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CHAPTER 3: THE WORLD MARKETPLACE
Business without Borders
With technology and telecommunications
booming, and trade barriers falling, the economic
boundaries between nations have begun to blur.
AN UNPRECEDENTED OPPORTUNITY
WORLDWIDE ECONOMIC GROWTH
KEY REASONS FOR INTERNATIONAL TRADE
Access to Factors of Production
Reduced Economic Risk
Innovation
Competitive Advantage
COMPETITIVE ADVANTAGE
A country has an absolute advantage when
It can produce more of a good than other nations, using the same amount
of resources.
Comparativeadvantage - thebenefit a country
has in a given industry if it can make products at a
lower opportunityCost.
Opportunity cost –The cost of giving up the second-best choice when making a
decision.
GLOBAL TRADE: TAKING MEASURE
Balance of Trade Trade Deficit Trade Surplus
Balance of Payments Balance of Payments Deficit Balance of Payments Surplus
Exchange Rates Countertrade
EXCHANGE RATES: WHO BENEFITS?
STRONG DOLLAR VS EURO:(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:(Example: $1.00 = .60 euros)
U.S. travelers to Europe European travelers to U.S.
American firms with European operations
European firms with American operations
European exporters American exporters
STRATEGIES FOR FINDING GLOBAL SUPPLIERS
Foreign Outsourcing/Contract
Manufacturing – contracting with
Foreign suppliers to produce products, usually at a fraction
of the domestic cost.
Importing – buying products that have been produced or
grown in foreign nations.
STRATEGIES FOR REACHING GLOBAL MARKETS
Licensing Authority given by domestic firm for
rights to produce/market its product and use trademarks/patents.
Franchising Offering businesses in other
countries the right to produce and market products under its operating requirements.
Direct Investment Firms acquire businesses or develop
new facilities in foreign countries.
THE SLEEPING DRAGON AWAKES
In one generation, per capita income in China has tripled
300 million have been pulled from poverty
China ranks 3rd in international commerce
China will play a pivotal role in shaping the world economy
After years closed off from the world, China is experiencing economic growth of approximately 10%
per year
FOREIGN INVESTMENT RISK
MULTINATIONAL FIRMS
Shell Oil
Michelin Tires
Jaguar Automobiles
Nokia Cell Phones
Nestle Quick
Netherlands/England
France
United States
Finland
Switzerland
Columbia Records Japan/Germany
Do you know where the firm that ultimately owns each brand is headquartered?
BARRIERS TO INTERNATIONAL TRADE
Sociocultural Differences
Economic Differences
Political & Legal Differences
SOCIAL/CULTURAL DIFFERENCES
Nonverbal Communication Forms of Address Attitudes toward
punctuality Religious Celebrations Business Practice/Gifts
Think beyond the obvious differences.
Social/cultural differences can rapidly
undermine business relationships.
OOPS: TRANSLATION GAFFS
“It takes a virile man to make a chicken affectionate” Perdue Farms slogan “It takes a tough man to make a
chicken tender” translation in Mexico.
Irish Manure Liquor, Silver Dung Rolls Royce? Several foreign companies have introduced products in
Germany with the word “mist” which roughly translates into “dung” or “manure”
“Nothing sucks like an Electrolux” Electrolux, a Swedish maker vacuum cleaners,
introduced their vacuums in the U.S. with a literal translation of their slogan.
ECONOMIC DIFFERENCES
Exchange Rates Population Per Capita Income Infrastructure
Transportation Communication Energy Finance
Can you profitably provide your product
or service to meet the needs of the
market?
POLITICAL & LEGAL DIFFERENCES
Political regimes differ around the world Legal Differences
Lack of Enforcement Bribery
Political Climate Stability Violence
Piracy and intellectual property is a problem in several foreign nations
PROTECTIONISM
Reasons to Create Trade Restrictions
Reasons to Eliminate Trade Restrictions
Protect domestic industry Reduce prices and increase choices for consumers
Protect domestic jobs in key industries
Increase domestic jobs
Retaliate against countries who have engaged in unfair trade
practices
Build exporting opportunities
Pressure other countries Use world resources more efficiently
TRADE RESTRICTIONS
Tariffs Quotas Voluntary Export Restrictions Embargo
GLOBAL EMPLOYMENT
““
A new study suggests that 2.3 million service jobs will have moved from the
United States to other countries by 2008, up from 900,000 as of 2003.
REVERSE BRAIN DRAIN
Many talented immigrants are moving home to take advantage of new economic opportunities.
US companies can cut costs by sourcing employees from overseas.
But is America losing potential innovators such as Sergey Brin, founder of Google?
FREE TRADE: THE MOVEMENT GAINS MOMENTUM
There has been a global move toward free trade – the unrestricted movement of good and services across
borders.
GATT AND WORLD TRADE ORGANIZATION (WTO)
General Agreement on Tariffs & Trade (GATT) Established in 1948 Now encompasses 125 nations Slashed tariffs by about 30%
World Trade Organization (WTO) Promote International Trade Settle Trade Disputes
FREE TRADE
The World Bank 184 Member Countries Reduce World Poverty in Developing World Influence Global Economy Provide Financial Assistance
Low interest loans The International Monetary Fund
Support Stable Exchange Rates Facilitate International Payments Adopt Economic Policies Promote Trade
TRADING BLOCS/COMMON MARKETS
Groups of Countries promoting the free flow of goods and services
The North American Free Trade Agreement (NAFTA) The largest trading bloc US, Canada, Mexico
European Union (EU) The largest common market