POB 1.03 Part 1 POB 1.03 Part 1 Understand business in the global marketplace.

Domestic Vs. Foreign Domestic Vs. Foreign BusinessBusinessDomestic Business

◦The making, buying, and selling of goods and services within a country.

Foreign Business◦Business activities needed for creating,

shipping, and selling goods and services across international borders

◦Also called international business or world trade

Absolute Vs. Comparative Absolute Vs. Comparative AdvantageAdvantage

Absolute Advantage◦Exists when a country can produce a

good or service at a lower cost than other countries (ex. Saudi Arabia and oil)

Comparative Advantage◦Exists when a country specializes in the

production of goods and services at which it is relatively more efficient

Imports Vs. ExportsImports Vs. ExportsImports – items brought into the US

from other countries◦Common imports: bananas, coffee,

cocoa, spices, tea, silkExports – goods and services sold to

other countries◦Common exports: agricultural products &

machinery, medicines, movies, music

Measuring Trade RelationsMeasuring Trade RelationsPeople work to buy things ….

◦We sell our labor for wages◦We spend wages on goods and services◦We try to keep spending and income in

balance◦Countries want to keep a balance too

Balance of Trade Balance of Trade Balance of Trade – difference between a

country’s total exports and total imports◦Trade surplus is favorable

exports > imports

◦Trade deficit is unfavorable Imports > exports

◦Can have a surplus with one country and deficit with another

◦Don’t want to be dependent on other countries

Balance of PaymentsBalance of PaymentsBalance of Payments – difference

between the amount of money that comes into the country and the amount that goes out of it◦Favorable: $ in > $ out◦Unfavorable: $ out > $ in

How does money go in and out?◦ Investments in companies◦Financial and military aid◦Tourism ◦Banks depositing in foreign banks

Foreign DebtForeign DebtForeign Debt is the amount of money

a country owes other countriesWe want to have a balance of trade

and a balance of payments

Foreign Exchange MarketForeign Exchange MarketForeign Exchange Market – banks

that buy and sell different currencies

Exchange Rate – the value of a currency in one country compared with the value in another

What factors affect the What factors affect the exchange rate?exchange rate?

Balance of Payments – rate rises when there is a favorable balance

Economic Conditions – inflation and high interest rates reduce buying power

Political Stability – avoid risk!◦Changes in govt. party◦New laws put into place

POB 1.03 Part 2 POB 1.03 Part 2 Understand business in the global marketplace.

What Factors Impact the What Factors Impact the International Business International Business Environment?Environment?

GeographyCultureEconomyPolitical & legal Concerns

Geographic FactorsGeographic FactorsLocationClimateTerrainSeaportsNatural Resources

Cultural FactorsCultural FactorsCulture – accepted behaviors,

customs and values of a societyFactors include …

◦Language◦Religion◦Values◦Customs◦Social relationships

Economic FactorsEconomic FactorsWhat are the differences in the living and

work environments?3 Key Effects:

◦Literacy Level – better ed = more & better products for citizens

◦Technology – automated production, distribution and communication = ability to create and deliver products quickly

◦Agricultural Dependency – usually either heavy ag focus or manufacturing

Infrastructure: nation’s transportation, communication, and utility systems

Political and Legal FactorsPolitical and Legal FactorsRegulations on advertising and the

enforcement of contractsSafety inspectionsType of government, stability of

government and policies towards businesses

What are trade barriers?What are trade barriers?Trade barrier – a restriction to free

tradeFormal barriers

◦Embargo◦Quota◦Tariff

Informal barriers◦Culture◦Tradition◦Religion

EmbargoEmbargoEmbargo – an action imposed by a

government to stop the export or import of a product completely

Why?◦To protect its own industries from

international competition◦Prevent products from getting to other

countries (ex: defense weapons)◦Express disapproval of actions/policies

QuotaQuotaQuota – limit on the quantity of a

product that may be imported or exported within a given time period

Why?◦To keep prices stable (high)◦Express displeasure toward a country◦Protect its own country’s industry

TariffTariffTariff – tax the government places on

certain imported goods and servicesWhy?

◦Increase the price of a good◦High tariff lowers demand and reduces

the amount imported

Encouraging International Encouraging International TradeTradeA few things that encourage

international trade◦Common Markets◦Free-Trade Agreements◦Free-Trade Zones

Common MarketsCommon MarketsIn a common market, the member

countries do away with the duties and other trade barriers

AKA “economic community”Examples: European Union (EU),

Latin American Integration Association (LAIA)

Free-Trade AgreementsFree-Trade AgreementsIn a Free-Trade Agreement, member

countries agree to remove the duties and trade barriers on products traded among them

Example: North American Free Trade Agreement (NAFTA) 1993

Free Trade ZoneFree Trade ZoneA Free Trade Zone is a selected are

where products can be imported duty free and then stored, assembled, and/or used in manufacturing

Usually near a seaport or airportImporter pays duties when items

leave the zone

POB 1.03 Part 3 POB 1.03 Part 3 Understand business in the global marketplace.

What is a Multinational What is a Multinational Company?Company?Multinational Company (MNC) is an

organization that does business in several countries◦The parent company is in the home

country and does business activities in the host country.

◦Pros: cheaper goods and career opportunities

◦Cons: may become an economic power; host may depend on the MNC for jobs & products

International Business International Business StrategiesStrategiesGlobal Strategy: selling the same

product and using the same marketing strategy worldwide

Multinational Strategy: treats each country market differently

Entry Modes into the Global Entry Modes into the Global MarketplaceMarketplaceFranchisingLicensingJoint Venture

FranchisingFranchisingFranchising is the right to use a

company name or business process in a specific way.◦Usually involves selling a product or

service. ◦Example: McDonalds, KFC

LicensingLicensingLicensing is selling the right to use

some intangible property for a fee or royalty◦Production process, trade mark or brand

name

Joint VentureJoint VentureA Joint Venture is an agreement

between 2 or more companies to share a business project ◦Popular in manufacturing

Major International Trade Major International Trade OrganizationsOrganizationsInternational Monetary Fund

◦150 member nations; helps to promote economic cooperation; keeps orderly system of trade and exchange rates

World Bank◦Formed in 1944; gives economic aid to less

developed countriesWorld Trade Organization (WTO)

◦Formed in 1995 to promote trade; over 150 countries; settles disputes and enforces free trade agreements