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Business in the Global Economy

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Bell Ringer 1

1.
2.
Analyze Career Opportunities in…
INTERNATIONAL BUSINESS
Use the internet to learn
more about careers in
international business.
Choose one of the job
titles listed and answer the
following questions.
How would you describe
the earnings potential for
this field?
Is this a career that
interests you? Describe a
few things you could do
to learn more about this
career.
Customs Inspector
 Interpreter or Translator
 Global Purchasing
Manger
 Freight Inspector
 Cross-Cultural Trainer
 International Sales
Representative
 International Marketing
Manager
 Import-Export
Coordinator

Business in the Global Economy
Chapter 3
3-1
INTERNATIONAL
BUSINESS BASICS
Today’s Goals

Describe importing and exporting
activities
Fun Facts – Hong Kong
In business dealing with Westerners, the Chinese often chose a nickname. Don’t be surprised if
during your business dealing with the Chinese they ask to consult with a feng shui man. A feng
shui man may be brought in to determine good luck dates or the proper special arrangement for
a building or office. This individual's opinion should be observed.
Domestic Business

Making, buying, and selling of goods and
services within a country
International Business
aka World Trade or Foreign Trade

Business activities needed for creating, shipping, and
selling goods and services across national borders
with multiple countries
Why use International Trade?

Without foreign
trade, all of the
items you buy
would cost more
International Trade

Advantages
◦ Wider variety of products
◦ Lower costs

Disadvantages
◦ Competition for domestic companies
◦ American jobs lost to lower-paid workers in
other countries
Absolute Advantage

when a country can produce a product at a
lower cost than other countries

due to an abundance of natural resources
or raw materials
Comparative Advantage

a country specializes in the production and
exporting of a good or service at which it is
more efficient (lower cost)
Imports

Items bought from other countries

Some consumers prefer expensive foreign
goods over cheaper domestic products
US Imports

100%
Imports

Without foreign trade, many things we
buy would cost more or not be available

Other countries can produce some goods
at a lower cost because they have the
needed raw materials or have lower labor
costs
Exports

Goods and services sold to other countries
Exports

Helps create jobs in US
Bell Ringer 2
Imports are all around us. List 3
imported products you own.
What country were they made
in?
Today’s Goals

Compare balance of trade and
balance of payments
Measuring Trade Relations

Foreign Debt – amount a country owes to
other countries
Measured By:
1. Balance of Trade
2. Balance of Payments
Balance of Trade

Difference between a countries total exports
and total imports

Exports > Imports = Trade Surplus

Exports < Imports = Trade Deficit

Favorable vs. Unfavorable
Possible Trade Positions
Favorable Balance of Trade
Exports
Imports
Unfavorable Balance of Trade
Exports
Imports
Why is it important for a country to export more than it imports?
Balance of Payments
difference between the amount of money that
comes into a country and amount that goes out
of it

Credits > Debits = Positive or Favorable

Credits < Debits = Negative or Unfavorable
Other Forms of Exchange

Money goes from one country to another
through:
◦ Investments
◦ Tourism
◦ Government aid
 Financial
 Military
◦ Deposits in foreign banks
Goal 2 – Trade vs. Payments
How does balance of trade differ
from balance of payments?
Fair Trade

What is Fair Trade?
Create an informational flyer that promotes purchasing
Fair Trade products to other high school students. Research
www.fairtradeusa.org to find the content of your ad.
Communicate the benefits of Fair Trade Certified
purchases to businesses and consumers. Include pictures
of Fair Trade Certified products and where they can be
purchased. You may work with a partner. The
advertisement must be designed using Microsoft Publisher
or Microsoft Word.
Today’s Goals

List factors that affect the value of global
currencies
International Currency

Various currencies around the world
Saudi Arabia
Riyal
European Union
Euro
India
Rupee
Why do many countries use a
variety of colors in their
currency?
Color is used to distinguish different
denominations and discourage
counterfeiting.

banks that buy and sell different currencies
Exchange Rate
value of a currency in one country compared
with the value in another

Affected by supply and demand
Recent Values of Currencies
Country
Currency
Units per USD
Value in USD
Britain
Pound
0.66 pounds
1.52
Brazil
Real
1.73 reals
0.577
Dollar
0.98 dollars
1.01
European Union
Euro
0.76 euro
1.32
Japan
Yen
94.6 yen
0.0106
Saudi Arabia
Riyal
3.75 riyal
0.27
South Africa
Rand
7.43 rand
0.135
South Korea
Won
1117.67 won
0.0009
Bolivar
4,300.00 bolivars
0.000232558
Canada
Venezuela
Which currency is worth the most in terms of U.S. dollars?
Current Exchange Rates

www.x-rates.com

values change on a daily basis
3 Factors Affecting Currency Values
1.
2.
3.
Balance of Payments
Economic Conditions
Political Stability
Balance of Payments

Favorable = constant or rising value

Increased demand for nation’s products
and currency

Unfavorable = decline in value
Economic Conditions

Inflation reduces value

High interest rates = decrease in value
and demand
Political Stability

Political Instability
◦ Risk
◦ New laws

Businesses could lose buildings,
equipment or money on deposit in banks
Goal 3

Factors that affect the value of money:
◦ Balance of Payments
◦ Economic Conditions
◦ Political Stability
Using the internet, research what Illinois is
doing to encourage international trade.
Most states have an exporting program in
their state department of commerce.
Include Illinois’s main export as well. Write
a paragraph summary of your findings.
3-2
THE GLOBAL
MARKETPLACE
Today’s Goals

Describe the components of the
international business environment
International Business Environment
Geography
• location
• climate
Culture
• language
• customs
Economics
• technology
• education
Political-Legal Concerns
• political stability
• business regulations
Geography

Location

Climate

Terrain

Seaports

Natural Resources
Culture
accepted behaviors, customs, and
values of a society

Language

Family

Religion

Customs

Traditions

Food
Economics

Factors that affect a country’s level of economic
development are:
◦ Literacy Level
◦ Technology
◦ Agricultural Dependency
Infrastructure
A nation’s transportation, communication, and
utility systems
Political & Legal Concerns

Type of Government

Stability of Government

Trade Barriers

Business Regulations
Goal 1

The four elements of the international
business environment are:
◦ Geography
◦ Culture
◦ Economics
◦ Political-Legal Factors
Use the internet to locate information about
laws in foreign countries that are different
from those in the United States. Write down
5 laws in your notes and be prepared to
share them with the class.
www.listverse.com
www.dumblaws.com
1. List 3 laws that relate to international
business
2. Explain how they would impact doing
business with that country
Bell Ringer 3
What is the Arms Export
Control Act?
What year was it established?
Today’s Goals

Identify examples of formal trade
barriers
International Trade Barriers
restrictions to free trade

Government actions are formal trade
barriers.
◦ Ex: Quotas, tariffs, and embargoes

Informal trade barriers
◦ Ex: culture, tradition, religion
Quotas
limit on the quantity of a product that may
be imported or exported within a given
period

May be set to:
◦ Keep supply low and prices high
◦ Express displeasure at a countries' policies
◦ Protect an industry from too much foreign
competition
Tariff
a tax that a government places on certain
imported products

Increases prices of imported goods

High tariffs lower demand and import
quantity
Japan’s Tariffs

38.5% Beef

32% Oranges

40% Processed Cheese

10.5% Sweet Corn

20.4% Cookies
Do tariffs on imported goods
help consumers or hurt them?
Hurt them because they lead to higher
prices, lower quantity and variety of
products, and less competition among
manufacturers
Embargoes
stopping the export or import of a product
completely

Reasons to impose an embargo:
◦ Protect own industries more than a quota or
tariff will
◦ Prevent products from falling into the hands
of unfriendly groups or nations
◦ To express disapproval of policies of another
country
Trade Sanctions

http://www.treasury.gov/resourcecenter/sanctions/Programs/Pages/Program
s.aspx

http://www.pmddtc.state.gov/embargoed_
countries/index.html
Goal 2

What are three formal trade barriers?
◦ Quotas
◦ Tariffs
◦ Embargoes
Go to http://hts.usitc.gov/ and look up
the general US tariff amounts and unit
of quantity (pound, gallon, item) for five
different products. Explain the benefits
and drawbacks of tariffs for countries,
companies, and consumers.
Bell Ringer 4
What is a Port of Entry?
List 3 locations in Illinois?
Today’s Goals

Explain actions to encourage international
trade
Encouraging International Trade

Free-Trade Zones

Free-Trade Agreements

Common Markets
Free-Trade Zones
area where products can be imported duty-free
(tax free) then stored, assembled, and used in
manufacturing

Usually in seaports and airports
Free-Trade Agreements
member countries agree to remove duties
(import taxes) and trade barriers on products
traded among them

Increases trade between members

NAFTA (1994)- no tariffs between
members
Common Markets aka Economic Community
members do away with duties and trade
barriers

Allows money and people to move freely
across borders

Members have a common external duty
on products being imported from
nonmember countries
European Union (EU) est. 1993
Latin American Integration
Association (LAIA) est. 1960
Goal 3

What actions could be taken to
encourage international trade?
◦ Free-Trade Zones
◦ Free-Trade Agreements
◦ Common Markets
Using the internet, print a map of a country.
Label the geographic benefits of the country
(seaports, waterways, terrain, climate,
natural resources, ports of entry). After that,
research informal trade barriers for that
country (customs, traditions, religion,
language). Record your research on the same
page as your map.
Bell Ringer 5
In how many countries is
McDonalds located?
Where is their headquarters?
3-3
INTERNATIONAL
BUSINESS
ORGANIZATIONS
Today’s Goals

Discuss activities of multinational
organizations

Explain common international
business entry
Multinational Companies (MNC)
an organization that does business in several
countries

Parent company in home country

Divisions or branches in host country
How does this picture illustrate the following
concepts: multinational company, home country,
and host country?
Korean company, KIA, is doing business in the US as
well as Korea. Korea is the home country because
that is where the parent company is located. KIA
has placed business activities in the US, making it the
host country.
Global Strategies aka Standardized
uses the same product and marketing strategy
worldwide

Offering the same product the same way
everywhere
Multinational Strategy aka Adapted
treats each country market differently, adapt to
customs, tastes, and buying habits of a distinct
national market
Chinese McDonalds Menu
Interesting McDonalds Items
Advantages of Multinational
Companies

Larger markets and more available to
consumers

More products at lower prices

More career opportunities
Drawbacks of MNC

Can become a major economic power in
host country

Workers may depend on the MNC for jobs

Consumers can become dependent for
goods and services

May influence or control the political power
of a country
Global Market Entry Modes

Licensing

Franchising

Joint Venture
Licensing
selling the right to use some
intangible property
(production process, trademark,
or brand name) for a fee or
royalty

Involves manufacturing

Low financial investment and
risk
Franchising
the right to use a company name or business
process in a specific way

Contracted to have same business
elements but local marketing elements

Involves selling a product or service
Joint Venture
an agreement between two or more companies
to share a business project

Benefit by sharing raw materials, shipping
facilities, management activities, or
production facilities

Concerns are sharing of profits and
control
Joint Venture

Most popular in manufacturing

Example: Japanese and U.S. auto
manufacturers
Today’s Goals

Describe activities of international
trade organizations and agencies
International Trade Organizations

Created to help companies with global
trade activities
International Trade Organizations
worksheet
World Trade Organization (WTO)
www.wto.org

Created in 1995 to promote trade
around the world

Settles trade disputes

Enforces Free-Trade agreements between
members
World Trade Organization

Goals:
◦ Lower tariffs that discourage free trade
◦ Eliminate import quotas
◦ Reduce barriers for banks, insurance
companies, and other financial services
◦ Assist poor countries with economic growth
International Monetary Fund (IMF)
www.imf.org

Formed in 1946 to promote economic
cooperation

Maintains world trade and exchange rates

Eliminates trade wars
International Monetary Fund

Promotes exchange rate stability

Provides resources to help members in
balance of payments difficulties

Assists with poverty reduction
World Bank www.worldbank.org

International Bank for Reconstruction and
Development (IBRD)

Created in 1944 to provide loans for
rebuilding after WWII

Key function is to give economic aid to less
developed countries
World Bank Divisions

International Development Association
(IDA)
 Makes loans to help developing/poor countries

International Finance Corporation (IFC)
 Provides capital and technical help to private
businesses in nations with limited resources
 Promotes joint ventures between foreign
companies and local companies to further capital
investment in developing nations
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