1.1 The Foundation of International Business 2nd Semester Chapter

1.1 The Foundation of International Business 2nd Semester Chapter 1 Global Business Chapter 1 1

1.1 FOCUS (8) Name products that you use that are produced in other countries. Global Business Chapter 1 2

1.1 Goals 1. 2. 3. Distinguish between domestic business and international business Discuss the reasons why international business is important Understand that international trade is not just a recent event Global Business Chapter 1 3

What Is International Business? In the early days of the United States, most families grew the food they ate and made the clothes they wore. Then the population increased. Production and distribution methods improved. People began to depend on others for goods and services. Global Business Chapter 1 4

What Is International Business? That dependence grew as more people specialized in the work they did. Today, the United States has a complex business system. The system is based on specialization and makes a wide variety of goods and services available. Global Business Chapter 1 5

What Is International Business? In the same way that people within a country are dependent on each other to produce goods and services, countries also are dependent on each other. Nations that have extensive production and distribution facilities—such as the United States, Canada, Japan, and the western European nations —have some level of economic independence. However, they are still dependent on other countries. For example, most of the coffee used in the United States comes from Brazil, and Japan depends on other countries for almost all of its oil. Global Business Chapter 1 6

What Is International Business? Most business activities take place inside a country's own borders. Making, buying, and selling goods and services within a country is called domestic business. If you purchase a soft drink made in your own country, you are participating in domestic business. An example of domestic business is when local companies only sell in your community. Global Business Chapter 1 7

What Is International Business? On the other hand, if you buy a shirt made in Thailand while shopping at your favorite store, you are involved in the global economy. The purchase was made in the United States and the garment was made halfway around the globe. International business includes all business activities needed to create, ship, and sell goods and services across national borders. International business may also be called global business, international trade, and foreign trade. Global Business Chapter 1 8

Why is International Business Important? International business allows you to purchase popular items made in other countries, such as televisions, shoes, and clothing. Without global business, life would probably be different. Global Business Chapter 1 9

Why is International Business Important People around the world would not the opportunity to enjoy goods and services made in other countries An example of international business is when products are used by students but produced in other countries.

Domestic business differs from international business Domestic involves International involves oneseveral countrycountries

Why is International Business Important? International business is important for many reasons. It provides a source of raw materials and parts and demand for foreign products. Global business allows for new market and investment opportunities. It can even help improve political relations. Global Business Chapter 1 12

Materials, Parts and Demand Products made in the United States often include materials around the world. Each year, American companies buy oil and steel from other nations to use in factories. Nearly every U.S. built car has parts that were manufactured in Japan, Mexico, France, Korea, England, and many other countries. Global Business Chapter 1 13

Materials, Parts and Demand Global dependency exists when items that consumers need and want are created in other countries. For example, drought and other weather conditions in an African country might cause crop failures. As a result, the African country must obtain food from other countries. Global Business Chapter 1 14

Global Opportunities Companies such as Kellogg sell to customers in other countries to expand business opportunities. Many businesses, large and small, increase sales and profits with foreign trade. These companies are involved in the global economy. Global Business Chapter 1 15

Global Opportunities Many people invest in businesses to earn money for themselves. As companies expand into countries, they create new investment opportunities. Investors also provide funds to foreign companies that are either just getting started or are growing enterprises. Global Business Chapter 1 16

International Business is important to companies and countries: Obtains raw materials and products Provides new business and career opportunities. Improves business relations 17

Improved Political Relations An old saying suggests "countries that trade with one another are less likely to have wars with each other." International business activities can help to improve mutual understanding, communication, and the level of respect among people in different nations. Every business competes against companies that are either foreign-owned or that sell foreign-made products. As a result, even when you may not realize it, international business is affecting your life. Global Business Chapter 1 18

When did International Business Start International business is not a new idea. Evidence suggests that countries such as China, India, and Japan were trading products throughout the world 15,000 years ago. There is also evidence that Africans traded with South Americans several thousand years ago. The Phoenicians developed trade in the Mediterranean in ancient times. The conquests of Alexander the Great opened up trade with India and China. Later, the Roman Empire dominated trade along the Mediterranean Sea. Global Business Chapter 1 19

When did International Business Start The next few centuries had limited foreign trade activity. Following the fall of the Roman Empire, the Vikings traveled as far as Iceland, Greenland, and Russia to trade. Islamic empires of the early Middle Ages connected the Iberian Peninsula, North Africa, the Arabian Peninsula, and what is now called Iran. Charlemagne created the Holy Roman Empire out of most of Europe. Viking explorers reached Iceland and Greenland. Global Business Chapter 1 20

When did International Business Start The eleventh century saw renewed interest in global commerce. European countries such as England, France, Spain, and Portugal were shipping products by water. By the fifteenth and sixteenth centuries, explorers such as Columbus and Magellan sought a shorter water route to India. Instead of sailing east around Africa, they ventured west. Global Business Chapter 1 21

When did International Business Start From about 1500 to 1900, many European countries established colonies in Africa, Asia, and North and South America. These colonies provided European businesses with low-cost raw materials and new markets for selling products. Global Business Chapter 1 22

When did International Business start However, these colonies were often created at the expense of the native inhabitants. The space trade, the silk road, trading gold, silver, gems, salt, coffee and tea are examples of international business activities before 1800.

When did International Business Start Most European countries maintained strong economic and political control over their colonies for years. However, these colonies eventually achieved independence. The United States declared independence from the United Kingdom in 1776. Almost two hundred years later, Mozambique gained independence from Portugal in 1975. Global Business Chapter 1 24

When did International Business Start Various inventions created between 1769 and 1915 expanded interest in and opportunities for international business. These discoveries included the cotton gin, the steam engine, and the telephone. The inventions from this period improved communication, distribution, and production. They also helped create new global industries. Global Business Chapter 1 25

When did International Business Start Recent world events continue to highlight the importance of international business. Expanded trade among companies in different countries increases independence. A number of wars in the twentieth century demonstrated the need for political cooperation. These military conflicts limited global business activities. World peace is important if countries want to achieve economic benefits from international trade. Global Business Chapter 1 26

When did International Business Start The creation of the European Union, started in the 1950s, is changing the way most countries do business with one another. Political freedom among former communist countries has created new global business opportunities in these emerging economies. The international business marketplace is expanding daily. Global Business Chapter 1 27

Factors that have driven the development of international business throughout history: The need for additional raw materials and new products throughout history has created trade among nations. 28

1.2 International Business Basics Global Business Chapter 1 29

1.2 FOCUS (14) Create a list of items that come form other countries and a list of items we sell to other countries Global Business Chapter 1 30

1.2 Goals 1. 2. 3. Describe basic international business activities Explain the components of international business environment Name important skills for international business and describe the importance of international business for workers, consumers and citizens Global Business Chapter 1 31

The Fundamentals of International Trade What happens when a country has too much of a good thing? Perhaps the country produces more grain than it can consume, mines for coal than it needs, or produces more furniture than it can use. When a country has an abundance or goods or services, businesses look for trade opportunities. That's what happens when companies in different countries trade goods or services. Global Business Chapter 1 32

The Fundamentals of International Trade These foreign trades usually are not an exchange of items for items. Instead, cash payments are usually made for the items bought or sold. For example, a manufacturing company in Korea can sell radios to an electronics Store in the United States. Also, a computer company in the United Suites might sell its products to a retailer in Russia. Global Business Chapter 1 33

The Fundamentals of International Trade These trade activities can be viewed from two sides—the buyer and the seller. For the buyer, products bought from businesses in other countries are called imports. For example, the United States imports radios. Russia is imports computers. Global Business Chapter 1 34

The Fundamentals of International Trade For the seller, exports are products sold in other countries. Using the same example, Korea is exporting radios. The United States is exporting computer. Although the process sounds simple, obstacles can arise. These obstacles are called trade barriers. The difference is imports are products bought from companies in other countries. Exports are products sold to businesses and consumers in other countries. Global Business Chapter 1 35

The Fundamentals of International Trade Trade barriers are restrictions that reduce free trade among countries. These barriers could appear in several forms. Import taxes increase the cost of foreign products. Quotas restrict the number of imports. Laws prevent certain products from coming into a country. Global Business Chapter 1 36

The International Business Environment Buying and selling goods and services is similar in most parts of the world. Consumers try to satisfy their needs and wants at a fair price. Businesses try to sell products at a price that covers costs and provides a fair profit. So, why is international business any different from local business? Global Business Chapter 1 37

International Business Environment Factors In many parts of Iran, the exchange of goods and services takes place in an open-air market. Consumers in Japan buy meals that non-Asians might not enjoy. In Cuba, office workers have been required to work several weeks in the fields to increase the country's food supply. These are some examples of factors that make up the international business operating environment. Global Business Chapter 1 38

International Business Environment Factors There are four major categories of the international business environment. Global business is influenced by: geographic conditions cultural and social factors political and legal factors and economic conditions. Global Business Chapter 1 39

International Business Environment Factors Geographic Conditions - The climate, terrain, seaports, and natural re sources of a country influence business activities. Very hot weather limits the types of crops that can be grown. It also restricts the types of businesses that can operate in that climate. A hot, sunny climate is critical for growing tropical fruit, but not suitable for a ski resort. Mountainous terrain offers opportunities for mining but limits the amount of land available for crops. A nation with many rivers or seaports is able to easily ship products for foreign trade. Countries with few natural resources must depend on imports. Global Business Chapter 1 40

International Business Environment Factors Cultural and Social - In some societies, hugging is an appropriate business greeting. In other societies, a handshake is the custom. These differences represent different cultures. Culture is the accepted behaviors, customs, and values of a society. A society's culture has a strong influence on business activities. For example, in Spain and parts of Latin America, businesses traditionally were closed for several hours in the middle of the day for a long lunch or a period of rest. The main cultural and social factors that affect international business are language, education, religion, values, customs, and social relationships. These relationships include interactions among families, labor unions, and other organizations. Global Business Chapter 1 41

International Business Environment Factors Political and Legal Factors Each day, we encounter examples of government influence on business. Regulation of fair advertising, enforcement of contracts, and safety inspections of foods and medications are a few examples. In general, however, people in the United States have a great deal of freedom when it comes to business activities. However, not all countries are like the United States. In many places, government restricts the activities of consumers and business operators. The most common political and legal factors that affect international business activities include the type of government, the stability of the government, and government policies toward business. Global Business Chapter 1 42

International Business Environment Factors Economic Conditions Everyone faces the problem of limited resources to satisfy numerous needs and wants. This basic economic problem is present for all of us. We continually make decisions about the use of our time, money, and energy. Similarly, every country plans the use of its land, natural resources, workers, and wealth to best serve the needs of its people. Global Business Chapter 1 43

International Business Environment Factors Factors that influence the economic situation of a country include the type of economic system, the availability of natural resources, and the general education level of the country's population. Other economic factors include the types of industries and jobs in the country and the stability of the country s money supply. Available technology for producing and distributing goods and services also influences a nation's economic situation. Global Business Chapter 1 44

The Global Business World Knowledge of history, geography, and foreign languages; cultural awareness; and study skills. International business affects you as a consumer and worker because: consumers have more buying choices. workers are likely to have different types of career opportunities

The Global Business World International business is an important field of study. Certain basic skills and knowledge are needed in our global economy. Global Business Chapter 1 46

International Business Skills Some skills are needed in every type of job. For example, you must be able to read work manuals, do calculations, and write reports. These skills will continue to be important as business activities among countries increase. In addition, knowledge of specific subjects is important for success in global business. Global Business Chapter 1 47

International Business Skills History - Your awareness of the past can help you better understand today’s international business relations. Geography is more than names on a map. Knowledge of geography will help you understand how the climate and terrain of a country can affect transportation, housing, and other business activities. Language - As countries increasingly participate in foreign trade activities, your ability to communicate effectively with people from other societies increases in importance, Global Business Chapter 1 48

International Business Skills Cultural Awareness - Understanding that cultures vary from nation to nation allows people to be more sensitive to customs and traditions of all societies. Study Skills - Asking questions, taking notes, and doing research are the necessary to keep up to date on changes in international business. Global Business Chapter 1 49

The Global Citizen As a country becomes more involved in international business, the lives of its change. Consumers have more choices because the selection of goods and services is no longer limited to items produced in their own country. There might be more products, different products, or products that cost less. Career opportunities expand for workers as international business creates for additional workers and different kinds of jobs. Global Business Chapter 1 50

The Global Citizen Some business owners benefit from international trade by expanding an existing business or starting a new one. Other business owners might see new or stronger competition. As a consumer and worker involved in international business you have an obligation to act responsibly. For example you might want to make sure that companies you buy from and work for follow ethical business practices. The decisions you make are likely to have an impact locally and around the world. Global Business Chapter 1 51

Checkpoint (9/10/12) 1. 2. 3. List examples of domestic business and international business. List ways that international business is important to companies and countries. What factors have driven the development of international business throughout history Global Business Chapter 1 52

1.1 Review Global Business Terms (13) 1. 2. 3. Domestic Business International Business Global Dependency Global Business Chapter 1 53

1.1 Review Global Business Concepts (13) 1. 2. 3. How does domestic business differ from international business? Why is International Business Important? What are some examples of International business activities that occurred before 1800? Global Business Chapter 1 54

1.1 Solve Global Business Problems (13) McDonald’s has 30,000 restaurants in 120 countries, adapting its menu to various tastes. In Hong Kong burgers are served between two rice patties, while in Norway the McLakes is a grilled salmon sandwich. Started in 1955, the company opened its first restaurants outside the United States in 1967. Today in some countries, such as Brazil and Egypt, McDonald’s offers delivery. Global Business Chapter 1 55

1.1 Solve Global Business Problems (13) 1. 2. 3. 4. What factors may have influenced McDonald’s to open restaurants outside the United States? How have the social and cultural factors affected the company’s international business activities? What risks might a company encounter when doing business in other countries? Go to McDonald’s website or other websites to prepare a map showing the location of the company’s international business operations. 1. Obtain complete information 2. Be creative in your map making 3. Include photos and other graphics Global Business Chapter 1 56

1.2 Checkpoint (15/18/19) 1. 2. 3. 4. How do imports differ from exports What are the four components of the international business environment? Other than business skills, what knowledge is important for working in international business? How does international business affect you as a consumer and worker? Global Business Chapter 1 57

1.2 Review Global Business Terms (21) 1. 2. 3. 4. Imports Exports Trade barriers Culture Global Business Chapter 1 58

1.2 Review Global Business Concepts (21) 1. 2. 3. 4. 5. What are the four parts of the international business environment? What cultural factors affect international business activities? Name four factors that influence a country’s economic conditions. What skills are important for success in an international business? How does international business effect you as a. A consumer b. A worker c. A citizen Global Business Chapter 1 59

1.2 Solve Global Business Problems(21) A US Company plans to sell farm equipment in a country in Asia. This country traditionally has not conducted business with companies outside its own geographic region. Answer the Following questions or the US company. Global Business Chapter 1 60

1.2 Solve Global Business Problems(21) 1. 2. 3. 4. What geographic factors might influence the company’s international business activities? How might economic conditions affect business decisions? What social and cultural influences could affect this business? How could politics and laws affect the company’s exporting activity? Global Business Chapter 1 61