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Business Principles Chapter 3 - Exploring Global Business Spring 2019 R…
Business Principles
Chapter 3
- Exploring Global Business
Spring 2019
R. Moore, Ph.D.
Basis for International Business
Absolute & Comparative Advantage
Comparative Advantage - the ability to produce a specific product more efficiently than any other product
Absolute Advantage - the ability to produce a specific product more efficiently than any other nation
Exporting & Importing
Importing - purchasing of raw materials or products in other nations and bringing them into one's own country
Balance of Trade - total value of a nations exports minus the total value of imports over some period of time
Exporting - selling and shipping of raw materials or products to other nations
Trade Deficit - a negative balance of trade
Balance of Payments - the total flow of money into a country minus the total flow of money out of that country over a period of time
Methods of International Business
Joint Venture - partnership to achieve a specific goal or operate for a specific period of time
Totally Owned Facilities - direct investment to produce, market self products or services in one or more foreign nations
Exporting - Selling of raw materials and products to other nations
Strategic Alliance - partnership formed to create a competitive advantage on a worldwide basis
Licensing - agreement to produce and market another companies products and use its brand name
Trading Companies - provides a link between buyers and sellers in different countries
Countertrade - international barter transaction
Multinational Firm - a firm that operates on a worldwide scale without ties to any specific nation or region
Types of Trade Restrictions
Non-Tariff Barriers
Embargo - a complete halt to trading with a particular nation or in a particular product
Currency Devaluation - reduction of the value of a nation's currency relative to the currencies of other countries
Import Quota - limit on amount of a particular good that may be imported into a country during a given period in time
Foreign-Exchange Control - a restriction on the amount of a particular foreign currency that can be purchased or sold
Reasons
FOR
Trade Restrictions
1) Equalize a nation's balance of payments
2) Protect new or weak industries
3) Protect national security
4) Protect health of citizens
5) Retaliate for another countries restrictions
6) Protect domestic jobs
Tariffs / Import Duty - tax placed on a particular foreign product entering a country
Reasons
AGAINST
Trade Restrictions
1) Higher Prices for consumers
2) Restrictions of consumer's choices
3) Misallocation of international resources
4) Loss of jobs
Cultural Barriers - non-tariff barrier based on cultural attitudes
Extent of International Business
Trade Statistics
International Trade Agreements
GATT
The Tokyo Round (1973)
The Kennedy Round (1962)
The Uruguay Round (1993, created WTO which replaced GATT)
WTO
NAFTA is now "USCMA
CAFTA
European Union
Assoc. of Southeast Nations
Trans Pacific Partnership (Cancelled)
MERCOSUR
Financing International Business
Export/Import Bank - independent agency of the US Government whose function is to assist in financing the exports of American firms
International Monetary Fund - an international bank with member nations that makes short term loans to developing countries experiencing balance of payment deficits
Multilateral Development Banks
MDB
- internationally supported bank that provides loans to developing countries to help them grow