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. Principles of Business, 8e C H A P T E R 3 SLIDE 2 TRADING AMONG NATIONS ●Absolute advantage ●Can produce a good or service at a lower cost than other countries ●Comparative advantage ●Specializes in the production of a good or service at which it is more efficient ●Importing ●Exporting

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

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 4 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.

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 5 MEASURING TRADE RELATIONS ●Balance of trade ●Trade Surplus & Trade Deficit ●Balance of payments ●Negative & Positive

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 6 U.S. TRADE BALANCES

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 7 BALANCE OF TRADE

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

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 9 INTERNATIONAL CURRENCY ●Foreign exchange rates ●Factors affecting currency values ●Three main factors affect currency ●Balance of payments ●Economic conditions ●Political Stability

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

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 11 Checkpoint ●What factors affect the value of a country’s currency? ●Balance of payments ●Economic conditions ●Political stability

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 12 INTERNATIONAL BUSINESS ENVIRONMENT ●Geography ●Location, Climate, terrain ●Cultural influences ●Economic development ●Literacy level ●Technology ●Agricultural dependency ●Political and legal concerns

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

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 14 Checkpoint ●List the four main elements of the international business environment. ●Geography ●Cultural influences ●Economic development ●Political and legal concerns

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 15 INTERNATIONAL TRADE BARRIERS ●Quotas ●Limit on quantity of a product ●Tariffs ●Tax that a government places on certain imports ●Embargoes ●Stop on exports or imports

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

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 17 TARIFFS ●Reasons for tariffs ●To set amount per pound, gallon, or other unit ●To set the value of a good

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

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 19 ENCOURAGING INTERNATIONAL TRADE ●Free-trade zones ●Free-trade agreements ●Common markets

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 20 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

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 21 FREE-TRADE AGREEMENTS ●Member countries agree to remove duties and trade barriers on products traded among them ●Results in increased trade between members

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 22 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)

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 23 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.

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

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 25 MULTINATIONAL COMPANIES (MNC) ●Organizations that do business in several countries ●Home country ●Host country

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 26 MNC STRATEGIES ●Global strategy ●Same product and marketing strategy worldwide ●Multinational strategy ●Treats each country market different

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 27 MNC BENEFITS ●Large amount of goods available ●Lower prices ●Career opportunities ●Foster understanding, communication, and respect ●Friendly international relations

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 28 DRAWBACKS OF MULTINATIONAL COMPANIES ●Economic power ●Worker dependence on the MNC ●Consumer dependence ●Political power

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 29 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).

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 30 GLOBAL MARKET ENTRY MODES ●Licensing ●Franchising ●Joint venture

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 31 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

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 32 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

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 33 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

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 34 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.

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 35 INTERNATIONAL TRADE ORGANIZATIONS ●World Trade Organization ●International Monetary Fund ●World Bank

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 3 SLIDE 36 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

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

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

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