1. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-1 ChapterThree Competing in Global Markets

2. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-2 Growing World Population In Billions Source: Source: Population Reference Bureau

3. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-3 U. S. Trade in Goods & Services ($ Billions) Source: St. Louis Business Monthly, Oct. 1999

4. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-4 Company % of Earnings From Outside U.S. Source: Investment Advisor, August 2000

5. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-5 Why Trade With Other Nations?  Reasons  No nation can produce all its needs  Mutually beneficial exchange  Natural Resources or Technology- Produce or Buy?  Free Trade  Theories of Advantage

6. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-6 Theories of Advantage Absolute Output per Unit of Input Diamond Production South Africa The Rest of the World = Virtual Monopoly

7. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-7 Theories of Advantage Output per Unit of Input Comparative U. S. China Software China Clothing

8. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-8 Specialize & Trade Software Clothing

9. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-9 Checklist for Exporters n Analyze your capabilities n Define export potential of product n ID best foreign markets for product n Use available government assistance n Study entry strategies/export procedures

10. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-10 Developing Countries Need n 1.2 billion people lack clean drinking water n 2 billion people lack electricity n 3 billion people lack adequate sanitation Infrastructure Corporate investment in infrastructure rose 10- fold in 1990’s Source: Business Week, May 3, 1999

11. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-11 Percentage of Households With: Source: Gallup India PVT, LTD.

12. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-12 China’s Telecom Growth Users in millions Source: Wired, September 2000.

13. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-13 Import Goods- Money Goes Out of Country

14. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-14 Export Goods- Money Comes Into the Country

15. Trade Deficits/Surpluses- Balance of Trade(1999)  U. S. Exports to Japan  Food/Beverages  Raw Materials  Chemicals & Pharmaceuticals  $58.6 Billion

16. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-16 Balance of Trade 1999 (cont’d)  Japan Exports to U.S.  Computers & Telecommunications  Cars/Trucks  Consumer Products  Semi-Finished Goods  $113.9 B

17. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-17 1999 Balance of Trade $113.9 B Goods From Japan $58.6 B Goods To Japan Dollars to Japan Yen to U.S. $55.3 B U.S. Balance of Payments = Unfavorable

18. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-18 Trading in Global Markets: The U. S. Experience  U. S. Never Been Aggressive at Exporting- intense competition  U. S. Is World’s Largest Exporter  U. S. = Debtor Nation  Foreign Direct Investment –Sign of Strength –“Selling of America”

19. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-19 Modes of Entry into the Global Markets (Figure 3.4)

20. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-20  Licensing  Exporting  Franchising  Contract Manu. Strategies for Reaching Global Markets  Joint Ventures & Strategic Alliances  Subsidiaries  Foreign Direct Investment

21. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-21 Forces Affecting Trading in Global Markets Sociocultural Sociocultural Economic/Currency Shifts Economic/Currency Shifts Legal/Regulatory Legal/Regulatory Physical/Environmental Physical/Environmental Protectionism Protectionism Global E-Commerce Global E-Commerce

22. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-22 Foreign Legal Standards  Foreign Corrupt Practices Act of 1978- U.S. businesses MUST follow U.S. law in conducting business globally  No bribes to secure contract  Legal questions Antitrust Antitrust Labor Relations Labor Relations Patents, copyrights Patents, copyrights Trade Practices Trade Practices Taxes Taxes Product Liability Product Liability Child Labor Child Labor Prison Labor Prison Labor

23. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-23 Cultural Differences in Global Markets  Language  Religion  Values & Attitudes  Aesthetics  Materialism

24. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-24 Did You Know?  In Turkey it’s rude to cross your arms while you are facing someone.  In the Arab world the left hand is considered unclean; don’t eat with it!  In India never pat someone’s head, it’s the seat of the soul.  The Chinese associate gifts such as straw sandals, clocks and handkerchiefs with funerals.

25. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-25 Favorite Campbell Soups Around the World  Britain - Tomato  Japan - Corn  South America - Cream of Asparagus  Australia- Cream of Pumpkin  Hong Kong - Watercress & Duck Gizzard  United States - Chicken Noodle, Cream of Mushroom

26. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-26 Nations That Have Not Converted to the Metric System United States Liberia Yemen Myanmar (Burma) Brunei

27. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-27 What’ the 2 nd Most Valuable Global Business Language Source: Accountemps Poll

28. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-28 Protectionism n Mercantilism n Tariffs –Protective –Revenue n Import Quota & Embargo

29. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-29 Trade Agreements/Unions n General Agreement on Tariffs and Trade (GATT)- WTO n Common Markets/European Union n North American Free Trade Agreement (NAFTA)

30. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-30 Exchange Rates- U. S. Dollars to Other Currencies n $ Goes Down- Increases Demand for U. S. Products –Balance of Trade Improves n $ Goes Up- Decreases Demand for U. S. Products –Balance of Trade Widens

31. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-31 Sources of Foreign Direct Investments In the U.S. Source: U.S. Commerce Dept.

32. McGraw-Hill/ Irwin © 2002 by The McGraw-Hill Companies, Inc. All Rights Reserved. 3-32 Survey of Country Corruption Most Corrupt = 1.0Least Corrupt = 10.0 Source: Business Week, June 14, 1999