1. Business in the Global Economy
C H A P T E R 3
Business in the Global Economy
3.1 International Business Basics
3.2 The Global Marketplace
3.3 International Business Organizations

2. 3.1 International Business Basics
Learning Outcomes
3.1.1 Describe importing and exporting activities.
3.1.2 Compare balance of trade and balance of payments.
3.1.3 List factors that affect the value of global currencies.

3. KEY TERMS imports exports balance of trade balance of payments
exchange rate

4. TRADE AMONG NATIONS Absolute advantage Comparative advantage Importing
Exporting

5. U.S. IMPORT RELIANCE FOR SELECTED RAW MATERIALS
CHAPTER 3
6/26/2018
U.S. IMPORT RELIANCE FOR SELECTED RAW MATERIALS
ITB

6. 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.

7. MEASURING TRADE RELATIONS
Balance of trade
Balance of payments

8. Balance of Trade

9. 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.

10. Checkpoint 
How does balance of trade differ from balance of payments? (continued)
Trade is not the only thing influencing the balance of payments. For example, money can enter or leave a country through investments, tourism, financial aid, and bank deposits.

11. INTERNATIONAL CURRENCY
Foreign exchange rates
Factors affecting currency values:
Balance of payments
Economic conditions
Political stability

12. Checkpoint  What factors affect the value of a country’s currency?
The three main factors are:
Balance of payments
Economic conditions
Political stability

13. 3.2 The Global Marketplace
Learning Outcomes
3.2.1 Describe the components of the international business environment.
3.2.2 Identify examples of formal trade barriers.
3.2.3 Explain actions to encourage international trade.

14. KEY TERMS
infrastructure
trade barriers
quota
tariff
embargo

15. INTERNATIONAL BUSINESS ENVIRONMENT
Geography
Cultural influences
Economic development
Literacy level
Technology
Agricultural dependency
Political and legal concerns

16. Elements of International Business Environment
Geographic Factors
Location
Climate
Terrain
Waterways
Natural resources

17. Elements of International Business Environment (continued)
Cultural Factors
Language
Family
Religion
Customs
Traditions
Food

18. Elements of International Business Environment (continued)
Economic Factors
Technology
Education
Inflation
Exchange rate
Infrastructure

19. Elements of International Business Environment (continued)
Political and Legal Factors
Government system
Political stability
Trade barriers
Business regulations

20. Checkpoint 
List the four main elements of the international business environment.
Geography
Cultural influences
Economic development
Political and legal concerns

21. INTERNATIONAL TRADE BARRIERS
Quotas
Tariffs
Embargoes

22. QUOTAS Reasons for quotas
To keep supply low and prices at a certain level
To express displeasure at the policies of the importing country
To protect one of a country’s industries from too much competition from abroad

23. TARIFFS Some tariffs are
A set amount per pound, gallon, or other unit
Based on the value of a good
A tariff increases the price of an imported product.
A high tariff tends to lower the demand for the product and reduce the quantity of that import.

24. EMBARGOES Reasons for embargoes
To offer more protection from international competition than the quota or tariff will provide
To prevent sensitive products from falling into the hands of unfriendly groups or nations

25. Checkpoint  What are three formal trade barriers? Quotas Tariffs
Embargoes

26. ENCOURAGING INTERNATIONAL TRADE
Free-trade zones
Free-trade agreements
North American Free Trade Agreement (NAFTA)
Common markets

27. 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

28. FREE-TRADE AGREEMENTS
Member countries agree to remove duties and trade barriers on products traded among them
Results in increased trade between members

29. COMMON MARKETS
Allow companies to invest freely in each member’s country
Allow workers to move freely across borders
Examples of common markets:
European Union (EU)
Latin American Integration Association (LAIA)

30. 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.

31. 3.3 International Business Organizations
Learning Outcomes
3.3.1 Discuss activities of multinational organizations.
3.3.2 Explain common international business entry modes.
3.3.3 Describe activities of international trade organizations and agencies.

32. KEY TERMS
multinational company (MNC)
joint venture

33. MULTINATIONAL COMPANIES (MNC)
Organizations that do business in several countries
Parent company in home country
Divisions or separate companies in other countries

34. MNC STRATEGIES
Global strategy
Multinational strategy

35. MNC BENEFITS Large amount of goods available Lower prices
Career opportunities
Foster understanding, communication, and respect
Friendly international relations

36. DRAWBACKS OF MULTINATIONAL COMPANIES
An MNC can become an economic power
Worker dependence on the MNC for jobs
Consumer dependence for goods and services
Influence or control of political power

37. 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’s market differently).

38. GLOBAL MARKET ENTRY MODES
Licensing
Franchising
Joint venture

39. LICENSING Allows foreign companies to use a procedure.
Has a low financial investment, so the potential financial return for the company is often low.
The risk for the company is low.

40. FRANCHISING
Organizations enter into contracts with people in other countries to set up a business that looks and runs like the parent company.
Commonly involves selling a product or service

41. JOINT VENTURE
Companies share raw materials, shipping facilities, management activities, or production facilities.
Concerns include the sharing of profits and not as much control because several companies are involved.

42. 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.
Licensing usually involves a manufacturing process, while franchising involves selling a product or service.

43. INTERNATIONAL TRADE ORGANIZATIONS
World Trade Organization
International Monetary Fund
World Bank

44. WORLD TRADE ORGANIZATION (WTO)
160 member countries
Settles trade disputes
Enforces free-trade agreements
Other goals include:
Lowering tariffs that discourage free trade
Eliminating import quotas
Reducing barriers for financial services
Assisting poor countries with economic growth

45. INTERNATIONAL MONETARY FUND (IMF)
180 member nations
Helps to promote economic cooperation
Maintains an orderly system of world trade and exchange rates

46. WORLD BANK
Created in 1944 to provide loans for rebuilding after World War II
190 member countries
Key functions today:
Give economic aid to developing countries
Build communication systems, transportation networks, and energy plants

47. WORLD BANK (continued)
World Bank’s 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

48. Checkpoint 
How does the International Monetary Fund assist countries?
Promotes economic cooperation and maintaining an orderly system of world trade and exchange rates.
This cooperation makes harmful trade wars among IMF nations less likely.