Essential Standard1.00

Understand the role of business in the global economy.

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Objective 1.03

Understand business in the global marketplace.

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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

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Factors and regulations companies have to consider when doing business in the

global market place

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Domestic vs. InternationalBusinesses

• 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?

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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?

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International Trade

• From where do imports come?.

• From where do exports come?

• What are some examples of imports?

• What are some examples of exports?

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ImportingAdvantages 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.

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ExportingAdvantages and Disadvantage(s)• Advantages

– Exporting creates jobs.– Exporting provides access to goods usually

unavailable.

• Disadvantage(s)– Jobs may depend on global business.

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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.

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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.

Measuring of Trade Relations continued

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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.

Measuring of Trade Relationscontinued

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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.

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International Currency Exchange Rate Main Factors ContinuedMain factors affecting currency exchange

rates are:– Balance of payments– Economic conditions– Political stability

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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?

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International Business Environment Factors continuedFour main factors:

– Geography

– Cultural Influences

– Economic Development

– Political and Legal Concerns

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International Business Environment Factors continued

• What is included in a country’s geography?

-------------------------------------• The geography of a

country could impact its natural resources and export and import of resources.

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International Business Environment Factors continued• What main cultural

factors may Influence how business is conducted in the global marketplace?

-------------------------------------• The accepted behavior,

customs and values of a society could impact business activities.

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International Business Environment Factors Continued• What key effects of a

country’s economics that may influence conducting business in a global marketplace?

-------------------------------------• A country’s economic

development impacts its citizens standard of living and business activities.

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International Business Environment Factors continued

• What political and legal concerns may influence business activities in a global marketplace?

--------------------------------• Political and legal

concerns influence business activities in the global marketplace.

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Main International Trade Barrier Factors• Embargo

– Government bans the import or export of specified goods.Why would a government place an embargo?

• 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?

• Tariffs– Taxes on certain imported products which increases prices.– Why would a government use a tariff?

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Encouragement of InternationalTrade Factors

Main factors are:– Common Market: Countries that are

members freely invest in one another.

• Examples:

–European Union (EU)

–Latin American Integration Association (LAIA)

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Encouragement of InternationalTrade 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.

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Encouragement of InternationalTrade 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.

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Main entry modes for companies to enter the global marketplace

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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?

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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?

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Main international trade organizations

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Main International Trade Organizations

• International Monetary Fund (IMF)

• World Bank

• World Trade Organization (WTO)

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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.

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Main International Trade Organizations continued

• World Trade Organization (WTO)– Settles trade disputes and enforces free-trade

agreements among its members.

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