2.02 Notes

Principles of Business Finance and Marketing
Unit 2 – Business in the Global Economy
Section 2.02 – International Business Environment
1. Geography
 L Location
, climate
How does this influence international business?:
o Very hot – limits the types of crops
that can be grown
o Many rivers/seaports – easily
ship products for foreign trade
o Limited natural resources – must depend on imports
2. Cultural Influences
 Culture – the accepted behaviors
, terrain, seaports, natural resources…
, customs, and values
of a society
How does this influence international business?:
o Language – communication
o Religion – what is sacred
to one may not be to another
o Values – is bribery
considered wrong
in different cultures?
o Customs – is it offensive to give a gift?
o Social Relationships – how men and women interact in business
What is the Most Common world language?
What is the Most Common world religion?
What percentage of US speaks Spanish?
What is the most common Christian religion in US?
What percent of the US has their Bachelors degree?
3. Economic Development
 progress
in an economy
How does this influence international business?:
o Literacy Level – high
levels literacy leads to better
which leads to more and better goods & services
o Technology – high
automation means country can create and deliver
goods quickly
o Agricultural Dependency – highly
dependent means there is a weaker
manufacturing base and fewer
quantity/quality of products
o Infrastructure
 nations’ transportation
, communication, and utility systems
 Stronger infrastructure means better prepared for international business
Developed Countries
 High Human Development Index
 Approx. 50
o Norway, Australia, Netherlands, USA, New Zealand, Canada, Japan, Hong
Kong, Chile, Croatia
Developing Countries
 Newly industrialized
 Approx. 100 countries
o Afghanistan, Argentina, China, Mexico, Peru, Poland, Russia
Less Developed Countries
 Low
standard of living
 Approx. 50
o Africa – 34 countries
o Asia – 9 countries
o Oceania – 4 countries
o Americas – 1 country (Haiti)
4. Political and Legal Concerns
 type
of government, stability
government’s policies
toward business
, low industrial base, low HDI
of government, and the
How does this influence international business?:
o Regulations on fair trade
o Require safety inspections
o Enforce contracts
Trade Barriers – restriction
to free trade
 A limit
on the quantity of a product that may be imported or exported within a
given period
 Reasons for quotas
 To keep supply low
and prices the same
 Protects domestic producers from international competition
 To express displeasure
at the policies of the importing country
 To protect one of a country’s industries from too much competition from abroad
Critics of import quotas
 Corruption (bribes
to get a quota allocation)
 Smuggling (circumventing a quota
 A tax
that a government places on certain imported products
 Reasons for tariffs
o To set amount per pound, gallon, or other unit
o To set the value
of a good
 In 2010, the US collected over $25 Trillion
in import tariffs
o Chickens
$0.90 each
o Rice
 Government stops
the export or import of a product completely
 Reasons for embargoes
o To protect a country’s industries from international competition
than the quota or tariff will achieve
o Sanctions related to
 terrorism
 Diamond Trading
 Narcotics
 Nuclear proliferation
 human rights
 Sanctions imposed by the US government
o No arms-related
o Controls over dual-use
o Restrictions on economic assistance
o Financial
 Requiring the US to oppose
loans by the World Bank
 Tax credits denied
for companies who earned income in listed
 Authority to prohibit
a US citizen from engaging in financial
transactions with the government on the list without a license from the
 Prohibition of Defense Department contracts
$100,000 with companies controlled by countries on the list
 The US currently has sanctions against
o 6 countries
 Cuba
 Sudan
 Iran
 Syria
 North Korea
 Burma
o 18 persons or groups within the country of
 Belarus
 Russia
 Ukraine/ Russia/ Crimea
 Ivory Coast  Somalia
 Central African Republic
 Yugoslavia
 South Sudan
 Iraq
 Yemen
 Libya
 Lebanon
 Zimbabwe
 Venezuela
Free-Trade Zones
 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
 Importer pays duty only when the product leaves
the zone
Free-Trade Agreements
 member countries
agree to remove
duties (import taxes) and
trade barriers on products traded among them
 US has 14 Free-Trade Agreements in place with 20
 Results in increased
trade between members
o NAFTA (North American Free Trade Agreement)
 Began on January 1, 1994
 Canada & Mexico are US #1
and #3
trading partners,
Common Markets
 Members do away with duties and other trade barriers
 Allow companies to invest
freely in each member’s country
 Allow workers to move freely across borders
 Examples
o european Union
 27
member states
 Single market with common standardized laws
 Common currency
 Highest GDP
in world
o Latin American Integration Association (LAIA)