Chapter 3: The World Marketplace: Business without Borders

Lesson 3.6d:Trading Bloc

A group of countries that have reduced or even eliminated tariffs, allowing for the free flow of goods among the member nations

Lesson 3.4A: Foreign Outsourcing

AKA Contract Manufacturing contracting with FOREIGN suppliers to produce products, usually at a fraction of the cost of domestic production KEY BENEFIT: lower wages and thus. lower cost of production - Significant Risks (i.e., quality control, social responsibility (must adhere. to ethical standards) Example: 1. Apple --> Firms in China make Iphone 2. Customer Service Centers

The era of multinationals have brought....

1. Global economic efficiency 2. lower prices 3.. Unprecedented consumer choice *The next several years will be a formative time for the overall business environment --- as the. overall profits of. multinationals have dropped a quarter in the past five years. - Firms will begin to refocus on their Home countries*

International Trade. Restrictions: The Government Style

1. Protectionism: The economic policy of restraining trade between states (countries) through methods such as tariffs 2. Tariffs: Taxes on imported. goods 3. Quotas: A certain amount; A limit of how much of a specific product that may be imported from certain countries given a time -Think of policeman with meeting their quotas at the end of the months 4. Voluntary Export. Restraints (VERS): Agreements, similar to quotas, between an importing country and an exporting country for a restriction on the volume of exports; EXPORTS 5. Embargo: A complete ban on international trade (no importing/exporting) of items, or a total halt in trade with a particular nation

Lesson 3.4C: Foreign Licensing and Franchising

Agreements that permit foreign companies to produce and distribute merchandise, often using trademarks and/or selected merchandising and customer delivery approaches; Offers the rights - Allows firms to expand into forge in markets with little or no investment - Allows. to circumvent government restrictions. - Lacks control - Competition - Very common in food and beverage industry Special kind of. licenscing: the right to produce. and market its products but dictates how to operate; a package of how to do business Difference: Franchising assumes the identity of the franchisor

NAFTA (North American Free Trade Agreement)

Allows open trade between the US, Mexico, and Canada; the largest trading bloc

Lesson 3-6C: IMF (International Monetary Fund)

An international bank that promotes international economic cooperation and stable growth - Funding comes f rom member nations; last resort - Critics think IMF encourage poor countries to borrow more money than they. can ever repay To achieve goals..." 1. Support stable exchange rates 2.Facilitates a smooth system of international payments 3. Encourage member nations. to adopt sound economic policies 4. Promote international trade. 5. Lends money to nations to address economic problems

EU (European Union)

An organization of European nations that has reduced trade barriers within Europe; largest common market

BRIC Countires

Brazil Russia India China - Engines of the future world economic growth - Play less of a role than expected so....

Comparative Advantage

Comparative-Cost The ability of a country to produce a good at a lower cost than another country can Example: South Korea with. electronics and Germany with high-performance. cars - As technology changes and workforce evolves nations may gain or loose comparative advantage

Lesson 3.3: Global Trade: Taking Measure

Describe the tools for measuring international trade - Being able to measure of balance of trade, balance of payments, and exchange rates

Central Issue for Developed Counties and Less-Developed Countries

Developed: Controlling. rampant piracy of intellectual property Less Developed: U.S and European agricultural subsidies

Common Market

Farther than Trading Bloc A group of countries that have eliminated tariffs, quotas, etc., and harmonize all trading rules to facilitate free flow of goods

Absolute Advantage

I am ABSOLTUTELY making more clothes than you The ability for a country to produce more of a product than other nations using the same amount of resources Example: China vs. America with clothes

Lesson 3.1

LO: To discuss the various business opportunities in the. world economy

Overview

Learning Objectives: 1. Discuss business opportunities. in the world economy 2. Explain reasons for international trade 3. Describe the tools for measuring international trade 4. Analyze strategies for. reaching global marketss 5. Discuss barriers/restrictions to international. trade and strategies. to. get rid of them 6. Describe free trade movement and discuss key benefits and criticisms

Lesson 3.4: Seizing the. Opportunity: Strategies for Reaching Global Markets

Lets analyze strategies for. reaching global markets\ - There is no "right way" - International trade can provide new profit stream and lower costs, it. also develops high risk and complexity - Profit. opportunity plays. a big. role in how and who to trade with How can we do this? 1. Outsourcing and Importing 2. Exporting, Licensing, Franchising. and Direct Investment

Lesson 3.4D: Foreign Direct investment

More complex; more expensive; deepest level Firms make an investment though foreign firms or new facilities from ground up in foreign countries; more control yet high dollar risk Mindset: I will buy a company and I want to sell in Belgium. Build company in Belgium

Lesson 3.4B: Exporting

Most. basic level of international market development producing goods in one country and selling them to another FOREIGN country

Lesson 3.3D: Countertrade

NO MONEY! the trade of goods and services for other goods and services instead of currency - Used to meet needs of customers who don't have access to hard currency. or credit (developing countries) - Powerful tool for gaining customers and products that would not otherwise be. available

Africa

Nigeria, Kenya and Angola - Represent economic opportunity for growth - Faced with many challenges ( security risks, political stability, civil war, infrastructure problems, access to fresh water and. electricity)

"Balance of Payments" BOP Surplus vs. BOP Deficit

*Balance of Payments Surplus*: More money flows in than out Balance of Payments Deficit: More money flows out than in

"Balance of Trade" Trade Surplus vs. Trade Deficit

*Trade Surplus*: The total value of exports is higher than the total value of imports; more is going out then coming in Trade Deficit: The total value of imports is higher than the total value of exports: More coming in and less going out - Can be very destabilizing; indicates a challenge with regard to long-term economic health

Lesson 3.1C: Cell Phones and Economic Growth

- The growing number of people with cell phones shows economic growth - If a country increases by 10% the GDP will increase from 0.5-1.2% - Cell phone penetration in India and. China (largest base) is skyrocketing - Many developing countries can "leapfrog technology" - Its. a basic means of. communication and will feed economic growth

Lesson 3-6B: World Bank

an international bank that offers LOW-INTEREST LOAN, advice, and information to developing nations; seek to reduce poverty in developing world - influences global economy by providing financials and technical advice to governments of developing countries - In order to secure a loan the borrowing nation must agree to conditions

Developing countries represent _________________ in terms of both ________ and _______________

big business opportunities; both size and economic growth

Lesson 3.4A: Importing

buying products that are made & from another FOREIGN country that have already been produced (not contacting to produce) - Not as much risk Example: Pier 1 Imports

Lesson 3.3A: Balance of Trade

difference between how much a country imports (brings in) and how much it exports (goes out); THINGS Trade Surplus vs Trade Deficit

Lesson 3.6 A: GATT (General Agreement on Tariffs and Trade)

established by 23 nations; an international trade treaty designed to encourage worldwide trade among its members

Joint Ventures

firms establishing joint ownership to pursue specific opportunities; share resources, risks and profits; already established companies

Lesson 3.6 Free Trade: The. Movement Gains Momentum - What. is. Free. Trade?

international trade left to its natural course without tariffs, quotas, or other restrictions; unrestricted, no rules - Complete free trade is NOT reality

Lesson 3.3C: Exchange Rate

The measure of how much one currency is worth in relation to another $1.00 USD = $1.20 Euro (Strong Dollar, Weak Euro) $1.00 USD = $0.60 Euro (Weak Dollar, Strong Euro) - Does not directly measure global commerce

Lesson 3.2: Key Reasons for International Trade

Why do people trade abroad? 1. Access to Factors of Production: gain advantage of products. that simply aren't made or enough is present in the individual country - India and China: technically skilled university graduates - Russia and. OPEC nations: rich oil - Canada: Timber/Lumber. 2. Reduced Risk: Reduces dependence on just one. economy, lowering the economic. risk for multinational firms 3. Inflow of Innovation: A valuable rich source of new ideas

Strategic Alliance

a cooperative agreement between business firms; don't merge businesses together; less formal, less encompassing agreements than partnerships; less formal

Partnership

a voluntary agreement where business is owned and operated by two or more people; act like co-owners; formal

Infrastructure

the basic framework of a building or a system - Transportation, Communication, Energy. and Finance

Lesson 3.3b: Balance of Payments

the difference between the flow of money into and out of a country; MONEY - Balance of trade plays. a big. role in determining Balance of Payments Surplus vs. Balance of Payments Deficit

Lesson 3.2A: Competitive Advantage. Opportunity cost

the most desirable alternative given up as the result of a decision; whatever must be given up to obtain some item - When a country. produces more of one good, it must less the production of another. good

WTO (World Trade Organization)

The only global international organization dealing with the rules of trade between nations; to promote international trade and settle disputes - Monitors provisions of GATT agreements

Southeast Asia

Vietnam, Phillips and Bangladesh - Benefitting from labor-intensive, low-wage jobs away from China - As more jobs are created, the local nations. will begin to become. middle class

Lesson. 3.5ABC: Barriers to International Trade

What. are. challenges or obstacles faced by international trade? International Firms > challenge < Domestic Firms - You need to understand how to overcome these barriers in order to be successful in markets - More barriers... lower competition Types of Barriers: A. Sociocultural: Differences among cultures in lanuguage, values and attitudes; to overcome the is to conduct research, make firsthand knowledge and practice extreme sensitivity B. Economic: Differences in population, growth rate, exchange rate, currency C. Political and Legal Differences in laws and regulations: Businesses will NOT do this in uncertainty, the political climate needs to be STABLE ; bribery and corruption are major issues.