Essential Standard 1 00 Understand the role of
- Slides: 20
Essential Standard 1. 00 Understand the role of business in the global economy. Obj 1. 03 Understand business in the global marketplace. 1
Topics • Factors and regulations companies have to consider when doing business in the global market place • Main entry modes for companies to enter the global marketplace • Main international trade organizations 2
Domestic vs. International Businesses • Domestic business is the making, buying, and selling of goods and service within a country. • International business, also called foreign or world trade, refers to business activities needed for creating, shipping, and selling goods and services across national borders. 3
Business Advantage Factors • Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. • Saudi Arabia-Oil production, • Columbia-coffee, • Virgin Islands-sand • 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. • China-clothes and household goods, • America-Technology • Japan-Electronics 4
International Trade • Imports are items bought from other • Import examples may include furniture, tax preparation services, bananas, or automobile parts. • Exports are goods and services sold to other countries • Export examples may include silver, automobile parts, or software. 5
Importing • What are some advantages of importing? • 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. • What are some disadvantages of importing? • Some goods would cost more without competition of imported goods. • Possibly goods may be unavailable. 6
Exporting • What are some advantages of exporting? • Exporting creates jobs. • Exporting provides access to goods usually unavailable. • What are some disadvantages of exporting? • Jobs may depend on global business. • A natural disaster may curtail production tremendously. 7
Measuring of Trade Relations What is a 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. 8
Measuring of Trade Relations continued What is a 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. 9
International Currency Exchange Rate Main Factors • 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 10
International Currency Exchange Rate Main Factors • 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 - Economic Conditions include the following: • 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. 11
International Business Environment Factors • 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. 12
Geography • What is included in a country’s geography? • The geography of a country could impact its natural resources and export and import of resources. • Location • Climate • Terrain • Seaports • Natural Resources • How can this affect a country’s trade? • The geography of a country could impact its natural resources and export and import of resources. 13
Culture • What main cultural factors may influence how business is conducted in the global marketplace? • • Language Religion Family Food Values Customs Social Relationships • How can this affect a country’s trade? • The accepted behavior, customs, and values of a society could impact business activities. 14
Economic Development • What key effects of a country’s economics that may influence conducting business in a global marketplace? • • Education and Literacy level Inflation Technology Exchange rate Agricultural dependency Infrastructure Transportation • How can this affect a country’s trade? • A country’s economic development impacts its citizens standard of living and business activities. • Communication • Utilities systems 15
Political and Legal Factors • What political and legal concerns may influence business activities in a global marketplace? • Type of Government • Stability of government • Government policies for businesses relevant to trade barriers • How can this affect a country’s trade? • Political and legal concerns influence business activities in the global marketplace. 16
Main International Trade Barrier Factors • Embargo- when a government bans the import or export of specified goods. • Why would a government place an embargo? • To protect a good or service from too much competition in a global market place more that what a quota or tariff could. • To protect sensitive goods. • Quota- 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? • To regulate the supply and prices. • To protect a good or service from too much competition in a global market place. • Tariffs- taxes on certain imported products which increases prices. • Why would a government use a tariff? • To protect the supply of goods. 17
Encouragement of International Trade Factors Common market is when countries that are members freely invest in one another. • European Union (EU) • Latin American Integration Association (LAIA) Free-Trade Agreement is when countries that are members remove duties and trade barriers on products traded among them to increase trade between members. • NAFTA (North American Free Trade Agreement between the United States, Canada, and Mexico. 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. 18
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. • H & R Block • Dunkin’ Donuts • Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty. • Dick Idol furniture/products • Beyond Juice Cafés • Joint venture happens when two or more companies agree to share a business project. • Cable company and television stations • Oil lube and tire service company 19
Main International Trade Organizations • 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. • World Trade Organization (WTO) • Settles trade disputes and enforces free-trade agreements among its members. 20
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