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