Transcript Chapter 10
Chapter 10 Business in a Global Economy The Global Marketplace • Multinational Corporation – A company that does business ,and has facilities and offices in many countries around the world. • Nations have become dependant on other nations for resources and products they can’t make themselves. • The global marketplace is like a mall or supermarket. You go to buy things you need that you can’t make yourself ,like jeans or cereal. • The global marketplace depends on specialization, trade, currency (or money), and balancing trade within countries to efficiently be a part of the growing Global Economy. * Words that are bolded and underlined are key vocabulary. Specialization • Specialization is where a country has a specific production area. • This is where a country produces products that can be made easily and inexpensively with materials readily available. • Specialization builds and sustains a market economy. With specialization countries are dependant on other countries for other goods and services they can’t produce as cheap or efficient as the other countries. • Some nations specialize in manual labor because they don’t have the money or technology, but a large population. For example South Korea specializes in assembling color televisions and other electronic devices. Types of Trade • Trade – The sale and exchange of goods and services between a buyer and a seller (countries or individuals can be the buyer or seller). • Domestic Trade – This is when a people in a country produce, buy, and sell goods and services within the country. • That is now void since most of the products the citizens want is not profitable to make, but to buy from other nations. This is called World Trade. • World Trade – Where nations buy and sell goods and services that they can’t make or have the ability to produce enough of to sell to other countries. • Imports – Products a country buys from another country. • Exports – Products a country sells to another country. Currency • Countries don’t swap or barter products,0 they have to pay in money. • Every country has different currency like every country usually has different languages, for example Mexico – Pesos, Japan – Yen, and so on. • If you take a vacation to Europe you have to pay in Euros, since the U.S. uses Dollars you have to exchange Dollars for Euros. • Exchange Rate - The price at which one currency can buy another. • The reason for the increase or decrease of a country’s currency is the demand of the countries products, like if Japan’s electronic equipment is in high demand, buyers have to pay in Yen so the value goes up, but if there is low demand the value goes down. Exchange Rate and Prices • Companies follow changes in the exchange rate to find the best price to purchase products. • When the value of the country’s currency goes up compared to another country’s, it has a favorable exchange rate. • When the value goes down, it has an unfavorable exchange rate. • The country with the favorable rate can buy more of the other country’s products, but it costs more for the country with the unfavorable rate to buy products from the country with the favorable rate. Balance of Trade • Balance of Trade – The difference between how much a country exports and how much it imports. • Trade Surplus – A country has more exports than imports. That means the country has money left over to buy more products. • Trade Deficit – A country has more imports than exports. This means the country is in debt (or has more money spent than is owned). Protectionism • Protectionism – Practice of putting limits on foreign trade to protect businesses at home. • Here are reasons that countries have in favor of keeping businesses at home: - Foreign competition lowers demand for products made at home. - Home companies need protection from unfair foreign competition. - Industries related to national defence and security need protected. - Cheap labor in other countries can threaten jobs at home. - The country can become dependant on the country’s resources. - The working standards may not be equivalent. Trade Barriers • Trade Barriers – A barrier placed on foreign trade to protect home businesses. • Tariff – A tax placed on imports to increase price on the market. • Quota – A limit placed on the quantities of a product that can be imported. • Embargo – When a government decides to stop the import or export of a product. • These all are intended to slow or stop foreign competition that destroys home jobs. Free Trade • Free Trade – this is where there are no limits or restrictions on trading between countries. • Here are some benefits of free trade: -It opens new markets in other countries. -It creates new jobs, especially ones in the global market arena. -Competition forces businesses to be more efficient. -Consumers have more choice in all aspects of the market. -It promotes understanding and cooperation between nations. -It helps countries to raise their standard of living. Trade Alliances • Trade Alliances – this is where several countries merge their economies into one huge market to trade more efficiently. • With this idea it makes it easier for countries to purchase each others products for less because the other country is getting a deal on the products from the 1st country. • This also increases international markets helping countries to become better related and strive to create a more synchronized world. Examples of Trade Alliances • North American Free Trade Agreement (NAFTA) is comprised of the U.S, Mexico and Canada. • European Union (EU) – Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonis, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and United Kingdom. • Association of Southeast Asian Nations (ASEAN) – Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.