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Business in the Global Economy

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UNIT 2 – BUSINESS IN THE
GLOBAL ECONOMY
Unit 2.02
The Global
Marketplace
INTERNATIONAL BUSINESS
ENVIRONMENT
 Geography
 Cultural influences
 Economic development
 Political and legal concerns
INTERNATIONAL BUSINESS
ENVIRONMENT
 Geography
 Location, climate, terrain, seaports, natural resources…
 How does this influence international business?:
 Very hot – limits the types of crops that can be grown
 Many rivers/seaports – easily ship products for foreign trade
 Limited natural resources – must depend on imports
INTERNATIONAL BUSINESS
ENVIRONMENT
 Cultural influences
 Culture – the accepted behaviors, customs, and values of
a society
 How does this influence international business?:
 Language – communication
 Religion – what is sacred to one may not be to another
 Values – is bribery considered wrong in different cultures?
 Customs – is it offensive to give a gift?
 Social Relationships – how men and women interact in
business
INTERNATIONAL BUSINESS
ENVIRONMENT
 Cultural influences
 Most Common world language?
1.
2.
3.
4.
5.
Mandarin Chinese
Spanish
English
Hindi
Arabic
 Most Common world religion?
1.
2.
3.
4.
5.
Christianity
Islam
Secular/Nonreligious/Agnostic/Atheist
Hinduism
Chinese Traditional Religion
INTERNATIONAL BUSINESS
ENVIRONMENT
 Cultural influences
 Most Common US language?
1.
2.
3.
4.
English
80.0%
Spanish
12.4%
Indo-European 3.7%
Asian
3.0%
 Most Common US religion?
1.
Christianity




2.
3.
4.
5.
6.
70.6%
Protestant 46.5%
Catholic
25.4%
Mormon
2%
Other
1%
None
Judaism
Islam
Hinduism
Other
22.8%
1.9%
0.9%
0.7%
2.7%
 US education levels





High School
Some College
Bachelors
Masters
Doctorate
88%
58%
32%
11%
2%
INTERNATIONAL BUSINESS
ENVIRONMENT
 Economic development
 Progress in an economy
 Going to work on a high-speed bullet train to manage a computer network in a
high-rise building versus riding an oxcart to a grass hut to operate a hand loom
to make cloth for people in their village
 How does this influence international business ?:
 Literacy Level – high levels literacy > better education > more and better
goods & services
 Technology – high automation > create and deliver goods quickly
 Agricultural Dependency – highly dependent > weaker manufacturing
base > fewer quantity/quality of products
 Infrastructure – nations’ transportation, communication, and
utility systems
 Stronger infrastructure > better prepared for international business
INTERNATIONAL BUSINESS
ENVIRONMENT
 Economic development
 Developed Countries
 High Human Development Index (HDI)
 Approx. 50 countries
 Norway, Australia, Netherlands, USA, New Zealand, Canada, Japan, Hong Kong,
Chile, Croatia
 Developing Countries
 Newly industrialized countries
 Approx. 100 countries
 Afghanistan, Argentina, China, Mexico, Peru, Poland, Russia
 Less Developed Countries
 Low standard of living, low industrial base, low HDI
 Approx. 50 countries




Africa – 34 countries
Asia – 9 countries
Oceania – 4 countries
Americas – 1 country (Haiti)
INTERNATIONAL BUSINESS
ENVIRONMENT
 Political and legal concerns
 Type of government, stability of government, and the
government’s policies toward business
 How does this influence international business ?:
 Regulations on fair trade
 Require safety inspections
 Enforce contracts
ELEMENTS OF INTERNATIONAL
BUSINESS ENVIRONMENT
INTERNATIONAL
TRADE BARRIERS
Trade Barriers – restriction to free trade
Quotas
Tariffs
Embargoes
QUOTAS
A limit on the quantity of a product that may be impor ted or
expor ted within a given period
 Reasons for quotas
 To keep supply low and prices the same
 Protects domestic producers from international competition
 To express displeasure at the policies of the importing country
 To protect one of a country’s industries from too much competition from
abroad
 Critics of import quotas
 Corruption (bribes to get a quota allocation)
 Smuggling (circumventing a quota)
TARIFFS
A tax that a government places on cer tain impor ted products
 Reasons for tarif fs
 To set amount per pound, gallon, or other unit
 To set the value of a good
 In 2010, the US collected over $25 Trillion in import tarif fs
 Example of tariffed goods:
 Chickens
 Rice
$0.90 each
$0.018/kg
EMBARGOES
Government stops the expor t or impor t of a product completely
 Reasons for embargoes
 To protect a country’s industries from international competition more
than the quota or tariff will achieve
 Sanctions related to





Terrorism
Diamond Trading
Narcotics
Nuclear proliferation
Human rights violations
EMBARGOES
 Sanctions imposed by the US government




No arms-related exports
Controls over dual-use exports
Restrictions on economic assistance
Financial restrictions
 Requiring the US to oppose loans by the World Bank
 Tax credits denied for companies who earned income in listed countries
 Authority to prohibit a US citizen from engaging in financial transactions
with the government on the list without a license from the US
 Prohibition of Defense Department contracts above $100,000 with
companies controlled by countries on the list
EMBARGOES
 The US currently has sanctions against
 6 countries
 Cuba
 Iran
 North Korea
 Sudan
 Syria
 Burma
 18 persons or groups within the country of





Belarus
Ivory Coast
DRC
Iraq
Lebanon





Russia
Somalia
Yugoslavia
Yemen
Zimbabwe





Ukraine/ Russia/ Crimea
Central African Republic
South Sudan
Libya
Venezuela
ENCOURAGING INTERNATIONAL TRADE
Free-trade zones
Free-trade agreements
Common markets
FREE-TRADE ZONES
A selected area where products can be impor ted duty -free and
then stored, assembled, and/or used in manufacturing
 Usually located around a seaport or airport
 Importer pays duty only when the product leaves the zone
FREE-TRADE AGREEMENTS
Member countries agree to remove duties (impor t taxes) and
trade barriers on products traded among them
 US has 14 Free-Trade Agreements in place with 20 countries
 Results in increased trade between members
 NAFTA (North American Free Trade Agreement)
 Began on January 1, 1994
 Canada & Mexico are US #1 and #3 trading partners, respectively
COMMON MARKETS
Members do away with duties and other trade barriers
 Allow companies to invest freely in each member’s country
 Allow workers to move freely across borders
 Examples
 European Union (EU)




27 member states
Single market with common standardized laws
Common currency
Highest GDP in world
 Latin American Integration Association (LAIA)
ASSIGNMENT
 NAFTA Pros & Cons
Largest US Trading Partners (in billions for year 2011)
Country
Canada
Exports
Imports
Total
Trade Balance
286.9
316.5
597.4
-35.7
China
103.9
399.3
503.2
-295.4
Mexico
197.5
263.1
460.6
-65.6
Japan
66.2
128.8
195
-62.6
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