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
Learning Targets:
 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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Intro to Business, 7e
Chapter 3
TRADING AMONG NATIONS
 Absolute advantage – a country can produce a good
or service at a lower cost than other countries.
 Comparative advantage – a country specializes in the
production of a good or service over another good or
service (could be good at two things, but concentrate
one just one).
 Importing – account for the total supply of bananas,
cocoa, some spices, and tea.
 Exporting – chemicals, fertilizers, medicines. Other
countries also like to view U.S. movies and television
shows.
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Intro to Business, 7e
Chapter 3
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
INTERNATIONAL CURRENCY
Three main factors affect currency
 Balance of payments – the difference
between the $ that comes into a country
and the $ that goes out of that country
 Economic conditions – state of a country’s
economy
 Political stability – changes in other
country’s government (new president,
leader, etc.)
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Intro to Business, 7e
3-2 The Global Marketplace
Learning Targets:
 Describe the components of the international
business environment.
 Identify examples of formal trade barriers.
 Explain actions to encourage international
trade.
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Intro to Business, 7e
INTERNATIONAL BUSINESS
ENVIRONMENT
Chapter 3
 Geography – location, climate, terrain all affect what
can be grown and produced there
 Cultural influences – accepted behaviors in each
country affect how people do business
 Economic development
 Literacy level
 Technology
 Agricultural dependency
 Political and legal concerns – safety inspections,
freedom in business activities.
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Intro to Business, 7e
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location
climate
terrain
waterways
natural resources
GEOGRAPHY
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technology
education
inflation
exchange rate
infrastructure
Chapter 3
ECONOMICS
INTERNATIONAL BUSINESS ENVIRONMENT
CULTURE
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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
International Trade
Barriers:
Chapter 3
 Quota’s
 Tariff’s
 Embargoes
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Intro to Business, 7e
Chapter 3
QUOTAS
Reasons for quotas (limit on amount of
goods/services imported or exported)
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
TARIFFS
Reasons for tariffs
To protect goods made in the U.S.
A higher tariff lowers the demand
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Intro to Business, 7e
Chapter 3
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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Intro to Business, 7e
Chapter 3
ENCOURAGING
INTERNATIONAL TRADE
Free-trade agreements – members
agree to remove taxes and trade
barriers (example is NAFTA)
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Intro to Business, 7e
3-3 International Business
Organizations
Learning Goals
 Discuss activities of multinational
organizations.
 Explain common international business entry
modes.
 Describe activities of international trade
organizations and agencies.
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Intro to Business, 7e
Chapter 3
Multi-National Company
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
Worker dependence on the MNC
Consumer dependence
Political power
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Intro to Business, 7e
Chapter 3
LICENSING
Allows companies to produce items in
other countries without being actively
involved
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
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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