1. ESSENTIAL STANDARD1.00 UNDERSTAND THE ROLE OF BUSINESS IN THE GLOBAL ECONOMY. 1

2. OBJECTIVE 1.03 UNDERSTAND BUSINESS IN THE GLOBAL MARKETPLACE. 2

3. TOPICS Factors and regulations companies have to consider when doing business in the global market place Main entry modes for companies to enter the global marketplace Main international trade organizations 3

4. Factors and regulations companies have to consider when doing business in the global market place 4

5. DOMESTIC VS. INTERNATIONAL BUSINESSES Domestic business is the making, buying, and selling of goods and service within a country. International business, also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders. 5

6. BUSINESS ADVANTAGE FACTORS Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. Example: Saudi Arabia-Oil production, Columbia-coffee, Virgin Islands-sand Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient. Examples: China-manufacturing of clothes and household goods, America-Technology, Japan-Electroncs 6

7. INTERNATIONAL TRADE Imports are items bought from other countries. Examples may include furniture, tax preparation services, or bananas. Exports are goods and services sold to other countries. Examples may include silver, or software. http://www.census.gov/indicator/www/ustrade.html http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh7.pdf http://www.census.gov/foreign-trade/Press-Release/current_press_release/exh8.pdf 7

8. IMPORTING ADVANTAGES AND DISADVANTAGES Advantages  Some goods would not otherwise be available (diamonds)  Lower cost due to lower labor or raw material costs  Perceived higher quality of goods (French perfume)  Some consumers just like to own foreign goods Disadvantages  Some goods would cost more without competition of imported goods.  Possibly goods may be unavailable. 8

9. EXPORTING ADVANTAGES AND DISADVANTAGE(S) Advantages  Exporting creates jobs.  Exporting provides access to goods usually unavailable. Disadvantage(s)  Jobs may depend on global business. 9

10. MEASURING OF TRADE RELATIONS What is a way to measure trade relations? Balance of trade or balance of payments Why are measures of trade relations completed? Nations are concerned with balancing income with expenditures. Foreign debt is the amount of money a country owes to other countries. 10

11. MEASURING OF TRADE RELATIONS CONTINUED Balance of trade is the difference between a country’s total exports and total imports.  If a country exports more than it imports, it has a trade surplus. This is favorable.  If a country imports more than it exports, it has a trade deficit. This is unfavorable. 11

12. PRACTICE http://www.census.gov/foreign-trade/balance/  Select 2 countries that you think the U.S. does the most trading with and a third that you are just curious about.  Use the above website to find the values of its exports? Imports? Balance of Trade? For t he most recent year.  Find previous balance of trades to discover a trend. 12

13. US TRADE IN US DOLLARS 13 CountryImportsExports2010 Trade Balance 2009 Trade Balance 2008 Trade Balance 2007 Trade Balance

14. MEASURING OF TRADE RELATIONS CONTINUED Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.  If a country receives more money in a year than it pays out, it has favorable balance.  If a country sends more money out than it brings in, it has an unfavorable balance. 14

15. INTERNATIONAL CURRENCY EXCHANGE RATE MAIN FACTORS The foreign exchange market is where banks buy and sell different currencies. The exchange rate is the value of a currency in one country when compared with the value in another. http://www.x-rates.com/ 15

16. INTERNATIONAL CURRENCY EXCHANGE RATE MAIN FACTORS CONTINUED Main factors affecting currency exchange rates are:  Balance of payments  influenced by demand for a nations goods and services.  If the balance of payment is favorable, then usually currency is steady and rising in value.  If unfavorable, then usually the currency is declining in value.  Economic conditions  Inflation decreases buying power of currency  Interest rates that are high decreases demand to borrow money.  Political stability  Could be impacted by changes in government or laws. 16

17. INTERNATIONAL BUSINESS ENVIRONMENT FACTORS The main environmental issues that could impact conducting business in the global marketplace. Cultural influences In a country company executives may prefer to meet with people of the same culture. Economic development A country may have limited transportation methods that may limit travel distances to purchase imported goods. Geography A country with a lot of natural resources may have to rely on exports more. Political-legal issues A country’s government only collects about ¼ of his housing property taxes. This could be a sign of weak government that is ignored by the its citizens. 17

18. 18 INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED Four main factors:  Geography  Cultural Influences  Economic Development  Political and Legal Concerns

19. 19 INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED A country’s geography includes:  Location  Climate  Terrain  Seaports  Natural Resources The geography of a country could impact its natural resources and export and import of resources.

20. 20 INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED Cultural factors that may Influence how business is conducted in the global marketplace: Language Religion Family Food Values Customs Social Relationships The accepted behavior, customs and values of a society could impact business activities.

21. 21 INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED Key effects of a country’s economics that may influence conducting business in a global marketplace:  Education and Literacy level  Inflation  Technology  Exchange rate  Agricultural dependency  Infrastructure  Transportation  Communication  Utilities systems A country’s economic development impacts its citizens standard of living and business activities.

22. 22 INTERNATIONAL BUSINESS ENVIRONMENT FACTORS CONTINUED Political and legal concerns that may influence business activities in a global marketplace:  Type of Government  Stability of government  Government policies for businesses relevant to trade barriers Political and legal concerns influence business activities in the global marketplace.

23. 23 MAIN INTERNATIONAL TRADE BARRIER FACTORS Embargo  Government bans the import or export of specified goods.  Why would a government place an embargo? To protect a good or service from too much competition in a global market place more that what a quota or tariff could. To protect sensitive goods. Quotas  A limit on the quantity of good that may be imported or exported within a given period to regulate international trade.  Why would a company or country set a quota? To regulate the supply and prices. To protect a good or service from too much competition in a global market place. Tariffs  Taxes on certain imported products which increases prices.  Why would a government use a tariff?  To protect the supply of goods.

24. 24 ENCOURAGEMENT OF INTERNATIONAL TRADE FACTORS Main factors are:  Common Market: Countries that are members freely invest in one another.  Examples:  European Union (EU)  Latin American Integration Association (LAIA)

25. 25 ENCOURAGEMENT OF INTERNATIONAL TRADE FACTORS CONTINUED  Free-Trade Agreement: Countries that are members remove duties and trade barriers on products traded among them to increase trade between members.  Example  NAFTA (the North American Free Trade Agreement) between the United States, Canada, and Mexico.

26. 26 ENCOURAGEMENT OF INTERNATIONAL TRADE FACTORS CONTINUED  Free-trade zones: Include selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport.

27. Main entry modes for companies to enter the global marketplace 27

28. 28 MAIN ENTRY MODES TO THE GLOBAL MARKETPLACE  Franchising is allowing a business the rights to use another company’s name or process in a specific way.  Examples: H & R Block Dunkin’ Donuts  Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty.  Examples: Beyond Juice Cafés

29. MAIN ENTRY MODES TO THE GLOBAL MARKETPLACE CONTINUED Joint venture happens when two or more companies agree to share a business project.  What are some examples? Cable company and television stations Oil lube and tire service company 29

30. Main international trade organizations 30

31. 31 MAIN INTERNATIONAL TRADE ORGANIZATIONS International Monetary Fund (IMF) World Bank World Trade Organization (WTO)

32. 32 MAIN INTERNATIONAL TRADE ORGANIZATIONS CONTINUED International Monetary Fund (IMF)  Helps promote economic cooperation and maintain an orderly system of world trade and exchange rates. World Bank  Provides economic aid to developing countries to fund building communications systems, transportation networks, and energy plans.

33. 33 MAIN INTERNATIONAL TRADE ORGANIZATIONS CONTINUED World Trade Organization (WTO)  Settles trade disputes and enforces free-trade agreements among its members.