3-1 International Business Basics 3-2 The Global Marketplace

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e

C H A P T E R 3SLIDE 1

3-13-1 International Business Basics

3-23-2 The Global Marketplace

3-33-3 International Business Organizations

33C H A P T E R

Business in the Business in the Global EconomyGlobal Economy

© 2012 Cengage Learning. All Rights Reserved.SLIDE 2

3-13-1 International International Business Basics Business Basics

Goal 1 Describe importing and exporting activities.

Goal 2 Compare balance of trade and balance of payments.

Goal 3 List factors that affect the value of global currencies.



KEY TERMS

● imports

● exports

● balance of trade

● balance of payments

● exchange rate


C H A P T E R 3

TRADING AMONG NATIONS

● Most business activities occur within a country’s own borders.

● Domestic business is the making, buying, and selling of goods and services within a country.

● International business refers to business activities needed for creating, shipping, and selling goods and services across national borders

SLIDE 4


C H A P T E R 3


● In the past, economies were viewed in terms of national borders. With international trade expanding every day, these boundaries are no longer fully valid in defining economies.

SLIDE 5


C H A P T E R 3

TRADING AMONG NATIONS● http://www.youtube.com/watch?v=

RDC2ohDG4BI

● http://www.youtube.com/watch?v=5_YPidwfylM

● http://www.youtube.com/watch?v=1EbkXmVbTDg

● Homework: using the news clip as a guide identify the country of origin of 5 products in your home.

SLIDE 6


C H A P T E R 3

TRADING AMONG NATIONSInternational Business● Business activities

needed for creating, shipping, and selling goods and services across borders

● Economies are interconnected

Domestic Business

● The making, buying, and selling of goods and services within a country

SLIDE 7


C H A P T E R 3

TRADING AMONG NATIONSAbsolute Advantage

● When a country can produce a good or service at a lower cost than other countries (can be several items)

● Abundance of resources or raw materials

● Saudi Arabia: Oil

● Brazil: Coffee

Comparative Advantage● A country specializes in

the production of a good or service at which it is relatively more efficient

SLIDE 8


C H A P T E R 3

TRADING AMONG NATIONSImporting

● Items bought from other countries

● Lower Cost● Availability of goods

Exporting● Goods and services

sold to other countries

SLIDE 9


C H A P T E R 3


● Without foreign trade, many things you buy would cost more or not be available.

● Other countries can produce goods at a lower cost because they have the needed raw materials or have lower labor costs.

SLIDE 10


C H A P T E R 3


● Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods

● One of every six jobs in the United States depends on International business.

SLIDE 11


C H A P T E R 3


● The United States conducts trade with more than 180 countries.

SLIDE 12



Checkpoint

● How does importing differ from exporting? ● Importing is bringing items from other

countries into a country. ● Exporting is selling goods and services to

other countries.


C H A P T E R 3MEASURING TRADE RELATIONS

● Balance of Trade: the difference between a country’s total exports and total imports● Country exports more than it imports has a trade

surplus● Country imports more than it exports has a trade

deficit

SLIDE 14


C H A P T E R 3MEASURING TRADE RELATIONS

● Balance of Payments: the difference between the amount of money that comes into a country and goes out of a country● Favorable: receives more money in a year than it pays out

(positive balance of trade)● Unfavorable: sending out more money that it brings in (negative

balance of trade)● Some countries even limit the amount of money their citizens can

take with them when they travel.● How?

● Investment in a corporation, factory, office building● Give financial aid to a country or military aid● Foreign banking● Travel

SLIDE 15



U.S. TRADE BALANCES



BALANCE OF TRADE



Checkpoint

● How does balance of trade differ from balance of payments?● Balance of trade is the difference between a

country’s total exports and total imports. ● Balance of payments is the difference

between the amount of money that comes into a country and the amount that goes out of it.



INTERNATIONAL CURRENCY● Each County has:

● Its own banking system● currency

● Foreign exchange rates: the value of currency In one country compared with value in another

● Exchanging Currency for business or travel● Currency exchange business (airport, hotel, train

station, etc)● Bank● Rates vary


C H A P T E R 3

International Currency

● Mary is planning to visit Canada. How much is a dollar worth in Canadian Currency?● 1,000.00 USD = 976.248 CAD● United States Dollars 1.00 USD = 0.976237 CAD● Canada Dollars 1.00 CAD = 1.02429 USD● http://www.xe.com/ucc/ (currency converter website)


C H A P T E R 3

INTERNATIONAL CURRENCY

● Three main factors affect currency rates● Balance of payments: favorable balance of

payments = stable rate● Economic conditions: inflation and higher

interest rates reduces buying, lowering value of currency

● Political stability: government change, new laws create uncertainty

SLIDE 21


C H A P T E R 3SLIDE 22Checkpoint

● What factors affect the value of a country’s currency?● Balance of payments

● When a country has a favorable balance of payments, the value of its currency is usually constant or rising

● Economic conditions● Prosperity increases currency value

● Political stability● Stable governments favor currency values


3-23-2 The Global The Global MarketplaceMarketplace

Goal 1 Describe the components of the international business environment.

Goal 2 Identify examples of formal trade barriers.

Goal 3 Explain actions to encourage international trade.


C H A P T E R 3International Business Environment

● Doing business in other countries requires knowledge of the differences that exist among people and places.

● Businesses must consider four main factors—geography, cultural influences, economic development, and political and legal concerns.

SLIDE 24



KEY TERMS

● infrastructure

● trade barrier● quota● tariff● embargo


C H A P T E R 3SLIDE 26INTERNATIONAL BUSINESS

ENVIRONMENT

● Geography - the location, climate, terrain, seaports, and natural resources of a country influence business activity

● Cultural influences (accepted behaviors, customs, & values of society)● The main cultural and social factors that affect

international business are language, religion, values, customs, and social relationships.


C H A P T E R 3INTERNATIONAL BUSINESS ENVIRONMENT

● Economic development (infrastructure: transportation, communication, utility systems)

● Key Factors for Economic Development● Literacy level (education)

● Technology (automation, distribution, communication) ● Agricultural dependency (does not have the manufacturing

base to provide citizens with great quantity and high quality of goods and services)

● Political and legal concerns● type of government, the stability of the government, and

government policies toward business.

SLIDE 27


C H A P T E R 3SLIDE 28ELEMENTS OF INTERNATIONAL

BUSINESS ENVIRONMENT



Checkpoint

● List the four main elements of the international business environment. ● Geography● Cultural influences● Economic development● Political and legal concerns


C H A P T E R 3SLIDE 30INTERNATIONAL

TRADE BARRIERS

● Trade Barrier: restrictions to free trade


C H A P T E R 3

Trade barriers

● Formal – ● Set up by government Quota, Tariff and

embargo

● Informal – ● Created by culture, traditions, and religion

SLIDE 31



QUOTAS

● Quota: limit on the quantity of a product that may be imported/exported

● Reasons for quotas● To keep supply low and prices the same● To express displeasure at the policies of the

importing country● To protect one of a country’s industries from

too much competition from abroad



TARIFFS

● Tariffs: a tax that governments use to control international trade

● Reasons for tariffs● To set amount per pound, gallon, or other unit● To set the value of a good



EMBARGOES

● Embargoes: stopping the export or import of a product

● 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



Checkpoint

● What are three formal trade barriers?● Set up by Government

● Quotas● Tariffs● Embargoes


C H A P T E R 3SLIDE 36ENCOURAGING

INTERNATIONAL TRADE

● Free-trade zones

● Free-trade agreements

● Common markets



FREE-TRADE ZONES

● Used to promote international business in 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

● Duty paid when product leaves the free trade zone



FREE-TRADE AGREEMENTS

● Member countries agree to remove duties and trade barriers on products traded among them

● Results in increased trade between members

● North American Free Trade Agreement (NAFTA), 1994



COMMON MARKETS● Allow companies to invest freely in each

member’s country

● Allow workers to move freely across borders

● Examples● European Union (EU)● Latin American Integration Association (LAIA)


C H A P T E R 3

Common Markets continued

● Have a common external duty on products being imported from nonmember countries.

● Expand trade/promote regional economic integration

SLIDE 40



Checkpoint

● What actions could be taken to encourage international trade? ● Actions that could be taken to encourage

international trade include free-trade zones, free-trade agreements, and common markets.


3-33-3 International Business International Business OrganizationsOrganizations

Goal 1 Discuss activities of multinational organizations.

Goal 2 Explain common international business entry modes.

Goal 3 Describe activities of international trade organizations and agencies.



KEY TERMS

● multinational company (MNC)

● joint venture


C H A P T E R 3SLIDE 44MULTINATIONAL

COMPANIES (MNC)

● Organizations that do business in several countries

● Home country

● Host country



MNC STRATEGIES

● Global strategy: use of the same product and marketing strategy worldwide

● Multinational strategy: treats each country market differently (adapt to customs, tastes, etc



MNC BENEFITS

● Large amount of goods available

● Lower prices

● Career opportunities

● Foster understanding, communication, and respect

● Friendly international relations


C H A P T E R 3SLIDE 47DRAWBACKS OF

MULTINATIONAL COMPANIES

● Economic power

● Worker dependence on the MNC

● Consumer dependence

● Political power



Checkpoint

● What are two strategies commonly used by multinational companies?● Global strategy (offering the same product

the same way everywhere)● Multinational strategy (approaching each

country market differently).● http://www.hulu.com/#!watch/74337


C H A P T E R 3SLIDE 49GLOBAL MARKET

ENTRY MODES

● Licensing

● Franchising

● Joint venture


C H A P T E R 3SLIDE 50LICENSING

● Selling the right to use some intangible property for a fee or royalty

● Allows companies to produce items in other countries without being actively involved (gives another company the License to manufacture products)

● Has a low financial investment, so the potential financial return for the company is often low

● The risk for the company is low



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



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 because several companies are involved

● Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers

● Hong Kong Disney (Disney 43%, Hong Kong Government 57%)



Checkpoint

● How does licensing differ from a franchise? ● Licensing does not require as much

financial investment or risk as franchising. ● Both licensing and franchising involve

royalty payments, but licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.


C H A P T E R 3SLIDE 54INTERNATIONAL TRADE

ORGANIZATIONS

● World Trade Organization

● International Monetary Fund

● World Bank


C H A P T E R 3SLIDE 55WORLD TRADE

ORGANIZATION (WTO)

● 150 member countries● Promotes trade● Settles trade disputes● Enforces free-trade agreements● Other goals

● Lowering tariffs that discourage free trade● Eliminating import quotas● Reducing barriers for banks, insurance companies,

and other financial services● Assisting poor countries with economic growth


C H A P T E R 3SLIDE 56INTERNATIONAL MONETARY

FUND (IMF)

● Helps to promote economic cooperation

● Maintains an orderly system of world trade and exchange rates

● Includes more than 150 member nations



WORLD BANK

● Created in 1944 to provide loans for rebuilding after World War II

● Today the World Bank has more than 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



Checkpoint

● How does the International Monetary Fund assist countries?● The International Monetary Fund assists

countries by promoting economic cooperation and maintaining an orderly system of world trade and exchange rates.

● This cooperation makes harmful trade wars among IMF nations less likely.

Documents

3-1 International Business Basics 3-2 The Global Marketplace