Introduction to Business© Thomson South-Western

ChapterChapterChapterChapter

Business in the Global Economy

3-13-1 International Business Basics

3-23-2 The Global Marketplace

3-33-3 International Business Organizations

33

Chapter 3

Slide 2Introduction to Business

© Thomson South-Western

LESSON 3-1LESSON 3-1

International Business Basics

Goals Describe importing and exporting

activities. Compare balance of trade and balance

of payments. List factors that affect the value of

global currencies.

Chapter 3

Slide 3Introduction to Business

© Thomson South-Western

Key Terms

balance of payments balance of trade exchange rate exports imports

Chapter 3

Slide 4Introduction to Business

© Thomson South-Western

Domestic vs. International

Domestic Business: making, buying, selling within a country

International Business: making, buying, selling across national borders

Chapter 3

Slide 5Introduction to Business

© Thomson South-Western

TRADING AMONG NATIONS

Absolute advantage- exists when a country can produce a good or service at a lower cost than other countries

Comparative advantage- when a country specializes in the production of a good or service at which it is relatively more efficient

Chapter 3

Slide 6Introduction to Business

© Thomson South-Western

TRADE AMONG NATIONS

What are imports? Items bought from other countries

Chapter 3

Slide 7Introduction to Business

© Thomson South-Western

IMPORTING

Chapter 3

Slide 8Introduction to Business

© Thomson South-Western

MEASURING TRADE RELATIONS Balance of trade- the difference

between a country’s total exports and total imports Trade Surplus: exports > imports Trade Deficit: exports < imports

Balance of payments- the difference between the amount of money that comes in and the amount that goes out

Chapter 3

Slide 9Introduction to Business

© Thomson South-Western

U.S. TRADE BALANCES

Chapter 3

Slide 10Introduction to Business

© Thomson South-Western

BALANCE OF TRADE

Chapter 3

Slide 11Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

How does balance of trade differ from balance of payments?

Chapter 3

Slide 12Introduction to Business

© Thomson South-Western

INTERNATIONAL CURRENCY Foreign Exchange Market- the process

of exchanging one currency for another occurs on the foreign exchange market

Foreign exchange rates- the value of one currency compared to the value of another

Chapter 3

Slide 13Introduction to Business

© Thomson South-Western

INTERNATIONAL CURRENCY

Three main factors affect currency Balance of payments

positive value rising Negative value decreasing

Economic conditions- high prices, inflation, or interest rates tend to low currency value

Political disability- reduces foreign confidence

Chapter 3

Slide 14Introduction to Business

© Thomson South-Western

RECENT VALUES OF CURRENCIES

Chapter 3

Slide 15Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

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

Chapter 3

Slide 16Introduction to Business

© Thomson South-Western

LESSON 3-2LESSON 3-2

The Global Marketplace

Goals Describe the components of the

international business environment. Identify examples of formal trade

barriers. Explain actions to encourage

international trade.

Chapter 3

Slide 17Introduction to Business

© Thomson South-Western

Key Terms

infrastructure trade barrier quota tariff embargo

Chapter 3

Slide 18Introduction to Business

© Thomson South-Western

THE INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development

Literacy level Technology Agricultural dependency

Political and legal concerns

Chapter 3

Slide 19Introduction to Business

© Thomson South-Western

GEOGRAPHY location climate terrain waterways natural resources

GEOGRAPHY location climate terrain waterways natural resources

ECONOMICS technology education inflation exchange rate infrastructure

ECONOMICS technology education inflation exchange rate infrastructure

CULTURE language family religion customs traditions food

CULTURE language family religion customs traditions food

POLITICAL–LEGALFACTORS government system political stability trade barriers

POLITICAL–LEGALFACTORS government system political stability trade barriers

THE INTERNATIONAL BUSINESS ENVIRONMENT

Chapter 3

Slide 20Introduction to Business

© Thomson South-Western

International Business Environment Infrastructure: refers to a nation’s

transportation, communication, and utility systems

Chapter 3

Slide 21Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

List the four main elements of the international business environment.

Chapter 3

Slide 22Introduction to Business

© Thomson South-Western

INTERNATIONAL TRADE BARRIERS Quotas- governments set a limit on the

quantity of a product that may be imported or exported within a given period

Tariffs- a tax that a government places on certain imported products

Embargoes- stop the export or import of a product completely

Chapter 3

Slide 23Introduction to Business

© Thomson South-Western

QUOTAS

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

Chapter 3

Slide 24Introduction to Business

© Thomson South-Western

TARIFFS

Reasons for tariffs To set amount per pound, gallon, or

other unit To set the value of a good

Chapter 3

Slide 25Introduction to Business

© Thomson South-Western

EMBARGOES

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

Chapter 3

Slide 26Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are three formal trade barriers?

Chapter 3

Slide 27Introduction to Business

© Thomson South-Western

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

Free-trade agreements- member countries agree to remove duties and trade barriers on products

Common markets- members do away with duties and other trade barriers

Chapter 3

Slide 28Introduction to Business

© Thomson South-Western

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 of airport

Chapter 3

Slide 29Introduction to Business

© Thomson South-Western

FREE-TRADE AGREEMENTS Member countries agree to remove

duties and trade barriers on products traded among them

Results in increased trade between members

Chapter 3

Slide 30Introduction to Business

© Thomson South-Western

COMMON MARKETS

Allows companies to invest freely in each member’s country

Allows workers to move freely across borders

Examples European Union (EU) Latin American Integration Association

(LAIA)

Chapter 3

Slide 31Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What actions could be taken to encourage international trade?

Chapter 3

Slide 32Introduction to Business

© Thomson South-Western

LESSON 3-3LESSON 3-3

International Business OrganizationsGoals Discuss activities of multinational

organizations. Explain common international business

entry modes. Describe activities of international trade

organizations and agencies.

Chapter 3

Slide 33Introduction to Business

© Thomson South-Western

Key Terms

multinational company (MNC) joint venture

Chapter 3

Slide 34Introduction to Business

© Thomson South-Western

MNC STRATEGIES

Global strategy- uses the same product and marketing strategy world-wide (Coca-Cola)

Multinational strategy- treats each country market differently

Chapter 3

Slide 35Introduction to Business

© Thomson South-Western

MNC BENEFITS

Large amount of goods available Lower prices Career opportunities Foster understanding, communication,

and respect Friendly international relations

Chapter 3

Slide 36Introduction to Business

© Thomson South-Western

DRAWBACKS OF MULTINATIONAL COMPANIES Economic power Worker dependence on the MNC Consumer dependence Political power

Chapter 3

Slide 37Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are two strategies commonly used by multinational companies?

Chapter 3

Slide 38Introduction to Business

© Thomson South-Western

GLOBAL MARKET ENTRY MODES Licensing- selling the right to use some

intangible property for a fee or royalty (production process, trademark, brand name)

Franchising- the right to use a company name or business process in a specific way (fast food)

Joint venture- an agreement between two or more companies to share a business project (Japanese and American automobile manufacutring)

Chapter 3

Slide 39Introduction to Business

© Thomson South-Western

LICENSING

Allows companies to produce items in other countries without being actively involved

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

The risk for the company is low

Chapter 3

Slide 40Introduction to Business

© Thomson South-Western

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

Chapter 3

Slide 41Introduction to Business

© Thomson South-Western

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 since several companies are involved

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

Chapter 3

Slide 42Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

How does licensing differ from a franchise?

Chapter 3

Slide 43Introduction to Business

© Thomson South-Western

INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization- settles trade

disputes and enforces free-trade agreements International Monetary Fund- helps to

promote economic cooperation; maintains an orderly system of world trade

World Bank- provide economic aid to less developed countries

Chapter 3

Slide 44Introduction to Business

© Thomson South-Western

WORLD TRADE ORGANIZATION (WTO)WTO 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

Chapter 3

Slide 45Introduction to Business

© Thomson South-Western

INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world

trade and exchange rates Includes over 150 member nations

Chapter 3

Slide 46Introduction to Business

© Thomson South-Western

WORLD BANK

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

Today the World Bank has over 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

Chapter 3

Slide 47Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

How does the International Monetary Fund assist countries?