International Business Basics - Introduction To Business - ثاني ثانوي

PLANNING A CAREER IN ... INTERNATIONAL BUSINESS Global business activities create many employment opportunities. People working in international business direct foreign sales, negotiate with foreign distribution centers, arrange shipping, and plan conversion of products to foreign specifications. While the international business skills necessary to perform these tasks are increasingly important, job titles may not reflect them directly because workers often have other duties unrelated to importing and exporting. Transportation managers, for example, oversee both foreign and domestic shipping, including settlements between shippers. Customs Service agents investigate persons, common carriers, and merchandise arriving in or departing from the country to prevent prohibited importing or exporting. Analyze Career Opportunities in... INTERNATIONAL BUSINESS ransportation, Distribution & Logistics Related Job Titles Customs Inspector • Interpreter or Translator • Global Purchasing Manager • Freight Inspector • Cross-Cultural Trainer International Sales Representative • International Marketing Manager • Import-Export Coordinator Use library and Internet resources to learn more about careers in international business. Choose one of the job titles listed in the box and answer the following questions. 1. How would you describe the earnings potential for this field? 2. Is this a career that interests you? Describe a few things you could do to learn more about this career. What it's like to work as a... Freight Forwarder "I'm sorry, your shipment is being held at the Port of Hong Kong until the is prepared." proper documentation These are words no exporter wants to hear. To avoid this type of situation, exporters turn to freight forwarding companies to help them ship their products around the world. Freight forwarders specialize in shipping goods to customers in other countries. These global intermediaries also help businesses around the world with other services. Areas of expertise include export regulations, costs for various shipping methods, and the customs process. Most freight forwarders also serve as customs brokers, helping international companies pass inspections when goods enter another country. Customs brokers prepare needed documents and make sure the required tariffs are paid. What about you? Are you interested in any aspects of international business? Which ones and why? وزارة التعليم Ministry of Education 2024-1446 Business in the Global Economy | 87

3.1 International Business Basics Link to digital lesson www.ien.edu.sa Learning Outcomes Once you have completed this lesson, you should be able to: 3.1.1 Describe importing and exporting activities. 3.1.2 Compare balance of trade and balance of payments. 3.1.3 List factors that affect the value of global currencies. Key Terms Imports Exports Balance of Payments Exchange Rate Balance of Trade Focus on REAL LIFE What did you and your family have for breakfast this morning? Tea, bread with jam, and slices of French cheese, perhaps? If it were not for trading with Kenya for tea and with France for cheese, you might have had only bread with jam. The sugar on your table may have come from India. The textbook you are reading to get ready for class was printed on paper that may have come from Indonesia. As you look around your home, you will find many products made in other countries. For example, you may find a TV made in Japan or Korea, a computer made in China, clothing made in the Philippines or the U.S.A., kitchen appliances made in Hong Kong or Malaysia, and cocoa from Brazil or Colombia. Look around your classroom. Can you identify products made in other countries? LO 3.1.1 TRADE AMONG NATIONS Most business activities occur within a country's own borders. Domestic business is the manufacture, purchase, and sale of goods and services within a country's borders. International business refers to business activities that manufacture, ship, and sell goods and services across national borders. International business is frequently referred to as foreign or world trade. Evidence of foreign trade is everywhere. Saudi Arabia is rich in natural resources, of which oil is the principal component. More recently, 1. DE SERE EVERGREEN MARN What are some of the advantages and disadvantages of international trade? 88 Chapter 3 | Business in the Global Economy وزارة التعليم Ministry of Education MAERS the country has aimed to diversify away from oil to include other sources of income. It has an educated and youthful labor force and a growing production capacity. The economy is not only reliant on its own resources; its companies and consumers purchase goods and services created throughout the world. Today, Saudi Arabia has trade links with more than 170 countries. In the past, economies were viewed in terms of national borders. With international trade expanding every day, economies cannot be defined solely by borders. Countries are interdependent and so are their economies. Consumers have come to expect goods and services from around the world. 2024-1446 GE44.PATHWAYS.G02.ITB.SB.PP1.indb 88 08/05/2024 09:13

Absolute Advantage Two economic principles define buying and selling among companies in different countries. Absolute advantage exists when a country can produce a good or service at a lower cost than other countries. This may result from an abundance of natural resources Life-Span Plan Identify your special aptitudes or abilities that you believe could help you achieve your life-span goals. Explain how these aptitudes or abilities are similar to absolute or comparative advantage among nations in production and trade. or raw materials in a country. For example, some South American countries have an absolute advantage in coffee production, and Saudi Arabia has an absolute advantage in oil production. Comparative Advantage A country may have an advantage in more than one area. If so, it must decide how to maximize its economic wealth. A country may be able to produce both smartphones and clothing better than other countries. The world market for smartphones might be stronger than the market for clothing. This means it would be better for the country to produce smartphones but to buy clothing from other countries. Comparative advantage is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient. A real-world example is the specialization of labor in China and the U.S. China's comparative advantage with the U.S. is cheap labor. Simple goods are produced by Chinese workers at a much lower opportunity cost. Conversely, the comparative advantage for the U.S. is in specialized, higher-cost labor. Sophisticated goods are produced by American workers at a lower opportunity cost. Each country benefits from specializing and trading in this way. Importing Imports are products and services that are bought from other countries. Did you know that Saudi Arabia's main imports are machinery and electrical equipment (27% of total imports), base metals (13%), chemicals (9%), and vegetables (6%)? In 2021, the full value of Saudi Arabia's imports was SAR 565.5 billion (source: Saudi Customs Data Initiative). Saudi Arabia's main import partners are China, the U.S., the U.A.E., India, Germany, and Japan. Other significant partners include Italy, France, Egypt, and the U.K. Figure 3-1 shows Saudi Arabia's dependence on imported raw materials to satisfy its manufacturing and consumer needs. Top Ten Saudi Import Partners by Value in 2021 FIGURE 3-1 China U.S.A. ■ U.A.E. India ■Germany ■ Japan ■Italy France ■ Egypt U.K. Source: Saudi Customs Data Initiative Without foreign trade, many things you buy would cost more or not be available. Other countries can produce some goods at a lower cost because they have the needed raw materials or have lower labor costs. Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods. They may simply enjoy products made in other countries. French perfumes, Japanese cars, and Swiss watches are examples. How would Saudi Arabia's economy be affected if it was unable to trade with these partners due to a global pandemic, such as Covid-19? وزارة التعليم Ministry of Education 2024-1446 3.1 International Business Basics | 89

Exporting Goods and services sold to other countries are called exports. Just as imports benefit you, exports benefit consumers in other countries. For example, people throughout the world use mineral fuels including oil from Saudi Arabia. They eat food made from Saudi agricultural products and use chemicals, fertilizers, and plastics from the Kingdom. Construction materials sourced in SAUDI TRADE BALANCES 2019 SAUDI TRADE BALANCE (SAR* BILLIONS) COUNTRY GOODS EXPORTED (SAR* BILLIONS) GOODS IMPORTED (SAR* BILLIONS) China 34.88 101.28 -66.4 U.E.A. 16.5 39.01 -22.51 India 14.25 24.38 -10.13 Singapore 12.75 6.0 +6.75 Turkey 7.5 11.25 -3.75 Belgium 6.75 5.63 +1.12 Egypt 6.38 9.0 -2.62 Kuwait 6.0 1.88 +4.12 Malaysia 5.25 3.75 +1.5 Jordan 4.88 3.38 +1.5 *Saudi Arabian Riyal Source: World Integrated Trade Solution FIGURE 3-2 Saudi Arabia are used in the erection of buildings across the Gulf and beyond. Saudi Arabia is currently the 19th largest exporter in the world. While oil remains the biggest export, the country has taken initiatives to diversify the economy and boost exports in other fields. Figure 3-2 shows the Saudi balance of trade with its top trading partners it exports to. CHECKPOINT How does importing differ from exporting? Which country has the largest trade imbalance with Saudi Arabia? ليم LO 3.1.2 MEASURING TRADE RELATIONS A major reason people work is to earn money to buy things. First, they sell their labor for wages. They then spend the major part of those wages on goods and services. People usually try to keep their income and spending in balance. They know that if they spend more than they earn, they can experience financial problems. Nations are also concerned about balancing income with expenditures. When people buy more than their income allows, they go into debt. In the same way, when a country has an unfavorable balance of trade, it owes money to others. Foreign debt is the amount a country owes to other countries. Balance of Trade The difference between a country's total exports and total imports is called the balance of trade. If a country exports (sells) more than it imports (buys), it has a trade surplus. Its trade position is said to be favorable. If it imports more than it exports, it has a trade deficit and its trade position is unfavorable. A country can have a trade surplus with one country and a trade deficit with another. Countries should strive to keep their international trade in balance. Figure 3-3 on page 91 shows the two possible trade positions (favorable and unfavorable). Due to extensive oil exports, Saudi Arabia has recorded a trade balance surplus in many years since 1968 and is therefore in a very strong and favorable trade position (source: World Bank data via www.macrotrends.net). 90 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446

Balance of Payments In addition to exporting and importing goods and services, nations participate in other forms of exchange. Money passes from one country to another through investments and tourism. A citizen of one country might invest in a corporation in another country. A business may invest in a factory in another country. government might give financial assistance or military aid to another nation. Banks may deposit funds in foreign banks. One When tourists travel, they add to the flow of money from their country to the country they are visiting. Some countries limit the amount of money their citizens can take out of the country when they travel. The balance of payments is the difference between the amount of money that comes into a country and the amount Work as a TEAM Countries attempt to establish or maintain a favorable balance of payments. Create a list of actions a nation might take to improve its trade relations with other countries. Possible Trade Positions Favorable Balance of Trade Unfavorable Balance of Trade Exports Imports Exports Imports FIGURE 3-3 that goes out of it. A positive or favorable Why is it better for a country to export more than balance of payments occurs when a nation receives more money in a year than it pays it imports? out. A negative balance of payments is unfavorable. It is the result of a country sending more money out than it brings in. While there are similarities, there is a notable difference between the balance of trade and the balance of payments. Balance of trade is solely concerned with the import and export of physical goods, whereas balance of payments is a broader measure of the inflow and outflow of foreign exchange, including services, transfers, and flow of money from tourism. LO 3.1.3 INTERNATIONAL CURRENCY In every economy, money serves three functions: (1) a store of value for future buying; (2) a medium of exchange for business transactions; and (3) a unit of measure to value goods and services. One challenge of international trade is the various currencies used around the world. For instance, Saudi Arabia uses the Riyal; the United States, the Dollar; the European Union, the Euro; Brazil, the Real; and India, the Rupee. Foreign Exchange Rates The process of exchanging one currency for another occurs in the foreign exchange market, which consists of banks that buy and sell CHECKPOINT How does balance of trade differ from balance of payments? 100 LF323847176 DOT IDD حمر منة ريال 100 0641267A TT PC80641267 100 What are the benefits and concerns associated with having many different currencies around the world? different currencies. Most large banks provide currency services for businesses and consumers. The exchange rate is the value of a currency in one country compared with the value in another. Supply and demand affect the value of currency. The approximate values of various currencies on a recent date in relation to the Saudi Arabian Riyal (SAR) are listed in Figure 3-4. وزارة التعليم 3.1 International Business Basics | 91 Ministry of Education 2024-1446

Travelers and businesspeople must deal with currency exchanges as they go from one country to another. Travelers in another country can go to a currency exchange and buy the local currency. The amount of local currency they receive depends on the value of the two currencies at that time. Current rates are available online and at exchange windows. Currency exchange operators charge fee. They are located at airports, train stations, hotels, and banks. Foreign currencies may also be purchased online. VALUES OF CURRENCIES (MAY 2022) COUNTRY Britain CURRENCY UNITS PER SAR VALUE IN SAR pound 4.90 0.20 Australia dollar 2.79 0.36 Canada dollar 2.99 0.33 European Union euro 4.06 0.25 United States dollar 3.75 0.26 Japan yen 0.02 34.07 South Africa rand 0.24 4.00 U.A.E. Emirati dirham 1.02 0.98 Switzerland Swiss franc 3.96 0.25 Source: Saudi Central Bank, accessed May 2022 FIGURE 3-4 Which currency is worth the most in terms of SAR? Factors Affecting Currency Values Three main factors affect currency exchange rates among countries: the country's balance of payments, economic conditions, and political stability. Balance of Payments When a country has a favorable balance of payments, the value of its currency is usually constant or rising. An increased demand for both the nation's products and currency influences this situation. When a nation has an unfavorable balance of payments, its currency usually declines in value. its Economic Conditions Inflation occurs when prices increase and the buying power of the country's money declines, which makes its currency less appealing. Inflation is linked to the money supply and reduces the buying power of a currency. High inflation in Brazil, for example, would reduce the demand for the Real. Interest rates are an additional charge imposed on organizations or individuals by lenders for borrowing money. These rates can affect the value of a country's currency. Higher interest rates usually create lower consumer demand. This usually results in a reduced demand for a nation's currency, causing a decline in its value. Political Stability Companies and individuals want to avoid risk when they do business in other nations. If a government changes suddenly, this may create an unfriendly setting for foreign business. A company could lose its buildings, equipment, or money on deposit in banks. Political instability may also occur when new laws are created. These laws may not allow foreign businesses to operate as freely as they did under the old laws. Uncertainty in a country reduces the confidence that businesspeople have in its currency. ليم 92 Chapter 3 | Business in the Global Economy Ministry of Education 2024-1446 CHECKPOINT What factors affect the value of a country's currency?

3.1 ASSESSMENT Key Concepts Determine the best answer. 1. Which of the following would be an example of international business? a. A farmer in Tabuk using fertilizer made in Al Khobar b. A sales staff in Jeddah representing a foreign producer c. A restaurant in Riyadh offering Asian menu items d. A retail store in Dammam selling craft items from local artists 2. When a country's imports exceed its exports, there is a trade a. surplus b. deficit c. exchange d. balance 3. The value of a country's currency is likely to decline as a result of a. higher inflation b. lower interest rates c. a trade surplus d. a favorable balance of payments Make Academic Connections 4. Culture While business knowledge is important, often cultural awareness in foreign markets is even more important. Interview someone who has lived in or visited another country about cultural factors that affect business activities in that country. 5. History Conduct research to identify various items that have been used as money in the past. Obtain photos online of the different forms of money. Explain how these items served as medium of exchange, store of value, and unit of measure. وزارة التعليم Ministry of Education 2024-1446 3.1 International Business Basics | 93