1. Chapter 3 Business in the Global Economy

2. 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. Trading Among Nations
Domestic Business is the making, buying, and selling of goods an services within a country.
International Business refers to business activities needed for creating, shipping and selling goods and services across national borders. Also known as foreign or world trade.
United States conducts trade with more than 180 countries.
Countries are interdependent, including economies, on one another.
Countries are mutually reliant on one another.
Absolute Advantage
When a country can produce a good or service at a lower cost than other countries.
They have an abundance of natural or raw resources. (i.e. Brazil with Coffee, Saudi Arabia with oil, United States with wheat)
Comparative Advantage
When a country has an absolute advantage in more than one area. It must decide how to maximize its economic wealth and specialize in the production of a good or service at most likely more efficiently or cheaply.

4. Trading Among Nations Importing – items bought from other countries.
Without foreign trade, many things you buy would cost more or not be available.
Other countries can produce some goods at a lower cost because they have the needed raw materials or have lower labor costs.
Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods.
Exporting – goods and services sold to other countries
Exports benefit consumers in other countries just like imports benefit us.
Agricultural products, plastics, television shows, movies, books…
One of every six jobs in the United States depends on international business.

5. Measuring Trade Relations
Nations like people need to worry about balancing income and expenditures
Foreign debt is the amount a country owes to other countries
National Debt
Who owns most of the U.S. Debt
Balance of Trade
Difference between a country’s total export and total imports
If a country exports (sells) more than it imports (buys), it has a trade surplus. The reverse, it imports (buys) more than it exports (sells) it has a trade deficit.
A country can have a trade surplus with one country and a trade deficit with another.
List of countries that have surplus and deficit with U.S. trade/statistics/highlights/toppartners.html
Balance of Payments
Difference between the amount of money that comes into a country and the amount that goes out.
A positive or favorable balance of payment occurs when a nation receives more money in a year than it pays out. A negative or unfavorable balance of payment occurs when a country pays more than receives.
In addition to exporting and importing goods and services, money goes from one country to another through investments and tourism. Investments by a citizen in one country to a corporation in another country can also be an exchange. A business may invest in a factory in another country. A government can give financial or military aid to another country. Banks may deposit funds in foreign banks.
When tourists travel, they aid in the flow of money from their country to the country they are visiting.

6. International Currency
A challenge faced by countries is when trading they have to deal with various currencies.
Exchange Rate
The value of a currency in one country compared with the value in another. Supply and Demand affects the value of currency.
Most large banks provide currency exchanges for businesses and consumers.
Hotels, Airports, Kiosks in the country that you landed in will charge some of the highest exchange rate charges.
Some Credit cards and Debit cards charge a lower fee when exchanging (check with your bank).
Factors that Affect Currency Values
Balance of Payments – When a country has a favorable balance of payments, the value of its currency is either constant or rising. An increased demand for both the nation’s products and its currency caucuses this situation.
Economic Conditions – When prices increase and the buying power of the country’s money declines, its currency is not as appealing. Inflation reduces the buying power of a currency. Higher interest rates usually create owner consumer demand. This results in a reduced demand for a nation’s currency, causing a decline in its value.
Political Stability – If a government changes suddenly, this may create an unfriendly setting for foreign business. Political instability may also occur when new laws are put in place. Uncertainty in a country reduces the confidence that businesspeople have in its currency.

7. 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.

8. International Business Environment
Doing business in another country requires knowledge. Businesses must consider four main factors: Geography, Cultural Influences, Economic Development, and Political and Legal concerns.
Geography – Location, climate, terrain, seaports, and natural resources influence business activity.
Cultural Influences – Main cultural and social factors that affect international business are language, religion, values, customs and social relationships (Include interactions among families, labor unions and other organizations).
Culture is the accepted behaviors, customs, and values of a society. A society’s culture has a strong influence on business activities. (i.e. In Mexico, some businesses close in the afternoon for siesta).
Economic Development – Every country and every individual faces the problem of limited resources to satisfy needs and wants. Just as individuals use time, money and energy for their benefit, countries do the same (on a larger scale).
Factors that Affect a country’s level of Economic Development:
Literacy Level – Countries with better education systems usually provide more and better good and services for their citizens.
Technology – More technology translates to companies deliver goods, services and ideas quickly.
Agricultural Dependency – An economy largely involved in agriculture doesn’t have the manufacturing base to provide citizens with great quantity and high quality of a product.
Infrastructure refers to a nation’s transportation, communication and utility system. It helps support international trade. (i.e. Germany has an efficient rail system).
Political and Legal Concerns – Some countries have a lot of personal freedom, and some others have a strong government presence. Governments can control advertising, enforce contracts, inspect foods and medications.

9. International Trade Barriers
Trade Barriers are restrictions on free trade.
Formal Trade Barriers include Quotas, Tariffs and Embargoes
Informal Trade Barriers include culture, traditions, religion, location
Quota – A government sets a limit on the quantity of a product imported or exported.
Quotas are set for many reasons: Place a quota on an item so that the supply will remain low and prices will stay at a certain level. Quotas may be set on imports from another country to express displeasure at the policies of that country. Quotas can be set by a country to protect one of it industries from too much competition from abroad. This is usually to protect an “infant industry”.
Tariff – A tax a government places on certain imported products.
Embargo – Government stops the export or import of a product completely.
Embargo is set to protect their own industries from international competition more than a quota or tariff will achieve. Government may wish to prevent sensitive products, especially those vital to the nation’s defense, from falling into the hands of unfriendly groups or nations. Embargoes may be an expression of disapproval of the actions or policies of another country.

10. Encouraging International Trade
Specific actions by governments can promote international business activities. Governments view exporting as an effective way to create jobs and foster economic prosperity. They do this through: Free Trade Zones, Free Trade Agreements, and Common Markets.
Free Trade Zone – A selected area where products can be imported duty free (no tax) and then stored, assembled, and/or used in manufacturing. They are usually located around seaports or airports. Importer only pays duty (tax) when the product leaves the zone.
Free Trade Agreements – Member countries agree to remove duties (taxes) and trade barriers on products traded among them.
North American Free Trade Agreement (NAFTA) created in 1994 by President Clinton for free trading among Canada, United States and Mexico.
Pros and Cons to the Agreement. Pros: It has increased the wealth of some Investors and U.S. Companies. Cons: It cost some manufacturing jobs in U.S. and it didn’t raise the living standard of Mexicans.
Common Markets – Members do away with duties and other trade barriers. Companies are permitted to invest freely in each member’s country and workers are allowed to move freely across borders. Also known as an Economic Community.
Examples: European Union (EU) and Latin American Integration Association (LAIA)

11. 3-3 International Business Organizations
Not a part of the curriculum, but some important concepts.
Multinational Companies (MNC) – does business in another country
Global Strategy – Use the same product and marketing strategy worldwide (i.e. Coca Cola).
Multinational Strategy – Treats each country market differently (i.e. McDonalds).
When doing business in another country. Need to be aware of:
Customs, Monetary conversions, language translation, government, labor, food…