1.03

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Objective 1.03

Understand business in the global marketplace.

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Factors and regulations companies have to consider when doing business in the global

market place

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Domestic vs. International Businesses

• What activities are included in domestic business transactions? Where do they take place? – the making, buying, and selling of goods and service within

a country.

• What activities are included international business transactions? Where do they take place?– business activities needed for creating, shipping, and

selling goods and services across national borders.

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Business Advantage Factors

• Absolute advantage exists when a country can produce a good or service at a lower cost than other countries.

• Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient.

• What are some examples of absolute and comparative advantages?

International Trade

• From where do imports come?. - Items brought from other countries• From where do exports come? - Goods & services sold to other countries• What are some examples of imports?

– furniture, tax preparation services, bananas, or automobile parts, minerals, etc

• What are some examples of exports?– silver, automobile parts, medicines, plastics, media (ESPN or

CNN), software, etc.

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ImportingAdvantages and Disadvantages

• Advantages– Goods available for purchase. – Goods could have cost less since they were imported. – Goods may be a better quality since imported. – Goods imported and owned may provide satisfaction.

• Disadvantages– Some goods would cost more without competition of

imported goods.– Possibly goods may be unavailable.

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ExportingAdvantages and Disadvantage(s)

• Advantages– Exporting creates jobs.– Exporting provides access to goods usually

unavailable.

• Disadvantage(s)– Jobs may depend on global business.

Measuring of Trade Relations

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Measuring of Trade Relations

• Ways to measure trade relations – Balance of Trade & Balance of Payments

• Why are measures of trade relations completed? – Nations are concerned with balancing income

with expenditures.• Foreign debt is the amount of money a

country owes to other countries.

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Balance of trade is the difference between a country’s total exports and total imports.

– If a country exports more than it imports, it has a trade surplus. This is favorable.

– If a country imports more than it exports, it has a trade deficit. This is unfavorable.

Measuring of Trade Relations continued

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Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

– If a country receives more money in a year than it pays out, it has favorable balance.

– If a country sends more money out than it brings in, it has an unfavorable balance.

Measuring of Trade Relationscontinued

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International Currency Exchange Rate Main Factors

• The foreign exchange market is where banks buy and sell different currencies.

• The exchange rate is the value of a currency in one country when compared with the value in another.

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International Currency Exchange Rate Main Factors Continued

Main factors affecting currency exchange rates are:– Balance of payments- influenced by demand for a nations

goods and services. If the balance of payment is favorable, then usually currency is steady and rising in value. If unfavorable, then usually the currency is declining in value.

– Economic conditions• Inflation decreases buying power of currency• Interest rates that are high decreases demand to borrow money.

– Political stability- could be impacted by changes in government or laws

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International Business Environment Factors

What are the main environmental issues that could make a difference when conducting business in the global marketplace?– Cultural influences, economic development, geography, and political-legal

issues• How could these issues impact businesses?

– Cultural influences-In a country company executives may prefer to meet with people of the same culture.

– Geography-A country with a lot of natural resources may have to rely on exports more.

– Economic development-A country may have limited transportation methods that may limit travel distances to purchase imported goods.

– Political-legal concerns-A country’s government only collects about ¼ of his housing property taxes. This could be a sign of weak government that is ignored by the its citizens.

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International Business Environment Factors continued

Four main factors:– Geography

– Cultural Influences

– Economic Development

– Political and Legal Concerns

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• What is included in a country’s geography?

-------------------------------------• The geography of a country

could impact its natural resources and export and import of resources.

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• What main cultural factors may Influence how business is conducted in the global marketplace?

-------------------------------------• The accepted behavior,

customs and values of a society could impact business activities.

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International Business Environment Factors Continued

• What key effects of a country’s economics that may influence conducting business in a global marketplace?

-------------------------------------• A country’s economic

development impacts its citizens standard of living and business activities.

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• What political and legal concerns may influence business activities in a global marketplace?

--------------------------------• Political and legal

concerns influence business activities in the global marketplace.

International Trade Barriers

Trade Barriers are restrictions to free trade.

Obj. 1.03 What are Trade Barriers?

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Main International Trade Barrier Factors

• Embargo– Government bans the import or export of specified goods.

Why would a government place an embargo?Examples: Cuba puts a complete ban on US products to maintain their competitive

advantage in marketplace.• Quotas

– A limit on the quantity of good that may be imported or exported within a given period to regulate international trade.

– Why would a company or country set a quota?Example: India limits the amount of imported wheat products to protect their own

industry.• Tariffs

– Taxes on certain imported products which increases prices.– Why would a government use a tariff?Example: U.S. provides $20 tax on their the computer products to other countries

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Encouragement of InternationalTrade Factors

Main factors are:– Common Market: Countries that are members

freely invest in one another.

• Examples:–European Union (EU)–Latin American Integration Association

(LAIA)

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Encouragement of InternationalTrade Factors continued

– Free-Trade Agreement: Countries that are members remove duties and trade barriers on products traded among them to increase trade between members.• Example

–NAFTA (the North American Free Trade Agreement) between the United States, Canada, and Mexico.

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Encouragement of InternationalTrade Factors continued

– Free-trade zones: Include selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport.

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Main entry modes for companies to enter the global marketplace

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Main Entry Modes to the Global Marketplace

– Franchising is allowing a business the rights to use another company’s name or process in a specific way.

• What are some examples?

– Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty.

• What are some examples?

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Main Entry Modes to the Global Marketplace continued

• Joint venture happens when two or more companies agree to share a business project.– What are some examples?

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Main international trade organizations

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Main International Trade Organizations

• International Monetary Fund (IMF)

• World Bank

• World Trade Organization (WTO)

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Main International Trade Organizations continued

• International Monetary Fund (IMF)– Helps promote economic cooperation and

maintain an orderly system of world trade and exchange rates.

• World Bank– Provides economic aid to developing countries to

fund building communications systems, transportation networks, and energy plans.

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Main International Trade Organizations continued

• World Trade Organization (WTO)– Settles trade disputes and enforces free-trade

agreements among its members.