Section 3-2 Notes: The Global Marketplace

Four Components of International Business Environment

Geography
-Location
-Natural Resources
-Climate, Waterways
Cultural Influences
-Traditions
-Behaviors
Economic Development
-Literacy Level/ Education
-Exchange Rate
-Technology
-Agricultural Dependency
-Infrastructure (transportation, communication, utility systems)
Political/Legal Concerns
-Type of Govt
-Political Stability
-Trade Barriers

International Trade Barriers

Define: Restrictions to Free Trade

Three Types of Formal Trade Barriers
o Quotas
-Limit on the quantity of a product that may be exported/imported
-Can be set to protect one of the countrys industries from competition
abroad OR express displeasure at policies of another country
o Tariffs
-Tax that govt places on certain imported products
-Can protect US jobs and products from foreign competition OR create
higher demand
o Embargoes
-Stop the export/import of a product completely
-Protect own industries OR express disapproval with other countries

What Do We Do To Encourage Free Trade?

Free-Trade Zones
o Selected area where products can be imported duty-free and then stored,
assembled, and/or used in manufacturing
o Usually located near an airport or seaport
Free-Trade Agreements
o Member countries agree to remove duties (import taxes) and trade barriers on
products traded among them
o Results in increased trade between members
o EX: NAFTA (US, Canada, Mexico)
Common Markets (Economic Community)
o Members do away with duties and other trade barriers

o Allows companies to invest freely in each members country and allow workers to
move freely across border
o EX: European Union (28 countries) and Latin American Integration Association
o Goal: expand trade among member nations and promote regional economic
integration

Section 3-3 Notes: International Business Organizations

Multinational Company (MNC): Organization that does business in several countries

Consist of a parent company in a home country and other divisions in one or more host
countries
Strategies
o Global Strategy- uses the same product and marketing strategy worldwide---same
product sold in the same manner (ex: Coca-Cola)
o Multinational Strategy- treats each country market differently---adapts to the
customs, buying habits, etc of a distinct national market (ex: restaurant chains)
Benefits
o Large amount of goods available
o Career opportunities expand
o Foster friendly relations among people of different nations
Drawbacks
o Can influence or control political power of the country (consumer dependence)

Global Market Entry Modes

Licensing
o Selling the right to use some intangible property (production, trademark, brand
name) for a fee
o Low financial investment, low risk, but potential financial return is low
o Allows company to produce items in other countries without being actively
involved
Franchising
o Right to use a company name or business process in a specific way
o Involves royalty payment
Joint Venture
o Agreement between two or more companies to share a business project
o Benefit: sharing raw materials, shipping facilities, management activities, etc
o Concerns: sharing of profit and not as much control
o EX: Japanese and US automobile manufacturers (Ford with Mazda)

International Trade Organizations

World Trade Organization

o Promotes trade around the world (150 member countries)
o Settles trade disputes and enforces free-trade agreements
International Monetary Fund
o Helps promote economic cooperation
o Maintains an orderly system of world trade and exchange rates
World Bank
o Give economic aid to less developed countries (builds infrastructure)