International Business

Intro to Business

04/19/23

Trading Among Nations

• Domestic Business – making, buying, selling of goods and services within a country

• International Business – all of the business activities necessary for creating, shipping, and selling goods and services across national boarders (aka world trade)

Advantages over America

Why do we trade?

• While America has many natural resources, a skilled labor force, and modern machines and methods of production, we cannot provide ourselves with all of the things we want.

• We must go outside of our borders to get some of the things that other countries specialize in.

America’s Advantages over other countries

Importing

• Imports – the things we buy from other countries• Imports account for 100% of:

Foreign Trade

• Without foreign trade, many of the things we buy would cost more or not be available to our consumers.

• Other countries can produce some goods at lower costs because they have the needed raw materials or have lower labor costs.

• Some consumers may still purchase foreign goods at higher prices if they perceive the value to be higher.

• Or they may simply just enjoy owning foreign products:– French Perfumes, Norwegian Sweaters, Swiss Watches

Exporting

• Exports – the goods and services we sell to other countries

• Exports benefit consumers in other countries– Factory and farm machinery made in U.S.– Food grown on U.S. farms– Chemicals, pesticides, medicines and plastics produced in U.S.– U.S. Movies, Television (CNN, MTV, ESPN)– U.S. Books, magazines, newspapers

• 1 out of every 6 U.S. jobs depends on international business

International Currency

• Each nation has its own banking system and its own type of money– Russia: ruble– India: rupee– Japan: yen

• Exchanging one currency for another occurs in the foreign exchange market

• The value of each currency in one country compared to another country is called the exchange rate

Barriers to International Trade

• Governments establish international policies that guide trade with other countries – through control of importing and exporting

– Quotas– Tariffs– Embargos

Quota

• Sets a limit on the quantity of a product that may be imported or exported within a given period of time

• Reasons:– Keep supply low = keep prices up– To express disproval of one countries social behavior or

policies– To protect one country’s industry from too much competition

– Known as shielding infant industries which need protection to get started

Tariff

• A tax that government places on certain imported products

• Ex. A foreign bicycle costs $140 but our government collects a 20% tariff ($28) costing you $168, plus shipping

• The increase in price lowers demand• May help consumers decide to purchase domestic

product

Embargo

• Stop on an import or export completely

• Reasons:– Protection from international competition (to a greater

degree than the tariff or quota)– To prevent sensitive information falling into hands of

unfriendly groups or nations (relating to defense)– As well as to express disproval of the actions or policies of

another country

Measuring trade between nations

• Just like people try to spend less than they earn, countries try to maintain a positive balance of trade

Balance of Trade

• The difference between a country’s total exports and imports

• Trade surplus – exports more than imports• Trade deficit – imports more than exports

Multinational Company/Corporation (MNC)

• An organization that conducts business in several countries and has management capable of doing business worldwide