Unit FiveTrade Relations

Unit 5 Vocabulary

Balance of PaymentsBill of LadingCertificate of OriginCost, Insurance, and

Freight (CIF)Cost & Freight (C&F)CountertradeCustoms OfficialDirect BarterEconomic Community

Free On Board (FOB)Freight ForwarderIndustryMonopolistic

CompetitionMonopolyOligopolyPure CompetitionTrade Deficit

Unit 5 Essential Question

How do international companies trade?

Amplifying Questions

Why is importing Why is importing important?important?

What are the steps for What are the steps for importing goods?importing goods?

Essential Question 1Trade Relations

What are the procedures for importing goods?

International Business pg. 143-147

Importance of Importing

Product demand:Some goods and services are available only from

other countries.

Lower costs:Some goods and services are less expensive when

produced in one country than another.

Production inputs:Companies purchase raw materials and component

parts from other countries.

Importing Activities

Step 4: Receive goods

Step 3: Finalize purchase

Step 2: Contact suppliers

Step 1: Determine demand

Amplifying Questions

Why is the exporting Why is the exporting process?process?

What are the various What are the various sales terms?sales terms?

What documents are What documents are required for exporting required for exporting goods?goods?

What are some barriers What are some barriers to exporting?to exporting?

Essential Question 2Trade Relations

What are the procedures for exporting goods?

International Business pg. 149-154

The Exporting Process

STEP 1STEP 1FindFindpotentialpotentialcustomerscustomers

STEP 2STEP 2Meet the Meet the needs of needs of customerscustomers

STEP 3STEP 3AgreeAgree on on salessalestermsterms

STEP 4STEP 4Provide Provide productsproductsor servicesor services

STEP 5STEP 5Complete Complete the the transactiontransaction

Sales Terms

FOB - Free on board:Selling price of the product includes the cost

of loading the exported goods onto transport vessels at the specified place.

Sales Terms

CIF - Cost, insurance, and freight:Cost of goods, insurance, and freight are

included in the price quoted.

Sales Terms

C&F - Cost and freight:Price includes the cost of the goods and

freight, but the buyer must pay for insurance separately.

Export Documents

Bill of lading:Document stating the agreement between the

exporter and the transportation company.

Certificate of origin:Document that states the name of the country

in which the shipped goods were produced.

Exporting Hurdles

No company representatives in foreign countriesProducts not appropriate for foreign consumersInsufficient production facilities to manufacture

enough goods for exportingHigh costs of doing business in other countriesDifficulty understanding foreign business

proceduresDifficulty obtaining payment from foreign

customers

Commonly Exported Services

Hospitality:Hotels, food service

Entertainment:Movies, television production, amusement

parks

Financial services:Insurance, real estate

Amplifying Questions

What are the economic What are the economic effects of foreign trade?effects of foreign trade?

What type of trade What type of trade agreements exist agreements exist between countries?between countries?

Essential Question 3Trade Relations

Why is it important for countries to have trade relations?

International Business pg. 156-160

The Economic Effect of Foreign Trade

Balance of trade:The difference between a country’s exports

and imports.

The Economic Effect of Foreign Trade

The Economic Effect of Foreign Trade

Trade deficit:Total amount a country owes to other

countries as a result of importing more goods and services than the country is exporting.

Trade Agreements

The World Trade Organization:GATT was established in January 1948.WTO replaced GATT in 1995 with over 140

member nations.Based in Geneva, Switzerland.Has the power to settle trade disputes and

enforce free-trade agreements between members, unlike GATT.

Trade Agreements

The World Trade Organization Goals:Lowering tariffs that discourage free trade.Eliminating import quotas and subsidies that reduce

competition in the world market.Recognize protection for patents, copyrights, and

other intellectual properties.Reduce barriers for banks, insurance companies and

other financial institutions.Assisting poor countries with creating trade policies

and stimulating economic growth.

Trade Agreements

Economic communities:An organization of countries that bond together

to allow the free flow of products.Also called a common market.Benefits:

Expanded trade with other regions of the world. Reduced tariffs for member countries. Lower prices for consumers within the group. Expanded employment and investment opportunities.

Trade Agreements

Economic communities:Examples:

EU - European Union LAFTA - Latin American Free Trade Association ASEAN - Association of Southeast Asian Nations ECOWAS - Economic Community of West African

States. NAFTA - North American Free Trade Agreement

Trade Agreements

Barter agreements:The trade of one item for another.Direct trade: The exchange of goods and

services with no money involved.Countertrade: The exchange of products or

services between companies in different countries with the possibility of currency exchange.

Trade Agreements

Free-trade zones:An area designated by a government for duty-free

entry of non-prohibited goods.Commonly located at a point of entry into a nation.Merchandise may be stored, displayed, or used

without duties being paid.Duties are imposed on the goods only when items

enter into an area of the country subject to customs.

Amplifying Questions

What factors affect What factors affect international business international business competition?competition?

What are the various What are the various types of competitive types of competitive market situations?market situations?

Essential Question 4Trade Relations

How does competition affect international trade?

International Business pg. 162-166

International Business Competition

Factors affecting competitionNumber of companiesBusiness costsProduct differences

Benefits and concerns of competitionImprove economic situation and living

conditions of a country.Companies may become to powerful.

Types of Competitive Situations

Pure competitionMany sellersSame product

Monopolistic competitionMany sellersSlightly different

product

OligopolyFew sellersSlightly different

product

MonopolyOne sellerUsually government

regulated