BADM1103F07Ch03

THE DYNAMIC GLOBAL MARKET2/42THE DYNAMIC GLOBAL MARKET•U.S. -the Largest Exporting and Importing Nation in the World•Importingbuying products from another country•Exportingselling products to another country3/42Why Trade with Other Nations?•No nation can produce all the products that its people need•Exchange among nations -goods and services, art, sports…•Mutually beneficial exchange•Abundant natural resources -lack technological know –how•Sophisticated technology -few natural resources4/42Why Trade with Other Nations? (cont.)•Free Trade•The movement of goods and services among nations without political or economic obstruction5/42Comparative and Absolute Advantage•Comparative Advantage•A country should sell to other countries those products that it produces most effectively and efficiently and should buy from other countries those products that it cannot produce as effectively or efficiently•Absolute Advantage•A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries6/42Getting Involved in Global Trade•Importing Goods and Services•Foreign students attending U.S. schools often notice some products widely available in their countries are not available here•Importing these goods into the U.S. can be quite profitable•Harold Schultz –Starbucks •Exporting Goods and Services7/42Measuring Global Trade•Measuring Global Trade•Balance of Tradea nation’s ratio of exports to importsfavorable balance of trade exists when the value of a nation’s exports exceeds its importstrade deficit -an unfavorable balance of trade8/42Measuring Global Trade (cont.)•Balance of Paymentsthe difference between money coming into a country (from exports) and money leaving the country (for imports…)favorable Balance of Payments•means more money is flowing into than flowing out of the countryunfavorable Balance of Payments•more money is leaving than coming into the country9/42Measuring Global Trade (cont.)•Dumpingthe practice of selling products in a foreign country at lower prices than those charged in the producing country10/42Strategies for Reaching Global Markets•Licensing•A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its products in exchange for a fee (a royalty)11/42Licensing (cont.)•Advantages:additional revenuessale of start-up supplies, component materials, and consulting services from the licensing firmthe licensor spends little or no money to produce and market the product; costs come from the licensee’s pocket12/42Licensing (cont.)•Drawbacks:often a firm must grant licensing rights to its product for an extended periodif a product experiences remarkable growth in the foreign market, the bulk of the revenue goes to the licenseeif the foreign licensor learns the technology, it may break the agreement and begin to produce a similar product on its own13/42Strategies for Reaching Global Markets (cont.)•Exporting•Export Assistance Centers (EAC’s)•Small and medium-sized firms represent 98% of the growth in U.S. exports•Export-Trading Companiesmatch buyers and sellers from different countrieshelp exporters reduce a key risk —getting paid14/42Strategies for Reaching Global Markets (cont.)•Franchising•An arrangement whereby someone with a good idea for a business sells the rights to use the business name•Popular both domestically and in global markets•Franchisers must adapt in the countries they serve15/42Strategies for Reaching Global Markets (cont.)•Contract Manufacturing•A foreign country’s production of private-label goods -domestic company then attaches its brand name or trademark; outsourcing•Advantages:experiment in a new market without heavy start-up coststemporary use to meet an unexpected increase in orderslower labor costs16/42International Joint Ventures and Strategic Alliances•Joint Venture•Two or more companies join to undertake a major project•Advantages:shared technology and riskshared marketing and management expertiseentry into markets where foreign companies are not allowed unless their goods are produced locally17/42International Joint Ventures and Strategic… (cont.)•Drawbacks:one partner can learn the technology and practices of the other and leave to become competitorthe technology may become obsoletethe partnership may be too large to be flexible as needed18/42International Joint Ventures and Strategic… (cont.)•Strategic Alliance•A long-term partnership between two or more companies established to help each company build competitive market advantages•Benefits:access to Markets, Capital, and Technical Expertisethey usually do not involve sharing costs, risks, management, or profitscan be flexible and effective between firms of different sizes19/42Strategies for Reaching Global Markets (cont.)•Foreign Direct Investment•A Foreign Subsidiarya company owned in a foreign country by another company (parent company)•Benefits:the company maintains complete control•Drawbacks:the firm’s assets could be expropriated20/42Strategies for Reaching Global Markets (cont.)•Multinational Corporations•An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management21/42Strategies for Reaching Global Markets (cont.)22/42Forces Affecting Trading in Global Markets•Sociocultural Forces•The term ―culture‖ refers to the set of values, beliefs, rules, and institutions held by a specific group of people•Ethnocentricityan attitude that ―our‖ culture is superior to all others23/42Forces Affecting Trading in Global Markets (cont)•Economic and Financial Forces•Exchange Ratethe value of one nation’s currency relative to the currencies of other countriesfloating exchange rates -currencies ―float‖ according to supply and demand in the global market for currency•Devaluationlowering the value of a nation’s currency relative to other currencies24/42Forces Affecting Trading in Global Markets (cont.)•Countertradinga complex form of bartering in which several nations may be involved, each trading goods for goods or services for services25/42Forces Affecting Trading in Global Markets (cont.)•Legal and Regulatory Forces•Global markets are governed by many laws and regulations, often inconsistent•The Foreign Corrupt Practices Act of 1978prohibits ―questionable‖ or ―dubious‖ payments to foreign officials to secure business contracts26/42Forces Affecting Trading in Global Markets (cont.)•Physical and Environmental Forces•Technological constraints may make it difficult to build a large global marketsome developing nations have such primitive transportation and storage systems that international distribution is ineffectivecertain technological differences affect exportable products (such as the difference between 110 and 220 voltage)27/42Trade Protectionism •Trade Protectionism•The use of government regulations to limit the import of goods and services•Advocates believe that trade protectionism allows domestic producers to survive and grow, producing more jobs•Affects the overall political atmosphere between nations28/42Trade Protectionism (cont.)•Mercantilism•Selling more goods to other nations than you bought from them•Tariffs can save jobs and protect the country’s infant industries.29/42Trade Protectionism (cont.)•Protective Tariffsimport taxes designed to raise the price of imported products so that domestic products can be more competitively priced.•Revenue Tariffsdesigned to raise money for the government30/42Trade Protectionism (cont.)•Import Quotaa limit on the number of products in certain categories that a nation can import•Embargoa complete ban on the import or export of a certain product or stopping all trade with a particular country (example: the U.S. embargo against trade with Cuba since 1962.)31/42Trade Protectionism (cont.)•Global trade is also limited by Nontariff BarriersJapanese companies have semi-permanent ties -KEIRETSU, with suppliers, customers, and distributorsovercoming trade constraints creates business opportunities32/42Trade Protectionism (cont.)•WORLD TRADE ORGANIZATION (WTO)created on January 1, 1995replaced the General Agreement of Tariffs and Trade assigned the duty of mediating trade disputes33/42Common Markets•Common Market (trading bloc)a regional group of countries that have a common external tariff, no internal tariffs, and the coordination of laws to facilitate exchange among member countries34/42Common Markets (cont.)•The EUROPEAN UNION (EU)27 countries in EuropeWorld’s second largest economyobjective -Europe a stronger competitorJanuary 2001 -EURO -eliminated currency conversion problems; saved billions of dollars35/42European Union36/42Common Markets (cont.)•MERCOSURa group that includes Brazil, Argentina, Paraguay, Uruguay, Chile, and Bolivia37/42Common Markets (cont.)•North American and Central American Free Trade Agreements•The North American Free Trade Agreement (NAFTA)created a free-trade area among the United States, Canada, and Mexico, signed in 199438/42Common Markets (cont.)•Objectives of NAFTAelimination of trade barrierspromote conditions of fair competitionincrease investment opportunitiesprovide protection of intellectual property rightsestablish a framework for further regional trade cooperationimprove working conditions in North America39/42Common Markets (cont.)•The Central American Free Trade Agreementfree-trade zone with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragualost jobs ?will open markets and reduce trade regulationsstalled due to U.S. political considerationsdividing itself into major trading blocks40/42The Future of Global Trade•Future of Global Trade •Technology made distant markets instantly accessible, particularly CHINAmajor customer for commodities such as steel, cement, and oilSince being admitted to the WTO in 2001, China has cracked down on piracy and counterfeiting41/42The Future of Global Trade (cont.)•Outsourcing•The purchase of goods and services from sources outside a firm•Simplified manufacturing overseas•―Second wave‖ involves more skilled, well-educated workers42/42The Future of Global Trade (cont.)•Globalization and your future•Students -study foreign languages, foreign cultures, and international businesses•Small and medium-sized businesses -be better prepared to enter global markets