Transcript Chapter 3 Business in the Global Economy

Chapter 3
Business in the Global
Economy
3-1 International Business Basics
3-2 The Global Marketplace
3-3 International Business
Organizations
Introduction to Business
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LESSON 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.
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Key Terms
 balance of payments
 balance of trade
 exchange rate
 exports
 imports
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Domestic vs. International
 Domestic Business: making, buying,
selling within a country
 International Business: making, buying,
selling across national borders
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TRADING AMONG NATIONS
 Absolute advantage- exists when a
country can produce a good or service
at a lower cost than other countries
 Comparative advantage- when a
country specializes in the production of
a good or service at which it is relatively
more efficient
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TRADE AMONG NATIONS
 What are imports?
 Items bought from other countries
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IMPORTING
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MEASURING TRADE
RELATIONS
 Balance of trade- the difference
between a country’s total exports and
total imports
 Trade Surplus: exports > imports
 Trade Deficit: exports < imports
 Balance of payments- the difference
between the amount of money that
comes in and the amount that goes out
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U.S. TRADE BALANCES
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BALANCE OF TRADE
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>> C H E C K P O I N T
How does balance of trade differ from
balance of payments?
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INTERNATIONAL
CURRENCY
 Foreign Exchange Market- the process
of exchanging one currency for another
occurs on the foreign exchange market
 Foreign exchange rates- the value of
one currency compared to the value of
another
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INTERNATIONAL CURRENCY
 Three main factors affect currency
 Balance of payments
 positive  value rising
 Negative  value decreasing
 Economic conditions- high prices, inflation,
or interest rates tend to low currency value
 Political disability- reduces foreign
confidence
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RECENT VALUES
OF CURRENCIES
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>> C H E C K P O I N T
What factors affect the value of a
country’s currency?
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LESSON 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.
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Key Terms
 infrastructure
 trade barrier
 quota
 tariff
 embargo
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THE INTERNATIONAL
BUSINESS ENVIRONMENT
 Geography
 Cultural influences
 Economic development
 Literacy level
 Technology
 Agricultural dependency
 Political and legal concerns
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GEOGRAPHY
 location
 climate
 terrain
 waterways
 natural resources
ECONOMICS
 technology
 education
 inflation
 exchange rate
 infrastructure
THE INTERNATIONAL BUSINESS ENVIRONMENT
CULTURE
 language
 family
 religion
 customs
 traditions
 food
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POLITICAL–LEGAL
FACTORS
 government system
 political stability
 trade barriers
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International Business
Environment
 Infrastructure: refers to a nation’s
transportation, communication, and
utility systems
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>> C H E C K P O I N T
List the four main elements of the
international business environment.
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INTERNATIONAL
TRADE BARRIERS
 Quotas- governments set a limit on the
quantity of a product that may be
imported or exported within a given
period
 Tariffs- a tax that a government places
on certain imported products
 Embargoes- stop the export or import of
a product completely
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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
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TARIFFS
Reasons for tariffs
 To set amount per pound, gallon, or
other unit
 To set the value of a good
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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
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>> C H E C K P O I N T
What are three formal trade barriers?
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ENCOURAGING
INTERNATIONAL TRADE
 Free-trade zones- a selected area where
products can be imported duty free and then
stored, assembled, and/or used in
manufacturing
 Free-trade agreements- member countries
agree to remove duties and trade barriers on
products
 Common markets- members do away with
duties and other trade barriers
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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 of
airport
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FREE-TRADE
AGREEMENTS
 Member countries agree to remove
duties and trade barriers on products
traded among them
 Results in increased trade between
members
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COMMON MARKETS
 Allows companies to invest freely in
each member’s country
 Allows workers to move freely across
borders
 Examples
 European Union (EU)
 Latin American Integration Association
(LAIA)
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>> C H E C K P O I N T
What actions could be taken to encourage
international trade?
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LESSON 3-3
International Business
Organizations
Goals
 Discuss activities of multinational
organizations.
 Explain common international business
entry modes.
 Describe activities of international trade
organizations and agencies.
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Key Terms
 multinational company (MNC)
 joint venture
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MNC STRATEGIES
 Global strategy- uses the same product
and marketing strategy world-wide
(Coca-Cola)
 Multinational strategy- treats each
country market differently
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MNC BENEFITS
 Large amount of goods available
 Lower prices
 Career opportunities
 Foster understanding, communication,
and respect
 Friendly international relations
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DRAWBACKS OF
MULTINATIONAL COMPANIES
 Economic power
 Worker dependence on the MNC
 Consumer dependence
 Political power
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>> C H E C K P O I N T
What are two strategies commonly used
by multinational companies?
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GLOBAL MARKET
ENTRY MODES
 Licensing- selling the right to use some
intangible property for a fee or royalty
(production process, trademark, brand name)
 Franchising- the right to use a company
name or business process in a specific way
(fast food)
 Joint venture- an agreement between two or
more companies to share a business project
(Japanese and American automobile
manufacutring)
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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
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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
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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 since several companies are
involved
 Very popular for manufacturing, such as
Japanese and U.S. automobile manufacturers
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>> C H E C K P O I N T
How does licensing differ from a
franchise?
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INTERNATIONAL TRADE
ORGANIZATIONS
 World Trade Organization- settles trade
disputes and enforces free-trade agreements
 International Monetary Fund- helps to
promote economic cooperation; maintains an
orderly system of world trade
 World Bank- provide economic aid to less
developed countries
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WORLD TRADE
ORGANIZATION (WTO)
WTO 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
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INTERNATIONAL
MONETARY FUND (IMF)
 Helps to promote economic cooperation
 Maintains an orderly system of world
trade and exchange rates
 Includes over 150 member nations
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WORLD BANK
 Created in 1944 to provide loans for rebuilding
after World War II
 Today the World Bank has over 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
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>> C H E C K P O I N T
How does the International Monetary
Fund assist countries?
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