UNDERSTANDING

Business I n a G l o b a l E c o n o m y

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Part 3:

Factors & Regulations For business in the global

marketplace

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Domestic Business The making, buying, and selling of goods and service within a country.

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International Business Business activities needed for creating, shipping, and selling goods and services

across national borders.

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Absolute Advantage A country can produce a good or service at a lower cost than other countries.

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Comparative Advantage A situation in which a country specializes in the production of a good or service at

which it is relatively more efficient.

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Exports - Imports Goods and services sold between countries.

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Foreign Debt The amount of money a country owes to other countries.

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Balance of Trade The difference between a country’s total exports and total imports.

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Foreign Exchange Market Where banks buy and sell different currencies.

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Exchange Rate The value of a currency in one country when compared with the value in another.

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International

Business

Environment

Factors

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Geography Includes a country’s location, climate, terrain, seaports, natural resources

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Cultural Influence Includes language, religion, family, food, values, customs, social relationships

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Economic Development Includes education and literacy level, inflation, technology, exchange rate, agricultural,

dependency, infrastructure, transportation

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Political & Legal Concerns Includes type of government, stability of government, government policies for

businesses relevant to trade barriers

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Trade

Barrier

Factors

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Embargo when a government bans the import or export of specified goods.

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Quota A limit on the quantity of good that may be imported or exported within a given period to

regulate international trade.

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Tariffs Taxes on certain imported products which increases prices.

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Encouragement of

International

Trade

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Common Market When countries that are members freely invest in one another.

Such as: European Union (EU) or Latin American Integration Association (LAIA)

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Free Trade Agreement When countries that are members remove duties and trade barriers on products traded

among them to increase trade between members.

Such as: NAFTA (North American Free Trade Agreement)

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Free Trade Zones Include selected areas that allow duty-free products to be imported, and then stored,

assembled, and/or used in manufacturing. The activities usually occur around a seaport or

airport.

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Entry Mode to the

Global Marketplace

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Franchising Allowing a business the rights to use another company’s name or process in a specific way.

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Licensing Selling the right to a company to use some intangible property (production process,

trademark, or brand name) for a fee or royalty.

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Joint Venture When two or more companies agree to share a business project.

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Main international

trade organizations

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International Monetary Fund Helps promote economic cooperation and maintain an orderly system of world trade and

exchange rates.

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World Bank Provides economic aid to developing countries to fund building communications

systems, transportation networks, and energy plans.

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World Trade Organization Settles trade disputes and enforces free-trade agreements among its members.