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Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University.

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Presentation on theme: "Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University."— Presentation transcript:

1 Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University

2 Chapter Objectives 1. Define what the meaning of trade and internationalization are. 2. Discuss the absolute and comparative advantage of a country 3. Define the ways to be global 4. Compare these ways based on profit, risk and control 5. Explain the barriers a company can face when it wants to be global 5-2

3 Why Do Countries Trade? Countries trade with other countries is because Countries are capable of answering various demands of their citizens in efficient way using their resources.

4 Absolute & Comparative Advantage Absolute advantage; some countries efficiently produce goods and services at lower costs than other countries. In this case these countries more control over the prices. The Republic of South Africa has a monopoly in diamond mining. China has a absolute advantage in silk production. Comparative advantage; some countries produce specific products comparatively efficiently and at a lower cost than the other countries. These countries has comparative advantage

5 What is the meaning of Internationlization?

6 The Ways to Be Global There are many ways to be global. These are, Importing / Exporting Franchising Licensing Subcontracting Joint venture Overseas Marketing International Merger & Aqusition Overseas Production ( Foreign Direct Investment)

7 Importing & Exporting Importing; local businesses buy foreign goods and services from other countries to be sold in the the local market. Exporting; local businesses sell domestically produced goods and services to foreign countries. Direct export; selling the finished products to the foreign countries. Ex. Car Indirect export; selling the components as an input for finished product. Ex. Tires

8 Balance of Trade The relationship between a country’s export and import If a country’s export is more than its import, this situation is called as trade surplus. If a country’s export is less than its import, this situation is called as trade deficit.

9 Balance of Payments The relationship between inflow and outflow money. If inflow money into the country is more than outflow money from the country, this situation is called as balance of payment surplus. If inflow money into the country is less than outflow money from the country, this situation is called as balance of payment deficit.

10 Exchange Rates Exchange rate; is a value of a nation’s local currency in relation to the currencies of the other countries. Fixed exchange rate; The exchange rate is determined by the government Floating exchange rate; The exchange rate is determined by demand Devaluation; sometimes goverments reduce the value of their local currency to other currencies.

11 Contractual Agreements: Franchising, Foreign Licensing, Subcontracting Franchising; Manufacturers give a local business the right to sell their products under the their globally registered brandname. Foreign Licensing; Under the contracted licensing agreement, the manufacturer allows the local business to use its intellectual property in return for compensation in form of royalities. Subcontracting; The foreign companies hire local companies to produce, sell or distribute goods and services.

12 International Investments: Joint Ventures, Overseas Marketing, Overseas Production, International Merger and Acqusition Joint Ventures; The companies in different countries share the risks, costs, profits and management responsibility by utilizing their resources and capabilities to serve in any one of the international market.

13 Overseas Marketing; sellers or manufacturers opens and owns a sales office or division in foreign countries. They imports goods from home countries and sell them in foreign countries. Overseas Production (Wholly Owned Facilities); The sellers or manufacturers make production in the overseas countries where they want to sell their product

14 International Merger & Acquisition; Merger; A merger occurs when two companies combine to form a single company. Vertical merger; A vertical merger is one in which a firm or company combines with a supplier or distributor Horizantal Merger; A horizontal merger is when two companies competing in the same market merge or join together

15 An acquisition or takeover (Foreign Direct Investment); is the purchase of one business or company by another company or other business entity In international merger & acqusition; Foreign company purchases a local company or combines with local company to opreate its business in the area where it wants to enter.

16 Stages of Global Business Involvement Import / Export Contractual Agreements Importing Exporting Franchising Foreign Licensing Subcontracting Risk &Profit Control International Investment International Joint Ventures Overseas Marketing Overseas Production International Merger & Acqusitions

17 Barriers in Global Business When a business decides to be global, it will face to face many risks. These risks are divided into two groups: Natural barriers (Natural risks), Physical barriers: one important physical barrier is the location of trading companies that affects the amount of business. Social and Cultural Barriers; people of the world have different beliefs, attitudes, values, languages. What is considered right for a person in one nation may not be welcomed by others in different nations.

18 Man – Made / Artifical Barriers Manmade barriers are artifical barriers to prevent international trading. Because of different reasons, countries create different obstacles to prevent their economy. There are mainly two types of artifical barriers. These are; Economical Barriers Political and Legal Barriers

19 Economical Barriers Tariffs: Customs taxes, duties or charges on imported goods are called tariffs. Tariffs make the imports more expensive for local customers and usually lead them to purchase less expensive domestix products. Trade restrictions: These are non –tariff barriers that restrict imports by setting adminstrative regulations and rules.

20 Quotas: they restrict the amount of the particular important commodities into a country for a specific period of time. Limits may be put on quatities and value. Embargo: Stopping trade with a particular country. Custom administrative regulations: In this barrier, setting unnecessary and irrational bureaucratic rules for imported products.

21 Political and Legal Barriers Governments may also restrict the free international trade by creating difficulties in entry regulations for some countries, while facilitating the same for others. A company should investigate the legal structure of a country where it wants to enter. It will never enter the country which does not accepts international law and decisions of international courts


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