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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.