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

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1 Essential Standard1.00 Understand the role of business in the global economy. 1

2 Objective 1.03 Understand business in the global marketplace. 2

3 Topics Factors and regulations companies have to consider when doing business in the global market place Main entry modes for companies to enter the global marketplace Main international trade organizations 3

4 Factors and regulations companies have to consider when doing business in the global market place 4

5 Domestic vs. International Businesses What activities are included in domestic business transactions? Where do they take place? What activities are included international business transactions? Where do they take place? 5

6 Domestic vs International Domestic Within a Country International Across national borders 6

7 Business Advantage Factors Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient. What are some examples of absolute and comparative advantages? 7

8 Absolute Advantage Goods or services that countries can produce at a lower cost than other countries Examples include Saudi Arabia- Oil production Columbia- coffee Virgin Islands- sand 8

9 Comparative Advantage A country specializes in the production of a good or service because they are efficient when they product it. China-manufacturing of clothes and household goods America-Technology Japan-Electroncis 9

10 Importing Advantages and Disadvantages Advantages Goods available for purchase. Goods could have cost less since they were imported. Goods may be a better quality since imported. Goods imported and owned may provide satisfaction. Disadvantages Some goods would cost more without competition of imported goods. Possibly goods may be unavailable. 10

11 Exporting Advantages and Disadvantage(s) Advantages Exporting creates jobs. Exporting provides access to goods usually unavailable. Disadvantage(s) Jobs may depend on global business. 11

12 Measuring of Trade Relations What is a way to measure trade relations? Why are measures of trade relations completed? Foreign debt is the amount of money a country owes to other countries. 12

13 Measuring of Trade Relations continued Balance of trade is the difference between a country s total exports and total imports. If a country exports more than it imports, it has a trade surplus. This is favorable. If a country imports more than it exports, it has a trade deficit. This is unfavorable. 13

14 Measuring of Trade Relations continued Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it. If a country receives more money in a year than it pays out, it has favorable balance. If a country sends more money out than it brings in, it has an unfavorable balance. 14

15 International Currency Exchange Rate Main Factors The foreign exchange market is where banks buy and sell different currencies. The exchange rate is the value of a currency in one country when compared with the value in another. 15

16 International Currency Exchange Rate Main Factors Continued Main factors affecting currency exchange rates are: Balance of payments Economic conditions Political stability 16

17 International Business Environment Factors What are the main environmental issues that could make a difference when conducting business in the global marketplace? How could these issues impact businesses? 17

18 International Business Environment Factors continued Four main factors: Geography Cultural Influences Economic Development Political and Legal Concerns 18

19 International Business Environment Factors continued What is included in a country s geography? Location Climate Terrain Seaports The geography of a country could impact its natural resources and export and import of resources. 19

Language Religion Customs Food Values -------------------------------------

20 International Business Environment Factors continued What main cultural factors may Influence how business is conducted in the global marketplace? Language Religion Customs Food Values The accepted behavior, customs and values of a society could impact business activities. 20

International Business Environment Factors Continued What key effects of a country s economics that may influence conducting business in a global marketplace?

21 International Business Environment Factors Continued What key effects of a country s economics that may influence conducting business in a global marketplace? Education and Literacy Technology Infrastructure A country s economic development impacts its citizens standard of living and business activities. 21

22 International Business Environment Factors continued What political and legal concerns may influence business activities in a global marketplace? Type of Government Stability of Government Government Policies Political and legal concerns influence business activities in the global marketplace. 22

23 Main International Trade Barrier Factors Embargo Government bans the import or export of specified goods. Why would a government place an embargo? Protect a good or service from to much competition Quotas A limit on the quantity of good that may be imported or exported within a given period to regulate international trade. Why would a company or country set a quota? To regulate the supply and prices Tariffs Taxes on certain imported products which increases prices. Why would a government use a tariff? To protect the supply of goods 23

24 Encouragement of International Trade Factors Main factors are: Common Market: Countries that are members freely invest in one another. Examples: European Union (EU) Latin American Integration Association (LAIA) 24

25 Encouragement of International Trade Factors continued Free-Trade Agreement: Countries that are members remove duties and trade barriers on products traded among them to increase trade between members. Example NAFTA (the North American Free Trade Agreement) between the United States, Canada, and Mexico. 25

26 Encouragement of International Trade Factors continued Free-trade zones: Include selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport. 26

27 Main entry modes for companies to enter the global marketplace 27

28 Main Entry Modes to the Global Marketplace Franchising is allowing a business the rights to use another company s name or process in a specific way. What are some examples? Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty. What are some examples? 28

29 Main Entry Modes to the Global Marketplace continued Joint venture happens when two or more companies agree to share a business project. What are some examples? 29

30 Main international trade organizations 30

31 Main International Trade Organizations International Monetary Fund (IMF) World Bank World Trade Organization (WTO) 31

32 Main International Trade Organizations continued International Monetary Fund (IMF) Helps promote economic cooperation and maintain an orderly system of world trade and exchange rates. World Bank Provides economic aid to developing countries to fund building communications systems, transportation networks, and energy plans. 32

33 Main International Trade Organizations continued World Trade Organization (WTO) Settles trade disputes and enforces free-trade agreements among its members. 33

Business in the Global Economy

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 3-1 International Business Basics Goal 1 Describe