③ BUSINESS IN A GLOBAL SETTING
Basis for International business
International business: All business activities that involve exchanges across national boundaries
(increase sales)
ABSOLUTE AND COMPARATIVE ADVANTAGE
Some countries are better equipped than others to produce particular Goods and Services. Reasons
may be countries natural resources, its labor supply, or even customs to historical accidents.
•Absoluteadvantage: the ability to produce a specific product more efficiently than any
other nation.
•Comparativeadvantage: the ability to produce a specific product more efficiently than
any other product
EXPORTING AND IMPORTING
Countries trade when they have a surplus of the product they specialize in and want a product the
other country specializes in.
•Exporting: selling and shipping raw materials or products to other nations.
•Importing: purchasing raw materials or products in other nations and bringing them into one’s
own country.
Importing and exporting are the principal activities in international trade. They give rise to an
important concept called the balance of trade.
•Balanceof trade = total value of its exports – the total value of its imports.
•Tradedeficit: imports>exports
•Unfavorable balance of trade: total imports > total exports
•Favorable balance of trade: total imports < total exports
•Trade deficit: is a negative balance of trade.
•Balanceofpayments = total flow of money into a country – total flow of money out of that
country over some period of time.
oIt also includes investments, money spent by foreign tourists, payments by foreign
governments etc.
•Importduty(tarif): a tax levied on a particular product entering a foreign country
•Continual deficit in balance of payments: other nations lose confidence in that Nations economy
•Continual surplus in balance of payments: country encourages exports but limits imports by
imposing trade restrictions
Restrictions to international business