SmartBook 3

The Dynamic Global Market

3-1 — Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in global trade.

It’s generally accepted among companies that doing business globally requires employees to have experience abroad.
- There are many more people and countries in the world market and therefore many potential customers in other countries
Language used in global trade
- Importing — buying products from another country
- Exporting — selling products to another country

Why Trade with Other Nations?

Global trade enables nations to produce what it’s most capable of producing and buy what it needs from others;— it’s a mutually beneficial exchange between countries.
; Free Trade — The movement of goods and services among nations without political or economic barriers.

Pros	Cons
Huge market of potential customers Productivity grows when countries produce goods and service in which they have a comparative advantage Global competition and often cheaper imports lower prices encourages innovation and competition access to foreign investments; can help keep interest rates low	domestic works (esp. manufacturing) can lose jobs.;—there’s always someone willing to do it for cheap companies may move to lower-cost global markets;—lowers wages loss of service jobs and increase in white-collar jobs domestic companies can lose their comparative advantage when competitors shift production operations to low-wage countries.

The Theories of Comparative and Absolute Advantage

; Comparative Advantage Theory — A country should sell to other countries those products that it produces the most effectively and efficiently, and buy from other countries it cannot produce as effectively or efficiently.
- The US has a comparative advantage in producing goods and services
  - i.e. software development and engineering services.
- Lacks a comparative advantage in growing coffee or making shoes
; Absolute Advantage — When a country or firm can produce a specific product more efficiently than all other countries
- Doesn’t last forever, global competition doesn’t allow absolute advantages to persist

Getting Involved in Global Trade

3-2 Explain the importance of importing and exporting, and understand key terms used in global business

NOTE: Most people think global business is reserved to massive companies (i.e. Boeing, or IBM), but there is a global market for small businesses.

Importing Goods and Services

Products can differ in their availability between countries. Whether it’s availability or pricing.

Measuring Global Trade

; Balance of Trade — The total value of a nation’s exports compared to its imports over a particular period
; Trade Surplus — A favorable balance of trade; occurs when the value of a country’s exports exceed that of its imports
; Trade Deficit — An unfavorable balance of trade; occurs when the value of a country’s imports exceeds that of its exports
; Balance of Payments — The difference between money coming in and moving leaving the country, and money that comes from factors such as tourism, foreign aid, military expenditures, and foreign investment
- You want to have more money coming in than flowing out
* Since 1975, the US has been a net importer of goods; they have a trade deficit

Nations want to make sure that global trade is fair. Countries prohibit such unfair trade practices

; Dumping — Selling products in a foreign country at lower prices than those charged in the producing country
U.S. Laws Against Dumping — Require foreign firms to price their products to include 10% overhead costs and an 8% profit margin