1. BUSINESS IN THE GLOBAL ECONOMY Chapter 3

2. Lessons  International Business Basics  The Global Marketplace  International Business Organizations  EQ: What role does economics play in the development of international business?

3. Trading Among Nations  Domestic business: the making, buying, and selling of goods and services within a country  International business: business activities needed for creating, shipping, and selling goods and services across national borders (aka. foreign or world trade)  U.S. conducts trade with more that 180 countries  Missouri: We’ve Got Goods - video clip Missouri: We’ve Got Goods - video clip 3-1: International Business Basics

4. Absolute vs. Comparative Advantage  Absolute advantage: when a country can produce a good or service at a lower cost than other countries  Due to natural resources or raw materials  Ex. Saudi Arabia: oil  Comparative advantage: when a country specializes in the production of a good or service at which is relatively more efficient  Ex. country can produce cars and computers, but global market is stronger for computers right now, so they make computers and buy cars from another country 3-1: International Business Basics

5. Imports and Exports  Imports: items bought from other countries  Exports: goods and services sold to other countries Source: United States Geological Survey Minerals Information 3-1: International Business Basics

6. Measuring Trade Relations  1. Balance of trade: the difference between a country’s total exports and total imports  Trade surplus: when a country exports (sells) more than it imports (buys)  Trade deficit: when a country imports (buys) more than it exports (sells) 3-1: International Business Basics Like keeping a balanced budget - income vs. spending Foreign debt: money owed to other countries

7. Measuring Trade Relations  2. Balance of Payments: difference between the amount of money that comes in a country and the amount that goes out of it  In addition to trade: investments, tourism  Positive: when a nation receives more money in a year than it pays out  Negative: when a nations sends more money out than it brings in 3-1: International Business Basics

8. International Currency  Exchange rate: the value of a currency in one country compared with the value in another  Affected by supply and demand  Factors affecting currency values:  Balance of payments (positive = )  Economic conditions (inflation = )  Political stability (govt. changes, new laws = )  http://www.x-rates.com/calculator.html http://www.x-rates.com/calculator.html 3-1: International Business Basics

9.  location  climate  terrain  waterways  natural resources  technology  education  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 The Global Marketplace 3-2: The Global Marketplace

10. International Business Environment  Culture: accepted behaviors, customs, and values of society  Key factors of economic development:  Literacy level  Technology  Agricultural dependency  Infrastructure: a nation’s transportation system, communication, and utility systems 3-2: The Global Marketplace

11. International Trade Barriers  Trade Barriers: restrictions to free trade  (formal, political action)  Informal trade barriers are also created by culture, traditions, and religion  Quota: a government set limit on the quantity of a product that may be imported or exported within a given period  Tariff: a tax that a government places on certain imported products  Embargo: an action imposed by the government to stop the export or import or a product completely 3-2: The Global Marketplace

12. Encouraging International Trade  Free-trade zone: a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing (around seaports or airports)  Free-trade agreement: member countries agree to remove duties (import taxes) and trade barriers on products traded among them  Ex. NAFTA: North American Free Trade Agreement of 1994  Common market: members do away with duties and other trade barriers; allow companies to invest freely and workers to move freely across borders; aka. economic community  European Union (EU)  Latin American Integration Association (LAIA) 3-2: The Global Marketplace

13. Multinational Companies  Multinational company (MNC): an organization that does business in several countries  Parent company in home country  Divisions or separate companies in host countries  Strategies:  Global: use same product and marketing strategy worldwide  Multinational: treats each country market different; adapt to customs, tastes, and buying habits 3-3: International Business Organizations

14. How do MNCs affect the countries they operate in? BenefitsDrawbacks Large amount of goods available for consumers May create economic power in host country Lower pricesWorker dependence on the MNC for jobs Career opportunities expandConsumer dependence on goods Foster understanding, communication, and respect among nations May influence political power Friendly international relations 3-3: International Business Organizations

15. Global Market Entry Modes  Licensing: selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty  Franchising: the right to use a company name or business process in a specific way  Enter into a contract to set up a business that looks and runs like the parent company  Joint venture: an agreement between two or more companies to share a business project  Share raw materials, shipping facilities, management activities, or production facilities 3-3: International Business Organizations

16. International Trade Organizations  World Trade Organization (WTO)  Settle trade disputes, enforce trade agreements, reduce barriers, assist poor countries with economic growth  International Monetary Fund (IMF)  Maintains orderly system of world trade and exchange rates to prevent trade wars  World Bank  Give economic aid to less developed countries 3-3: International Business Organizations