Business in the Global Economy

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1 SLIDE 1 C H A P T E R 3 Business in the Global Economy 3-1 International Business Basics 3-2 The Global Marketplace 3-3 International Business Organizations

2 3-1 International Business Basics Goal 1 Describe importing and exporting activities. Goal 2 Compare balance of trade and balance of payments. Goal 3 List factors that affect the value of global currencies Cengage Learning. All Rights Reserved. SLIDE 2

3 KEY TERMS SLIDE 3 imports exports balance of trade balance of payments exchange rate

4 TRADING AMONG NATIONS SLIDE 4 Absolute advantage Comparative advantage Importing Exporting

5 EXAMPLE OF U.S. IMPORT RELIANCE SLIDE 5

6 Checkpoint SLIDE 6 How does importing differ from exporting? Importing is bringing items from other countries into a country. Exporting is selling goods and services to other countries.

7 MEASURING TRADE RELATIONS SLIDE 7 Balance of trade Balance of payments

8 U.S. TRADE BALANCES SLIDE 8

9 BALANCE OF TRADE SLIDE 9

10 Checkpoint SLIDE 10 How does balance of trade differ from balance of payments? Balance of trade is the difference between a country s total exports and total imports. Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

11 SLIDE 11 INTERNATIONAL CURRENCY Foreign exchange rates Factors affecting currency values Three main factors affect currency Balance of payments Economic conditions Political disability

12 RECENT VALUES OF CURRENCIES SLIDE 12

13 Checkpoint SLIDE 13 What factors affect the value of a country s currency? Balance of payments Economic conditions Political stability

14 3-2 The Global Marketplace Goal 1 Describe the components of the international business environment. Goal 2 Identify examples of formal trade barriers. Goal 3 Explain actions to encourage international trade Cengage Learning. All Rights Reserved. SLIDE 14

15 KEY TERMS SLIDE 15 infrastructure trade barrier quota tariff embargo

16 INTERNATIONAL BUSINESS SLIDE 16 ENVIRONMENT Geography Cultural influences Economic development Literacy level Technology Agricultural dependency Political and legal concerns

17 SLIDE 17 ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

18 Checkpoint SLIDE 18 List the four main elements of the international business environment. Geography Cultural influences Economic development Political and legal concerns

19 INTERNATIONAL TRADE BARRIERS SLIDE 19 Quotas Tariffs Embargoes

20 QUOTAS SLIDE 20 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

21 TARIFFS SLIDE 21 Reasons for tariffs To set amount per pound, gallon, or other unit To set the value of a good

22 EMBARGOES SLIDE 22 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

23 Checkpoint SLIDE 23 What are three formal trade barriers? Quotas Tariffs Embargoes

24 ENCOURAGING INTERNATIONAL TRADE SLIDE 24 Free-trade zones Free-trade agreements Common markets

25 FREE-TRADE ZONES SLIDE 25 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 or airport

26 FREE-TRADE AGREEMENTS SLIDE 26 Member countries agree to remove duties and trade barriers on products traded among them Results in increased trade between members

27 COMMON MARKETS SLIDE 27 Allow companies to invest freely in each member s country Allow workers to move freely across borders Examples European Union (EU) Latin American Integration Association (LAIA)

28 Checkpoint SLIDE 28 What actions could be taken to encourage international trade? Actions that could be taken to encourage international trade include free-trade zones, free-trade agreements, and common markets.

29 3-3 International Business Organizations Goal 1 Discuss activities of multinational organizations. Goal 2 Explain common international business entry modes. Goal 3 Describe activities of international trade organizations and agencies Cengage Learning. All Rights Reserved. SLIDE 29

30 KEY TERMS SLIDE 30 multinational company (MNC) joint venture

31 MULTINATIONAL COMPANIES (MNC) SLIDE 31 Organizations that do business in several countries Home country Host country

32 MNC STRATEGIES SLIDE 32 Global strategy Multinational strategy

33 MNC BENEFITS SLIDE 33 Large amount of goods available Lower prices Career opportunities Foster understanding, communication, and respect Friendly international relations

34 DRAWBACKS OF MULTINATIONAL COMPANIES SLIDE 34 Economic power Worker dependence on the MNC Consumer dependence Political power

35 Checkpoint SLIDE 35 What are two strategies commonly used by multinational companies? Global strategy (offering the same product the same way everywhere) Multinational strategy (approaching each country market differently).

36 GLOBAL MARKET ENTRY MODES SLIDE 36 Licensing Franchising Joint venture

37 LICENSING SLIDE 37 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

38 FRANCHISING SLIDE 38 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

39 JOINT VENTURE SLIDE 39 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 because several companies are involved Very popular for manufacturing, such as Japanese and U.S. automobile manufacturers

40 Checkpoint SLIDE 40 How does licensing differ from a franchise? Licensing does not require as much financial investment or risk as franchising. Both licensing and franchising involve royalty payments, but licensing usually involves a manufacturing process, while franchising commonly involves selling a product or service.

41 INTERNATIONAL TRADE ORGANIZATIONS SLIDE 41 World Trade Organization International Monetary Fund World Bank

42 WORLD TRADE ORGANIZATION (WTO) SLIDE member countries Promotes trade Settles trade disputes Enforces free-trade agreements Other 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

43 SLIDE 43 INTERNATIONAL MONETARY FUND (IMF) Helps to promote economic cooperation Maintains an orderly system of world trade and exchange rates Includes more than 150 member nations

44 WORLD BANK SLIDE 44 Created in 1944 to provide loans for rebuilding after World War II Today the World Bank has more than 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

45 Checkpoint SLIDE 45 How does the International Monetary Fund assist countries? The International Monetary Fund assists countries by promoting economic cooperation and maintaining an orderly system of world trade and exchange rates. This cooperation makes harmful trade wars among IMF nations less likely.

Essential Standard1.00. Understand the role of business in the global economy.

Essential Standard1.00. Understand the role of business in the global economy. Essential Standard1.00 Understand the role of business in the global economy. 1 Objective 1.03 Understand business in the global marketplace. 2 Topics Factors and regulations companies have to consider