1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 1 3-1 3-1International Business Basics 3-2 3-2The Global Marketplace 3-3 3-3International Business Organizations 3 C H A P T E R Business in the Global Economy

2. © 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.

3. © 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

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Most business activities occur within a country’s own borders. ●Domestic business is the making, buying, and selling of goods and services within a country. ●International business refers to business activities needed for creating, shipping, and selling goods and services across national borders SLIDE 4

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●In the past, economies were viewed in terms of national borders. With international trade expanding every day, these boundaries are no longer fully valid in defining economies. SLIDE 5

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●http://www.youtube.com/watch?v= RDC2ohDG4BIhttp://www.youtube.com/watch?v= RDC2ohDG4BI ●http://www.youtube.com/watch?v= 5_YPidwfylMhttp://www.youtube.com/watch?v= 5_YPidwfylM ●http://www.youtube.com/watch?v=1Eb kXmVbTDghttp://www.youtube.com/watch?v=1Eb kXmVbTDg ●Homework: using the news clip as a guide identify the country of origin of 5 products in your home. SLIDE 6

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS International Business ●Business activities needed for creating, shipping, and selling goods and services across borders ●Economies are interconnected Domestic Business ●The making, buying, and selling of goods and services within a country SLIDE 7

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS Absolute Advantage ●When a country can produce a good or service at a lower cost than other countries (can be several items) ●Abundance of resources or raw materials ●Saudi Arabia: Oil ●Brazil: Coffee Comparative Advantage ●A country specializes in the production of a good or service at which it is relatively more efficient SLIDE 8

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS Importing ●Items bought from other countries ●Lower Cost ●Availability of goods Exporting ●Goods and services sold to other countries SLIDE 9

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Without foreign trade, many things you buy would cost more or not be available. ●Other countries can produce goods at a lower cost because they have the needed raw materials or have lower labor costs. SLIDE 10

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods ●One of every six jobs in the United States depends on International business. SLIDE 11

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 TRADING AMONG NATIONS ●The United States conducts trade with more than 180 countries. SLIDE 12

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 13 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.

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 MEASURING TRADE RELATIONS ●Balance of Trade: the difference between a country’s total exports and total imports ●Country exports more than it imports has a trade surplus ●Country imports more than it exports has a trade deficit SLIDE 14

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 MEASURING TRADE RELATIONS ●Balance of Payments: the difference between the amount of money that comes into a country and goes out of a country ●Favorable: receives more money in a year than it pays out (positive balance of trade) ●Unfavorable: sending out more money that it brings in (negative balance of trade) ●Some countries even limit the amount of money their citizens can take with them when they travel. ●How? ●Investment in a corporation, factory, office building ●Give financial aid to a country or military aid ●Foreign banking ●Travel SLIDE 15

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 16 U.S. TRADE BALANCES

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 17 BALANCE OF TRADE

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 18 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.

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 19 INTERNATIONAL CURRENCY ●Each County has: ●Its own banking system ●currency ●Foreign exchange rates: the value of currency In one country compared with value in another ●Exchanging Currency for business or travel ●Currency exchange business (airport, hotel, train station, etc) ●Bank ●Rates vary

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 International Currency ●Mary is planning to visit Canada. How much is a dollar worth in Canadian Currency? ●1,000.00 USD = 976.248 CAD ●United States Dollars 1.00 USD = 0.976237 CADUnited States Dollars ●Canada Dollars 1.00 CAD = 1.02429 USDCanada Dollars ●http://www.xe.com/ucc/ (currency converter website)http://www.xe.com/ucc/

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 INTERNATIONAL CURRENCY ●Three main factors affect currency rates ●Balance of payments: favorable balance of payments = stable rate ●Economic conditions: inflation and higher interest rates reduces buying, lowering value of currency ●Political stability: government change, new laws create uncertainty SLIDE 21

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●When a country has a favorable balance of payments, the value of its currency is usually constant or rising ●Economic conditions ●Prosperity increases currency value ●Political stability ●Stable governments favor currency values

23. © 2012 Cengage Learning. All Rights Reserved. SLIDE 23 3-2 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.

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 International Business Environment ●Doing business in other countries requires knowledge of the differences that exist among people and places. ●Businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns. SLIDE 24

25. © 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

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 26 INTERNATIONAL BUSINESS ENVIRONMENT ●Geography - t he location, climate, terrain, seaports, and natural resources of a country influence business activity ●Cultural influences (accepted behaviors, customs, & values of society) ●The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships.

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 INTERNATIONAL BUSINESS ENVIRONMENT ●Economic development (infrastructure: transportation, communication, utility systems) ●Key Factors for Economic Development ●Literacy level (education) ●Technology (automation, distribution, communication) ●Agricultural dependency (does not have the manufacturing base to provide citizens with great quantity and high quality of goods and services) ●Political and legal concerns ●type of government, the stability of the government, and government policies toward business. SLIDE 27

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 29 Checkpoint ●List the four main elements of the international business environment. ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 INTERNATIONAL TRADE BARRIERS ●Trade Barrier: restrictions to free trade

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 Trade barriers ●Formal – ●Set up by government Quota, Tariff and embargo ●Informal – ●Created by culture, traditions, and religion SLIDE 31

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 QUOTAS ●Quota: limit on the quantity of a product that may be imported/exported ●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

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 TARIFFS ●Tariffs: a tax that governments use to control international trade ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 EMBARGOES ●Embargoes: stopping the export or import of a product ●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

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 35 Checkpoint ●What are three formal trade barriers? ●Set up by Government ●Quotas ●Tariffs ●Embargoes

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 ENCOURAGING INTERNATIONAL TRADE ●Free-trade zones ●Free-trade agreements ●Common markets

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 37 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 ●Duty paid when product leaves the free trade zone

38. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 38 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members ●North American Free Trade Agreement (NAFTA), 1994

39. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 39 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)

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 Common Markets continued ●Have a common external duty on products being imported from nonmember countries. ●Expand trade/promote regional economic integration SLIDE 40

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 41 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.

42. © 2012 Cengage Learning. All Rights Reserved. SLIDE 42 3-3International Business Organizations Goal 1Discuss activities of multinational organizations. Goal 2Explain common international business entry modes. Goal 3Describe activities of international trade organizations and agencies.

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 43 KEY TERMS ●multinational company (MNC) ●joint venture

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 44 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries ●Home country ●Host country

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 45 MNC STRATEGIES ●Global strategy: use of the same product and marketing strategy worldwide ●Multinational strategy: treats each country market differently (adapt to customs, tastes, etc

46. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 46 MNC BENEFITS ●Large amount of goods available ●Lower prices ●Career opportunities ●Foster understanding, communication, and respect ●Friendly international relations

47. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 47 DRAWBACKS OF MULTINATIONAL COMPANIES ●Economic power ●Worker dependence on the MNC ●Consumer dependence ●Political power

48. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 48 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). ●http://www.hulu.com/#!watch/74337http://www.hulu.com/#!watch/74337

49. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 49 GLOBAL MARKET ENTRY MODES ●Licensing ●Franchising ●Joint venture

50. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 50 LICENSING ● Selling the right to use some intangible property for a fee or royalty ●Allows companies to produce items in other countries without being actively involved (gives another company the License to manufacture products) ●Has a low financial investment, so the potential financial return for the company is often low ●The risk for the company is low

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

52. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 52 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 ●Hong Kong Disney (Disney 43%, Hong Kong Government 57%)

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

54. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 54 INTERNATIONAL TRADE ORGANIZATIONS ●World Trade Organization ●International Monetary Fund ●World Bank

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

56. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 56 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

57. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 57 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

58. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 58 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.