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 SLIDE 4 TRADING AMONG NATIONS ●Domestic business ●The making, buying, and selling of goods and services with a country ●International business ●Business activities needed for creating, shipping, and selling goods and services across national borders ●Foreign or world trade ●More the norm than the exception

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 5 TRADING AMONG NATIONS ●Two economic principles define buying and selling among companies in different countries ●Absolute Advantage ●A country can produce a good or service at a lower cost than other countries ●Abundance of natural resources or raw materials ●South America and coffee ●Saudi Arabia and oil

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 6 TRADING AMONG NATIONS ●Comparative Advantage ●A country specializes in the production of a good or service at which it is relatively more efficient ●A country may have an absolute advantage in more than one area ●If so, it must decide how to maximize its economic wealth ●Clothing and computers better, but the world market is stronger for computers. Therefore, it should focus on producing computers and buying the clothes from other countries

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 7 TRADING AMONG NATIONS ●Importing ●Items bought from other countries ●Account for the total supply of bananas, coffee, cocoa, spices, tea, silk, and crude rubber in the US ●Half the crude oil and fish ●Very dependent on raw minerals ●Foreign trade helps keep costs down for consumers ●Sometimes consumers are willing to pay more for foreign products. ●Example?

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 8 EXAMPLE OF U.S. IMPORT RELIANCE

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 9 TRADING AMONG NATIONS ●Exporting ●Goods and services sold to other countries ●Factory and farm machinery ●Agricultural products ●Chemicals, fertilizers, medicines, and plastics ●Movies and entertainment, books, etc. ●1 in 6 jobs in the US depends on international business

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 10 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.

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 11 MEASURING TRADE RELATIONS ●Balance of trade ●Balance of payments

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 12 MEASURING TRADE RELATIONS ●Foreign debt ●The amount a country owes to other countries ●Nations are concerned with balancing income with expenditures ●They also do not want to have an unfavorable balance of trade ●Balance of trade ●The difference between a country’s total exports and total imports

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 13 MEASURING TRADE RELATIONS ●Trade surplus ●Sells (exports) more than it buys (imports) ●Favorable, why? ●Trade deficit ●Sells (exports) more than it buys (imports) ●Unfavorable, why? ●Balance can vary between trading partners ●Balance is good, US?

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 14 U.S. TRADE BALANCES

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 15 BALANCE OF TRADE

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 16 MEASURING TRADE RELATIONS ●Balance of Payments ●The difference between the amount of money that comes into a country and the amount that goes out of it ●Positive or favorable ●Negative or unfavorable ●Imports, exports, tourism, military aid, foreign investment, corporate investment, etc.

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

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 18 INTERNATIONAL CURRENCY ●International Currency ●Each nation has its own currency and banking system ●Presents a challenge for doing business

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 19 RECENT VALUES OF CURRENCIES

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 20 INTERNATIONAL CURRENCY ●Foreign exchange rates ●The process of exchanging one currency for another ●Exchange rates ●The value of a currency in one country compared with the value in another ●Affected by supply and demand ●Tourists and travel

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 21 INTERNATIONAL CURRENCY ●Factors affecting currency values ●Balance of payments ●When a country has a favorable balance of payments, the value of its currency is usually constant or rising ●Caused by an increased demand for both the nation’s products and currency ●Unfavorable balance of payments decreases the value of nation’s currency

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 INTERNATIONAL CURRENCY ●Economic conditions ●When prices increase and buying power decreases, value of currency decreases ●High inflation in Brazil would decrease the value of the real ●Higher interest rates decrease the value of a currency because of lower demand ●Political Stability ●Instability is bad ●People don’t like risk ●Decreases value of currency

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 23 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●Economic conditions ●Political stability

24. © 2012 Cengage Learning. All Rights Reserved. SLIDE 24 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.

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 ●Requires companies to have knowledge of the differences that exist among people and places ●Businesses must consider four main factors ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 27 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 Checkpoint ●List the four main elements of the international business environment. ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 29 INTERNATIONAL TRADE BARRIERS ●Restrictions to free trade ●Formal =political ●Informal=culture, traditions, and religion ●Quotas ●Tariffs ●Embargoes

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 QUOTAS ●Governments set a limit on the quantity of a product that may be imported or exported with a given period ●Oil, supply and demand ●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

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 31 TARIFFS ●A tax that a government places on certain imported products ●Tariffs on imports increases prices to lower demand or balance the playing field ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good ●Should the US use tariffs to protect jobs?

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 EMBARGOES ●Stopping the import or export of a product completely ●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 ●Oil embargo in the 1970s

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 Checkpoint ●What are three formal trade barriers? ●Quotas ●Tariffs ●Embargoes

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 ENCOURAGING INTERNATIONAL TRADE ●Free-trade zones ●Free-trade agreements ●Common markets

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 35 FREE-TRADE ZONES ●A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing ●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

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members ●NAFTA in 1994

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 37 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)

38. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 38 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.

39. © 2012 Cengage Learning. All Rights Reserved. SLIDE 39 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.

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 40 KEY TERMS ●multinational company (MNC) ●joint venture

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 41 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries ●Home country ●Host country ●Divisions or separate companies in one or more host countries

42. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 42 MNC STRATEGIES ●Global strategy ●Uses the same product and marketing strategy worldwide ●Coca-Cola ●Multinational strategy ●Treats each country market differently ●Develops products and marketing strategies to fit the customs

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 43 MNC BENEFITS ●Large amount of goods available ●Lower prices ●Career opportunities ●Foster understanding, communication, and respect ●Friendly international relations

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 44 DRAWBACKS OF MULTINATIONAL COMPANIES ●Economic power ●Worker dependence on the MNC ●Consumer dependence ●Political power

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 45 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).

46. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 46 GLOBAL MARKET ENTRY MODES ●Licensing ●Franchising ●Joint venture

47. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 47 LICENSING ●Allows companies to produce items in other countries without being actively involved ●Has a low financial investment, so the potential financial return for the company is often low ●The risk for the company is low ●Example?

48. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 48 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 ●Example?

49. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 49 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

50. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 50 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.

51. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 51 INTERNATIONAL TRADE ORGANIZATIONS ●World Trade Organization ●International Monetary Fund ●World Bank

52. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 52 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

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

54. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 54 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

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