Chapter 3a doing business in global market

Why Trade With Other Nations?• Global trade allows countries to produce what they make best and buy what they need from others... Least Amount of commitment, control, risk and profit pot

Doing Business

in Global Markets

Chapter 03

• Countries with abundant natural resources (like

Venezuela or Russia) need technological

resources from other countries (like Japan)

TRADING with OTHER NATIONS

Why Trade With Other Nations?

• Global trade allows countries to

produce what they make best

and buy what they need from

others

Company % of Earnings From Outside U.S.

TRADING with OTHER NATIONS

• Comparative Advantage A country

should sell the products it produces most efficiently and buy from other countries

the products it cannot produce as

efficiently.

COMPARATIVE ADVANTAGE

• Absolute Advantage A country has a

monopoly on producing a specific

product or is able to produce it more

efficiently than all other countries.

ABSOLUTE ADVANTAGE

Theories of Advantage

Absolute

South Africa

The Rest of the World

= Virtual Monopoly

• Importing Buying products

from another country.

• Exporting Selling products

to another country.

• The U.S is the largest

importing and the third

largest exporting nation in the

world

IMPORTING and EXPORTING

E A S U R I N G

G L O B A L

T R A D

3-13

• Balance of Trade The total value of a nation’s

exports compared to its imports measured over time.

• Trade Surplus When the value of a country’s

exports is more than that of its imports.

• Trade Deficit When the value of a country’s

exports is less than that of its imports

H

O W

t o

M E A S U R E

G L O B A L

T R A

Rising U.S Trade Deficit

http://www.americaneconomicalert.org/ticker_home.asp

• Balance of Payments The difference between money coming into a country (from exports) and

money leaving the country (from imports) plus other money flows.

• The goal is to have more money flowing into a

country than out – a favorable balance.

• An unfavorable balance is when more money

flows out of a country

BALANCE of PAYMENTS

• Dumping Selling products in a foreign country at lower prices than those charged in the producing

country.

• Dumping is prohibited in the U.S

• China, Brazil and Russia have been penalized

for dumping steel in the U.S

UNFAIR TRADE PRACTICES

Least Amount of commitment, control, risk and profit potential Most

Licensing Exporting Franchising Manufacturing Contract

International joint ventures and strategic alliances

Foreign direct investment

KEY STRATEGIES for REACHING

GLOBAL MARKETS

• Licensing When a firm (licensor) provides the

right to manufacture its product or use its trademark

to a foreign company (licensee) for a fee (royalty).

• Licensing can benefit a firm by:

• Exporting provides a great boost to the U.S

economy

• It’s estimated every $1 billion in U.S exports generate over 7,000 U.S jobs

GETTING INVOLVED in

EXPORTING

• EACs provide hands-on exporting assistance

and trade-finance support for small and sized businesses that wish to directly export

medium-goods and services

• ETCs help companies engage in indirect

exporting by:

documentation, and conversions.

EXPORT ASSISTANCE CENTERS

and EXPORT TRADING CENTERS

HOW EXPORTS AFFECT the GDP

HOW EXPORTS AFFECT the GDP

HOW EXPORTS AFFECT the GDP

• Small businesses may be the key in global job

growth.

• Only 1% of U.S small businesses export, yet

they account for 30% of total U.S exports

GOING GLOBAL with a

• Franchising A contractual agreement whereby

someone with a good idea for a business sells

others the rights to use the name and sell a product/

service in a given area.

• Franchisors need to be careful to adapt their

product to the countries they serve

• Pizza Hut and Dominos learned that pizza

F

R A N C H I S I N G

What’s On Your Pizza

• Costa Rica - Coconut

• France - Bacon, onion and fresh cream

• India - Pickled ginger, minced mutton and tofu

• Australia - Shrimp and pineapple

• Pakistan - Curry

• Brazil - Green peas

• Japan - Squid and mayo jaga

• McDonald’ s has more than 32,000 restaurants in

over 117 countries.

the different preferences of its customers.

GOLDEN ARCHES GLOWING

ACROSS the GLOBE

by funding research and

adding healthier options.

• Malaysia: Bubur Ayam McD – Chicken strips in porridge with onions, ginger, and shallots.

• Egypt: Mcarabia – Grilled chicken with tehina sauces,

lettuce, tomato and onion on Arabic bread.

• Japan: Teritama – Teriyaki burger topped with an egg.

• Germany: Want a beer with your burger? You can order

one in the German stores

• Israel: Operates using Kosher kitchens.

THAT’S at MCDONALD’S?

• Contract Manufacturing A foreign company

produces private-label goods to which a domestic

company then attaches its own brand name or

trademark A form of outsourcing.

• Contract manufacturing can be used to:

without incurring heavy start-up costs such as

building a manufacturing plant.

CONTRACT MANUFACTURING

• Joint Venture A partnership in which two or more companies join to undertake a major project

• The Benefits of Joint Ventures:

often not allowed unless goods are produced

locally.

JOINT VENTURES

• Strategic Alliance A long-term partnership

between two or more companies established to help

each company build competitive market advantages.

• Foreign Direct Investment (FDI) The buying of permanent property and businesses in foreign

nations.

• Foreign Subsidiary A company owned in a

foreign country by another company called the parent company The most common form of FDI.

complete control over its technology or expertise.

FOREIGN DIRECT INVESTMENT

WHERE DO THEY INVEST?

Leading Destinations for Foreign Investors

• Multinational Corporation A company that

manufactures and markets products in many

different countries and has multinational stock

ownership and management.

• Not all large global businesses are multinational

• Only firms that have manufacturing capacity or

some other physical presence in different

nations can truly be multinational

MULTINATIONAL CORPORATIONS

• To be involved in global trade, you must be

aware of the cultural differences among nations including:

• Braniff Airlines’ slogan "Fly in leather” translated

in Spanish as "Fly naked.”

African products They found out that labels on

African products picture what’s inside the

READY to TRAVEL ABROAD?

Know Your Cultural Differences

someone.

or shake hands with the left hand because it is

considered unclean.

where their soul is kept.

punctuality isn’t important to the culture.

DO as the GERMANS…

How to Not Embarrass Yourself in Germany

considered sloppy.

• Exchange Rate The value of one nation’s

currency relative to the currencies of other countries.

• High value of the dollar – Dollar is trading for more

foreign currency; foreign goods are less expensive.

• Low value of the dollar – Dollar is trading for less

foreign currency; foreign goods are more expensive.

and demand for them in the global market.

EXCHANGE RATES

• Devaluation Lowers the

value of a nation’s

currency relative to

others.

• Countertrading

Complex form of bartering

in which several countries

each trade goods or

DEVALUATION and COUNTERTRADING

• There’s no global system of laws.

• Laws may be inconsistent

• U.S businesses must follow U.S laws while

conducting global business

• The Organization for Economic Cooperation and Development (OECD) and Transparency

International fight to end corruption and bribery

in foreign markets and have had limited success

LEGAL CONCERNS OVERSEAS

• Developing countries

have transportation and

storage systems that

make international

distribution difficult or

impossible.

capabilities are far from

those in the U.S which

make for a tough

ENVIRONMENTAL FORCES

TRADING with OTHER NATIONS

• Free Trade The movement of goods and

services among nations without political or economic barriers.

TRADING with OTHER NATIONS

• Trade Protectionism

The use of government

regulations to limit the

import of goods and

• Tariffs Taxes on imports.

• Two kinds of tariffs:

- Revenue – Raise money

for governments

- Protective – Raise the

retail price of imports so domestic goods are

competitively priced.

TARIFFS

• Import Quota Limits the number of products in

certain categories a nation can import.

• Embargo A complete ban on the import or export

of a certain product or the stopping of all trade with a particular country.

• Political disagreements can lead to embargos,

like the U.S embargo against Cuba

IMPORT QUOTAS and EMBARGOS

• General Agreement on Tariffs and Trade

A global forum for reducing trade restrictions on

goods, services, ideas and cultural problems.

• World Trade Organization (WTO)

Headquartered in Geneva, the WTO is an

independent entity of 152 member nations whose

purpose is to oversee cross-border trade issues and global business practices.

WORLD TRADE ORGANIZATION

• Common Market A regional group of countries

with a common external tariff, no internal tariffs and

coordinated laws to facilitate exchange among

members.

COMMON MARKETS

EU MEMBERS

• North American Free Trade Agreement

Ratified in 1994, created a free-trade area among

the United States, Canada and Mexico.

- Eliminate trade barriers and facilitate cross-border

movement of goods and services.

- Promote conditions of fair competition.

- Increase investment opportunities.

- Provide effective protection and enforcement of

intellectual property rights.

- Establish a framework for further regional trade

cooperation.

- Improve working conditions in North America.

NAFTA

Central American Free Trade Agreement

Passed in 2005, created a free-trade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.

• Free traders hope CAFTA will lead to the creation

of a Free Trade Area of the Americas (FTAA)

NEW FREE TRADE AGREEMENTS

agreements are being

negotiated with South

Korea, Colombia and

Panama

an agreement with a

nine-nation free trade

bloc called the

Trans-Pacific Partnership

• With over 1.3 billion people, China has

transformed the world economic map Many

multinationals invest heavily in China

• India has seen huge growth in information

technology, pharmaceuticals and biotechnology

• Russia is a large oil producing country with many

multinationals interested in developing there

FUTURE of GLOBAL TRADE

• Outsourcing Process by which a firm contracts

with other companies to do some or all of its

functions.

accounting and manufacturing for years.

OUTSOURCING

markets, companies have

been shifting to offshore

outsourcing – outsourcing

with other countries.

(like UPS, MLB, the

NFL and the NBA) are

BUSINESS in the GLOBAL MARKET

• Study foreign languages

• Learn about foreign cultures

• Take global business courses

PLAN for YOUR GLOBAL CAREER