CHAPTER 3 BUSINESS IN THE GLOBAL ECONOMY 3
CHAPTER 3 BUSINESS IN THE GLOBAL ECONOMY
3. 1 INTERNATIONAL BUSINESS BASICS
Trading Among Nations • 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. • International business is frequently referred to as foreign or world trade.
Trading Among Nations Con’t • Absolute Advantage – Exists when a country can produce a good or service at a lower cost than other countries.
Trading Among Nations Con’t • Comparative Advantage – A situation in which a country specializes in the production of a good or service at which it is relatively more efficient.
Trading Among Nations Con’t • Importing – Imports are items bought from other countries. • Impacts of Importing – Without foreign trade, many things you buy would be more expensive. – Other countries can produce some things cheaper. – Quality of imported goods may be better.
Trading Among Nations Con’t • Exporting – Goods and services sold to other countries. – One of every 6 jobs in the U. S. depends on international business.
Measuring Trade Relations • Nations are concerned about balancing income with expenditures. • Foreign debt is the amount a country owes to other countries.
Measuring Trade Relations Con’t • Balance of Trade – The difference between a country’s total exports and total imports. – If a country exports more than it imports, it has a trade surplus. – If a country imports more than it exports, it has a trade deficit, which is unfavorable.
Measuring Trade Relations Con’t • Balance of Payments – Money goes from one country to another through investments and tourism. – The balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it. – A positive or favorable balance of payments occurs when a nation receives more $ than it pays out. – A negative balance of payments is unfavorable and happens when a country spends more than it brings in.
International Currency • Foreign Exchange Rates – The process of exchanging one currency for another occurs in the foreign exchange markets, which consists of banks that buy and sell different currencies. – The exchange rate is the value of a currency in one country compared with the value in another. – Supply and demand affects the value of currency.
International Currency Con’t • Factors Affecting Currency Values – Balance of Payments – Positive or Negative Flow of $ – Economic Conditions – Inflation and Interest Rates Evaluated – Political Stability – Stable or Unstable
3. 2 THE GLOBAL MARKET PLACE
The International Business Environment • Things that affect the international business environment: – Geography – Location, Climate, Terrain, Natural Resources, Etc – Cultural Influences • Culture is the accepted behaviors, customs and values of a society. A country’s culture has a big influence on business activities. – Language, Religion, Values, Etc.
The International Business Environment Con’t – Economic Development • The differences in living and work environments reflect the level of economic development – – – Literacy Level Technology Agricultural Dependency • Infrastructure refers to a nation’s transportation, communication, and utility systems.
The International Business Environment Con’t – Political and Legal Concerns • The most common factors include the type of government, the stability of the government, and government policies toward business.
International Trade Barriers • Trade barriers are restrictions to free trade. – Formal trade barriers political actions and include, quotas, tariffs, and embargoes. – Informal trade barriers are created because of culture, traditions and religions of different countries.
International Trade Barriers Con’t • Quotas – To regulate international trade, governments set a limit on the quantity of a product that may be imported or exported within a given period. • May do this to conserve supply. ex/oil • Protect industry from competition
International Trade Barriers Con’t • Tariffs – A tax that a government places on certain imported products. – Increases the price for an imported project.
International Trade Barriers Con’t • Embargoes – A government stops the export or import of a product completely. – Protects inside industries. – Protects country’s technology – To express disapproval towards another country’s actions.
Encouraging International Trade • Free-Trade Zones – A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing. – Usually located near a seaport or airport.
Encouraging International Trade Con’t • Free-Trade Agreement – Member countries agree to remove duties and trade barriers on products traded among them. – Results in an increase in trade among countries. – NAFTA
Encouraging International Trade Con’t • Common Markets – Members do away with duties and other trade barriers. They allow companies to invest freely in each member’s country. – Also called an economic community – EU – LAIA
3. 3 International Business Organizations
Multinational Companies • A MNC is an organization that does business in several other countries. • MNCs usually consist of a parent company in home country and then branches elsewhere. • The country in which the MNC places business activities is called the host country.
Multinational Companies Con’t • MNC Strategies – A global strategy uses the same product and marketing strategy worldwide. – A multinational strategy treats each country market differently.
Multinational Companies Con’t • MNC Benefits – Opens up to larger amounts of goods, lower prices, and more career opportunities. – Also opens up to understanding of other countries. • Drawbacks of MNC – MNC can become controlling and overpowering in the host country.
Global Market Entry Modes • Licensing – Selling the right to use some intangible property for a fee or royalty. Ex. production process, trademark, or brand name. – Low financial investment, low risk, low financial return.
Global Market Entry Modes Con’t • Franchising – The right to use a company name or business process in a specific way. – A royalty payment is used for the right to use a process or company name. – Commonly involves selling a product or service. – Ex. Mc. Donald’s
Global Market Entry Modes Con’t • Join Venture – An agreement between two or more companies to share a business project. – Main benefit is sharing of raw materials, shipping facilities, management activities, or production facilities. – Ex. Ford and Mazda
International Trade Org. • World Trade Org. – Developed in 1995 to promote trade around the world. – Over 150 members settle trade disputes works on trade agreements • 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.
International Trade Org. Con’t • International Monetary Fund – Over 150 members promote economic cooperation. – Started in 1946 – Makes trade wars less likely.
International Trade Org. Con’t • World Bank – Created in 1944 in response to WWII – Gives economic aid to less developed countries.
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