POB 1.03 Part 1
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Transcript of POB 1.03 Part 1
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