations –Syria, since 1986 (see Syria – United States relations)SyriaSyria – United States relations Source:

Encouraging Free Trade Free-Trade Zones Free-Trade Agreements Common Markets

Encouraging Free Trade Free trade zone - a selected area where products can be imported tariff-free and then stored, assembled, and/or used in manufacturing. The importer pays duty only when the product leaves the zone Usually located around a seaport or airport

Encouraging Free Trade Free trade agreement - member countries agree to remove duties and trade barriers on products traded among them. NAFTA – (North American Free Trade Agreement, 1993) US, Canada and Mexico

Encouraging Free Trade Common Markets- members do away with duties and other trade barriers. They allow companies to invest freely in each member’s country – workers can move freely across borders European Union (EU) has a common market

Can you guess what the following companies all have in common??????? Chapter 3.3

Chapter 3.3 – International Business Organizations Discuss activities of multinational organizations Explain common international business entry modes Describe activities of international trade organizations and agencies Essential Question – What is a multinational company?

MNC Multinational company (MNC) An organization that does business in several countries MNCs usually consist of a parent company located at the Home country The country in which the MNC places business activities is the host country

Multinational corporations can use either a global or multinational strategy: Global strategy- uses the same product and marketing strategy worldwide –Ex: Coca-cola Multinational strategy - treats each country market differently. –Restaurants modify menus to local tastes

Benefits of MNCsDrawbacks Consumers have many goods available Lower prices if made domestically Career opportunities MNC can become a major economic power Workers depend on jobs in host country Consumers become dependent on it for goods/services MNC may influence political power

Global Market Entry Modes As companies expand into other countries, these methods are available to help them out: –Licensing –Franchising –Joint Venture

Global Market Entry Modes Licensing – selling the right to use some intangible property for a fee or royalty. –Can you think of any licensed products?

Global Market Entry Modes Franchise – is the right to use a company name or business process in a specific way

Global Market Entry Modes Joint venture – is an agreement between two or more companies to share a business project and

International Trade Organizations International business activities can be very complex –As a result, several organizations have been created to help companies with global trade activities.

World Trade Organization (WTO) Was created in 1995 to promote trade around the world Has over 150 member countries Settles disputes and enforces free-trade agreements between its members

International Monetary Fund (IMF) Helps to promote economic cooperation Also has over 150 members The IMF maintains an orderly system of world trade and exchange rates

World Bank Was created in 1944 to provide loans for rebuilding after World War II. Today, the bank’s key function is to give economic aid to less developed countries. Has over 180 member countries