Introduction to Business© Thomson South-Western
ChapterChapterChapterChapter
Business in the Global Economy
3-13-1 International Business Basics
3-23-2 The Global Marketplace
3-33-3 International Business Organizations
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TRADING AMONG NATIONS
Domestic Business is the making, buying, and selling of goods and 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 over 180 countries
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Absolute advantage – a country can produce a good or service at a lower cost than other countries. Ex – country has many natural resources or raw materials
South America – coffee production
Saudi Arabia – oil production
TRADING AMONG NATIONS
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TRADING AMONG NATIONS Comparative advantage - country
specializes in the production of a good or service at which it is relatively efficient
Importing – items brought from other countries. Examples – bananas, coffee, cocoa, spices, tea, silk, fish, carpets, sugar, dishes, tin, chrome, nickel, copper
Without foreign trade, many things you buy would cost more or not be available.
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TRADING AMONG NATIONS
Exporting – goods and services sold to other countries. Workers throughout the world use factory and farm machinery made in the U.S. More examples: chemicals, fertilizers, medicines, and plastics.
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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. If a country exports (sells) more than it imports (buys), it has a trade surplus. Its trade position is favorable. If it imports more than it exports, it has a trade deficit. Its trade position is unfavorable. A country can have a trade surplus with one country and a trade deficit with another.
Balance of payments – the difference between the amount of money that comes into a country and the amount that goes out of it.
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U.S. TRADE BALANCES
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BALANCE OF TRADE
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INTERNATIONAL CURRENCY – foreign exchange market
Foreign exchange rates – the value of currency in one country compared with the value in another.
Factors affecting currency values
Three main factors affect currency Balance of payments – value of currency
is usually constant or rising Economic conditions Political disability
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RECENT VALUES OF CURRENCIES
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THE INTERNATIONAL BUSINESS ENVIRONMENT Geography – climate, location, seaports, etc. Cultural influences – language, religion,
values, customs, and social relationships Economic development
Literacy level Technology Agricultural dependency
Political and legal concerns
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GEOGRAPHY location climate terrain waterways natural resources
GEOGRAPHY location climate terrain waterways natural resources
ECONOMICS technology education inflation exchange rate infrastructure
ECONOMICS technology education inflation exchange rate infrastructure
CULTURE language family religion customs traditions food
CULTURE language family religion customs traditions food
POLITICAL–LEGALFACTORS government system political stability trade barriers
POLITICAL–LEGALFACTORS government system political stability trade barriers
THE INTERNATIONAL BUSINESS ENVIRONMENT
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INTERNATIONAL TRADE BARRIERS
– restrictions to free trade. Quotas – set a limit on the quantity of a product that may
be imported or exports within a given period. U.S. has imposed quotas on sugar, cattle, dairy products and textiles.
Tariffs – a tax that government places on certain imported products. Many people believe that tariffs should be used to protect U.S. jobs from foreign competition.
Embargoes – stop the export or import of a product completely. Protect industries from international competition. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country.
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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 form 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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ENCOURAGING INTERNATIONAL TRADE Free-trade zones Free-trade agreements Common markets
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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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MULTINATIONAL COMPANIES (MNC) MNC strategies MNC benefits Drawbacks of multinational companies
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MNC STRATEGIES(MNC-Multinational Company) does business in several countries. MNC’s usually consist of a parent company in a home country and divisions in host countries.
Global strategy- uses the same product and marketing strategy worldwide. Example: Coca-Cola
Multinational strategy- treats each country market differently. Example: Restaurant Chains- modify menus to local tastes
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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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GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture
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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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INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank
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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