Essential Standard1.00

Essential Standard1.00Understand the role of business in the global economy.

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Objective 1.03Understand business in the global marketplace.

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TopicsFactors and regulations companies have to consider when doing business in the global market place

Main entry modes for companies to enter the global marketplace

Main international trade organizations

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Factors and regulations companies have to consider when doing business in the

global market place

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Domestic vs. InternationalBusinessesWhat are domestic business

transactions? Where do they take place?

What are international business transactions? Where do they take place?

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Domestic vs. InternationalBusinessesDomestic business is the making,

buying, and selling of goods and services within a country.

International business, aka foreign or world trade refers to business activities needed for creating, shipping, and selling goods and services across national borders.6

Business Advantage FactorsAbsolute advantage exists when a

country can produce a good or service at a lower cost than other countries.

Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient.

What are some examples of absolute and comparative advantages? 7

International Trade

From where do imports come?Bought from other countries

What are some examples of imports?

Furniture, bananas, tax prep services 8

ImportingAdvantages and DisadvantagesAdvantages

Goods available for purchase. Goods could have cost less since they

were imported. Goods may be a better quality since

imported. Goods imported and owned may provide

satisfaction.9

ImportingAdvantages and Disadvantages

DisadvantagesSome goods would cost more

without competition of imported goods.

Possibly goods may be unavailable.

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International TradeFrom where do exports come?Goods and Services sold to other countries

What are some examples of exports?

Silver, automobile parts, software 11

ExportingAdvantages and Disadvantage(s)

AdvantagesExporting creates jobs.Exporting provides access to goods

usually unavailable.

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ExportingAdvantages and Disadvantage(s)

Disadvantage(s)Jobs may depend on global

business.

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Business in Global Economy Activity

Worksheet

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What are trade relations??

Relationships between countries

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Measuring Trade RelationsWhat is a way to measure trade

relations?

Why are measures of trade relations completed?

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Measuring Trade RelationsWhat is a way to measure trade

relations? Balance of trade or balance of payments

Why are measures of trade relations completed?

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Measuring Trade Relations

What is a way to measure trade relations?

Balance of trade or balance of payments

Why are measures of trade relations completed?

Nations are concerned with balancing income with expenditures

Foreign debt is the amount of money a country owes to other countries.

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Measuring Trade Relations

What is a way to measure trade relations?

Balance of trade or balance of payments

Why are measures of trade relations completed?

Nations are concerned with balancing income with expenditures

Everyone has to balance their budget !!

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Measuring Trade Relations

Foreign debt is the amount of money a country owes to other countries.

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Measuring of Trade Relations continued

Balance of trade is the difference between a country’s total exports and total imports.

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Measuring of Trade Relations continued

Balance of trade is the difference between a country’s total exports and total imports.

If a country exports more than it imports, it has a trade surplus. This is favorable.

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Measuring of Trade Relations continued

Balance of trade is the difference between a country’s total exports and total imports.

If a country exports more than it imports, it has a trade surplus. This is favorable.

If a country imports more than it exports, it has a trade deficit. This is unfavorable.23

Measuring of Trade Relationscontinued

Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

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Measuring of Trade Relationscontinued

Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

If a country receives more money in a year than it pays out, it has favorable balance.

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Measuring of Trade Relationscontinued

Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it.

If a country receives more money in a year than it pays out, it has favorable balance.

If a country sends more money out than it brings in, it has an unfavorable balance.

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Balance of Trade and payments Activity

Worksheet

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International Currency Exchange Rate - Main Factors

The foreign exchange market is where banks buy and sell different currencies.

The exchange rate is the value of a currency in one country when compared with the value in another.

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International Currency Exchange Rate - Main Factors Continued

Main factors affecting currency exchange rates are:Balance of paymentsEconomic conditionsPolitical stability

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International Currency Exchange Rate Main Factors Continued

Balance of payments is influenced by demand for a nation’s goods and services.If the balance is favorable, then usually currency is steady and rising in value

If unfavorable, then usually the currency is declining in value.

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International Currency Exchange Rate - Main Factors Continued

Economic conditions Inflation decreases buying power of currency

Interest rates that are high decreases demand to borrow money.

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International Currency Exchange Rate - Main Factors Continued

Political StabilityCould be impacted by changes in government or laws

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International Business Environment Factors

What are the main environmental issues that could make a difference when conducting business in the global marketplace?

How could these issues impact businesses?

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International Business Environment Factors continued

Four main factors:Geography

Cultural Influences

Economic Development

Political and Legal Concerns

International Business Environment Factors

GeographyCountries with

natural resources may have to rely on exports

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International Business Environment Factors continued

What is included in a country’s geography?

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The geography of a country could impact its natural resources and export and import of resources.

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International Business Environment Factors continued

What is included in a country’s geography?

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Location Climate Terrain Seaports Natural Resources

International Business Environment Factors

Cultural influencesIn a country –

executives may prefer to meet with people of the same culture

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International Business Environment Factors continued

What main cultural factors may Influence how business is conducted in the global marketplace?

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The accepted behavior, customs and values of a society could impact business activities.

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International Business Environment Factors continued What main cultural factors

may Influence how business is conducted in the global marketplace?

------------------------------------- Language Religion Family Food Values Customs Social Relationships

International Business Environment Factors

Economic DevelopmentMay have limited

transportation methods that may limit travel distance to imported goods

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International Business Environment Factors Continued

What key effects of a country’s economics that may influence conducting business in a global marketplace?

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A country’s economic development impacts its citizens standard of living and business activities.

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International Business Environment Factors Continued

What key effects of a country’s economics that may influence conducting business in a global marketplace?

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A country’s economic development impacts its citizens standard of living and business activities.

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International Business Environment Factors Continued What key effects of a country’s

economics that may influence conducting business in a global marketplace?

------------------------------------- Education & literacy level Inflation Technology Exchange rate Agricultural dependency Infrastructure (Transportation,

communications, utilities systems)

International Business Environment Factors

Political-legal concernsAre taxes paid by

citizens or do they ignore laws?

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International Business Environment Factors continued

What political and legal concerns may influence business activities in a global marketplace?

-------------------------------- Political and legal

concerns influence business activities in the global marketplace.

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International Business Environment Factors continued

What political and legal concerns may influence business activities in a global marketplace?

-------------------------------- Type of government Stability of Government Gov’t policies for

businesses relevant to trade barriers

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Main International Trade Barrier Factors Embargo

Quotas

Tariffs

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Main International Trade Barrier Factors Embargo

Government bans the import or export of specified goods.

Why would a government place an embargo?

To protect a good or service from too much competition in a global market place more than what a quota or tariff could

To protect sensitive goods

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Main International Trade Barrier Factors Quotas

A limit on the quantity of good that may be imported or exported within a given period to regulate international trade.

Why would a company or country set a quota?

To regulate the supply and prices To protect a good or service from too much

competition in a global market place.

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Main International Trade Barrier Factors Tariffs

Taxes on certain imported products which increases prices.

Why would a government use a tariff? To protect the supply of goods.

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Encouragement of InternationalTrade Factors

Main factors are:Common Market

Free Trade Agreements

Free Trade Zone

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Encouragement of InternationalTrade Factors

Common Market: Countries that are members freely invest in one another.

Examples:European Union (EU)Latin American Integration Association (LAIA)

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Encouragement of InternationalTrade Factors continued

Free-Trade Agreement: Countries that are members remove duties and trade barriers on products traded among them to increase trade between members.

Example NAFTA (the North American Free Trade Agreement) between the United States, Canada, and Mexico.

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Encouragement of InternationalTrade Factors continued

Free-trade zones: Include selected areas that allow duty-free products to be imported, and then stored, assembled, and/or used in manufacturing. The activities usually occur around a seaport or airport.

Main entry modes for companies to enter the global marketplace

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Main Entry Modes to the Global Marketplace

Franchising LicensingJoint venture

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Main Entry Modes to the Global Marketplace

Franchising is allowing a business the rights to use another company’s name or process in a specific way.

Examples:H & R BlockDunkin’ Donuts

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Main Entry Modes to the Global Marketplace

Licensing is selling the right to a company to use some intangible property (production process, trademark, or brand name) for a fee or royalty.

Examples:Bob Timberlake FurnitureMichael Jordan – Air jordans

Main Entry Modes to the Global Marketplace continued

Joint venture happens when two or more companies agree to share a business project.

Examples:Cable TV and TV StationsGas Company and convenience store

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Main international trade organizations

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Main International Trade Organizations

International Monetary Fund (IMF)

World Bank

World Trade Organization (WTO)

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Main International Trade Organizations continued

International Monetary Fund (IMF)Helps promote economic cooperation

and maintain an orderly system of world trade and exchange rates.

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Main International Trade Organizations continued

World BankProvides economic aid to developing

countries to fund building communications systems, transportation networks, and energy plans.

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Main International Trade Organizations continued

World Trade Organization (WTO)Settles trade disputes and enforces

free-trade agreements among its members.