International
Business
Intro to
Business
3/14/2016
Trading Among Nations
• Domestic Business – making, buying, selling of goods
and services within a country
• International Business – all of the business activities
necessary for creating, shipping, and selling goods and
services across national boarders (aka world trade)
Advantages over America
Why do we trade?
• While America has many natural resources, a skilled
labor force, and modern machines and methods of
production, we cannot provide ourselves with all of the
things we want.
• We must go outside of our borders to get some of the
things that other countries specialize in.
America’s Advantages
over other countries
Importing
• Imports – the things we buy from other countries
• Imports account for 100% of:
Foreign Trade
• Without foreign trade, many of the things we buy would
cost more or not be available to our consumers.
• Other countries can produce some goods at lower costs
because they have the needed raw materials or have
lower labor costs.
• Some consumers may still purchase foreign goods at
higher prices if they perceive the value to be higher.
• Or they may simply just enjoy owning foreign products:
– French Perfumes, Norwegian Sweaters, Swiss Watches
Exporting
• Exports – the goods and services we sell to other countries
• Exports benefit consumers in other countries
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Factory and farm machinery made in U.S.
Food grown on U.S. farms
Chemicals, pesticides, medicines and plastics produced in U.S.
U.S. Movies, Television (CNN, MTV, ESPN)
U.S. Books, magazines, newspapers
• 1 out of every 6 U.S. jobs depends on international business
International Currency
• Each nation has its own banking system and its own type of
money
– Russia: ruble
– India: rupee
– Japan: yen
• Exchanging one currency for another occurs in the foreign
exchange market
• The value of each currency in one country compared to another
country is called the exchange rate
Barriers to International Trade
• Governments establish international policies that guide
trade with other countries – through control of
importing and exporting
– Quotas
– Tariffs
– Embargos
Quota
• Sets a limit on the quantity of a product that may be
imported or exported within a given period of time
• Reasons:
– Keep supply low = keep prices up
– To express disproval of one countries social behavior or
policies
– To protect one country’s industry from too much competition
– Known as shielding infant industries which need protection to get started
Tariff
• A tax that government places on certain imported
products
• Ex. A foreign bicycle costs $140 but our government
collects a 20% tariff ($28) costing you $168, plus
shipping
• The increase in price lowers demand
• May help consumers decide to purchase domestic
product
Embargo
• Stop on an import or export completely
• Reasons:
– Protection from international competition (to a greater degree
than the tariff or quota)
– To prevent sensitive information falling into hands of
unfriendly groups or nations (relating to defense)
– As well as to express disproval of the actions or policies of
another country
Measuring trade between
nations
• Just like people try to spend less than they earn,
countries try to maintain a positive balance of trade
Balance of Trade
• The difference between a country’s total exports and imports
• Trade surplus – exports more than imports
• Trade deficit – imports more than exports
Multinational
Company/Corporation (MNC)
• An organization that conducts business in several
countries and has management capable of doing
business worldwide