1. Business in the Global Economy Intro to Business Chapter 3

2. International Advantages Absolute advantage Absolute advantage When a country can produce a good at a lower cost than other countries When a country can produce a good at a lower cost than other countries Ex: South America – Coffee; Saudi Arabia – oil Ex: South America – Coffee; Saudi Arabia – oil Comparative advantage Comparative advantage A country specializes in the production of a good at which it is relatively more efficient A country specializes in the production of a good at which it is relatively more efficient

3. Imports vs. Exports Imports are items bought from other countries Imports are items bought from other countries Exports are items sold to other countries

4. Balance of Trade The difference between a country’s total exports and imports The difference between a country’s total exports and imports If Exports > Imports = If Exports > Imports = Trade Surplus If Imports > Exports = If Imports > Exports = Trade Deficit

5. Balance of Payments Difference between the amount of money coming into a country and the amount going out Difference between the amount of money coming into a country and the amount going out Tourism, investments, financial/military aid all bring money into a foreign market and take away from the home country Tourism, investments, financial/military aid all bring money into a foreign market and take away from the home country

6. Currency Exchange Rates Balance of Payments Balance of Payments When favorable, rate is either stable or rising When favorable, rate is either stable or rising When unfavorable, rate is dropping When unfavorable, rate is dropping Economic Conditions Economic Conditions When prices rise, but rate drops = inflation When prices rise, but rate drops = inflation High interest rates will create low demand High interest rates will create low demand Political Stability Political Stability More turmoil = more risk More turmoil = more risk

7. The Global Marketplace GEOGRAPHY GEOGRAPHY Location, climate, terrain, waterways, resources Location, climate, terrain, waterways, resources CULTURE CULTURE Language, religion, customs, tradition, relationships Language, religion, customs, tradition, relationships ECONOMICS ECONOMICS Technology, education, agricultural dependency vs. infrastructure Technology, education, agricultural dependency vs. infrastructure POLITICAL / LEGAL FACTORS POLITICAL / LEGAL FACTORS Gov’t system, stability, trade barriers Gov’t system, stability, trade barriers

8. Trade Barriers “Formal” (set up by government) “Formal” (set up by government) 1. Quotas – limits amount imported or exported 2. Tariffs – tax on certain products 3. Embargoes – stop import or export completely “Informal” “Informal” Set by culture, tradition, or religion Set by culture, tradition, or religion

9. Encouraging Int’l Trade Free-Trade Zones Free-Trade Zones Area where products can be imported duty- free; usually a seaport or airport Area where products can be imported duty- free; usually a seaport or airport Free-Trade Agreements Free-Trade Agreements Arrangement with other nations; NAFTA Arrangement with other nations; NAFTA Common Markets Common Markets No duties or trade barriers; No duties or trade barriers; Ex. - European Union Ex. - European Union

10. MNC’s An organization that does business in several countries An organization that does business in several countries “Home” country = original base “Home” country = original base “Host” country = satellite locations “Host” country = satellite locations Ex: Toyota’s home country is Japan; one host country would be U.S. Ex: Toyota’s home country is Japan; one host country would be U.S.

11. Global Expansion Licensing Licensing Selling the right to use some intangible property for a fee or royalty Selling the right to use some intangible property for a fee or royalty Ex: characters, logos, etc… Ex: characters, logos, etc… Franchising Franchising The right to use a company name or business process (fast food restaurants) The right to use a company name or business process (fast food restaurants) Joint Venture Joint Venture Agreement to share a business project Agreement to share a business project Share costs, but also share profits Share costs, but also share profits

12. International Organizations World Trade Organization (WTO) World Trade Organization (WTO) 150 members, low taxes and quotas, helps economic growth 150 members, low taxes and quotas, helps economic growth International Monetary Fund (IMF) International Monetary Fund (IMF) Maintains order of trade and exchange rates Maintains order of trade and exchange rates World Bank World Bank Economic aid to less developed countries for infrastructure Economic aid to less developed countries for infrastructure