Lesson 2.1: Intro to International Business

Overview

• Focus on globalization and its impact on international business.
• Understanding price differences in goods across countries due to globalization.
• This lesson is foundational for DECA exams and role plays.
• Topics covered:
  • Definition of globalization
  • Developed vs. Developing countries
  • Multinational corporations
  • Advantages of global trade
  • Exports and imports
  • Foreign exchange rates

Globalization

• Definition: Countries becoming interconnected through international trade.
• Enabled by modern technology facilitating cross-country connections.
• Challenges: Different cultures, political structures, economies, labor laws, and legal documents.

Developed vs. Developing Countries

• Developed Countries:
  • High production levels
  • Strong infrastructure
  • High standard of living
  • Per capita GDP > $20,000
  • Examples: US, Canada, UK
• Developing Countries:
  • Low production levels
  • Weak infrastructure
  • Low standard of living
  • Emerging markets
  • Examples: India, Somalia, Kenya

Multinational Corporations

• Operate in multiple countries beyond their own.
• Examples: Facebook, Amazon, Tesla.

Advantages of Global Trade

1. Access to Unique Natural Resources:
   • Example: Coffee beans from tropical regions.
2. Access to Unique Products:
   • Example: Silk from China and India.
3. Lower Prices:
   • Due to cheaper labor or abundant resources.
4. Growth Opportunities:
   • Access to new markets.

Exports and Imports

• Exports: Goods sold to another country.
• Imports: Goods purchased from another country.
• Balance of Trade:
  • Exports minus imports.
  • Trade surplus (favorable): Exports > Imports.
  • Trade deficit: Imports > Exports.

Foreign Exchange Rates

• Each country has its own currency.
• Foreign Exchange Rate: Cost to exchange currencies.
• Floating Currencies:
  • Exchange rates set by supply and demand.
  • Market: Foreign exchange market (forex).
• Strength of Currency:
  • Strong US Dollar: Cheaper imports, more expensive exports.
  • Weak US Dollar: Cheaper exports, more expensive imports.

Factors Affecting Currency Value

1. High demand for products increases currency demand.
2. High interest rates attract investments.
3. Low inflation makes currency attractive.
4. Political stability ensures currency is safe.

Exchange Rate Systems

• Fixed Exchange Rate: Fixed value relative to other currencies (historically used).
• Floating Exchange Rate: Value changes daily based on market forces.
• Managed Floats: Central banks stabilize through buying/selling currencies.

Conclusion

• Understanding international business fundamentals is key.
• Real-world application example: Fluctuations in foreign exchange rates affecting profits.
• Encouragement to explore further resources for questions.