Chapter 3 – Business in a global setting
Basis of international Business
International business- business activities which
involve exchanges across national boundries.
Absolute Advantage – Ability to produce a product
more efficient than any other country. E.g. Saudi
Arabia = crude oil
Comparative advantage – ability to produce a
product more efficiently than another product.
( between 2 people)
Exporting – Selling and shipping raw materials/
products to other countries
Importing – Purchasing raw materials/ products from
other countries.
Nations Balance of Trade = total value of exports –
total value
of imports. Over period of time.
Balance of trade – Total flow of money into the
country – total value of money flowing out of the
country
Trade deficit – Negative balance of trade
Restrictions on international trade
Tariffs – Tax levied on particular foreign products
entering the country.
Antidumping duty – Dumping is selling all excess
product to other country at price lower than local
price. This puts local companies in danger.
NON-TARIFF BARRIERS (non-tax measure)
Import quota – limit amount of particular good
allowed to be imported at specific time
Embargo – complete halt to a nation trading a
specific product/ material
1
, Foreign-exchange control – restricts amount of
particular foreign currency that can be purchased
Currency devaluation – reduction of nations currency
compared to currency of other countries.
Reasons for trade restrictions
Equalize nations balance of payments –
increase strength of currency so nation can pay
debts
Protect new and weak industries – new
industries cannot withstand foreign
competition
Protect national security – stops other
countries from getting certain weapons etc.
Retaliate for other nations trade restrictions
Protect health of citizens –some foreign
products may be dangerous
Protect domestic jobs
Reasons against trade restrictions
Higher prices for consumers
Restriction for consumers
Misallocation of international resources – limited
resources are being wasted by protecting new and
weak industries
Loss of jobs – If one nation cuts imports then people
in other nations who export goods lose jobs.
Methods of entering international business
Licensing – Contractual agreement in which one form
allows another firm to produce and market its
products in return for royalties.
Exporting – Firm manufactures products in home
country then sells them in foreign markets.
1. Letter of credit – issued by bank that states that
importer is able to pay exporter
2. Bill of Lading – given to exporter to prove that
goods have been shipped
3. Draft – given by exporters bank to tell importers
bank to pay
2
Basis of international Business
International business- business activities which
involve exchanges across national boundries.
Absolute Advantage – Ability to produce a product
more efficient than any other country. E.g. Saudi
Arabia = crude oil
Comparative advantage – ability to produce a
product more efficiently than another product.
( between 2 people)
Exporting – Selling and shipping raw materials/
products to other countries
Importing – Purchasing raw materials/ products from
other countries.
Nations Balance of Trade = total value of exports –
total value
of imports. Over period of time.
Balance of trade – Total flow of money into the
country – total value of money flowing out of the
country
Trade deficit – Negative balance of trade
Restrictions on international trade
Tariffs – Tax levied on particular foreign products
entering the country.
Antidumping duty – Dumping is selling all excess
product to other country at price lower than local
price. This puts local companies in danger.
NON-TARIFF BARRIERS (non-tax measure)
Import quota – limit amount of particular good
allowed to be imported at specific time
Embargo – complete halt to a nation trading a
specific product/ material
1
, Foreign-exchange control – restricts amount of
particular foreign currency that can be purchased
Currency devaluation – reduction of nations currency
compared to currency of other countries.
Reasons for trade restrictions
Equalize nations balance of payments –
increase strength of currency so nation can pay
debts
Protect new and weak industries – new
industries cannot withstand foreign
competition
Protect national security – stops other
countries from getting certain weapons etc.
Retaliate for other nations trade restrictions
Protect health of citizens –some foreign
products may be dangerous
Protect domestic jobs
Reasons against trade restrictions
Higher prices for consumers
Restriction for consumers
Misallocation of international resources – limited
resources are being wasted by protecting new and
weak industries
Loss of jobs – If one nation cuts imports then people
in other nations who export goods lose jobs.
Methods of entering international business
Licensing – Contractual agreement in which one form
allows another firm to produce and market its
products in return for royalties.
Exporting – Firm manufactures products in home
country then sells them in foreign markets.
1. Letter of credit – issued by bank that states that
importer is able to pay exporter
2. Bill of Lading – given to exporter to prove that
goods have been shipped
3. Draft – given by exporters bank to tell importers
bank to pay
2
