Chapter 3 M Business and NOTES.pdf - We continue part 1 of your textbook Business in a Changing World with chapter 3 Business in a Borderless World 1 We

Chapter 3 M Business and NOTES.pdf - We continue part 1 of...

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We continue part 1 of your textbook, Business in a Changing World, with chapter 3, Business in a Borderless World 1
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We live in a global economy -- consumers around the world drink Coca-Cola and Pepsi, and eat at McDonald’s and Pizza Hut. As differences among nations continues to narrow along with falling political barriers and new technology, the trend toward globalization of business becomes increasingly important. We define international business as the buying, selling, and trading of goods and services across national boundaries. Most of the world’s population and two-thirds of its total purchasing power are outside the United States. Global marketing requires balancing global brands with the need of local consumers. 2
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Nations and businesses engage in international trade to obtain raw materials and goods that are otherwise unavailable to them or are available elsewhere at a lower price. A nation, or individuals and organizations from a nation, sell surplus materials and goods to acquire funds to buy the goods, services, and ideas its people need. Some nations have a monopoly on a resource or product. Such a monopoly, or absolute advantage , exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item. A comparative advantage is the basis of most international trade. This occurs when a country specializes in products that it can supply more efficiently or at a lower cost. Most nations have such an advantage in some areas and trade for those that they do not have. India and Ireland are examples of countries that are gaining a comparative advantage over the United States in the provision of some services, such as call-center operations, engineering, and software programming. As a result, U.S. companies are increasingly outsourcing , or transferring manufacturing and other tasks to countries where labor and supplies are less expensive. Outsourcing has become a controversial practice in the United States because many jobs have moved overseas, where those 3
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tasks can be accomplished for lower costs. 3
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Most nations trade globally. To obtain needed goods and services, and the funds to pay for them, nations trade by exporting and importing. Exporting is the sale of goods and services to foreign markets. The United States annually exports over 2.3 trillion dollars in goods and services. However, the U.S. also imports goods and services, totaling more than 2.9 trillion dollars. 4
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The level of imports and exports are important when looking at a country’s economy. It is critically important in global trade. The difference between imports and exports for a country represents the balance of trade for that country. Because the United States (and some other nations as well) imports more products than it exports, it has a negative balance of trade, or trade deficit. Of course, when a nation exports more goods than it imports, it has a favorable balance of trade, or trade surplus. Until about 1970, the United States had a trade surplus due to an
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