1. Introduction to Business © Thomson South-Western ChapterChapter Business in the Global Economy 3-1 3-1International Business Basics 3-2 3-2The Global Marketplace 3-3 3-3International Business Organizations 3

2. Introduction to Business © Thomson South-Western Chapter 3 Slide 2 LESSON 3-1 LESSON 3-1 International Business Basics Goals Describe importing and exporting activities. Compare balance of trade and balance of payments. List factors that affect the value of global currencies.

3. Introduction to Business © Thomson South-Western Chapter 3 Slide 3 Key Terms Domestic business Making, buying & selling G&S within a country International Business AKA (foreign or world trade) Activities needed for creating, shipping & selling G & S world-wide Imports Exports

4. Introduction to Business © Thomson South-Western Chapter 3 Slide 4 TRADING AMONG NATIONS Absolute advantage When a country can produce a G or S at a lower cost than other countries Coffee—South America Oil—Saudi Arabia Comparative advantage When a country specializes in the production of a G or S which it is relatively more efficient

5. Introduction to Business © Thomson South-Western Chapter 3 Slide 5 IMPORTING Our total supply of the following items are imported

6. Introduction to Business © Thomson South-Western Chapter 3 Slide 6 IMPORTING We import half of our supply of the following items…

7. Introduction to Business © Thomson South-Western Chapter 3 Slide 7 IMPORTING And, 20 – 50 % or our total supply of the following items…

8. Introduction to Business © Thomson South-Western Chapter 3 Slide 8 IMPORTING

9. Introduction to Business © Thomson South-Western Chapter 3 Slide 9 MEASURING TRADE RELATIONS balance of payments The difference between the amount of money that comes in and leaves a country Positive (favorable)/ Negative (unfavorable) balance of trade The difference between a country’s total imports & exports Trade deficit/Trade surplus

10. Introduction to Business © Thomson South-Western Chapter 3 Slide 10 U.S. TRADE BALANCES

11. Introduction to Business © Thomson South-Western Chapter 3 Slide 11 BALANCE OF TRADE

12. Introduction to Business © Thomson South-Western Chapter 3 Slide 12 >> C H E C K P O I N T How does balance of trade differ from balance of payments?

13. Introduction to Business © Thomson South-Western Chapter 3 Slide 13 INTERNATIONAL CURRENCY Foreign exchange rates Value of currency in one country compared with that of another Three main factors affecting currency values Balance of payments Economic conditions Political Stability Name some countries with less-than-stable govts. now.

14. Introduction to Business © Thomson South-Western Chapter 3 Slide 14 RECENT VALUES OF CURRENCIES

15. Introduction to Business © Thomson South-Western Chapter 3 Slide 15 >> C H E C K P O I N T What factors affect the value of a country’s currency?

16. Introduction to Business © Thomson South-Western Chapter 3 Slide 16 LESSON 3-2 LESSON 3-2 The Global Marketplace Goals Describe the components of the international business environment. Identify examples of formal trade barriers. Explain actions to encourage international trade.

17. Introduction to Business © Thomson South-Western Chapter 3 Slide 17 THE INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development Literacy level Technology Agricultural dependency Political and legal concerns

18. Introduction to Business © Thomson South-Western Chapter 3 Slide 18 GEOGRAPHY  location  climate  terrain  waterways  natural resources ECONOMICS  technology  education  inflation  exchange rate  infrastructure CULTURE  language  family  religion  customs  traditions  food POLITICAL–LEGAL FACTORS  government system  political stability  trade barriers THE INTERNATIONAL BUSINESS ENVIRONMENT

19. Introduction to Business © Thomson South-Western Chapter 3 Slide 19 Global Marketplace terms Infrastructure A nations transportation, communication and utility systems navigable waterways, RR, Interstate highways Fiber optics WiFi Cellular systems Water, electric, sewer, natural gas

20. Introduction to Business © Thomson South-Western Chapter 3 Slide 20 International Trade barriers Restrictions to free trade Quotas Limits on imports or exports Why limit exports? Tariffs A tax on imports Embargo Stopping the import or export of a specific product completely Why do this?

21. Introduction to Business © Thomson South-Western Chapter 3 Slide 21 QUOTAS 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

22. Introduction to Business © Thomson South-Western Chapter 3 Slide 22 TARIFFS Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good

23. Introduction to Business © Thomson South-Western Chapter 3 Slide 23 EMBARGOES 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

24. Introduction to Business © Thomson South-Western Chapter 3 Slide 24 ENCOURAGING INTERNATIONAL TRADE Free-trade zones Area where products can be imported duty-free Then stored, assembled etc. Taxed when it leaves the zone Free-trade agreements Member countries remove duties and barriers on products traded among them NAFTA North American Free Trade Agreement (1993) Common markets Economic community EU—European Union LAIA—Latin America Integration Association

25. Introduction to Business © Thomson South-Western Chapter 3 Slide 25 COMMON MARKETS Allows companies to invest freely in each member’s country Allows workers to move freely across borders Examples European Union (EU) Latin American Integration Association (LAIA)

26. Introduction to Business © Thomson South-Western Chapter 3 Slide 26 >> C H E C K P O I N T What actions could be taken to encourage international trade?

27. Introduction to Business © Thomson South-Western Chapter 3 Slide 27 LESSON 3-3 LESSON 3-3 International Business Organizations Goals Discuss activities of multinational organizations. Explain common international business entry modes. Describe activities of international trade organizations and agencies.

28. Introduction to Business © Thomson South-Western Chapter 3 Slide 28 Key Terms multinational company (MNC) Does business in several countries Home country Host country joint venture

29. Introduction to Business © Thomson South-Western Chapter 3 Slide 29 MULTINATIONAL COMPANIES (MNC) MNC strategies Global Same strategies worldwide Multinational Each country handled differently

30. Introduction to Business © Thomson South-Western Chapter 3 Slide 30 MNC BENEFITS Large amount of goods available Lower prices Career opportunities Foster understanding, communication, and respect Friendly international relations

31. Introduction to Business © Thomson South-Western Chapter 3 Slide 31 DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power

32. Introduction to Business © Thomson South-Western Chapter 3 Slide 32 >> C H E C K P O I N T What are two strategies commonly used by multinational companies?

33. Introduction to Business © Thomson South-Western Chapter 3 Slide 33 GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture

34. Introduction to Business © Thomson South-Western Chapter 3 Slide 34 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

35. Introduction to Business © Thomson South-Western Chapter 3 Slide 35 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

36. Introduction to Business © Thomson South-Western Chapter 3 Slide 36 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 since several companies are involved Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers

37. Introduction to Business © Thomson South-Western Chapter 3 Slide 37 >> C H E C K P O I N T How does licensing differ from a franchise?

38. Introduction to Business © Thomson South-Western Chapter 3 Slide 38 INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank

39. Introduction to Business © Thomson South-Western Chapter 3 Slide 39 WORLD TRADE ORGANIZATION (WTO) WTO 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

40. Introduction to Business © Thomson South-Western Chapter 3 Slide 40 INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world trade and exchange rates Includes over 150 member nations

41. Introduction to Business © Thomson South-Western Chapter 3 Slide 41 WORLD BANK Created in 1944 to provide loans for rebuilding after World War II Today the World Bank has over 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

42. Introduction to Business © Thomson South-Western Chapter 3 Slide 42 >> C H E C K P O I N T How does the International Monetary Fund assist countries?