1. Chapter 3: THE WORLD MARKETPLACE
Business without Borders

2. AN UNPRECEDENTED OPPORTUNITY
With technology and telecommunications booming, and trade barriers falling, the economic boundaries between nations have begun to blur.
Note the impact of technology on the speed in which globalization is currently growing. Discuss why technology breaks down international barriers.

3. WORLDWIDE ECONOMIC GROWTH
The opportunities around the world are growing. The number of people of with cell phones is a big indicator. Cell phone penetration in China and India is skyrocketing million in China which is going to double in the next 5 years and 55 million in India which is a 900% increase.

4. KEY REASONS FOR INTERNATIONAL TRADE
Access to Factors of Production
Reduced Economic Risk
Innovation
Competitive Advantage
Emphasize that globalization provides a variety of new opportunities for companies to gain access to new customers, creative/cheap labor and inexpensive infrastructure for facilities.
Decisions to trade require countries to look at the opportunity cost.

5. COMPETITIVE ADVANTAGE
Opportunity cost –The cost of giving up the second-best choice when making a
decision.
A country has an
absolute advantage when
It can produce more of a
good than other nations,
using the same amount
of resources.
Comparative
advantage - the
benefit a country
has in a given industry if
it can make products at a
lower opportunity
Cost.

6. GLOBAL TRADE: TAKING MEASURE
Balance of Trade
Trade Deficit
Trade Surplus
Balance of Payments
Balance of Payments Deficit
Balance of Payments Surplus
Exchange Rates
Countertrade
Click the Internet icon to review trade statistics. The website is interactive and will allow you to select the statistics that you would like to view.

7. EXCHANGE RATES: WHO BENEFITS?
STRONG DOLLAR VS EURO:
(Example: $1.00 = 1.20 euros)
WEAK DOLLAR VS. EURO:
(Example: $1.00 = .60 euros)
U.S. travelers to Europe
European travelers to U.S.
American firms with European operations
European firms with American operations
European exporters
American exporters
Discuss the measures of trade and what it means that the dollar is weak. How does that impact customers? American consumers? American businesses?
U.S. travelers to Europe: Dollar buys more in Europe.
American firms with European operations: Operating costs are lower.
European exporters: Europe products are less in US, they export more and we import more.
European travelers to the U.S.: Euro buys more in America.
European firms with American operations: Operating costs are lower.
American exporters: Products are less expensive in Europe, we export more, Europe imports more.

8. STRATEGIES FOR FINDING GLOBAL SUPPLIERS
Foreign Outsourcing/Contract Manufacturing – contracting with
Foreign suppliers to produce products, usually at a fraction of the domestic cost.
Importing – buying products that have been produced or grown in foreign nations.
Note the examples in the text and the relationships that Gap, Apple and other domestic companies have with foreign manufacturers. Note how technology has made it easier and more efficient to work with foreign partners.
Click link to view a China Manufacturers’ website and global sourcing services they offer.

9. STRATEGIES FOR REACHING GLOBAL MARKETS
Licensing
Authority given by domestic firm for rights to produce/market its product and use trademarks/patents.
Franchising
Offering businesses in other countries the right to produce and market products under its operating requirements.
Direct Investment
Firms acquire businesses or develop new facilities in foreign countries.
The links will take you to the websites of Kentucky Fried Chicken (right) and McDonalds (left). Note to students the cultural differences on the websites of the different fast food companies. In South Africa all of the children are black and the sport being shown is soccer.
What have been you experiences with fast-food in other countries?
Many companies may also decide to employ a variety of strategies to reach global markets. These strategies may also include partnerships.

10. THE SLEEPING DRAGON AWAKES
After years closed off from the world, China is experiencing economic growth of approximately 10% per year
In one generation, per capita income in China has tripled
300 million have been pulled from poverty
China ranks 3rd in international commerce
China will play a pivotal role in shaping the world economy

11. FOREIGN INVESTMENT RISK

12. MULTINATIONAL FIRMS
Do you know where the firm that ultimately owns each brand is headquartered?
Nestle Quick
Switzerland
Nokia Cell Phones
Finland
Jaguar Automobiles
United States
Click the slide for the answers to each product/company to appear.
Michelin Tires
France
Shell Oil
Netherlands/England
Columbia Records
Japan/Germany

13. BARRIERS TO INTERNATIONAL TRADE
Sociocultural Differences
Economic Differences
Political & Legal Differences
Review Exhibit Click the link to go to the CIA Factbook. Ask the students to suggest several countries and then review their social, economic and political situations. Compare the GDP for each country with the students. Note that the factbook details other potential barriers/issues that may be social/political.

14. SOCIAL/CULTURAL DIFFERENCES
Think beyond the obvious differences.
Social/cultural differences can rapidly undermine business relationships.
Nonverbal Communication
Forms of Address
Attitudes toward punctuality
Religious Celebrations
Business Practice/Gifts

15. OOPS: TRANSLATION GAFFS
“It takes a virile man to make a chicken affectionate”
Perdue Farms slogan “It takes a tough man to make a chicken tender” translation in Mexico.
Irish Manure Liquor, Silver Dung Rolls Royce?
Several foreign companies have introduced products in Germany with the word “mist” which roughly translates into “dung” or “manure”
“Nothing sucks like an Electrolux”
Electrolux, a Swedish maker vacuum cleaners, introduced their vacuums in the U.S. with a literal translation of their slogan.

16. ECONOMIC DIFFERENCES Exchange Rates Population Per Capita Income
Infrastructure
Transportation
Communication
Energy Finance
Can you profitably provide your product or service to meet the needs of the market?
Companies will need to think about internet access and electronic payment availability.
Most companies have figured out innovative versions of their product that are profitable in foreign markets.

17. POLITICAL & LEGAL DIFFERENCES
Political regimes differ around the world
Legal Differences
Lack of Enforcement
Bribery
Political Climate
Stability
Violence
Piracy and intellectual property is a problem in several foreign nations

18. PROTECTIONISM Reasons to Create Trade Restrictions
Reasons to Eliminate Trade Restrictions
Protect domestic industry
Reduce prices and increase choices for consumers
Protect domestic jobs in key industries
Increase domestic jobs
Retaliate against countries who have engaged in unfair trade practices
Build exporting opportunities
Pressure other countries
Use world resources more efficiently

19. TRADE RESTRICTIONS Tariffs Quotas Voluntary Export Restrictions
Embargo

20. United States to other countries
GLOBAL EMPLOYMENT “
A new study suggests that 2.3 million service jobs will have moved from the
United States to other countries
by 2008, up from 900,000 as of 2003. “

21. REVERSE BRAIN DRAIN
Many talented immigrants are moving home to take advantage of new economic opportunities.
US companies can cut costs by sourcing employees from overseas.
But is America losing potential innovators such as Sergey Brin, founder of Google?

22. FREE TRADE: THE MOVEMENT GAINS MOMENTUM
There has been a global move toward free trade – the unrestricted movement of good and services across borders.

23. GATT AND WORLD TRADE ORGANIZATION (WTO)
General Agreement on Tariffs & Trade (GATT)
Established in 1948
Now encompasses 125 nations
Slashed tariffs by about 30%
World Trade Organization (WTO)
Promote International Trade
Settle Trade Disputes
Note the recent controversies of the WTO.

24. FREE TRADE The World Bank The International Monetary Fund
184 Member Countries
Reduce World Poverty in Developing World
Influence Global Economy
Provide Financial Assistance
Low interest loans
The International Monetary Fund
Support Stable Exchange Rates
Facilitate International Payments
Adopt Economic Policies
Promote Trade
Organizations believe that trade is important to eradicate poverty.

25. TRADING BLOCS/COMMON MARKETS
Groups of Countries promoting the free flow of goods and services
The North American Free Trade Agreement (NAFTA)
The largest trading bloc
US, Canada, Mexico
European Union (EU)
The largest common market
Note EU membership and the countries planning to join.