Intro to Business, 7e
CHAPTER 3
Business in the
Global Economy
3-1
3-2
3-3
International Business Basics
The Global Marketplace
International Business Organizations
© 2009 South-Western, Cengage Learning
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Intro to Business, 7e
3-1 International Business
Basics
Objectives
20. Describe importing and exporting activities.
21. Compare balance of trade and balance of
payments.
22. List factors that affect the value of global
currencies.
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Intro to Business, 7e
Chapter 3
Key Terms
balance of payments
balance of trade
domestic business
exchange rate
exports
foreign (world) trade
imports
international business
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Intro to Business, 7e
Chapter 3
20.
TRADING AMONG NATIONS
Domestic Business
 The making, buying, and selling of G&S
within a country
International Business
 aka: Foreign or World Trade
 Business activities needed for creating,
shipping, and selling G&S across national
borders
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Intro to Business, 7e
Chapter 3
TRADING AMONG NATIONS
Absolute advantage
 When a country can produce a GorS at a
lower cost than other countries
Comparative advantage
 When a country specializes in the
production of a GorS at which it is relatively
more efficient
 EXAMPLE:
http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/ABS_Comp_Adv.htm
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Intro to Business, 7e
Chapter 3
Used in construction, shingles, joint work, etc.
Processed into aluminum.
Used in iron and steel production.
Source: United States Geological Survey Minerals Information
U.S. Import Reliance for Selected Raw Materials
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Intro to Business, 7e
Chapter 3
TRADING AMONG NATIONS
Imports
 Items bought from other countries
Exports
 G&S sold to other countries
Link to 2012 data chart
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Intro to Business, 7e
Chapter 3
Checkpoint >>
How does importing differ from exporting?
Answer
 Importing is bringing items from other countries into a
country.
 Exporting is selling goods and services to other countries.
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Objective 21
MEASURING TRADE
RELATIONS
Intro to Business, 7e
Chapter 3
Balance of trade
 Difference between a country’s total exports and total imports
 Exports > Imports = TRADE SURPLUS
 Imports > Exports = TRADE DEFICIT
Balance of payments
 Difference between the amount of money that comes into a country
and the amount that goes out of it.
 Nation receives more $ than it puts out = Positive (Favorable) Balance
 Nation sends more $ out than it brings in = Negative (Unfavorable) Balance
 Graph of 2011
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Intro to Business, 7e
Chapter 3
Current
U.S. Trade
Balances
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Intro to Business, 7e
Chapter 3
Balance of Trade
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Intro to Business, 7e
Chapter 3
Checkpoint >>
How does balance of trade differ from balance of
payments?
Answer
 Balance of trade is the difference between a country’s total
exports and total imports.
 Balance of payments is the difference between the amount of
money that comes into a country and the amount that goes
out of it.
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Intro to Business, 7e
Chapter 3
INTERNATIONAL CURRENCY
Foreign exchange rates
 Value of currency in one country compared with
the value in another
Factors affect currency values
 Three main factors
 Balance of payments
 Economic conditions (including interest rates)
 Political disability

http://www.slate.com/articles/business/cashless_society/2012/03/cashless_society_how_much_would_th
e_united_states_save_by_ditching_paper_money_.html
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Intro to Business, 7e
Chapter 3
* U.S. dollars
Recent Values of Currencies
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Intro to Business, 7e
Chapter 3
Factors that affect the value of a
country’s currency:
balance of payments
economic conditions
political stability
7 Currency Blunders You Could Cash In On.
http://www.investopedia.com/slide-show/currency-blunders?partner=TOD10#axzz1b9hdoYxl
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Intro to Business, 7e
Chapter 3
Reinforcement 3-1
Page 59
 1-3 (1 point each)
 AND
 4 or 5 (3 points)
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Intro to Business, 7e
3-2 The Global Marketplace
Objectives
23. Describe the components of the international
business environment.
24. Identify examples of formal trade barriers.
25. Explain actions to encourage international
trade.
Chinese Subsidies:
http://americanmanufacturing.org/content/shedding-light-energysubsidies-china-analysis-china%E2%80%99s-steel-industry-2000-2007
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Intro to Business, 7e
Chapter 3
Key Terms
infrastructure
trade barrier
quota
tariff
embargo
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Intro to Business, 7e
Chapter 3
23. INTERNATIONAL
BUSINESS ENVIRONMENT
Geography
Cultural influences
Economic development
 Literacy level
 Technology
 Agricultural dependency
Political and legal concerns
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Intro to Business, 7e





location
climate
terrain
waterways
natural resources
GEOGRAPHY







technology
education
literacy level
agricultural dependency
inflation
exchange rate
Infrastructure
Chapter 3
ECONOMICS
INTERNATIONAL BUSINESS ENVIRONMENT
CULTURE






language
family
religion
customs
traditions
food
POLITICAL–LEGAL
FACTORS
 government system
 political stability
 trade barriers
 business regulations
© 2009 South-Western, Cengage Learning
Elements of
International
Business
Environment
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Intro to Business, 7e
Chapter 3
Checkpoint >>
List the four main elements of the international business
environment.
Answer
 geography
 cultural influences
 economic development
 political and legal concerns
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Intro to Business, 7e
Chapter 3
24. INTERNATIONAL
TRADE BARRIERS
Why would countries want to limit
international trade???
Three ways countries discourage
international trade:
Quotas
Tariffs
Embargoes
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Intro to Business, 7e
Chapter 3
QUOTA – quantity limit on imports
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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Intro to Business, 7e
Chapter 3
TARIFF – tax on imports
Reasons for tariffs
To set amount per pound, gallon, or
other unit
To set the value of a good
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Intro to Business, 7e
Chapter 3
EMBARGO – complete block on trade
Reasons for embargoes
For POLITICAL reasons
To prevent sensitive products from
falling into the hands of unfriendly
groups or nations
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Intro to Business, 7e
Chapter 3
Checkpoint >>
What are three formal trade barriers?
Answer
 quotas
 tariffs
 embargoes
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Intro to Business, 7e
Chapter 3
25. ENCOURAGING
INTERNATIONAL TRADE
Why would countries want to encourage
international trade???
Three ways countries encourage
international trade:
Free-trade zones
Free-trade agreements
Common markets
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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
More on FTZ’s
Most FTZs are located in developing
countries: Brazil, China, the Philippines,
Malaysia, Pakistan, Mexico, Costa Rica,
Honduras, and Madagascar
 Corporations setting up in a zone may be given tax breaks as an
incentive. Usually, these zones are set up in underdeveloped parts of
the host country; the rationale is that the zones will attract employers
and thus reduce poverty and unemployment, and stimulate the area's
economy. These zones are often used by multinational corporations to
set up factories to produce goods (such as clothing or shoes).
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Intro to Business, 7e
Chapter 3
FREE-TRADE
AGREEMENTS
Member countries agree to remove
duties and trade barriers on products
traded among them
Results in increased trade between
members
http://www.trade.gov/fta/index.asp
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Intro to Business, 7e
Chapter 3
COMMON MARKETS
Allows companies to invest freely in
each member’s country
Allows workers to move freely across
borders
Examples
 European Union (EU) ~


The European Union (EU) is an economic and political union of 27 member states,
located primarily in Europe.
The EU has developed a single market through a standardized system of laws which
apply in all member states, ensuring the free movement of people, goods, services,
and capital.
 Latin American Integration Association (LAIA) ~

Its main objective is the establishment of a common market, in pursuit of the
economic and social development of the region.
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Intro to Business, 7e
Chapter 3
Checkpoint >>
What actions could be taken to encourage international
trade?
Answer
 Actions that could be taken to encourage international trade
include free-trade zones, free-trade agreements, and common
markets.
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Intro to Business, 7e
Chapter 3
Reinforcement 3-2
Page 64
 1-4 (1 point each)
 And
 Choose ONE from 5-7 (6 points)
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Intro to Business, 7e
3-3 International Business
Organizations
Objectives
26. Discuss activities of multinational
organizations.
27. Explain common international business entry
modes.
28. Describe activities of international trade
organizations and agencies.
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Intro to Business, 7e
Chapter 3
Key Terms
Multinational company (MNC)
Joint venture
Global strategy
Multinational strategy
Licensing
Franchising
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Intro to Business, 7e
Chapter 3
MULTINATIONAL
COMPANIES (MNC)
MNC strategies
MNC benefits
Drawbacks of multinational companies
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Intro to Business, 7e
Chapter 3
MNC STRATEGIES
Global strategy
 offering the same product the same way
everywhere
Multinational strategy
 approaching each country market
differently
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Intro to Business, 7e
Chapter 3
MNC BENEFITS
Large amount of goods available
Lower prices
Career opportunities
Foster understanding, communication,
and respect
Friendly international relations
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Intro to Business, 7e
Chapter 3
DRAWBACKS OF
MULTINATIONAL COMPANIES
Economic power
Worker dependence on the MNC
Consumer dependence
Political power
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Intro to Business, 7e
Chapter 3
Checkpoint >>
What are two strategies commonly used by
multinational companies?
Answer
 global strategy (offering the same product the same way
everywhere)
 multinational strategy (approaching each country market
differently).
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Intro to Business, 7e
Chapter 3
GLOBAL MARKET
ENTRY MODES
Licensing
Franchising
Joint venture
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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
Checkpoint >>
How does licensing differ from a franchise?
Answer
 Licensing does not require as much financial investment or
risk as franchising.
 Both licensing and franchising involve royalty payments, but
licensing usually involves a manufacturing process, while
franchising commonly involves selling a product or service.
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Intro to Business, 7e
Chapter 3
INTERNATIONAL TRADE
ORGANIZATIONS
World Trade Organization
International Monetary Fund
World Bank
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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
Checkpoint >>
How does the International Monetary Fund assist
countries?
Answer
 The International Monetary Fund assists countries by
promoting economic cooperation and maintaining an orderly
system of world trade and exchange rates.
 This cooperation makes harmful trade wars among IMF
nations less likely.
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Intro to Business, 7e
Reinforcement 3-3
 Page 68
 1, 2, and 3 or 4
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Intro to Business, 7e
Chapter 3
CHAPTER 3 REVIEW
Pages 70-73
 1-20
 And choose two (2) from 21-30
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