1. Objective 1.03 Understand business in the global marketplace. 1

2. 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 2

3. Domestic vs. International Business What activities are included in domestic business transactions? Where do they take place? –Domestic business is the making, buying, and selling of goods and service within a country. What activities are included international business? Where do they take place? –International business, also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders. 3

4. Business Advantage Factors Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. 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. 4

5. Business Advantage Factors What are some examples of absolute and comparative advantages? Absolute advantage –Saudi Arabia - Oil production –Colombia - Coffee –Virgin Islands - Sand Comparative advantage –China - Manufacturing –America - Technology –Japan - Electronics

6. International Trade From where do imports come? –Imports are items bought from other countries. From where do exports come? –Exports are goods and services sold to other countries. 6

7. International Trade What are some examples of imports? –Furniture, natural gas, bananas, clothing, or automobiles. What are some examples of exports? –Silver, wheat, military equipment, or software.

8. Importing Advantages and Disadvantages Advantages –More goods available for purchase. –Lower cost than domestic products. –Quality may be better. Disadvantages –Increased taxes. –Longer shipping/delivery times. –Trade restrictions. 8

9. Exporting Advantages and Disadvantages Advantages –Create new jobs/expand business. –Broader market for products. –Sell excess capacity/inventory. –Stabilize seasonal market changes. Disadvantages –Jobs may depend on global business. –Modify packaging/labeling. –International trade regulations. 9

10. 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. –If a country imports more than it exports, it has a trade deficit. Measuring of Trade Relations 10

11. 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. Foreign debt is the amount of money a country owes to other countries. Measuring of Trade Relations 11

12. 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. 12

13. International Currency Exchange Rate Main Factors 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. 13

14. International Currency Exchange Rate Main Factors 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. 14

15. International Business Environment Factors Four main factors: –Geography –Cultural Influences –Economic Development –Political and Legal Concerns –How could these issues impact businesses? 15

16. International Business Environment Factors Geography - A country with a lot of natural resources may have to rely on exports more. Cultural influences - 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 to purchase imported goods. Political-legal concerns - A country’s government only collects about ¼ of its housing property taxes. This could be a sign of weak government that is ignored by its citizens. 16

17. International Business Environment Factors What is included in a country’s geography? –Location –Climate –Terrain –Seaports –Natural Resources 17

18. International Business Environment Factors What main cultural factors may Influence how business is conducted in the global marketplace? –Language –Religion –Family –Food –Values –Customs –Social Relationships 18

19. International Business Environment Factors What 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) 19

20. International Business Environment Factors What political and legal concerns may influence business activities in a global marketplace? –Type of Government –Stability of government –Government policies for businesses relevant to trade barriers 20

21. Main International Trade Barrier Factors Embargo –Government bans the import or export of specified goods. Why would a government place an embargo? 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? Tariffs –Taxes on certain imported products which increases prices. –Why would a government use a tariff? 21

22. 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) 22

23. Encouragement of International Trade Factors –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. 23

24. Encouragement of International Trade Factors –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. 24

25. 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. What are some examples? –Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty. What are some examples? 25

26. Main Entry Modes to the Global Marketplace Joint venture happens when two or more companies agree to share a business project. –What are some examples? 26

27. 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. 27

28. Main International Trade Organizations continued World Trade Organization (WTO) –Settles trade disputes and enforces free-trade agreements among its members. 28