International business refers to firms operating in multiple countries, known as multinational corporations (MNCs). MNCs have subsidiaries in each country they operate in and must manage legal and cultural differences between countries. Increased international business and globalization have led to rising world trade. World trade benefits countries by increasing aggregate demand and economic growth, raising living standards through jobs and technology from foreign direct investment. Economies are also now closely aligned through shared international business cycles, so economic shocks can spread between countries.

1. Globalisation Part 2
World Trade

2. International Business
 International business is a term used to collectively describe topics
relating to the operations of firms with interests in multiple countries. Such
firms are sometimes called multinational corporations (MNC's) or TNC’s
transnational corporations.
 Well known MNCs include :McDonald's, General Motors, Toyota, LG, Sony,
and BP. Most of the largest corporations operate in multiple national
markets.
 MNCs typically have subsidiaries or joint ventures in each national market.
How these companies are organised, how they operate, and their lines of
business are heavily influenced by: socio-cultural, political, global, economic
and legal environments of each country that the firm does business in.
 The management of the parent company typically must incorporate all the
legal restrictions of the home company into the management of companies
in based in very different legal and cultural frameworks. International
business by its nature is a primary determinant of international trade, One
of the results on the increasing success of international business ventures is
GLOBALISATION
(WIKIPEDIA)

3. Review
ECONOMIC INDICATORS:
 Inflation
 Unemployment rate
 GDP
 Trade – Imports/Exports
 Exchange rate (AUD Fluctuations)
 External factors: things that can affect production/profits (natural
factors- weather: (e.g. Australian banana crisis in 2006).
 Gross domestic product (GDP) is the standard measure
of the value of the goods and services produced by a
country during a period. Per capita GDP is a broad
indicator of economic living standards.
(OECD FACTBOOK 2008)

4. Gross domestic product
Billion US dollars
current prices and PPPs, 2006 or latest available year

5.  There is a relationship between economic
growth and world trade
(handout: graphical representations)
 This flows then through the economy and
injects other sectors of the economy.
Ultimately this will also raise our living
standards
– In class question
 Why do you think world trade will increase our
standards of living?

6.  AGGREGATE DEMAND
– In economics the term aggregate or total demand is
associated with how the economy is performing
– With globalisation, trade increases, employment
increases and thus demand in the economy as a
whole increases as well.
 TNC’S (Transnational Corporations)
– These have also contributed to Australia growth in
world trade
– TNC’s are business organisations who not only see
the world as their marketplace but also have
production facilities in many places around the world
– Read the following link now
 http://www.answers.com/topic/transnational-corporation?cat=technology

7. TNC’S and Foreign Investment
 TNC’S bring with them new forms of technology.
(direct foreign investment)
 This also helps countries stay up to date with
changes in the world economy
 This is very important to developing countries.
 If a country closes itself off from the rest of the
world, then they will fall behind in technology
and overtime become less competitive.
– E.G. North Korea

8. Pair Question
 Should Australian’s buy a product at a
cheaper price if it can be made cheaper in
a foreign country?
 How would it impact on the economy if
the government refused to let Australian’s
buy the cheaper product by imposing a
ban on imports?

9. The Business Cycle
The business cycle represents boom and
bust cycles that take place in an economy.
Have a look at the graph below

10.  Most world economies due to trade follow
the same business cycle
 If the USA has an economic shock this will
flow onto Australia?
– In class discussion
 WHY DO YOU THINK THIS HAPPENS?
 What do you know from the sub prime mortgage
crisis in the USA of 2007
Thus on conclusion we can conclude that due to
globalisation and trade the world’s economies
are closely aligned.

11. Questions - individual
 Explain how trade flows increase economic
growth of a country.
 Explain the effect on a country of direct
foreign investment.
 Explain the impact of the international
business cycle on domestic and world
economies.