1. Understand Business in the Global Marketplace
Objective 1.03
Understand Business in the Global Marketplace

2. Topics
Factors and regulations companies have to consider when doing business in the global market place
Main entry modes for companies to enter the global marketplace
Main international trade organizations

3. Factors and regulations that companies have to consider when doing business in the global market place…

4. Domestic vs. International Businesses
Domestic Business – Making, buying, and selling of goods and service within a country
International Business – also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders

5. Business Advantage Factors
Absolute Advantage – when a country can produce a good or service at a lower cost than other countries
Examples: Saudi Arabia – oil production, Columbia – coffee, Virgin Islands - sand
Comparative Advantage – a situation in which a country specialized in production of a good or service at which it is relatively more efficient.
Examples: China – Manufacturing of clothes and household goods; America – technology; Japan - electronics

6. International Trade Imports – items bought from other countries
Examples: furniture, tax preparation services, bananas, or automobile parts
Exports – goods and services sold to other countries
Examples: Silver, automobile parts, or software

7. Advantages and Disadvantages of Importing
Goods available for purchase
Goods could have cost less since they were imported
Goods may be a better quality since imported
Goods imported and owned may provide satisfaction
Disadvantages:
Some goods would cost more without competition of imported goods
Possibly goods may be unavailable

8. Advantages and Disadvantages of Exporting
Creates jobs
Provides access to goods not usually unavailable
Disadvantages:
Jobs may depend on global business
A natural disaster may curtail (cut) production

9. Measuring of Trade Relations
What is a way to measure trade relations?
Balance of trade or balance of payments
Why are measures of trade relations completed?
Nations are concerned with balancing income with expenditures
Foreign debt is the amount of money a country owes to other countries.

10. Measuring of Trade Relations Continued
Balance of Trade – the difference between a country’s total exports and total imports
If a country exports more than it imports, it has a trade surplus. This is favorable.
If a country imports more than it exports, it has a trade deficit. This is unfavorable.

11. Measuring of Trade Relations Continued
Balance of Payments – the difference between the amount of money that comes into a country and the amount that goes out of it
If a country receives more money in a year than it pays out, it has favorable balance.
If a country sends more money out than it brings in, it has an unfavorable balance.

12. International Currency Exchange Rate
Foreign Exchange Market – where banks buy and sell different currencies
Exchange Rate – the value of currency in one country when compared with the value in another

13. International Currency Exchange Rate Main Factors
Balance of Payments - influenced by demand for a nations goods and services
If the balance of payment is favorable, then usually currency is steady and rising in value
If unfavorable, then usually the currency is declining in value
Economic Conditions include the following:
Inflation decreases buying power of currency
Interest rates that are high decreases demand to borrow money
Political stability could be impacted by changes in government or laws

14. International Business Environment Factors
Four main factors:
Geography
Cultural Influences
Economic Development
Political and Legal Concerns

15. International Business Environment Factors Continued
What is included in a country’s geography?
Location
Climate
Terrain
Seaports
Natural Resources
How can this affect a country’s trade?
The geography of a country could impact its natural resources and import/export of resources

16. International Business Environment Factors continued
What main cultural factors may influence how business is conducted in the global marketplace?
Language
Religion
Family
Food
Values
Customs
Social Relationships
How can this affect a country’s trade?
Accepted behavior, customs, and values of a society could impact business activities

17. International Business Environment Factors Continued
What key effects of a country’s economics may influence conducting business in a global marketplace?
Education and Literacy Levels
Inflation
Technology
Exchange Rate
Agricultural Dependency
Infrastructure
Transportation
How can this affect a country’s trade?
A country’s economic development impacts its citizens standard of living and business activities.
Communication
Utilities Systems

18. International Business Environment Factors Continued
What political and legal concerns may influence business activities in a global marketplace?
Type of Government
Stability of Government
Government policies for businesses relevant to trade barriers
How can this affect a country’s trade?
Political and legal concerns influence business activities in the global marketplace

19. Main International Trade Barrier Factors
Trade barriers are restrictions to free trade.
Embargo – when a government bans the import or export of specified goods
Why would a government place an embargo?
Protect a good or service from too much competition (similar to a quota or tariff)
Protect sensitive goods
Quota – A limit on the quantity of goods that may be imported or exported within a given period to regulate international trade
Why would a company or country set a quota?
Regulate the supply and price
Protect a good or service from too much competition

20. Main International Trade Barrier Factors Continued
Tariffs - taxes on certain imported products which increases prices.
Why would a government use a tariff?
To protect the supply of goods.

21. Encouragement of International Trade Factors
Main factors are:
Common Markets – When countries that are members freely invest in one another
European Union (EU)
Latin American Integration Association (LAIA)
Free-Trade Agreements – When countries that are members remove duties and trade barriers on products traded among them to increase trade between members
NAFTA (North American Fee Trade Agreement between the United States, Canada, and Mexico

22. Encouragement of International Trade Factors
Free-Trade Zone – selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing
Seaport
Airports

23. Main Entry Modes to the Global Marketplace
Franchising – Allowing a business the rights to use another company’s name or process in a specific way
Examples – H & R Block; Dunkin’ Donuts
Licensing – Selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty
Dick Idol (furniture/products)
Beyond Juice Cafés

24. Main Entry Modes to the Global Marketplace Continued
Joint venture – when two or more companies agree to share a business project.
Examples: Cable company and television stations; Oil lube and tire service company

25. Main International Trade Organizations
International Monetary Fund (IMF) – Helps promote economic cooperation and maintain an orderly system of world trade and exchange rates
World Bank – Provides economic aid to developing countries to fund building communications systems, transportation networks, and energy plans
World Trade Organization (WTO) – Settles trade disputes and enforces free-trade agreements among its members