BUSINESS IN GLOBAL MARKETS-2

Getting involved in global tradePeople interested in finding job in international business

often think of firms like Boeing, Ford, IBM, and Du Pont that have large multinational accounts.

But the real job potential in global markets may be with small businesses.

Getting started is often a matter of observation, determination and risk.

First of all, it is important to observe and study global markets. the college library, and the internet are good starting points for doing research.

Travel is a way to learn about cultures and lifestyles in other countries. It can also be a source of business inspiration.

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Global TradeGoods & ServicesImportingExporting

Measuring Trade Balance of Trade/PaymentsTrade Deficit

BASIC STAGES IN GLOBAL BUSINESSEXPORTING, IMPORTING, COUNTERTRADING

FRANCHISING, FOREIGN LICENCING, SUBCONTRACTING

OVERSEAS MARKETING, OVERSEAS PRODUCTION, INT’L JOINT VENTURES, INT’L MERGERS AND ACQUISITIONS

IMPORTING : BUYING FOREIGN GOODS AND SERVICES FROM OTHER COUNTRIES TO BE SOLD IN THE LOCAL MARKET

EXPORTING : SELLING DOMESTICALLY PRODUCED GOODS AND SERVICES TO OTHER COUNTRIES

BALANCE OF TRADE : THE RELATIONSHIP BETWEEN A COUNTRY’S IMPORT AND EXPORT* TRADE DEFICIT : EXPORT < IMPORT (UNFAVORABLE)* TRADE SURPLUS: EXPORT > IMPORT (FAVORABLE)

Importing goods and servicesCan you think of goods and services currently not

available in our economy that might appeal to Turkish customers?

Howard Schultz the owner of Starbucks, while traveling in Italy he came to appreciate the special sense of community the neighborhood coffee and espresso bars enjoyed in Italian communities. When he returned home to The US, he purchased the Starbucks coffee shop in Seattle and proceeded to build into an international phenomenon.

Today Starbucks has stores around the world.

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Getting involved in global trade

Exporting goods and servicesYou can sell just about any goods or services to

other countries as long as you make good quality products.

When you export products or services, you may need to adapt them to the country you sell?

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Getting involved in global trade

Measuring global trade In measuring the effectiveness of global trade

nations should carefully follow two indicators: balance of trade and balance of payments.

Balance of trade is a nation’s relationship of exports to imports.

A favorable balance of trade, or trade surplus, occurs when the value of a country’s exports exceeds that of its imports.

An unfavorable balance of trade, or trade deficit, occurs when the value of the country’s import exceeds that of its exports. That is why countries prefer to export more than they import.

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Getting involved in global trade

Measuring global tradeThe balance of payments is the difference between

money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

The goal is always to have more money flowing into country than flowing out.

A favorable balance of payments means more money is flowing into a country than flowing out. Conversely, an unfavorable balance of payments is when more money is flowing out of country than coming in.

Measuring global tradeTo make sure that trade is conducted fairly

on global basis, different countries enforce laws to prohibit unfair practices such as dumping.

Dumping is the practice of selling products in a foreign country at lower prices than those charged in the producing country.

Companies use this technique to reduce surplus products in foreign markets or to gain foothold in a new market.

BALANCE OF PAYMENTS:OVERALL MONEYFLOW INTO OR OUT OF A COUNTRY

* BALANCE OF PAYMENT SURPLUS : INCOMING MONEYFLOW > OUTGOING MONEYFLOW

* BALANCE OF PAYMENT DEFICIT :INCOMING MONEYFLOW < OUTGOING MONEYFLOW

EXCHANGE RATES VALUE OF NATION’S LOCAL CURRENCY IN

RELATION TO THE CURRENCIES OF OTHER COUNTRIES

NECESSARY DOCUMENTS IN FOREIGN TRADEINVOICEPACKING LISTINSURANCE POLICYBILL OF LADINGCUSTOM PAYMENT RECEIPT

DELIVERY TERMSDELIVERY TERMSEXWORKSFREE ON BOARD(FOB)COST AND FREIGHT (CF)COST, INSURANCE AND FREIGHT (CIF)

PAYMENT TERMSPAYMENT TERMSCASH WITH ORDERLETTER OF CREDIT(LC)CASH AGAINST DOCUMENTS(CAD)CASH AGAINST GOODS (CAG)BARTERING

The pros and cons of free tradePros

The global market contains over 6 billion potential customers for goods and services

Productivity grows when countries produce goods and services in which they have a comparative advantage

Global competition and lower cost imports keep prices down

Open trade encourages innovation, with fresh ideas coming from foreign markets

Uninterrupted flow of capital give countries access to foreign investments, which keeps interest rates low. 3-

The pros and cons of free tradeCons

Domestic workers in manufacturing and service sectors lose jobs due to increased imports or production shifts to global markets

Workers can face pay-cut demands from employers

Competitive pressure often makes services and goods better quality

Domestic companies can lose their comparative advantage when competitors build advanced production operations in low wage countries

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Strategies for Reaching Global Markets Licensing

Exporting

Franchising

Contract Manufacturing

Joint Ventures

Strategic Alliances

Subsidiaries-MNCs

Foreign Direct

Investment

Licensing: a firm (the licensor) may decide to compete in global market by licensing the right to manufacture its products or use its trademark to a foreign company for a fee of loyalty

A company with an interest in licensing generally needs to send company representatives to the foreign producer to help set up the production process.

The licensor may also assist or work with a licensee in such areas as distribution and promotion.

Strategies for Reaching Global Markets

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FranchisingContract manufacturing involves a foreign country’s

production of private-label goods to which a domestic company then attaches its own brand name or trademark.

A contract manufacturer ("CM") is a firm that manufactures components or products for another "hiring" firm.

Levi-Strauss and Nike practice contract manufacturing. Contract manufacturing often enables a company to experiment in a new market without incurring heavy start up cost.

A firm can also use it temporarily to meet an unexpected increase in orders.

Contract manufacturing is also called outsourcing

Strategies for Reaching Global Markets

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International joint ventures: a joint venture is a partnership in which two or more companies (often from different countries) join to undertake a major project. Koç-Allianze insurance company.

Companies participating joint ventures grow faster than those not participating.

Strategies for Reaching Global Markets

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Sometimes joint ventures are mandated by governments. For example, it is often hard to gain entry into a country like China, whose economy is centrally planned, but agreeing to a joint venture can help a firm gain such entry.

Most joint ventures are usually limited to specific time frame. However, some extend many years as in the case of Xerox and Fuji photo film company.

Strategies for Reaching Global Markets

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Advantages of international joint venturesShared technologyShared management and marketing

expertiseEntry into markets where foreign

companies are not allowed unless their goods are produced locally

Shared riskOne obvious disadvantage is that a partner

can learn the other’s technology and practices and then go off on its own as a competitor.

Strategies for Reaching Global Markets

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Strategic alliance is a long term partnership between two or more companies established to help each company build competitive market advantages.

Such alliances can provide access to markets, capital, and technological expertise.

Unless joint ventures, strategic alliances do not share costs, risks, management or even profits.

Many executives and management consultants predict that few companies in the 21 st century will not succeed in the global market by going it alone, most will need strategic alliances.

Computer giant Oracle has strategic alliances with more than 15,000 companies, one of which is Ford.

Strategies for Reaching Global Markets

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Foreign subsidiary is a company that is owned in a foreign country by another company (called parent company).

Such a subsidiary would operate much like a domestic firm, with production, distribution, promotion, pricing, and other business functions are under the control of the foreign subsidiary's management.

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Advantage of a subsidiaryThe company has complete control over

any technology or expertise it may posses. Food giant Nestle is an example for a firm with many foreign subsidiaries.

Disadvantage of a subsidiaryParent company is committing a large

amount of funds and technology within foreign boundaries. If relationships with the host country falter, the firm’s assets could be taken over by the foreign government.

Strategies for Reaching Global Markets

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Foreign direct investment is the buying of permanent property and business in foreign nations.

In 1980’s the surge in foreign direct investment by countries such as Japan caused much concern in the US.

Japan owns American landmarks such as Rockefeller Center and Columbia pictures.

Foreign direct investment can be viewed as a sign of strength in a nation’s economy.

The time to worry is when investors no longer find a country attractive.

Strategies for Reaching Global Markets

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Starbucks Around the World

74%

26%

International U.S.

30%

25%15%

1%

6%

23%Japan

U.K.

Taiwan/China

Mid-East

Europe

All Others

World Locations International Locations

Source: Business 2.0, July 2002.

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Sources of U.S. Oil Imports

307

471

495

509588

Saudi Arabia

Mexico

Canada

Venezuela

Nigeria

In Millions of Barrels

Source: USA Today

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Sources of Foreign Direct Investments In the U.S.

Other4%

Japan5%

Canada11%

Asia13%

Latin America

17%Britain

18%

Europe minus Britain

32%

Source: U.S. Commerce Dept.