A complete halt to trading with a particular nation or in a particular product

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. - Absolute advantage : the ability to produce a specific product more efficiently than any other nation. - Comparative advantage : 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.
• Balance of trade = total value of its exports – the total value of its imports.
• Trade deficit : 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.
• Balance of payments = total flow of money into a country – total flow of money out of that country over some period of time. o It also includes investments, money spent by foreign tourists, payments by foreign governments etc.
• Import duty ( 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

TARIFFS

Import duty: tax levied on a particular foreign product entering a country. → Revenue tariffs: imposed solely to generate income for the government. → Protective tariffs: imposed to protect a domestic industry from competition by keeping the price of competing imports level with or higher than the price of similar domestic products.

Dumping : Exportation of large quantities of products at a price lower than that of the same product in the home market. Thus, dumping drives down the price of the domestic item.

NON TARIFF BARRIERS

Nontarif barriers : Nontax measures imposed by a government to favor domestic over foreign suppliers. It creates obstacles to the marketing of foreign goods in a country and increase the costs for exporters.

❶ Import quota : limit on the amount of a particular good that may be imported into a country during a given period of time → May be in terms of value (so many rands’ worth) or quantity (so many kg’s) → Quotas also may be set on individual products imported from specific countries. ❷ Embargo : is a complete halt to trading with a particular nation or in a particular product. → Used as a political weapon as a result of extremely poor political relations. ❸ Foreign exchange control : a restriction on the amount of a particular foreign currency that can be purchased or sold. → Limits the amount of goods importers can purchase with that currency. ❹ Currency devaluation: the reduction of the value of a nation’s currency relative to the currencies of other countries. → Increases the cost of foreign goods, whereas it decreases the cost of domestic goods to foreign firms.

Reasons for trade restrictions: Reasons against trade restrictions:

→ To equalize a nations balance of payments → To protect new or weak industries → To protect national security → To protect health of citizens → To retaliate for another nations trade restrictions → To protect domestic jobs

→ Higher prices for consumers → Restriction of consumers choices → Misallocation of international resources → Loss of jobs

Extent of international business

o Provides immediate market knowledge and access, reduced risk, and control over product attributes o Can be extremely complex to establish and requires a high level of commitment from all parties involved.  Totally owned facilities: its own production and marketing facilities in one or more foreign nations, o Direct Investment – complete control over investment o Production and marketing facilities in one or more foreign nations o Two forms

• Building new facilities in the foreign country
• Purchasing an existing firm in the foreign country o Greater risk than Joint venture o Legal part is not secure. o Political agreement must be the right one to keep their assets in the country.  Strategic alliance : a partnership formed to create a competitive advantage on a worldwide basis. o Newest form of international business structure (automobiles and computer industries) are becoming the predominant means of competing.  Trading company : provides a link between buyers and sellers in different countries. o Not involved in manufacturing or owning assets related to manufacturing. o Buys products in one country at the lowest price consistent with quality and sells to buyers in another country. o Job creation. o Develops new industry sector in SA.  Countertrade : an international barter transaction where goods and services are exchanged for other goods and services.  Multinational enterprise : a firm that operates on a worldwide scale without ties to any specific nation or region. o Spar o BMW o Wall mart o SAB Miller o Vodacom

What is a tax levied on a particular foreign product entering a country?

What is the ability to produce a specific product more efficiently than any other product?

Is an internationally supported bank that provides loans to developing countries to help them grow?

What is a measure of the total flow of money into a country minus the flow of money out of the country over a specified period of time?