UNIT 2 – BUSINESS IN THE GLOBAL ECONOMY

Unit 2.02The Global Marketplace

Geography

Cultural influences

Economic development

Political and legal concerns

INTERNATIONAL BUSINESS ENVIRONMENT

Geography Location, climate, terrain, seaports, natural

resources…

How does this influence international business?: Very hot – limits the types of crops that can be

grown Many rivers/seaports – easily ship products for

foreign trade Limited natural resources – must depend on imports

INTERNATIONAL BUSINESS ENVIRONMENT

Cultural influences Culture – the accepted behaviors, customs, and

values of a society

How does this influence international business?: Language – communication Religion – what is sacred to one may not be to another Values – is bribery considered wrong in different

cultures? Customs – is it offensive to give a gift? Social Relationships – how men and women interact in

business

INTERNATIONAL BUSINESS ENVIRONMENT

Cultural influences Most Common world language?

1. Mandarin Chinese2. Spanish3. English4. Hindi5. Arabic

Most Common world religion?1. Christianity2. Islam3. Secular/Nonreligious/Agnostic/Atheist4. Hinduism5. Chinese Traditional Religion

INTERNATIONAL BUSINESS ENVIRONMENT

Cultural influences Most Common US language?

1. English 80.0%2. Spanish 12.4%3. Indo-European 3.7%4. Asian 3.0%

Most Common US religion?1. Christianity 70.6%

Protestant 46.5% Catholic 25.4% Mormon 2% Other 1%

2. None 22.8%3. Judaism 1.9%4. Islam 0.9%5. Hinduism 0.7%6. Other 2.7%

INTERNATIONAL BUSINESS ENVIRONMENT

US education levels High School 88% Some College58% Bachelors 32% Masters 11% Doctorate 2%

Economic development Progress in an economy

Going to work on a high-speed bullet train to manage a computer network in a high-rise building versus riding an oxcart to a grass hut to operate a hand loom to make cloth for people in their village

How does this infl uence international business?: Literacy Level – high levels literacy > better education > more and

better goods & services Technology – high automation > create and deliver goods quickly Agricultural Dependency – highly dependent > weaker

manufacturing base > fewer quantity/quality of products

Infrastructure – nations’ transportation, communication, and utility systems Stronger infrastructure > better prepared for international business

INTERNATIONAL BUSINESS ENVIRONMENT

Economic development Developed Countries

High Human Development Index (HDI) Approx. 50 countries

Norway, Australia, Netherlands, USA, New Zealand, Canada, Japan, Hong Kong, Chile, Croatia

Developing Countries Newly industrialized countries Approx. 100 countries

Afghanistan, Argentina, China, Mexico, Peru, Poland, Russia

Less Developed Countries Low standard of living, low industrial base, low HDI Approx. 50 countries

Africa – 34 countries Asia – 9 countries Oceania – 4 countries Americas – 1 country (Haiti)

INTERNATIONAL BUSINESS ENVIRONMENT

Political and legal concerns Type of government, stability of government, and

the government’s policies toward business

How does this influence international business?: Regulations on fair trade Require safety inspections Enforce contracts

INTERNATIONAL BUSINESS ENVIRONMENT

ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

Trade Barriers – restriction to free trade

Quotas

Tariffs

Embargoes

INTERNATIONAL TRADE BARRIERS

A limit on the quantity of a product that may be imported or exported within a given period

Reasons for quotas To keep supply low and prices the same

Protects domestic producers from international competition

To express displeasure at the policies of the importing country

To protect one of a country’s industries from too much competition from abroad

Critics of import quotas Corruption (bribes to get a quota allocation) Smuggling (circumventing a quota)

QUOTAS

A tax that a government places on certain imported products

Reasons for tariff s To set amount per pound, gallon, or other unit

To set the value of a good

In 2010, the US collected over $25 Trillion in import tariff s Example of tariffed goods:

Chickens $0.90 each Rice $0.018/kg

TARIFFS

Government stops the export or import of a product completely

Reasons for embargoes To protect a country’s industries from international

competition more than the quota or tariff will achieve

Sanctions related to Terrorism Diamond Trading Narcotics Nuclear proliferation Human rights violations

EMBARGOES

Sanctions imposed by the US government No arms-related exports Controls over dual-use exports Restrictions on economic assistance Financial restrictions

Requiring the US to oppose loans by the World Bank Tax credits denied for companies who earned income in listed

countries Authority to prohibit a US citizen from engaging in financial

transactions with the government on the list without a license from the US

Prohibition of Defense Department contracts above $100,000 with companies controlled by countries on the list

EMBARGOES

The US currently has sanctions against 6 countries

Cuba Sudan Iran Syria North Korea Burma

18 persons or groups within the country of Belarus Russia Ukraine/ Russia/

Crimea Ivory Coast Somalia Central African Republic DRC Yugoslavia South Sudan Iraq Yemen Libya Lebanon Zimbabwe Venezuela

EMBARGOES

Free-trade zones

Free-trade agreements

Common markets

ENCOURAGING INTERNATIONAL TRADE

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

Importer pays duty only when the product leaves the zone

FREE-TRADE ZONES

Member countries agree to remove duties (import taxes) and trade barriers on products traded among

them

US has 14 Free-Trade Agreements in place with 20 countries

Results in increased trade between members NAFTA (North American Free Trade Agreement)

Began on January 1, 1994 Canada & Mexico are US #1 and #3 trading partners,

respectively

FREE-TRADE AGREEMENTS

Members do away with duties and other trade barriers

Allow companies to invest freely in each member’s country

Allow workers to move freely across borders

Examples European Union (EU)

27 member states Single market with common standardized laws Common currency Highest GDP in world

Latin American Integration Association (LAIA)

COMMON MARKETS

NAFTA Pros & Cons

ASSIGNMENT

Largest US Trading Partners (in billions for year 2011)

Country Exports Imports Total Trade BalanceCanada 286.9 316.5 597.4 -35.7China 103.9 399.3 503.2 -295.4Mexico 197.5 263.1 460.6 -65.6Japan 66.2 128.8 195 -62.6