1. Competing in Global Markets
Chapter 4
Competing in Global Markets
Products I used today!

2. People’s Car

3. Bangladeshi Organizations Trading Internationally
Why Nations Trade
Boosts economic growth
Import: Required resources
Export: Expands markets, Growth
More efficient production systems
Less reliance on economies of home nations
Exports: Domestically produced goods and services sold in markets in other countries.
Imports: Foreign-made products and services purchased by domestic consumers.

4. International Sources of Factors of Production
Decisions to operate abroad depend upon availability, price, and quality of:
Labor
Natural resources
Capital
Entrepreneurship
Companies can spread risk throughout nations

5. Size of the International Marketplace
As developing nations expand into the global marketplace, opportunities grow
Many developing countries have posted high growth rates of annual GDP
United States 4.4%
China 11.1%
India 9.4%

6. Population 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.

7. Top Ten Trading Partners With the United States

8. Absolute 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.

9. Measuring Trade Between Nations
Balance of trade
Difference between a nation’s imports and exports.
Balance of payments
Overall flow of money into or out of a country.
Balance of payments surplus = more money into country than out
Balance of payments deficit = more money out of country than in

10. Major 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.

11. Assignment 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)

12. Exchange Rates Currency Rates are influenced by:
Domestic economic and political conditions
Central bank intervention
Balance-of-payments position
Speculation over future currency values
Values 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.

13. Barriers to International Trade
Green-tea flavored Hershey Kisses

14. Social 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.

15. Economic Differences
Infrastructure: 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.

16. Political and Legal Differences
Political Climate
Stability is a key consideration.
Legal Environment
U.S. law
International regulations
Country’s law
Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.
International Regulations
Treaties between U.S. and other nations.
Tariffs are taxes charged on imported goods.
Enforcement problems, as with piracy

17. Government Corruption

18. Types 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 barriers
Quotas 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 all
Exchange controls through central banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

19. Reducing Barriers to International Trade
The world is moving toward more free trade.
There are many communities and groups that monitor and promote trade
International 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.

20. Organizations Promoting Intl Trade
General Agreement on Tariffs and Trade (GATT)
Most industrialized nations found organization in 1947 to reduce tariffs and relax quotas
The World Trade Organization succeeded GATT
Representatives from 151 countries
Reduce tariffs and promote trade
World Bank
Funds projects to build and expand infrastructure in developing countries
International Monetary Fund (IMF)
Operates as lender to troubled nations in an effort to promote trade

21. International 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 Union
Best-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.

22. South 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, Pakistan
The Agreement on SAARC Preferential Trading Arrangement (SAPTA)[2] 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.

23. Going Global What foreign market(s) will the company enter?
Analysis of local demand, availability of resources
Existing and potential competition, tariff rates, currency stability, investment barriers
What 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

25. International Trade Research

26. Levels of Involvement Risk increases with the level of involvement
Many companies employ multiple strategies
Exporting and Importing are entry-level strategies
Importing is the process of bringing in goods produced abroad
Exporting is the act of selling your goods overseas.

27. Countertrade & 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 product
Subcontracting involves hiring local firms to distribute, produce or sell goods and services.

28. Offshoring & Direct Investment
The relocation of business processes to a lower-cost overseas location is offshoring
Not initiating business but gaining cost savings
Extremely controversial
The ultimate level of global involvement is direct investment
Directly operating production and marketing in foreign country.
Acquisition
Joint Ventures
Overseas Division

29. Multinational Corporations
Multinational corporation (MNC) An organization with significant foreign operations and marketing activities outside its home country.

30. Developing a Strategy for Intl. Business
Global Business Strategies
Firm sells same product in essentially the same manner throughout the world.
Works well for products with nearly universal appeal.
Multidomestic Business Strategies
Firm 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.

31. IOA- Chapter 2,4, 5 (Revised) Duration- 11th June to 17th June
Assignment
IOA- Chapter 2,4, 5 (Revised)
Duration- 11th June to 17th June

32. Learning Goals
Explain 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. 1 5 2 6 3 7 4