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1.03 Understand Business in the Global Marketplace

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Casey Sutton

on 16 September 2013

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Transcript of 1.03 Understand Business in the Global Marketplace

Objective 1.03 Understanding Business in the Global Marketplace
Domestic vs. International Business
Domestic business

is the making, buying, and selling of goods and services within a country.

International business
, also called foreign or world trade,
refers to business activities needed for creating, shipping, and selling goods and services across national borders.
Why would we want to do business with another country? Why would we possibly want their products?
What kinds of advantages you ask... ?
Absolute advantage
exists when a country can produce a good or service at a lower cost than other countries.

Examples: Saudi Arabia-Oil production, Columbia-coffee, Virgin Islands-sand

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.

Examples: China-manufacturing of clothes and household goods
How do we do business with other countries?
Research 3 countries and find out what products they manufacture with a COMPARATIVE advantage.

Take Five!

are items bought from other countries.

are goods and services sold to other countries.

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


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

Joint venture

happens when two or more companies agree to share a business project.
Side One: List at least 3 ADVANTAGES of importing goods.

Side Two: List at least 3 DISADVANTAGES of importing goods.

Side One: List at least 3 DISADVANTAGES of exporting goods.

Side Two: List at least 3 ADVANTAGES of exporting goods.

Nations are concerned with balancing income with expenditures so they can REDUCE foreign debt.
Foreign debt is the amount of money a country owes to other countries.
Countries attempt to do this by establishing a Balance of Trade and a Balance of Payments.
Balance of
the difference between a country’s total exports and total imports.
If a country
more than it
, it has a trade surplus.
This is favorable.

If a country
more than it
, it has a trade deficit.
This is unfavorable.
Balance of
Payments ----->
the difference between the amount of money that comes into a country and the amount that goes out of it.
If a country

more money
in a year
than it pays out
, it has

If a country
spends more money
than it brings in
, it has an
It ain't all a walk in the park.
Google "Well known franchises"
Trade barriers are restrictions to free trade.
These are used to DISCOURAGE trade.
is when a governmen
the import or export of specified goods.

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

on certain imported products which increases prices.
Let's Make It Happen!
There are also methods of ENCOURAGING trade....
Common market
is when countries that are members freely invest in one another.

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

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

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

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.
Let's do business. WhOoP wHoOp!
You scratch my back....
I'll scratch yours....
Duty free = Tax FREE! YaAaAaAaY!
International Trade Organizations
International Trade Organizations work to facilitate trade among countries. Each one has a different purpose.
International Monetary Fund (IMF)

More like International MOM Fund!
Helps promote economic cooperation and maintain an orderly system of world trade and exchange rates.
World Bank

We'll give you that money honey!
Provides economic aid to developing countries to fund building communications systems, transportation networks, and energy plans.
World Trade Organization (WTO)
This is where the arguments happen.
Settles trade disputes and enforces free-trade agreements among its members.
Can't we all just get along? No? Well, we'll make you! :)
Third world country?! NOT NO MO!
This is one well-oiled machine. You're welcome!
Now let's take a trip.....
You're ready to open up a business.... In another country.
What do you need to know?
First things first.... you need to work on that money.....
Lucky you... You're already rich!
In this case, we're not looking for capital. You've already got enough money to start your business. You just need to exchange your dollars for the currency of the country where you're going to open your business.
Where can you go to do that??
Where do banks buy and sell different currencies from?
The foreign exchange market.
How much is your money worth?
Check the exchange rate. The
exchange rate
is the value of a currency in one country when compared with the value in another.
What is the exchange rate between the dollar and the euro?
What affects exchange rates?
Balance of payments
is influenced by demand for a nations goods and services.

The more demand for their goods, the more valuable their money. AKA --> better exchange rate.

If the
balance of payments is favorable
, then usually
currency is steady and rising in value.

If unfavorable
, then usually the
currency is declining in value.
The health of your economy, or its
Economic Conditions
, help determine exchange rate. The better your
economic conditions
, the better the exchange rate.

Economic Conditions include the following:

decreases buying power of currency
The higher the inflation in your country, the worse the exchange rate.

interest rates
that are high decreases demand to borrow money. Decreased demand for borrowed money means a lower exchange rate. Sad face.
Political Stability
Anything that could cause the
government or laws to change abruptly
affect the exchange rate
of currency.
If the country's leader is assassinated OR the country goes to war their exchange rate might decrease.
If a new and amazing leader is elected, the exchange rate might get better!
YaY for more valuable money!!!
Balance of Payments
Economic Conditions
Now that you've got the money all figured out.... its time to do the research!
If you were going to start a business in a foreign country, what kinds of things would you need to find out about the country first? Make a numbered list of EVERYTHING you think you would need to consider.

You should have at least ten things in your list.
1. Geography
2. Cultural Influences
3. Economic Development
4. Political and Legal Concerns
What all is included in a nations geography?
Natural Resources
When you're thinking about the geography of a country you should be thinking about what it's near, what the weather is like and what kinds of natural resources it can produce.
Cultural Influences
Cultural influences encompass TONS of things!
Verbal Language
Body Language
Social Relationships
Make a list giving one example of how each of these cultural influences COULD make doing business in another country tricky.

You need to know how
the accepted behavior, customs, and values of a society
in other words its cultural influences
) could impact business activities.
Economic Development
How economically developed a nation is can strongly impact the way you approach doing business in that country.
Things that determine the economic development of a nation are.....
Education and Literacy level
(can my consumer base read? do basic math?)
(how much buying power is there?)
(what do they have/not have? is there internet? is there instant communication?)
Exchange rate
(is the dollar worth more than the country's currency?)
Agricultural dependency
(what would happen if there was a tornado? could the country survive?)
(is the government stable? are the citizens modernized and happy?)
(is there public transportation? do people have cars?)
Political and Legal Concerns
Know what you're getting in to with the government and policies of that country!
Things to consider....

What type of political system do that have?
In other words,
who makes the economic decisions
? Is it the government
(command economy)
or the people
(market economy)
How stable is the government?
Are the
people happy with the government
? Is there
civil war or unrest
? Are they in the
middle of elections
What are government policies related to trade?
Are there
strict trade barriers
? Do we have a
free trade agreement
with that country?
Full transcript