Business in the Global Economy

Chapter 3

Throughout the week…• Monday: 3-1

• Tuesday: 3-2

• Wednesday: Review Chapter 2 Review Packet

• Thursday : Review for Quiz

• Friday: Chapter 2 Quiz

Overview• International Business Basics

• The Global Marketplace

• International Business Organizations

International Business Basics• Describe importing and exporting activities.

• Comparing balance of trade and balance of payments.

• List factors that affect the value of global currencies.

Trading Among Nations• Absolute advantage

• Comparative advantage

• Importing

• Exporting

Trading Among Nations• Absolute Advantage

• Exists when a country can produce a good or service at a lower cost than other countries.

• High number of Natural Resources and Raw Material.

• South America (Coffee)

• Saudi Arabia (Oil Production)

Trading Among Nations• Comparative Advantage

• Country specializes in the production of a good or services which it is relatively more efficient.

Trading Among Nations• Importing

• Items brought from other countries.

• Imports into the United States:• Bananas• Coffee• Cocoa• Spices• Tea• Silk• Crude Rubber

20% to 50%

20% to 50%

Trading Among Nations• Exporting

• Goods and services sold to other countries.

• Types of U.S. Exports:• Food

• Movies or T.V. (ESPN, CNN, etc…)

Measuring Trade Relations• Limiting the amount of Foreign Debt.

• Amount owed to another country.

• Balance of Trade:• Difference between total exports and imports.

• Balance of Payments:• Different between amount of money that comes in

and out of a country.

Balance of Payments• Favorable:

• Receives more money than it gives out within a year.

• Unfavorable:• Gives out more money than it takes in within a

year.

Balance of Trade

International Currency• Types of Currency:

• Russia (Ruble)

• Europe (Euro)

• India (Rupee)

• Brazil (Real)

• Saudi Arabia (Riyal)

• United States (DOLLAR)

Exchange Rate• Value of currency from one country in relation

to another.

• Affected by Supply and Demand

Factors Affecting Currency• Balance of Payments

• Economic Conditions• Interest Rates:

• Higher = Lower Consumer Demand

• Political Stability

Review• Describe importing and exporting activities.

• Comparing balance of trade and balance of payments.

• List factors that affect the value of global currencies.

The Global Market Place• Describe the components of the international

business environment.

• Identify examples of formal trade barriers

• Explain actions to encourage international trade.

The Environment• Doing business in other countries requires

knowledge of the differences that exist among people in places.

• 4 Components:• Geography• Cultural• Economics• Political

GEOGRAPHYGEOGRAPHYGEOGRAPHYGEOGRAPHYECONOMICSECONOMICSECONOMICSECONOMICS

CULTURECULTURECULTURECULTUREPOLITICAL–LEGALPOLITICAL–LEGAL

FACTORSFACTORSPOLITICAL–LEGALPOLITICAL–LEGAL

FACTORSFACTORS

locationclimateterrainwaterwaysnatural resources

technologyeducationinflationexchange rateinfrastructure

languagefamilyreligioncustomstraditionsfood

government systempolitical stabilitytrade barriersbusiness regulations

INTERNATIONAL BUSINESS ENVIRONMENTINTERNATIONAL BUSINESS ENVIRONMENT

Trade Barriers• Government barriers that can create

restrictions on free trade.

• Quotas:• Limit on imports and exports set by the

government.

• Why use quotas:• Maintain Costs• Displeasure with another country• Protection from Competition

Trade Barriers• Tariffs:

• Tax that a government places on certain imported products.

• Embargoes:• Stopping of exports and imports completely.

• Competition

• Weapons (Falling into the wrong hands)

• Displeasure with another countries actions or policies

Encouraging International Trade• Free-Trade Zone:

• Selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing.

• Located usually near Seaports or Airports.

Review• Describe the components of the international

business environment.

• Identify examples of formal trade barriers

• Explain actions to encourage international trade.

Recap of Chapter 3• Describe absolute advantage and comparative

advantage?

• What is the difference between balance of trade and balance of payment?

• What 4 environmental factors are considered when doing business internationally?

• Name 3 trade barriers that affect international trade.

International Business Organizations• Activities of multinational organizations

• Explain common international business entry modes.

• Describe activities of international trade organizations and agencies.

Organization that does business in several countries.Organization that does business in several countries. Parent Company (Home Country)Parent Company (Home Country) Place Business Activity (Host Country)Place Business Activity (Host Country)

Global StrategyGlobal Strategy Uses the same product and marketing strategy worldwideUses the same product and marketing strategy worldwide

Multinational StrategyMultinational Strategy Treats each countries market differently.Treats each countries market differently.

Adapt to customs, tastes, and buying habits.Adapt to customs, tastes, and buying habits.

Benefits of MNC• Larger number of goods available to the

consumer.

• Lower prices

• More career opportunities

• Global Business provides:• Understanding

• Communication

• Respect for different nationalities

Drawbacks• Depending upon the MNC for jobs.

• Consumers become dependent for the goods and services they were provided.

• Influence on political powers.

Licensing• Selling the rights to use some intangible

property (production process, trademarks, or brand names).• http://www.jiesworld.com/international_corporation

s_in_china.htm

Franchising• Expansion of businesses into another country.

Joint Venture• Agreement between two or more companies to

share a business project.

• Benefits:• Share raw materials

• Shipping facilities

• Management activities

• Production facilities

• Drawbacks:• Sharing profits

• Lack of control

Organizations• World Trade Organization (WTC)

• Lowering tariffs that discourage free trade

• Eliminate importing quotas

• Reducing barriers for banks, insurance companies, and other financial services.

• Assisting poor countries with economic growth

International Monetary Fund (IMF)• 150 Member nations

• Promotes economic cooperation.

• Maintains trade and exchange rates.

• Limit trade wars• Businesses could change legal tender (before

IMF)

• Lose of business = trade restrictions or lower value

of currency

Value of Currency

World Bank• Established in 1944 to provide loans for

rebuilding after World War II.

• Today:• Gives economic aid to less developed countries

• Those funds:• Build communication systems

• Transportation Networks

• Energy Plants

Review• What strategies does a MNC use?

• What are some benefits and drawbacks to a MNC?

• What does the WTO do?

• Funds provided by the World Bank today are for what?