Business in the Global
Economy
Chapter 3
Throughout the week…
• Monday: 3-1
• Tuesday: 3-2
• Wednesday: Review Chapter 2 Review Packet
• Thursday : Review for Quiz
• Friday: Chapter 2 Quiz
Overview
• International Business Basics
• The Global Marketplace
• International Business Organizations
International Business Basics
• Describe importing and exporting activities.
• Comparing balance of trade and balance of
payments.
• List factors that affect the value of global
currencies.
Trading Among Nations
• Absolute advantage
• Comparative advantage
• Importing
• Exporting
Trading Among Nations
• Absolute Advantage
• Exists when a country can produce a good or
service at a lower cost than other countries.
• High number of Natural Resources and Raw Material.
• South America (Coffee)
• Saudi Arabia (Oil Production)
Trading Among Nations
• Comparative Advantage
• Country specializes in the production of a good or
services which it is relatively more efficient.
Trading Among Nations
• Importing
• Items brought from other countries.
• Imports into the United States:
•
•
•
•
•
•
•
Bananas
Coffee
Cocoa
Spices
Tea
Silk
Crude Rubber
20% to
50%
Trading Among Nations
• Exporting
• Goods and services sold to other countries.
• Types of U.S. Exports:
• Food
• Movies or T.V. (ESPN, CNN, etc…)
Measuring Trade Relations
• Limiting the amount of Foreign Debt.
• Amount owed to another country.
• Balance of Trade:
• Difference between total exports and imports.
• Balance of Payments:
• Different between amount of money that comes in
and out of a country.
Balance of Payments
• Favorable:
• Receives more money than it gives out within a year.
• Unfavorable:
• Gives out more money than it takes in within a year.
Balance of Trade
International Currency
• Types of Currency:
• Russia (Ruble)
• Europe (Euro)
• India (Rupee)
• Brazil (Real)
• Saudi Arabia (Riyal)
• United States (DOLLAR)
Exchange Rate
• Value of currency from one country in relation to
another.
• Affected by Supply and Demand
Factors Affecting Currency
• Balance of Payments
• Economic Conditions
• Interest Rates:
• Higher = Lower Consumer Demand
• Political Stability
Review
• Describe importing and exporting activities.
• Comparing balance of trade and balance of
payments.
• List factors that affect the value of global
currencies.
The Global Market Place
• Describe the components of the international
business environment.
• Identify examples of formal trade barriers
• Explain actions to encourage international trade.
The Environment
• Doing business in other countries requires
knowledge of the differences that exist among
people in places.
• 4 Components:
•
•
•
•
Geography
Cultural
Economics
Political
GEOGRAPHY
ECONOMICS
location
climate
terrain
waterways
natural resources
technology
education
inflation
exchange rate
infrastructure
INTERNATIONAL BUSINESS ENVIRONMENT
language
family
religion
customs
traditions
food
CULTURE
government system
political stability
trade barriers
business regulations
POLITICAL–LEGAL
FACTORS
Trade Barriers
• Government barriers that can create restrictions
on free trade.
• Quotas:
• Limit on imports and exports set by the government.
• Why use quotas:
• Maintain Costs
• Displeasure with another country
• Protection from Competition
Trade Barriers
• Tariffs:
• Tax that a government places on certain imported
products.
• Embargoes:
• Stopping of exports and imports completely.
• Competition
• Weapons (Falling into the wrong hands)
• Displeasure with another countries actions or
policies
Encouraging International
Trade
• Free-Trade Zone:
• Selected area where products can be imported
duty-free and then stored, assembled, and/or used
in manufacturing.
• Located usually near Seaports or Airports.
Review
• Describe the components of the international
business environment.
• Identify examples of formal trade barriers
• Explain actions to encourage international trade.
Recap of Chapter 3
• Describe absolute advantage and comparative
advantage?
• What is the difference between balance of trade
and balance of payment?
• What 4 environmental factors are considered
when doing business internationally?
• Name 3 trade barriers that affect international
trade.
International Business
Organizations
• Activities of multinational organizations
• Explain common international business entry
modes.
• Describe activities of international trade
organizations and agencies.
 Organization that does business in several countries.
 Parent Company (Home Country)
 Place Business Activity (Host Country)
 Global Strategy
 Uses the same product and marketing strategy worldwide
 Multinational Strategy
 Treats each countries market differently.
 Adapt to customs, tastes, and buying habits.
Benefits of MNC
• Larger number of goods available to the
consumer.
• Lower prices
• More career opportunities
• Global Business provides:
• Understanding
• Communication
• Respect for different nationalities
Drawbacks
• Depending upon the MNC for jobs.
• Consumers become dependent for the goods
and services they were provided.
• Influence on political powers.
Licensing
• Selling the rights to use some intangible property
(production process, trademarks, or brand
names).
• http://www.jiesworld.com/international_corporations
_in_china.htm
Franchising
• Expansion of businesses into another country.
Joint Venture
• Agreement between two or more companies to
share a business project.
• Benefits:
• Share raw materials
• Shipping facilities
• Management activities
• Production facilities
• Drawbacks:
• Sharing profits
• Lack of control
Organizations
• World Trade Organization (WTC)
• Lowering tariffs that discourage free trade
• Eliminate importing quotas
• Reducing barriers for banks, insurance companies,
and other financial services.
• Assisting poor countries with economic growth
International Monetary Fund
(IMF)
• 150 Member nations
• Promotes economic cooperation.
• Maintains trade and exchange rates.
Value of Currency
• Limit trade wars
• Businesses could change legal tender (before IMF)
• Lose of business = trade restrictions or lower value
of currency
World Bank
• Established in 1944 to provide loans for rebuilding
after World War II.
• Today:
• Gives economic aid to less developed countries
• Those funds:
• Build communication systems
• Transportation Networks
• Energy Plants
Review
• What strategies does a MNC use?
• What are some benefits and drawbacks to a
MNC?
• What does the WTO do?
• Funds provided by the World Bank today are for
what?