BUS 101, week 3 notes
BUS 101, week 3 notes BUS 101
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This 15 page Class Notes was uploaded by Alicia Notetaker on Wednesday August 31, 2016. The Class Notes belongs to BUS 101 at Tri-County Technical College taught by clinton williams in Fall 2016. Since its upload, it has received 18 views. For similar materials see introduction to business in Business at Tri-County Technical College.
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Date Created: 08/31/16
Ch. 3 Exploring Global Business 3-1 The Basis for International Business International Business- all business activities that involve exchanges across national boundaries. (a small business may sell goods from a foreign country, but since they purchase it from an American distributer, they aren’t an international business) Absolute and Comparative Advantage: -Absolute advantage- the ability to produce a specific product more efficiently than any other nation. Ex.) South Africa- diamonds, Australia- wool, Saudi Arabia- crude oil -Comparative advantage- the ability to produce a specific product more efficiently than any other product. Exporting and Importing: -Exporting- Selling and shipping raw materials or products to other nations. Ex.) U.S exporting corn -Importing- Purchasing raw materials or products in other nations and bringing them into one’s own country. Ex.) Retail stores purchasing raincoats in England to sell in America. -Balance of Trade- The total value of a nations exports minus the total value of its imports over some period of time. -When a country imports more than it exports; the balance of trade is negative (unfavorable) -Trade deficit- a negative balance of trade. Ex.) U.S imported $2,757 billion and exported $2,280 trade deficit of $477 - “The trade deficit is not a sign of economic distress, but of rising domestic demand” -Balance of Payments- the total flow of money into a country minus the total flow of money out of that country over some period of time. (includes investments, money spent by foreign tourists, payment by foreign governments, aid to foreign governments, and all other receipts and payments) 3-2 Methods of Entering International Business Licensing: -Licensing- a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation. Ex.) Yoplait yogurt is a French licensed business but is sold in the US. The U.S pays the French firm a percentage of its income. -Good for small manufactures who want to launch a well- known brand domestically. -Disadvantages: 1.) If the licensee doesn’t maintain the licensor’s product, the image can be ruined 2.) A licensing arrangement may not provide the original producer with any foreign marketing experience. Exporting: -Export firm may sell products to export-import merchant- a merchant wholesaler. -Merchant takes on all risks -A mutual concern among both sides, is when the payment will be made. -Both parties must use a mutually agreed upon go- between -The go-between representatives are employed by the importer and the exporter and are the local domestic banks involved in international business. Exporting to International Markets: -Letter of Credit- issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary (one of the first steps) (in favor of the exporter) -Exporter is then told that there has been a letter of credit made -Bill of lading- document issued by a transport carrier to an exporter to prove that merchandise has been shipped. -exporter signs over title to the merchandise to its bank by delivering signed copies of the bill of lading and the letter of credit. -Draft- issued by the exporters bank, ordering the importers bank to pay for the merchandise, thus guaranteeing payment once accepted by the importers bank -Draft, bill of lading, and letter of credit are sent to the importers bank. -Importer must pay its bank on delivery of merchandise and the deal is complete. Joint Ventures: -Joint venture- a partnership formed to achieve a specific goal or to operate for a specific period of time. (may be used to produce and market an existing product in a foreign nation or to develop a completely new product) -they can become complex so they must have a very high level of commitment from all parties involved. Totally Owned Facilities: -totally owned facilities- own production and marketing facilities in one or more foreign nations. -Direct investment can go two ways. 1.) firms builds or purchases manufacturing and other facilities in the foreign country and uses it to produce its own established products. Markets them to the country and neighboring ones as well (euro factories) 2.) firms purchases an existing firm in a foreign country with an agreement that allows them operate independently. Strategic Alliances: -strategic alliance- a partnership formed to create competitive advantage on a worldwide basis. (similar to joint ventures) -growing quickly -International competition is so fierce that many firms can’t do it alone. Trading Companies: -trading company- provides a link between buyers and sellers in different countries. -buys products in one country at the lowest price and sells to buyers in another country. Countertrade: -countertrade- an international barter transaction Multinational Firms: -multinational enterprise- a firm that operates on a worldwide scale without ties to any specific nation or region. Ex.) Walmart, BP, Toyota -equally “at home” in most countries of the world. - “anational company”- a firm that has no nationality but belongs to all countries. 3-3 Restrictions to International Business Types of Trade Restrictions: -Most trade restrictions are applied to imports from other nations. 1.) Tariffs -import duty(tariff)- a tax levied on a particular foreign product entering a country. -revenue tariff- imposed solely to generate income for the government. -protective tariff- imposed to protect a domestic industry from competition by keeping the price of competing imports level with or higher than the price of similar domestic products. -dumping- exportation of large quantities of a product at a price lower than that of the same product in the home market. -dumping drives down the prices of the domestic item 2.) Nontariff Barriers -nontariff barrier- a nontax measure imposed by a government to favor domestic over foreign suppliers (create obstacles to the marketing of foreign goods & increase costs for exports) - Examples: * import quota-a limit on the amount of a particular good that may be imported into a country during a given period of time. (may be set in terms of quantity or value) * embargo-a complete halt to trading with a particular nation or in a particular product. (usually used as a political weapon. The U.S has an embargo with Iran and North Korea) *foreign-exchange control-a restriction on the amount of a particular foreign currency that can be purchased or sold. *currency devaluation-the reduction of the value of a nation’s currency relative to the currencies of other countries. 3.) Cultural Barriers -A type of nontariff barrier -Cultural barriers can impede acceptance of products in foreign countries -When people are unfamiliar with a product from another country, their general perceptions of the country itself affect their attitude toward the product and help to determine whether they will buy it. Reasons for Trade Restrictions: -They are usually involved in trade embargo. -Reasons: * To equalize a nations balance of payments * To protect new or weak industries * To protect national security (weapons that we don’t want in the hands of enemies) *To protect the health of citizens (contaminated farm products) * To retaliate for another nations trade restrictions * To protect domestic jobs (this can be expensive) Reasons Against Trade Restrictions: *Higher prices for consumers *Restriction of consumer’s choices *Misallocation of international resources *Loss of jobs 3-4 The Extent of International Business The Economic Outlook for Trade: Canada & Western Europe -The US-Canada is the most efficient, integrated, and dynamic in the whole world. -Together they generate $2 billion a day -Growth in Spain has resumed. -Italy has suffered its third year of negative growth -France & Germany show weak growth Mexico & Latin America -According to IMF, Latin America grow 3-4% each year -The region is home to 11 Free Trade Area countries (one of them being Mexico) Japan rd -The 3 largest economy -U.S.’ 4hlargest trading partner -Finally on the road of recovery Other Asian Countries -China-2nd largest economy -India had a vast market which is promising for U.S companies Africa -Estimated future growth of 5-6% for each of the next 2 years -U.S. trade with Africa has tripled Exports & the U.S. Economy -In 2013, U.S. exports supported more than 11.3 million full and part time jobs. -Exports have become increasingly important to the U.S. economy. -Exports have increased in the U.S. -Exports-Canada & Mexico -Imports- China & Canada 3-5 International Trade Agreements The General Agreement on Tariffs & Trade & the World Trade Organization -General Agreement on Tariffs & Trade (GATT)- An international organization of 160 nations dedicated to reducing or eliminating tariffs and other barriers to world trade. -The body sponsored 8 rounds of negotiations to reduce trade restrictions, with 3 being the most fruitful: The Kennedy Round (1964-1967) -When the U.S. congress passed the Trade Expansion Act, it allowed John F. Kennedy to reduce U.S. tariffs by as much as 50%. -He called for negotiations through GATT (Kennedy Round) -Reduced tariffs on industrial and agricultural products by an average of more than 35% -Not successful on removing other types of trade barriers. The Tokyo Round (1973-1979) -100 nations gathered in Tokyo for a round of GATT negotiations. -Negotiated tariff cuts of 30-35% (implemented over 8 yrs.) -They removed unrealistic quality standards for imports, and unnecessary red tape in customs procedures. The Uruguay Round (1986-1993) -Launched to extend trade liberalization and widen the GATT treaty to include textiles, agricultural products, business services, and intellectual-property right. -Reforms were expected to expand the world economy by an estimated $200 billion annually. -Also created the World Trade Organization (WTO)- Powerful successor to GATT that incorporates trade in goods, services, and ideas. (works to remove barriers) International Economic Organizations Working to Foster Trade -Economic Community- an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies. The European Union -A single market with 28 countries -Formed by 6 countries -A.K.A.- European Economic Community, and Common Market -An economic force with a collective economy larger than much of the U.S. or Japan. -Participate in the euro The North American Free Trade Agreement -Joined the U.S with its 1 and 2 ndlargest export trading partners, Canada and Mexico. -Implementation of NAFTA created a market of more than 475 million people. (Canada-35 million, U.S.- 320 million, Mexico-120 million) -Supported by many presidents and high up people -By 2008 they eliminated all tariffs and quotas on goods produces and traded among Canada, Mexico, and the U.S. (free trade area) -Critics of NAFTA *hasn’t achieved goals *resulted in job loss *hurts workers by eroding labor standards and lowering wages *undermines national independence *does nothing to help the environment * hurts the agricultural sector -Proponents of NAFTA *helped w/ increases in trade & investment *benefited companies in all 3 countries *increased sales, new partnerships, & new opportunities *created high-paying jobs *better prices & selection in consumer goods The Central American Free Trade Agreement -CAFTA was created by 4 countries (El Salvador, Guatemala, Honduras, & Nicaragua) -Became CAFTA-DR when the Dominican Republic joined, later costa rica joined rd -CAFTA-DR is the 3 largest U.S. export market, behind Mexico & Brazil The Association of Southeast Asian Nations -Designed to promote political, economic, and social cooperation among its 7 members (Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, & Vietnam) ….3 new members (Cambodia, Laos, & Myanmar) -Our 5thlargest trading partner The Commonwealth of Independent States -Established by the independent states as an association of 11 republics of the former Soviet Union Trans-Pacific Partnership (TPP) -The partnership between 9 countries will boost economies of the member countries, lower barriers to trade and investment, increase exports, and create more jobs. The Common Market of the Southern Cone (MERCOSUR) -Established under the treaty of Asuncion to unite Argentina, Brazil, Paraguay, & Uruguay as a free trade alliance. The Organization of Petroleum Exporting Countries -Founded in response to reductions in the prices that oil companies were willing to pay for crude oil. -A collective bargaining unit to provide oil-producing nations with some control over oil prices. 3-6 Sources of Export Assistance Obama announced the NEI to revitalize U.S. exports. Under the NEI, agencies assist U.S. firms to create export-promotion programs. The sources enhance the business opportunities of U.S. firms seeking to enter the expanding foreign markets. 3-7 Financing International Business The Export-Import Bank of the United States -Export-Import bank of the United States- an independent agency of the U.S. government whose function is to assist in financing the exports of American firms. -Ex-Im Bank guarantees credit to overseas buyers of American goods and short term financing for exports. -Also works with commercial banks in helping American exporters to offer credit to their overseas customers. Multilateral Development Banks -Multilateral development bank (MDB)- an internationally supported bank that provides loans to developing countries to help them grow. (World Bank) -The bank provides loans and grants which help the developing countries to: *Supply safe drinking water *Build schools and train teachers *Increase agricultural productivity *Access to markets, jobs, and housing *Better health care and access to water and sanitation *Manage forests and other natural resources *Build and maintain roads, railways, and ports *Reduce air pollution and protect the environment The Inter-American Development Bank -Created by 19 Latin American countries and the U.S. -Makes loans and provides technical advice and assistance to countries -Now owned by 48 member states The Asian Development Bank -Promotes economic and social progress in Asian and Pacific regions -67 member nations -The U.S. is the 2ndlargest contributor to ADB’s capital The African Development Bank -A.K.A.- Banque Africaines de Development -53 African members and 24-non African members -They want to foster the economic and social development of its African memebers. -They do this through loans, research, technical assistance, and the development of trade programs European Bank for Reconstruction & Development -Established to encourage reconstruction and development in the Eastern and Central European countries -Loans are geared toward developing market-oriented economics and promoting private enterprise The International Monetary Fund -International Monetary Fund (IMF)- an international bank with 188 member nations that makes short-term loans to developing countries experiencing balance-of- payment deficits -must be repaid with interest -The banks main goals: *Promote international monetary cooperation *Facilitate the expansion and balanced growth of international trade *Promote exchange rate stability *Assist in establishing a multilateral system of payments *Make resources available to members experiencing balance-of-payment difficulties The Challenges Ahead -Build on common bonds and shared values to help fully integrate the U.S., Europe, and other established economies with a new group of rapidly emerging economies.
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