Goals:

• Describe the components of the international business environment
• Identify examples of formal trade agreements
• Explain actions to encourage international trade

Key Terms:

• infrastructure
• trade barrier
• quota
• teriff
• embargo

Lesson 3-2    The Global Market Place                             

• International Business Environment - Doing business in other countries requires knowledge of the differences that exist among people and places. Businesses must consider four main factors.
• Geography – the location, climate, terrain, seaports and natural resources of a country influence business activity.
• Hot weather limits crops that can be grown
• A nation with rivers and/or ocean seaports caneasily ship products for foreign trade
• Countries with few natural  resources must depend on imports
• Cultural influences – may vary from country to country
• Culture – the accepted behaviors, customs, and values of a society.
  • In Mexico, many businesses close in the afternoon so people can enjoy lunch and a siesta (relaxing rest period)
  • The main cultural and social factors that affect business
  • Language
  • Religion
  • Values
  • Customs
  • Social relationships
    • Families
    • Labor Unions
    • Other organizations
• Economic Development – Every country plans the use of its land, natural resources, workers, and wealth to best serve the needs of its people.
• Factors affecting a country’s level of economic development:
  • Literacy Level – countries with better education systems usually provide more and better goods and services for their citizens
  • Technology – Automated production, distribution, and communications systems allow companies to create and deliver goods, services, and ideas quickly
  • Agricultural Dependency – an economy that is largely involved in agriculture does not have the manufacturing base to provide citizens with great quantity and high quality products
  • Infrastructure – refers to a nation’s transportation, communications, and utility systems. A country with an efficient rail system, high-speed highways, and computers – such as Germany – is better prepared for international business activities than other countries with weaker infrastructures
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• Political and Legal Concerns – every day you come upon examples of government influences on business. Among other things, governments regulate fair advertising, contract law, safety inspections of food and medications.
• People in the United States have a great deal of freedom in their business activities
• In many places, the activities of consumers and business operators are restricted
• The most common political and legal factors that affect internation business activities include:
  • Type of government
  • Stability of the government
  • Government policies toward business

• International Trade Barriers – government actions can create trade barriers – restrictions to free trade. Political actions are formal trade barriers. These include quotas, tariffs, and embargoes. The culture, traditions, and religion of a country can create informal trade barriers. These situations are not based on formal government actions, but they do restrict trade.
• Quotas – government set limits on the quantity of a product that may be imported or exported within a given time.
• To regulate international trade
  • Oil exporters limit exports to keep supplies low and inflate prices
  • Quotas may be set to express displeasure with the policies of another country
  • To protect industries from too much competition from abroad
  • To protect “infant industries”
  • In the past, the U.S. has set import quotas on sugar, cattle, dairy products and textiles
• Tariffs –a tax that a government places on certain imported products.
• Example – you want to buy an imported bicycle. The producers charges $140 for the bike, but the government collects a 20% tariff ($28) on the bicycle when it is imported. Therefore, you will have to pay $168 plus shipping for the bike. The increased price may cause you to buy a U.S. manufactured bike at a lower price.
• Tariffs may be a set amount per pound, gallon, or other unit
• A tariff increases the price for an imported product.
• Tariffs tend to decrease the demand for a product and reduce the quantity of that import.
• Many people believe that tariffs should be used to protect U.S. jobs from foreign competition
• Embargoes- a government action completely stopping the import or export of a product
• To protect their own industries from international competition
• To prevent sensitive products, especially those vital to the nation’s defense, from falling into the hands of unfriendly groups or nations
• To express disapproval of the actions or policies of another country
• Encouraging International Trade – Specific actions by governments can promote international activities. Exports are an effective way to create jobs and foster economic prosperity.
• Free Trade Zones – a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing.
• Usually located around a seaport or airport
• The importer pays duty only when the product leaves the zone
• Free-Trade Agreements – an agreement between countries to remove duties (import taxes) and trade barriers on products traded among them.
• Increased trade between members
  • U.S., Canada, and Mexico – North American Free Trade Agreement (NAFTA), 1994
  • Removes tariffs on goods traded between the three countries
  • Eases the movement of goods
  • Designed to enlarge markets and economic bases of the countries involved
• Common Markets – members do away with duties and other trade barriers (also called an economic community)
• Allow companies to invest freely in each member’s country
• Allow workers to move freely across boarder
• Members have a common external duty on products being imported from nonmember countries
• Examples:  European Union (EU) and Latin American Integration Association (LAIA)
• Goals are to expand trade among member nations and promote regional economic integration.