International Business Basics
Goals
Describe importing and exporting
Compare balance of trade and balance of payments
List factors that affect the value of global currency
Domestic Business Defined
The making, buying, and selling of goods and services within a country.• “Made for the U.S. by the U.S.”• Buy American……
International Business Defined
Business activities needed for creating, shipping, and selling goods and services across national borders.
For example: You go to Meijers and purchase a tool that was
manufactured in China.
Advantages
What might be some of the advantages of taking your business international vs. staying domestic?
Benefits To Businesses Participating in International Business
1. Access to many more markets2. Access to cheaper labor3. Increased quality or quantity of
goods4. Access to resources that may not be
available at home.
Access To MarketsU.S. Population: Roughly 320,119,930
• As of January 6, 2015 at 9 a.m.
World Population: Roughly 7,216,140,340 (as of same time above)
Conclusion: The Global market can reach
roughly 22 times more consumers than simply just U.S. consumers.
Types of Advantages
Absolute Advantage• This exists when a country can produce a good
or service at a lower cost than other countries Could be due to an abundance of nat. resources
(South Amer. = coffee, Saudi Arabia = oil)
Comparative Advantage• Where a country specializes in the production
of a G&S at which it is relatively more efficient
Flow of Goods And Services
Imports Goods and services flowing/coming into
Canada
Exports Goods and services flowing/going out of
Canada
Imports may include: Raw materials Processed materials Simi-finished goods, Manufactured goods ready for sale.
U.S. Imports & Exports 2010Rank Country Exports Imports %
1 Canada 248.8 276.5 16.5%
2 China 91.9 364.9 14.3%
3 Mexico 163.3 229.7 12.3%
4 Japan 60.5 120.3 5.7%
5 Germany 48.2 82.7 4.1%
6 United Kingdom
48.5 49.8 3.1%
7 South Korea 38.8 48.9 2.7%
8 France 27.0 38.6 2.1%
9 Taiwan 26.0 35.9 1.9%
10 Brazil 35.4 23.9 1.9%Source = http://trade.gov/publications/pdfs/tm_091208.pdf
Canada and US Trade Relationship
Why does it make sense to establish a solid trading relationship with the US?
1. Shipping costs are cheaper (proximity factor)2. Similar culture and interests so same types of
products and services will appeal to citizens3. Speak the same language, watch same TV
programs, movies, sports and similar fashion styles
4. Population of the states is 10x that of Canada’s
Balance of Trade
Balance of Trade Relationship between a country’s total imports and total
exports.
Trade Surplus = E > I Export$ are greater than Import$. Americans are selling more products to other countries than
they are importing. If surplus is made up of primarily manufactured goods, then
more jobs are created for Canadians.
Trade Deficit = E < I Americans are spending more money on importing goods
from other countries than selling/exporting goods to other countries.
Usually means that fewer Canadian jobs are being provided
Export Business
Two ways a business may export goods:
1. Through direct exporting 2. Through indirect exporting
Exporting Business
Direct Exporting The exporting company deals directly with the
company that will wishes to import the goods into his/her country.
Conducted usually by established companies who have the experience and resources to set up offices and sales staff in foreign countries.
More risky as the exporting company assumes all risk.
U.S. Company
China Company
Exporting Business
Indirect Exporting Goods move from the exporter to an
intermediary, who is often from the foreign country, and then on to the importing business.
Intermediary Someone or another company who helps the
exporter find a company who wants to purchase and import your goods)
U.S. Company
China Company
Intermediary Business or Individual
(middle man)
Exporting Business
Indirect Exporting Usually conducted by new businesses which don’t
have the resources, or global reputation
Business share financial risks with the intermediary
Some countries prohibit direct exporting, likely to create jobs for local intermediaries. (i.e. in the Middle East, Central America and Asia)
₤ € Currency ℓ ₣
A very large challenge for businesses involved in international trade.
Exchange Rate – value of a currency in one country compared with the value in another.• http://finance.yahoo.com/?u
Currency
3 things that affect exchange rates:• The country’s balance of payments
The difference between $$ that goes into and out of the country
• An increase in demand for that country’s products makes the exchange rate increase
• The country’s economic conditions High inflation & interest rates = Low
exchange rate• The country’s political stability
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