Global AnalysisChapter 4

Nature of International Trade• What are some items you have seen that

were made or manufactured in some other country?

• Marketplace existence– The need for trade

• International trade– The exchange of G’s & S’s among nations– Imports

• Purchased from other countries– Exports

• Sold to other countries– Controlled by the governments involved

Interdependence of Nations• Write down 1 commodity that you believe we generally

purchase as an import. – Top Imports– Why have imports?

• Unique resources and capabilities• Absolute advantage

– Occurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possible

» China – produces 80% of all silk = absolute advantage• Comparative advantage

– The value that a nation gains by selling what it produces most efficiently

» Well suited for their country – low skilled labor???

Benefits of International Trade

• Consumers

• Producers

• Workers

• Nations

• Competition that the foreign companies offer – encourages high-quality and low prices

• Producers can expand by conducting operations in other countries – 1/3 of profit of US businesses

• Can lead to higher employment rates home and abroad– Toyota = over 50million jobs in US

• Nations benefit due to increased foreign investment = increased standard of living and options

Government Involvement of International Trade

• All nations control and monitor their trade

• United States– Monitors imports through the customs

division of the U.S. Treasury Department– Imports subject to search and review– Exports (and international traveling) must

meet customs requirements

Government Involvement of International Trade

• Balance of Trade– The difference in value between exports and imports of

a nation (AKA Net exports)– Positive Balance of Trade = Surplus– Negative Balance of Trade = Deficit

• US = largest exporter AND large trade deficit• Consequences

– Reduction in GDP– Debt– Increased unemployment– To survive, US relies on foreign investors to buy US Securities

Government Involvement of International Trade: Trade Barriers

Tariff Quota Embargo

• AKA duty• A tax on imports• Used to produce

revenue• Minimal in US

Protective tariff• Generally high• Purpose: to increase

price of imports for domestic competition

• Limits quantity or value of a product that may be imported

• Purpose: to control quantity imported for domestic competition

• Also can be used strategically to improve relations (limit exports)

• Total ban on specific goods coming in or out

• US embargoed Chilean grapes in 1989 (1 wk)

• Political differences• US lifted its 30 year embargo with

Vietnam in 1994

• Protectionism• Restriction of imports in order

to protect domestic industries• Subsidies

• Gov’t funds to industries to compete

• Most noted: agriculture• Excess to export at low cost

Free trade is favored; however, barriers are placed to limit trade

Government Involvement of International Trade: Trade Agreements and Alliances

World Trade Organization (WTO) North American Free Trade Agreement (NAFTA)

European Union (EU)

• Coalition of nations that makes rules governing international trade

• WTO was created to police the agreements by GATT (General Agreement on Tariffs and Trade)

• Supporters believe globalization and expansion of trade increased wealth

• Maintained and expanded through a borderless economy

• Minimizing trade wars• Critics are concerned with

democracy, labor rights, environment

• An international trade agreement among the US, Canada, and Mexico

• Main goal: get rid of all trade barriers and investment restrictions among the three by 2009

• Canada and Mexico were top purchasers of US exports in 2010 (32.2%)

• Canada and Mexico were 2nd & 3rd top importers to US in 2010 (26.5%)

• Created to establish free trade among member nations, single currency (Euro), and a central bank

• Everything that the EU does is founded on treaties, voluntarily and democratically agreed by all member countries.

Governments make agreements with each other to establish guidelines

Review

1. Explain the nature of international trade2. What are the two key reasons why

embargoes are imposed?3. What is the common goal or purpose of

the WTO, NAFTA, and the EU trade agreements

Global Environmental Scan

• Environmental scan involves looking at the outside influences that may have an impact on an organization.– (PEST)– How would you use those factors to evaluate a

country’s marketing opportunities and threats?

PESTPolitical Factors

– Government stability• Changes in the government=reluctant investors

–Madagascar

– Trade regulations and laws• Reduced tariffs, laws to protect intellectual property,

increase in percentage of business ownership allowed by foreign investors

–China

PESTEconomic Factors

• Infrastructure– Telephone service, roads, energy plants,

telecommunication• Bad for some companies, good for others?

• Labor Force– Quality and cost of labor: education and skills,

customary wages, employment laws• Employee Benefits

– Most countries require companies to provide/pay

PESTEconomic Factors

• Taxes– On property and profit (reduced for a specified time?)

• Standard of Living– Income to sustain the company (products)

• Foreign Exchange Rate– Changes daily

PESTSocio-cultural Factors

• Cross cultural analysis− Language and symbols

−Differences in language and customs, symbols

− China: 4=Death, sets of 6 or 8 instead

− Holidays and Religious Observances− India= Cow is sacred – McDonald’s

− Social and Business Etiquette− Gift giving expectations vs. illegal

PESTTechnological Factors

• Most basic (voltage) to high tech– Country Profiles – World Factbook– Baidu vs. Google

Global Marketing Strategies• In planning and making decisions about

the marketing mix, global marketers need to consider all the factors analyzed for the environmental scan (PEST)

• Globalization– Selling the same product and using the same

promotion methods in all countries• Small portion can get away with this = global

brand recognition (Coke, MS)

• Adaptation• Customization

Chapter 5

Supply and Demand

Demand and Supply

• P = Price• Qd = Quantity

Demanded• Qs= Quantity SuppliedWhere is the equilibrium point?

Price and Quantity on Y and X axis

Equilibrium: Supply and Demand Graphed

Demand and Supply

• Full curve is considered Demand and/or Supply. Each point is considered the quantity demanded or quantity supplied at that particular price.

Non-Price Determinants

Demand• Number of buyers• Tastes and Preferences• Income• Complementary • Substitutes • Future Expectations

Supply• Number of Suppliers• Input prices• Future Expectations• Technology• Taxes and Subsidies• Weather conditions (as

appropriate)

Decrease in Demand

Increase in Demand

Increase in Supply

Decrease in Supply

What curves and what changes would the following cause?

1. Increase in number of competitors in an area

2. Increase in number of buyers of hotdogs in the hotdog roll market

3. Advertising increase in a competitors good (semi-equal substitute)

4. Freezing conditions in the south affecting orange crops

5. Income rises affecting the market for luxury cars

6. Increase of the cost of wood affecting the market for building sheds

7. Subsidy provided for wheat affecting the bread market

8. Price of oil goes down affecting the market for gasoline