3Bangladeshi Organizations Trading Internationally Why Nations TradeBoosts economic growthImport: Required resourcesExport: Expands markets, GrowthMore efficient production systemsLess reliance on economies of home nationsExports: Domestically produced goods and services sold in markets in other countries.Imports: Foreign-made products and services purchased by domestic consumers.
4International Sources of Factors of Production Decisions to operate abroad depend upon availability, price, and quality of:LaborNatural resourcesCapitalEntrepreneurshipCompanies can spread risk throughout nations
5Size of the International Marketplace As developing nations expand into the global marketplace, opportunities growMany developing countries have posted high growth rates of annual GDPUnited States 4.4%China 11.1%India 9.4%
6Population Size and Prosperity Though developing nations generally have lower per capita income, many have strong GDP growth rates and their huge populations can be lucrative markets.
8Absolute and Comparative Advantage Absolute advantage: Country can maintain a monopoly or produce at a lower cost than any competitor.Example: China’s domination of silk production for centuries.Comparative advantage: Country can supply a product more efficiently and at lower cost than it can supply other goods, compared with other countries.Example: India’s combination of a highly educated workforce and low wage scale.
9Measuring Trade Between Nations Balance of tradeDifference between a nation’s imports and exports.Balance of paymentsOverall flow of money into or out of a country.Balance of payments surplus = more money into country than outBalance of payments deficit = more money out of country than in
10Major US Exports and Imports U.S. demand for imported goods is partly a reflection of the nation’s prosperity and diversity.U.S. imports more goods than it exports, but exports more services than it imports.
11Assignment G-C4 Due 6th June Left side: Prepare a graph similar to Figure 4.1 (Top Ten Trading Partners With Bangladesh)Right Side: Prepare a table similar to Table 4.2 of the textbook in the context of Bangladesh(Major BD Exports and Imports)
12Exchange Rates Currency Rates are influenced by: Domestic economic and political conditionsCentral bank interventionBalance-of-payments positionSpeculation over future currency valuesValues fluctuate, or “float,” depending on supply and demand.National governments can deliberately influence exchange rates.Business transactions are usually conducted in currency of the region where they happen.Rates can quickly create or wipe out competitive advantage.
13Barriers to International Trade Green-tea flavored Hershey Kisses
14Social and Cultural Differences Language: Potential problems include mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste.Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.
15Economic DifferencesInfrastructure: Basic systems of communication, transportation, energy facilities, and financial systems.Currency Conversion and Shifts: Fluctuating values can make pricing in local currencies difficult and affect decisions about market desirability and investment opportunities.
16Political and Legal Differences Political ClimateStability is a key consideration.Legal EnvironmentU.S. lawInternational regulationsCountry’s lawClimate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.International RegulationsTreaties between U.S. and other nations.Tariffs are taxes charged on imported goods.Enforcement problems, as with piracy
18Types of Trade Restrictions Tariffs - taxes, surcharges, or duties on foreign products.Tariffs generate income for the government.Protective tariffs raise prices of imported goods to level the playing field for domestic competitors.Nontariff Barriers - also called administrative trade barriersQuotas limit the amount of a product that can be imported over a specified time period.Dumping is the act of selling a product abroad at a very low price.An embargo imposes a total ban on importing a specified product or allExchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.
19Reducing Barriers to International Trade The world is moving toward more free trade.There are many communities and groups that monitor and promote tradeInternational Economic Communities reduce trade barriers and promote regional economic cooperation.Free-trade area: Members trade freely among selves without tariffs or trade restrictions.Customs union: Establishes a uniform tariff structure for members’ trade with nonmembers.Common market: Members bring all trade rules into agreement.
20Organizations Promoting Intl Trade General Agreement on Tariffs and Trade (GATT)Most industrialized nations found organization in 1947 to reduce tariffs and relax quotasThe World Trade Organization succeeded GATTRepresentatives from 151 countriesReduce tariffs and promote tradeWorld BankFunds projects to build and expand infrastructure in developing countriesInternational Monetary Fund (IMF)Operates as lender to troubled nations in an effort to promote trade
21International Economic Communities North American Free Trade Agreement (NAFTA)World’s largest free-trade zone: United States, Canada, Mexico.U.S. and Canada are each other’s biggest trading partners.Central America-Dominican Republic Free Trade Agreement (CAFTA)Free-trade zone among United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.$33 billion traded annually between U.S. and these countries.European UnionBest-known example of a common market.Goals include promoting economic and social progress, introducing European citizenship as complement to national citizenship, and giving EU a significant role in international affairs.
22South Asian Free Trade Area (SAFTA) The Agreement on South Asian Free Trade Area (SAFTA) is an agreement reached on January 6, 2004 at the 12th SAARC summit in Islamabad, PakistanThe Agreement on SAARC Preferential Trading Arrangement (SAPTA) was signed on 11 April 1993 and entered into force on 7 December 1995, with the desire of the Member States of SAARC (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives) to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.
23Going Global What foreign market(s) will the company enter? Analysis of local demand, availability of resourcesExisting and potential competition, tariff rates, currency stability, investment barriersWhat expenditures are required to enter a new market?What is the best way to organize overseas operations?Good starting point for research: CIA’s World Factbook
26Levels of Involvement Risk increases with the level of involvement Many companies employ multiple strategiesExporting and Importing are entry-level strategiesImporting is the process of bringing in goods produced abroadExporting is the act of selling your goods overseas.
27Countertrade & Franchising Countertrade – international transactions that do not involve currency payments but use bartering.Franchising – a contractual agreement where a local entity gains rights to sell the franchisor’s product in the foreign market.A foreign licensing agreement allows a firm to produce or sell its productSubcontracting involves hiring local firms to distribute, produce or sell goods and services.
28Offshoring & Direct Investment The relocation of business processes to a lower-cost overseas location is offshoringNot initiating business but gaining cost savingsExtremely controversialThe ultimate level of global involvement is direct investmentDirectly operating production and marketing in foreign country.AcquisitionJoint VenturesOverseas Division
29Multinational Corporations Multinational corporation (MNC) An organization with significant foreign operations and marketing activities outside its home country.
30Developing a Strategy for Intl. Business Global Business StrategiesFirm sells same product in essentially the same manner throughout the world.Works well for products with nearly universal appeal.Multidomestic Business StrategiesFirm develops products and marketing strategies that appeal to customs, tastes, and buying habits of particular national markets.Example: Spinach, egg, and tomato soup on the menu in KFC’s menu in China.
31IOA- Chapter 2,4, 5 (Revised) Duration- 11th June to 17th June AssignmentIOA- Chapter 2,4, 5 (Revised)Duration- 11th June to 17th June
32Learning GoalsExplain international business and why nations trade.Discuss types of advantage in international trade.Describe measurements of international trade and exchange rates.Identify the major barriers that confront global businesses.Explain how international trade organizations and economic communities reduce barriers to international trade.Compare the different levels of involvement used by businesses when entering global markets.Distinguish between a global business strategy and a multidomestic business strategy.1526374