The Global Marketplace - Introduction To Business - ثاني ثانوي

3.2 The Global Marketplace Link to digital lesson www.ien.edu.sa Learning Outcomes Once you have completed this lesson, you should be able to: 3.2.1 Describe the components of the international business environment. 3.2.2 Identify examples of formal trade barriers. 3.2.3 Explain actions to encourage international trade. Key Terms Infrastructure Trade Barriers Quota Tariff Embargo Focus on REAL LIFE "Look, this shirt was made in China," Ali announced as he put the hanger back on the rack. "I want shirts made in Saudi Arabia." Yousef touched the shirt and asked, "What's wrong with shirts from China?" "I don't know, but wouldn't it be better if we bought things made here rather than giving our money to other countries?” "Actually, trading with other countries can be good for us," Yousef explained. "When we buy goods from China it helps that country's economy and makes it possible for the Chinese to buy goods and services from Saudi companies." Ali picked up the shirt and said, "In that case, I'll buy this one." LO 3.2.1 INTERNATIONAL BUSINESS ENVIRONMENT Doing business in other countries requires knowledge of the differences that exist among people and places. As shown in Figure 3-5 on page 95, businesses must consider four main factors—geography, cultural influences, economic development, and political and legal restrictions. Geography The location, climate, terrain, seaports, and natural resources of a country influence business activity. Very hot weather will limit the types of crops that can be grown. A nation with many rivers or ocean seaports can easily ship products for foreign trade. Countries with few natural resources must depend on imports. Cultural Influences In some societies, bowing is an appropriate business greeting. In other societies, a handshake is the custom. These differences represent different cultures. Culture is the accepted behaviors, customs, and values of a society. A society's culture has a strong influence on business activities. During Ramadan, Saudi businesses tend to have shorter opening hours and permit their staff to work fewer hours. The main cultural and social factors that affect international business are language, religion, values, customs, and social relationships. These relationships include interactions between society and other organizations. 94 Chapter 3 | Business in the Global Economy وزارة التعليم Ministry of Education 2024-1446 GE44.PATHWAYS.G02.ITB.SB.PP1.indb 94 08/05/2024 09:13

Economic Development Countries and individuals face the problem of limited resources to satisfy needs and wants. You continually make decisions about the use of your time, money, and energy. In a similar way, every country plans the use of its land, natural resources, workers, and wealth to best serve the needs of its people. In some countries, people travel on a high- speed bullet train to manage a computer network in a high-rise building. In other countries, people go by oxcart to a grass hut to operate a hand loom. to make cloth for people in their village. These differences in living and work environments reflect the level of economic development. The key factors that affect a country's level of economic development are: • Literacy Level Countries with better education systems usually provide more and better goods and services for their citizens. • Technology Automated production, distribution, and communications systems allow companies to create and deliver goods, services, and ideas quickly. ⚫ Agricultural Dependency An economy where most workers are involved in agriculture does not have the manufacturing base to provide citizens with great quantity and high quality of a product. Another factor that supports international trade in industrialized countries is infrastructure. Infrastructure refers to a nation's transportation, communication, and utility systems. A country such as Germany-with its efficient rail system, high-speed highways, and computers—is better prepared for international business activities than other nations with a weaker infrastructure. Political and Legal Restrictions Each day you encounter examples of government influence on business. Governments regulate fair advertising and enforce contracts. They require safety inspections of foods and medications. In many places, the activities of consumers and business operators are restricted. The most common political and legal factors that affect international business activities include the type of government, the stability of the government, and government policies toward business. وزارة التعليم Ministry of Education 2024-1446 Work as a TEAM Knowledge of the international business environment is important for all global activities. As a team, create a list of items for each of the following categories: geography, cultural influences, economic development, and political/ legal concerns. Explain how these items could affect a company when doing business in another country. GEOGRAPHIC FACTORS • Location • Climate • Terrain Waterways • Natural resources CULTURAL FACTORS • Language • Family • Religion • Traditions • Food FIGURE 3-5 ECONOMIC FACTORS • Technology Education • Inflation • Exchange rate • Infrastructure INTERNATIONAL BUSINESS ENVIRONMENT POLITICAL AND LEGAL FACTORS Government system • Political stability • Trade barriers • Business regulations What are some specific examples of the four main factors of the international business environment? CHECKPOINT List the four main elements of the international business environment. 3.2 The Global Marketplace | 95

LO 3.2.2 INTERNATIONAL TRADE BARRIERS Government actions can create trade barriers, which are restrictions to free trade. These political actions are formal trade barriers. Three common formal trade barriers are quotas, tariffs, and embargoes. The culture, traditions, and religion of a country can create informal trade barriers. These situations are not related to formal government actions but they can still restrict trade. Quotas To regulate international trade, governments set a limit on the quantity of a product that may be imported or exported within a given period. This limit is called a quota. Quotas may be set for many reasons. It's often done by a nation to shield its "infant industries," which need protection to get started. Governments will also impose quotas to protect domestic producers on products such as sugar, cattle, dairy products, and textiles. Quotas may be set on imports from another country to express displeasure at the policies of that country. Quotas can also be set by a country to limit the amount of exports. OPEC member countries use quotas to control production so oil supply balances global demand. Do tariffs on imported goods encourage consumers to buy, or persuade them to purchase local alternatives? Tariffs Another device that governments use to control international trade is the tariff. A tariff is a tax that a government places on certain imported products. Suppose you want to buy imported furniture. The producer charges SAR 2,400, but the government collects a 20% tariff (SAR 480) on the furniture when it is imported. Therefore, you will have to pay SAR 2,880 plus shipping charges for the furniture. The increased price may cause you to decide to buy furniture manufactured in Saudi Arabia at a lower price. Some tariffs are a set amount per kilo, liter, or other unit, while others are figured on the value of the good, as in the example of the furniture. A tariff increases the price for an imported product. A high tariff tends to lower the demand for the product and reduce the quantity of that import. Tariffs are also imposed in Saudi Arabia. They are seen as essential to protecting jobs and local businesses. Embargoes If a government wishes to do so, it can stop the export or import of a product completely. This action is called an embargo. Governments may impose an embargo for many reasons. They may wish to offer more protection from international competition for their own industries than either the quota or the tariff will provide. For example, a government may ban the import of solar panels from other countries, if it was seeking to develop its own green technologies domestically. The 96 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446

government may wish to prevent sensitive products, especially those vital to the nation's defense, from falling into the hands of unfriendly groups or nations. A government sometimes imposes an embargo to express its disapproval of the actions or policies of another country. CHECKPOINT What are three formal trade barriers? Business Insight The Importance of Communication and Information Technology in Trade and the Economy Saudi Arabia has won the Government Leadership Award from the International Federation of Mobile Communications in recognition of its powerful ICT and digital infrastructure. The Kingdom has adopted best practices and regulations to support the digital economy, which has encouraged local and international business development. This focus on digital has created new job opportunities for young people, resulting in an emergence of creative ICT entrepreneurs. At a global level, technical and ICT progress has helped residents of rural areas in developing countries. Due to the scarcity of banks, the use of smartphones in these areas has made it practical and easy to access financial services. For example, farmers can make online payments for livestock, agricultural equipment, crop seeds, etc. Organizations such as the Grameen Bank have developed mobile banking systems to serve farmers and entrepreneurs in Asia and Africa, enabling customers to use their phones to check account balances, pay bills, maintain savings accounts, and obtain loans for the establishment of local projects. These projects have led to the creation of new jobs, providing residents with the necessary money to get food, clean water, healthcare, and education. Think Critically 1. What are the banking services that people in poor and rural areas can benefit from using smartphones? 2. Do a search on the Internet for more information on online banking in developing economies. LO 3.2.3 ENCOURAGING INTERNATIONAL TRADE Specific actions by governments can promote international business activities. Governments view exporting as an effective way to create jobs and foster economic prosperity. Free-Trade Zones To promote international business, governments often create free-trade zones in their countries. A free-trade zone is a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing. A free-trade zone is often located around a seaport or airport. The importer pays duty only when the product leaves the zone. وزارة التعليم Ministry of Education 2024-1446 3.2 The Global Marketplace | 97

Why do you think Saudi businesses would be interested in exporting? Free-Trade Agreements Many countries set up free-trade agreements with other nations. Under a free-trade agreement, member countries agree to remove duties, also called import taxes, and trade barriers on products traded among them. This results in increased trade between the members. For example, the EFTA States signed a Free Trade Agreement with the Gulf Cooperation Council (GCC) in 2009. This pact did away with tariffs on goods traded and helped to ease their movement between the nations involved. In another example, the United States, Canada, and Mexico began implementing the North American Free Trade Agreement (NAFTA) in 1994. NAFTA was designed to enlarge the markets and economic bases of the countries involved. The majority of the world's trading nations use the World Trade Organization (WTO) to negotiate trade agreements. The WTO is the only global international organization dealing with the rules of trade between nations. Common Markets In a common market, members do away with duties and other trade barriers. They allow companies to invest freely in each member's country. They allow workers to move freely across borders. A common market is also called an economic community. Common market members have a common external duty on products being imported from nonmember countries. Examples of common markets include What actions could be taken to the Gulf Cooperation Council and the European CHECKPOINT Union (EU). The goals are to expand trade among member nations and promote regional economic integration. 3.2 ASSESSMENT Key Concepts Determine the best answer. encourage international trade? 1. True or False. Infrastructure is a significant factor that affects the economic development of a country. 2. True or False. An informal trade barrier is created by government actions. 3. A country that wishes to enhance international trade activities would most likely use a. a tariff b. a common market c. an embargo d. a quota 98 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446

Make Academic Connections 4. Law Use the Internet to locate information about laws in foreign countries that are different from those in Saudi Arabia. 5. Geography Using library resources or the Internet, obtain copies of maps for various geographic regions. On your map, indicate how the terrain, climate, and waterways might influence international trade activities. Present a one- to two-minute summary of your findings. 6. History Conduct research on the history of a common market such as the GCC or the EU. Describe some of the benefits the community provides to its member nations. وزارة التعليم Ministry of Education 2024-1446 3.2 The Global Marketplace | 99