POB 1.03 Part 1
Understand business in the global marketplace.
Domestic Vs. Foreign Business
Domestic 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 Advantage
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. Exports
Imports – items brought into the US
from other countries
◦ Common imports: bananas, coffee,
cocoa, spices, tea, silk
Exports – goods and services sold to
other countries
◦ Common exports: agricultural products &
machinery, medicines, movies, music
Measuring Trade Relations
People 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 – 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 Payments
Balance 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?
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Investments in companies
Financial and military aid
Tourism
Banks depositing in foreign banks
Foreign Debt
Foreign Debt is the amount of money
a country owes other countries
We want to have a balance of trade
and a balance of payments
Foreign Exchange Market
Foreign 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 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
Understand business in the global marketplace.
What Factors Impact the
International Business Environment?
Geography
Culture
Economy
Political & legal Concerns
Geographic Factors
Location
Climate
Terrain
Seaports
Natural Resources
Cultural Factors
Culture – accepted behaviors,
customs and values of a society
Factors include …
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Language
Religion
Values
Customs
Social relationships
Economic Factors
What 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 Factors
Regulations on advertising and the
enforcement of contracts
Safety inspections
Type of government, stability of
government and policies towards
businesses
What are trade barriers?
Trade barrier – a restriction to free
trade
Formal barriers
◦ Embargo
◦ Quota
◦ Tariff
Informal barriers
◦ Culture
◦ Tradition
◦ Religion
Embargo
Embargo – 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
Quota
Quota – 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
Tariff
Tariff – tax the government places on
certain imported goods and services
Why?
◦ Increase the price of a good
◦ High tariff lowers demand and reduces
the amount imported
Encouraging International Trade
A few things that encourage
international trade
◦ Common Markets
◦ Free-Trade Agreements
◦ Free-Trade Zones
Common Markets
In 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 Agreements
In 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 Zone
A 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 airport
Importer pays duties when items leave
the zone
POB 1.03 Part 3
Understand business in the global marketplace.
What is a Multinational 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 Strategies
Global Strategy: selling the same
product and using the same marketing
strategy worldwide
Multinational Strategy: treats each
country market differently
Entry Modes into the Global
Marketplace
Franchising
Licensing
Joint Venture
Franchising
Franchising 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
Licensing
Licensing is selling the right to use
some intangible property for a fee or
royalty
◦ Production process, trade mark or brand
name
Joint Venture
A Joint Venture is an agreement
between 2 or more companies to
share a business project
◦ Popular in manufacturing
Major International Trade
Organizations
International 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 countries
World Trade Organization (WTO)
◦ Formed in 1995 to promote trade; over 150
countries; settles disputes and enforces free
trade agreements
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