International Business Intro to Business 3112021 Global Economy

International Business Intro to Business 3/11/2021

Global Economy • The Global Economy is the interconnected economies of the nations of the world. • We live in a global economy fueled by international trade – International trade involves the exchange of goods and services between nations. (also called globalization)

Multinational Company/Corporation (MNC) • A Multinational Company or Corporation (MNC) Is an organization that conducts business in several countries and has management capable of doing business worldwide

What is trade? • Trade has several meanings – A specific area of business or industry • Ex. The diamond trade – A skilled occupation • Ex. Auto Mechanics – The people who work in a specific area of business or industry • Ex. Construction Workers – The activity of buying and selling goods and services in domestic or international markets

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.

Types of Trade • Domestic Business – production, purchase, and sale of goods and services within a country. • World Trade– exchange of goods and services across international boundaries. • Better transportation and telecommunications, along with a decrease in trade barriers has lead to an increase in world trade.

Advantages over America

America’s Advantages over other countries Machines, Engines, Pumps Electronic equipment

Importing • Imports – goods or services one country BUYS from another country • Imports to America account for 100% of:

Exporting • Exports – the goods and services one country SELLS to other county • Exports benefit consumers in other countries – – – Factory and farm machinery made in U. S. Food grown on U. S. farms Chemicals, pesticides, medicines and plastics produced in U. S. Movies, Television (CNN, MTV, ESPN) U. S. Books, magazines, newspapers • 1 out of every 6 U. S. jobs depends on international business

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

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 • Balance of Trade - The difference in value between a country’s total exports and imports • Trade surplus – exports are greater than imports • Trade deficit – imports are greater than exports

Specialization • Specialization – to focus on a particular activity, area, or product. • Countries specialize in producing certain goods and services. • By specializing, countries can sell what they produce best so they can buy the products they need from other countries.

Comparative Advantage • Comparative Advantage – the ability of a country or company to produce a particular good more efficiently than another country or company.

International Currency • Each nation has its own banking system and its own type of money – Mexico: peso – Japan: yen – India: rupees Exchanging one currency for another occurs in the foreign exchange market

Exchange Rate • The price at which one currency can buy another currency is called the exchange rate • Exchange rates change from day to day and from country to country. • How much the currency of a country is worth depends on how many other countries want to buy its products.

Global Trade • Global competition often leads to trade disputes between countries. • At the heart of most trade disputes is whethere should be limits on trade.

Protectionism • Protectionism is the practice of the government putting limits on foreign trade to protect businesses at home. • EX. Rice farming and the automobile industries are extremely important to Japan’s economy. To limit competition from other countries, Japan practices protectionism to ensure Japanese consumers buy Japanese rice and automobiles.

Reasons for Protectionism • Foreign competition can lower the demand for domestic products. • Companies at home need to be protected from unfair foreign competition. • Industries that make products related to national defense need to be protected. • The use of cheap labor in other countries can lower wages or threaten jobs at home. • A country can become too dependent on another country for important products like oil, steel, or grain. • Other countries might not have the same environmental or human rights standards.

Barriers to International Trade • Governments establish international policies that guide trade with other countries – through control of importing and exporting – Quotas – Tariffs – Embargos

Trade Barriers • Quota - a limit set on the quantity of a product that may be imported • Tariff - A tax placed on imports to increase their price in the domestic market • Embargo – complete ban of an import or export

Free Trade • Free Trade – occurs when there are few or no limits on trade between countries. • Supporters of free trade believe there should be no limits on trade.

Free Trade • opens up new markets in other countries. • creates new jobs, especially in areas related to global trade. • Competition forces businesses to be more efficient and productive. • Consumers have more choice in the variety, price, and quality of products. • promotes cultural understanding and cooperation between countries. • helps all countries raise their standard of living.

Trade Alliance • To reduce limits on trade more countries are forming trade alliances with each other. • In a trade alliance, several countries merge their economies into one huge market.

Trade Alliances • Some of the major trade alliances in the world today are: • NAFTA • European Union (EU) • Association of Southeast Asian Nations (ASEAN)

NAFTA • North American Free Trade Agreement • Combined the economies of the United States, Canada, and Mexico. • Made it easier for United States to buy oil from Mexico and Mexico to buy cars from the United States • Trade among all three nations would increase, stimulating growth and bringing a wider variety of lower -cost goods to consumers