CHAPTER
3
SLIDE 1
CHAPTER
3
Business in the
Global Economy
3-1
International Business Basics
3-2
The Global Marketplace
3-3
International Business Organizations
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Principles of Business, 8e
3-1
International
Business Basics
Goal 1 Describe importing and exporting
activities.
Goal 2 Compare balance of trade and
balance of payments.
Goal 3 List factors that affect the value of
global currencies.
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SLIDE 2
CHAPTER
3
SLIDE 3
KEY TERMS
● imports
● exports
● balance of trade
● balance of payments
● exchange rate
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Principles of Business, 8e
CHAPTER
3
SLIDE 4
TRADING AMONG NATIONS
● Absolute advantage
● Comparative advantage
● Importing
● Exporting
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Principles of Business, 8e
CHAPTER
EXAMPLE OF U.S. IMPORT
RELIANCE
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3
SLIDE 5
Principles of Business, 8e
CHAPTER
3
SLIDE 6
Checkpoint 
● How does importing differ from
exporting?
● Importing is bringing items from other
countries into a country.
● Exporting is selling goods and services to
other countries.
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Principles of Business, 8e
CHAPTER
MEASURING TRADE
RELATIONS
3
SLIDE 7
● Balance of trade
● Balance of payments
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Principles of Business, 8e
CHAPTER
3
SLIDE 8
U.S. TRADE BALANCES
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Principles of Business, 8e
CHAPTER
3
SLIDE 9
BALANCE OF TRADE
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Principles of Business, 8e
CHAPTER
3
SLIDE 10
Checkpoint 
● How does balance of trade differ from
balance of payments?
● 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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Principles of Business, 8e
CHAPTER
3
SLIDE 11
INTERNATIONAL CURRENCY
● Foreign exchange rates
● Factors affecting currency values
● Three main factors affect currency
● Balance of payments
● Economic conditions
● Political disability
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Principles of Business, 8e
CHAPTER
RECENT VALUES OF
CURRENCIES
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3
SLIDE 12
Principles of Business, 8e
CHAPTER
3
SLIDE 13
Checkpoint 
● What factors affect the value of a
country’s currency?
● Balance of payments
● Economic conditions
● Political stability
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
3-2
The Global
Marketplace
Goal 1 Describe the components of the
international business environment.
Goal 2 Identify examples of formal trade
barriers.
Goal 3 Explain actions to encourage
international trade.
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SLIDE 14
CHAPTER
3
SLIDE 15
KEY TERMS
● infrastructure
● trade barrier
● quota
● tariff
● embargo
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Principles of Business, 8e
CHAPTER
INTERNATIONAL BUSINESS
ENVIRONMENT
3
SLIDE 16
● Geography
● Cultural influences
● Economic development
● Literacy level
● Technology
● Agricultural dependency
● Political and legal concerns
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Principles of Business, 8e
CHAPTER
ELEMENTS OF INTERNATIONAL
BUSINESS ENVIRONMENT
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3
SLIDE 17
Principles of Business, 8e
CHAPTER
3
SLIDE 18
Checkpoint 
● List the four main elements of the
international business environment.
● Geography
● Cultural influences
● Economic development
● Political and legal concerns
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Principles of Business, 8e
CHAPTER
INTERNATIONAL
TRADE BARRIERS
3
SLIDE 19
● Quotas
● Tariffs
● Embargoes
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Principles of Business, 8e
CHAPTER
3
SLIDE 20
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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Principles of Business, 8e
CHAPTER
3
SLIDE 21
TARIFFS
● Reasons for tariffs
● To set amount per pound, gallon, or other unit
● To set the value of a good
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Principles of Business, 8e
CHAPTER
3
SLIDE 22
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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Principles of Business, 8e
CHAPTER
3
SLIDE 23
Checkpoint 
● What are three formal trade barriers?
● Quotas
● Tariffs
● Embargoes
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Principles of Business, 8e
CHAPTER
ENCOURAGING
INTERNATIONAL TRADE
3
SLIDE 24
● Free-trade zones
● Free-trade agreements
● Common markets
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Principles of Business, 8e
CHAPTER
3
SLIDE 25
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 or airport
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Principles of Business, 8e
CHAPTER
3
SLIDE 26
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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Principles of Business, 8e
CHAPTER
3
SLIDE 27
COMMON MARKETS
● Allow companies to invest freely in each
member’s country
● Allow workers to move freely across
borders
● Examples
● European Union (EU)
● Latin American Integration Association (LAIA)
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Principles of Business, 8e
CHAPTER
Checkpoint 
3
SLIDE 28
● What actions could be taken to
encourage international trade?
● Actions that could be taken to encourage
international trade include free-trade zones,
free-trade agreements, and common
markets.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
3-3
International Business
Organizations
Goal 1 Discuss activities of multinational
organizations.
Goal 2 Explain common international
business entry modes.
Goal 3 Describe activities of international
trade organizations and agencies.
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SLIDE 29
CHAPTER
3
SLIDE 30
KEY TERMS
● multinational company (MNC)
● joint venture
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Principles of Business, 8e
CHAPTER
MULTINATIONAL COMPANIES
(MNC)
3
SLIDE 31
● Organizations that do business in several
countries
● Home country
● Host country
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Principles of Business, 8e
CHAPTER
3
SLIDE 32
MNC STRATEGIES
● Global strategy
● Multinational strategy
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Principles of Business, 8e
CHAPTER
3
SLIDE 33
MNC BENEFITS
● Large amount of goods available
● Lower prices
● Career opportunities
● Foster understanding, communication, and
respect
● Friendly international relations
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Principles of Business, 8e
CHAPTER
DRAWBACKS OF
MULTINATIONAL COMPANIES
3
SLIDE 34
● Economic power
● Worker dependence on the MNC
● Consumer dependence
● Political power
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Principles of Business, 8e
CHAPTER
3
SLIDE 35
Checkpoint 
● What are two strategies commonly used
by multinational companies?
● Global strategy (offering the same product
the same way everywhere)
● Multinational strategy (approaching each
country market differently).
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Principles of Business, 8e
CHAPTER
GLOBAL MARKET
ENTRY MODES
3
SLIDE 36
● Licensing
● Franchising
● Joint venture
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Principles of Business, 8e
CHAPTER
3
SLIDE 37
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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Principles of Business, 8e
CHAPTER
3
SLIDE 38
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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Principles of Business, 8e
CHAPTER
3
SLIDE 39
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 because several companies are
involved
● Very popular for manufacturing, such as
Japanese and U.S. automobile manufacturers
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Principles of Business, 8e
CHAPTER
3
SLIDE 40
Checkpoint 
● How does licensing differ from a
franchise?
● 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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Principles of Business, 8e
CHAPTER
INTERNATIONAL TRADE
ORGANIZATIONS
3
SLIDE 41
● World Trade Organization
● International Monetary Fund
● World Bank
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Principles of Business, 8e
CHAPTER
WORLD TRADE
ORGANIZATION (WTO)
●
●
●
●
●
3
SLIDE 42
150 member countries
Promotes trade
Settles trade disputes
Enforces free-trade agreements
Other 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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Principles of Business, 8e
CHAPTER
INTERNATIONAL MONETARY
FUND (IMF)
3
SLIDE 43
● Helps to promote economic cooperation
● Maintains an orderly system of world trade
and exchange rates
● Includes more than 150 member nations
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Principles of Business, 8e
CHAPTER
3
SLIDE 44
WORLD BANK
● Created in 1944 to provide loans for rebuilding
after World War II
● Today the World Bank has more than 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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Principles of Business, 8e
CHAPTER
3
SLIDE 45
Checkpoint 
● How does the International Monetary
Fund assist countries?
● 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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Principles of Business, 8e