International Trade Chapter 4

Nature of International trade International Trade – is the exchange of goods and services among nations. International Trade – is the exchange of goods and services among nations. Imports – are goods and services purchased from other countries. Imports – are goods and services purchased from other countries. Exports – are goods and services sold to other countries. Exports – are goods and services sold to other countries.

International Trade Nature of International Trade Section 4.1 The principle of economic interdependence is fundamental to marketing in a global environment.

Interdependence of Nations Absolute Advantage - a country has natural resources or talents that allow it to produce an item at the lowest possible cost. Absolute Advantage - a country has natural resources or talents that allow it to produce an item at the lowest possible cost. China = 80 % silk worm. Africa= diamonds Saudi Arabia = oil Comparative Advantage – is the value that a nation gains by selling what it produces most efficiently. Better infrastructure, raw materials, and educated labor force. Comparative Advantage – is the value that a nation gains by selling what it produces most efficiently. Better infrastructure, raw materials, and educated labor force.

Benefits of International Trade Consumers, workers, producers, and nations benefit from international trade in different ways. Consumers, workers, producers, and nations benefit from international trade in different ways. COMPETITION = lower prices, better products, variety of products. COMPETITION = lower prices, better products, variety of products. 1/3 of USA profits comes from international trade and foreign investments. 1/3 of USA profits comes from international trade and foreign investments. Workers benefit from higher employment rates Workers benefit from higher employment rates

International Trade Nature of International Trade Section 4.1 The Benefits of International Trade

Government Involvement in International Trade Balance of Trade – the difference between exports and imports. Balance of Trade – the difference between exports and imports. Trade Surplus = nation exports more than imports. Trade Surplus = nation exports more than imports. Trade Deficit = nation imports more than exports. Trade Deficit = nation imports more than exports. Negative Consequences of Trade Deficit = reduces a nations revenue. More money leaves the country. Negative Consequences of Trade Deficit = reduces a nations revenue. More money leaves the country.

Government Involvement in International Trade Trade Barriers Free Trade = commercial exchange between nations that is conducted on free market principles, without restrictive regulations. Free Trade = commercial exchange between nations that is conducted on free market principles, without restrictive regulations. However, to limit trade, countries impose barriers

Trade Barriers 1) Tariffs Tariffs – (sometimes called a duty) is a tax on imports. Revenue producing tariffs first used around 1913 before income taxes.. Tariffs – (sometimes called a duty) is a tax on imports. Revenue producing tariffs first used around 1913 before income taxes.. Discourage trade or make prices/competition fairer = protective tariff. Discourage trade or make prices/competition fairer = protective tariff.

Trade Barriers 2) Quotas Quotas – limits either the quantity or the monetary value of a product that may be imported. Quotas – limits either the quantity or the monetary value of a product that may be imported. Sometimes a country may try to improve relations with another country by placing a quota on itself. Sometimes a country may try to improve relations with another country by placing a quota on itself.

Trade Barriers 3) Embargos Embargos – a total ban on specific goods coming into and leaving a country. Can impose an embargo for health reasons. Embargos – a total ban on specific goods coming into and leaving a country. Can impose an embargo for health reasons. Grapes in 1989 due to poisoned fruit found during inspection. Grapes in 1989 due to poisoned fruit found during inspection. Mad Cow disease Mad Cow disease Political = CUBA Political = CUBA

Trade Barriers Political & Economic Consequences Protectionism – economic policies to protect domestic industries. Protectionism – economic policies to protect domestic industries. Protectionism is the opposite of free trade. Protectionism is the opposite of free trade. Imposing tariffs and quotas is one method of practicing protectionism. Imposing tariffs and quotas is one method of practicing protectionism. Subsides – subsidizing domestic companies allowing them to be more competitive Subsides – subsidizing domestic companies allowing them to be more competitive

International Trade Government Involvement in International Trade Section 4.1 Trade Agreements and Alliances World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) European Union (EU) World Trade Organization (WTO) A global coalition of nations that makes the rules governing international trade. North American Free Trade Agreement (NAFTA) An international trade agreement among the United States, Canada, and Mexico. European Union (EU) Europe’s trading bloc.

Trade Agreement and Alliances Governments make agreements with each other. Governments make agreements with each other. 1. WORLD TRADE ORGANIZATION (WTO) members as of Oct Reduce tariffs and have a common set of trade rules. Reduce tariffs and have a common set of trade rules. Creates a borderless economy. Creates a borderless economy. Set of rules that are universally accepted Set of rules that are universally accepted Critics of WTO raise concerns about democracy labor rights and the environment. Critics of WTO raise concerns about democracy labor rights and the environment.

Trade Agreement and Alliances 2. NORTH AMERICAN FREE TRADE AGREEMENT(NAFTA) Trade agreement between USA, Canada, and Mexico. To eliminate trade barriers and investment restrictions by Immediately tariffs were eliminated on 1000’s of goods. Immediately tariffs were eliminated on 1000’s of goods.

Trade Agreement and Alliances 3. EUROPEAN UNION (EU) – 1992 Europe’s trading bloc Maastrricht Treaty created the EU to establish free trade among the member nations. Establish and conform to the political, economical, and legal standards. Establish and conform to the political, economical, and legal standards. In 2004 ten new members joined including Poland, Hungary, the Czech Republic, and the Slovak Republic. In 2004 ten new members joined including Poland, Hungary, the Czech Republic, and the Slovak Republic.

The Global Marketplace Factors That Affect International Business Section 4.2

The Global Marketplace Doing Business Internationally Section 4.2 Getting Involved with Global Business Importing Exporting Licensing mini-national A midsize or smaller company that has operations in foreign countries. Contract Manufacturing Joint Venture Foreign Direct Investment (FDI) Multinationals Mini-Nationals

DOING BUSINESS INTERNATIONALLY a. Importing: purchasing goods from a foreign country b. Exporting: selling goods to a foreign country c. Licensing – letting another company use a trademark, patent, special formula, company name for a fee or royalty. d. Contract manufacturing – hiring a foreign manufacturer to make your products, according to your specifications.

DOING BUSINESS INTERNATIONALLY e. Joint ventures – a business enterprise that companies set up together  Foreign Direct Investment – establishment of a business in a foreign country  Multinationals – large corporations that have several operations in several countries  Mini-nationals – smaller companies that have operations in foreign countries.

The Global Marketplace Doing Business Internationally Section 4.2 What Happens When Knockoffs Are Sold?

The Global Marketplace Doing Business Internationally Section 4.2 Level of Risk and Control

The Global Marketplace Global Environmental Scan Section 4.2 Political Factors Economic Factors Socio-Cultural Factors Technological Factors Government Stability Trade Regulations and Laws

The Global Marketplace Global Environmental Scan Section 4.2 Political Factors Economic Factors Socio-Cultural Factors Technological Factors Government Stability Infrastructure Labor Force Employee Benefits Taxes Standard of Living Foreign Exchange Rate Economic Indicators Trade Regulations and Laws

The Global Marketplace Global Environmental Scan Section 4.2 Political Factors Economic Factors Socio-Cultural Factors Technological Factors Government Stability Infrastructure Labor Force Employee Benefits Taxes Standard of Living Foreign Exchange Rate Economic Indicators Trade Regulations and Laws Language Symbols Holidays Religious Observances Social Etiquette Business Etiquette

The Global Marketplace Global Environmental Scan Section 4.2 Political Factors Economic Factors Socio-Cultural Factors Technological Factors Government Stability Infrastructure Labor Force Employee Benefits Taxes Standard of Living Foreign Exchange Rate Economic Indicators Trade Regulations and Laws Language Symbols Holidays Religious Observances Social Etiquette Business Etiquette Measurement Systems Computers Faxes Voic Wireless Phones Internet

Globalization – selling the same product and using the same promotion methods in all countries. (Product is sold as is) GLOBAL MARKETING STRATEGIES

How Globalization Works Offer the same version of the product Offer the same version of the product Find a common need that transcends to different cultures Find a common need that transcends to different cultures

GLOBAL MARKETING STRATEGIES a. Globalization – selling the same product and using the same promotion methods in all countries. (Product is sold as is b. Adaptation – the company’s use of an existing product and/or promotion to which changes are made to better suit the characteristics of a country or region.

GLOBAL MARKETING STRATEGIES c. Customization – Creating of an entirely new product for a specific foreign market. e.g. Coca-Cola developed the Smart brand specifically for the Chinese market.

The Global Marketplace Global Environmental Scan Section 4.2 globalization Selling the same product and using the same promotion methods in all countries. customization Creating specifically designed products or promotions for certain countries or regions. adaptation A company’s use of an existing product or promotion from which changes are made to better suit the characteristics of a country or region.

The Global Marketplace Global Environmental Scan Section 4.2 Information About Global Marketing Strategies AdaptationGlobalizationCustomization

The Global Marketplace Global Environmental Scan Section 4.2 Information About Global Marketing Strategies AdaptationGlobalizationCustomization or