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

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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.

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Key Terms

balance of payments balance of trade exchange rate exports imports

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TRADING AMONG NATIONS

Absolute advantage Comparative advantage Importing Exporting

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IMPORTING

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MEASURING TRADE RELATIONS Balance of trade Balance of payments

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U.S. TRADE BALANCES

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BALANCE OF TRADE

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

How does balance of trade differ from balance of payments?

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INTERNATIONAL CURRENCY Foreign exchange rates Factors affecting currency values Three main factors affect currency

Balance of payments Economic conditions Political disability

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RECENT VALUES OF CURRENCIES

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

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

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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.

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Key Terms

infrastructure trade barrier quota tariff embargo

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THE INTERNATIONAL BUSINESS ENVIRONMENT Geography Cultural influences Economic development

Literacy level Technology Agricultural dependency

Political and legal concerns

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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

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

List the four main elements of the international business environment.

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INTERNATIONAL TRADE BARRIERS Quotas Tariffs Embargoes

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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 form abroad

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TARIFFS

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

other unit To set the value of a good

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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

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

What are three formal trade barriers?

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ENCOURAGING INTERNATIONAL TRADE Free-trade zones Free-trade agreements Common markets

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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

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FREE-TRADE AGREEMENTS Member countries agree to remove

duties and trade barriers on products traded among them

Results in increased trade between members

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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)

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

What actions could be taken to encourage international trade?

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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.

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Key Terms

multinational company (MNC) joint venture

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MULTINATIONAL COMPANIES (MNC) MNC strategies MNC benefits Drawbacks of multinational companies

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MNC STRATEGIES

Global strategy Multinational strategy

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MNC BENEFITS

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

and respect Friendly international relations

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

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

What are two strategies commonly used by multinational companies?

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GLOBAL MARKET ENTRY MODES Licensing Franchising Joint venture

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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

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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

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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

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

How does licensing differ from a franchise?

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INTERNATIONAL TRADE ORGANIZATIONS World Trade Organization International Monetary Fund World Bank

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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

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

trade and exchange rates Includes over 150 member nations

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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

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

How does the International Monetary Fund assist countries?